<PAGE>
1997 FORM 10-Q
United States Securities and Exchange Commission
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 1997
Commission File Number 1-9021
WACHOVIA CORPORATION
Incorporated in the State of North Carolina
IRS Employer Identification Number 56-1473727
Address and Telephone:
100 North Main Street, Winston-Salem, North Carolina, 27101, (910)
770-5000
191 Peachtree Street NE, Atlanta, Georgia, 30303, (404) 332-5000
Securities registered pursuant to Section 12(b) of the Act: Common
Stock -- $5.00 par value, which is registered on the New York Stock
Exchange.
As of June 30, 1997, Wachovia Corporation had 159,539,560 shares of
common stock outstanding.
Wachovia Corporation (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the financial supplement for the quarter ended June 30,
1997 are incorporated by reference into Parts I and II as indicated in
the table below. Except for parts of the Wachovia Corporation Financial
Supplement expressly incorporated herein by reference, this Financial
Supplement is not to be deemed filed with the Securities and Exchange
Commission.
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS (UNAUDITED) PAGE
Selected Period-End Data.........................3
Common Stock Data -- Per Share...................3
Consolidated Statements of Condition............25
Consolidated Statements of Income...............26
Consolidated Statements of
Shareholders' Equity.........................27
Consolidated Statements of Cash Flows...........28
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................4-24
</TABLE>
<PAGE>
1997 FORM 10-Q-CONTINUED
PART II OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held on April 25, 1997, four
directors were elected, the Wachovia Corporation Stock Plan was amended
and restated and the appointment of Ernst & Young LLP as independent
auditors for 1997 was ratified. The distribution of shareholders' votes
was as follows:
<TABLE>
<CAPTION>
Shares Voted Shares
in Favor Withheld
<S> <C> <C> <C>
ELECTION OF DIRECTORS
John L. Clendenin 134,098,935 2,067,538
George W. Henderson, III 134,124,246 2,042,227
Robert A. Ingram 134,057,591 2,108,882
John G. Medlin, Jr. 134,076,808 2,089,665
APPROVAL OF THE AMENDED AND RESTATED STOCK PLAN
Shares Voted in Favor 99,107,948
Shares Voted Against 21,678,626
Abstentions 1,307,506
Broker Nonvotes 14,072,393
</TABLE>
<TABLE>
<S> <C> <C> <C>
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
Shares Voted in Favor 135,019,694
Shares Voted Against 604,604
Abstentions 542,175
</TABLE>
<PAGE>
1997 FORM 10-Q-CONTINUED
<TABLE>
<CAPTION>
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
<S> <C>
a) 2.1 Agreement and Plan of Merger, dated as of June 9, 1997, by and between Wachovia Corporation and Jefferson
Bankshares, Inc. (included as Exhibit 2 to Wachovia Corporation's Form 13D dated June 19, 1997 and incorporated
by reference herein).
2.2 Agreement and Plan of Merger, dated as of June 23, 1997, by and between Wachovia Corporation and Central
Fidelity Banks, Inc. (included as Exhibit 2 to Wachovia Corporation's Form 13D dated July 3, 1997 and
incorporated by reference herein).
4 Instruments defining the rights of security holders, including indentures.*
11 "Computation of Earnings per Common Share" is presented as Table 3 on page 6 of the second quarter 1997
financial supplement.
12 Statement setting forth computation of ratio of earnings to fixed charges.
19 "Unaudited Consolidated Financial Statements," listed in Part I, Item 1 do not include all information and
footnotes required under generally accepted accounting principles. However, in the opinion of management, the
profit and loss information presented in the interim financial statements reflects all adjustments necessary to
present fairly the results of operations for the periods presented. Adjustments reflected in the second quarter
of 1997 figures are of a normal, recurring nature. The results of operations shown in the interim statements
are not necessarily indicative of the results that may be expected for the entire year.
27 Financial Data Schedule (for SEC purposes only).
b) Reports on Form 8-K: A Current Report on Form 8-K dated June 9, 1997 was filed with the Securities and Exchange
Commission relating to the Agreement and Plan of Merger by and between Wachovia Corporation and Jefferson
Bankshares, Inc. A Current Report on Form 8-K dated June 23, 1997 was filed with the Securities and Exchange
Commission relating to the Agreement and Plan of Merger by and between Wachovia Corporation and Central
Fidelity Banks, Inc.
</TABLE>
* Wachovia Corporation hereby agrees to furnish to the Commission, upon
request, a copy of any instruments defining the rights of security
holders that are not required to be filed.
SIGNATURES
Pursuant to the requirements to Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WACHOVIA CORPORATION
August 12, 1997 ROBERT S. McCOY, JR.
Robert S. McCoy, Jr.
Executive Vice President
and Chief Financial Officer
August 12, 1997 DONALD K. TRUSLOW
Donald K. Truslow
Comptroller
<PAGE>
(WACHOVIA LOGO APPEARS HERE)
FINANCIAL SUPPLEMENT
AND FORM 10-Q
SECOND QUARTER 1997
<PAGE>
WACHOVIA CORPORATION DIRECTORS AND OFFICERS
DIRECTORS
L. M. BAKER, JR.
President and
Chief Executive Officer
JOHN G. MEDLIN, JR.
Chairman of the Board
PETER C. BROWNING
President and
Chief Operating Officer
Sonoco Products Company
JOHN L. CLENDENIN
Chairman of the Board
BellSouth Corporation
LAWRENCE M. GRESSETTE, JR.
Chairman of the
Executive Committee
SCANA Corporation
THOMAS K. HEARN, JR.
President
Wake Forest University
GEORGE W. HENDERSON III
President and
Chief Executive Officer
Burlington Industries, Inc.
W. HAYNE HIPP
President and
Chief Executive Officer
The Liberty Corporation
ROBERT M. HOLDER, JR.
Chairman
RMH Group, LLC
ROBERT A. INGRAM
President and
Chief Executive Officer
Glaxo Wellcome Inc.
JAMES W. JOHNSTON
President and
Chief Executive Officer
Stonemarker Enterprises, Inc.
WYNDHAM ROBERTSON
Writer and Retired
Vice President, Communications
University of North Carolina
HERMAN J. RUSSELL
Chairman of the Board
H.J. Russell & Company
SHERWOOD H. SMITH, JR.
Chairman of the Board
Carolina Power & Light Company
JOHN C. WHITAKER, JR.
Chairman and
Chief Executive Officer
Inmar Enterprises, Inc.
PRINCIPAL CORPORATE OFFICERS
L. M. BAKER, JR.
President and
Chief Executive Officer
MICKEY W. DRY
Executive Vice President
Chief Credit Officer
HUGH M. DURDEN
Executive Vice President
Corporate Services
WALTER E. LEONARD, JR.
Executive Vice President
Operations/Technology
KENNETH W. McALLISTER
Executive Vice President
General Counsel/Administrative
ROBERT S. McCOY, JR.,
Executive Vice President
Chief Financial Officer
G. JOSEPH PRENDERGAST
Executive Vice President
General Banking
RICHARD B. ROBERTS
Executive Vice President
Treasurer
<PAGE>
SELECTED PERIOD-END DATA
<TABLE>
<CAPTION>
June 30 June 30
1997 1996
<S> <C> <C>
Banking offices:
North Carolina....................................................................................... 202 219
Georgia.............................................................................................. 121 126
South Carolina....................................................................................... 128 143
Total............................................................................................. 451 488
Automated banking machines:
North Carolina....................................................................................... 386 342
Georgia.............................................................................................. 246 215
South Carolina....................................................................................... 251 196
Total............................................................................................. 883 753
Employees (full-time equivalent)....................................................................... 16,577 16,150
Common stock shareholders of record.................................................................... 32,112 28,058
Common shares outstanding (thousands).................................................................. 159,540 166,798
</TABLE>
COMMON STOCK DATA -- PER SHARE
<TABLE>
<CAPTION>
1997 1996
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Market value:
Period-end............................................................ $58 5/16 $54 1/2 $56 1/2 $49 1/2 $43 3/4
High.................................................................. 66 7/8 64 5/8 60 1/4 49 7/8 46 1/4
Low................................................................... 53 1/2 54 1/2 48 3/4 39 5/8 40 7/8
Book value at period-end................................................ 23.07 22.75 22.96 22.57 22.18
Dividend................................................................ .40 .40 .40 .40 .36
Price/earnings ratio*................................................... 14.6 X 13.9 x 14.8 x 13.6 x 12.4 x
</TABLE>
*Based on most recent twelve months net income per primary share and period-end
stock price
FINANCIAL INFORMATION
Analysts, investors and others seeking additional financial information about
Wachovia Corporation or its member companies should contact the following either
by phone or in writing.
Robert S. McCoy, Jr., Chief Financial Officer, (910) 732-5926
James C. Mabry, Investor Relations Manager, (910) 732-5788
Wachovia Corporation
P.O. Box 3099
Winston-Salem, NC 27150
Common Stock Listing -- New York Stock Exchange, ticker symbol - WB
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL SUMMARY TABLE 1
<TABLE>
<CAPTION>
Twelve
Months Six Months
Ended 1997 1996 Ended
June 30 Second First Fourth Third Second June 30
1997 Quarter Quarter Quarter Quarter Quarter 1997
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(thousands, except per share data)
Interest income -- taxable
equivalent ..................... $3,386,900 $865,416 $837,010 $842,365 $842,109 $810,637 $1,702,426
Interest expense.................. 1,704,116 438,359 417,955 421,079 426,723 411,472 856,314
Net interest income -- taxable
equivalent...................... 1,682,784 427,057 419,055 421,286 415,386 399,165 846,112
Taxable equivalent adjustment..... 60,527 13,315 14,086 16,246 16,880 17,914 27,401
Net interest income............... 1,622,257 413,742 404,969 405,040 398,506 381,251 818,711
Provision for loan losses......... 185,886 49,715 47,998 47,443 40,730 34,404 97,713
Net interest income after
provision for loan losses....... 1,436,371 364,027 356,971 357,597 357,776 346,847 720,998
Other operating revenue........... 835,784 232,905 201,665 203,436 197,778 198,595 434,570
Investment securities gains
(losses)........................ 3,918 326 335 2,864 393 (219) 661
Total other income................ 839,702 233,231 202,000 206,300 198,171 198,376 435,231
Personnel expense................. 688,499 181,650 174,104 167,236 165,509 160,162 355,754
Other expense..................... 629,548 173,044 150,032 155,502 150,970 149,925 323,076
Total other expense............... 1,318,047 354,694 324,136 322,738 316,479 310,087 678,830
Income before income taxes........ 958,026 242,564 234,835 241,159 239,468 235,136 477,399
Applicable income taxes*.......... 293,997 76,941 71,753 70,431 74,872 75,773 148,694
Net income........................ $ 664,029 $165,623 $163,082 $170,728 $164,596 $159,363 $ 328,705
Net income per common share:
Primary......................... $ 4.00 $ 1.01 $ .99 $ 1.02 $ .98 $ .94 $ 2.00
Fully diluted................... $ 3.99 $ 1.01 $ .99 $ 1.02 $ .97 $ .94 $ 2.00
Cash dividends paid per common
share........................... $ 1.60 $ .40 $ .40 $ .40 $ .40 $ .36 $ .80
Cash dividends paid on common
stock........................... $ 262,485 $ 64,392 $ 65,408 $ 66,016 $ 66,669 $ 60,684 $ 129,800
Cash dividend payout ratio........ 39.5% 38.9% 40.1% 38.7% 40.5% 38.1% 39.5%
Average primary shares
outstanding..................... 165,857 162,872 165,432 167,118 167,966 169,861 164,145
Average fully diluted shares
outstanding..................... 166,003 162,888 165,441 167,281 168,354 169,972 164,158
SELECTED AVERAGE BALANCES
(millions)
Total assets...................... $ 46,028 $ 46,619 $ 45,984 $ 45,737 $ 45,778 $ 44,956 $ 46,303
Loans -- net of unearned income... 31,370 32,249 31,481 31,101 30,660 30,004 31,867
Investment securities**........... 8,377 8,193 8,327 8,251 8,734 8,668 8,259
Other interest-earning assets..... 1,386 1,278 1,242 1,409 1,611 1,519 1,261
Total interest-earning assets..... 41,133 41,720 41,050 40,761 41,005 40,191 41,387
Interest-bearing deposits......... 21,685 22,641 22,034 21,211 20,873 20,335 22,339
Short-term borrowed funds......... 7,790 7,943 7,444 7,668 8,099 8,216 7,695
Long-term debt.................... 6,007 5,450 5,910 6,206 6,454 6,129 5,679
Total interest-bearing
liabilities..................... 35,482 36,034 35,388 35,085 35,426 34,680 35,713
Noninterest-bearing deposits...... 5,540 5,631 5,518 5,604 5,408 5,426 5,575
Total deposits.................... 27,225 28,272 27,552 26,815 26,281 25,761 27,914
Shareholders' equity.............. 3,637 3,593 3,653 3,671 3,631 3,644 3,623
RATIOS (averages)
Annualized net loan losses to
loans........................... .59% .62% .61% .61% .53% .46% .61%
Annualized net yield on
interest-earning assets......... 4.09 4.11 4.14 4.11 4.03 3.99 4.12
Shareholders' equity to:
Total assets.................... 7.90 7.71 7.94 8.03 7.93 8.11 7.82
Net loans....................... 11.74 11.28 11.75 11.96 12.00 12.31 11.51
Annualized return on assets....... 1.44 1.42 1.42 1.49 1.44 1.42 1.42
Annualized return on
shareholders' equity............ 18.26 18.44 17.86 18.60 18.13 17.49 18.15
<CAPTION>
Six Months
Ended
June 30,
1996
<S> <C>
SUMMARY OF OPERATIONS
(thousands, except per share data)
Interest income -- taxable
equivalent...................... $1,612,757
Interest expense.................. 824,800
Net interest income -- taxable
equivalent...................... 787,957
Taxable equivalent adjustment..... 36,791
Net interest income............... 751,166
Provision for loan losses......... 61,738
Net interest income after
provision for loan losses....... 689,428
Other operating revenue........... 382,700
Investment securities gains
(losses)........................ 479
Total other income................ 383,179
Personnel expense................. 321,780
Other expense..................... 296,552
Total other expense............... 618,332
Income before income taxes........ 454,275
Applicable income taxes*.......... 145,042
Net income........................ $ 309,233
Net income per common share:
Primary......................... $ 1.81
Fully diluted................... $ 1.81
Cash dividends paid per common
share........................... $ .72
Cash dividends paid on common
stock........................... $ 121,773
Cash dividend payout ratio........ 39.4%
Average primary shares
outstanding..................... 170,664
Average fully diluted shares
outstanding..................... 170,808
SELECTED AVERAGE BALANCES
(millions)
Total assets...................... $ 44,696
Loans -- net of unearned income... 29,611
Investment securities**........... 8,732
Other interest-earning assets..... 1,556
Total interest-earning assets..... 39,899
Interest-bearing deposits......... 20,500
Short-term borrowed funds......... 8,136
Long-term debt.................... 5,808
Total interest-bearing
liabilities..................... 34,444
Noninterest-bearing deposits...... 5,399
Total deposits.................... 25,899
Shareholders' equity.............. 3,666
RATIOS (averages)
Annualized net loan losses to
loans........................... .42%
Annualized net yield on
interest-earning assets......... 3.97
Shareholders' equity to:
Total assets.................... 8.20
Net loans....................... 12.55
Annualized return on assets....... 1.38
Annualized return on
shareholders' equity............ 16.87
</TABLE>
*Income taxes applicable to securities transactions were $1,582, $118, $134,
$1,181, $149, ($86), $252 and $192, respectively
**Reported at amortized cost; excludes pretax unrealized gains on securities
available-for-sale of $50, $27, $60, $74, $40, $74, $44 and $131,
respectively
4
<PAGE>
RESULTS OF OPERATIONS
OVERVIEW
Wachovia Corporation ("Wachovia") is a southeastern interstate
bank holding company with 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 Georgia, North Carolina and South Carolina. Credit
card services are provided through The First National Bank of
Atlanta. In June, the corporation announced separate merger
agreements with Jefferson Bankshares, Inc., of Charlottesville,
Virginia, and Central Fidelity Banks, Inc., of Richmond, Virginia.
The merger with Jefferson Bankshares is expected to be accounted
for as a purchase transaction, and the merger with Central
Fidelity is anticipated to be accounted for as a
pooling-of-interests transaction. At June 30, 1997, Jefferson
Bankshares and Central Fidelity had total assets of $2.2 billion
and $10.7 billion, respectively. Both mergers are subject to
approval by shareholders and appropriate regulatory agencies and
are expected to close in the fourth quarter of 1997.
Wachovia regularly evaluates acquisition opportunities and
conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some
cases, negotiations may take place and future acquisitions
involving cash, debt or equity securities may occur. Acquisitions
typically involve the payment of a premium over book and market
values, and, therefore, some dilution of Wachovia's book value and
net income per common share may occur in connection with any
future transactions.
Economic growth continued during the second quarter of 1997
but at a more moderate pace than the first three months of the
year. The economy expanded at an annualized rate of 2.2 percent
from the preceding three-month period versus a revised 4.9 percent
in the first quarter. Economic conditions within Wachovia's
primary operating states of Georgia, North Carolina and South
Carolina remained generally favorable, with seasonally adjusted
unemployment for the quarter averaging 4.4 percent, 3.4 percent
and 4.8 percent, respectively, versus 4.9 percent nationwide.
Wachovia's net income for the second quarter of 1997 was
$165.623 million or $1.01 per fully diluted share compared with
$159.363 million or $.94 per fully diluted share a year earlier.
For the first six months, net income totaled $328.705 million or
$2.00 per fully diluted share versus $309.233 million or $1.81 per
fully diluted share in the same period of 1996. Gains for the
quarter and first half reflected good revenue growth moderated by
increased provisions for loan losses and higher spending for
growth initiatives and Year 2000 conversion costs. Total revenues,
excluding securities transactions, grew $62.202 million or 10.4
percent for the quarter and $110.025 million or 9.4 percent year
to date. Net income represented annualized returns of 18.44
percent on shareholders' equity and 1.42 percent on assets for the
quarter and annualized returns of 18.15 percent on equity and 1.42
percent on assets for the first half of 1997.
Expanded discussion of operating results and the corporation's
financial condition is presented in the following narrative with
accompanying tables. Interest income is stated on a taxable
equivalent basis which is adjusted for the tax-favored status of
earnings from certain loans and investments. References to changes
in assets and liabilities represent daily average levels unless
otherwise noted.
5
<PAGE>
COMPONENTS OF EARNINGS PER PRIMARY SHARE TABLE 2
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 Change 1997
<S> <C> <C> <C> <C>
Interest income -- taxable equivalent.......................... $5.31 $4.77 $.54 $10.37
Interest expense............................................... 2.69 2.42 .27 5.22
Net interest income -- taxable equivalent...................... 2.62 2.35 .27 5.15
Taxable equivalent adjustment.................................. .08 .11 (.03) .16
Net interest income............................................ 2.54 2.24 .30 4.99
Provision for loan losses...................................... .31 .20 .11 .60
Net interest income after provision for loan losses............ 2.23 2.04 .19 4.39
Other operating revenue........................................ 1.43 1.17 .26 2.65
Investment securities gains.................................... -- -- -- --
Total other income............................................. 1.43 1.17 .26 2.65
Personnel expense.............................................. 1.11 .94 .17 2.16
Other expense.................................................. 1.06 .88 .18 1.97
Total other expense............................................ 2.17 1.82 .35 4.13
Income before income taxes..................................... 1.49 1.39 .10 2.91
Applicable income taxes........................................ .48 .45 .03 .91
Net income..................................................... $1.01 $.94 $.07 $ 2.00
Six Months Ended
June 30
1996 Change
Interest income -- taxable equivalent.......................... $9.45 $ .92
Interest expense............................................... 4.83 .39
Net interest income -- taxable equivalent...................... 4.62 .53
Taxable equivalent adjustment.................................. .22 (.06)
Net interest income............................................ 4.40 .59
Provision for loan losses...................................... .36 .24
Net interest income after provision for loan losses............ 4.04 .35
Other operating revenue........................................ 2.24 .41
Investment securities gains.................................... -- --
Total other income............................................. 2.24 .41
Personnel expense.............................................. 1.88 .28
Other expense.................................................. 1.74 .23
Total other expense............................................ 3.62 .51
Income before income taxes..................................... 2.66 .25
Applicable income taxes........................................ .85 .06
Net income..................................................... $1.81 $.19
</TABLE>
TABLE 3
COMPUTATION OF EARNINGS PER COMMON SHARE
(thousands, except per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
PRIMARY
Average common shares outstanding........................................ 160,589 168,298 161,801 169,004
Dilutive common stock options -- based on treasury
stock method using average market price................................ 2,120 1,462 2,178 1,556
Dilutive common stock awards -- based on treasury
stock method using average market price................................ 163 101 166 104
Average primary shares outstanding....................................... 162,872 169,861 164,145 170,664
Net income............................................................... $165,623 $159,363 $328,705 $309,233
Net income per common share -- primary................................... $ 1.01 $ .94 $ 2.00 $ 1.81
FULLY DILUTED
Average common shares outstanding........................................ 160,589 168,298 161,801 169,004
Dilutive common stock options -- based on treasury
stock method using higher of period-end
market price or average market price................................... 2,120 1,473 2,178 1,556
Dilutive common stock awards -- based on treasury
stock method using higher of period-end
market price or average market price................................... 171 108 171 108
Convertible notes assumed converted...................................... 8 93 8 140
Average fully diluted shares outstanding................................. 162,888 169,972 164,158 170,808
Net income............................................................... $165,623 $159,363 $328,705 $309,233
Add interest on convertible notes after taxes............................ 1 20 3 43
Adjusted net income...................................................... $165,624 $159,383 $328,708 $309,276
Net income per common share -- fully diluted............................. $ 1.01 $ .94 $ 2.00 $ 1.81
</TABLE>
6
<PAGE>
NET INTEREST INCOME
Taxable equivalent net interest income for the second quarter
increased $27.892 million or 7 percent year over year and was up
$58.155 million or 7.4 percent for the first six months. Gains in
both periods reflected good loan growth, a higher average earning
yield and a more favorable funding mix, with time deposits
increasing while short-term borrowings and long-term debt
declined. Compared with the first quarter, taxable equivalent net
interest income rose $8.002 million or 1.9 percent due primarily
to higher loan volume. The net yield on interest-earning assets
(taxable equivalent net interest income as a percentage of average
interest-earning assets) improved 12 basis points for the second
period versus a year earlier and 15 basis points year to date but
was modestly lower by 3 basis points from the preceding three
months.
Taxable equivalent interest income rose $54.779 million or 6.8
percent for the quarter and $89.669 million or 5.6 percent for the
first half, fueled by good loan growth including gains in the
higher-yielding consumer portfolio. Loans expanded $2.245 billion
or 7.5 percent for the three months and $2.256 billion or 7.6
percent year to date with the average rate earned increasing 29
basis points and 23 basis points, respectively. Total
interest-earning assets grew a more moderate $1.529 billion or 3.8
percent for the quarter and $1.488 billion or 3.7 percent for the
first six months with the average yield up 21 basis points and 16
basis points, respectively. Taxable equivalent interest income was
higher by $28.406 million or 3.4 percent from the first quarter,
primarily reflecting continued good loan demand. Loans advanced
$768 million or an annualized 9.8 percent from the preceding three
months with the average yield rising 8 basis points.
Commercial loans, including related real estate categories,
lease financing and foreign loans, grew $1.359 billion or 7.6
percent for the quarter versus a year earlier and were higher by
$1.217 billion or 6.9 percent for the first half of 1997. All
categories expanded except tax-exempt loans, which decreased due
to paydowns in the ESOP portfolio, and the reduced availability of
tax-exempt borrowing and lending at acceptable yields. Gains were
led by taxable commercial loans and the real estate portfolio.
Taxable commercial loans rose $553 million or 5.6 percent for the
second period and $407 million or 4.2 percent year to date.
Commercial mortgages were higher by $490 million or 12 percent for
the quarter and $486 million or 12.1 percent for the first half,
while construction loans grew $397 million or 52.7 percent and
$370 million or 51.2 percent, respectively. At June 30, 1997,
commercial real estate loans, based on regulatory definitions,
were $5.849 billion or 17.6 percent of total loans compared with
$4.939 billion or 16.1 percent one year earlier and $5.550 billion
or 17 percent at March 31, 1997. Regulatory definitions for
commercial real estate loans include loans which have real estate
as the collateral but not the primary consideration in a credit
risk evaluation. Lease financing receivables consist largely of
corporate leases and other structured tax-advantaged transactions
as well as some consumer automobile leasing. Growth in lease
financing, both year over year and from the first quarter,
reflected gains in corporate leases and other structured
tax-advantaged transactions as automobile leasing declined.
Consumer loans, including residential mortgages, increased
$886 million or 7.3 percent for the three months and $1.039
billion or 8.7 percent year to date. Substantially all the growth
occurred in credit cards and residential mortgages, offsetting
softness in indirect retail loans which consist primarily of
automobile sales financing. Credit card loans rose $732 million or
18.1 percent for the quarter and $784 million or 19.6 percent for
the first half. Residential mortgages were higher by $365 million
or 8.4 percent for the second period and $398 million or 9.3
percent year to date, reflecting increases principally in bank
equity loans and adjustable rate mortgages. At June 30, 1997,
managed credit card outstandings, which include securitized loans,
totaled $5.404 billion versus $4.805 billion one year earlier and
$5.428 billion at March 31, 1997. Managed credit cards at June 30,
1997 included $586 million of net securitized loans.
7
<PAGE>
NET INTEREST INCOME AND AVERAGE BALANCES TABLE 4
<TABLE>
<CAPTION>
Twelve
Months Six Months
Ended 1997 1996 Ended
June 30 Second First Fourth Third Second June 30
1997 Quarter Quarter Quarter Quarter Quarter 1997
<S> <C> <C> <C> <C> <C> <C> <C>
NET INTEREST INCOME -- TAXABLE
EQUIVALENT (thousands)
Interest income:
Loans.......................... $2,715,634 $705,179 $674,907 $674,328 $661,220 $632,389 $1,380,086
Investment securities.......... 591,359 142,794 146,060 147,020 155,485 154,395 288,854
Interest-bearing bank
balances..................... 15,635 445 360 5,501 9,329 9,258 805
Federal funds sold and
securities
purchased under resale
agreements................... 11,372 4,001 2,203 1,893 3,275 3,155 6,204
Trading account assets......... 52,900 12,997 13,480 13,623 12,800 11,440 26,477
Total....................... 3,386,900 865,416 837,010 842,365 842,109 810,637 1,702,426
Interest expense:
Interest-bearing demand........ 47,246 12,233 11,432 12,044 11,537 10,916 23,665
Savings and money market
savings...................... 307,752 84,481 79,351 75,359 68,561 64,932 163,832
Savings certificates........... 366,426 90,602 89,091 92,584 94,149 91,685 179,693
Large denomination
certificates................. 134,699 36,570 34,889 29,470 33,770 32,863 71,459
Time deposits in foreign
offices...................... 70,526 22,361 17,357 17,132 13,676 11,033 39,718
Short-term borrowed funds...... 411,632 105,889 95,069 100,949 109,725 110,030 200,958
Long-term debt................. 365,835 86,223 90,766 93,541 95,305 90,013 176,989
Total....................... 1,704,116 438,359 417,955 421,079 426,723 411,472 856,314
Net interest income.............. $1,682,784 $427,057 $419,055 $421,286 $415,386 $399,165 $ 846,112
Annualized net yield on
interest-earning assets........ 4.09% 4.11% 4.14% 4.11% 4.03% 3.99% 4.12%
AVERAGE BALANCES (millions)
Assets:
Loans -- net of unearned
income....................... $ 31,370 $ 32,249 $ 31,481 $ 31,101 $ 30,660 $ 30,004 $ 31,867
Investment securities.......... 8,377 8,193 8,327 8,251 8,734 8,668 8,259
Interest-bearing bank
balances..................... 206 37 28 276 478 462 33
Federal funds sold and
securities
purchased under resale
agreements................... 207 285 164 138 240 232 225
Trading account assets......... 973 956 1,050 995 893 825 1,003
Total interest-earning
assets...................... 41,133 41,720 41,050 40,761 41,005 40,191 41,387
Cash and due from banks........ 2,536 2,576 2,558 2,576 2,434 2,521 2,567
Premises and equipment......... 637 633 639 632 642 643 636
Other assets................... 2,073 2,062 2,079 2,095 2,059 1,931 2,070
Unrealized gains on securities
available-for-sale........... 50 27 60 74 40 74 44
Allowance for loan losses...... (401) (399) (402) (401) (402) (404) (401)
Total assets................ $ 46,028 $ 46,619 $ 45,984 $ 45,737 $ 45,778 $ 44,956 $ 46,303
Liabilities and shareholders'
equity:
Interest-bearing demand........ $ 3,307 $ 3,324 $ 3,297 $ 3,354 $ 3,253 $ 3,272 $ 3,310
Savings and money market
savings..................... 8,205 8,632 8,394 8,072 7,733 7,505 8,514
Savings certificates........... 6,492 6,431 6,426 6,510 6,598 6,487 6,429
Large denomination
certificates................. 2,361 2,621 2,586 1,989 2,256 2,222 2,603
Time deposits in foreign
offices...................... 1,320 1,633 1,331 1,286 1,033 849 1,483
Short-term borrowed funds...... 7,790 7,943 7,444 7,668 8,099 8,216 7,695
Long-term debt................. 6,007 5,450 5,910 6,206 6,454 6,129 5,679
Total interest-bearing
liabilities................. 35,482 36,034 35,388 35,085 35,426 34,680 35,713
Demand deposits in domestic
offices........................ 5,536 5,626 5,515 5,599 5,402 5,419 5,571
Demand deposits in foreign
offices........................ -- -- -- -- 1 2 --
Noninterest-bearing time deposits
in domestic offices............ 4 5 3 5 5 5 4
Other liabilities................ 1,369 1,361 1,425 1,377 1,313 1,206 1,392
Shareholders' equity............. 3,637 3,593 3,653 3,671 3,631 3,644 3,623
Total liabilities and
shareholders' equity...... $ 46,028 $ 46,619 $ 45,984 $ 45,737 $ 45,778 $ 44,956 $ 46,303
Total deposits................... $ 27,225 $ 28,272 $ 27,552 $ 26,815 $ 26,281 $ 25,761 $ 27,914
<CAPTION>
Six Months
Ended
June 30,
1996
<S> <C>
NET INTEREST INCOME -- TAXABLE
EQUIVALENT (thousands)
Interest income:
Loans.......................... $1,252,111
Investment securities.......... 312,026
Interest-bearing bank
balances..................... 18,276
Federal funds sold and
securities
purchased under resale
agreements................... 6,405
Trading account assets......... 23,939
Total....................... 1,612,757
Interest expense:
Interest-bearing demand........ 23,585
Savings and money market
savings...................... 129,912
Savings certificates........... 183,152
Large denomination
certificates................. 72,497
Time deposits in foreign
offices...................... 24,134
Short-term borrowed funds...... 220,420
Long-term debt................. 171,100
Total....................... 824,800
Net interest income.............. $ 787,957
Annualized net yield on
interest-earning assets........ 3.97%
AVERAGE BALANCES (millions)
Assets:
Loans -- net of unearned
income....................... $ 29,611
Investment securities.......... 8,732
Interest-bearing bank
balances..................... 459
Federal funds sold and
securities
purchased under resale
agreements................... 236
Trading account assets......... 861
Total interest-earning
assets...................... 39,899
Cash and due from banks........ 2,567
Premises and equipment......... 638
Other assets................... 1,866
Unrealized gains on securities
available-for-sale........... 131
Allowance for loan losses...... (405)
Total assets................ $ 44,696
Liabilities and shareholders'
equity:
Interest-bearing demand........ $ 3,293
Savings and money market
savings...................... 7,395
Savings certificates........... 6,444
Large denomination
certificates................. 2,448
Time deposits in foreign
offices...................... 920
Short-term borrowed funds...... 8,136
Long-term debt................. 5,808
Total interest-bearing
liabilities................. 34,444
Demand deposits in domestic
offices........................ 5,392
Demand deposits in foreign
offices........................ 3
Noninterest-bearing time deposits
in domestic offices............ 4
Other liabilities................ 1,187
Shareholders' equity............. 3,666
Total liabilities and
shareholders' equity...... $ 44,696
Total deposits................... $ 25,899
</TABLE>
8
<PAGE>
Loans outstanding as of June 30, 1997 and the preceding four
quarters are shown below.
<TABLE>
<CAPTION>
June 30 March 31 Dec. 31 Sept. 30
$ THOUSANDS 1997 1997 1996 1996
<S> <C> <C> <C> <C>
Commercial..................... $11,097,920 $10,903,268 $ 9,661,757 $10,517,396
Tax-exempt..................... 1,772,799 1,752,655 1,936,785 1,998,718
Total commercial.......... 12,870,719 12,655,923 11,598,542 12,516,114
Direct retail.................. 757,401 752,091 782,478 772,947
Indirect retail................ 2,345,428 2,438,554 2,491,029 2,562,665
Credit card.................... 4,818,185 4,802,836 4,819,197 4,377,293
Other revolving credit......... 355,129 355,699 359,594 355,254
Total retail.............. 8,276,143 8,349,180 8,452,298 8,068,159
Construction................... 1,234,002 1,075,005 979,649 874,928
Commercial mortgages........... 4,614,698 4,474,620 4,349,438 4,296,306
Residential mortgages.......... 4,759,201 4,657,805 4,644,858 4,546,274
Total real estate......... 10,607,901 10,207,430 9,973,945 9,717,508
Lease financing................ 1,002,957 840,833 822,703 745,673
Foreign........................ 497,905 516,890 435,704 501,349
Total loans............... $33,255,625 $32,570,256 $31,283,192 $31,548,803
<CAPTION>
June 30
$ THOUSANDS 1996
<S> <C>
Commercial..................... $10,280,931
Tax-exempt..................... 2,047,475
Total commercial.......... 12,328,406
Direct retail.................. 767,154
Indirect retail................ 2,582,142
Credit card.................... 4,180,440
Other revolving credit......... 358,636
Total retail.............. 7,888,372
Construction................... 808,866
Commercial mortgages........... 4,130,537
Residential mortgages.......... 4,405,219
Total real estate......... 9,344,622
Lease financing................ 644,087
Foreign........................ 467,154
Total loans............... $30,672,641
</TABLE>
Investment securities, the second largest category of
interest-earning assets, were lower by $475 million or 5.5 percent
for the quarter and $473 million or 5.4 percent for the first six
months. Decreases in both periods resulted from continued good
loan demand and ongoing balance sheet management planning.
Held-to-maturity securities declined $201 million or 13.4 percent
for the three months and $219 million or 14.2 percent year to
date, while available-for-sale securities were lower by $274
million or 3.8 percent and $254 million or 3.5 percent,
respectively. Investment securities were down $134 million or 1.6
percent from the first three months of 1997, reflecting modest
decreases in both the held-to-maturity and available-for-sale
portfolios. At June 30, 1997, securities available-for-sale
totaled $6.983 billion and securities held-to-maturity were $1.271
billion as presented in the following table.
<TABLE>
<S> <C>
$ IN THOUSANDS
Securities available-for-sale at market value:
U.S. Government and agency.......................................................................$5,162,544
Mortgage-backed securities....................................................................... 1,404,817
Other............................................................................................ 416,028
----------
Total securities available-for-sale........................................................... 6,983,389
Securities held-to-maturity:
Mortgage-backed securities....................................................................... 1,052,962
State and municipal.............................................................................. 216,289
Other............................................................................................ 1,898
----------
Total securities held-to-maturity............................................................. 1,271,149
Total investment securities...................................................................$8,254,538
==========
</TABLE>
Securities held-to-maturity had a market value of $1.333
billion at June 30, 1997, representing a $62 million appreciation
over book value. Securities available-for-sale marked to fair
market value had an unrealized gain of $57.242 million, pretax,
and $35.715 million, net of tax, on the same date. Average
securities available-for-sale had an unrealized gain of $27.505
million, pretax, and $17.239 million, net of tax, for the second
quarter. For the first six months, average securities
available-for-sale had an unrealized gain of $43.984 million,
pretax, and $27.239 million, net of tax.
Interest expense was up $26.887 million or 6.5 percent for the
quarter and $31.514 million or 3.8 percent year to date. Increases
were driven primarily by expanded levels of interest-bearing
liabilities to support loan growth with a higher average rate paid
also contributing to the rise, principally for the second quarter.
Interest-bearing liabilities rose $1.354 billion or 3.9 percent
for the three months and $1.269 billion or 3.7 percent for the
first six months, with time deposits accounting for all the growth
in both periods. The average rate paid on interest-bearing
liabilities increased 11 basis points for the quarter but was up
only 2 basis points year to date. Interest expense rose $20.404
million or
9
<PAGE>
4.9 percent from the first quarter due to a greater volume of
interest-bearing liabilities and a higher average rate paid.
The corporation is issuing a variety of debt instruments to
further broaden its funding base while continuing innovative
marketing for traditional funding sources. This includes a global
bank note program, the issuance of senior debt and trust capital
securities, and greater reliance on money market instruments, such
as the corporation's Premiere account. Management believes that
continued flexibility and innovation will be required by financial
institutions to attract future funding through deposit products
and alternative sources.
Time deposits grew $2.306 billion or 11.3 percent for the
quarter and $1.839 billion or 9 percent for the first half. The
mix of time deposits to total interest-bearing liabilities
increased to 62.8 percent for the second period from 58.6 percent
a year earlier and was 62.6 percent for the first six months
versus 59.5 percent in the same period of 1996. Savings and money
market savings, foreign time deposits and large denomination
certificates paced the gains in both periods. Growth in savings
and money market savings, up $1.127 billion or 15 percent for the
three months and $1.119 billion or 15.1 percent year to date, was
driven principally by the corporation's Premiere account, a
federally insured savings account for individuals and businesses
offering interest rates competitive with money market rates.
Compared with the first three months of 1997, time deposits
increased $607 million or 2.8 percent led by foreign time deposits
and savings and money market savings.
Short-term borrowings declined $273 million or 3.3 percent for
the quarter and $441 million or 5.4 percent for the first half.
Federal funds purchased and securities sold under repurchase
agreements were down $979 million or 15.1 percent for the three
months and $550 million or 8.9 percent year to date, accounting
for substantially all the decreases in both periods. Commercial
paper borrowings expanded for both the quarter and first six
months, while other short-term borrowings, consisting primarily of
short-term bank notes, increased $528 million or 44.2 percent for
the three months but were modestly lower year to date. Short-term
borrowings were up $499 million or 6.7 percent from the first
quarter, reflecting growth principally in other short-term
borrowings.
10
<PAGE>
TAXABLE EQUIVALENT RATE / VOLUME VARIANCE ANALYSIS -- SECOND QUARTER* TABLE 5
<TABLE>
<CAPTION>
Variance
Attributable
Average Volume Average Rate Interest to
1997 1996 1997 1996 1997 1996 Variance Rate
<C> <C> <C> <C> <S> <C> <C> <C> <C>
(Millions) INTEREST INCOME (Thousands)
Loans:
$10,488 $ 9,935 7.22 6.97 Commercial..................... $188,734 $172,156 $16,578 $ 6,464
1,696 2,080 8.86 8.95 Tax-exempt..................... 37,475 46,281 (8,806) (452)
12,184 12,015 7.45 7.31 Total commercial............... 226,209 218,437 7,772 4,459
757 759 9.48 9.43 Direct retail.................. 17,886 17,786 100 128
2,371 2,583 8.44 8.15 Indirect retail................ 49,901 52,322 (2,421) 1,853
4,777 4,045 13.04 11.72 Credit card.................... 155,305 117,902 37,403 14,273
357 354 12.17 12.13 Other revolving credit......... 10,822 10,688 134 46
8,262 7,741 11.36 10.32 Total retail................... 233,914 198,698 35,216 21,046
1,150 753 9.10 9.44 Construction................... 26,080 17,655 8,425 (648)
4,563 4,073 8.34 8.33 Commercial mortgages........... 94,904 84,366 10,538 103
4,704 4,339 8.14 8.45 Residential mortgages.......... 95,401 91,124 4,277 (3,338)
10,417 9,165 8.33 8.48 Total real estate.............. 216,385 193,145 23,240 (3,363)
890 616 9.13 9.12 Lease financing................ 20,257 13,974 6,283 15
496 467 6.81 7.01 Foreign........................ 8,414 8,135 279 (226)
32,249 30,004 8.77 8.48 Total loans.................... 705,179 632,389 72,790 22,708
Investment securities:
Held-to-maturity:
-- -- -- -- U.S. Government and agency..... -- -- -- --
1,077 1,215 7.99 8.13 Mortgage-backed securities..... 21,460 24,555 (3,095) (403)
221 284 10.90 11.32 State and municipal............ 6,005 7,979 (1,974) (282)
2 2 11.34 7.28 Other.......................... 67 42 25 25
Total securities
1,300 1,501 8.49 8.73 held-to-maturity....... 27,532 32,576 (5,044) (853)
Available-for-sale:**
5,068 5,417 6.61 6.80 U.S. Government and agency..... 83,514 91,596 (8,082) (2,429)
1,425 1,627 7.09 7.03 Mortgage-backed securities..... 25,191 28,426 (3,235) 244
400 123 6.58 5.87 Other.......................... 6,557 1,797 4,760 241
Total securities
6,893 7,167 6.71 6.84 available-for-sale..... 115,262 121,819 (6,557) (2,164)
8,193 8,668 6.99 7.16 Total investment securities.... 142,794 154,395 (11,601) (3,482)
Interest-bearing bank
37 462 4.80 8.06 balances....................... 445 9,258 (8,813) (2,677)
Federal funds sold and
securities purchased under
285 232 5.62 5.47 resale agreements............ 4,001 3,155 846 89
956 825 5.45 5.58 Trading account assets......... 12,997 11,440 1,557 (264)
Total interest-earning
$41,720 $40,191 8.32 8.11 assets......................... 865,416 810,637 54,779 22,070
INTEREST EXPENSE
$ 3,324 $ 3,272 1.48 1.34 Interest-bearing demand........ 12,233 10,916 1,317 1,153
Savings and money market
8,632 7,505 3.93 3.48 savings........................ 84,481 64,932 19,549 9,004
6,431 6,487 5.65 5.68 Savings certificates........... 90,602 91,685 (1,083) (405)
Large denomination
2,621 2,222 5.60 5.95 certificates................... 36,570 32,863 3,707 (1,986)
Total time deposits
21,008 19,486 4.27 4.14 in domestic offices.... 223,886 200,396 23,490 6,705
Time deposits in foreign
1,633 849 5.49 5.23 offices........................ 22,361 11,033 11,328 573
22,641 20,335 4.36 4.18 Total time deposits...... 246,247 211,429 34,818 9,522
Federal funds purchased and
securities sold under
5,486 6,465 5.30 5.40 repurchase agreements........ 72,429 86,863 (14,434) (1,560)
734 556 5.13 4.87 Commercial paper............... 9,379 6,737 2,642 374
Other short-term borrowed
1,723 1,195 5.61 5.53 funds.......................... 24,081 16,430 7,651 241
Total short-term borrowed
7,943 8,216 5.35 5.39 funds.................. 105,889 110,030 (4,141) (750)
2,917 4,799 6.21 5.72 Bank notes..................... 45,195 68,258 (23,063) 5,424
2,533 1,330 6.50 6.58 Other long-term debt........... 41,028 21,755 19,273 (264)
5,450 6,129 6.35 5.91 Total long-term debt..... 86,223 90,013 (3,790) 6,459
Total interest-bearing
$36,034 $34,680 4.88 4.77 liabilities............ 438,359 411,472 26,887 9,929
3.44 3.34 INTEREST RATE SPREAD
NET YIELD ON INTEREST-EARNING
ASSETS AND NET INTEREST
4.11 3.99 INCOME....................... $427,057 $399,165 $27,892 12,249
<CAPTION>
Volume
<C>
Commercial..................... $10,114
Tax-exempt..................... (8,354)
Total commercial............... 3,313
Direct retail.................. (28)
Indirect retail................ (4,274)
Credit card.................... 23,130
Other revolving credit......... 88
Total retail................... 14,170
Construction................... 9,073
Commercial mortgages........... 10,435
Residential mortgages.......... 7,615
Total real estate.............. 26,603
Lease financing................ 6,268
Foreign........................ 505
Total loans.................... 50,082
Investment securities:
Held-to-maturity:
U.S. Government and agency..... --
Mortgage-backed securities..... (2,692)
State and municipal............ (1,692)
Other.......................... --
Total securities
held-to-maturity....... (4,191)
Available-for-sale:**
U.S. Government and agency..... (5,653)
Mortgage-backed securities..... (3,479)
Other.......................... 4,519
Total securities
available-for-sale..... (4,393)
Total investment securities.... (8,119)
Interest-bearing bank
balances..................... (6,136)
Federal funds sold and
securities purchased under
resale agreements............ 757
Trading account assets......... 1,821
Total interest-earning
assets................. 32,709
INTEREST EXPENSE
Interest-bearing demand........ 164
Savings and money market
savings........................ 10,545
Savings certificates........... (678)
Large denomination
certificates................... 5,693
Total time deposits
in domestic offices.... 16,785
Time deposits in foreign
offices................ 10,755
Total time deposits...... 25,296
Federal funds purchased and
securities sold under
repurchase agreements........ (12,874)
Commercial paper............... 2,268
Other short-term borrowed
funds........................ 7,410
Total short-term borrowed
funds.................. (3,391)
Bank notes..................... (28,487)
Other long-term debt........... 19,537
Total long-term debt..... (10,249)
Total interest-bearing
liabilities............ 16,958
INTEREST RATE SPREAD
NET YIELD ON INTEREST-EARNING
ASSETS AND NET INTEREST
INCOME....................... $15,643
</TABLE>
*Interest income and yields are presented on a fully taxable equivalent
basis using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense
**Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $27 million in 1997 and $74 million in 1996
11
<PAGE>
TAXABLE EQUIVALENT RATE / VOLUME VARIANCE ANALYSIS -- SIX MONTHS* TABLE 6
<TABLE>
<CAPTION>
Variance
Attributable
Average Volume Average Rate Interest to
1997 1996 1997 1996 1997 1996 Variance Rate
<C> <C> <C> <C> <S> <C> <C> <C> <C>
(Millions) INTEREST INCOME (Thousands)
Loans:
$10,179 $ 9,772 7.20 7.05 Commercial.................... $ 363,243 $ 342,373 $ 20,870 $ 6,430
1,737 2,114 8.91 8.95 Tax-exempt.................... 76,793 94,110 (17,317) (645)
11,916 11,886 7.45 7.38 Total commercial.............. 440,036 436,483 3,553 2,454
760 746 9.44 9.39 Direct retail................. 35,565 34,854 711 68
2,425 2,585 8.50 8.21 Indirect retail............... 102,255 105,515 (3,260) 3,427
4,786 4,002 12.82 11.65 Credit card................... 304,170 231,758 72,412 24,023
357 354 12.17 12.25 Other revolving credit........ 21,552 21,545 7 (200)
8,328 7,687 11.22 10.30 Total retail.................. 463,542 393,672 69,870 35,633
1,093 723 9.16 9.32 Construction.................. 49,655 33,503 16,152 (690)
4,504 4,018 8.27 8.32 Commercial mortgages.......... 184,688 166,173 18,515 (1,413)
4,683 4,285 8.06 8.46 Residential mortgages......... 187,150 180,328 6,822 (9,389)
10,280 9,026 8.27 8.47 Total real estate............. 421,493 380,004 41,489 (10,164)
861 573 9.06 9.33 Lease financing............... 38,663 26,588 12,075 (867)
482 439 6.85 7.05 Foreign....................... 16,352 15,364 988 (487)
31,867 29,611 8.73 8.50 Total loans................... 1,380,086 1,252,111 127,975 30,815
Investment securities:
Held-to-maturity:
-- -- -- -- U.S. Government and agency.... -- -- -- --
1,091 1,242 8.04 8.09 Mortgage-backed securities.... 43,472 49,997 (6,525) (480)
228 296 11.06 11.23 State and municipal........... 12,534 16,517 (3,983) (283)
2 2 12.07 8.58 Other......................... 127 99 28 37
Total securities
1,321 1,540 8.57 8.70 held-to-maturity...... 56,133 66,613 (10,480) (1,153)
Available-for-sale:**
5,082 5,485 6.67 6.83 U.S. Government and agency.... 168,131 186,386 (18,255) (4,807)
1,459 1,563 7.15 7.05 Mortgage-backed securities.... 51,689 54,766 (3,077) 596
397 144 6.55 5.96 Other......................... 12,901 4,261 8,640 441
Total securities
6,938 7,192 6.76 6.86 available-for-sale.... 232,721 245,413 (12,692) (4,134)
8,259 8,732 7.05 7.19 Total investment securities... 288,854 312,026 (23,172) (6,534)
Interest-bearing bank
33 459 4.96 8.00 balances...................... 805 18,276 (17,471) (5,090)
Federal funds sold and
securities purchased under
225 236 5.55 5.45 resale agreements........... 6,204 6,405 (201) 95
1,003 861 5.32 5.59 Trading account assets........ 26,477 23,939 2,538 (1,249)
Total interest-earning
$41,387 $39,899 8.29 8.13 assets........................ 1,702,426 1,612,757 89,669 28,806
INTEREST EXPENSE
$ 3,310 $ 3,293 1.44 1.44 Interest-bearing demand....... 23,665 23,585 80 (42)
Savings and money market
8,514 7,395 3.88 3.53 savings....................... 163,832 129,912 33,920 13,116
6,429 6,444 5.64 5.72 Savings certificates.......... 179,693 183,152 (3,459) (3,013)
Large denomination
2,603 2,448 5.53 5.96 certificates.................. 71,459 72,497 (1,038) (5,482)
Total time deposits in
20,856 19,580 4.24 4.20 domestic offices...... 438,649 409,146 29,503 2,695
Time deposits in foreign
1,483 920 5.40 5.28 offices....................... 39,718 24,134 15,584 508
22,339 20,500 4.32 4.25 Total time deposits..... 478,367 433,280 45,087 5,777
Federal funds purchased and
securities sold under
5,663 6,213 5.23 5.48 repurchase agreements....... 146,982 169,164 (22,182) (7,652)
707 555 5.01 4.90 Commercial paper.............. 17,562 13,527 4,035 263
Other short-term
1,325 1,368 5.54 5.55 borrowed funds.............. 36,414 37,729 (1,315) (143)
Total short-term
7,695 8,136 5.27 5.45 borrowed funds........ 200,958 220,420 (19,462) (7,773)
3,236 4,477 6.11 5.72 Bank notes.................... 98,100 127,416 (29,316) 7,869
2,443 1,331 6.51 6.60 Other long-term debt.......... 78,889 43,684 35,205 (711)
5,679 5,808 6.28 5.92 Total long-term debt.... 176,989 171,100 5,889 9,748
Total interest-bearing
$35,713 $34,444 4.84 4.82 liabilities........... 856,314 824,800 31,514 1,092
3.45 3.31 INTEREST RATE SPREAD
NET YIELD ON INTEREST-EARNING
ASSETS AND NET INTEREST
4.12 3.97 INCOME........................ $ 846,112 $ 787,957 $ 58,155 28,237
</TABLE>
<TABLE>
Volume
<S> <C>
Commercial.................... $ 14,440
Tax-exempt.................... (16,672)
Total commercial.............. 1,099
Direct retail................. 643
Indirect retail............... (6,687)
Credit card................... 48,389
Other revolving credit........ 207
Total retail.................. 34,237
Construction.................. 16,842
Commercial mortgages.......... 19,928
Residential mortgages......... 16,211
Total real estate............. 51,653
Lease financing............... 12,942
Foreign....................... 1,475
Total loans................... 97,160
Investment securities:
Held-to-maturity:
U.S. Government and agency.... --
Mortgage-backed securities.... (6,045)
State and municipal........... (3,700)
Other......................... (9)
Total securities
held-to-maturity...... (9,327)
Available-for-sale:**
U.S. Government and agency.... (13,448)
Mortgage-backed securities.... (3,673)
Other......................... 8,199
Total securities
available-for-sale.... (8,558)
Total investment securities... (16,638)
Interest-bearing bank
balances...................... (12,381)
Federal funds sold and
securities purchased under
resale agreements........... (296)
Trading account assets........ 3,787
Total interest-earning
assets........................ 60,863
INTEREST EXPENSE
Interest-bearing demand....... 122
Savings and money market
savings....................... 20,804
Savings certificates.......... (446)
Large denomination
certificates.................. 4,444
Total time deposits in
domestic offices...... 26,808
Time deposits in foreign
offices....................... 15,076
Total time deposits..... 39,310
Federal funds purchased and
securities sold under
repurchase agreements....... (14,530)
Commercial paper.............. 3,772)
Other short-term
borrowed funds.............. (1,172)
Total short-term
borrowed funds........ (11,689)
Bank notes.................... (37,185)
Other long-term debt.......... 35,916
Total long-term debt.... (3,859)
Total interest-bearing
liabilities........... 30,422
INTEREST RATE SPREAD
NET YIELD ON INTEREST-EARNING
ASSETS AND NET INTEREST
INCOME........................ $ 29,918
</TABLE>
*Interest income and yields are presented on a fully taxable equivalent
basis using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense
**Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $44 million in 1997 and $131 million in 1996
12
<PAGE>
Long-term debt decreased $679 million or 11.1 percent for
the second period and $129 million or 2.2 percent year to date.
Compared with the first three months of 1997, long-term debt was
lower by $460 million or 7.8 percent. Declines both from
year-earlier periods and from the preceding quarter reflected
reductions in medium-term bank notes offset partially by increases
in other long-term debt. At June 30, 1997, other long-term debt
included $250 million of 30-year subordinated debt with a 10-year
put option issued in the fourth quarter of 1995; $200 million of
10-year senior debt fixed rate notes issued in November 1996; and
a total of $900 million of trust capital securities issued in
December 1996, January 1997 and June 1997. The January issuance of
trust capital securities was made by Wachovia Capital Trust II
(WCT II), a consolidated subsidiary, for $300 million of floating
rate capital securities due in 2027. WCT II invested the proceeds
of the capital securities, together with $9.280 million paid by
the corporation for WCT II's common securities, in $305.692
million, net of discount of $3.588 million, 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 fully and
unconditionally guaranteed all of WCT II's obligations under the
capital securities. The June issuance was for $300 million of
fixed-rate capital securities made by Wachovia Capital Trust V, a
consolidated subsidiary, and are due in 2027. All of the capital
securities are rated Aa3 by Moody's and A+ by Standard & Poor's
and qualify for inclusion in Tier I capital under risk-based
capital guidelines.
Wachovia Bank has an ongoing $16 billion global bank note
program consisting of short-term issues of 7 days to one year and
medium-term issues of greater than one year. At June 30, 1997,
short-term bank notes totaled $1.227 billion and had an average
cost of 5.65 percent and an average maturity of 2 months versus
$698 million in outstandings with an average cost of 5.32 percent
and an average maturity of 10 days one year earlier. Medium-term
bank notes were $3.014 billion with an average cost of 6.11
percent and an average maturity of 3.3 years on the same date
compared with $4.963 billion, 5.62 percent and 1.2 years,
respectively, at the end of the second quarter of 1996. Included
in medium-term bank notes at June 30, 1997 were $500 million of
five-year floating rate notes issued in May 1996; $100 million of
two-year fixed-rate notes issued in August 1996; $250 million of
12-year fixed-rate notes issued in October 1996; and $350 million
of five-year floating rate notes issued in May 1997. All of the
medium-term bank notes were issued in Europe and are rated Aa2 by
Moody's and AA+ by Standard & Poor's.
Gross deposits averaged $28.272 billion for the quarter, up
$2.511 billion or 9.7 percent from a year earlier, and were
$27.914 billion for the first half, an increase of $2.015 billion
or 7.8 percent from the same six months in 1996. Collected
deposits, net of float, averaged $26.395 billion for the three
months and $26.037 billion year to date, higher by $2.442 billion
or 10.2 percent and $1.962 billion or 8.1 percent, respectively,
from the same periods in 1996.
13
<PAGE>
ASSET AND LIABILITY MANAGEMENT, INTEREST RATE SENSITIVITY AND LIQUIDITY
MANAGEMENT
The corporation uses a number of tools to measure interest
rate risk, including simulating
net interest income under various rate scenarios, monitoring the
change in present value of the asset
and liability portfolios under the same rate scenarios and
monitoring the difference or gap between rate sensitive assets and
liabilities over various time periods. Management believes that
rate risk is
best measured by simulation modeling which calculates expected net
interest income based on projected interest-earning assets,
interest-bearing liabilities, off-balance sheet financial
instruments
and interest rates.
The corporation monitors exposure to a gradual change in
rates of 200 basis points up or down over a rolling 12-month
period and an interest rate shock of an instantaneous change in
rates of 200 basis points up or down over the same period. From
time to time, the model horizon is expanded to a 24-month period.
The corporation policy limit for the maximum negative impact on
net interest income from a gradual change in interest rates of 200
basis points over 12 months is 7.5 percent. Management generally
has maintained a risk position well within the policy guideline
level. As of June 30, 1997, the model indicated the impact of a
200 basis point gradual rise in rates over 12 months would
approximate a .7 percent decrease in net interest income, while a
200 basis point decline in rates over the same period would
approximate a .6 percent increase from an unchanged rate
environment.
In addition to on-balance sheet instruments such as
investment securities and purchased funds, the corporation uses
off-balance sheet derivative instruments to manage interest rate
risk, liquidity and net interest income. Off-balance sheet
instruments include interest rate swaps, futures and options with
indices that directly correlate to on-balance sheet instruments.
The corporation has used off-balance sheet financial instruments,
principally interest rate swaps, over a number of years and
believes their use on a sound basis enhances the effectiveness of
asset and liability and interest rate sensitivity management.
Off-balance sheet asset and liability derivative
transactions are based on referenced or notional amounts. At June
30, 1997, the corporation had $2.957 billion notional amount of
derivatives outstanding for asset and liability management
purposes. Credit risk of off-balance sheet derivative financial
instruments is equal to the fair value gain of the instrument if a
counterparty fails to perform. The credit risk is normally a small
percentage of the notional amount and fluctuates as interest rates
move up or down. The corporation mitigates this risk by subjecting
the transactions to the same rigorous approval and monitoring
process as is used for on-balance sheet credit transactions, by
dealing in the national market with highly rated counterparties,
by executing transactions under International Swaps and
Derivatives Association Master Agreements and by using collateral
instruments to reduce exposure where appropriate. Collateral is
delivered by either party when the fair value of a particular
transaction or group of transactions with the same counterparty on
a net basis exceeds an acceptable threshold of exposure. The
threshold level is determined based on the strength of the
individual counterparty.
The fair value of all asset and liability derivative
positions for which the corporation was exposed to counterparties
totaled $27 million at June 30, 1997. The fair value of all asset
and liability derivative positions for which counterparties were
exposed to the corporation amounted to $13 million on the same
date. Fair value details and additional asset and liability
derivative information are included in the following tables.
14
<PAGE>
Estimated Fair Value of Asset and Liability Management Derivatives
by Purpose
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
Notional Fair Value Fair Value Net Fair Value Notional Net Fair Value
$ IN MILLIONS Value Gains (Losses) Gains (Losses) Value Gains (Losses)
<S> <C> <C> <C> <C> <C> <C>
Convert floating rate liabilities to
fixed:
Swaps-pay fixed/receive floating.... $ 263 $ -- $ (2) $ (2) $ 109 $ (1)
Convert fixed rate assets to floating:
Swaps-pay fixed/receive floating.... 366 -- (5) (5) 384 (4)
Forward starting swaps-pay
fixed/receive floating............ 18 -- (1) (1) 39 (2)
Convert fixed rate liabilities to
floating:
Swaps-receive fixed/pay floating.... 1,350 18 (5) 13 300 (10)
Convert term liabilities with
quarterly rate resets to monthly:
Swaps-receive floating/pay
floating.......................... 300 -- -- -- 300 --
Convert floating rate assets to fixed:
Swaps-receive fixed/pay floating.... 410 5 -- 5 116 --
Index amortizing swaps-receive
fixed/pay floating................ 250 4 -- 4 275 9
Total derivatives............... $2,957 $ 27 ($13) $ 14 $1,523 $ (8)
</TABLE>
Maturity Schedule of Asset and Liability Management Derivatives
June 30, 1997
<TABLE>
<CAPTION>
Within Over Average
One Two Three Four Five Five Life
Year Years Years Years Years Years Total (Years)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ IN MILLIONS
Interest rate swaps:
Pay fixed/receive floating:
Notional amount......................... $301 $ 217 $ 39 $ 5 $ 3 $ 64 $ 629 1.84
Weighted average rates received......... 4.63% 5.72% 5.79 % 6.14% 6.52% 5.81% 5.22%
Weighted average rates paid............. 7.22 6.27 6.47 9.10 8.87 7.87 6.93
Receive fixed/pay floating:
Notional amount......................... $ 1 $ 252 $251 $ 103 $ 101 $1,052 $1,760 12.55
Weighted average rates received......... 9.88% 7.04% 6.81 % 6.48% 7.11% 7.42% 7.21%
Weighted average rates paid............. 8.49 5.72 5.83 5.76 6.04 5.81 5.81
Receive floating/pay floating:
Notional amount......................... -- -- -- $ 300 -- -- $ 300 3.93
Weighted average rates received......... -- -- -- 5.79% -- -- 5.79%
Weighted average rates paid............. -- -- -- 5.69 -- -- 5.69
Index amortizing swaps:*
Receive fixed/pay floating:
Notional amount......................... $250 -- -- -- -- -- $ 250 .49
Weighted average rates received......... 8.22% -- -- -- -- -- 8.22%
Weighted average rates paid............. 5.70 -- -- -- -- -- 5.70
Total interest rate swaps:
Notional amount........................... $552 $ 469 $290 $ 408 $ 104 $1,116 $2,939 8.35
Weighted average rates received........... 6.26% 6.43% 6.67 % 5.96% 7.10% 7.33% 6.72%
Weighted average rates paid............... 6.53 5.97 5.92 5.75 6.09 5.93 6.03
Forward starting interest rate swaps:
Notional amount........................... -- -- -- -- -- $ 18 $ 18 8.61
Weighted average rates paid............... -- -- -- -- -- 8.04% 8.04%
Total derivatives (notional amount)... $552 $ 469 $290 $ 408 $ 104 $1,134 $2,957 8.36
</TABLE>
* Maturity is based upon expected average lives rather than
contractual lives.
15
<PAGE>
Asset and liability transactions are accounted for following
hedge accounting rules. Accordingly, gains and losses related to
the fair value of derivative contracts used for asset and
liability management purposes are not immediately recognized in
earnings. If the hedged or altered balance sheet amounts were
marked to market, the resulting unrealized balance sheet gains or
losses could be expected to approximately offset unrealized
derivatives gains and losses.
To ensure the corporation is positioned to meet immediate and
future cash demands, management relies on liquidity analysis,
knowledge of business trends over past economic cycles and
forecasts of future conditions. Liquidity is maintained through a
strong balance sheet and operating performance that assures market
acceptance as well as through policy guidelines which limit the
level, maturity and concentration of noncore funding sources.
Through its balance sheet, the corporation generates liquidity
on the asset side by maintaining significant amounts of
available-for-sale investment securities, which may by sold at any
time, and by loans which may be securitized or sold. Additionally,
the corporation generates cash through deposit growth, the
issuance of bank notes, the availability of unused lines of credit
and through other forms of debt and equity instruments.
Through policy guidelines, the corporation limits net
purchased funds to 50 percent of long-term assets, which include
net loans and leases, investment securities with remaining
maturities over one year and net foreclosed real estate. Policy
guidelines insure against concentrations by maturity of noncore
funding sources by limiting the cumulative percentage of purchased
funds that mature overnight, within 30 days and within 90 days.
Guidelines also require the monitoring of significant
concentrations of funds by single sources and by type of borrowing
category.
16
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets at June 30, 1997 were $68.831 million or
.21 percent of period-end loans and foreclosed property. The total
decreased $3.814 million or 5.3 percent from one year earlier and
was down $4.600 million or 6.3 percent from March 31, 1997,
reflecting lower levels both of cash-basis assets and foreclosed
property.
Real estate nonperforming assets, the largest category of
total nonperforming assets, were $53.007 million or .50 percent of
real estate loans and foreclosed real estate at June 30, 1997.
Comparable amounts one year earlier and at March 31, 1997 were
$57.897 million or .62 percent and $55.966 million or .55 percent,
respectively. Real estate nonperforming loans were $43.009 million
at June 30, 1997, $45.391 million one year earlier and $45.752
million at the end of the first quarter.
Commercial real estate nonperforming assets were $26.627
million or .46 percent of related loans and foreclosed real estate
versus $34.498 million or .70 percent at June 30, 1996 and $29.766
million or .54 percent at March 31, 1997. Included in these totals
were commercial real estate nonperforming loans of $23.632 million
at June 30, 1997, $27.392 million one year earlier and $26.525
million at first quarter close.
NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 7
(thousands)
<TABLE>
<CAPTION>
Sept.
June 30 Mar. 31 Dec. 31 30 June 30
1997 1997 1996 1996 1996
<S> <C> <C> <C> <C> <C>
NONPERFORMING ASSETS
Cash-basis assets -- domestic borrowers........................ $54,837* $57,934 $60,066 $61,283 $55,219
Restructured loans -- domestic................................. --** -- -- -- --
Total nonperforming loans................................ 54,837 57,934 60,066 61,283 55,219
Foreclosed property:
Foreclosed real estate....................................... 12,037 12,189 11,326 12,852 15,162
Less valuation allowance..................................... 2,039 1,975 2,115 2,165 2,656
Other foreclosed assets...................................... 3,996 5,283 8,213 6,180 4,920
Total foreclosed property................................ 13,994 15,497 17,424 16,867 17,426
Total nonperforming assets............................... $68,831*** $73,431 $77,490 $78,150 $72,645
Nonperforming loans to period-end loans........................ .16% .18% .19% .19% .18%
Nonperforming assets to period-end loans and foreclosed
property..................................................... .21 .23 .25 .25 .24
Period-end allowance for loan losses times nonperforming
loans........................................................ 7.46X 7.07x 6.81x 6.68x 7.41x
Period-end allowance for loan losses times nonperforming
assets....................................................... 5.95 5.57 5.28 5.24 5.63
CONTRACTUALLY PAST DUE LOANS
(accruing loans past due 90 days or more)
Domestic borrowers............................................. $60,649 $54,717 $58,842 $53,304 $63,317
</TABLE>
*Includes $6,418 of loans which have been defined as impaired per FASB
Statement No. 114, Accounting for Impairment of a Loan
**Excludes $199 of loans which have been renegotiated at market rates and
have been reclassified to performing status
***Net of cumulative corporate and commercial real estate charge-offs and
foreclosed real estate write-downs totaling $13,323; includes $3,618
of nonperforming assets on which interest and principal are paid current
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $49.715 million for the
second quarter and $97.713 million for the first half, modestly
exceeding net loan losses and higher by $15.311 million or 44.5
percent and $35.975 million or 58.3 percent, respectively, from
year-earlier periods. Compared with the first three months of
1997, the provision was up $1.717 million or 3.6 percent. The
provision reflects management's assessment of the adequacy of the
allowance for loan losses to absorb potential write-offs in the
loan portfolio due to a deterioration in credit conditions or
change in risk profile. Factors considered in this assessment
include growth and mix of the loan portfolio, current and
anticipated economic conditions, historical credit loss experience
and changes in borrowers' financial positions. The adequacy of the
allowance also is assessed by management based on the
corporation's practice to aggressively recognize problem credits
and generally match charge-offs through the provision.
17
<PAGE>
Net loan losses for the second period were $49.692 million or
.62 percent annualized of average loans, up $15.365 million or
44.8 percent from $34.327 million or .46 percent of average loans
a year earlier. For the first six months, net loan losses totaled
$97.675 million or .61 percent annualized of average loans, a rise
of $36.134 million or 58.7 percent from $61.541 million or .42
percent of loans in the same period of 1996. Compared with the
first quarter, net loan losses were up $1.709 million or 3.6
percent. Increases in net charge-offs both from year-earlier
periods and from the preceding three
ALLOWANCE FOR LOAN LOSSES TABLE 8
(thousands)
<TABLE>
<CAPTION>
Six
Months
Ended
1997 1996 June
Second First Fourth Third Second 30
Quarter Quarter Quarter Quarter Quarter 1997
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF TRANSACTIONS
Balance at beginning of period............ $409,312 $409,297 $409,271 $409,205 $408,928 $409,297
Additions from acquisitions............... -- -- -- -- 200 --
Provision for loan losses................. 49,715 47,998 47,443 40,730 34,404 97,713
Deduct net loan losses:
Loans charged off:
Commercial............................ 518 268 451 2,748 324 786
Credit card........................... 49,117 46,101 44,640 38,783 36,343 95,218
Other revolving credit................ 1,769 1,637 2,834 1,790 1,346 3,406
Other retail.......................... 6,430 7,675 7,057 5,556 4,840 14,105
Real estate........................... 436 1,455 814 191 1,371 1,891
Lease financing....................... 1,218 1,366 675 348 235 2,584
Foreign............................... -- -- -- -- -- --
Total............................... 59,488 58,502 56,471 49,416 44,459 117,990
Recoveries:
Commercial............................ 685 476 1,689 666 1,198 1,161
Credit card........................... 5,730 6,019 4,982 4,579 4,599 11,749
Other revolving credit................ 534 532 384 495 290 1,066
Other retail.......................... 1,544 1,701 1,336 1,379 1,138 3,245
Real estate........................... 1,199 1,732 633 1,575 2,866 2,931
Lease financing....................... 104 59 30 58 41 163
Foreign............................... -- -- -- -- -- --
Total............................... 9,796 10,519 9,054 8,752 10,132 20,315
Net loan losses......................... 49,692 47,983 47,417 40,664 34,327 97,675
Balance at end of period*................. $409,335 $409,312 $409,297 $409,271 $409,205 $409,335
NET LOAN LOSSES (RECOVERIES) BY CATEGORY
Commercial................................ $ (167) $ (208) $ (1,238) $ 2,082 $ (874) $ (375)
Credit card............................... 43,387 40,082 39,658 34,204 31,744 83,469
Other revolving credit.................... 1,235 1,105 2,450 1,295 1,056 2,340
Other retail.............................. 4,886 5,974 5,721 4,177 3,702 10,860
Real estate............................... (763) (277) 181 (1,384) (1,495) (1,040)
Lease financing........................... 1,114 1,307 645 290 194 2,421
Foreign................................... -- -- -- -- -- --
Total............................... $ 49,692 $ 47,983 $ 47,417 $ 40,664 $ 34,327 $ 97,675
Net loan losses -- excluding credit
cards................................... $ 6,305 $ 7,901 $ 7,759 $ 6,460 $ 2,583 $ 14,206
ANNUALIZED NET LOAN LOSSES (RECOVERIES)
TO AVERAGE LOANS BY CATEGORY
Commercial................................ (.01%) (.01%) (.04%) .07% (.03%) (.01%)
Credit card............................... 3.63 3.34 3.49 3.20 3.14 3.49
Other revolving credit.................... 1.39 1.24 2.76 1.46 1.19 1.31
Other retail.............................. .62 .74 .69 .50 .44 .68
Real estate............................... (.03) (.01) .01 (.06) (.07) (.02)
Lease financing........................... .50 .63 .34 .17 .13 .56
Foreign................................... -- -- -- -- -- --
Total loans............................... .62 .61 .61 .53 .46 .61
Total loans -- excluding credit cards..... .09 .12 .12 .10 .04 .10
Period-end allowance to outstanding
loans................................... 1.23 1.26 1.31 1.30 1.33 1.23
<CAPTION>
1996
<S> <C>
SUMMARY OF TRANSACTIONS
Balance at beginning of period............ $408,808
Additions from acquisitions............... 200
Provision for loan losses................. 61,738
Deduct net loan losses:
Loans charged off:
Commercial............................ 389
Credit card........................... 68,245
Other revolving credit................ 2,438
Other retail.......................... 10,335
Real estate........................... 1,505
Lease financing....................... 612
Foreign............................... --
Total............................... 83,524
Recoveries:
Commercial............................ 2,058
Credit card........................... 8,623
Other revolving credit................ 573
Other retail.......................... 2,190
Real estate........................... 8,444
Lease financing....................... 95
Foreign............................... --
Total............................... 21,983
Net loan losses......................... 61,541
Balance at end of period*................. $409,205
NET LOAN LOSSES (RECOVERIES) BY CATEGORY
Commercial................................ $ (1,669)
Credit card............................... 59,622
Other revolving credit.................... 1,865
Other retail.............................. 8,145
Real estate............................... (6,939)
Lease financing........................... 517
Foreign................................... --
Total............................... $ 61,541
Net loan losses -- excluding credit
cards................................... $ 1,919
ANNUALIZED NET LOAN LOSSES (RECOVERIES)
TO AVERAGE LOANS BY CATEGORY
Commercial................................ (.03%)
Credit card............................... 2.98
Other revolving credit.................... 1.05
Other retail.............................. .49
Real estate............................... (.15)
Lease financing........................... .18
Foreign................................... --
Total loans............................... .42
Total loans -- excluding credit cards..... .01
Period-end allowance to outstanding
loans................................... 1.33
</TABLE>
*Includes the related allowance for credit losses for impaired loans as
defined in FASB 114, "Accounting by Creditors for Impairment of a Loan," of
$790, $792, $1,960, $1,453, $791, $790
and $791, respectively
18
<PAGE>
months reflected higher losses in consumer loans, principally
credit cards, and lower recoveries, primarily in real estate
loans. Excluding credit cards, net loan losses were $6.305 million
or .09 percent of average loans for the quarter and $14.206
million or .10 percent year to date versus $2.583 million or .04
percent and $1.919 million or .01 percent in the same respective
periods of 1996 and $7.901 million or .12 percent in the first
three months of 1997.
Credit card net charge-offs for the quarter were $43.387
million or 3.63 percent annualized of average credit card loans, a
rise of $11.643 million or 36.7 percent from $31.744 million or
3.14 percent of average receivables a year earlier. For the first
six months, credit card net loan losses totaled $83.469 million or
3.49 percent of receivables, up $23.847 million or 40 percent from
$59.622 million or 2.98 percent of loans in the same period of
1996. Other retail net charge-offs, associated with direct and
indirect retail loans, increased $1.184 million or 32 percent for
the three months and $2.715 million or 33.3 percent year to date.
Real estate loans had net recoveries of $763 thousand or .03
percent of average real estate loans for the quarter and $1.040
million or .02 percent for the first half versus $1.495 million or
.07 percent and $6.939 million or .15 percent in the same
respective periods of 1996.
Selected data on the corporation's managed credit card
portfolio, consisting of balance sheet and securitized loans, is
presented in the following table.
Managed Credit Card Data
<TABLE>
<CAPTION>
Six Months
1997 1996 Ended
Second First Fourth Third Second June 30
$ IN THOUSANDS Quarter Quarter Quarter Quarter Quarter 1997
<S> <C> <C> <C> <C> <C> <C>
Average credit card
outstandings........... $5,382,000 $5,420,000 $5,167,000 $4,895,000 $4,670,000 $5,401,000
Net loan losses.......... 48,787 45,444 45,162 39,370 36,733 94,122
Annualized net loan
losses to average
loans.................. 3.63% 3.35% 3.50% 3.22% 3.15% 3.49%
Delinquencies (30 days or
more) to period-end
loans.................. 2.26 2.27 2.14 2.26 2.01 2.26
<CAPTION>
$ IN THOUSANDS 1996
<S> <C>
Average credit card
outstandings........... $4,627,000
Net loan losses.......... 69,092
Annualized net loan
losses to average
loans.................. 2.99%
Delinquencies (30 days or
more) to period-end
loans.................. 2.01
</TABLE>
At June 30, 1997, the allowance for loan losses was $409.335
million, representing 1.23 percent of period-end loans and 746
percent of nonperforming loans. This compared with $409.205
million, 1.33 percent and 741 percent, respectively, one year
earlier and with $409.312 million, 1.26 percent and 707 percent,
respectively, at March 31, 1997.
NONINTEREST INCOME
Total other operating revenue, which excludes investment
securities sales, grew $34.310 million or 17.3 percent for the
second quarter from a year earlier and was up $51.870 million or
13.6 percent year to date. Increases in both periods were broad
based, with all categories advancing except mortgage fee income.
Included in total other operating revenue for the quarter was a
gain of approximately $18 million from the sale of branch offices
identified during 1996 from the corporation's Market Network
Strategy. Total other operating revenue for the previous year's
quarter included a gain of $9.575 million from the sale of the
corporation's bond trustee business. Excluding both these gains,
total other operating revenue rose $25.226 million or 13.3 percent
for the second quarter versus a year earlier and $42.786 million
or 11.5 percent year to date and was higher by $12.581 million or
6.2 percent from the first three months of 1997.
Credit card income advanced $8.804 million or 26 percent for
the quarter and $11.976 million or 18 percent for the first half.
Growth primarily reflected higher net revenues received from
cardholder income on securitized loans, greater overlimit charges
and increased interchange income. Results for both periods were
impacted favorably by upward pricing in the corporation's managed
credit card portfolio following the rise in March of short-term
interest rates.
19
<PAGE>
Trust fees grew $4.364 million or 12.6 percent for the three
months and $6.373 million or 9.3 percent for the first six months.
Gains in both periods were fueled by increased sales, greater
market values for trust assets and higher fee schedules, with
advances occurring in personal trust services, asset management
and the corporation's proprietary Wachovia mutual funds.
Deposit account service charge revenues were up $2.694
million or 4.4 percent and $10.038
million or 8.5 percent for the quarter and first half,
respectively. Increases in commercial account analy-
sis fees, insufficient fund charges and overdraft fees primarily
accounted for the rise in both periods.
Electronic banking revenues, consisting of fees from debit
card and ATM usage, were higher by $602 thousand or 4.8 percent
for the second period and $3.772 million or 17.2 percent year to
date. Increases reflected growth in debit card interchange income
as well as the assessment of ATM foreign access fees which were
implemented throughout Georgia, North Carolina and South Carolina
effective with the second quarter of 1996.
Trading account profits rose $471 thousand or 8.3 percent
for the three months and $1.299 million or 14.2 percent for the
first six months. Improved bond market conditions from
year-earlier periods accounted for the increases. Trading account
profits consist of profit and losses on securities in the
corporation's trading account portfolio, income earned on foreign
exchange transactions and income from derivatives valuation.
Investment fee income was up modestly for the quarter and
first half, expanding $245 thousand or 2.3 percent and $836
thousand or 4 percent, respectively. Increases occurred in
variable rate demand bond placements and in public finance fees,
but were largely offset by slower mutual fund sales in the first
part of the second quarter and by reduced loan syndication
activity.
Mortgage fee income remained largely flat for the second
period but was lower by $907 thousand or 10.4 percent year to
date. Improved pricing on the corporation's mortgage loan products
helped moderate the impact of reduced loan volume from
year-earlier periods.
Remaining combined categories of total other operating
revenue increased $17.121 million or 47.7 percent for the quarter
and $18.483 million or 26.7 percent year to date. Insurance
premiums and commissions were up $2.566 million or 63.6 percent
for the three months and $4.410 million or 56.7 percent for the
first six months, while bankers' acceptance and letter of credit
fees expanded
NONINTEREST INCOME TABLE 9
(thousands)
<TABLE>
<CAPTION>
Six
Months
1997 1996 Ended
Second First Fourth Third Second June 30
Quarter Quarter Quarter Quarter Quarter 1997
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts........ $ 63,622 $ 63,942 $ 62,564 $ 62,278 $ 60,928 $127,564
Fees for trust services.................... 38,872 36,354 35,116 33,872 34,508 75,226
Credit card income -- net of interchange
payments................................. 42,652 35,694 35,679 37,089 33,848 78,346
Electronic banking......................... 13,184 12,510 13,274 12,910 12,582 25,694
Investment fee income...................... 11,087 10,820 11,262 10,145 10,842 21,907
Mortgage fee income........................ 4,298 3,485 4,195 4,099 4,289 7,783
Trading account profits -- excluding
interest................................. 6,169 4,280 7,593 6,076 5,698 10,449
Insurance premiums and commissions......... 6,598 5,592 4,584 4,666 4,032 12,190
Bankers' acceptance and letter of credit
fees..................................... 8,015 7,171 6,656 6,684 6,109 15,186
Other service charges and fees............. 8,157 8,502 7,641 8,373 7,985 16,659
Other income............................... 30,251 13,315 14,872 11,586 17,774 43,566
Total other operating revenue........ 232,905 201,665 203,436 197,778 198,595 434,570
Investment securities gains (losses)....... 326 335 2,864 393 (219) 661
Total................................ $233,231 $202,000 $206,300 $198,171 $198,376 $435,231
<CAPTION>
1996
<S> <C>
Service charges on deposit accounts........ $117,526
Fees for trust services.................... 68,853
Credit card income -- net of interchange
payments................................. 66,370
Electronic banking......................... 21,922
Investment fee income...................... 21,071
Mortgage fee income........................ 8,690
Trading account profits -- excluding
interest................................. 9,150
Insurance premiums and commissions......... 7,780
Bankers' acceptance and letter of credit
fees..................................... 12,007
Other service charges and fees............. 16,575
Other income............................... 32,756
Total other operating revenue........ 382,700
Investment securities gains (losses)....... 479
Total................................ $383,179
</TABLE>
20
<PAGE>
$1.906 million or 31.2 percent for the second period and $3.179
million or 26.5 percent year to date. Other service charges and
fees remained largely unchanged for both the quarter and first
half. Other income rose $12.477 million or 70.2 percent for the
three months and $10.810 million or 33 percent for the first six
months and included the gain on the sale of branch offices.
Including investment securities sales, total noninterest
income was up $34.855 million or 17.6 percent for the second
quarter and $52.052 million or 13.6 percent year to date.
Investment securities sales resulted in net gains of $326 thousand
for the second quarter of 1997 versus net losses of $219 thousand
a year earlier. For the first six months, investment securities
sales had net gains of $661 thousand in 1997 compared with $479
thousand in 1996.
NONINTEREST EXPENSE
Total noninterest expense rose $44.607 million or 14.4
percent for the second quarter and $60.498 million or 9.8 percent
for the first half. Increases were driven by a higher salary base
and project costs for growth initiatives as well as approximately
$16 million in expenditures associated with Year 2000 computer
system conversions, which were incurred in the second quarter.
Excluding Year 2000 compliance costs, total noninterest expense
was up approximately $29 million or 9 percent for the second
period and $44 million or 7 percent year to date and was higher by
approximately $15 million or 4 percent from the preceding quarter.
The corporation's overhead ratio measuring noninterest expense as
a percentage of total adjusted revenues (taxable equivalent net
interest income and total other operating revenue) was 53.7
percent for the second quarter and 53 percent for the first half
of 1997.
Total personnel expense grew $21.488 million or 13.4 percent
for the three months and $33.974 million or 10.6 percent for the
first six months. Salaries expense rose $16.722 million or 12.6
percent and $27.157 million or 10.3 percent for the quarter and
first half, respectively. Increases were driven by higher core
salaries and by greater incentive pay, reflecting shifts in the
corporation's workforce composition toward higher skilled and more
revenue generating personnel. Employee benefits expense was up
$4.766 million or 17.2 percent for the second period and $6.817
million or 11.9 percent year to date due to increases in flexible
benefits costs and payroll taxes generated by a larger personnel
base. At June 30, 1997, full-time equivalent employees totaled
16,577 versus 16,150 one year earlier.
Combined net occupancy and equipment expense was up modestly
for the quarter and first half,
rising $1.671 million or 3.3 percent and $1.128 million or 1.1
percent, respectively. Increased equip-
ment expense, associated primarily with higher depreciation and
externally maintained equipment
costs, was largely offset by lower net occupancy expense for
building maintenance and renovation.
Remaining combined categories of noninterest expense rose
$21.448 million or 21.5 percent for
the second period and $25.396 million or 13 percent year to date
and included the $16 million in
expenses associated with Year 2000 conversion issues. The majority
of Year 2000 compliance costs to
date are for contract programming expenses. These costs are
reflected in outside data processing, pro-
gramming and software expense, which grew $13.968 million or 124.9
percent for the three months
and $16.154 million or 73.8 percent for the first six months. Costs
for consulting assistance with
Year 2000 compliance are included in professional services expense,
which increased $2.952 million
or 27.5 percent for the quarter but was up a more moderate $1.799
million or 8.8 percent year to date.
Management continues to anticipate spending a total of $40 million
to $50 million for issues related
to Year 2000 compliance. During the quarter, the corporation moved
forward with its brand name
advertising campaign launched in April. Advertising expense for the
quarter was up $3.345 million
or 21.6 percent from the previous year's period but remained
essentially unchanged year to date.
21
<PAGE>
NONINTEREST EXPENSE TABLE 10
(thousands)
<TABLE>
<CAPTION>
Six
Months
1997 1996 Ended
Second First Fourth Third Second June 30
Quarter Quarter Quarter Quarter Quarter 1997
<S> <C> <C> <C> <C> <C> <C>
Salaries................................... $149,160 $142,255 $141,342 $137,627 $132,438 $291,415
Employee benefits.......................... 32,490 31,849 25,894 27,882 27,724 64,339
Total personnel expense.............. 181,650 174,104 167,236 165,509 160,162 355,754
Net occupancy expense...................... 21,126 22,193 21,559 23,161 22,184 43,319
Equipment expense.......................... 30,783 28,873 29,032 28,844 28,054 59,656
Postage and delivery....................... 9,993 10,483 9,813 9,973 9,780 20,476
Outside data processing, programming and
software................................. 25,147 12,890 11,477 11,339 11,179 38,037
Stationery and supplies.................... 6,618 6,203 6,131 6,012 6,951 12,821
Advertising and sales promotion............ 18,847 13,648 13,289 14,442 15,502 32,495
Professional services...................... 13,695 8,554 9,662 8,173 10,743 22,249
Travel and business promotion.............. 5,905 5,321 5,959 4,929 5,335 11,226
Regulatory agency fees and other bank
services................................. 3,002 2,988 2,576 3,781 1,320 5,990
Amortization of intangible assets.......... 1,064 1,063 1,091 1,095 1,098 2,127
Foreclosed property expense................ 500 (235) 225 (370) 175 265
Other expense.............................. 36,364 38,051 44,688 39,591 37,604 74,415
Total................................ $354,694 $324,136 $322,738 $316,479 $310,087 $678,830
Overhead ratio............................. 53.7% 52.2% 51.7% 51.6% 51.9% 53.0%
<CAPTION>
1996
<S> <C>
Salaries................................... $264,258
Employee benefits.......................... 57,522
Total personnel expense.............. 321,780
Net occupancy expense...................... 44,862
Equipment expense.......................... 56,985
Postage and delivery....................... 20,232
Outside data processing, programming and
software................................. 21,883
Stationery and supplies.................... 13,957
Advertising and sales promotion............ 32,573
Professional services...................... 20,450
Travel and business promotion.............. 9,572
Regulatory agency fees and other bank
services................................. 2,373
Amortization of intangible assets.......... 2,176
Foreclosed property expense................ 49
Other expense.............................. 71,440
Total................................ $618,332
Overhead ratio............................. 52.8%
</TABLE>
INCOME TAXES
Applicable income taxes increased $1.168 million or 1.5
percent for the quarter and $3.652 million or 2.5 percent for the
first half of 1997. Income taxes computed at the statutory rate
are reduced primarily by the interest earned on state and
municipal loans and debt securities. Also, within certain
limitations, one-half of the interest income earned on qualifying
employee stock ownership plan loans is exempt from federal taxes.
The interest earned on state and municipal debt instruments is
exempt from federal taxes and, except for out-of-state issues,
from Georgia and North Carolina taxes as well. The tax-exempt
nature of these assets provide both an attractive return for the
corporation and substantial interest savings for local governments
and their constituents.
INCOME TAXES TABLE 11
(thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Income before income taxes............................... $242,564 $235,136 $477,399 $454,275
Federal income taxes at statutory rate................... $ 84,898 $ 82,297 $167,090 $158,996
State and local income taxes -- net of federal benefit... 4,692 3,365 8,401 6,255
Effect of tax-exempt securities interest and other
income................................................. (11,048) (10,204) (22,370) (20,596)
Other items.............................................. (1,601) 315 (4,427) 387
Total tax expense................................... $ 76,941 $ 75,773 $148,694 $145,042
Currently payable:
Federal................................................ $ 44,468 $ 63,227 $ 97,266 $113,405
Foreign................................................ 106 168 165 264
State and local........................................ 2,727 3,524 4,605 5,729
Total............................................... 47,301 66,919 102,036 119,398
Deferred:
Federal................................................ 25,145 7,545 38,339 22,111
State and local........................................ 4,495 1,309 8,319 3,533
Total............................................... 29,640 8,854 46,658 25,644
Total tax expense................................... $ 76,941 $ 75,773 $148,694 $145,042
</TABLE>
22
<PAGE>
NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (FASB 125), which provides new
accounting and reporting standards for sales, securitizations, and
servicing of receivables and other financial assets and
extinguishments of liabilities. FASB 125 is effective for
transactions occurring after December 31, 1996, except for the
provisions relating to repurchase agreements, securities lending
and other similar transactions and pledged collateral, which have
been delayed until after December 31, 1997 by FASB 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No.
125, an amendment of FASB Statement No. 125." Adoption of FASB 125
was not material; FASB 127 will be adopted as required in 1998 and
is not expected to be material.
In February 1997, Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (FASB 128), was issued and
establishes new standards for computing and presenting earnings
per share. FASB 128 is effective for the corporation's December
31, 1997 financial statements, including restatement of interim
periods; earlier application is not permitted. The effect of the
new standard will not be material.
In June 1997, Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FASB 130), was issued
and establishes standards for reporting and displaying
comprehensive income and its components. FASB 130 requires
comprehensive income and its components, as recognized under the
accounting standards, to be displayed in a financial statement
with the same prominence as other financial statements. The
corporation plans to adopt the standard, as required, beginning in
1998; adoption is not expected to have a material impact on the
corporation.
Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" (FASB 131), also issued in June 1997, establishes new
standards for reporting information about operating segments in
annual and interim financial statements. The standard also
requires descriptive information about the way the operating
segments are determined, the products and services provided by the
segments and the nature of differences between reportable segment
measurements and those used for the consolidated enterprise. This
standard is effective for years beginning after December 15, 1997.
Adoption in interim financial statements is not required until the
year after initial adoption, however comparative prior period
information is required. The corporation is evaluating the
standard and plans adoption as required in 1998; adoption is not
expected to have a significant financial impact on the
corporation.
FINANCIAL CONDITION AND CAPITAL RATIOS
Assets at June 30, 1997 totaled $48.512 billion, including
$42.610 billion of interest-earning assets and $33.256 billion of
loans. Comparable amounts one year earlier were $46.049 billion of
assets, $41.140 billion of interest-earning assets and $30.673
billion of loans. At March 31, 1997, total assets were $47.491
billion, with $42.260 billion of interest-earning assets and
$32.570 billion of loans.
Deposits at the end of the second quarter were $28.938
billion, including $21.942 billion of time deposits, representing
75.8 percent of the total. Deposits one year earlier were $25.973
billion, with time deposits of $20.515 billion or 79 percent of
the total, and at March 31, 1997, deposits were $28.832 billion,
including $22.340 billion of time deposits or 77.5 percent of the
total.
Shareholders' equity was $3.680 billion at June 30, 1997
compared with $3.700 billion one year earlier. Included in the
$3.680 billion of shareholders' equity was $35.715 million, net of
tax, of unrealized gains on securities available-for-sale marked
to fair value compared with $24.066 million one year earlier. The
reduction in equity at June 30, 1997 from a year earlier reflected
the impact of the corporation's share repurchase activity at
higher share prices. During the second quarter of 1997, the
corporation repurchased a total of 2,216,600 shares of its common
stock at an average price of $60.124 per share for a total cost of
$133.271 million compared with 2,577,400 shares repurchased in the
same period of 1996 at an average price of $43.521 per share for a
cost of $112.172 million. The corporation's share repurchase
authorization was rescinded by the board of directors effective
with announcement on June 24, 1997 of the corporation's merger
agreement with Central Fidelity Banks. At its meeting on July 25,
1997, the board of directors declared a third quarter dividend of
$.44 per
23
<PAGE>
common share, payable September 2, 1997 to shareholders of record
as of August 6. The dividend is higher by 10 percent from $.40 per
share paid in the same three months of 1996. For the year to date,
the dividend will total $1.24 per share, an increase of 10.7
percent from $1.12 paid in 1996.
Intangible assets totaled $43.729 million at June 30, 1997,
consisting of $38.133 million in goodwill, $4.749 million in
deposit base intangibles, $207 thousand in purchased credit card
intangibles and $640 thousand in other intangibles. Comparable
amounts one year earlier were $41.546 million of total intangible
assets, with $33.312 million in goodwill, $6.186 million in
deposit base intangibles, $990 thousand in purchased credit card
intangibles and $1.058 million in other intangible assets. The
increase in goodwill from a year earlier reflected the
corporation's purchase in June of MACRO*WORLD Research
Corporation, a leading Internet provider of financial information,
news and stock and mutual fund ratings.
Regulatory agencies divide capital into Tier I (consisting
of shareholders' equity and certain cumulative preferred stock
instruments less ineligible intangible assets) and Tier II
(consisting of the allowable portion of the reserve for loan
losses and certain long-term debt) and measure capital adequacy by
applying both capital levels to a banking company's risk-adjusted
assets and off-balance sheet items. Regulatory requirements
presently specify that Tier I capital should exclude the market
appreciation or depreciation of securities available-for-sale
arising from marking the securities portfolio to market value. In
addition to these capital ratios, regulatory agencies have
established a Tier I leverage ratio which measures Tier I capital
to average assets less ineligible intangible assets.
Regulatory guidelines require a minimum of total capital to
risk-adjusted assets ratio of 8 percent with at least one-half
consisting of tangible common shareholders' equity and a minimum
Tier I leverage ratio of 3 percent. Banks which meet or exceed a
Tier I ratio of 6 percent, a total capital ratio of 10 per-
cent and a Tier I leverage ratio of 5 percent are considered
well-capitalized by regulatory standards.
At June 30, 1997, the corporation's Tier I to risk-adjusted
assets ratio was 10.13 percent and total capital to risk-adjusted
assets was 13.61 percent. The Tier I leverage ratio was 9.67
percent. The capital ratios at the end of the second quarter of
1997 included a total of $900 million of trust capital securities.
CAPITAL COMPONENTS AND RATIOS TABLE 12
(thousands)
<TABLE>
<CAPTION>
1997 1996
Second First Fourth Third
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Tier I capital:
Common shareholders' equity........................ $ 3,679,827 $ 3,676,080 $ 3,761,832 $ 3,729,194
Trust capital securities*.......................... 896,665 596,578 300,000 --
Less ineligible intangible assets.................. 38,133 32,056 32,474 32,893
Unrealized gains on securities
available-for-sale, net of tax................... (35,715) (8,170) (42,462) (32,924)
Total Tier I capital........................... 4,502,644 4,232,432 3,986,896 3,663,377
Tier II capital:
Allowable allowance for loan losses................ 409,335 409,312 409,297 409,271
Allowable long-term debt........................... 1,133,093 1,138,138 1,138,041 1,198,177
Tier II capital additions...................... 1,542,428 1,547,450 1,547,338 1,607,448
Total capital.................................. $ 6,045,072 $ 5,779,882 $ 5,534,234 $ 5,270,825
Risk-adjusted assets................................. $44,431,023 $43,126,886 $42,669,628 $41,047,310
Quarterly average assets............................. $46,619,077 $45,983,826 $45,737,397 $45,777,699
Risk-based capital ratios:
Tier I capital..................................... 10.13% 9.81% 9.34% 8.92%
Total capital...................................... 13.61 13.40 12.97 12.84
Tier I leverage ratio**.............................. 9.67 9.22 8.73 8.01
Shareholders' equity to total assets................. 7.59 7.74 8.02 7.85
<CAPTION>
Second
Quarter
<S> <C>
Tier I capital:
Common shareholders' equity........................ $ 3,699,612
Trust capital securities*.......................... --
Less ineligible intangible assets.................. 33,312
Unrealized gains on securities
available-for-sale, net of tax................... (24,066)
Total Tier I capital........................... 3,642,234
Tier II capital:
Allowable allowance for loan losses................ 409,205
Allowable long-term debt........................... 1,198,837
Tier II capital additions...................... 1,608,042
Total capital.................................. $ 5,250,276
Risk-adjusted assets................................. $40,249,143
Quarterly average assets............................. $44,956,032
Risk-based capital ratios:
Tier I capital..................................... 9.05%
Total capital...................................... 13.04
Tier I leverage ratio**.............................. 8.12
Shareholders' equity to total assets................. 8.03
</TABLE>
*Trust capital securities are reported in "Other long-term debt" in the
Consolidated Statements of Condition
**Ratio excludes the average unrealized gains on securities
available-for-sale, net of tax, of $17,239, $37,350, $45,135, $24,358 and
$44,957, respectively
24
<PAGE>
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30 December 31 June 30
$ IN THOUSANDS 1997 1996 1996
<S> <C> <C> <C>
ASSETS
Cash and due from banks..................................................... $ 3,392,418 $3,367,673 $ 2,606,453
Interest-bearing bank balances.............................................. 33,620 27,871 473,037
Federal funds sold and securities
purchased under resale agreements......................................... 224,150 179,426 301,561
Trading account assets...................................................... 842,197 1,185,688 1,039,284
Securities available-for-sale............................................... 6,983,389 6,760,486 7,171,252
Securities held-to-maturity (fair value of $1,333,211,
$1,423,555 and $1,539,624, respectively).................................. 1,271,149 1,352,091 1,482,031
Loans and net leases........................................................ 33,259,607 31,290,905 30,680,028
Less unearned income on loans............................................... 3,982 7,713 7,387
Total loans........................................................... 33,255,625 31,283,192 30,672,641
Less allowance for loan losses.............................................. 409,335 409,297 409,205
Net loans............................................................. 32,846,290 30,873,895 30,263,436
Premises and equipment...................................................... 622,925 644,000 648,948
Due from customers on acceptances........................................... 858,463 957,109 685,389
Other assets................................................................ 1,437,495 1,556,276 1,377,705
Total assets.......................................................... $48,512,096 $46,904,515 $46,049,096
LIABILITIES
Deposits in domestic offices:
Demand.................................................................... $ 6,995,799 $6,115,540 $ 5,457,626
Interest-bearing demand................................................... 3,349,609 3,462,952 3,273,053
Savings and money market savings.......................................... 8,620,223 8,337,329 7,575,143
Savings certificates...................................................... 6,438,815 6,436,437 6,545,807
Large denomination certificates........................................... 2,367,267 1,710,061 2,234,372
Noninterest-bearing time.................................................. 4,657 2,974 4,768
Total deposits in domestic offices.................................... 27,776,370 26,065,293 25,090,769
Deposits in foreign offices:
Demand.................................................................... -- -- 241
Time...................................................................... 1,161,690 1,184,829 882,339
Total deposits in foreign offices..................................... 1,161,690 1,184,829 882,580
Total deposits........................................................ 28,938,060 27,250,122 25,973,349
Federal funds purchased and securities
sold under repurchase agreements.......................................... 6,253,688 6,298,130 7,358,020
Commercial paper............................................................ 762,801 706,226 541,978
Other short-term borrowed funds............................................. 1,723,035 967,097 1,054,813
Long-term debt:
Bank notes................................................................ 3,014,233 4,307,802 4,963,154
Other long-term debt...................................................... 2,757,257 2,159,099 1,330,383
Total long-term debt.................................................. 5,771,490 6,466,901 6,293,537
Acceptances outstanding..................................................... 858,463 957,109 685,389
Other liabilities........................................................... 524,732 497,098 442,398
Total liabilities..................................................... 44,832,269 43,142,683 42,349,484
SHAREHOLDERS' EQUITY
Preferred stock, par value $5 per share:
Authorized 50,000,000 shares; none outstanding............................ -- -- --
Common stock, par value $5 per share:
Issued 159,539,560, 163,844,198 and 166,797,672, respectively............. 797,698 819,221 833,988
Capital surplus............................................................. 185,500 424,873 570,724
Retained earnings........................................................... 2,660,914 2,475,276 2,270,834
Unrealized gains on securities available-for-sale, net of tax............... 35,715 42,462 24,066
Total shareholders' equity............................................ 3,679,827 3,761,832 3,699,612
Total liabilities and shareholders' equity............................ $48,512,096 $46,904,515 $46,049,096
</TABLE>
25
<PAGE>
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
$ IN THOUSANDS, EXCEPT PER SHARE 1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans.................................................................. $696,408 $621,346 $1,361,985 $1,229,631
Securities available-for-sale:
Other investments.................................................... 112,924 117,861 228,005 237,135
Securities held-to-maturity:
State and municipal.................................................. 4,150 5,531 8,646 11,414
Other investments.................................................... 21,527 24,597 43,599 50,096
Interest-bearing bank balances......................................... 445 9,258 805 18,276
Federal funds sold and securities
purchased under resale agreements.................................... 4,001 3,155 6,204 6,405
Trading account assets................................................. 12,646 10,975 25,781 23,009
Total interest income........................................... 852,101 792,723 1,675,025 1,575,966
INTEREST EXPENSE
Deposits:
Domestic offices..................................................... 223,886 200,396 438,649 409,146
Foreign offices...................................................... 22,361 11,033 39,718 24,134
Total interest on deposits...................................... 246,247 211,429 478,367 433,280
Short-term borrowed funds.............................................. 105,889 110,030 200,958 220,420
Long-term debt......................................................... 86,223 90,013 176,989 171,100
Total interest expense.......................................... 438,359 411,472 856,314 824,800
NET INTEREST INCOME.................................................... 413,742 381,251 818,711 751,166
Provision for loan losses.............................................. 49,715 34,404 97,713 61,738
Net interest income after provision for loan losses.................... 364,027 346,847 720,998 689,428
OTHER INCOME
Service charges on deposit accounts.................................... 63,622 60,928 127,564 117,526
Fees for trust services................................................ 38,872 34,508 75,226 68,853
Credit card income..................................................... 42,652 33,848 78,346 66,370
Electronic banking..................................................... 13,184 12,582 25,694 21,922
Investment fee income.................................................. 11,087 10,842 21,907 21,071
Mortgage fee income.................................................... 4,298 4,289 7,783 8,690
Trading account profits................................................ 6,169 5,698 10,449 9,150
Other operating income................................................. 53,021 35,900 87,601 69,118
Total other operating revenue................................... 232,905 198,595 434,570 382,700
Investment securities gains (losses)................................... 326 (219) 661 479
Total other income.............................................. 233,231 198,376 435,231 383,179
OTHER EXPENSE
Salaries............................................................... 149,160 132,438 291,415 264,258
Employee benefits...................................................... 32,490 27,724 64,339 57,522
Total personnel expense......................................... 181,650 160,162 355,754 321,780
Net occupancy expense.................................................. 21,126 22,184 43,319 44,862
Equipment expense...................................................... 30,783 28,054 59,656 56,985
Other operating expense................................................ 121,135 99,687 220,101 194,705
Total other expense............................................. 354,694 310,087 678,830 618,332
Income before income taxes............................................. 242,564 235,136 477,399 454,275
Applicable income taxes................................................ 76,941 75,773 148,694 145,042
NET INCOME............................................................. $165,623 $159,363 $ 328,705 $ 309,233
Net income per common share:
Primary.............................................................. $ 1.01 $ .94 $ 2.00 $ 1.81
Fully diluted........................................................ $ 1.01 $ .94 $ 2.00 $ 1.81
Average shares outstanding:
Primary.............................................................. 162,872 169,861 164,145 170,664
Fully diluted........................................................ 162,888 169,972 164,158 170,808
</TABLE>
26
<PAGE>
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Securities
Common Stock Capital Retained Gains
$ IN THOUSANDS, EXCEPT PER SHARE Shares Amount Surplus Earnings (Losses)
<S> <C> <C> <C> <C> <C>
PERIOD ENDED JUNE 30, 1996
Balance at beginning of year....................... 170,358,504 $851,793 $713,120 $2,092,731 $116,113
Net income......................................... 309,233
Cash dividends declared on common
stock -- $.72 a share............................ (121,773)
Common stock issued pursuant to:
Stock option and employee benefit plans.......... 450,412 2,252 19,426
Dividend reinvestment plan....................... 158,637 793 6,318
Conversion of debentures......................... 228,614 1,143 3,251
Acquisition of bank.............................. 208,207 1,041 9,003
Common stock acquired.............................. (4,606,702) (23,034) (180,393)
Unrealized losses on securities
available-for-sale, net of tax................... (92,047)
Miscellaneous...................................... (1) (9,357)
Balance at end of period........................... 166,797,672 $833,988 $570,724 $2,270,834 $ 24,066
PERIOD ENDED JUNE 30, 1997
Balance at beginning of year....................... 163,844,198 $819,221 $424,873 $2,475,276 $ 42,462
Net income......................................... 328,705
Cash dividends declared on common
stock -- $.80 a share............................ (129,800)
Common stock issued pursuant to:
Stock option and employee benefit plans.......... 547,004 2,735 27,755
Dividend reinvestment plan....................... 117,544 588 6,480
Conversion of debentures......................... 1,036 5 15
Common stock acquired.............................. (4,970,222) (24,851) (274,300)
Unrealized losses on securities
available-for-sale, net of tax................... (6,747)
Miscellaneous...................................... 677 (13,267)
Balance at end of period........................... 159,539,560 $797,698 $185,500 $2,660,914 $ 35,715
</TABLE>
27
<PAGE>
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
$ IN THOUSANDS 1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income...................................................................................... $ 328,705 $ 309,233
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses..................................................................... 97,713 61,738
Depreciation and amortization................................................................. 47,590 45,193
Deferred income taxes......................................................................... 46,658 25,644
Investment securities gains................................................................... (661) (479)
Gain on sale of noninterest-earning assets.................................................... (246) (661)
(Decrease) increase in accrued income taxes................................................... (6,405) 16,871
Increase in accrued interest receivable....................................................... (15,488) (4,082)
Increase (decrease) in accrued interest payable............................................... 46,211 (19,878)
Net change in other accrued and deferred income and expense................................... (81,997) (35,581)
Net trading account activities................................................................ 343,491 75,642
Net loans held for resale..................................................................... (108,056) 141,684
Net cash provided by operating activities................................................. 697,515 615,324
INVESTING ACTIVITIES
Net increase in interest-bearing bank balances.................................................. (5,749) (21,758)
Net increase in federal funds sold and securities
purchased under resale agreements............................................................. (44,724) (152,956)
Purchases of securities available-for-sale...................................................... (1,397,168) (595,924)
Purchases of securities held-to-maturity........................................................ (35,573) (45,679)
Sales of securities available-for-sale.......................................................... 269,745 133,921
Calls, maturities and prepayments of securities available-for-sale.............................. 890,623 554,070
Calls, maturities and prepayments of securities held-to-maturity................................ 117,922 185,916
Net increase in loans made to customers......................................................... (1,965,661) (1,598,300)
Capital expenditures............................................................................ (45,640) (68,726)
Proceeds from sales of premises and equipment................................................... 3,183 7,756
Net decrease (increase) in other assets......................................................... 200,705 (143,860)
Business combinations........................................................................... (947) 2,814
Net cash used by investing activities..................................................... (2,013,284) (1,742,726)
FINANCING ACTIVITIES
Net increase (decrease) in demand, savings and money market accounts............................ 1,051,493 (23,726)
Net increase (decrease) in certificates of deposit.............................................. 636,445 (400,856)
Net (decrease) increase in federal funds purchased and securities
sold under repurchase agreements.............................................................. (44,442) 1,507,480
Net increase in commercial paper................................................................ 56,575 39,842
Net increase (decrease) in other short-term borrowings.......................................... 755,938 (665,779)
Proceeds from issuance of bank notes............................................................ 748,372 2,047,429
Maturities of bank notes........................................................................ (2,040,693) (1,172,552)
Proceeds from issuance of other long-term debt.................................................. 590,185 --
Payments on other long-term debt................................................................ (242) (211)
Common stock issued............................................................................. 15,710 13,464
Dividend payments............................................................................... (129,800) (121,773)
Common stock repurchased........................................................................ (294,426) (200,745)
Net (decrease) increase in other liabilities.................................................... (4,601) 18,964
Net cash provided by financing activities................................................. 1,340,514 1,041,537
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................................ 24,745 (85,865)
Cash and cash equivalents at beginning of year.................................................. 3,367,673 2,692,318
Cash and cash equivalents at end of period...................................................... $3,392,418 $2,606,453
SUPPLEMENTAL DISCLOSURES
Unrealized losses on securities available-for-sale:
Decrease in securities available-for-sale..................................................... $ (12,072) $ (150,460)
Increase in deferred taxes.................................................................... 5,539 58,413
Decrease in shareholders' equity.............................................................. (6,747) (92,047)
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C>
BULK RATE
U.S. POSTAGE PAID
WACHOVIA
CORPORATION
</TABLE>
Wachovia logo appears here
Wachovia Corporation
<TABLE>
<S> <C> <C>
</TABLE>
P. O. Box 3099
Winston-Salem, NC 27150
#11-38
WACHOVIA CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30 December 31
(A) EXCLUDING INTEREST ON DEPOSITS 1997 1996
------------- -------------
<S> <C> <C>
Earnings:
Income before income taxes $477,399 $934,902
Less capitalized interest (13) -
Fixed charges 384,630 804,019
------------- -------------
Earnings as adjusted $862,016 $1,738,921
============= =============
Fixed charges:
Interest on purchased and other
short term borrowed funds $200,958 $431,094
Interest on long-term debt 176,989 359,946
Portion of rents representative of the
interest factor (1/3) of rental expense 6,683 12,979
------------- -------------
Fixed charges $384,630 $804,019
============= =============
Ratio of earnings to fixed charges 2.24 X 2.16 X
(B) INCLUDING INTEREST ON DEPOSITS:
Adjusted earnings from (A) above $862,016 $1,738,921
Add interest on deposits 478,367 881,562
------------- -------------
Earnings as adjusted $1,340,383 $2,620,483
============= =============
Fixed charges:
Fixed charges from (A) above $384,630 $804,019
Interest on deposits 478,367 881,562
------------- -------------
Adjusted fixed charges $862,997 $1,685,581
============= =============
Adjusted earnings to adjusted fixed 1.55 X 1.55 X
charges
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<EXCHANGE-RATE> 1
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,392,418
<INT-BEARING-DEPOSITS> 33,620
<FED-FUNDS-SOLD> 224,150
<TRADING-ASSETS> 842,197
<INVESTMENTS-HELD-FOR-SALE> 6,983,389
<INVESTMENTS-CARRYING> 1,271,149
<INVESTMENTS-MARKET> 1,333,211
<LOANS> 33,255,625
<ALLOWANCE> 409,335
<TOTAL-ASSETS> 48,512,096
<DEPOSITS> 28,938,060
<SHORT-TERM> 8,739,524
<LIABILITIES-OTHER> 1,383,195
<LONG-TERM> 5,771,490
0
0
<COMMON> 797,698
<OTHER-SE> 2,882,129
<TOTAL-LIABILITIES-AND-EQUITY> 48,512,096
<INTEREST-LOAN> 1,361,985
<INTEREST-INVEST> 280,250
<INTEREST-OTHER> 32,790
<INTEREST-TOTAL> 1,675,025
<INTEREST-DEPOSIT> 478,367
<INTEREST-EXPENSE> 856,314
<INTEREST-INCOME-NET> 818,711
<LOAN-LOSSES> 97,713
<SECURITIES-GAINS> 661
<EXPENSE-OTHER> 678,830
<INCOME-PRETAX> 477,399
<INCOME-PRE-EXTRAORDINARY> 328,705
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 328,705
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 2.00
<YIELD-ACTUAL> 4.11
<LOANS-NON> 54,837
<LOANS-PAST> 60,649
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 409,312
<CHARGE-OFFS> 59,488
<RECOVERIES> 9,796
<ALLOWANCE-CLOSE> 409,335
<ALLOWANCE-DOMESTIC> 0<F1>
<ALLOWANCE-FOREIGN> 0<F1>
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Available at year end only.
</FN>
</TABLE>
