-----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, MKCwkVYuKq9Lo8jYjFHS5+RrokkELzS4JDw7ac/+ClnklKSI192T4u7CSCvaB6bV MRo6SyNs3EfyfjHIwoubgg== 0001012870-01-501756.txt : 20010831 0001012870-01-501756.hdr.sgml : 20010831 ACCESSION NUMBER: 0001012870-01-501756 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010829 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20010830 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09021 FILM NUMBER: 1727957 BUSINESS ADDRESS: STREET 1: 100 N MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27101 BUSINESS PHONE: 3367705000 MAIL ADDRESS: STREET 1: 100 NORTH MAIN ST STREET 2: P O BOX 3099 CITY: WINSTON SALEM STATE: NC ZIP: 27101 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WACHOVIA CORP DATE OF NAME CHANGE: 19910603 8-K 1 d8k.txt WACHOVIA SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): August 30, 2001 WACHOVIA CORPORATION (Exact name of registrant as specified in its charter) NORTH CAROLINA No. 1-9021 No. 56-1473727 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 100 North Main Street, Winston-Salem, NC 27101 191 Peachtree Street NE, Atlanta, GA 30303 (Address of principal executive offices) Registrant's telephone number, including area code: Winston-Salem 336-770-5000 Atlanta 404-332-5000 Not applicable. (Former name or former address, if changed since last report) Item 5. Other Events On July 27, 2001, Wachovia Corporation completed the sale of its consumer credit card portfolio to Bank One Corporation. Wachovia's financial statements and footnotes, as included in its Annual Report on Form 10-K for the year ended December 31, 2000, have been restated to present the consumer credit card business as discontinued operations. The restated financial statements are included herein as Exhibit 99.1. Item 7. Exhibits. 23 Consent of Ernst & Young LLP 99.1 Restated financial statements and footnotes referred to in Item 5. SIGNATURE 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 hereunto duly authorized. WACHOVIA CORPORATION By: /s/ Robert S. McCoy, Jr. ------------------------------------ Name: Robert S. McCoy, Jr. Title: Vice Chairman and Chief Financial Officer Date: August 30, 2001 EX-23 3 dex23.txt CONSENT OF ACCOUNTANTS Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-3: Nos. 33-2232, 333-79183, 333-90161, Form S-4: No. 333-53344, and Form S-8: Nos. 2-99538, 33-34386, 33-35357, 33-53325, 333-02239, 333-32255, 333-36889, 333-37339, 333-45099, 333-68823, 333-81627, 333-83583 and 333-53344) of Wachovia Corporation and in the related Prospectuses of our report dated January 17, 2001 (except Note A, as to which the date is August 24, 2001) with respect to the restated audited financial statements of Wachovia Corporation for each of the three years in the period ended December 31, 2000 included in its Current Report on Form 8-K dated August 30, 2001, filed with the Securities and Exchange Commission. /s/Ernst & Young LLP Greensboro, North Carolina August 24, 2001 EX-99.1 4 dex991.txt RESTATED REPORT EXHIBIT 99.1 [LOGO] December 31, 2000 Audited Financial Statements (Restated) TABLE OF CONTENTS
Page No. Report of Independent Auditors........................................................ 2 Consolidated Statements of Condition at December 31, 2000 and December 31, 1999....... 3 Consolidated Statements of Income for the Years Ended December 31, 2000, December 31, 1999 and December 31, 1998............................................. 4 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2000, December 31, 1999 and December 31, 1998............................................. 5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, December 31, 1999 and December 31, 1998............................................. 6 Notes to Consolidated Financial Statements............................................ 7-27
1 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- The Board of Directors Wachovia Corporation We have audited the accompanying consolidated statements of condition of Wachovia Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wachovia Corporation and subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. As discussed in Note A to the consolidated financial statements, the accompanying consolidated financial statements have been restated. /s/ ERNST + YOUNG LLP Greensboro, North Carolina January 17, 2001, except for Note A as to which the date is August 24, 2001 2 CONSOLIDATED STATEMENTS OF CONDITION - -------------------------------------------------------------------------------- ($ in thousands) WACHOVIA CORPORATION AND SUBSIDIARIES
DECEMBER 31 DECEMBER 31 2000 1999 ----------- ----------- ASSETS Cash and due from banks.............................................................. $ 3,686,871 $ 3,437,082 Interest-bearing bank balances....................................................... 137,504 174,904 Federal funds sold and securities purchased under resale agreements.................. 788,618 761,962 Trading account assets............................................................... 960,838 870,304 Securities available-for-sale........................................................ 7,487,696 7,095,790 Securities held-to-maturity (fair value of $1,052,535 in 2000 and $1,061,150 in 1999) 1,023,750 1,048,724 Loans, net of unearned income........................................................ 50,567,502 44,933,990 Less allowance for loan losses....................................................... 667,654 436,680 ----------- ----------- Net loans........................................................................ 49,899,848 44,497,310 Premises and equipment............................................................... 903,411 944,844 Due from customers on acceptances.................................................... 82,008 111,684 Goodwill and other intangible assets................................................. 1,024,766 903,205 Investment in discontinued operations................................................ 392,469 320,485 Other assets......................................................................... 3,223,349 2,746,612 ----------- ----------- Total assets..................................................................... $ 69,611,128 $62,912,906 =========== =========== LIABILITIES Deposits in domestic offices: Demand............................................................................. $ 9,180,330 $ 8,730,673 Interest-bearing demand............................................................ 5,116,571 4,527,711 Savings and money market savings................................................... 12,902,336 13,760,479 Savings certificates............................................................... 9,534,778 8,701,074 Large denomination certificates.................................................... 3,673,219 3,154,754 ----------- ----------- Total deposits in domestic offices............................................... 40,407,234 38,874,691 Interest-bearing deposits in foreign offices......................................... 4,004,948 2,911,727 ----------- ----------- Total deposits................................................................... 44,412,182 41,786,418 Federal funds purchased and securities sold under repurchase agreements.............. 6,753,164 5,372,493 Commercial paper..................................................................... 1,855,923 1,658,988 Other short-term borrowed funds...................................................... 1,253,058 3,071,493 Short-term borrowed funds assigned to discontinued operations........................ (3,055,119) (3,089,100) Long-term debt....................................................................... 10,808,218 7,814,263 Long-term debt assigned to discontinued operations................................... (1,309,337) (1,323,900) Acceptances outstanding.............................................................. 82,008 111,684 Other liabilities.................................................................... 2,526,492 1,852,110 ----------- ----------- Total liabilities................................................................ 63,326,589 57,254,449 Off-balance sheet items, commitments and contingent liabilities 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 203,423,606 shares in 2000 and 201,812,295 shares in 1999............................................ 1,017,118 1,009,061 Capital surplus...................................................................... 731,162 598,149 Retained earnings.................................................................... 4,505,947 4,125,524 Accumulated other comprehensive income (loss)........................................ 30,312 (74,277) ----------- ----------- Total shareholders' equity....................................................... 6,284,539 5,658,457 ----------- ----------- Total liabilities and shareholders' equity....................................... $69,611,128 $62,912,906 =========== ===========
See notes to consolidated financial statements 3 CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- ($ in thousands, except per share) WACHOVIA CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31 --------------------------------- 2000 1999 1998 ---------- ---------- ---------- INTEREST INCOME Loans, including fees.............................................. $4,084,512 $3,327,407 $3,111,276 Securities available-for-sale...................................... 460,486 504,470 597,557 Securities held-to-maturity: State and municipal.............................................. 15,124 11,673 15,044 Other investments................................................ 60,654 79,919 95,952 Interest-bearing bank balances..................................... 4,612 6,833 11,055 Federal funds sold and securities purchased under resale agreements 30,892 30,696 25,803 Trading account assets............................................. 42,934 32,131 44,497 ---------- ---------- ---------- Total interest income............................................ 4,699,214 3,993,129 3,901,184 INTEREST EXPENSE Deposits: Domestic offices................................................. 1,417,160 1,156,113 1,224,046 Foreign offices.................................................. 239,003 109,082 135,659 ---------- ---------- ---------- Total interest on deposits..................................... 1,656,163 1,265,195 1,359,705 Short-term borrowed funds.......................................... 367,616 297,548 371,699 Long-term debt..................................................... 525,474 391,910 291,780 ---------- ---------- ---------- Total interest expense......................................... 2,549,253 1,954,653 2,023,184 NET INTEREST INCOME................................................ 2,149,961 2,038,476 1,878,000 Provision for loan losses.......................................... 390,231 95,381 46,100 ---------- ---------- ---------- Net interest income after provision for loan losses................ 1,759,730 1,943,095 1,831,900 OTHER INCOME Service charges on deposit accounts................................ 418,611 369,646 334,980 Fees for trust services............................................ 219,476 216,392 199,949 Investment fees.................................................... 334,795 235,350 61,556 Capital markets income............................................. 170,007 170,771 130,083 Electronic banking................................................. 102,832 88,626 74,257 Mortgage fees...................................................... 25,377 33,213 44,929 Other operating income............................................. 299,713 213,823 201,612 ---------- ---------- ---------- Total other operating revenue.................................. 1,570,811 1,327,821 1,047,366 Securities (losses) gains.......................................... (417) 10,894 20,442 ---------- ---------- ---------- Total other income............................................. 1,570,394 1,338,715 1,067,808 OTHER EXPENSE Salaries........................................................... 1,041,147 980,804 837,350 Employee benefits.................................................. 203,656 191,999 173,549 ---------- ---------- ---------- Total personnel expense........................................ 1,244,803 1,172,803 1,010,899 Net occupancy expense.............................................. 155,105 146,740 134,531 Equipment expense.................................................. 183,572 193,690 148,308 Merger-related charges............................................. 28,958 19,309 85,312 Litigation settlement charge....................................... 20,000 -- -- Restructuring charge............................................... 107,487 -- -- Other operating expense............................................ 585,175 534,560 441,081 ---------- ---------- ---------- Total other expense............................................ 2,325,100 2,067,102 1,820,131 Income from continuing operations before income tax expense........ 1,005,024 1,214,708 1,079,577 Income tax expense................................................. 342,001 408,464 345,464 ---------- ---------- ---------- Income from continuing operations.................................. 663,023 806,244 734,113 Income from discontinued operations, net of income tax expense..... 169,285 204,977 140,057 ---------- ---------- ---------- NET INCOME......................................................... $ 832,308 $1,011,221 $ 874,170 ========== ========== ========== Income from continuing operations per common share: Basic............................................................ $ 3.27 $ 3.98 $ 3.58 Diluted.......................................................... $ 3.24 $ 3.91 $ 3.51 Net income per common share:....................................... Basic............................................................ $ 4.10 $ 4.99 $ 4.26 Diluted.......................................................... $ 4.07 $ 4.90 $ 4.18 Average shares outstanding: Basic............................................................ 202,989 202,795 205,058 Diluted.......................................................... 204,450 206,192 209,153
See notes to consolidated financial statements 4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- ($ in thousands, except per share) WACHOVIA CORPORATION AND SUBSIDIARIES
ACCUMULATED COMMON STOCK OTHER - - ----------------------- CAPITAL RETAINED COMPREHENSIVE SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) - - ----------- ---------- --------- ---------- ------------- YEAR ENDED DECEMBER 31, 1998 Balance at beginning of year............................... 205,926,632 $1,029,633 $ 974,803 $3,098,767 $ 71,098 Comprehensive income: Net income............................................... 874,170 Other comprehensive income: Unrealized holding gains on securities available-for- sale (net of tax expense of $16,233)................... 23,802 Less reclassification adjustment for gains realized in net income (net of tax expense of $7,982).............. (12,460) ---------- --------- Comprehensive income................................... 874,170 11,342 Cash dividends declared -- $1.86 a share................... (381,798) Common stock issued pursuant to: Stock option and employee benefit plans.................. 2,211,599 11,058 102,540 Dividend reinvestment plan............................... 301,992 1,510 22,885 Acquisitions............................................. 1,127,723 5,639 77,674 Common stock acquired...................................... (6,581,846) (32,909) (508,093) Miscellaneous.............................................. (565) (19,522) ----------- ---------- --------- ---------- --------- Balance at end of year..................................... 202,986,100 $1,014,931 $ 669,244 $3,571,617 $ 82,440 =========== ========== ========= ========== ========= YEAR ENDED DECEMBER 31, 1999 Balance at beginning of year............................... 202,986,100 $1,014,931 $ 669,244 $3,571,617 $ 82,440 Comprehensive income: Net income............................................... 1,011,221 Other comprehensive loss: Unrealized holding losses on securities available- for-sale (net of tax benefit of $92,356)............... (149,636) Less reclassification adjustment for gains realized in net income (net of tax expense of $3,813).............. (7,081) ---------- --------- Comprehensive income................................... 1,011,221 (156,717) Cash dividends declared -- $2.06 a share................... (418,447) Common stock issued pursuant to: Stock option and employee benefit plans.................. 1,252,596 6,263 111,308 Dividend reinvestment plan............................... 282,947 1,414 21,692 Acquisitions............................................. 4,801,987 24,010 399,059 Note conversions......................................... 3,065 15 235 Common stock acquired...................................... (7,514,400) (37,572) (603,357) Miscellaneous.............................................. (32) (38,867) ----------- ---------- --------- ---------- --------- Balance at end of year..................................... 201,812,295 $1,009,061 $ 598,149 $4,125,524 $ (74,277) =========== ========== ========= ========== ========= YEAR ENDED DECEMBER 31, 2000 Balance at beginning of year............................... 201,812,295 $1,009,061 $ 598,149 $4,125,524 $ (74,277) Comprehensive income: Net income............................................... 832,308 Other comprehensive income: Unrealized holding gains on securities available-for- sale (net of tax expense of $64,352)................... 104,318 Add reclassification adjustment for losses realized in net income (net of tax benefit of $146)................ 271 ---------- --------- Comprehensive income................................... 832,308 104,589 Cash dividends declared -- $2.28 a share................... (463,018) Common stock issued pursuant to: Stock option and employee benefit plans.................. 1,078,507 5,392 58,310 Dividend reinvestment plan............................... 393,346 1,967 20,864 Acquisitions............................................. 2,254,947 11,275 167,673 Common stock acquired...................................... (2,115,489) (10,577) (113,834) Miscellaneous.............................................. 11,133 ----------- --------- -------- --------- --------- Balance at end of year..................................... 203,423,606 $1,017,118 $ 731,162 $4,505,947 $ 30,312 =========== ========= ======== ========= =========
- - TOTAL - - ---------- YEAR ENDED DECEMBER 31, 1998 Balance at beginning of year............................... $5,174,301 Comprehensive income: Net income............................................... 874,170 Other comprehensive income: Unrealized holding gains on securities available-for- sale (net of tax expense of $16,233)................... 23,802 Less reclassification adjustment for gains realized in net income (net of tax expense of $7,982).............. (12,460) ---------- Comprehensive income................................... 885,512 Cash dividends declared -- $1.86 a share................... (381,798) Common stock issued pursuant to: Stock option and employee benefit plans.................. 113,598 Dividend reinvestment plan............................... 24,395 Acquisitions............................................. 83,313 Common stock acquired...................................... (541,002) Miscellaneous.............................................. (20,087) ---------- Balance at end of year..................................... $5,338,232 ========== YEAR ENDED DECEMBER 31, 1999 Balance at beginning of year............................... $5,338,232 Comprehensive income: Net income............................................... 1,011,221 Other comprehensive loss: Unrealized holding losses on securities available- for-sale (net of tax benefit of $92,356)............... (149,636) Less reclassification adjustment for gains realized in net income (net of tax expense of $3,813).............. (7,081) ---------- Comprehensive income................................... 854,504 Cash dividends declared -- $2.06 a share................... (418,447) Common stock issued pursuant to: Stock option and employee benefit plans.................. 117,571 Dividend reinvestment plan............................... 23,106 Acquisitions............................................. 423,069 Note conversions......................................... 250 Common stock acquired...................................... (640,929) Miscellaneous.............................................. (38,899) ---------- Balance at end of year..................................... $5,658,457 ========== YEAR ENDED DECEMBER 31, 2000 Balance at beginning of year............................... $5,658,457 Comprehensive income: Net income............................................... 832,308 Other comprehensive income: Unrealized holding gains on securities available-for- sale (net of tax expense of $64,352)................... 104,318 Add reclassification adjustment for losses realized in net income (net of tax benefit of $146)................ 271 ---------- Comprehensive income................................... 936,897 Cash dividends declared -- $2.28 a share................... (463,018) Common stock issued pursuant to: Stock option and employee benefit plans.................. 63,702 Dividend reinvestment plan............................... 22,831 Acquisitions............................................. 178,948 Common stock acquired...................................... (124,411) Miscellaneous.............................................. 11,133 ---------- Balance at end of year..................................... $6,284,539 ==========
See notes to consolidated financial statements 5 CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- ($ in thousands) WACHOVIA CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31 - - ------------------------------------- 2000 1999 1998 - - ----------- ----------- ----------- OPERATING ACTIVITIES Net income.................................................................. $ 832,308 $ 1,011,221 $ 874,170 Income from discontinued operations......................................... 169,285 204,977 140,057 ----------- ----------- ----------- Income from continuing operations........................................... 663,023 806,244 734,113 Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: Provision for loan losses................................................. 390,231 95,381 46,100 Depreciation and amortization............................................. 255,262 236,310 149,468 Deferred income taxes..................................................... 239,947 366,514 261,781 Securities losses (gains)................................................. 417 (10,894) (20,442) Gain on sale of noninterest-earning assets................................ (6,364) (13,485) (7,421) Increase in accrued income taxes.......................................... 2,187 26,459 224,609 (Increase) decrease in accrued interest receivable........................ (94,083) (25,158) 40,246 Increase (decrease) in accrued interest payable........................... 134,533 11,578 (26,107) Net change in other accrued and deferred income and expense............... 120,851 (163,073) (60,053) Net trading account activities............................................ (90,534) (91,125) 334,310 Net loans held for resale................................................. (74,432) 250,632 (184,571) Gain from branch sales.................................................... (41,618) (7,554) (17,155) ----------- ----------- ----------- Net cash provided by operating activities............................... 1,499,420 1,481,829 1,474,878 INVESTING ACTIVITIES Net decrease (increase) in interest-bearing bank balances................... 39,006 (64,701) 22,208 Net (increase) decrease in federal funds sold and securities purchased under resale agreements......................................................... (8,339) (40,361) 947,064 Purchases of securities available-for-sale.................................. (1,488,647) (2,222,574) (3,106,977) Purchases of securities held-to-maturity.................................... (140,324) (95,531) (394,956) Sales of securities available-for-sale...................................... 482,692 366,714 590,447 Calls, maturities and prepayments of securities available-for-sale.......... 854,051 2,525,569 3,564,575 Calls, maturities and prepayments of securities held-to-maturity............ 189,461 431,963 532,922 Net increase in loans made to customers..................................... (5,319,510) (5,186,616) (1,323,153) Capital expenditures........................................................ (114,023) (210,085) (255,527) Proceeds from sales of premises and equipment............................... 16,998 27,154 38,959 Net increase in other assets................................................ (317,553) (256,783) (331,936) Business combinations....................................................... (23,748) (11,123) 16,108 Branch sales................................................................ (378,559) (114,761) (111,901) ----------- ----------- ----------- Net cash (used) provided by investing activities........................ (6,208,495) (4,851,135) 187,833 FINANCING ACTIVITIES Net increase in demand, savings and money market accounts................... 377,471 757,675 1,584,124 Net increase (decrease) in certificates of deposit.......................... 2,173,930 163,578 (3,192,149) Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements...................................................... 1,376,791 (151,068) (2,870,049) Net increase in commercial paper............................................ 196,935 299,606 325,358 Net (decrease) increase in other short-term borrowings...................... (1,818,435) 1,125,558 1,159,388 Proceeds from issuance of long-term debt.................................... 3,893,075 1,588,733 2,684,679 Maturities and repayments of long-term debt................................. (915,267) (1,410,819) (1,028,772) Common stock issued......................................................... 40,465 59,478 80,375 Dividend payments........................................................... (463,018) (418,447) (381,798) Common stock repurchased.................................................... (116,086) (634,623) (531,122) Net increase in other liabilities........................................... 71,076 138,805 78,624 ----------- ----------- ----------- Net cash provided (used) by financing activities........................ 4,816,937 1,518,476 (2,091,342) Net cash provided (used) by discontinued operations..................... 141,927 1,532,170 (12,829) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 249,789 (318,660) (441,460) Cash and cash equivalents at beginning of year.............................. 3,437,082 3,755,742 4,197,202 ----------- ----------- ----------- Cash and cash equivalents at end of period.................................. $ 3,686,871 $ 3,437,082 $ 3,755,742 =========== =========== =========== SUPPLEMENTAL DISCLOSURES Interest paid............................................................... $ 2,695,100 $ 2,185,156 $ 2,340,320 Income taxes paid........................................................... 204,811 119,959 159,500
See notes to consolidated financial statements 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES Note A -- Restatement On July 27, 2001, the Corporation completed the sale of its consumer credit card business. The accompanying financial statements and footnotes have been restated to present the consumer credit card business as discontinued operations for all periods presented. Additional information about the discontinued consumer credit card business is included in Note C -- Discontinued Operations to the consolidated financial statements. - -------------------------------------------------------------------------------- NOTE B -- ACCOUNTING POLICIES Nature of Operations -- The Corporation is a southeastern interstate financial holding company maintaining dual headquarters in Atlanta, Georgia, and Winston-Salem, North Carolina. The Corporation's principal banking subsidiary is Wachovia Bank, N.A., which maintains operations in Florida, Georgia, North Carolina, South Carolina and Virginia. Brokerage and investment underwriting services are provided through Wachovia Securities, Inc. In addition to general commercial banking, the Corporation and its subsidiaries are engaged in trust and investment management, residential mortgage origination, leasing, foreign exchange, corporate finance and other money market services. Principles of Consolidation -- The consolidated financial statements include the accounts of Wachovia Corporation and its subsidiaries after elimination of all material intercompany balances and transactions. Business Combinations -- In business combinations accounted for as poolings-of-interests, the financial position and results of operations and cash flows of the respective companies are restated as though the companies were combined for all historical periods. In business combinations accounted for using the purchase method of accounting, the net assets of the companies acquired are recorded at their fair values at the date of acquisition. Goodwill is amortized on a straight-line basis over the estimated periods benefited. Identifiable intangibles, including deposit base intangibles, are amortized on an accelerated or straight-line basis over the estimated periods benefited. The results of operations of the acquired companies are included since the date of acquisition. Use of Estimates -- The financial statements are prepared in accordance with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Due From Banks -- The Corporation considers cash and due from banks, all of which are maintained in financial institutions, as cash and cash equivalents for purposes of the Consolidated Statements of Cash Flows. Trading Instruments -- The Corporation maintains trading positions in both derivative and nonderivative (or cash) financial instruments. Trading cash instruments are held for distribution through retail sales or in anticipation of market movements and are carried at fair value. Gains and losses, both realized and unrealized, are included in capital markets income. Interest revenue arising from cash financial instruments is included in interest income-trading account assets. Trading cash instruments are comprised primarily of securities backed by the U.S. Treasury and various federal agencies and state and local governmental bodies. Trading derivative financial instruments are customer oriented, and trading positions are established as necessary to accommodate customers' requirements. Gains and losses from trading derivatives and foreign exchange activities are included in capital markets income. Securities Held-to-Maturity and Available-for-Sale -- Management determines the appropriate classification of debt securities at the time of purchase. Debt securities are classified as held-to-maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity or trading and marketable equity securities are classified as available-for-sale and are stated at fair value. Unrealized gains and losses, net of tax, on available-for-sale securities are included in accumulated other comprehensive income -- a separate component of shareholders' equity. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization is included in interest income from securities. The specific identification method is used to determine realized gains and losses on sales of securities, which are reported as securities gains and losses. Securities Purchased and Sold Agreements -- Securities purchased under resale agreements and securities sold under repurchase agreements are generally accounted for as collateralized financing transactions. They are recorded at the current fair value of the securities plus accrued interest. It is the Corporation's policy to take possession of securities purchased under resale agreements, which are primarily U.S. Government and Government agency securities. The current fair value of these securities is monitored, and additional securities are obtained when deemed appropriate. The Corporation also monitors its exposure with respect to securities sold under repurchase agreements and a request to the lender for additional money is made when necessary. Risk Management Instruments -- Interest rate swaps and options (caps and floors) are used as part of the Corporation's overall interest rate risk management and are designated as hedges of interest-bearing assets, liabilities, firm commitments and anticipated transactions. These derivatives modify the interest rate characteristics of specified financial instruments. Amounts receivable or payable under interest rate swap and option agreements are recognized in net interest income. Derivative instruments not qualifying as end-user positions are treated as trading positions and marked-to- 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE B -- ACCOUNTING POLICIES -- CONTINUED market. To qualify as a hedge, the swap or option must be designated and documented as a hedge and be effective in reducing the market risk associated with the existing asset, liability, firm commitment or identified anticipated transaction which is probable to occur. Effectiveness of the hedge is evaluated on an initial and ongoing basis using statistical calculations of correlation. Gains and losses on risk management derivatives that are terminated early are deferred and amortized to net interest income over the remaining period originally covered by the instrument. If the underlying designated item is no longer held, or if an anticipated transaction is no longer likely to occur, any previously unrecognized gain or loss on the derivative contract is recognized in earnings and the contract is subsequently accounted for at fair value. Loans and Allowance for Loan Losses -- Loans are carried at their principal amount outstanding net of unearned income, including net deferred loan fees and costs, except for loans held for resale which are carried at the lower of cost or market. The Corporation defers certain nonrefundable loan origination and commitment fees and the direct costs of originating or acquiring loans. Interest on loans is accrued and recorded as interest income based upon the principal amount outstanding. Except for revolving credit loans, the recognition of interest income is discontinued when a loan becomes 90 days past due as to principal and interest or when, in management's judgment, the principal or interest will not be collectible in the normal course of business. When interest accruals are discontinued, the balance of accrued interest is reversed. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest and the loan is in the process of collection. Interest is accrued on revolving credit loans until payments become 180 days past due, at which time the outstanding principal balance and accrued unpaid interest is charged off. For installment loans and other closed-end consumer loans, the accrual of interest is discontinued when the loan becomes 120 days past due, at which time the outstanding principal and unpaid interest is charged off. The Corporation records a charge-off for commercial loans and commercial real estate loans when available information confirms that specific loans, or portions thereof, are uncollectible. The Corporation applies Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies" (FASB 5), and Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (FASB 114), in determining the balance of the allowance for loan losses and the amount of impaired loans. The allowance is maintained at a level believed to be adequate by management to absorb probable losses in the loan portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio, past loan loss experience, current domestic and international economic conditions, volume and composition of the loan portfolio and other risks inherent in the portfolio. The method used to determine the amount of loss inherent in the loan portfolio and thereby assess the adequacy of the recorded balance of the allowance for loan losses involves identifying portfolios of loans with similar characteristics for which estimates of inherent future probable losses can be made. The estimates are based on historical loss factors as adjusted for current business and economic conditions. The loss factors are applied to the respective portfolios in order to determine the overall allowance adequacy. Loan Securitization -- Loan securitization involves the sale, generally to a trust, of a pool of loan receivables. The Corporation continues to own the accounts that generate the loan receivables. In securitization transactions, the Corporation retains interest-only strips, servicing rights, and in some cases a cash reserve account, all of which are retained interests in the securitized receivables. Gain or loss on sale of the receivables depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer. The fair value of retained interests is obtained from market prices if available, or estimates of fair value based on the present value of estimated future expected cash flows. Premises and Equipment -- Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the leasehold asset or the lease term. Internal Use Software -- The Corporation relies on company personnel and independent contractors to plan, develop, install, customize and enhance computer systems applications that support corporate and administrative operations. Software development costs, such as those related to program coding, testing, configuration and installation, are capitalized and are amortized on a straight-line basis over the expected useful life. All other costs incurred related to planning and post-development phases of an internal software project are expensed as incurred. Impairment of Long-Lived Assets -- Impairment losses on long-lived assets to be held and used are recognized whenever events or changes in circumstances result in the carrying value of the assets exceeding the sum of the expected future cash flows. The measurement of the impairment losses recognized is based on the difference between the fair value and carrying value of the assets. Long-lived assets to be disposed of are reported at the lower of carrying value or fair value less cost to sell. Income Taxes -- Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Each 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE B -- ACCOUNTING POLICIES -- CONCLUDED subsidiary provides for income taxes based on its contribution to income taxes (benefit) of the consolidated group. The Corporation and its subsidiaries file a consolidated tax return. Stock-Based Compensation -- The Corporation applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Corporation's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation cost for stock awards and appreciation rights is recorded based on the market price at the date of grant, or the date in which the stated performance criteria are met, and the end of the period, respectively. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FASB 123), encourages, but does not require, adoption of a fair value method of accounting for employee stock-based compensation plans. The Corporation follows the pro forma disclosure provisions of FASB 123. New Accounting Pronouncements -- In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FASB 133). FASB 133 establishes new accounting and reporting requirements for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. The standard requires all derivatives to be measured at fair value and recognized as either assets or liabilities in the statements of condition. Under certain conditions, a derivative may be specifically designated as a hedge. Accounting for the changes in fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Corporation adopted the standard, as required, effective January 1, 2001 with an immaterial financial statement impact. In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" (FASB 140). FASB 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain additional disclosures regarding these activities. The statement is effective for transfers and servicing of financial assets or extinguishments of liabilities that occur after March 31, 2001. The statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The impact of the disclosure and recognition provisions of this standard are not material. In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations" (FASB 141) which supercedes Accounting Principles Board Opinion No. 16 "Business Combinations" and FASB 38 "Accounting for Preacquisition Contingencies of Purchased Enterprises". FASB 141 changes the existing accounting treatment for business combinations to allow only the purchase method. The statement applies to all business combinations initiated after June 30, 2001. The statement also applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. Adoption of this statement is not expected to have a material impact of the Corporation's results of operations or financial position. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (FASB 142) which supercedes Accounting Principles Board Opinion No. 17 "Intangible Assets". FASB 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. FASB 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The most significant change from current accounting standards is that goodwill will no longer be amortized but will instead be tested periodically for impairment. Impairment losses for goodwill and indefinite-lived intangible assets that arise due to the initial application of FASB 142 are to be reported as resulting from a change in accounting principle. FASB 142 is effective for the Corporation beginning in the first quarter of 2002 and is required to be applied to all goodwill and intangible assets recognized in the financial statements at that date. Adoption is not expected to have a material impact on the Corporation's results of operations or financial position. Reclassification -- Certain 1999 and 1998 amounts have been reclassified to conform to the 2000 presentation. - -------------------------------------------------------------------------------- 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE C -- DISCONTINUED OPERATIONS On July 27, 2001, the Corporation completed the sale of its consumer credit card business to Bank One Corporation. The consumer credit card business represented approximately $8.1 billion and $6.6 billion in managed receivables at December 31, 2000 and December 31, 1999, respectively, of which $3.6 billion at December 31, 2000 and $1.9 billion at December 31, 1999 had been securitized. The capital made available by the transaction will be redeployed for general corporate purposes including investing in higher growth businesses, repurchasing shares, reducing balance sheet leverage or reducing debt. The pre-tax gain from the sale is estimated to be approximately $1.3 billion. As a result of the recent shareholder approval of the merger with First Union Corporation, $450 million has been deferred in connection with certain provisions of the agent bank arrangement. Condensed financial information for the consumer credit card business is presented below.
YEAR ENDED DECEMBER 31 -------------------------- 2000 1999 1998 - -------- -------- -------- SUMMARY INCOME STATEMENT Interest income....... $646,140 $673,691 $764,061 Allocated interest expense (2).......... 280,380 242,081 291,029 -------- -------- -------- Net interest income. 365,760 431,610 473,032 Provision for loan losses............... 198,219 202,724 253,380 Noninterest income.... 360,878 282,302 180,753 Noninterest expense (3).......... 257,913 183,523 176,201 -------- -------- -------- Income before income tax expense............ 270,506 327,665 224,204 Income tax expense.... 101,221 122,688 84,147 -------- -------- -------- Net income.......... $169,285 $204,977 $140,057 ======== ======== ========
DECEMBER 31 DECEMBER 31 2000 1999 - ----------- ----------- SUMMARY BALANCE SHEET Cash......................... $ 40,570 $ 37,922 Interest bearing bank balances.................... 36,025 10,000 Securities available-for-sale 84,000 -- Loans, net of allowance...... 4,279,313 4,569,105 Intangible assets............ 231,461 34,020 Other assets................. 141,624 109,069 ---------- ---------- Total assets............... $4,812,993 $4,760,116 ========== ========== Short-term borrowed funds (2)................... $3,055,119 $3,089,100 Long-term debt (2)........... 1,309,337 1,323,900 Other liabilities............ 56,068 26,631 ---------- ---------- Total liabilities.......... 4,420,524 4,439,631 Equity capital (1)........... 392,469 320,485 ---------- ---------- Total liabilities and equity.................... $4,812,993 $4,760,116 ========== ==========
(1)Equity capital was assigned to discontinued operations based upon Wachovia's targeted Tier I risk-based capital requirements for the underlying risk weighted assets and off-balance sheet items. (2)Interest-bearing liabilities were assigned to discontinued operations based on an assumed funding mix of 70 percent short-term borrowings and 30 percent long-term debt. Interest expense was calculated by applying Wachovia's average funding cost for each period and funding category to the respective assigned average balances. (3)The amount of general overhead costs allocated to discontinued operations is the amount estimated to be eliminated upon completion of the transaction. On February 1, 2000, the Corporation completed the acquisition of a majority of the credit card business of Partners First Holdings, LLC, adding 1.2 million customers and approximately $2 billion of managed receivables. The transaction resulted in $234,524 of purchased credit card intangibles. The results of operations of the Partners First portfolio are included in discontinued operations from the date of its acquisition. In August 2000, the Corporation sold $750 million of credit card receivables in a securitization transaction and recognized a pretax gain of $17,268 reflecting the recognition of retained interest in the cash flows of the trust. The Corporation retained servicing responsibilities and receives annual servicing fees approximating 2% of the outstanding credit card balances. In addition, the Corporation retained subordinated interests which represent the rights to future cash flows arising after the investors have received their contractual return. The investors and the securitization trusts have no recourse to the Corporation's other assets for failure of debtors to pay when due. The Corporation's retained interests are subordinate to investors' interests. Their value is subject to credit, prepayment, and interest rate risks on the transferred financial assets. Key economic assumptions used in measuring the retained interest at the date of securitization during the year were as follows: a monthly payment rate of 10.0%, a weighted average life of .81 years, expected annual credit losses of 3.91%, a discount rate of 12.0%, an expected yield of 15.24% and a variable coupon rate to investors of 6.29%. At December 31, 2000, key economic assumptions and the sensitivity of the current fair value of residual cash flows, related to the aggregate securitized credit card receivables outstanding, to adverse changes in those assumptions are presented in the table below: Carrying amount/fair value of retained interests $ 177,357 Weighted-average life (in years)................ .82 Prepayment speed assumption (annual rate)....... 10.0% Impact on fair value of 10% adverse change.... $ 13,094 Impact on fair value of 20% adverse change.... $ 24,395 Expected credit losses (annual rate)............ 6.83% Impact on fair value of 10% adverse change.... $ 25,605 Impact on fair value of 20% adverse change.... $ 41,648 Residual cash flows discount rate (annual)...... 12.0% Impact on fair value of 10% adverse change.... $ 1,417 Impact on fair value of 20% adverse change.... $ 2,811 Interest rates on variable and adjustable contracts........................... LIBOR plus contracted spread Impact on fair value of 10% adverse change.... $ 30,842 Impact on fair value of 20% adverse change.... $ 48,221
10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE C -- DISCONTINUED OPERATIONS -- CONCLUDED The sensitivities above are hypothetical and should be used with caution. Changes in fair value based on a 10% variation in assumptions should not be extrapolated because the relationship of the change in assumption to the change in fair value is not linear. The effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities. The table below summarizes certain cash flows received from and paid to securitization trusts. There were no purchases of delinquent or foreclosed loans during the period:
YEAR ENDED DECEMBER 31 2000 ----------- Proceeds from new securitizations........ $ 750,000 Proceeds from collections reinvested in previous credit card securitizations.... 4,142,417 Servicing fees received.................. 68,380 Cash flows received on interests retained 61,368
Selected securitization information as of December 31, 2000 is as follows: Average credit card loans: Loans held in portfolio................ $4,537,404 Loans securitized...................... 3,434,903 ---------- Total managed loans.................. $7,972,307 ========== Year-end credit card loans: Loans held in portfolio................ $4,494,303 Loans securitized...................... 3,645,954 ---------- Total managed loans.................. $8,140,257 ========== Net credit losses: Loans held in portfolio................ $ 198,944 Loans securitized...................... 185,939 ---------- Total managed loans.................. $ 384,883 ========== Principal amount of loans 30 days or more past due: Loans held in portfolio................ $ 196,423 Loans securitized...................... 146,677 ---------- Total managed loans.................. $ 343,100 ==========
- -------------------------------------------------------------------------------- NOTE D -- BUSINESS SEGMENT INFORMATION The Corporation's reportable segments are strategic business units that provide unique products and services to a variety of customer groups. Each segment has its own management team as well as distinct marketing, production, technology and distribution strategies. The Corporation's four reportable segments are Asset and Wealth Management, Corporate, Consumer and Treasury & Administration. Asset and Wealth Management earns revenues by providing estate planning services, insurance, investment and trust products to high-wealth individuals and corporate executives. Corporate earns its revenues primarily by providing financing, deposit, cash management, investment and asset administration products to corporate customers. Consumer generates its revenues primarily from individuals and small businesses by providing credit and deposit services as well as insurance, investment and trust products. Treasury & Administration is comprised of balance sheet management activities that include managing the investment portfolio, discretionary funding, utilization of off-balance sheet financial instruments and optimizing the Corporation's equity position. Nonoperating and other corporate expenses such as merger-related charges, litigation settlement charges, restructuring charges and Year 2000 conversion costs are included in the Treasury & Administration segment.
ASSET AND YEAR ENDED WEALTH TREASURY & DECEMBER 31, 2000 MANAGEMENT CORPORATE CONSUMER ADMINISTRATION ELIMINATIONS TOTAL - ----------------- ---------- ----------- ----------- -------------- ------------ ----------- External net interest margin.... $ 147,443 $ 2,636,003 $ (180,777) $ (416,219) $ (36,489) $ 2,149,961 Internal funding (charge) credit (3,019) (1,653,334) 1,093,898 662,835 (100,380) -- ---------- ----------- ----------- ----------- --------- ----------- Net interest margin............. 144,424 982,669 913,121 246,616 (136,869) 2,149,961 Provision for loan losses....... 1,693 383,221 19,905 (14,588) -- 390,231 Total other income.............. 605,573 426,973 464,953 72,895 -- 1,570,394 Other expense................... 543,294 587,549 809,638 446,770 (62,151) 2,325,100 ---------- ----------- ----------- ----------- --------- ----------- Profit contribution........... 205,010 438,872 548,531 (112,671) (74,718) 1,005,024 Allocated expenses.............. 72,758 90,936 116,482 (241,947) (38,229) -- ---------- ----------- ----------- ----------- --------- ----------- Income from continuing operations before income tax expense........................ 132,252 347,936 432,049 129,276 (36,489) 1,005,024 Income tax expense.............. 53,230 126,318 157,487 41,455 (36,489) 342,001 ---------- ----------- ----------- ----------- --------- ----------- Income from continuing operations..................... $ 79,022 $ 221,618 $ 274,562 $ 87,821 $ -- $ 663,023 ========== =========== =========== =========== ========= =========== Average total assets............ $3,975,097 $38,082,316 $11,003,413 $11,795,693 $ -- $64,856,519 ========== =========== =========== =========== ========= ===========
11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE D -- BUSINESS SEGMENT INFORMATION -- CONCLUDED
ASSET AND YEAR ENDED WEALTH TREASURY & DECEMBER 31, 1999 MANAGEMENT CORPORATE CONSUMER ADMINISTRATION ELIMINATIONS TOTAL - ----------------- ---------- ----------- ---------- -------------- ------------ ----------- External net interest margin.... $ 103,284 $ 2,196,757 $ (153,504) $ (67,576) $ (40,485) $ 2,038,476 Internal funding (charge) credit 23,410 (1,260,978) 1,011,011 321,448 (94,891) -- ---------- ----------- ---------- ----------- --------- ----------- Net interest margin............. 126,694 935,779 857,507 253,872 (135,376) 2,038,476 Provision for loan losses....... 726 58,569 15,086 21,000 -- 95,381 Total other income.............. 474,705 403,141 403,646 57,223 -- 1,338,715 Other expense................... 421,379 561,856 780,747 366,238 (63,118) 2,067,102 ---------- ----------- ---------- ----------- --------- ----------- Profit contribution........... 179,294 718,495 465,320 (76,143) (72,258) 1,214,708 Allocated expenses.............. 70,446 92,387 129,560 (260,620) (31,773) -- ---------- ----------- ---------- ----------- --------- ----------- Income from continuing operations before income tax expense........................ 108,848 626,108 335,760 184,477 (40,485) 1,214,708 Income tax expense.............. 42,275 224,765 122,151 59,758 (40,485) 408,464 ---------- ----------- ---------- ----------- --------- ----------- Income from continuing operations..................... $ 66,573 $ 401,343 $ 213,609 $ 124,719 $ -- $ 806,244 ========== =========== ========== =========== ========= =========== Average total assets............ $2,859,920 $34,591,059 $9,787,018 $13,126,616 $ -- $60,364,613 ========== =========== ========== =========== ========= ===========
ASSET AND YEAR ENDED WEALTH TREASURY & DECEMBER 31, 1998 MANAGEMENT CORPORATE CONSUMER ADMINISTRATION ELIMINATIONS TOTAL - ----------------- ---------- ----------- ----------- -------------- ------------ ----------- External net interest margin.... $ 75,018 $ 1,978,805 $ (182,884) $ 53,935 $ (46,874) $ 1,878,000 Internal funding (charge) credit 21,006 (1,203,149) 1,037,393 247,691 (102,941) -- ---------- ----------- ----------- ----------- --------- ----------- Net interest margin............. 96,024 775,656 854,509 301,626 (149,815) 1,878,000 Provision for loan losses....... 1,435 19,804 13,495 11,366 -- 46,100 Total other income.............. 278,630 327,806 373,412 87,960 -- 1,067,808 Other expense................... 248,267 465,239 753,573 421,171 (68,119) 1,820,131 ---------- ----------- ----------- ----------- --------- ----------- Profit contribution........... 124,952 618,419 460,853 (42,951) (81,696) 1,079,577 Allocated expenses.............. 53,004 100,432 158,150 (276,764) (34,822) -- ---------- ----------- ----------- ----------- --------- ----------- Income from continuing operations before income tax expense........................ 71,948 517,987 302,703 233,813 (46,874) 1,079,577 Income tax expense.............. 26,166 181,956 108,446 75,770 (46,874) 345,464 ---------- ----------- ----------- ----------- --------- ----------- Income from continuing operations..................... $ 45,782 $ 336,031 $ 194,257 $ 158,043 $ -- $ 734,113 ========== =========== =========== =========== ========= =========== Average total assets............ $2,335,270 $31,377,718 $10,258,913 $14,306,769 $ -- $58,278,670 ========== =========== =========== =========== ========= ===========
The Corporation's management accounting policies generally follow the policies described in Note A, except for net interest income which is reported on a fully taxable equivalent basis. Beginning January 2000, the Corporation adopted a marginal matched maturity funds transfer pricing system to simulate matched funding to compensate or charge for funds provided or used with a corresponding offset in the Treasury & Administration business segment. Formerly, the Corporation utilized a multiple pool method for funds transfer pricing. This change in management accounting has been reflected for all periods presented. Provision for loan losses is charged to each segment based on the credit risk of each segment's loan portfolio. Operating expense is recognized as incurred and charged on a fully absorbed basis. Additionally, income tax expense is calculated based on the business segment's fully taxable equivalent income and the Corporation's effective tax rate. Reconciling items between management accounting and the Corporation's consolidated financial statements are limited to the taxable equivalent adjustment and other income statement reclassifications shown as Eliminations. The Corporation operates primarily in the United States; accordingly, geographic distribution of revenue and long-lived assets in other countries is not significant. Revenue from no individual customer exceeded 10% of consolidated total revenue. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE E -- BUSINESS COMBINATIONS On December 15, 1997, the Corporation merged in a pooling-of-interests transaction, with Central Fidelity Banks, Inc., headquartered in Richmond, Virginia. In connection with the transaction, the Corporation incurred a restructuring charge to consolidate Central Fidelity's operations, business line locations and administrative functions. These activities were completed during 1998. The remaining accrual associated with this charge was $4,894 and $21,927, respectively, at December 31, 2000 and 1999 and was comprised of salary continuation payments. The balance remaining at December 2000 will be paid during 2001. During 1998, the Corporation acquired Ameribank Bancshares (Ameribank), headquartered in Hollywood, Florida, with $280 million in assets; Hunt, DuPree, Rhine and Associates Inc., a benefits consulting company; and Retirement Plan Securities Inc., a registered investment advisor. On April 1, 1999, the Corporation completed its merger with Interstate/Johnson Lane, Inc. (IJL), headquartered in Charlotte, North Carolina. The acquisition of IJL resulted in the issuance of approximately 2.6 million shares of common stock valued at $215,562. The purchase price was allocated to the net assets acquired resulting in $125,205 of goodwill. In September 1999, the Corporation completed its merger with OFFITBANK Holdings, Inc. (OFFITBANK), headquartered in New York. The acquisition of OFFITBANK resulted in the issuance of approximately 2.1 million shares of common stock valued at $203,173. The purchase price was allocated to the net assets acquired resulting in $175,568 of goodwill. Also, during 1999, the Corporation acquired Barry, Evans, Josephs & Snipes (BEJS), a national life insurance broker specializing in wealth transfer strategies and benefit plans for affluent families and corporate executives. During 2000, the Corporation acquired B C Bankshares, parent company of the Bank of Canton, headquartered in suburban Atlanta with $400 million in assets; Commerce National Corporation, parent company of the National Bank of Commerce in suburban Orlando, Florida, with $180 million in assets; and DavisBaldwin, Inc., a Tampa, Florida- based insurance agency specializing in property and casualty insurance services for commercial customers. On March 1, 2001, the Corporation completed its acquisition of Republic Security Financial Corporation, parent company of Republic Security Bank. The acquisition added 178,000 new customers and significantly expanded the Corporation's presence in Florida. On May 1, 2001, the Corporation completed its acquisition of Hamilton Dorsey Alston Company, an Atlanta-based insurance broker that specializes in personal and commercial risk management and employee benefits. Both acquisitions were accounted for as purchases. The acquisitions of Republic Security Financial Corporation and Hamilton Dorsey Alston Company added intangibles of approximately $265 million and $40 million, respectively. The proforma impact of these purchase transactions was not material to the Corporation's reported results of operations. Amounts incurred for systems conversion and integration of business lines related to merger transactions are included in merger-related charges in the income statement. Goodwill arising from the purchase transactions above is being amortized over 20 to 25 years. Deposit base intangibles resulting from the above acquisitions are being amortized over 7 years. On April 16, 2001, the Corporation announced an agreement for a merger of equals with First Union Corporation. Terms of the agreement call for common stockholders of the Corporation to receive 2.0 shares of common stock of First Union Corporation and the option to receive either a special dividend of $.48 or 2.0 Dividend Equalization Preferred Shares (DEPS) in exchange for each share of the Corporation's common stock. The DEPS allow the Corporation's shareholders to continue to receive at least a $2.40 per share dividend post-combination. Shareholder approval, subject to certification by an independent party, and regulatory approval have been received and the transaction is expected to close during the third quarter of 2001. NOTE F -- RESTRUCTURING CHARGE During 2000, the Corporation recorded charges of $107,487 in connection with strategic actions to realign resources and eliminate approximately 1,800 staff positions. The positions eliminated were identified through a productivity review focused on improving work processes, introducing new technology, broadening spans of control and eliminating levels of management across the company. The affected positions are diversely scattered among all lines of business and at all levels throughout the organization. The restructuring plan includes closing the Corporation's Raleigh, North Carolina, operations center. Functions currently performed at that location will move to other operations centers. Several underperforming branches are also being closed including 11 in-store branches in Atlanta and Fayetteville, North Carolina, and the Corporation exited the municipal finance business. The closed branches and the discontinued municipal finance business were immaterial to financial results. The amounts expensed and paid in 2000 are presented below.
DEC. 31, 2000 UTILIZED 2000 PROVISION IN 2000 BALANCE --------- -------- -------- Severance and personnel related costs......... $ 85,666 $47,433 $38,233 Occupancy and other costs................. 21,821 20,437 1,384 -------- ------- ------- Total............. $107,487 $67,870 $39,617 ======== ======= =======
Severance and personnel related costs include severance payments and related benefits to terminated employees. The charge recorded in 2000 included benefits for 1,410 employees who received notice or had otherwise been identified prior to December 31, 2000. Included in occupancy and other costs are non-cash items of approximately $15 million for asset impairment for discontinued facilities and equipment. Additional costs will be incurred in 2001 related to this project. - -------------------------------------------------------------------------------- 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE G -- SECURITIES The aggregate amortized cost, fair value and gross unrealized gains and losses of securities as of December 31 were as follows:
2000 1999 - - ------------------------------------------- ------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE - - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Held-to-Maturity - ---------------- U.S. Treasury and other agencies.... $ 465,978 $ 1,358 $ 1,432 $ 465,904 $ 402,828 $ 2 $ 11,437 $ 391,393 State and municipal 224,575 14,653 2 239,226 204,289 12,863 401 216,751 Mortgage-backed.... 325,384 14,232 36 339,580 399,803 12,142 689 411,256 Other.............. 7,813 12 -- 7,825 41,804 15 69 41,750 ---------- ------- ------- ---------- ---------- ------- -------- ---------- $1,023,750 $30,255 $ 1,470 $1,052,535 $1,048,724 $25,022 $ 12,596 $1,061,150 ========== ======= ======= ========== ========== ======= ======== ========== Available-for-Sale - ------------------ U.S. Treasury and other agencies.... $2,713,515 $26,461 $ 5,722 $2,734,254 $2,833,744 $10,881 $ 45,625 $2,799,000 State and municipal 64,277 2,111 9 66,379 56,138 1,054 197 56,995 Mortgage-backed.... 4,192,619 38,628 7,123 4,224,124 3,781,281 7,604 85,921 3,702,964 Other.............. 174,562 -- 3,937 170,625 186,228 20 2,976 183,272 Equity............. 291,781 1,520 987 292,314 356,799 -- 3,240 353,559 ---------- ------- ------- ---------- ---------- ------- -------- ---------- $7,436,754 $68,720 $17,778 $7,487,696 $7,214,190 $19,559 $137,959 $7,095,790 ========== ======= ======= ========== ========== ======= ======== ==========
The amortized cost and estimated fair value of securities at December 31, 2000, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.
AMORTIZED FAIR COST VALUE - - ---------- ---------- Held-to-Maturity - ---------------- Due in one year or less......... $ 69,956 $ 70,278 Due after one year through five years.......................... 541,708 547,284 Due after five years through ten years.......................... 142,772 151,381 Due after ten years............. 269,314 283,592 ---------- ---------- Total....................... 1,023,750 1,052,535 ---------- ---------- Available-for-Sale - ------------------ Due in one year or less......... 472,350 472,775 Due after one year through five years.......................... 2,307,173 2,323,259 Due after five years through ten years.......................... 1,147,443 1,157,356 Due after ten years............. 3,218,007 3,241,992 ---------- ---------- Total....................... 7,144,973 7,195,382 No contractual maturity......... 291,781 292,314 ---------- ---------- Total....................... 7,436,754 7,487,696 ---------- ---------- Total securities............ $8,460,504 $8,540,231 ========== ==========
Proceeds, gross gains and losses realized from the sales of available-for-sale securities for December 31 were as follows:
2000 1999 - -------- -------- Proceeds.... $482,692 $366,714 Gross gains. 396 10,996 Gross losses 813 102
Trading account assets are reported at fair value with net unrealized gains of $17 and net unrealized losses of $526 and $554 included in earnings during 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999, securities with a carrying value of $5,667,630 and $5,811,075, respectively, were pledged as collateral to secure public deposits and for other purposes. There were no obligations of any one issuer exceeding 10% of consolidated shareholders' equity at December 31, 2000. There were no transfers or sales of held-to-maturity securities during 2000 or 1999. - -------------------------------------------------------------------------------- 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE H -- LOANS AND ALLOWANCE FOR LOAN LOSSES Loans at December 31 are summarized as follows:
2000 1999 ----------- ----------- Commercial: Commercial, financial and other............. $17,660,562 $17,042,740 Tax-exempt............. 605,165 690,053 Retail: Direct................. 1,338,265 1,063,619 Indirect............... 4,219,917 3,740,683 Other revolving credit. 894,639 716,399 Real estate: Construction........... 3,370,031 2,311,362 Commercial mortgages... 9,025,271 7,754,206 Residential mortgages.. 9,234,080 7,756,983 Lease financing -- net... 2,839,386 2,597,271 Foreign.................. 1,380,186 1,260,674 ----------- ----------- Total loans -- net..... $50,567,502 $44,933,990 =========== ===========
Loans at December 31, 2000 and 1999 that had been placed on nonaccrual totaled $498,592 and $203,821, respectively. Interest income which would have been recorded pursuant to the original terms of nonaccrual loans was $36,536 and $38,121 on the preceding dates. Interest income recorded on these loans was $12,403 and $6,653, respectively. The Corporation follows Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." A loan is defined as impaired when, based on current information and events, it is probable that the creditor will be unable to collect all amounts of principal and interest due according to the contractual terms of the loan agreement. Impairment is measured by discounting the expected future cash flows at the loan's effective interest rate. For real estate loans, impairment is measured based on the estimated fair value of the underlying collateral. If the present value of the expected future cash flows, or the fair value of collateral in the case of a real estate loan, is less than the loan's recorded balance, the deficiency is considered in evaluating the overall adequacy of the allowance for loan losses. The following table summarizes impaired loans and related allowance information at December 31.
2000 1999 -------- -------- Impaired loans with related allowance.................... $320,107 $139,815 Impaired loans with no related allowance.................... 121,792 9,441 -------- -------- Total impaired loans........ $441,899 $149,256 ======== ======== Allowance on impaired loans... $128,153 $ 42,900 ======== ========
YEAR ENDED DECEMBER 31 ------------------------- 2000 1999 1998 -------- -------- ------- Average impaired loans.... $248,730 $117,548 $31,026 Interest income........... 3,641 2,012 5,942 Cash-basis interest income 3,641 851 2,600
Changes in the allowance for loan losses for the three years ended December 31 were as follows:
2000 1999 1998 --------- --------- -------- Balance at beginning of year.................. $ 436,680 $ 417,862 $410,593 Additions from acquisitions.......... 7,017 39 2,613 Provision for loan losses................ 390,231 95,381 46,100 Recoveries on loans previously charged off................... 20,754 27,179 30,619 Loans charged off...... (187,028) (103,781) (72,063) --------- --------- -------- Balance at end of year. $ 667,654 $ 436,680 $417,862 ========= ========= ========
Loans totaling $15,937, $14,583 and $15,258 were transferred to foreclosed real estate during 2000, 1999 and 1998, respectively. It is the policy of the Corporation to review each prospective credit in order to determine an adequate level of security or collateral to obtain prior to making the loan. The type of collateral will vary and ranges from liquid assets to real estate. The Corporation's access to collateral, in the event of borrower default, is assured through adherence to state lending laws and the Corporation's lending standards and credit monitoring procedures. The Corporation regularly monitors its credit concentrations on loan purpose, industry and customer bases. At year-end, there were no material credit concentrations within these categories. The Corporation's subsidiaries have granted loans and extended letters of credit to certain directors and executive officers of the Corporation and its subsidiaries and to their associates. The aggregate amount of loans was $42,035 and $152,904 at December 31, 2000 and 1999, respectively. During 2000, $247,776 in new loans were made and repayments totaled $358,645. Outstanding standby letters of credit to related parties totaled $945 at December 31, 2000. There were no outstanding standby letters of credit to related parties at December 31, 1999. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectibility. At December 31, 2000, loans with a carrying value of $6,134,149 were pledged as collateral for Federal Funds purchased, long-term debt and other liabilities. Loans held for sale at December 31 along with activity during the period are summarized as follows:
2000 1999 ----------- ----------- Balance at beginning of year $ 45,185 $ 295,817 Originations/purchases...... 2,584,416 4,258,957 Sales/transfers............. (2,509,984) (4,509,589) ----------- ----------- Balance at end of year...... $ 119,617 $ 45,185 =========== ===========
15 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE I -- PREMISES, EQUIPMENT AND LEASES Premises and equipment at December 31 are summarized as follows:
2000 1999 - - ---------- ---------- Land......................... $ 130,468 $ 126,442 Premises..................... 700,885 685,185 Equipment.................... 877,591 873,544 Leasehold improvements....... 131,532 129,361 ---------- ---------- 1,840,476 1,814,532 Less accumulated depreciation and amortization............ 937,065 869,688 ---------- ---------- Total premises and equipment.............. $ 903,411 $ 944,844 ========== ==========
The annual minimum rentals under the terms of the Corporation's noncancelable operating leases as of December 31, 2000 are as follows: 2001................................. $ 75,536 2002................................. 62,292 2003................................. 53,808 2004................................. 47,397 2005................................. 39,940 Thereafter........................... 167,454 -------- Total minimum lease payments.... $446,427 ========
The net rental expense for all operating leases amounted to $83,128 in 2000, $79,079 in 1999 and $67,472 in 1998. Certain leases have various renewal options and require increased rentals under cost of living escalation clauses. Depreciation expense for the years ended December 31, 2000, 1999 and 1998 was $141,308, $143,307 and $111,551, respectively. - -------------------------------------------------------------------------------- NOTE J -- CREDIT ARRANGEMENTS, SHORT-TERM BORROWED FUNDS AND CERTIFICATES OF DEPOSIT At December 31, 2000 and 1999, lines of credit arrangements aggregating $490,000 and $400,000, respectively, were available to the Corporation from unaffiliated banks. Commitment fees were 8 basis points in 2000 and 1999; compensating balances are not required. The unused portion of these banking arrangements principally serves as commercial paper back-up lines. There were no borrowings outstanding under credit arrangements during 2000 or 1999. Federal funds purchased and securities sold under repurchase agreements generally mature within one to four days from the transaction date. Securities sold under repurchase agreements are delivered to either broker-dealers or to custodian accounts for customers. The broker-dealers may have sold, loaned or otherwise disposed of such securities to other parties in the normal course of their operations and have agreed to resell to the Corporation identical securities at the maturity of the agreements. Other borrowed funds consist of term federal funds purchased, treasury tax and loan deposits and short-term bank notes and are generally repaid within seven to 120 days from the transaction date. The weighted average interest rate paid on other borrowed funds was 5.79% and 3.82% at December 31, 2000, and December 31, 1999, respectively. The scheduled maturities of certificates of deposit subsequent to December 31, 2000 are $9,418,376 in 2001, $1,842,698 in 2002, $1,294,911 in 2003, $172,365 in 2004 and $479,647 thereafter. The remaining maturity of domestic office certificates of deposit in denominations of $100 or more is $1,268,671, three months or less; $613,192, over three through six months; $847,146, over six through twelve months; and $944,210, over twelve months. - -------------------------------------------------------------------------------- 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE K -- LONG-TERM DEBT Long-term debt at December 31 is summarized as follows:
2000 1999 - - ----------- ---------- Wachovia Corporation: Senior debt: Senior floating rate notes due in 2000, net of discount of $93..................................... $ -- $ 249,907 Senior floating rate notes due in 2001, net of discount of $116 and $266, respectively............. 299,884 299,734 6.925% senior notes due in 2003, net of discount of $370........................................... 299,630 -- 6.70% senior notes due in 2004, net of discount of $1,522 and $1,907, respectively................. 598,478 598,093 7.45% senior notes due in 2005, net of discount of $461............................................ 549,539 -- 6.625% senior notes due in 2006, net of discount of $572 and $651, respectively.................... 199,428 199,349 ----------- ---------- Total senior debt................................................................................. 1,946,959 1,347,083 Subordinated debt (a): 8.15% subordinated notes due in 2002............................................................... 150,000 150,000 6.375% subordinated debt securities due in 2003, net of discount of $537 and $759, respectively...................................................................................... 249,463 249,241 Floating rate subordinated debt securities due in 2005............................................. 300,000 -- 6.8% subordinated notes due in 2005, net of discount of $191 and $226, respectively................ 249,809 249,774 6.25% subordinated notes due in 2008, net of discount of $1,843 and $2,031, respectively........... 348,157 347,969 5.625% subordinated notes due in 2008, net of discount of $2,179 and $2,396, respectively.......... 397,821 397,604 6.375% subordinated notes due in 2009, net of discount of $213 and $232, respectively.............. 249,787 249,768 6.15% subordinated notes due in 2009, net of discount of $2,238 and $2,445, respectively........... 397,762 397,555 6.605% subordinated notes due in 2025.............................................................. 250,000 250,000 ----------- ---------- Total subordinated debt........................................................................... 2,592,799 2,291,911 Other................................................................................................ 27,027 27,024 ----------- ---------- Total Wachovia Corporation........................................................................ 4,566,785 3,666,018 Subsidiaries: Bank notes, net of discount of $4,045 and $5,641, respectively (b)................................... 2,206,821 2,353,053 Federal Home Loan Bank borrowings (c)................................................................ 2,722,989 782,989 7.70% subordinated notes due in 2010, net of discount of $129 (a).................................... 299,871 -- Other................................................................................................ 14,633 15,459 ----------- ---------- Total subsidiaries................................................................................ 5,244,314 3,151,501 Capital trusts (a): Wachovia Capital Trust I -- 7.64% Capital Securities due in 2027 (d)................................. 300,000 300,000 Wachovia Capital Trust II -- Floating Rate Capital Securities due in 2027, net of discount of $2,117 and $2,465, respectively (e)................................................................. 297,883 297,535 Wachovia Capital Trust V -- 7.965% Capital Securities due in 2027 (f)................................ 300,000 300,000 Central Fidelity Capital Trust I -- Floating Rate Capital Securities due in 2027, net of discount of $764 and $791, respectively (g)..................................................................... 99,236 99,209 ----------- ---------- Total capital trusts.............................................................................. 997,119 996,744 ----------- ---------- Total long-term debt.............................................................................. $10,808,218 $7,814,263 =========== ==========
(a)Subordinated debt qualifies for inclusion in the determination of total capital under the risk-based capital guidelines. The capital trusts qualify for inclusion in Tier I capital under the risk-based capital guidelines. (b)Wachovia Bank, N.A. has an ongoing bank note program under which the bank may offer an aggregate principal amount of up to $19.4 billion. The notes can be issued globally as fixed or floating rate and with maturities beginning at seven days. Bank notes with original maturities of one year or less are included in other short-term borrowed funds. Bank notes with original maturities greater than one year are classified as long-term debt. Interest rates on long-term notes ranged from 5.4% to 7.0% and 4.9% to 7.0% with maturities ranging from 2001 to 2040 and 2000 to 2039 at December 31, 2000 and 1999, respectively. The average rates were 6.58% and 6.07% with average maturities of 4.7 years and 3.9 years at December 31, 2000 and 1999, respectively. (c)The Federal Home Loan Bank borrowings were issued as fixed or floating rate with terms of 2 years to 5 years. Interest rates on the borrowings ranged from 4.940% to 7.06% and 5.63% to 7.06% for December 31, 2000 and 1999 and with maturities ranging from 2001 to 2009 and 2000 to 2004 at December 31, 2000 and 1999, respectively. Borrowings from the Federal Home Loan Bank are collateralized by qualifying securities and loans. (d)In December 1996, Wachovia Capital Trust I (WCT I), a wholly owned subsidiary, issued $300,000 of 7.64% Capital Securities due in 2027. WCT I invested the proceeds of the Capital Securities, together with $9,280 paid by the Corporation for WCT I's Common Securities, in $309,280 of the Corporation's 7.64% Junior Subordinated Deferrable Interest Debentures. WCT I's sole asset is the Junior Subordinated Deferrable Interest Debentures which mature in 2027. The Corporation has guaranteed all of WCT I's obligations under the Capital Securities. (e)In January 1997, Wachovia Capital Trust II (WCT II), a wholly owned subsidiary, issued $300,000 Floating Rate Capital Securities due in 2027. WCT II invested the proceeds of the Capital Securities, together with $9,280 paid by the Corporation for WCT II's Common Securities, in $305,692, net of discount of $3,588, of the Corporation's Floating Rate Junior Subordinated Deferrable Interest Debentures. WCT II's sole asset is the Junior Subordinated Deferrable Interest Debentures which mature in 2027. The Corporation has guaranteed all of WCT II's obligations under the Capital Securities. (f)In June 1997, Wachovia Capital Trust V (WCT V), a wholly owned subsidiary, issued $300,000 of 7.965% Capital Securities due in 2027. WCT V invested the proceeds of the Capital Securities, together with $9,280 paid by the Corporation for WCT V's Common Securities, in $309,280 of the Corporation's 7.965% Junior Subordinated Deferrable Interest Debentures. WCT V's sole asset is the Junior Subordinated Deferrable Interest Debentures which mature in 2027. The Corporation has guaranteed all of WCT V's obligations under the Capital Securities. (g)In April 1997, Central Fidelity Capital Trust I (CFCT I), a wholly owned subsidiary, issued $100,000 Floating-Rate Capital Securities due in 2027. CFCT I invested the proceeds of the Capital Securities, together with $3,093 paid by the Corporation for CFCT I's Common Securities, in $103,093 of the Corporation's Floating-Rate Junior Subordinated Debt Securities. CFCT I's sole asset is the Junior Subordinated Debt Securities which mature in 2027. The Corporation has guaranteed all of CFCT I's obligations under the Capital Securities. The principal maturities of long-term debt subsequent to December 31, 2000 are $1,546,978 in 2001, $904,013 in 2002, $853,615 in 2003, $824,387 in 2004, $2,099,864 in 2005 and $4,579,361 thereafter. - -------------------------------------------------------------------------------- 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE L -- CAPITAL STOCK At December 31, 2000, 39,419,911 common shares were reserved for the conversion of notes and issuance for employee benefit plans, the dividend reinvestment plan and pending business combinations. During 2000, the Corporation repurchased 1,999,300 shares under three separate stock repurchase authorizations by the Board of Directors. Repurchased shares were or will be used for various corporate purposes including the issuance of shares for purchase business combinations, employee benefit plans and the dividend reinvestment plan. The Corporation has one active stock option plan, the restated 1994 Wachovia Corporation Stock Plan. Under this Plan, up to 2.5% of the Corporation's outstanding common stock at year-end may be granted to selected key employees and nonemployee directors in the form of incentive and nonqualified stock options, stock appreciation rights (SARS), restricted stock awards and restricted units. Since the inception, a total of 16,006,299 options, 2,505,305 awards and 125,000 SARS have been granted. The Corporation also has several predecessor plans, the 1989 Plan and plans of merged entities which were assumed with appropriate conversion shares under option and option price. These plans continue to have options outstanding which may be exercised. The Corporation's stock plans provide for the granting of options or awards for the purchase or issuance of 21,792,187 shares at 100% of the fair market value of the stock at the date of the grant. A committee of the Board of Directors determines such times options and awards shall be granted and exercised and the term of the exercise period (not to exceed 10 years). The plan awards officers shares of restricted stock earned contingent upon both a performance requirement and a five-year period. Additionally, newly elected nonemployee directors are granted a one-time award of 1,000 shares of restricted stock to be earned over a three-year period and nonemployee directors are awarded 250 shares of restricted stock annually which are earned over a one-year period. The cost relating to performance-based stock compensation was $33,132, $26,177 and $15,998 during 2000, 1999 and 1998, respectively. The following table reflects pro forma net income and earnings per share had the Corporation elected to adopt the fair value approach of FASB 123.
2000 1999 1998 -------- -------- -------- Income from continuing operations: As reported............ $663,023 $806,244 $734,113 Pro forma.............. 641,248 791,117 727,138 Basic earnings per share: As reported............ $ 3.27 $ 3.98 $ 3.58 Pro forma.............. 3.16 3.90 3.55
The weighted average fair values of options at their grant date during 2000, 1999 and 1998 were $17.17, $18.18 and $16.46, respectively. The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. The following summarizes the weighted-average of the assumptions used in the model.
2000 1999 1998 ---- ---- ---- Risk-free interest rate...... 6.68% 4.87% 5.73% Expected years until exercise 7.50 6.50 6.50 Expected stock volatility.... 22% 21% 19% Dividend yield............... 3.01% 3.04% 3.20%
Activity in the option and award plans during 2000, 1999 and 1998 is summarized as follows:
OPTIONS AND AWARDS OUTSTANDING AVAILABLE --------------------- OPTION PRICE FOR GRANT AWARDS OPTIONS PER SHARE ---------- --------- ---------- ------------ Total December 31, 1997............. 5,148,165 659,974 8,295,661 $11.10-76.69 Granted......... (3,209,626) 364,426 2,845,200 75.00-87.38 Exercised....... -- (69,150) (2,159,068) 15.73-75.00 Authorized...... 3,064,084 -- -- -- Forfeited....... 72,030 (1,000) (115,150) 33.88-86.50 ---------- --------- ---------- Total December 31, 1998............. 5,074,653 954,250 8,866,643 11.10-87.38 Granted......... (4,243,285) 769,456 3,473,829 79.44-89.19 Assumed (IJL and OFFITBANK)..... 352,646 200,662 24.35-65.29 Exercised....... -- (80,676) (1,151,761) 11.12-85.88 Authorized...... 3,984,924 -- -- -- Forfeited....... 229,015 (18,699) (226,121) 19.75-86.50 ---------- --------- ---------- Total December 31, 1999............. 5,045,307 1,976,977 11,163,252 11.10-89.19 Granted......... (5,204,049) 712,049 4,492,000 48.69-69.13 Exercised....... -- (292,974) (793,963) 11.12-60.63 Authorized...... 4,735,350 -- -- -- Forfeited....... 508,982 (36,546) (514,198) 33.88-89.19 ---------- --------- ---------- Total December 31, 2000............. 5,085,590 2,359,506 14,347,091 11.10-89.19 ========== ========= ==========
The following table summarizes information concerning currently outstanding and exercisable options.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------ -------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE - --------------- ----------- ----------- -------- ----------- -------- $11.10-30.00.. 432,898 1.50 $26.71 432,898 $26.71 30.01-50.00.. 2,456,155 4.40 38.24 2,199,709 37.51 50.01-70.00.. 5,749,156 8.40 61.16 1,133,046 58.84 70.01-89.19.. 5,708,882 7.68 81.67 2,103,782 80.78 ---------- --------- 14,347,091 5,869,435 ========== =========
- -------------------------------------------------------------------------------- 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE M -- OFF-BALANCE SHEET TRADING AND LENDING ACTIVITIES The Corporation maintains positions in a variety of financial instruments with off-balance sheet risk to accommodate customers' financing objectives and management of interest rate and foreign currency risk. The Corporation maintains active trading positions in foreign exchange forward contracts and manages credit risk through the establishment of offsetting sell positions, as well as standard limit and monitoring procedures. The Corporation maintains a trading portfolio of interest rate swap and option (caps and floors) contracts and foreign exchange options consisting of generally matched, offsetting contracts with customer and market counterparties. Off-balance sheet financial instruments involve, in varying degrees, exposure to credit and interest rate risk in excess of the amount recognized in the statements of financial condition. The Corporation follows the same credit policies and careful underwriting practices in making commitments and conditional obligations as it does for on-balance sheet instruments. In those instances where collateral is necessary to support financial instrument credit risk, the Corporation assures its ability to access borrower's collateral, in the event of default, through strict adherence to corporate lending policy and applicable state lending laws. Derivative Financial Instruments Held or Issued for Trading Purposes -- The amounts disclosed below represent the year-end notional and fair value of derivative financial instruments held or issued for trading purposes and the average fair value during the year. Notional principal amounts are often used to express the volume of these transactions but do not represent the much smaller amounts potentially subject to credit risk. The Corporation's credit exposure to off-balance sheet derivative financial instruments is represented by the fair value gain of the instrument if a counterparty fails to perform. Options written do not expose the Corporation to credit risk, except to the extent of the underlying risk in the debt instrument that the Corporation may be obligated to acquire under certain written put options. The present value of purchased caps and floors in a gain position represents the Corporation's potential credit exposure.
2000 1999 ------------------------------------------ ------------------------------------------ NOTIONAL FAIR VALUE FAIR VALUE AVERAGE NOTIONAL FAIR VALUE FAIR VALUE AVERAGE VALUE GAINS (LOSSES) FAIR VALUE VALUE GAINS (LOSSES) FAIR VALUE ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- U.S. dollar interest rate contracts as intermediary: Interest rate swaps-pay fixed.... $7,257,120 $33,148 $(62,100) $ 226 $8,240,207 $204,572 $ (16,759) $ 172 Interest rate swaps-pay floating........................ 7,363,943 85,806 (16,833) (113) 8,038,233 11,850 (136,278) (64) Interest rate caps and floors written......................... 2,029,128 2,194 (46,658) (265) 2,009,209 6,138 (33,566) (523) Interest rate caps and floors purchased....................... 1,265,882 47,724 (2,491) 158 1,698,451 10,089 (11,927) 319 Securities trading activities: Commitments to purchase securities, futures and forward contracts............... 3,200 -- -- (9) 38,850 2 (24) 24 Commitments to sell securities, futures and forward contracts............... 86,880 -- -- (3) 74,141 654 -- 160 Foreign exchange trading activities: Commitments to purchase foreign exchange................ 3,882,168 81,840 (31,114) (36,865) 2,888,413 13,708 (32,731) (5,683) Commitments to sell foreign exchange........................ 2,477,118 34,191 (81,396) 219,137 1,571,906 37,119 (10,482) 10,940 Foreign exchange options written......................... 33,803 388 (242) 94 34,960 416 (365) 24 Foreign exchange options purchased....................... 25,500 299 (131) 169 35,023 576 (551) 9
The Corporation controls the credit risk of these instruments through adherence to credit approval policies, monetary limits and monitoring procedures. Entering into interest rate swap agreements involves not only credit risk but also interest rate and foreign currency risk associated with unmatched positions. The Corporation controls the interest rate and foreign currency risk inherent in the derivative trading portfolio by entering into offsetting positions or by using other hedging techniques. Risks are further mitigated for those instruments that trade on organized exchanges, as the exchanges provide oversight and determine who may buy and sell such instruments. Interest Rate Swaps -- These transactions generally involve the exchange of fixed- and floating-rate payments without the exchange of the underlying principal amounts. Payments made or received under swap contracts are accrued based on contractual terms and are reported as other operating income. The related accrued amounts receivable or payable to customers or counterparties are included in other assets or liabilities. Revenues from the customer portfolio represent a small profit margin on intermediated transactions. The difference in the fair value of the offsetting contracts is not material. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE M -- OFF-BALANCE SHEET TRADING AND LENDING ACTIVITIES -- CONCLUDED At December 31, 2000, the weighted average maturity of pay-fixed swaps and receive-fixed swaps held in the customer portfolio was 3.58 years. Under pay-fixed swap agreements, the Corporation paid interest at a weighted average fixed rate of 5.96% and received interest at a weighted average floating rate of 6.58% (based on year-end rates). Under receive-fixed swap agreements, the Corporation received interest at a weighted average fixed rate of 6.13% and paid interest at a weighted average floating rate of 6.58% (based on year-end rates). Interest Rate Caps and Floors -- These instruments are written by the Corporation to enable its customers to transfer, modify, or reduce their interest rate risk exposure. In a cap or floor contract, the purchaser pays a premium at the initiation of the contract for the right to receive payments if market interest rates are greater than the strike price of a cap or less than the strike price of a floor. Payments made or received under cap or floor contracts are accrued based on contractual terms and are reported as other operating income. Commitments to Purchase and Sell Securities, Futures and Forward Contracts -- These instruments are contracts for delayed delivery of securities or money market instruments in which the seller agrees to deliver a specified instrument at a specified price or yield at a specified date. Commitments to purchase and sell securities, futures and forward contracts used in securities trading operations are recognized currently at market value and are reported in capital markets income. Net Options Written to Purchase and Sell Foreign Exchange -- Forward commitments involve the purchase or sale of foreign currency amounts for delivery at a specified future date. Payments on forward commitments are exchanged on the delivery date based on the exchange rate in the contract. Forward commitments to purchase and sell foreign exchange are recognized at market value and are reported as other operating income. Foreign Exchange Options -- These agreements represent rights to purchase or sell foreign currency at a predetermined price at a future date. The purchaser pays a premium at the initiation of the contract for the right to exchange a specified amount at the contract's exchange rate at the maturity of the option. Revenues from the derivative trading portfolio are shown below.
2000 1999 1998 - ------- ------- ------- Interest rate contracts $16,533 $19,004 $19,406 Securities activities.. (1,714) 2,261 (2,304) Foreign exchange activities............ 22,899 19,694 20,054 ------- ------- ------- Total............. $37,718 $40,959 $37,156 ======= ======= =======
Off-Balance Sheet Financial Instruments Issued for Lending Activities -- The Corporation issues off-balance sheet financial instruments as part of its commercial and consumer lending activities. The contract amounts of these instruments represent potential credit risk at December 31 as shown below:
2000 1999 - ----------- ----------- Commercial and consumer lending activities: Unfunded commitments to extend credit.......... $46,507,267 $43,172,576 Standby letters of credit.. 9,444,534 9,564,012 Commercial and similar letters of credit......... 177,897 146,523 Participations in bankers' acceptances............... 5,850 4,950
Commitments to Extend Credit -- These are legally binding contracts to lend to a customer, provided there is no contract violation. These commitments have fixed termination dates and generally require payment of a fee. As most commitments expire prior to being drawn, the amounts shown do not necessarily represent the future cash requirements of the contracts. Credit worthiness is evaluated and in some instances collateral is obtained to support the borrowing. Approximately 25% at December 31, 2000 and approximately 23% at December 31, 1999 of unfunded commitments to extend credit were supported by collateral. Of the total unfunded commitment amounts presented, approximately 16% in 2000 and 15% in 1999 were represented by real estate commitments. Standby, Commercial and Similar Letters of Credit -- These instruments are conditional commitments issued by the Corporation guaranteeing the performance of a customer to a third party. These guarantees are issued primarily to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit to customers and is subject to the Corporation's underwriting process. At December 31, 2000 and 1999, approximately 5% of these instruments were supported by collateral. There were no significant concentrations of letters of credit to any one group of borrowers at either year-end. Participation in Bankers' Acceptances -- These instruments represent risk participation in time drafts drawn by customers under a committed multibank credit facility. These drafts have been accepted and remarketed by other financial institutions. Under the terms of these arrangements, the Corporation may be required to reimburse the accepting financial institution for the Corporation's pro rata share of any payment default by the customer. - -------------------------------------------------------------------------------- 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE N -- OFF-BALANCE SHEET RISK MANAGEMENT ACTIVITIES The Corporation uses a variety of off-balance sheet financial instruments as part of its overall interest rate risk management process. The Corporation's principal objective of asset/liability management activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest rate and liquidity risk and facilitating the Corporation's funding needs. Accordingly, the Corporation uses a combination of derivative financial instruments, including interest rate swaps, futures and options with indices that correlate to on-balance sheet instruments to modify the repricing characteristics of interest-earning assets and interest-bearing liabilities. The amounts disclosed in the following table represent the year-end notional and fair value of derivative financial instruments held for risk management purposes. The Corporation's credit exposure to off-balance sheet derivative financial instruments is represented by the fair value gain of the instrument if a counterparty fails to perform.
2000 1999 ------------------------------- ------------------------------- NOTIONAL FAIR VALUE FAIR VALUE NOTIONAL FAIR VALUE FAIR VALUE VALUE GAINS (LOSSES) VALUE GAINS (LOSSES) ---------- ---------- ---------- ---------- ---------- ---------- Convert floating rate liabilities to fixed: Swaps-pay fixed/receive floating............ $ 300,000 $ 892 $ (467) $ 300,000 $ 4,997 $ -- Convert fixed rate assets to floating: Swaps-pay fixed/receive floating............ 134,611 548 (588) 538,427 13,564 (4,515) Convert fixed rate liabilities to floating: Swaps-receive fixed/pay floating............ 5,396,000 141,681 (21,991) 3,100,000 842 (144,128) Forward starting swaps-pay floating/ receive fixed.............................. 72,468 -- (439) 72,468 -- (7,633) Convert liabilities with quarterly rate resets to monthly: Swaps-receive floating/pay floating......... 300,000 65 -- 300,000 28 -- Convert floating rate assets to fixed: Swaps-receive fixed/pay floating............ 202,850 1,993 -- 256,383 779 (2,641) ---------- -------- -------- ---------- ------- --------- Total derivatives........................ $6,405,929 $145,179 $(23,485) $4,567,278 $20,210 $(158,917) ========== ======== ======== ========== ======= =========
- -------------------------------------------------------------------------------- NOTE O -- INCOME TAXES The provision for income taxes is summarized below.
2000 1999 1998 -------- -------- -------- Current: Federal................ $ 72,099 $ 20,220 $ 73,731 Foreign................ 2,468 1,276 686 State and local........ 27,487 20,454 9,266 -------- -------- -------- Total current....... 102,054 41,950 83,683 Deferred: Federal................ 236,754 349,063 247,711 State.................. 3,193 17,451 14,070 -------- -------- -------- Total deferred...... 239,947 366,514 261,781 -------- -------- -------- Total income tax expense attributable to continuing operations......... $342,001 $408,464 $345,464 ======== ======== ========
The reasons for the difference between consolidated income tax expense and the amount computed by applying the statutory federal income tax rate of 35% to income before taxes were as follows:
2000 1999 1998 ---------- ---------- ---------- Income from continuing operations before income taxes........ $1,005,024 $1,214,708 $1,079,577 ========== ========== ========== Federal income taxes at statutory rate................ $ 351,758 $ 425,148 $ 377,852 State and local income taxes, net of federal benefit.. 19,941 24,638 15,169 Effect of tax-exempt securities interest and other income.... (46,658) (47,116) (51,499) Other items.......... 16,960 5,794 3,942 ---------- ---------- ---------- Total income tax expense attributable to continuing operations...... $ 342,001 $ 408,464 $ 345,464 ========== ========== ==========
21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE O -- INCOME TAXES -- CONCLUDED Significant components of the Corporation's deferred tax assets and liabilities, which are included in other liabilities, at December 31 are as follows:
DEFERRED TAX ASSETS ------------------- 2000 1999 -------- -------- Allowance for loan losses......... $256,305 $167,131 Employee compensation and retirement benefits.............. 125,647 103,317 Unrealized losses on securities available-for-sale............... -- 45,450 Other............................. 18,264 22,582 -------- -------- Gross deferred tax assets.... $400,216 $338,480 ======== ========
DEFERRED TAX LIABILITIES ------------------------ 2000 1999 ---------- -------- Unrealized gains on securities available-for-sale................ $ 19,048 $ -- Depreciation....................... 47,793 40,209 Lease financing.................... 1,133,044 798,191 Accretion of discounts on securities........................ 16,497 16,519 Identifiable intangibles........... 22,914 12,855 Other.............................. 23,536 32,830 ---------- -------- Gross deferred tax liabilities.................. $1,262,832 $900,604 ========== ======== Net deferred tax liability.... $ 862,616 $562,124 ========== ========
- -------------------------------------------------------------------------------- NOTE P -- CASH, DIVIDEND, LOAN RESTRICTIONS, CAPITAL RATIOS AND CONTINGENT LIABILITIES In the normal course of business, the Corporation and its subsidiaries enter into agreements, or are subject to regulatory requirements, that result in cash, debt and dividend restrictions. A summary of the most restrictive items follows. The Corporation's banking subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances for the year ended December 31, 2000 was approximately $244,614. Under current Federal Reserve regulations, the banking subsidiaries also are limited in the amount they may loan to their affiliates, including the Corporation. Loans to a single affiliate may not exceed 10% and loans to all affiliates may not exceed 20% of the bank's capital, surplus and undivided profits plus the allowance for loan losses. Based on these limitations, approximately $901,172 was available for loans to the Corporation at December 31, 2000. The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's net profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. Under this formula, the banking subsidiaries cannot distribute as dividends to the Corporation in 2001, without the approval of the Comptroller of the Currency, more than $652,064 plus an additional amount equal to the banks' retained net profits for 2001 up to the date of any dividend declaration. As a result of the above dividend and loan restrictions, approximately $5,081,969 of consolidated net assets of the Corporation's banking subsidiaries at December 31, 2000 was restricted from transfer to the Corporation in the form of cash dividends, loans or advances. The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory, and possible discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. The Corporation and its banking subsidiaries are required to maintain minimum Tier I capital, total risk-based capital and Tier I leverage ratios of 4%, 8% and 3%, respectively. The Corporation and its banking subsidiaries meet all capital adequacy requirements to which they are subject. At December 31, 2000, the most recent notification from the Comptroller of the Currency categorized the Corporation's banking subsidiaries as well capitalized under the regulatory framework for prompt corrective action. To be well capitalized, the banking subsidiaries must maintain minimum Tier I capital, total risk-based capital, and Tier I leverage ratios of 6%, 10% and 5%, respectively. There are no conditions or events since that notification that management believes have changed the banking subsidiaries' well capitalized status. The actual capital amounts and ratios for the Corporation at December 31, 2000 are presented in the following table:
2000 1999 - ---------------- ---------------- AMOUNT RATIO AMOUNT RATIO - ---------- ----- ---------- ----- Wachovia Corporation Tier I capital.... $6,179,667 7.55% $5,795,946 7.52% Total risk-based capital.......... 9,465,258 11.56 8,458,090 10.98 Tier I leverage... 6,179,667 8.73 5,795,946 8.77 Wachovia Bank, N.A. Tier I capital.... 5,769,926 7.39 5,458,716 7.33 Total risk-based capital.......... 9,124,248 11.69 8,191,453 11.00 Tier I leverage... 5,769,926 8.64 5,458,716 8.69
- -------------------------------------------------------------------------------- 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE P -- CASH, DIVIDEND, LOAN RESTRICTIONS, CAPITAL RATIOS AND CONTINGENT LIABILITIES -- CONCLUDED The Corporation, in the normal course of business, is subject to various pending or threatened lawsuits in which claims for monetary damages are asserted. Although it is not possible for the Corporation to predict the outcome of these lawsuits or the range of any possible loss, management, after consultation with legal counsel, does not anticipate that the ultimate aggregate liability, if any, arising from these lawsuits will have a material adverse effect on the Corporation's financial position or operating results. - -------------------------------------------------------------------------------- NOTE Q -- PENSION AND OTHER POSTRETIREMENT BENEFITS The Corporation maintains several defined benefit pension plans, the first of which covers substantially all employees (the Qualified Plan). The Qualified Plan provides pension benefits that are based upon the employee's length of credited service and final average compensation as defined in the plan. The pension expense of the Qualified Plan is determined using the projected unit credit method. The Corporation's policy is to fund amounts allowable for federal income tax purposes. The Corporation also sponsors separate unfunded nonqualified pension plans that provide certain officers with defined pension benefits in excess of limits imposed on qualified plans by federal tax law and for certain compensation not covered in the qualified plans. The Corporation and its subsidiaries provide certain health care benefits for retired employees. Substantially all of the employees may become eligible for these benefits if they reach normal retirement age while working for the Corporation or its subsidiaries. The benefits are provided through self-insured plans administered by insurance companies whose premiums are based on the claims paid during the year. The following table sets forth the changes in the projected benefit obligations and the fair value of plan assets for the Corporation's defined benefit pension plans and health care benefits provided for retired employees and the amounts recognized in the Consolidated Statements of Condition at December 31.
PENSION BENEFITS OTHER BENEFITS - - --------------------- ------------------------- 2000 1999 2000 1999 - - -------- ----------- --------------- -------- Change in benefit obligation Projected benefit obligation at beginning of year. $828,236 $ 858,601 $ 70,620 $ 76,059 Service cost...................................... 34,644 37,346 1,943 1,555 Interest cost..................................... 67,563 61,407 7,648 5,488 Actuarial loss (gain)............................. 66,027 (93,420) 31,568 (6,767) Benefits paid..................................... (38,433) (38,322) (14,168) (8,845) Plan participants' contributions.................. -- -- 3,206 3,130 Plan amendments................................... 9,968 -- 5,233 -- Special termination benefits...................... 3,894 -- 4,355 -- Acquisitions...................................... 3,655 2,624 796 -- -------- ----------- --------------- -------- Projected benefit obligation at end of year....... $975,554 $ 828,236 $ 111,201 $ 70,620 ======== =========== =============== ======== Change in plan assets Fair value of plan assets at beginning of year.... $910,841 $ 827,310 $ 14,947 $ 13,530 Actual return on plan assets...................... (3,282) 117,556 467 1,417 Employer contributions............................ 4,581 4,297 10,962 5,715 Plan participants' contributions.................. -- -- 3,206 3,130 Benefits paid..................................... (38,433) (38,322) (14,168) (8,845) Acquisitions...................................... 2,940 -- -- -- -------- ----------- --------------- -------- Fair value of plan assets at end of year.......... $876,647 $ 910,841 $ 15,414 $ 14,947 ======== =========== =============== ======== Accrued benefit cost Funded status..................................... $(98,907) $ 82,605 $ (95,787) $(55,673) Unrecognized transition (asset) liability......... (11,176) (16,747) 39,078 51,736 Unrecognized prior service cost................... 25,379 16,479 4,591 (6,103) Unrecognized net loss (gains)..................... 24,924 (125,889) 12,250 (19,893) -------- ----------- --------------- -------- Accrued benefit cost.............................. $(59,780) $ (43,552) $ (39,868) $(29,933) ======== =========== =============== ======== Weighted-average assumptions as of December 31: Discount rate..................................... 7.75% 8.00% 7.75% 8.00% Expected return on plan assets.................... 9.00% 9.00% 7.00% 7.00% Rate of compensation increase..................... 5.31% 6% through 5.31% 6.00% 2005, 5% thereafter Assumed rate of increase in health care costs: Retirees under age 65........................... -- -- 12% in 2000; 8.00% 8% in 2001; grading to 6% in 2005 Retirees over age 65............................ -- -- Same as Pre-65 6.00%
23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE Q -- PENSION AND OTHER POSTRETIREMENT BENEFITS -- CONCLUDED The rate of increase in health care costs is assumed to remain constant for each category of retirees. Included in plan assets at December 31, 2000 were 130,626 shares of Wachovia Corporation common stock with a market value of $7,593.
PENSION BENEFITS OTHER BENEFITS - - ---------------------------- ----------------------- 2000 1999 1998 2000 1999 1998 - - -------- -------- -------- ------- ------ ------ Components of net periodic benefit cost: Service cost.......................... $ 34,644 $ 37,346 $ 31,933 $ 1,943 $1,555 $1,396 Interest cost......................... 67,563 61,407 54,963 7,648 5,488 5,573 Expected return on plan assets........ (81,090) (73,438) (63,050) (1,042) (947) (852) Amortization of unrecognized amounts: Transition obligation................. (5,587) (5,585) (5,585) 3,265 3,980 3,980 Prior service cost.................... 564 536 537 284 (509) (509) Net actuarial (gain) loss............. (414) 3,235 2,132 -- (36) (262) Acquisitions............................ 715 -- -- 796 -- -- Special termination benefits............ 4,414 -- -- 8,003 -- -- -------- -------- -------- ------- ------ ------ Benefit cost............................ $ 20,809 $ 23,501 $ 20,930 $20,897 $9,531 $9,326 ======== ======== ======== ======= ====== ======
The assumed health care cost trend rate has a significant effect on the amounts reported. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:
1-Percentage- 1-Percentage- Point Increase Point Decrease -------------- -------------- Effect on total of service and interest cost components in 2001........................... $ 221 $ 195 Effect on postretirement benefit obligation as of December 31, 2000........................... $2,992 $2,644
The Corporation also provides supplemental benefits to substantially all employees through defined contribution plans designed to encourage participants to save on a regular basis and to provide such participants with deferred compensation and additional performance incentive. Total expense relating to these plans, which represented the Corporation's matching and discretionary contributions, was $34,130 in 2000, $30,865 in 1999, and $23,137 in 1998. Employee participants may elect to contribute from 1% to 15% of base salary. The Corporation matches 100% of each participant's contribution up to the first 3% of base salary and 50% of each participant's remaining contribution up to 6% of base salary with a maximum employer contribution of 4.5% of base salary. The plans provide for additional contributions of up to 1.5% of salary in accordance with a pre-established formula based on certain earnings performance criteria and also for special discretionary employer contributions of up to 4% of each eligible employee's base salary as approved annually by the Board of Directors. - -------------------------------------------------------------------------------- NOTE R -- SELECTED INCOME STATEMENT INFORMATION The components of other operating income and expense for the three years ended December 31 were as follows:
2000 1999 1998 -------- -------- -------- Other operating income: Bankers' acceptance and letter of credit fees..... $ 55,318 $ 46,037 $ 39,025 Other service charges and fees.................... 83,030 67,497 54,695 Other income...................................... 161,365 100,289 107,892 -------- -------- -------- Total other operating income................... $299,713 $213,823 $201,612 ======== ======== ======== Other operating expense: Postage and delivery.............................. $ 44,520 $ 45,458 $ 43,100 Outside data processing, programming and software. 102,363 95,702 58,318 Stationery and supplies........................... 35,901 33,634 32,527 Advertising and sales promotion................... 37,240 31,196 34,413 Professional services............................. 70,809 66,044 50,356 Travel and business promotion..................... 40,097 33,280 28,176 Telecommunications................................ 55,635 52,611 49,406 Amortization of intangible assets................. 55,814 44,529 36,682 Foreclosed property expense....................... (3,182) (853) 571 Other expense..................................... 145,978 132,959 107,532 -------- -------- -------- Total other operating expense.................. $585,175 $534,560 $441,081 ======== ======== ========
- -------------------------------------------------------------------------------- 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE S -- EARNINGS PER SHARE
YEAR ENDED DECEMBER 31 ---------------------------- 2000 1999 1998 -------- ---------- -------- Basic (thousands, except per share) Average common shares outstanding..................... 202,989 202,795 205,058 ======== ========== ======== Income from continuing operations..................... $663,023 $ 806,244 $734,113 Income from discontinued operations................... 169,285 204,977 140,057 -------- ---------- -------- Net income.......................................... $832,308 $1,011,221 $874,170 ======== ========== ======== Per share amount Continuing operations............................... $ 3.27 $ 3.98 $ 3.58 Discontinued operations............................. .83 1.01 .68 -------- ---------- -------- Net Income........................................ $ 4.10 $ 4.99 $ 4.26 ======== ========== ======== Diluted (thousands, except per share) Average common shares outstanding..................... 202,989 202,795 205,058 Dilutive common stock options at average market price. 1,311 2,976 3,778 Dilutive common stock awards at average market price.. 127 397 300 Convertible long-term debt assumed converted.......... 23 24 17 -------- ---------- -------- Average diluted shares outstanding.................. 204,450 206,192 209,153 ======== ========== ======== Income from continuing operations..................... $663,023 $ 806,244 $734,113 Add interest on convertible long-term debt, net of tax 62 71 48 -------- ---------- -------- Adjusted income from continuing operations.......... 663,085 806,315 734,161 Income from discontinued operations................... 169,285 204,977 140,057 -------- ---------- -------- Adjusted net income................................. $832,370 $1,011,292 $874,218 ======== ========== ======== Per share amount Continuing operations............................... $ 3.24 $ 3.91 $ 3.51 Discontinued operations............................. .83 .99 .67 -------- ---------- -------- Net Income........................................ $ 4.07 $ 4.90 $ 4.18 ======== ========== ========
- -------------------------------------------------------------------------------- NOTE T -- FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Also, the fair value estimates presented are based on pertinent information available to management as of December 31, 2000 and 1999. Such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and therefore, current estimates of fair value may differ significantly from the amounts presented. Trading Account Assets -- Fair values are based on quoted market prices as recognized in the statements of condition. Securities -- Fair values are based on quoted market prices. If a quoted market price is not available, fair value is estimated using market prices for similar securities. Loans -- For equity lines and other loans with short-term or variable rate characteristics, the carrying value reduced by an estimate of credit losses inherent in the portfolio is a reasonable estimate of fair value. The fair value of all other loans is estimated by discounting their future cash flows using interest rates currently being offered for loans with similar terms, reduced by an estimate of credit losses inherent in the portfolio. The discount rates used are commensurate with the interest rate and prepayment risks involved for the various types of loans. Deposits -- The fair values disclosed for demand deposits (e.g., interest- and noninterest-bearing demand, savings and money market savings) are equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated monthly maturities. Long-Term Debt -- Fair values are estimated using discounted cash flow analyses, based on the Corporation's current incremental borrowing rates for similar types of borrowing arrangements. Many of the Corporation's assets and liabilities are short-term financial instruments whose carrying amounts reported in the statements of condition approximate fair value. These 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE T -- FAIR VALUE OF FINANCIAL INSTRUMENTS -- CONCLUDED items include cash and due from banks, interest-bearing bank balances, federal funds sold and securities purchased under resale agreements, due from customers on acceptances, short-term borrowed funds, acceptances outstanding, and the financial instruments included in other assets and liabilities. The following summarizes estimated fair values of the Corporation's remaining on-balance sheet financial instruments as of December 31.
2000 ----------------------- CARRYING ESTIMATED VALUE FAIR VALUE ----------- ----------- Financial assets: Trading account assets............. $ 960,838 $ 960,838 Securities.......... 8,511,446 8,540,231 Loans, net of allowance for loan losses............. 49,899,848 50,051,356 Financial liabilities: Deposits............ 44,412,182 44,466,325 Long-term debt...... 10,808,218 10,403,092
1999 - ----------------------- CARRYING ESTIMATED VALUE FAIR VALUE - ----------- ----------- Financial assets: Trading account assets.. $ 870,304 $ 870,304 Securities.............. 8,144,514 8,156,940 Loans, net of allowance for loan losses........ 44,497,310 44,490,893 Financial liabilities: Deposits................ 41,786,418 41,846,589 Long-term debt.......... 7,814,263 7,819,811
Off-Balance Sheet Instruments -- Fair values are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing for loan commitments and letters of credit, and the estimated amount the Corporation would receive or pay to terminate or replace the contract at current market rates for the remainder of the off-balance sheet instruments. See Notes M and N for additional information about off-balance sheet financial instruments. The estimated fair values of the Corporation's off-balance sheet financial instruments as of December 31 are summarized below. The amounts for commitments and letters of credit are presented as negative in order to represent the approximate cost the Corporation would incur to pay third parties to assume these commitments. Interest rate contracts and other off-balance sheet financial instruments represent the net fair value gain or loss of the contracts.
2000 1999 ESTIMATED ESTIMATED FAIR VALUE FAIR VALUE - - ---------- ---------- Unfunded commitments to extend credit................ $(73,396) $ (76,770) Letters of credit............. (68,865) (69,921) Interest rate contracts issued for trading purposes......... 40,790 34,119 Interest rate contracts held for purposes other than trading...................... 121,694 (138,707) Other off-balance sheet financial instruments issued or held for trading or lending purposes.......... 3,835 8,322
This presentation excludes certain financial instruments and all nonfinancial instruments. The disclosures excludes customer relationships, deposit base intangibles and goodwill. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation. - -------------------------------------------------------------------------------- 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED - -------------------------------------------------------------------------------- $ in thousands WACHOVIA CORPORATION AND SUBSIDIARIES NOTE U -- WACHOVIA CORPORATION (PARENT COMPANY ONLY) INFORMATION The following is a condensed statement of financial condition of the parent company at December 31.
2000 1999 ----------- ----------- Assets - ------ Cash on demand deposit with bank subsidiary......................... $ -- $ 669 Interest-bearing bank balances with bank subsidiaries.................. 2,017,855 1,269,354 Securities.......................... 174,102 170,856 Demand loans to nonbank subsidiaries....................... 1,244,092 1,243,252 Notes receivable from subsidiaries.. 2,766,714 2,456,455 Investments in: Bank subsidiaries................. 6,635,207 6,023,150 Nonbank subsidiaries.............. 821,257 731,090 Other assets........................ 202,419 211,670 ----------- ----------- Total assets.................... $13,861,646 $12,106,496 =========== =========== Liabilities and Shareholders' Equity - ------------------------------------ Parent company commercial paper..... $ 1,855,923 $ 1,658,988 Subordinated notes payable to nonbank subsidiaries............... 1,027,987 1,027,600 Long-term debt...................... 4,566,785 3,666,018 Demand loans from bank subsidiary... 18,015 18,015 Other liabilities................... 108,397 77,418 Shareholders' equity................ 6,284,539 5,658,457 ----------- ----------- Total liabilities and shareholders' equity........... $13,861,646 $12,106,496 =========== ===========
The operating results of the parent company for the three years ended December 31 are shown below.
2000 1999 1998 -------- ---------- -------- Income - ------ Dividends from: Bank subsidiaries.......... $462,600 $ 617,800 $562,000 Nonbank subsidiaries....... 27,393 77,000 -- Interest from subsidiaries... 366,907 301,576 222,956 Other interest income........ 12,391 12,840 7,997 Other income................. 9,060 33,317 57,387 -------- ---------- -------- Total income............. 878,351 1,042,533 850,340 Expense - ------- Interest on short-term borrowed funds.............. 103,256 69,619 64,086 Interest on long-term debt... 352,458 297,646 197,944 Interest paid to subsidiaries 1,239 1,354 1,746 Other expense................ 8,838 33,714 47,858 -------- ---------- -------- Total expense............ 465,791 402,333 311,634 Income before income tax benefit and equity in undistributed net income of subsidiaries............. 412,560 640,200 538,706 Income tax benefit........... 28,910 19,801 14,259 -------- ---------- -------- Income before equity in undistributed net income of subsidiaries............. 441,470 660,001 552,965 Equity in undistributed net income of subsidiaries...... 390,838 351,220 321,205 -------- ---------- -------- Net income............... $832,308 $1,011,221 $874,170 ======== ========== ========
The cash flows for the parent company for the three years ended December 31, were as follows:
2000 1999 1998 ----------- ---------- ----------- Operating Activities - -------------------- Net Income............... $ 832,308 $1,011,221 $ 874,170 Other, net............... 51,200 21,648 52,802 Equity in undistributed net income of subsidiaries............ (390,838) (351,220) (321,205) ----------- ---------- ----------- Net cash provided by operations........ 492,670 681,649 605,767 Investing Activities - -------------------- Net increase in interest- bearing bank balances... (748,501) (227,883) (184,968) Purchases of securities.. (31,198) (76,433) (105,763) Sales, calls, prepayments and maturities of securities.............. 27,427 38,371 38,257 Net (increase) decrease in demand loans to nonbank subsidiaries.... (840) (464,217) 214,038 Notes issued to subsidiaries............ (312,764) (213,733) (1,015,908) Notes repaid by subsidiaries............ 2,536 300,103 908 Net decrease (increase) in other assets......... 12,278 (18,810) (22,318) Equity investment in subsidiaries............ (25,339) (3,780) (249,001) ----------- ---------- ----------- Net cash used by investing activities.. (1,076,401) (666,382) (1,324,755) Financing Activities - -------------------- Net decrease in loans and notes from subsidiaries. -- (3,810) (50,474) Net increase in commercial paper........ 196,935 299,606 325,358 Proceeds from long-term debt.......... 1,144,966 993,359 1,288,859 Maturities and repayments of long-term debt.......... (250,000) (318,115) -- Issuance of stock........ 40,465 59,478 80,375 Dividend payments........ (463,018) (418,447) (381,798) Common stock repurchased............. (116,086) (634,623) (531,122) Increase (decrease) in other liabilities....... 29,800 7,434 (18,658) ----------- ---------- ----------- Net cash provided (used) by financing activities............ 583,062 (15,118) 712,540 ----------- ---------- ----------- (Decrease) increase in cash................. (669) 149 (6,448) Cash at beginning of year 669 520 6,968 ----------- ---------- ----------- Cash at end of year...... $ -- $ 669 $ 520 =========== ========== =========== Noncash investing and financing activities: Common stock issued on conversion of long term debt............... $ -- $ 250 $ --
The principal maturities of the parent company's long-term debt subsequent to December 31, 2000 are $325,483 in 2001, $151,427 in 2002, $549,093 in 2003, $598,477 in 2004, $1,099,349 in 2005 and $2,870,943 thereafter. 27 -----END PRIVACY-ENHANCED MESSAGE-----