- ----------------
1998 Form 10-Q
- --------------------------------------------------------------------------------
United States Securities and Exchange Commission
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended September 30, 1998
Commission File Number 1-9021
Wachovia Corporation
- --------------------------------------------------------------------------------
Incorporated in the State of North Carolina
IRS Employer Identification Number 56-1473727
Address and Telephone:
100 North Main Street, Winston-Salem, North Carolina, 27101,
(336) 770-5000
191 Peachtree Street NE, Atlanta, Georgia, 30303, (404) 332-5000
As of September 30, 1998, Wachovia Corporation had 202,751,280 shares of common
stock outstanding.
Wachovia Corporation (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and (2) has been subject to such filing requirements for the past 90
days.
Documents Incorporated by Reference
- --------------------------------------------------------------------------------
Financial Information for the quarter ended September 30, 1998 is incorporated
by reference to the Wachovia Corporation Financial Supplement (the "Financial
Supplement") in Exhibit 19 as indicated in the table below. Except for parts of
the Financial Supplement expressly incorporated herein by reference, the
Financial Supplement is not to be deemed filed with the Securities and Exchange
Commission.
<PAGE>
Part I
Item 1. Financial Statements
The information required by this item is incorporated by reference to the tables
titled "Selected Period-End Data" and "Common Stock Data--Per Share" on page 3
of the Financial Supplement and to the following consolidated financial
statements on pages 26 through 29 of the Financial Supplement:
Consolidated Statements of Condition
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
The above referenced Financial statements do not include all information and
footnotes required under generally accepted accounting principles. However,
in the opinion of management, the profit and loss information presented in the
interim financial statements reflects all adjustments necessary to present
fairly the results of operations for the periods presented. Adjustments
reflected in the third quarter of 1998 figures are of a normal, recurring
nature. The results of operations shown in the interim statements are not
necessarily indicative of the results that may be expected for the entire year.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is incorporated by reference to the
information appearing under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 4 through 25 of the
Financial Supplement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated by reference to the
information appearing under the subheading "Asset and Liability Management,
Interest Rate Sensitivity and Liquidity Management" on pages 13 through 16 of
the Financial Supplement.
Part II
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submissions of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Report on Form 8-k
(a) Exhibits.
The exhibits listed on the accompanying Index to Exhibits, immediately following
the signature page are filed as part of, or incorporated by reference into, this
report.
(b) Reports on Form 8-K.
A Current Report on Form 8-K dated October 8, 1998 was filed with the Securities
and Exchange Commission to report certain agreements with third parties to
underwrite the issuance of $250 million in Senior Floating Rate Notes due
September 28, 2000 and $300 million in Senior Floating Rate Notes due October 9,
2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November 12, 1998 WACHOVIA CORPORATION
By: Robert S. McCoy, Jr.
Senior Executive Vice President
and Chief Financial Officer
And
By: Donald K. Truslow
Executive Vice President,
Treasurer and Comptroller
<PAGE>
Item 6. Exhibits
- -----------------
1.1 Underwriting agreement dated September 18, 1998 between Wachovia
Corporation and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated as the Underwriter with respect to the sale by
Wachovia Corporation and the purchase by the Underwriter of
$250,000,000 aggregate principal amount of Senior Floating Rate Notes
due September 28, 2000. (Exhibit 1.1 to Report on Form 8-K dated
October 8, 1998, File No. 1-9021*)
1.2 Underwriting agreement dated September 30, 1998 between Wachovia
Corporation and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Chase Securities Inc., Credit Suisse First Boston
Corporation, J.P. Morgan Securities, Inc., Morgan Stanley & Co.
Incorporated, Salamon Smith Barney Inc. as the Underwriters with
respect to the sale by Wachovia Corporation and the purchase by the
Underwriters, acting severally and not jointly, of $300,000,000
aggregate principal amount of Senior Floating Rate Notes due October 9,
2001. (Exhibit 1.2 to Report on Form 8-K dated October 8, 1998, File
No. 1-9021*)
3.1 Amended and Restated Articles of Incorporation of the registrant.
(Exhibit 3.1 to Report on Form 10-Q of Wachovia Corporation for the
quarter ended June 30, 1998, File No. 1-9021*)
3.2 Bylaws of the registrant as amended (Exhibit 3.2 to Quarterly Report on
Form 10-Q of Wachovia Corporation for the quarter ended September 30,
1997, File No. 1-9021*).
4 Instruments defining the rights of security holders, including
indentures - Wachovia Corporation hereby agrees to furnish to the
Commission, upon request, a copy of any instruments defining the rights
of security holders that are not required to be filed.
4.1 Articles IV, VII, IX, X and XI of the registrant's Amended and Restated
Articles of Incorporation (Included in Exhibit 3.1 hereto).
4.2 Article 1, Section 1.8, and Article 6 of the registrant's Bylaws
(Included in Exhibit 3.2 hereto).
4.3 Indenture dated as of May 15, 1986 between South Carolina National
Corporation and Morgan Guaranty Trust Company of New York, as Trustee,
relating to $35,000,000 principal amount of 6 1/2% Convertible
Subordinated Debentures due in 2001 (Exhibit 28 to S-3 Registration
Statement of South Carolina National Corporation, File No. 33-7710*).
4.4 First Supplemental Indenture dated as of November 26, 1991 by and among
South Carolina National Corporation, Wachovia Corporation and Morgan
Guaranty Trust Company of New York, Trustee, amending the Indenture
described in Exhibit 4.3 hereto (Exhibit 4.10 to Report on Form 10-K of
Wachovia Corporation for the fiscal year ended December 31, 1991, File
No. 1-9021*).
4.5 Indenture dated as of March 15, 1991 between South Carolina National
Corporation and Bankers Trust Company, as Trustee, relating to certain
unsecured subordinated securities (Exhibit 4(a) to S-3 Registration
Statement of South Carolina National Corporation, File No. 33-39754*).
4.6 First Supplemental Indenture dated as of January 24, 1992 by and among
South Carolina National Corporation, Wachovia Corporation and Bankers
Trust Company, as Trustee, amending the Indenture described in Exhibit
4.5 hereto (Exhibit 4.12 to Report on Form 10-K of Wachovia Corporation
for the fiscal year ended December 31, 1991, File No. 1-9021*).
4.7 Form of Indenture dated July 15, 1998 between The Chase Manhattan Bank,
as trustee, and Wachovia Corporation relating to subordinated debt
securities (Exhibit 4(b) to Form S-3 Registration Statement of Wachovia
Corporation, File No. 333-59165*).
4.8 Indenture dated as of August 15, 1996 between Wachovia Corporation and
The Chase Manhattan Bank, as Trustee, relating to senior securities
(Exhibit 4(a) of Post-Effective Amendment No. 1 to Form S-3 (Shelf)
Registration Statement of Wachovia Corporation, File No. 33-6280*).
4.9 Indenture between Wachovia Corporation, Wachovia Capital Trust II and
First National Bank of Chicago, as Trustee, relating to Floating Rate
Junior Subordinated Deferrable Interest Debentures (Junior Subordinated
Debentures). (Exhibit 4(c) of Amendment No. 1 to Form S-3 Registration
Statement of Wachovia Corporation and Wachovia Capital Trust II dated
January 22, 1997, File No. 333-19365.)
4.10 Amended and Restated Declaration of Trust of Wachovia Capital Trust II,
relating to Preferred Securities (Exhibit 4(b)(iv) of Amendment No. 1
to Form S-3 Registration Statement of Wachovia Corporation and Wachovia
Capital Trust II dated January 22, 1997, File No. 333-19365).
4.11 Preferred Securities Guarantee Agreement of Wachovia Corporation
(Exhibit 4 (g) of Amendment No. 1 to Form S-3 Registration Statement of
Wachovia Corporation and Wachovia Capital Trust II dated January 22,
1997, File No. 333-19365).
4.12 Indenture between Central Fidelity Banks, Inc. and Chemical Bank, as
Trustee, relating to $150,000,000 principal amount of subordinated debt
securities (Exhibit 4.1 to Form 8-K of Central Fidelity Banks, Inc.,
dated November 18, 1992, File No. 0-8829).
4.13 Indenture between Central Fidelity Banks, Inc., Central Fidelity
Capital Trust I and The Bank of New York, as Trustee, relating to
$100,000,000 Floating Rate Junior Subordinated Debentures (Exhibit 4.1
to Form S-3 Registration Statement of Central Fidelity Banks, Inc.,
dated April 23, 1997, File No. 333-28917).
4.14 Amended and Restated Declaration of Trust of Central Fidelity Capital
Trust I (Exhibit 4.4 to Form S-3 Registration Statement of Central
Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917).
4.15 Form of New Guarantee Agreement for the benefit of the holders of the
Trust Securities (Exhibit 4.6 to Form S-3 Registration Statement of
Central Fidelity Banks, Inc., dated as of April 23, 1997, File No.
333-28917).
10.1 Deferred Compensation Plan of Wachovia Bank of North Carolina, N.A.
(Exhibit 10.1 to Report on Form 10-K of Wachovia Corporation for the
fiscal year ended December 31,1992, File No. 1-9021*).
10.2 1983 Amendment to Deferred Compensation Plan described in Exhibit 10.1
hereto (Exhibit 10.2 to Report on Form 10-K Wachovia Corporation for
the fiscal year ended December 31, 1992, File No. 1-9021*).
10.3 1986 Amendment to Deferred Compensation Plan described in Exhibit 10.1
hereto (Exhibit 10.9 to Report on Form 10-K of First Wachovia
Corporation for the fiscal year ended December 31, 1986, File No.
1-9021*).
10.4 Senior Management Incentive Plan of Wachovia Corporation as amended
through April 22, 1994 (Exhibit 10.2 to Quarterly Report on Form 10-Q
of Wachovia Corporation for the quarter ended March 31, 1994, File No.
1-9021*).
10.5 Retirement Savings and Profit-Sharing Benefit Equalization Plan of
Wachovia Corporation (Exhibit 10.3 to Quarterly Report on Form 10-Q of
Wachovia Corporation for the quarter ended June 30, 1995, File No.
1-9021*).
10.6 Form of Employment Agreement between Wachovia Corporation an L.M.
Baker, Jr., Robert S. McCoy, Jr., G. Joseph Prendergast and Walter E.
Leonard, Jr. (Exhibit 10 to Quarterly Report on Form 10-Q of Wachovia
Corporation for the quarter ended March 31, 1997, File No. 1-9021*).
10.7 Form of Employment Agreement between Wachovia Corporation and Hugh M.
Durden (Exhibit 10.12 to Report on Form 10-K of Wachovia Corporation
for the fiscal year ended December 31, 1996, File No. 1-9021*).
10.8 Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr.
(Exhibit 10.13 to Report on Form 10-Q of Wachovia Corporation for the
quarter ended June 30, 1998, File No. 1-9021*)
10.9 Executive Retirement Agreement between Wachovia Corporation and Mr.
John G. Medlin, Jr. (Exhibit 10.18 to Report on Form 10-K of First
Wachovia Corporation for the fiscal year ended December 31, 1987, File
No. 1-9021*).
10.10 Amendment to Executive Retirement Agreement described in Exhibit 10.9
hereto (Exhibit 10.17 to Report on Form 10-K of Wachovia Corporation
for the fiscal year ended December 31, 1991, File No. 1-9021*).
10.11 Amendment to Executive Retirement Agreement described in Exhibit 10.9
hereto (Exhibit 10.3 to Quarterly Report on Form 10-Q of Wachovia
Corporation for the quarter ended September 30, 1993, File No.
1-9021*).
10.12 Amendment to Executive Retirement Agreement described in Exhibit 10.9
hereto (Exhibit 10.4 to Quarterly Report on Form 10-Q of Wachovia
Corporation for the quarter ended September 30, 1993, File No.
1-9021*).
10.13 Form of Executive Retirement Agreements between Wachovia Corporation
and Messrs. L.M. Baker, Jr., G. Joseph Prendergast, Walter E. Leonard,
Jr., and Hugh M. Durden, dated as of January 27, 1995 (Exhibit 10.1 to
Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter
ended June 30, 1995, File No. 1-9021*).
10.14 Executive Retirement Agreement between Wachovia Corporation and Mr.
Robert S. McCoy, Jr. (Exhibit 10.2 to Quarterly Report on Form 10-Q
of Wachovia Corporation for the quarter ended June 30, 1995, File No.
1-9021*).
10.15 Amendment to Executive Retirement Agreements described in Exhibits
10.13 and 10.14 hereto (Exhibit 10.21 to Report on Form 10-K of
Wachovia Corporation for the fiscal year ended December 31, 1996, File
No. 1-9021*).
10.16 Senior Management and Director Stock Plan of Wachovia Corporation
(Exhibit 10 to Quarterly Report on Form 10-Q of First Wachovia
Corporation for the quarter ended March 31, 1989, File No. 1-9021*).
10.17 1990 Declaration of Amendment to Senior Management and Director Stock
Plan as described in Exhibit 10.16 hereto (Exhibit 10.17 to Report on
Form 10-K of First Wachovia Corporation for fiscal year ended December
31, 1989, File No. 1-9021*).
10.18 1996 Declaration of Amendment to Senior Management and Director Stock
Plan as described in Exhibit 10.16 hereto (Exhibit 10.24 to Report on
Form 10-K of Wachovia Corporation for fiscal year ended December 31,
1996, File No. 1-9021*).
10.19 Deferred Compensation Plan dated as of January 19, 1987, as amended
(Exhibit 10(c) to Report on Form 10-K of South Carolina National
Corporation for the fiscal year ended December 31, 1986, File No.
0-7042*).
10.20 Amendment to Deferred Compensation Plan described in Exhibit 10.19
hereto (Exhibit 19(b) to Quarterly Report on Form 10-Q of South
Carolina National Corporation for the quarter ended September 30, 1987,
File No. 0-7042*).
10.21 Amendment to Deferred Compensation Plan described in Exhibit 10.19
hereto (Exhibit 10(d) to Report on Form 10-K of South Carolina National
Corporation for the fiscal year ended December 31, 1988, File No.
0-7042*).
10.22 Amendment to Deferred Compensation Plan described in Exhibit 10.19
hereto (Exhibit 10.35 to Report on Form 10-K of Wachovia Corporation
for the fiscal year ended December 31, 1993, File No. 1-9021*).
10.23 Amended and Restated Wachovia Corporation Stock Plan (Exhibit 4.1 to
S-8 Registration Statement No. 033-53325*).
10.24 Wachovia Corporation Director Deferred Stock Unit Plan (Exhibit 10.37
to Report on Form 10-K of Wachovia Corporation for the fiscal year
ended December 31, 1996, File No. 1-9021*).
10.25 Wachovia Corporation Incentive Plan Deferral Arrangement (Exhibit 10.35
to Report on Form 10-K of Wachovia Corporation for the fiscal year
ended December 31, 1995, File No. 1-9021*).
10.26 Wachovia Corporation Executive Insurance Plan (Exhibit 10.36 to Report
on Form 10-K of Wachovia Corporation for the fiscal year ended December
31, 1995, File No. 1-9021*).
10.27 Executive Long Term Disability Income Plan. (Exhibit 10.34 to Report on
Form 10-K of Wachovia Corporation for the fiscal year ended December
31, 1997, File No. 1-9021*)
11 Computation of Earnings Per Share (Table 2 on page 6 of the third
quarter 1998 financial supplement*).
12 Statement setting forth computation of ratio of earnings to fixed
charges.
19 Financial Supplement for Third Quarter 1998.
27 Financial Data Schedule (for SEC purposes only).
* Incorporated by reference.
WACHOVIA CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12
<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
September 30, December 31,
(A) Excluding interest on deposits 1998 1997
------------- ------------
<S> <C> <C>
Earnings:
Income before income taxes $944,603 $869,119
Less capitalized interest (548) (167)
Fixed charges 732,007 884,806
---------- ----------
Earnings as adjusted $1,676,062 $1,753,758
========== ==========
Fixed charges:
Interest on purchased and other
short term borrowed funds $429,600 $478,162
Interest on long-term debt 285,712 387,107
Portion of rents representative of the
interest factor (1/3) of rental expense 16,695 19,537
---------- ----------
Fixed charges $732,007 $884,806
========== ==========
Ratio of earnings to fixed charges 2.29 X 1.98 X
(B) Including interest on deposits:
Adjusted earnings from (A) above $1,676,062 $1,753,758
Add interest on deposits 1,032,458 1,303,549
---------- ----------
Earnings as adjusted $2,708,520 $3,057,307
========== ==========
Fixed charges:
Fixed charges from (A) above $732,007 $884,806
Interest on deposits 1,032,458 1,303,549
---------- ----------
Adjusted fixed charges $1,764,465 $2,188,355
========== ==========
Adjusted earnings to adjusted fixed
charges 1.54 X 1.40 X
</TABLE>
[WACHOVIA LOGO]
Financial Supplement
Third Quarter 1998
<PAGE>
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Directors and Officers
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Directors of Wachovia Corporation and Wachovia Bank, N.A.
L.M. Baker, Jr.
Chairman, President and
Chief Executive Officer
James S. Balloun
Chairman, President and
Chief Executive Officer
National Service Industries, Inc.
James F. Betts
Consultant and
Former President
USLIFE Corporation
Peter C. Browning
President and
Chief Executive Officer
Sonoco Products Company
John T. Casteen III
President
University of Virginia
John L. Clendenin
Chairman Emeritus
BellSouth Corporation
Lawrence M. Gressette, Jr.
Chairman of the
Executive Committee
SCANA Corporation
Thomas K. Hearn, Jr.
President
Wake Forest University
George W. Henderson III
Chairman and
Chief Executive Officer
Burlington Industries, Inc.
W. Hayne Hipp
President and
Chief Executive Officer
The Liberty Corporation
Robert A. Ingram
Chief Executive Officer
Glaxo Wellcome plc
Chairman, Chief Executive
Officer and President
Glaxo Wellcome Inc.
George R. Lewis
President and
Chief Executive Officer
Philip Morris Capital Corporation
John G. Medlin, Jr.
Chairman Emeritus
Lloyd U. Noland, III
Chairman, President and
Chief Executive Officer
Noland Company
Sherwood H. Smith, Jr.
Chairman of the Board
Carolina Power & Light Company
John C. Whitaker, Jr.
Chairman and
Chief Executive Officer
Inmar Enterprises, Inc.
Principal Corporate Officers of Wachovia Corporation
L.M. Baker, Jr.
Chairman, President and
Chief Executive Officer
Mickey W. Dry
Senior Executive Vice President
Chief Credit Officer
Walter E. Leonard, Jr.
Senior Executive Vice President
Operations/Technology
Kenneth W. McAllister
Senior Executive Vice President
General Counsel/Administrative Services
Robert S. McCoy, Jr.
Senior Executive Vice President
Chief Financial Officer
G. Joseph Prendergast
Senior Executive Vice President
General Banking
2
<PAGE>
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Selected Period-End Data
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<TABLE>
<S> <C> <C>
September 30 September 30
1998 1997
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Banking offices:
North Carolina ............................... 200 202
Virginia ..................................... 263 245
Georgia ...................................... 132 128
South Carolina ............................... 120 127
Florida ...................................... 40 ----
------- -------
Total ....................................... 755 702
======= =======
Automated banking machines:
North Carolina ............................... 448 406
Virginia ..................................... 311 253
Georgia ...................................... 300 260
South Carolina ............................... 288 264
Florida ...................................... 32 ----
------- -------
Total ....................................... 1,379 1,183
======= =======
Employees (full-time equivalent) .............. 21,248 20,582
Common stock shareholders of record ........... 54,318 47,228
Common shares outstanding (thousands) ......... 202,751 193,837
</TABLE>
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Common Stock Data -- Per Share
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<TABLE>
<S> <C> <C>
1998
----------------------
Third Second
Quarter Quarter
--------- --------
Market value: (1)
Period-end ........................................................... $ 85.25 $ 84.50
High ................................................................. 90.94 90.19
Low .................................................................. 72.88 77.38
Book value at period-end (2) .......................................... 25.79 26.02
Dividend (1) .......................................................... .49 .44
Price/earnings ratio (1), (3) ......................................... 28.0x 28.6x
Price/earnings ratio without nonrecurring items (1), (3), (4) ......... 19.9 20.4
<S> <C> <C> <C>
1998 1997
------ -------------------
First Fourth Third
Quarter Quarter Quarter
------- ------- -------
Market value: (1)
Period-end ........................................................... $ 84.81 $ 81.13 $ 72.00
High ................................................................. 85.75 83.94 72.38
Low .................................................................. 72.75 71.06 58.19
Book value at period-end (2) .......................................... 25.40 25.13 23.31
Dividend (1) .......................................................... .44 .44 .44
Price/earnings ratio (1), (3) ......................................... 28.9x 27.6x 17.7x
Price/earnings ratio without nonrecurring items (1), (3), (4) ......... 21.0 20.5 17.7
</TABLE>
(1) Information before the 1997 fourth quarter represents that of Wachovia
Corporation prior to merger with Central Fidelity Banks, Inc.
(2) Book value per share has been restated to reflect the merger with Central
Fidelity Banks, Inc., as a pooling-of-interests.
(3) Based on the most recent twelve months of net income per diluted share and
end of period stock price.
(4) Excludes the after-tax impact of nonrecurring charges as described in notes
(1), (2) and (3) of Table 1.
- -----------------------
Financial Information
- --------------------------------------------------------------------------------
Wachovia Shareholder Direct
Shareholders and other interested individuals can access timely corporate
information on Wachovia, such as earnings and dividend announcements, by
calling 1-888-4WB-NEWS (1-888-492-6397).
<TABLE>
<CAPTION>
Investor Contact Internet Address
<S> <C> <C>
Robert S. McCoy, Jr. James C. Mabry Wachovia's Internet address is: www.wachovia.com
Chief Financial Officer Senior Vice President
(336) 732-5926 Investor Relations
Winston-Salem, NC 27150 (336) 732-5788
Winston-Salem, NC 27150
</TABLE>
3
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ---------------------------
Financial Summary Table 1
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Twelve 1998
Months --------------------------
Ended
September 30 Third Second
1998 Quarter Quarter
------------ ---------- ---------
Summary of Operations
(thousands, except per share data)
Interest income ..................................$4,608,670 $ 1,171,466 $ 1,169,758
Interest expense ................................. 2,311,915 582,030 587,054
---------- ------------- -----------
Net interest income .............................. 2,296,755 589,436 582,704
Provision for loan losses (1) .................... 292,291 72,809 68,441
---------- ------------- -----------
Net interest income after provision for loan
losses .......................................... 2,004,464 516,627 514,263
Other operating revenue .......................... 1,172,565 310,541 315,043
Securities gains (losses) (2) .................... 11,342 6,886 2,992
---------- ------------- -----------
Total other income ............................... 1,183,907 317,427 318,035
Personnel expense ................................ 1,029,662 263,282 262,406
Nonrecurring charges (3) ......................... 365,883 11,934 30,849
Other expense .................................... 840,519 217,187 223,739
---------- ------------- -----------
Total other expense .............................. 2,236,064 492,403 516,994
Income before income taxes ....................... 952,307 341,651 315,304
Applicable income taxes .......................... 316,099 114,284 105,388
---------- ------------- -----------
Net income ....................................... $ 636,208 $ 227,367 $ 209,916
========== ============= ===========
Net income per common share:
Basic ........................................... $ 3.10 $ 1.11 $ 1.02
Diluted ......................................... $ 3.04 $ 1.09 $ 1.00
Cash dividends paid per common
share (4) ....................................... $ 1.81 $ .49 $ .44
Cash dividends paid on common stock (5)........... $ 369,391 $ 100,784 $ 90,973
Cash dividend payout ratio (5) ................... 58.06% 44.33% 43.34%
Average basic shares outstanding ................. 204,703 204,832 206,718
Average diluted shares outstanding ............... 208,886 208,837 210,662
Selected Average Balances
(millions)
Total assets ..................................... $ 62,572 $ 63,429 $ 63,916
Loans -- net of unearned income .................. 43,344 43,894 43,974
Securities ....................................... 10,627 10,664 11,102
Other interest-earning assets .................... 1,582 1,508 1,558
Total interest-earning assets .................... 55,553 56,066 56,634
Interest-bearing deposits ........................ 31,744 31,654 32,182
Short-term borrowed funds ........................ 10,469 10,858 10,947
Long-term debt ................................... 6,053 6,080 6,092
Total interest-bearing liabilities ............... 48,266 48,592 49,221
Noninterest-bearing deposits ..................... 7,636 7,874 7,939
Total deposits ................................... 39,380 39,528 40,121
Shareholders' equity ............................. 5,094 5,173 5,211
Ratios (averages)
Annualized net loan losses to loans .............. .67% .66% .62%
Annualized net yield on interest-earning
assets .......................................... 4.22 4.26 4.21
Shareholders' equity to:
Total assets .................................... 8.14 8.16 8.15
Net loans ....................................... 11.90 11.93 12.00
Annualized return on assets ...................... 1.02 1.43 1.31
Annualized return on shareholders' equity......... 12.49 17.58 16.11
Net Income and Ratios Excluding
the After-Tax Effect of
Nonrecurring Items Included
in (1), (2) and (3) (thousands,
except per share data)
Net income ....................................... $ 894,414 $ 235,243 $ 230,276
Net income per diluted share ..................... 4.28 1.13 1.09
Annualized return on assets ...................... 1.43% 1.48% 1.44%
Annualized return on shareholders' equity......... 17.56 18.19 17.68
Cash dividend payout ratio (5) ................... 41.30 42.84 39.51
<S> <C> <C> <C> <C> <C>
Nine Months Ended
1998 1997 September 30
---------- ------------------------- --------------------------------
First Fourth Third
Quarter Quarter Quarter 1998 1997
------ ---------- ---------- ------------- -----------
Summary of Operations
(thousands, except per share data)
Interest income .................................. $ 1,147,829 $1,119,617 $ 1,072,921 $ 3,489,053 $ 3,142,768
Interest expense ................................. 578,686 564,145 549,277 1,747,770 1,604,673
----------- ----------- ----------- ------------- -----------
Net interest income .............................. 569,143 555,472 523,644 1,741,283 1,538,095
Provision for loan losses (1) .................... 74,126 76,915 62,756 215,376 188,034
----------- ----------- ----------- ------------- -----------
Net interest income after provision for loan
losses .......................................... 495,017 478,557 460,888 1,525,907 1,350,061
Other operating revenue .......................... 283,723 263,258 256,047 909,307 742,510
Securities gains (losses) (2) .................... 3,157 (1,693) 1,091 13,035 3,147
----------- ----------- ----------- ------------- -----------
Total other income ............................... 286,880 261,565 257,138 922,342 745,657
Personnel expense ................................ 259,724 244,250 230,352 785,412 660,907
Nonrecurring charges (3) ......................... 35,568 287,532 ---- 78,351 ----
Other expense .................................... 198,957 200,636 194,949 639,883 573,396
----------- ----------- ----------- ------------- -----------
Total other expense .............................. 494,249 732,418 425,301 1,503,646 1,234,303
Income before income taxes ....................... 287,648 7,704 292,725 944,603 861,415
Applicable income taxes .......................... 92,327 4,100 93,803 311,999 272,213
----------- ----------- ----------- ------------- -----------
Net income ....................................... $ 195,321 $ 3,604 $ 198,922 $ 632,604 $ 589,202
=========== =========== =========== ============= ===========
Net income per common share:
Basic ........................................... $ .95 $ .02 $ 1.02 $ 3.07 $ 2.99
Diluted ......................................... $ .93 $ .02 $ 1.00 $ 3.01 $ 2.94
Cash dividends paid per common
share (4) ....................................... $ .44 $ .44 $ .44 $ 1.37 $ 1.24
Cash dividends paid on common stock (5)........... $ 90,589 $ 87,045 $ 83,952 $ 282,346 $ 240,258
Cash dividend payout ratio (5) ................... 46.38% 2,415.23% 42.20% 44.63% 40.78%
Average basic shares outstanding ................. 205,894 201,415 194,981 205,811 197,237
Average diluted shares outstanding ............... 210,158 205,934 198,555 209,881 200,542
Selected Average Balances
(millions)
Total assets ..................................... $ 63,133 $ 59,835 $ 57,183 $ 63,494 $ 56,856
Loans -- net of unearned income .................. 43,749 41,770 39,731 43,873 39,024
Securities ....................................... 10,623 10,126 10,649 10,794 11,019
Other interest-earning assets .................... 1,630 1,637 1,457 1,565 1,381
Total interest-earning assets .................... 56,002 53,533 51,837 56,232 51,424
Interest-bearing deposits ........................ 32,455 30,706 29,300 32,094 29,204
Short-term borrowed funds ........................ 10,635 9,444 9,172 10,814 8,833
Long-term debt ................................... 6,107 5,935 6,031 6,093 6,185
Total interest-bearing liabilities ............... 49,197 46,085 44,503 49,001 44,222
Noninterest-bearing deposits ..................... 7,240 7,484 6,843 7,687 6,749
Total deposits ................................... 39,695 38,190 36,143 39,781 35,953
Shareholders' equity ............................. 5,109 4,884 4,391 5,165 4,415
Ratios (averages)
Annualized net loan losses to loans .............. .68% .73% .63% .65% .64%
Annualized net yield on interest-earning
assets .......................................... 4.21 4.21 4.12 4.23 4.12
Shareholders' equity to:
Total assets .................................... 8.09 8.16 7.68 8.13 7.77
Net loans ....................................... 11.82 11.85 11.20 11.92 11.46
Annualized return on assets ...................... 1.24 .02 1.39 1.33 1.38
Annualized return on shareholders' equity......... 15.29 .30 18.12 16.33 17.79
Net Income and Ratios Excluding
the After-Tax Effect of
Nonrecurring Items Included
in (1), (2) and (3) (thousands,
except per share data)
Net income ....................................... $ 218,168 $ 210,727 $ 198,922 $ 683,698 $ 589,202
Net income per diluted share ..................... 1.04 1.02 1.00 3.26 2.94
Annualized return on assets ...................... 1.38% 1.41% 1.39% 1.44% 1.38%
Annualized return on shareholders' equity......... 17.08 17.26 18.12 17.65 17.79
Cash dividend payout ratio (5) ................... 41.52 41.31 42.20 41.30 40.78
</TABLE>
(1) Includes $10,845 in nonrecurring merger-related provision in the twelve
months ended September 30, 1998 and in the 1997 fourth quarter.
(2) Includes $4,639 of nonrecurring losses to restructure the
available-for-sale portfolio in the twelve months ended September 30, 1998
and in 1997 fourth quarter.
(3) Nonrecurring charges in the twelve months ended September 30, 1998 include
merger-related items of $298,681 and personal computer charges of $67,202.
Nonrecurring charges in the 1998 third, second and first quarters include
merger-related items of $11,934, $30,849 and $35,568, respectively;
nonrecurring charges in the 1997 fourth quarter include merger-related
charges of $220,330 and personal computer impairment charges of $67,202.
(4) Cash dividends per common share are those of Wachovia Corporation prior to
the merger with Central Fidelity Banks, Inc.
(5) Includes amounts of pooled companies.
4
<PAGE>
--------------------------
Results of Operations
-----------------------------------------------------------------
Overview
The following narrative contains forward-looking statements as
encouraged by the Private Securities Litigation Reform
Act of 1995. All forward-looking statements involve
risks and uncertainty and any number of factors could cause
actual results to differ materially from statements contained in
this Financial Supplement and Form 10-Q. Risks and uncertainties
that may affect future results include, but are not limited to,
growth of the economy, interest rate movements, timely
development by Wachovia of technology enhancements for its
products and operating systems, the ability of Wachovia and its
customers and vendors to address effectively Year 2000 issues,
the impact of competitive products, services and pricing,
Congressional legislation and similar matters. Management
cautions readers of this Financial Supplement and Form 10-Q not
to place undue reliance on forward-looking statements which are
subject to influence by the named risk factors and unanticipated
future events.
Wachovia Corporation ("the corporation") is a southeastern
interstate bank holding company with dual headquarters in
Atlanta, Georgia, and Winston-Salem, North Carolina. The
corporation's principal banking subsidiaries are Wachovia Bank,
N. A., which maintains operations in Florida, Georgia, North
Carolina, South Carolina and Virginia, and The First National
Bank of Atlanta, which provides credit card services. Effective
July 1, 1998, 1st United Bank, a Florida subsidiary acquired
through the corporation's merger with 1st United Bancorp in
November 1997, was merged into Wachovia Bank. On October 27,
1998, the corporation announced plans to acquire
Interstate/Johnson Lane Inc., a full-service investment banking
and securities brokerage firm with offices in Georgia, North
Carolina, South Carolina and Virginia. The transaction will be
accounted for on a purchase basis and is expected to close in the
first half of 1999 subject to regulatory approval and vote by
Interstate/Johnson Lane shareholders.
Wachovia's growth strategy includes using acquisitions to gain
access to additional customers in attractive markets and to
enhance product and service capabilities. The corporation
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 values, and,
therefore, some dilution of the corporation's book value and net
income per share may occur in connection with any future
transactions.
Economic growth in the U.S. for the third quarter of 1998
continued the slowing pace set in the previous quarter as turmoil
in overseas markets and higher domestic wages contributed to
weakening sales and profits. Based on advance estimates for the
period, gross domestic product in the third quarter rose 3.3
percent annualized from the preceding three months after
increasing 1.8 percent in the second quarter and 5.5 percent in
the first quarter. Seasonally adjusted unemployment for the
nation increased to 4.6 percent for the three months from 4.4
percent in the second period. In response to the slowing growth,
the Federal Reserve moved to lower short-term interest rates a
quarter of a percentage point both in September and October.
Business conditions within Wachovia's primary operating states,
however, remained generally strong, with seasonally adjusted
unemployment for the quarter averaging 4.3 percent in Florida, 4
percent in Georgia, 3.4 percent in North Carolina, 3.5 percent in
South Carolina and 3.1 percent in Virginia.
Wachovia's net income for the third quarter of 1998 was $227.367
million or $1.09 per diluted share compared with $198.922 million
or $1.00 per diluted share in the same period of 1997. For the
first nine months of the year, net income totaled $632.604
million or $3.01 per diluted share versus $589.202 million or
$2.94 per diluted share a year earlier. Gains in both periods
were driven by good revenue growth, with total revenues
increasing $118.461 million or 14.9 percent for the three months
and $361.011 million or 15.5 percent for the first nine months.
Results included gains from branch sales in both 1998 and 1997,
5
<PAGE>
as well as merger-related charges in 1998 associated with the
corporation's new Virginia and Florida operations. Branch sale
gains on a pretax basis totaled $17.155 million for the first
nine months of 1998, with all gains occurring in the first
quarter, compared with $21.096 million in the same period of 1997
including $2.437 million in the third quarter. On a pretax basis,
merger-related charges were $11.934 million for the third period
of 1998 and $78.351 million year to date. The net after-tax
impact of the merger-related charges was $7.876 million or $.04
per diluted share for the three months and $51.094 million or
$.25 per diluted share for the nine months. Operating net income
excluding merger-related charges was $235.243 million or $1.13
per diluted share for the 1998 third quarter and $683.698 million
or $3.26 per diluted share year to date. Management expects to
incur remaining integration expenses for its Florida and Virginia
banking operations of approximately $5 million in the fourth
quarter of 1998.
Expanded discussion of the corporation's operating results and
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 securities. References to changes
in assets and liabilities represent daily averages unless
otherwise noted. Prior year financial results have been restated
to reflect the corporation's pooling-of-interests merger with
Central Fidelity Banks, Inc., effective December 15, 1997 but
have not been restated for the corporation's purchase
acquisitions of Jefferson Bankshares, Inc., and 1st United
Bancorp in the fourth quarter of 1997 and of Ameribank Bancshares
in the second quarter of 1998.
- ---------------------------------------------------
Computation of Earnings Per Common Share Table 2
- --------------------------------------------------------------------------------
(thousands, except per share)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ---- ----------- ----
Basic
Average common shares outstanding .............................. 204,832 194,981 205,811 197,237
=========== ======= =========== =======
Net income ..................................................... $ 227,367 $ 198,922 $ 632,604 $ 589,202
=========== ========= =========== =========
Per share amount ............................................... $ 1.11 $ 1.02 $ 3.07 $ 2.99
Diluted
Average common shares outstanding .............................. 204,832 194,981 205,811 197,237
Dilutive common stock options at average market price .......... 3,666 3,347 3,778 3,112
Dilutive common stock awards at average market price ........... 313 221 278 185
Convertible long-term debt assumed converted ................... 26 6 14 8
----------- --------- ----------- ---------
Average diluted shares outstanding ............................. 208,837 198,555 209,881 200,542
=========== ========= =========== =========
Net income ..................................................... $ 227,367 $ 198,922 $ 632,604 $ 589,202
Add interest on convertible long-term debt, net of tax ......... 20 1 28 4
----------- --------- ----------- ---------
Adjusted net income ............................................ $ 227,387 $ 198,923 $ 632,632 $ 589,206
=========== ========= =========== =========
Per share amount ............................................... $ 1.09 $ 1.00 $ 3.01 $ 2.94
</TABLE>
6
<PAGE>
Net Interest
Taxable equivalent net interest income increased $63.967 million
Income or 11.9 percent for the third quarter of 1998 from a year
earlier and was higher by $194.214 million or 12.3 percent for the
first nine months. Growth in both periods reflected greater loan
volume and improvement in the net yield on interest-earning assets
(defined as taxable equivalent net interest income as a percentage
of average interest-earning assets). Compared with the second
quarter of 1998, taxable equivalent net interest income rose
$7.094 million or 4.8 percent annualized, with the corporation
benefiting primarily from a higher average earning yield and a
lower average funding rate. The net yield on interest-earning
assets expanded 14 basis points for the three months and 11 basis
points for the first nine months from a year earlier and was up 5
basis points from the second quarter. Based on loan origination
activity and interest rates as of the beginning of the fourth
quarter of 1998, taxable equivalent net interest income is
expected to expand in the final three months of 1998 from the
third quarter while the net yield on interest-earning assets is
expected to moderate.
Taxable equivalent interest income rose $96.720 million or 8.9
percent and $337.311 million or 10.6 percent for the three- and
nine-month periods, respectively. Increased loan volume,
including additions from purchase acquisitions, primarily drove
the growth, which benefited also from a higher average earning
yield. Loans expanded $4.163 billion or 10.5 percent for the
quarter and $4.849 billion or 12.4 percent year to date, with the
average rate earned expanding 4 basis points and 6 basis points,
respectively. Taxable equivalent interest income grew $2.070
million or less than 1 percent from the second quarter of 1998
primarily due to a 4 basis point increase in the average loan
yield.
Commercial loans, including related real estate categories,
accounted for most of the loan growth in both periods, rising
$3.644 billion or 16.4 percent for the third quarter from a year
earlier and $4.043 billion or 18.7 percent year to date. Solid
gains occurred in all categories except tax-exempt loans, which
continued to decline due to the reduced availability of
tax-exempt financing under current tax laws and to paydowns in
employee stock ownership plan loans. Taxable commercial loans
increased $2.240 billion or 19.8 percent for the three months and
$2.637 billion or 23.9 percent for the nine months. Commercial
mortgages and construction loans expanded $730 million or 12
percent and $329 million or 21.3 percent, respectively, for the
quarter and $852 million or 14.3 percent and $432 million or 30.1
percent, respectively, year to date. Lease financing, primarily
consisting of leverage leases and other structured corporate
transactions, grew $594 million or 58.2 percent for the three
months and $404 million or 43.9 percent for the nine months,
while foreign loans were up $398 million or 80.4 percent for the
third period and $222 million or 45.7 percent year to date.
The corporation's foreign credits outstanding consist of loans
and lease financing. Growth in foreign loans was driven partly by
originations in the corporation's London office to companies
operating in Europe. At September 30, 1998, foreign loans were
$985 million, representing 2.2 percent of total loans compared
with $496 million or 1.2 percent of total loans one year earlier
and $843 million or 1.9 percent of loans at June 30, 1998.
Because foreign loans are reported based on the address of the
borrower and not on the country where security for the credit
resides, foreign loans as reported do not necessarily indicate
the corporation's country risk exposure. At September 30, 1998,
the corporation's country of risk profile for its foreign loan
portfolio was as follows: Western Europe, $354 million or 36
percent of total foreign loans; Latin America, $332 million or 34
percent; the United States, $229 million or 23 percent; and all
other, $70 million or 7 percent. There were no extensions of
credit in Russia, and extensions of credit in Asia were
insignificant. Included in the $1.688 billion of lease financing
at September 30, 1998 was $742 million of foreign leverage
leases, all with countries of risk in Western Europe.
The corporation had no significant concentrations of loans in any
one industry at September 30, 1998.
Based on regulatory definitions, commercial real estate loans
were $8.692 billion or 19 percent of total loans at September 30,
1998 versus $7.652 billion or 18.8 percent of loans one year
earlier and $8.632
7
<PAGE>
- --------------------------------------------------
Net Interest Income and Average Balances Table 3
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Twelve
Months 1998
Ended -------
September 30 Third Second
1998 Quarter Quarter
------------ -------- --------
Net Interest
Income -- Taxable
Equivalent (thousands)
Interest income:
Loans, including fees ..................$3,830,434 $ 980,636 $ 967,461
Securities ............................. 738,457 181,853 191,666
Interest-bearing bank balances ......... 11,741 3,182 3,411
Federal funds sold and securities
purchased under resale
agreements ............................ 25,730 6,168 5,735
Trading account assets ................. 51,228 11,817 13,313
---------- ------------- ------------
Total ............................... 4,657,590 1,183,656 1,181,586
Interest expense:
Interest-bearing demand ................ 66,657 15,526 17,047
Savings and money market savings ....... 444,970 115,077 110,078
Savings certificates ................... 570,233 136,462 136,782
Large denomination certificates ........ 160,855 40,482 45,426
Interest-bearing deposits in foreign
offices ............................... 131,325 34,005 37,332
Short-term borrowed funds .............. 556,904 144,881 145,827
Long-term debt ......................... 380,971 95,597 94,562
---------- ------------- ------------
Total ............................... 2,311,915 582,030 587,054
---------- ------------- ------------
Net interest income .....................$2,345,675 $ 601,626 $ 594,532
========== ============= ============
Annualized net yield on interest-
earning assets ......................... 4.22% 4.26% 4.21%
Average Balances (millions)
Assets:
Loans -- net of unearned income ........ $ 43,344 $ 43,894 $ 43,974
Securities ............................. 10,627 10,664 11,102
Interest-bearing bank balances ......... 145 138 139
Federal funds sold and securities
purchased under resale
agreements ............................ 455 440 411
Trading account assets ................. 982 930 1,008
---------- ------------- ------------
Total interest-earning assets ....... 55,553 56,066 56,634
Cash and due from banks ................ 3,184 3,068 3,166
Premises and equipment ................. 846 874 845
Other assets ........................... 3,414 3,822 3,709
Unrealized gains on securities
available-for-sale .................... 111 133 96
Allowance for loan losses .............. (536) (534) (534)
---------- ------------- ------------
Total assets ........................ $ 62,572 $ 63,429 $ 63,916
========== ============= ============
Liabilities and shareholders' equity:
Interest-bearing demand ................ $ 4,916 $ 4,646 $ 4,687
Savings and money market savings ....... 11,278 11,873 11,700
Savings certificates ................... 10,334 9,642 9,984
Large denomination certificates ........ 2,907 3,146 3,212
Interest-bearing deposits in foreign
offices ............................... 2,309 2,347 2,599
Short-term borrowed funds .............. 10,469 10,858 10,947
Long-term debt ......................... 6,053 6,080 6,092
---------- ------------- ------------
Total interest-bearing
liabilities ........................ 48,266 48,592 49,221
Demand deposits ........................ 7,636 7,874 7,939
Other liabilities ...................... 1,576 1,790 1,545
Shareholders' equity ................... 5,094 5,173 5,211
---------- ------------- ------------
Total liabilities and
shareholders' equity ............... $ 62,572 $ 63,429 $ 63,916
========== ============= ============
Total deposits .......................... $ 39,380 $ 39,528 $ 40,121
<S> <C> <C> <C> <C> <C>
1998 1997 Nine Months Ended
------- ----------------------- September 30
First Fourth Third ---------------------------
Quarter Quarter Quarter 1998 1997
------- -------- ------- ----------- -----------
Net Interest
Income -- Taxable
Equivalent (thousands)
Interest income:
Loans, including fees .................. $ 952,282 $ 930,055 $ 883,319 $ 2,900,379 $ 2,561,937
Securities ............................. 185,655 179,283 183,758 559,174 569,802
Interest-bearing bank balances ......... 3,228 1,920 1,816 9,821 3,310
Federal funds sold and securities
purchased under resale
agreements ............................ 5,285 8,542 5,980 17,188 13,777
Trading account assets ................. 13,130 12,968 12,063 38,260 38,685
------------ ------------- ------------ ------------- -----------
Total ............................... 1,159,580 1,132,768 1,086,936 3,524,822 3,187,511
Interest expense:
Interest-bearing demand ................ 16,751 17,333 16,009 49,324 46,916
Savings and money market savings ....... 111,133 108,682 102,930 336,288 296,762
Savings certificates ................... 146,030 150,959 145,164 419,274 431,186
Large denomination certificates ........ 34,117 40,830 39,806 120,025 123,561
Interest-bearing deposits in foreign
offices ............................... 36,210 23,778 23,824 107,547 63,542
Short-term borrowed funds .............. 138,892 127,304 125,116 429,600 350,858
Long-term debt ......................... 95,553 95,259 96,428 285,712 291,848
------------ ------------- ------------ ------------- -----------
Total ............................... 578,686 564,145 549,277 1,747,770 1,604,673
------------ ------------- ------------ ------------- -----------
Net interest income ..................... $ 580,894 $ 568,623 $ 537,659 $ 1,777,052 $ 1,582,838
============ ============= ============ ============= ===========
Annualized net yield on interest-
earning assets ......................... 4.21% 4.21% 4.12% 4.23% 4.12%
Average Balances (millions)
Assets:
Loans -- net of unearned income ........ $ 43,749 $ 41,770 $ 39,731 $ 43,873 $ 39,024
Securities ............................. 10,623 10,126 10,649 10,794 11,019
Interest-bearing bank balances ......... 189 116 126 156 79
Federal funds sold and securities
purchased under resale
agreements ............................ 374 594 423 408 331
Trading account assets ................. 1,067 927 908 1,001 971
------------ ------------- ------------ ------------- -----------
Total interest-earning assets ....... 56,002 53,533 51,837 56,232 51,424
Cash and due from banks ................ 3,340 3,165 2,797 3,190 2,816
Premises and equipment ................. 819 844 790 846 790
Other assets ........................... 3,396 2,733 2,206 3,644 2,287
Unrealized gains on securities
available-for-sale .................... 114 99 76 117 54
Allowance for loan losses .............. (538) (539) (523) (535) (515)
------------ ------------- ------------ ------------- -----------
Total assets ........................ $ 63,133 $ 59,835 $ 57,183 $ 63,494 $ 56,856
============ ============= ============ ============= ===========
Liabilities and shareholders' equity:
Interest-bearing demand ................ $ 5,984 $ 4,368 $ 4,000 $ 5,101 $ 4,021
Savings and money market savings ....... 10,334 11,189 10,603 11,308 10,395
Savings certificates ................... 11,044 10,676 10,207 10,218 10,260
Large denomination certificates ........ 2,449 2,816 2,776 2,938 2,967
Interest-bearing deposits in foreign
offices ............................... 2,644 1,657 1,714 2,529 1,561
Short-term borrowed funds .............. 10,635 9,444 9,172 10,814 8,833
Long-term debt ......................... 6,107 5,935 6,031 6,093 6,185
------------ ------------- ------------ ------------- -----------
Total interest-bearing
liabilities ........................ 49,197 46,085 44,503 49,001 44,222
Demand deposits ........................ 7,240 7,484 6,843 7,687 6,749
Other liabilities ...................... 1,587 1,382 1,446 1,641 1,470
Shareholders' equity ................... 5,109 4,884 4,391 5,165 4,415
------------ ------------- ------------ ------------- -----------
Total liabilities and
shareholders' equity ............... $ 63,133 $ 59,835 $ 57,183 $ 63,494 $ 56,856
============ ============= ============ ============= ===========
Total deposits .......................... $ 39,695 $ 38,190 $ 36,143 $ 39,781 $ 35,953
</TABLE>
8
<PAGE>
billion or 19.4 percent at June 30, 1998. Regulatory definitions
for commercial real estate include loans which have real estate as
the collateral but not the primary consideration in a credit risk
evaluation.
Consumer loans, including residential mortgages, increased $519
million or 3 percent for the third period and $806 million or 4.6
percent for the first nine months. Residential mortgages and
indirect retail loans, primarily consisting of automobile sales
financing, substantially accounted for all of the quarter's
growth, rising $330 million or 4.4 percent and $204 million or
7.1 percent, respectively. Year to date, consumer loan growth
occurred primarily in residential mortgages, which were up $635
million or 8.7 percent and included gains in equity bank lines.
Credit cards declined slightly for the three months but were
modestly higher for the first nine months and increased from the
second quarter. On September 4, 1998, the corporation purchased
$269 million of credit card receivables from Wells Fargo & Co.
The acquisition is part of the corporation's consumer growth
strategy to selectively build its customer base. At September 30,
1998, managed credit card outstandings were $6.273 billion,
representing 13.6 percent of total managed loans, versus $6.251
billion or 15.1 percent of managed loans one year earlier and
$6.033 billion or 13.4 percent at June 30, 1998. Managed credit
card amounts included $500 million of securitized loans both at
September 30, 1998 and June 30, 1998 and $557 million at the end
of the third quarter of 1997. Additional information on the
corporation's managed credit card portfolio is presented on
page 17.
Period-end loans as of September 30, 1998 and the preceding four
quarters are shown in the following table.
Period-end Loans
-----------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
thousands 1998 1998 1998 1997 1997
----------- ----------- ----------- ----------- -----------
Commercial .............................. $15,040,796 $14,162,763 $14,519,889 $13,528,344 $12,133,710
Tax-exempt .............................. 1,024,855 1,285,639 1,379,660 1,607,159 1,695,993
----------- ----------- ----------- ----------- -----------
Total commercial ..................... 16,065,651 15,448,402 15,899,549 15,135,503 13,829,703
Direct retail ........................... 1,111,654 1,125,885 1,160,162 1,249,612 1,161,279
Indirect retail ......................... 3,143,670 3,056,582 3,038,397 3,028,288 2,879,128
Credit card ............................. 5,773,009 5,533,435 5,603,381 5,919,098 5,693,563
Other revolving credit .................. 517,047 503,758 485,093 459,563 422,389
----------- ----------- ----------- ----------- -----------
Total retail ......................... 10,545,380 10,219,660 10,287,033 10,656,561 10,156,359
Construction ............................ 1,865,675 1,835,906 1,873,528 1,779,522 1,553,500
Commercial mortgages .................... 6,826,459 6,796,424 6,824,990 6,790,446 6,098,647
Residential mortgages ................... 7,652,614 7,893,928 7,959,185 8,098,794 7,563,967
----------- ----------- ----------- ----------- -----------
Total real estate .................... 16,344,748 16,526,258 16,657,703 16,668,762 15,216,114
Lease financing ......................... 1,688,053 1,420,875 1,105,555 1,094,169 1,049,269
Foreign ................................. 984,884 843,353 548,441 639,387 496,164
----------- ----------- ----------- ----------- -----------
Total loans, net of unearned income .. $45,628,716 $44,458,548 $44,498,281 $44,194,382 $40,747,609
=========== =========== =========== =========== ===========
</TABLE>
Securities, the second largest category of interest-earning
assets, were substantially unchanged for the third
quarter from a year earlier but were modestly lower year to date.
Compared with the second quarter of 1998, securities declined
$438 million or 3.9 percent, reflecting maturing investments in
securities available-for-sale. At September 30, 1998, securities
available-for-sale were $9.075 billion and securities
held-to-maturity were $1.521 billion, as detailed in the
following table.
9
<PAGE>
Securities
-----------------------------------------------------------------
<TABLE>
<CAPTION>
thousands
<S> <C>
Securities available-for-sale at fair value:
U.S. Government and agency ......................... $ 3,861,426
Mortgage-backed securities ......................... 4,577,040
Other .............................................. 636,950
-----------
Total securities available-for-sale ............. 9,075,416
Securities held-to-maturity:
U.S. Government and agency ......................... 534,880
Mortgage-backed securities ......................... 707,719
State and municipal ................................ 185,397
Other .............................................. 92,588
-----------
Total securities held-to-maturity ............... 1,520,584
-----------
Total securities ................................ $10,596,000
===========
</TABLE>
Marking the securities available-for-sale portfolio at September
30, 1998 to fair value resulted in an unrealized gain over
amortized cost of $213.225 million, pretax, and $131.325 million,
net of tax. Marking the average available-for-sale portfolio to
fair value resulted in unrealized gains of $133.172 million,
pretax, and $81.664 million, net of tax, for the third quarter and
$116.588 million, pretax, and $71.689 million, net of tax, year to
date. Unrealized gains are included, net of tax, in shareholders'
equity. Securities held-to-maturity had a fair value of $1.593
billion at September 30, 1998, representing a $72.594 million
appreciation over book value.
Interest expense rose $32.753 million or 6 percent for the third
quarter and $143.097 million or 8.9 percent year to date. Growth
in both periods was driven by higher levels of interest-bearing
liabilities, principally interest-bearing deposits and short-term
borrowings, with the increase in interest expense offset
partially by a lower average rate paid. Interest-bearing
liabilities expanded $4.089 billion or 9.2 percent for the three
months and $4.779 billion or 10.8 percent for the nine months,
including additions from purchase acquisitions, while the average
rate paid declined 15 basis points and 8 basis points,
respectively. Interest expense in the third quarter decreased
$5.024 million or 3.4 percent annualized from the preceding three
months due to reduced levels of interest-bearing liabilities as
well as a lower average rate paid.
As part of its funding strategy, the corporation is marketing
traditional funding products while issuing a variety of debt
instruments. Traditional funding sources are being broadened
through marketing of the corporation's Premiere and Business
Premiere accounts, both of which are high-yield money market
deposit products; the addition of PC Banking; and significant
enhancements to the corporation's basic checking products.
Wholesale funding sources include senior and subordinated debt,
trust capital securities and a global bank note program.
Management believes continued flexibility and innovation will be
required of financial institutions to attract future funding
through deposit products and alternative sources.
Interest-bearing deposits grew $2.354 billion or 8 percent for
the quarter and $2.890 billion or 9.9 percent year to date. Gains
occurred primarily in savings and money market savings, up $1.270
billion or 12 percent for the three months and $913 million or
8.8 percent for the nine months; in demand deposits, higher by
$646 million or 16.2 percent for the third period and $1.080
billion or 26.9 percent year to date; and in foreign deposits,
which expanded $633 million or 36.9 percent for the quarter and
$968 million or 62 percent for the nine months. Growth in savings
and money market savings continued to be driven by the
corporation's Premiere and Business Premiere accounts. The
increase in interest-bearing foreign deposits reflected recently
granted deposit-taking capabilities of the corporation's London
office as well as the attractiveness of foreign deposits relative
to other wholesale funding sources. Interest-bearing deposits
were down modestly from the second quarter, largely due to
declines in higher-rate savings certificates and to some
moderation in foreign deposits. Gross deposits averaged $39.528
billion for the third period and $39.781 billion year to date, up
$3.385 billion or 9.4 percent and $3.828 billion or 10.6 percent,
respectively, from year-earlier periods. Collected deposits, net
of float, averaged $37.361 billion for
10
<PAGE>
- ---------------------------------------------------------------------------
Taxable Equivalent Rate/Volume Variance Analysis -- Third Quarter* Table 4
- --------------------------------------------------------------------------------
+ (millions)
++ (thousands)
<TABLE>
<S> <C> <C> <C> <C>
Average Volume+ Average Rate
-------------------- --------------------
1998 1997 1998 1997
-------- ---- -------- ----
Interest Income
Loans:
Commercial ....................................... $13,575 $11,335 7.28 7.35
Tax-exempt ....................................... 1,083 1,730 9.62 8.90
-------- -------
Total commercial ........................... 14,658 13,065 7.45 7.55
Direct retail .................................... 1,114 1,168 10.10 9.01
Indirect retail .................................. 3,090 2,886 8.23 8.49
Credit card ...................................... 5,593 5,645 13.38 12.96
Other revolving credit ........................... 508 417 11.58 12.26
-------- -------
Total retail ............................... 10,305 10,116 11.39 11.20
Construction ..................................... 1,876 1,547 9.03 9.33
Commercial mortgages ............................. 6,795 6,065 8.59 8.32
Residential mortgages ............................ 7,752 7,422 7.82 8.07
-------- -------
Total real estate .......................... 16,423 15,034 8.28 8.30
Lease financing .................................. 1,615 1,021 12.63 10.04
Foreign .......................................... 893 495 6.85 6.88
-------- -------
Total loans ................................ 43,894 39,731 8.86 8.82
Securities:
Held-to-maturity:
U.S. Government and agency ................... 547 ---- 6.06 ----
Mortgage-backed securities ................... 763 1,033 8.29 8.01
State and municipal .......................... 188 210 10.70 11.26
Other ........................................ 97 3 6.59 8.87
-------- -------
Total securities held-to-maturity .......... 1,595 1,246 7.71 8.56
Available-for-sale:**
U.S. Government and agency ................... 3,900 5,384 6.56 6.49
Mortgage-backed securities ................... 4,513 3,053 6.56 6.89
Other ........................................ 656 966 7.13 6.48
-------- -------
Total securities available-for-sale ........ 9,069 9,403 6.60 6.62
-------- -------
Total securities ........................... 10,664 10,649 6.77 6.85
Interest-bearing bank balances ................... 138 126 9.13 5.72
Federal funds sold and securities purchased
under resale agreements ........................ 440 423 5.56 5.61
Trading account assets ........................... 930 908 5.04 5.27
-------- -------
Total interest-earning assets .............. $56,066 $51,837 8.38 8.32
======== =======
Interest Expense
Interest-bearing demand .......................... $ 4,646 $ 4,000 1.33 1.59
Savings and money market savings ................. 11,873 10,603 3.85 3.85
Savings certificates ............................. 9,642 10,207 5.61 5.64
Large denomination certificates .................. 3,146 2,776 5.10 5.69
-------- -------
Total interest-bearing deposits in
domestic offices ........................... 29,307 27,586 4.16 4.37
Interest-bearing deposits in foreign offices ..... 2,347 1,714 5.75 5.52
-------- -------
Total interest-bearing deposits ............ 31,654 29,300 4.28 4.44
Federal funds purchased and securities
sold under repurchase agreements ............... 7,273 6,740 5.33 5.39
Commercial paper ................................. 1,405 822 5.21 5.12
Other short-term borrowed funds .................. 2,180 1,610 5.23 5.67
-------- -------
Total short-term borrowed funds............. 10,858 9,172 5.29 5.41
Bank notes ....................................... 2,407 2,896 6.01 6.18
Other long-term debt ............................. 3,673 3,135 6.38 6.49
-------- -------
Total long-term debt ....................... 6,080 6,031 6.24 6.34
-------- -------
Total interest-bearing liabilities ......... $48,592 $44,503 4.75 4.90
======== ======= --------- -----
Interest rate spread 3.63 3.42
Net yield on interest-earning assets ========= =====
and net interest income ........................ 4.26 4.12
========= =====
<C> <C> <C> <C> <C> <C>
Variance
Interest++ Attributable to++
------------------- --------------------------
1998 1997 Variance++ Rate Volume
----- ---- ---------- ------ -------
Interest Income
Loans:
Commercial ....................................... $ 248,927 $ 209,990 $ 38,937 $ (2,026) $ 40,963
Tax-exempt ....................................... 26,269 38,786 (12,517) 2,932 (15,449)
----------- ----------- ----------
Total commercial ........................... 275,196 248,776 26,420 (3,355) 29,775
Direct retail .................................... 28,373 26,541 1,832 3,105 (1,273)
Indirect retail .................................. 64,112 61,797 2,315 (1,936) 4,251
Credit card ...................................... 188,570 184,412 4,158 5,899 (1,741)
Other revolving credit ........................... 14,840 12,891 1,949 (747) 2,696
----------- ----------- ----------
Total retail ............................... 295,895 285,641 10,254 4,897 5,357
Construction ..................................... 42,688 36,378 6,310 (1,202) 7,512
Commercial mortgages ............................. 147,187 127,225 19,962 4,239 15,723
Residential mortgages ............................ 152,832 150,871 1,961 (4,710) 6,671
----------- ----------- ----------
Total real estate .......................... 342,707 314,474 28,233 (760) 28,993
Lease financing .................................. 51,423 25,853 25,570 7,855 17,715
Foreign .......................................... 15,415 8,575 6,840 (38) 6,878
----------- ----------- ----------
Total loans ................................ 980,636 883,319 97,317 4,037 93,280
Securities:
Held-to-maturity:
U.S. Government and agency ................... 8,364 ---- 8,364 ---- 8,364
Mortgage-backed securities ................... 15,945 20,845 (4,900) 707 (5,607)
State and municipal .......................... 5,067 5,962 (895) (286) (609)
Other ........................................ 1,602 64 1,538 (21) 1,559
----------- ----------- ----------
Total securities held-to-maturity .......... 30,978 26,871 4,107 (2,865) 6,972
Available-for-sale:**
U.S. Government and agency ................... 64,445 88,096 (23,651) 938 (24,589)
Mortgage-backed securities ................... 74,637 53,015 21,622 (2,647) 24,269
Other ........................................ 11,793 15,776 (3,983) 1,461 (5,444)
----------- ----------- ----------
Total securities available-for-sale ........ 150,875 156,887 (6,012) (471) (5,541)
----------- ----------- ----------
Total securities ........................... 181,853 183,758 (1,905) (2,151) 246
Interest-bearing bank balances ................... 3,182 1,816 1,366 1,172 194
Federal funds sold and securities purchased
under resale agreements ........................ 6,168 5,980 188 (52) 240
Trading account assets ........................... 11,817 12,063 (246) (530) 284
----------- ----------- ----------
Total interest-earning assets .............. 1,183,656 1,086,936 96,720 7,858 88,862
Interest Expense
Interest-bearing demand .......................... 15,526 16,009 (483) (2,846) 2,363
Savings and money market savings ................. 115,077 102,930 12,147 ---- 12,147
Savings certificates ............................. 136,462 145,164 (8,702) (762) (7,940)
Large denomination certificates .................. 40,482 39,806 676 (4,348) 5,024
----------- ----------- ----------
Total interest-bearing deposits in
domestic offices ........................... 307,547 303,909 3,638 (14,912) 18,550
Interest-bearing deposits in foreign offices ..... 34,005 23,824 10,181 1,033 9,148
----------- ----------- ----------
Total interest-bearing deposits ............ 341,552 327,733 13,819 (12,029) 25,848
Federal funds purchased and securities
sold under repurchase agreements ............... 97,672 91,514 6,158 (1,027) 7,185
Commercial paper ................................. 18,448 10,592 7,856 189 7,667
Other short-term borrowed funds .................. 28,761 23,010 5,751 (1,894) 7,645
----------- ----------- ----------
Total short-term borrowed funds............. 144,881 125,116 19,765 (2,825) 22,590
Bank notes ....................................... 36,487 45,109 (8,622) (1,208) (7,414)
Other long-term debt ............................. 59,110 51,319 7,791 (883) 8,674
----------- ----------- ----------
Total long-term debt ....................... 95,597 96,428 (831) (1,586) 755
----------- ----------- ----------
Total interest-bearing liabilities ......... 582,030 549,277 32,753 (17,050) 49,803
----------- ----------- ----------
Interest rate spread
Net yield on interest-earning assets
and net interest income ........................ $ 601,626 $ 537,659 $ 63,967 19,758 44,209
=========== =========== ==========
</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. Any variance
attributable jointly to volume and rate changes is allocated to volume and
rate in proportion to the relationship of the absolute dollar amount of the
change in each.
** Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $133 million in 1998 and $76 million in 1997.
11
<PAGE>
- --------------------------------------------------------------------------
Taxable Equivalent Rate/Volume Variance Analysis -- Nine Months* Table 5
- --------------------------------------------------------------------------------
+ (millions)
++ (thousands)
<TABLE>
<S> <C> <C> <C> <C>
Average Volume+ Average Rate
----------------------- -------------------
1998 1997 1998 1997
--------- ------- ------- ----
Interest Income
Loans:
Commercial ....................................... $13,679 $11,042 7.30 7.29
Tax-exempt ....................................... 1,282 1,786 9.12 8.96
----------- --------
Total commercial ........................... 14,961 12,828 7.46 7.52
Direct retail .................................... 1,154 1,180 9.57 8.97
Indirect retail .................................. 3,050 2,963 8.39 8.60
Credit card ...................................... 5,630 5,589 13.40 12.85
Other revolving credit ........................... 489 420 11.12 12.25
----------- --------
Total retail ............................... 10,323 10,152 11.38 11.13
Construction ..................................... 1,866 1,434 9.08 9.43
Commercial mortgages ............................. 6,792 5,940 8.65 8.28
Residential mortgages ............................ 7,898 7,263 7.98 8.03
----------- --------
Total real estate .......................... 16,556 14,637 8.38 8.27
Lease financing .................................. 1,325 921 11.39 9.42
Foreign .......................................... 708 486 6.85 6.86
----------- --------
Total loans ................................ 43,873 39,024 8.84 8.78
Securities:
Held-to-maturity:
U.S. Government and agency ................... 333 ---- 6.12 ----
Mortgage-backed securities ................... 846 1,071 8.31 8.03
State and municipal .......................... 198 222 10.75 11.95
Other ........................................ 107 2 6.71 10.77
----------- --------
Total securities held-to-maturity .......... 1,484 1,295 8.03 8.71
Available-for-sale:**
U.S. Government and agency ................... 4,189 5,434 6.73 6.57
Mortgage-backed securities ................... 4,424 3,186 6.72 6.90
Other ........................................ 697 1,104 7.10 6.54
----------- --------
Total securities available-for-sale ........ 9,310 9,724 6.75 6.68
----------- --------
Total securities ........................... 10,794 11,019 6.93 6.91
Interest-bearing bank balances ................... 156 79 8.45 5.56
Federal funds sold and securities purchased
under resale agreements ........................ 408 331 5.63 5.57
Trading account assets ........................... 1,001 971 5.11 5.32
----------- --------
Total interest-earning assets .............. $56,232 $51,424 8.38 8.29
=========== ========
Interest Expense
Interest-bearing demand .......................... $ 5,101 $ 4,021 1.29 1.56
Savings and money market savings ................. 11,308 10,395 3.98 3.82
Savings certificates ............................. 10,218 10,260 5.49 5.62
Large denomination certificates .................. 2,938 2,967 5.46 5.57
----------- --------
Total interest-bearing deposits in
domestic offices ........................... 29,565 27,643 4.18 4.35
Interest-bearing deposits in foreign offices ..... 2,529 1,561 5.69 5.44
----------- --------
Total interest-bearing deposits ............ 32,094 29,204 4.30 4.40
Federal funds purchased and securities sold
under repurchase agreements .................... 7,530 6,627 5.35 5.28
Commercial paper ................................. 1,222 746 5.18 5.05
Other short-term borrowed funds .................. 2,062 1,460 5.26 5.58
----------- --------
Total short-term borrowed funds ............ 10,814 8,833 5.31 5.31
Bank notes ....................................... 2,674 3,121 6.12 6.13
Other long-term debt ............................. 3,419 3,064 6.39 6.49
----------- --------
Total long-term debt ....................... 6,093 6,185 6.27 6.31
----------- --------
Total interest-bearing liabilities ......... $49,001 $44,222 4.77 4.85
=========== ======== -------- -----
Interest rate spread 3.61 3.44
Net yield on interest-earning assets and net ======== =====
interest income ................................ 4.23 4.12
======== =====
<C> <C> <C> <C> <C> <C>
Variance
Interest++ Attributable to++
------------------------ -------------------------
1998 1997 Variance++ Rate Volume
---------- ---------- ----------- ------- -------
Interest Income
Loans:
Commercial ....................................... $ 747,231 $ 602,274 $ 144,957 $ 903 $ 144,054
Tax-exempt ....................................... 87,379 119,646 (32,267) 2,094 (34,361)
----------- ----------- ----------
Total commercial ........................... 834,610 721,920 112,690 (6,332) 119,022
Direct retail .................................... 82,554 79,089 3,465 5,207 (1,742)
Indirect retail .................................. 191,384 190,532 852 (4,668) 5,520
Credit card ...................................... 564,340 537,205 27,135 23,209 3,926
Other revolving credit ........................... 40,664 38,440 2,224 (3,762) 5,986
----------- ----------- ----------
Total retail ............................... 878,942 845,266 33,676 19,258 14,418
Construction ..................................... 126,786 101,176 25,610 (3,882) 29,492
Commercial mortgages ............................. 439,525 367,793 71,732 17,187 54,545
Residential mortgages ............................ 471,324 435,993 35,331 (2,552) 37,883
----------- ----------- ----------
Total real estate .......................... 1,037,635 904,962 132,673 12,583 120,090
Lease financing .................................. 112,907 64,862 48,045 15,488 32,557
Foreign .......................................... 36,285 24,927 11,358 310 11,048
----------- ----------- ----------
Total loans ................................ 2,900,379 2,561,937 338,442 18,520 319,922
Securities:
Held-to-maturity:
U.S. Government and agency ................... 15,212 ---- 15,212 ---- 15,212
Mortgage-backed securities ................... 52,555 64,317 (11,762) 2,195 (13,957)
State and municipal .......................... 15,942 19,868 (3,926) (1,897) (2,029)
Other ........................................ 5,382 191 5,191 (99) 5,290
----------- ----------- ----------
Total securities held-to-maturity .......... 89,091 84,376 4,715 (6,895) 11,610
Available-for-sale:**
U.S. Government and agency ................... 210,843 267,115 (56,272) 6,236 (62,508)
Mortgage-backed securities ................... 222,222 164,354 57,868 (4,453) 62,321
Other ........................................ 37,018 53,957 (16,939) 4,296 (21,235)
----------- ----------- ----------
Total securities available-for-sale ........ 470,083 485,426 (15,343) 5,425 (20,768)
----------- ----------- ----------
Total securities ........................... 559,174 569,802 (10,628) 999 (11,627)
Interest-bearing bank balances ................... 9,821 3,310 6,511 2,300 4,211
Federal funds sold and securities purchased
under resale agreements ........................ 17,188 13,777 3,411 153 3,258
Trading account assets ........................... 38,260 38,685 (425) (1,586) 1,161
----------- ----------- ----------
Total interest-earning assets .............. 3,524,822 3,187,511 337,311 36,838 300,473
Interest Expense
Interest-bearing demand .......................... 49,324 46,916 2,408 (8,870) 11,278
Savings and money market savings ................. 336,288 296,762 39,526 12,713 26,813
Savings certificates ............................. 419,274 431,186 (11,912) (10,150) (1,762)
Large denomination certificates .................. 120,025 123,561 (3,536) (2,345) (1,191)
----------- ----------- ----------
Total interest-bearing deposits in
domestic offices ........................... 924,911 898,425 26,486 (34,462) 60,948
Interest-bearing deposits in foreign offices ..... 107,547 63,542 44,005 2,959 41,046
----------- ----------- ----------
Total interest-bearing deposits ............ 1,032,458 961,967 70,491 (22,906) 93,397
Federal funds purchased and securities sold
under repurchase agreements .................... 301,099 261,750 39,349 3,273 36,076
Commercial paper ................................. 47,342 28,155 19,187 758 18,429
Other short-term borrowed funds .................. 81,159 60,953 20,206 (3,371) 23,577
----------- ----------- ----------
Total short-term borrowed funds ............ 429,600 350,858 78,742 343 78,399
Bank notes ....................................... 122,320 143,209 (20,889) (432) (20,457)
Other long-term debt ............................. 163,392 148,639 14,753 (2,257) 17,010
----------- ----------- ----------
Total long-term debt ....................... 285,712 291,848 (6,136) (1,821) (4,315)
----------- ----------- ----------
Total interest-bearing liabilities ......... 1,747,770 1,604,673 143,097 (27,468) 170,565
----------- ----------- ----------
Interest rate spread
Net yield on interest-earning assets and net
interest income ................................ $1,777,052 $1,582,838 $ 194,214 43,429 150,785
=========== =========== ==========
</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. Any variance
attributable jointly to volume and rate changes is allocated to volume and
rate in proportion to the relationship of the absolute dollar amount of the
change in each.
** Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $117 million in 1998 and $54 million in 1997.
12
<PAGE>
the three months and $37.532 billion for the first nine months,
higher by $3.130 billion or 9.1 percent and $3.502 billion or 10.3
percent, respectively, from the same periods in 1997.
Short-term borrowings rose $1.686 billion or 18.4 percent for the
quarter and $1.981 billion or 22.4 percent year to date, with all
categories increasing in both periods. Federal funds purchased
and securities sold under repurchase agreements were up $533
million or 7.9 percent for the three months and $903 million or
13.6 percent for the nine months. Commercial paper expanded $583
million or 70.9 percent and $476 million or 63.8 percent for the
quarter and year to date, respectively. Other short-term
borrowings, primar-ily consisting of short-term bank notes, grew
$570 million or 35.4 percent for the third period and $602
million or 41.2 percent for the nine months. Short-term
borrowings decreased modestly from the second quarter as
expansion of commercial paper and other short-term borrowings was
offset by a reduction in federal funds purchased and securities
sold under repurchase agreements.
Long-term debt for the three and nine months remained essentially
unchanged both year over year and from the preceding quarter.
Medium-term bank notes decreased $489 million or 16.9 percent for
the quarter from a year earlier and were lower by $447 million or
14.3 percent year to date. Largely offsetting the decline in
medium-term bank note funding were higher levels of other
long-term debt, which consists of senior and subordinated debt
and trust capital securities. The corporation issued $350 million
of 10-year subordinated fixed-rate notes on July 29, 1998 and
$250 million of two-year senior floating-rate notes on September
18, 1998. On September 30, 1998, the corporation issued $300
million of three-year senior floating-rate notes. The senior
notes are rated Aa3 by Moody's and AA- by Standard & Poor's and
the subordinated notes are rated A1 by Moody's and A+ by Standard
& Poor's. All three issuances were part of a $2.500 billion shelf
offering registered with the Securities and Exchange Commission
on July 15, 1998 for unsecured senior and subordinated debt.
Trust capital securities at September 30, 1998 totaled $996
million, reflecting issuances in December 1996 and in January,
April and June 1997. The trust capital securities are rated aa3
by Moody's and A by Standard & Poor's and qualify as part of Tier
I capital under risk-based capital guidelines.
In July 1998, Wachovia Bank increased the amount of its global
bank note program from $16 billion to $21.557 billion, which
includes $3.557 billion of notes previously issued under the
program. The program consists of issuances with original
maturities beginning at 7 days. Bank notes with original
maturities of one year or less are included in other short-term
borrowed funds, and bank notes with original maturities greater
than one year are classified as medium-term bank notes under
long-term debt. Short-term bank notes outstanding at September
30, 1998 were $1.048 billion with an average cost of 5.52 percent
and an average maturity of 2.5 months. Medium-term bank notes
were $2.436 billion and had an average cost of 5.93 percent and
an average maturity of 3.1 years on the same date. Short-term
issues under the global bank note program are rated P-1 by
Moody's and A-1+ by Standard & Poor's, while medium-term issues
are rated Aa2 by Moody's and AA by Standard & Poor's.
Asset and Liability
The income stream of the corporation is subject to risk resulting
Management, from interest rate fluctuations to the extent there is
a difference between the amount of interest-earning
Interest Rate assets and the amount of interest-bearing liabilities that are
prepaid, withdrawn, mature or reprice in specified periods.
Sensitivity The goal of asset and liability Sensitivity management is to
maintain high quality and consistent growth of net interest
and Liquidity income with acceptable levels of risk to changes in interest
rates. The corporation seeks to meet this goal by influencing
Management the maturity and repricing characteristics of the various
lending and deposit-taking lines of business, by managing
discretionary balance sheet asset and liability portfolios, and by
utilizing off-balance sheet financial instruments.
Interest rate risk management is carried out by Funds Management
which operates under the policies established by the Finance
Committee of the corporation's board of directors and the
guidance of the Management Finance Committee. Rate risk,
liquidity, capital position and discretionary on- and off-balance
sheet activity are reviewed quarterly by the Board Finance
Committee. Interim oversight of the asset and
13
<PAGE>
liability management function is provided through regular
meetings of Funds Management managers and the Chief Financial
Officer. Funds Management personnel carry out day-to-day activity
within approved risk management guidelines and strategies.
The corporation uses a number of tools to measure 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
model projections are based on historical trends and management's
expectations of balance sheet growth patterns, spreads to market
rates, and prepayment behavior for assets and liabilities. The
Management Finance Committee regularly reviews the assumptions
used in the model.
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. The corporation's
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 September 30, 1998, the model indicated that a 200
basis point gradual rise in rates over 12 months would result in
approximately a .1 percent decrease in net interest income, while
a 200 basis point decline in rates over the same period would
result in approximately a .7 percent decrease in net interest
income as compared with an unchanged rate environment. Actual
results will differ from simulated results due to timing,
magnitude and frequency of interest rate changes and changes in
market conditions and management strategies, among other factors.
The corporation maintains trading accounts primarily to
facilitate customer investment and risk management needs. The
market risk inherent in these portfolios was immaterial at
September 30, 1998.
In addition to on-balance sheet instruments such as 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 September 30, 1998,
the corporation had $3.455 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.
14
<PAGE>
The fair value of all asset and liability derivative positions
for which the corporation was exposed to counterparties totaled
$179 million at September 30, 1998. The fair value of all asset
and liability derivative positions for which counterparties were
exposed to the corporation amounted to $28 million on the same
date. Fair value details and additional asset and liability
derivative information are included in the following tables.
Estimated Fair Value of Asset and Liability Management
Derivatives by Purpose
-----------------------------------------------------------------
<TABLE>
September 30, 1998
-------------------------------------------------------
Net
Fair
Value
Notional Fair Value Fair Value Gains
millions Value Gains (Losses) (Losses)
------ --------- ---------- --------
Convert floating rate liabilities to fixed:
Swaps -- pay fixed/receive floating ... $ 568 $ 1 $ (11) $ (10)
Convert fixed rate assets to floating:
Swaps -- pay fixed/receive floating ... 345 ---- (17) (17)
Forward starting swaps -- pay
fixed/receive floating ................ 110 ---- ---- ----
Convert fixed rate liabilities to floating:
Swaps -- receive fixed/pay floating ... 1,675 168 ---- 168
Convert term liabilities with quarterly
rate resets to monthly:
Swaps -- receive floating/pay floating. 300 ---- ---- ----
Convert floating rate assets to fixed:
Swaps -- receive fixed/pay floating ... 457 10 ---- 10
Index amortizing swaps -- receive
fixed/pay floating .................... ---- ---- ---- ----
--------- ------ ------- ----------
Total derivatives ......................... $ 3,455 $179 $ (28) $ 151
========= ====== ======= ==========
<S> <C> <C> <C> <C>
September 30, 1997
----------------------------------------------
Net
Fair
Fair Fair Value
Notional Value Value Gains
millions Value Gains (Losses) (Losses)
-------- ----- --------- --------
Convert floating rate liabilities to fixed:
Swaps -- pay fixed/receive floating ... $ 359 $ ---- $ (3) $ (3)
Convert fixed rate assets to floating:
Swaps -- pay fixed/receive floating ... 351 ---- (6) (6)
Forward starting swaps -- pay
fixed/receive floating .................... 18 ---- (1) (1)
Convert fixed rate liabilities to floating:
Swaps -- receive fixed/pay floating ... 1,500 39 (3) 36
Convert term liabilities with quarterly
rate resets to monthly:
Swaps -- receive floating/pay floating. 300 ---- ---- ----
Convert floating rate assets to fixed:
Swaps -- receive fixed/pay floating ... 409 6 ---- 6
Index amortizing swaps -- receive
fixed/pay floating .................... 125 2 ---- 2
-------- ------ ----------- -----------
Total derivatives ......................... $ 3,062 $ 47 $ (13) $ 34
======== ====== =========== ===========
</TABLE>
Maturity Schedule of Asset and Liability Management Derivatives
-----------------------------------------------------------------
September 30, 1998
<TABLE>
<S> <C> <C> <C> <C>
Within
One Two Three Four
millions Year Years Years Years
------ ------ ------ ------
Interest rate swaps:
Pay fixed/receive floating:
Notional amount ......................... $ 248 $ 161 $ 106 $ 5
Weighted average rates received ......... 2.72% 5.50% 5.56% 2.59%
Weighted average rates paid ............. 4.27 5.23 5.89 3.79
Receive fixed/pay floating:
Notional amount ......................... $ 224 $ 151 $ 253 $ 102
Weighted average rates received ......... 6.80% 5.93% 6.02% 6.96%
Weighted average rates paid ............. 5.67 5.20 5.55 5.60
Receive floating/pay floating:
Notional amount ......................... ---- ---- $ 300 ----
Weighted average rates received ......... ---- ---- 5.57% ----
Weighted average rates paid ............. ---- ---- 5.63 ----
Total interest rate swaps:
Notional amount ......................... $ 472 $ 312 $ 659 $ 107
Weighted average rates received ......... 4.67% 5.70% 5.74% 6.76%
Weighted average rates paid ............. 4.94 5.22 5.64 5.51
Forward starting interest rate swaps:
Notional amount ......................... ---- ---- ---- $ 100
Weighted average rates paid ............. ---- ---- ---- 4.88%
Total Derivatives
(notional amount) ....................... $ 472 $ 312 $ 659 $ 207
<S> <C> <C> <C> <C>
Over Average
Five Five Life
millions Years Years Total (Years)
------ ------ ------ --------
Interest rate swaps:
Pay fixed/receive floating:
Notional amount ......................... $ 233 $ 160 $ 913 2.65
Weighted average rates received ......... 5.50% 5.53% 4.75%
Weighted average rates paid ............. 5.60 6.87 5.42
Receive fixed/pay floating:
Notional amount ......................... $ 252 $1,150 $2,132 7.59
Weighted average rates received ......... 6.47% 7.10% 6.78%
Weighted average rates paid ............. 5.63 5.87 5.72
Receive floating/pay floating:
Notional amount ......................... ---- ---- $ 300 2.68
Weighted average rates received ......... ---- ---- 5.57%
Weighted average rates paid ............. ---- ---- 5.63
Total interest rate swaps:
Notional amount ......................... $ 485 $1,310 $3,345 5.80
Weighted average rates received ......... 6.00% 6.91% 6.11%
Weighted average rates paid ............. 5.61 5.99 5.63
Forward starting interest rate swaps:
Notional amount ......................... ---- $ 10 $ 110 3.57
Weighted average rates paid ............. ---- 5.83% 4.97%
Total Derivatives
(notional amount) ....................... $ 485 $1,320 $3,455 5.80
</TABLE>
Note -- Maturity is based upon expected average lives rather than
contractual lives.
Asset and liability management derivatives transactions are
accounted for following existing hedge accounting rules. As
discussed under New Accounting Standards, an accounting standard
was issued in June 1998 that will change the existing hedge
accounting rules. Under the existing hedge accounting rules, gains
and losses related to the fair value of derivative contracts used
for asset and liability management purposes are not recognized
immediately in earnings. If the hedged or altered balance sheet
amounts were marked to
15
<PAGE>
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 securities
available-for-sale, which may be sold at any time, and by loans
which may be securitized or sold. Additionally, the corporation
generates cash through deposit growth, the issuance of bank
notes, the availability of unused lines of credit and through
other forms of debt and equity instruments.
Through policy guidelines, the corporation limits net purchased
funds to 50 percent of long-term assets, which include net loans
and leases, securities with remaining maturities over one year
and net foreclosed real estate. Policy guidelines insure against
concentrations by maturity of noncore funding sources by limiting
the cumulative percentage of purchased funds that mature
overnight, within 30 days and within 90 days. Guidelines also
require the monitoring of significant concentrations of funds by
single sources and by type of borrowing category.
Nonperforming
Nonperforming assets were $171.679 million or .38 percent of
Assets loans and foreclosed property at September 30, 1998. The total
was up $47.618 million or 38.4 percent from one year earlier and
higher by $19.451 million or 12.8 percent from the end of the
second quarter, primarily due to the addition of one large credit
to nonaccrual status.
The largest category of total nonperforming assets is real estate
related. Real estate nonperforming assets were $127.110 million
or .78 percent of real estate loans and foreclosed real estate at
September 30, 1998 compared with $102.987 million or .68 percent
one year earlier and $109.680 million or .66 percent at the end
of the second quarter. Included in real estate nonperforming
assets were real estate nonperforming loans of $105.042 million
at September 30, 1998, $80.040 million one year earlier and
$89.533 million at June 30, 1998.
- -----------------------------------------------------------------
Nonperforming Assets and Contractually Past Due Loans Table 6
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
1998 1998 1998 1997 1997
-------- -------- -------- ---------- --------
Nonperforming assets:
Cash-basis assets ............................... $144,654 $127,376 $121,734 $101,156 $95,580
Restructured loans .............................. ---- ---- ---- ---- ----
-------- -------- -------- ---------- --------
Total nonperforming loans ................... 144,654 127,376 121,734 101,156 95,580
Foreclosed property:
Foreclosed real estate ......................... 34,935 33,604 35,518 38,071 33,930
Less valuation allowance ....................... 12,867 13,457 14,754 16,625 10,983
Other foreclosed assets ........................ 4,957 4,705 5,225 6,893 5,534
-------- -------- -------- ---------- --------
Total foreclosed property ................... 27,025 24,852 25,989 28,339 28,481
-------- -------- -------- ---------- --------
Total nonperforming assets .................. $171,679 $152,228 $147,723 $129,495 $124,061
======== ======== ======== ========== ========
Nonperforming loans to period-end loans ......... .32% .29% .27% .23% .23%
Nonperforming assets to period-end loans and
foreclosed property ............................ .38 .34 .33 .29 .30
Period-end allowance for loan losses times
nonperforming loans ............................ 3.79x 4.30x 4.47x 5.38x 5.43x
Period-end allowance for loan losses times
nonperforming assets ........................... 3.19 3.60 3.69 4.21 4.19
Contractually past due loans (accruing loans
past due 90 days or more) ....................... $119,034 $112,720 $87,569 $114,343 $81,931
======== ======== ======== ========== ========
</TABLE>
16
<PAGE>
Commercial real estate nonperforming assets totaled $69.865
million or .80 percent of related loans and foreclosed real estate
versus $65.769 million or .86 percent at the end of the third
quarter of 1997 and $53.168 million or .62 percent at June 30,
1998. Commercial real estate nonperforming loans were $57.139
million at September 30, 1998, $51.268 million one year earlier
and $42.544 million at the close of the second quarter.
Provision and
The provision for loan losses was $72.809 million for the third
Allowance for quarter and $215.376 million year to date, up $10.053 million or
16 percent and $27.342 million or 14.5 percent from the same
Loan Losses respective periods in 1997. Compared with the second quarter of
1998, the provision increased $4.368 million or 6.4 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 credit deterioration or changes in risk
profile. Factors considered in this assessment include the
strength and consistency of the corporation's underwriting
standards and charge-off policy, current and anticipated economic
conditions, historical credit loss experience, and the
composition of the loan portfolio. Credit evaluations are made on
a cash-flow analysis basis with follow-up credit reviews
consistently maintained. In addition, the corporation enforces an
aggressive loan loss policy of early recognition and charge-off
of troubled credits. Effective with the first quarter of 1998,
management began implementing as part of its overall credit
review process assessments of Year 2000 compliance among
borrowers.
Net loan losses totaled $72.695 million or .66 percent of average
loans for the three months, rising $9.960 million or 15.9 percent
from a year earlier. For the first nine months, net loan losses
were $215.026 million or .65 percent of average loans, an
increase of $27.051 million or 14.4 percent. Higher losses in
credit cards and commercial loans primarily accounted for the
increases in both periods, with the rise in commercial net loan
losses largely due to one large charge-off. Net loan losses were
up $4.472 million or 6.6 percent from the second quarter,
principally reflecting increased charge-offs in other retail
loans, lower recoveries in real estate loan losses and the
write-down of one large commercial credit. Excluding credit
cards, net loan losses were $11.174 million or .12 percent of
average loans for the third quarter and $25.638 million or .09
percent year to date versus $8.352 million or .10 percent and
$31.186 million or .12 percent, respectively, a year earlier and
$5.478 million or .06 percent in the second quarter.
Credit card net loan losses totaled $61.521 million or 4.40
percent of average credit card loans for the quarter and $189.388
million or 4.49 percent year to date, up $7.138 million or 13.1
percent and $32.599 million or 20.8 percent, respectively, from a
year earlier. Commercial net charge-offs were $3.084 million or
.08 percent of average related loans for the three months and
$5.827 million or .05 percent of loans for the nine months,
higher by $3.386 million and $3.361 million from the same
respective periods in 1997. Selected data on the corporation's
managed credit card portfolio, which includes securitized loans,
appears in the following table.
Managed Credit Card
-----------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1998
--------------------------------------
Third Second First
thousands Quarter Quarter Quarter
-------- ------ -------
Average credit card
outstandings ........................$6,092,515 $6,056,770 $6,246,315
Net loan losses ....................... 66,324 67,978 69,409
Annualized net loan losses to
average loans ....................... 4.35% 4.49% 4.44%
Delinquencies (30 days or
more) to period-end loans ........... 3.11 2.69 2.68
<S> <C> <C> <C> <C>
Nine Months Ended
1997 September 30
--------------------------- --------------------------------
Fourth Third
thousands Quarter Quarter 1998 1997
-------------- -------- ---------- ---------
Average credit card
outstandings ........................$6,281,488 $6,221,174 $6,131,304 $6,191,213
Net loan losses ....................... 67,735 59,595 203,711 172,653
Annualized net loan losses to
average loans ....................... 4.31% 3.83% 4.43% 3.72%
Delinquencies (30 days or
more) to period-end loans ........... 2.75 2.77 3.11 2.77
</TABLE>
The allowance for loan losses at September 30, 1998 was $547.686
million, representing 1.20 percent of loans and 379 percent of
nonperforming loans. This compared with $519.356 million,
representing 1.27 percent of loans and 543 percent of
nonperforming loans one year earlier, and $547.572 million,
representing 1.23 percent of loans and 430 percent of
nonperforming loans at June 30, 1998.
17
<PAGE>
- -----------------------------------
Allowance for Loan Losses Table 7
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C>
1998
---------------------------------
Third Second First
Quarter Quarter Quarter
--------- ------ ------
Summary of Transactions
Balance at beginning of period ................ $547,572 $544,741 $544,723
Additions from acquisitions ................... ---- 2,613 ----
Provision for loan losses ..................... 72,809 68,441 74,126
Deduct net loan losses:
Loans charged off:
Commercial .................................. 4,601 3,252 2,662
Credit card ................................. 69,043 70,015 72,061
Other revolving credit ...................... 2,736 2,927 2,089
Other retail ................................ 8,515 6,624 10,388
Real estate ................................. 264 634 1,209
Lease financing ............................. 782 726 886
Foreign ..................................... ---- ---- ----
--------- -------- --------
Total ..................................... 85,941 84,178 89,295
Recoveries:
Commercial .................................. 1,517 1,271 1,900
Credit card ................................. 7,522 7,270 6,939
Other revolving credit ...................... 610 630 690
Other retail ................................ 2,242 3,070 3,015
Real estate ................................. 1,223 3,578 2,537
Lease financing ............................. 132 136 106
Foreign ..................................... ---- ---- ----
--------- -------- --------
Total ..................................... 13,246 15,955 15,187
--------- -------- --------
Net loan losses .............................. 72,695 68,223 74,108
--------- -------- --------
Balance at end of period ...................... $547,686 $547,572 $544,741
========= ======== ========
Net Loan Losses (Recoveries)
by Category
Commercial .................................... $ 3,084 $ 1,981 $ 762
Credit card ................................... 61,521 62,745 65,122
Other revolving credit ........................ 2,126 2,297 1,399
Other retail .................................. 6,273 3,554 7,373
Real estate ................................... (959) (2,944) (1,328)
Lease financing ............................... 650 590 780
Foreign ....................................... ---- ---- ----
--------- -------- --------
Total ..................................... $ 72,695 $ 68,223 $ 74,108
========= ======== ========
Net loan losses -- excluding credit cards ..... $ 11,174 $ 5,478 $ 8,986
Annualized Net Loan Losses
(Recoveries) to Average Loans
by Category
Commercial .................................... .08% .05% .02%
Credit card ................................... 4.40 4.52 4.54
Other revolving credit ........................ 1.67 1.86 1.20
Other retail .................................. .60 .34 .70
Real estate ................................... (.02) (.07) (.03)
Lease financing ............................... .16 .19 .29
Foreign ....................................... ---- ---- ----
Total loans ................................... .66 .62 .68
Total loans -- excluding credit cards ......... .12 .06 .09
Period-end allowance to outstanding loans...... 1.20% 1.23% 1.22%
<S> <C> <C> <C> <C>
Nine Months Ended
1997 September 30
------------------------ -------------------------
Fourth Third
Quarter Quarter 1998 1997
---------- --------- ---------- ----
Summary of Transactions
Balance at beginning of period ................ $ 519,356 $519,335 $544,723 $519,297
Additions from acquisitions ................... 24,641 ---- 2,613 ----
Provision for loan losses ..................... 76,915 62,756 215,376 188,034
Deduct net loan losses:
Loans charged off:
Commercial .................................. 3,801 686 10,515 5,453
Credit card ................................. 68,796 61,277 211,119 177,212
Other revolving credit ...................... 3,659 2,520 7,752 6,905
Other retail ................................ 9,032 8,777 25,527 30,769
Real estate ................................. 5,786 1,469 2,107 5,778
Lease financing ............................. 916 988 2,394 3,572
Foreign ..................................... ---- ---- ---- ----
----------- --------- ---------- --------
Total ..................................... 91,990 75,717 259,414 229,689
Recoveries:
Commercial .................................. 1,184 988 4,688 2,987
Credit card ................................. 6,251 6,894 21,731 20,423
Other revolving credit ...................... 588 575 1,930 1,773
Other retail ................................ 2,577 2,638 8,327 9,260
Real estate ................................. 5,125 1,787 7,338 7,008
Lease financing ............................. 76 100 374 263
Foreign ..................................... ---- ---- ---- ----
----------- --------- ---------- --------
Total ..................................... 15,801 12,982 44,388 41,714
----------- --------- ---------- --------
Net loan losses .............................. 76,189 62,735 215,026 187,975
----------- --------- ---------- --------
Balance at end of period ...................... $ 544,723 $519,356 $547,686 $519,356
=========== ========= ========== ========
Net Loan Losses (Recoveries)
by Category
Commercial .................................... $ 2,617 $ (302) $ 5,827 $ 2,466
Credit card ................................... 62,545 54,383 189,388 156,789
Other revolving credit ........................ 3,071 1,945 5,822 5,132
Other retail .................................. 6,455 6,139 17,200 21,509
Real estate ................................... 661 (318) (5,231) (1,230)
Lease financing ............................... 840 888 2,020 3,309
Foreign ....................................... ---- ---- ---- ----
----------- --------- ---------- --------
Total ..................................... $ 76,189 $62,735 $215,026 $187,975
=========== ========= ========== ========
Net loan losses -- excluding credit cards ..... $ 13,644 $ 8,352 $ 25,638 $ 31,186
Annualized Net Loan Losses
(Recoveries) to Average Loans
by Category
Commercial .................................... .08% (.01%) .05% .03%
Credit card ................................... 4.36 3.85 4.49 3.74
Other revolving credit ........................ 2.81 1.87 1.59 1.63
Other retail .................................. .61 .61 .55 .69
Real estate ................................... .02 (.01) (.04) (.01)
Lease financing ............................... .32 .35 .20 .48
Foreign ....................................... ---- ---- ---- ----
Total loans ................................... .73 .63 .65 .64
Total loans -- excluding credit cards ......... .15 .10 .09 .12
Period-end allowance to outstanding loans...... 1.23% 1.27% 1.20% 1.27%
</TABLE>
Noninterest
Total other operating revenue, which excludes securities sales,
Income increased $54.494 million or 21.3 percent for the third quarter
from a year earlier and was up $166.797 million or 22.5 percent
year to date. All major categories advanced in both periods, with
growth strongest in capital markets income, service charges on
deposit accounts, trust services, mortgage fees, electronic
banking and investment fees. Included in total other operating
revenue were branch sales gains of $17.155 million in the first
nine months of 1998, all of which occurred in the first quarter,
compared with gains of $21.096 million in the same period of 1997,
including $2.437 million in the third quarter. Excluding branch
sales gains, total other operating
18
<PAGE>
revenue for the third period expanded $56.931 million or 22.4
percent year over year and was higher by $170.738 million or 23.7
percent year to date. Total other operating revenue decreased
modestly from the second quarter but is expected to expand
moderately in the final three months of 1998 from the third
quarter based on anticipated growth in deposit account service
charges, credit card fee income, investment services, mortgage
fees and electronic banking.
Capital markets income grew $22.631 million or approximately 151
percent for the third period from a year earlier and expanded
$60.557 million or approximately 181 percent for the first nine
months. Growth in both periods occurred largely in corporate
financing and in derivatives activities, with increased business
in consulting services also contributing to the gain year to
date. In June, Wachovia received Tier I powers for its Section 20
capital markets subsidiary. These powers enable the subsidiary to
engage in underwriting and dealing in municipal revenue bonds,
commercial paper, mortgage related securities and consumer
related receivables, all of investment quality rating. Tier II
powers permitting further expansion into corporate debt and
equity securities without investment grade limitation are
expected to be effective in 1999.
Service charge revenues on deposit accounts grew $8.090 million
or 10.6 percent and $22.759 million or 10.1 percent for the three
and nine months, respectively. Higher levels of overdraft
charges, commercial analysis fees and demand account service
charges accounted for most of the increases in both periods.
Fees for trust services were up $7.532 million or 17.3 percent
for the quarter and $17.869 million or 13.9 percent year to date.
Gains were driven, in part, by good growth in Personal Financial
Services and in fees associated with the Wachovia Funds, the
corporation's proprietary family of mutual funds. Assets for the
Wachovia Funds totaled $6.262 billion at September 30, 1998
compared with $5.050 billion one year earlier.
Mortgage fee income rose $6.540 million or 114.5 percent for the
three months and $15.422 million or 96.2 percent for the nine
months. Growth primarily reflected higher mortgage origination
activity, increased gains on loans sold to the secondary market
and gains on the sale of mortgage servicing rights.
Electronic banking revenue grew $2.608 million or 15.5 percent
for the quarter and $7.226 million or 15.3 percent year to date,
primarily fueled by increased debit card usage and by increased
ATM foreign access fees.
Investment fee income expanded $991 thousand or 10.2 percent for
the third period and $6.858 million or 25.7 percent for the first
nine months. Higher fees from customer mutual fund trading and
brokerage commissions accounted for the gains.
Credit card fee income was up slightly for both the three and
nine months following a modest decline in the second quarter from
a year earlier. The corporation anticipates credit card fee
income to expand in the final three months of 1998 from third
quarter's level.
Remaining combined categories of total other operating revenue,
excluding gains from branch sales, increased $8.409 million or
19.6 percent for the third period and $38.966 million or 32.3
percent year to date. Insurance premiums and commissions were
modestly higher for both the three and nine months. Bankers'
acceptance and letter of credit fees rose slightly for the
quarter and were up $2.706 million or 10.2 percent year to date.
Other service charges and fees essentially were flat for the
third quarter and advanced modestly for the nine months, while
other income rose $7.997 million or 50.9 percent for the three
months and $34.718 million or 83.3 percent for the nine months.
Including securities sales, total noninterest income increased
$60.289 million or 23.4 percent for the quarter and $176.685
million or 23.7 percent year to date. Securities sales had net
gains of $6.886 million for the three months and $13.035 million
for the nine months compared with $1.091 million and $3.147
million, respectively, in 1997.
19
<PAGE>
- ----------------------------
Noninterest Income Table 8
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C>
1998
---------------------------------
Third Second First
Quarter Quarter Quarter
--------- --------- --------
Service charges on deposit accounts ............... $ 84,674 $ 82,465 $ 80,874
Fees for trust services ........................... 51,185 48,802 46,053
Credit card income -- net of interchange
payments ......................................... 43,312 43,077 38,544
Electronic banking ................................ 19,449 18,667 16,395
Capital markets income ............................ 37,625 40,304 16,110
Investment fees ................................... 10,712 11,665 11,191
Mortgage fees ..................................... 12,251 11,502 7,704
Insurance premiums and commissions ................ 8,213 8,135 7,568
Bankers' acceptance and letter of credit fees ..... 9,745 9,802 9,569
Other service charges and fees .................... 9,680 10,125 10,350
Other income ...................................... 23,695 30,499 39,365
--------- --------- --------
Total other operating revenue ................. 310,541 315,043 283,723
Securities gains (losses) ......................... 6,886 2,992 3,157
--------- --------- --------
Total ......................................... $317,427 $ 318,035 $286,880
========= ========= ========
<S> <C> <C> <C> <C>
Nine Months Ended
1997 September 30
-------------------- ------------------------
Fourth Third
Quarter Quarter 1998 1997
-------- ------- -------- --------
Service charges on deposit accounts ............... $ 80,977 $ 76,584 $248,013 $225,254
Fees for trust services ........................... 47,378 43,653 146,040 128,171
Credit card income -- net of interchange
payments ......................................... 38,382 43,182 124,933 123,852
Electronic banking ................................ 17,355 16,841 54,511 47,285
Capital markets income ............................ 16,040 14,994 94,039 33,482
Investment fees ................................... 9,541 9,721 33,568 26,710
Mortgage fees ..................................... 7,509 5,711 31,457 16,035
Insurance premiums and commissions ................ 7,169 7,966 23,916 23,036
Bankers' acceptance and letter of credit fees ..... 8,116 9,589 29,116 26,410
Other service charges and fees .................... 9,257 9,671 30,155 29,493
Other income ...................................... 21,534 18,135 93,559 62,782
---------- -------- --------- ---------
Total other operating revenue ................. 263,258 256,047 909,307 742,510
Securities gains (losses) ......................... (1,693) 1,091 13,035 3,147
---------- -------- --------- ---------
Total ......................................... $261,565 $257,138 $922,342 $745,657
========== ======== ========= =========
</TABLE>
Noninterest
Total noninterest expense grew $67.102 million or 15.8 percent
Expense for the third quarter and $269.343 million or 21.8 percent year to
date. Included in total noninterest expense for 1998 were merger-
related charges of $11.934 million, pretax, for the three months
and $78.351 million, pretax, for the first nine months for systems
conversions, signage changes and employee benefits expenses
associated with the corporation's new Virginia and Florida
operations. On a core operating basis excluding
integration-related charges, noninterest expense increased $55.168
million or 13 percent for the third quarter and $190.992 million
or 15.5 percent year to date but declined $5.676 million or 4.7
percent annualized from the second quarter. Remaining integration
charges for the Florida and Virginia banking operations are
expected to total approximately $5 million, pretax, with the full
amount to be recognized in the final three months of 1998.
Excluding merger-related charges, noninterest expense is expected
to decrease in the fourth quarter from the third quarter based on
anticipated reductions in personnel costs, advertising and other
expense.
Total personnel expense was up $32.930 million or 14.3 percent
for the third period and $124.505 million or 18.8 percent year to
date. Salaries expense increased $30.808 million or 16.2 percent
for the three months and $112.484 million or 20.8 percent for the
nine months, reflecting increased incentive pay for
revenue-generating businesses and a higher overall salary base.
Employee benefits expense rose $2.122 million or 5.3 percent for
the quarter and $12.021 million or 10 percent year to date,
primarily due to growth in medical benefits costs and to
increased payroll taxes for a larger base of employees.
Combined net occupancy and equipment expense rose $7.342 million
or 11.1 percent for the three months and $25.743 million or 13.4
percent for the nine months. Net occupancy expense increased
$5.080 million or 17 percent for the quarter and $16.831 million
or 19.6 percent year to date reflecting, in part, growth in
building depreciation expense and operating expenses of acquired
companies. Equipment expense was up $2.262 million or 6.2 percent
and $8.912 million or 8.4 percent for the three and nine months,
respectively, with the rise in both periods largely due to higher
depreciation and equipment leasing costs.
Remaining combined categories of noninterest expense, excluding
merger-related charges, grew $14.896 million or 11.6 percent for
the quarter and $40.744 million or 10.7 percent year to date.
Amortization expense of intangible assets accounted for more than
half of the growth in both periods, rising $7.493 million for the
three months and $21.308 million for the nine months on increases
primarily of goodwill and deposit base intangibles from purchase
acquisitions. Partially offsetting the growth was a reduction in
outside data processing, programming and software expense
primarily attributable to lower Year 2000 costs.
20
<PAGE>
- -----------------------------
Noninterest Expense Table 9
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C>
1998
-------------------------------------
Third Second First
Quarter Quarter Quarter
--------- --------- ---------
Salaries ................................ $221,242 $ 219,731 $ 212,758
Employee benefits ....................... 42,040 42,675 46,966
---------- ---------- ---------
Total personnel expense ............. 263,282 262,406 259,724
Net occupancy expense ................... 34,896 34,119 33,783
Equipment expense ....................... 38,545 41,288 34,687
Postage and delivery .................... 13,373 13,368 13,278
Outside data processing, programming
and software ........................... 18,496 16,244 12,737
Stationery and supplies ................. 10,689 7,233 7,506
Advertising and sales promotion ......... 17,147 22,555 17,738
Professional services ................... 14,929 14,522 11,304
Travel and business promotion ........... 7,656 7,638 6,439
Regulatory agency fees and other bank
services ............................... 4,112 4,075 4,485
Amortization of intangible assets ....... 9,840 9,226 9,117
Foreclosed property expense, net of
income ................................. (164) 88 130
Personal computer impairment
charge* ................................ ---- ---- ----
Merger-related charges* ................. 11,934 30,849 35,568
Other expense ........................... 47,668 53,383 47,753
---------- ---------- ---------
Total ............................... $492,403 $ 516,994 $ 494,249
========== ========== =========
Overhead ratio .......................... 54.0% 56.8% 57.2%
Overhead ratio without
nonrecurring charges ................... 52.7 53.4 53.1
<S> <C> <C> <C> <C>
Nine Months Ended
1997 September 30
------------------------ --------------------------------
Fourth Third
Quarter Quarter 1998 1997
---------- --------- ---------- ----
Salaries ................................ $ 200,859 $ 190,434 $ 653,731 $ 541,247
Employee benefits ....................... 43,391 39,918 131,681 119,660
----------- --------- ------------- -----------
Total personnel expense ............. 244,250 230,352 785,412 660,907
Net occupancy expense ................... 30,687 29,816 102,798 85,967
Equipment expense ....................... 36,619 36,283 114,520 105,608
Postage and delivery .................... 12,539 11,883 40,019 36,118
Outside data processing, programming
and software ........................... 22,952 21,980 47,477 63,545
Stationery and supplies ................. 7,637 8,415 25,428 23,323
Advertising and sales promotion ......... 15,768 20,355 57,440 56,278
Professional services ................... 16,348 14,102 40,755 37,765
Travel and business promotion ........... 7,433 6,120 21,733 17,782
Regulatory agency fees and other bank
services ............................... 3,523 3,458 12,672 11,077
Amortization of intangible assets ....... 6,433 2,347 28,183 6,875
Foreclosed property expense, net of
income ................................. 492 487 54 1,383
Personal computer impairment
charge* ................................ 67,202 ---- ---- ----
Merger-related charges* ................. 220,330 ---- 78,351 ----
Other expense ........................... 40,205 39,703 148,804 127,675
----------- --------- ------------- -----------
Total ............................... $ 732,418 $ 425,301 $ 1,503,646 $ 1,234,303
=========== ========= ============= ===========
Overhead ratio .......................... 88.0% 53.6% 56.0% 53.1%
Overhead ratio without
nonrecurring charges ................... 53.5 53.6 53.1 53.1
</TABLE>
* Nonrecurring charges.
Year
The change in date to the year 2000 from 1999 will cause data
2000 recognition problems in computers, software and facility
operations dependent on computer chip devices due to programming
standards that historically limited data date fields to two
digits. In late 1995, the corporation initiated a formal
evaluation of Year 2000 issues, establishing in the early months
of 1996 a full-time project team to assess and address both
internal and external risks associated with the change in date
event. The project team is in the latter stages of executing a
Year 2000 readiness plan consisting of five phases: problem
awareness; identification of affected systems, functions and
facilities; conversion or replacement of identified areas to Year
2000 compliant standards; testing; and implementation.
The corporation's readiness plan encompasses both information
technology systems and computer chip embedded functions, such as
those operating facilities including elevators, security systems,
and building heating and cooling. In 1996, the corporation
completed its awareness and identification phases, extending and
completing the processes in 1997 for recent merger partners. As
of September 30, 1998, 99 percent of all information technology
systems had been converted. While regulatory guidelines require
conversion only of mission critical systems, the corporation is
converting all information technology systems and is scheduled to
complete the process by November 30, 1998. For computer chip
embedded functions, the corporation is replacing noncompliant
functions essential to business operations and plans to have all
essential functions replaced and tested by year-end 1998.
In-house testing of information technology systems currently is
underway, with testing completed on approximately 67 percent of
all applications at September 30, 1998. Testing is done in both a
21st century and 20th century date environment before systems are
returned to production to ensure data accuracy and consistency.
All exceptions to testing results are resolved before further
testing is permitted. Management has chosen to implement
converted systems back into production as systems are tested to
permit greater
21
<PAGE>
flexibility in the event of future system flaws or failures. The
percentage of systems implemented, therefore, closely
approximates the percentage tested.
The corporation also is working to assess and address Year 2000
readiness on the part of external entities, particularly critical
vendors and significant credit customers. Identification and
monitoring of external entities began in 1996 and includes
surveys with follow-up reviews and contacts. Substantially all of
the corporation's vendors have responded to management's surveys
regarding Year 2000 readiness, with approximately 70 percent
compliant as of September 30, 1998. The project team is
continuing to monitor the progress of remaining noncompliant
vendors as well as the status of large corporate borrowers
identified as potentially at risk. The corporation will conduct
testing with external entities in 1999 as they become Year 2000
ready, with some limited testing already occurring in 1998.
Management estimates that total Year 2000 project costs will be
approximately $80 million, with $60 million having been spent
through September 30, 1998, including $8 million in the third
quarter and $22 million in the first nine months of 1998. The
total projected cost is up from $55 million estimated earlier due
to additional expenditures for internal testing. The
corporation's remaining Year 2000 project costs are not expected
to have a material impact on Wachovia's results of operations,
liquidity or capital resources.
The corporation faces a number of risks related to the Year 2000
date change event including project management risks, legal risks
and financial risks. Project management risks refer primarily to
the failure to adequately assess Year 2000 planning and resource
needs, resulting in under- or over-allotment of resources
assigned to complete the project work, missed deadlines and
estimation errors. Legal risks include the failure to meet
contractual service agreements, leading to possible punitive
actions including those of a regulatory nature. Financial risks
concern the possibility of lost revenues, asset quality
deterioration or even business failure. The corporation conducted
a project management risk assessment in early 1997 and is in the
process of addressing its legal and financial risks.
Management of the date change event entails additional risks
separate from those of project management. Major risks associated
with the date change event include a shut down of voice and data
communication systems due to failure by switching systems,
satellites, or telephone companies; excessive cash withdrawal
activity; ATM failures; cash couriers delayed or not available;
problems with international accounts or offices, including
inaccurate or delayed information or inaccessibility to account
data; and government offices or facilities not opening or
operating. The corporation has identified 60 risks associated
with the date change event and is in the process of developing
contingency plans for each major risk.
The corporation is addressing contingency planning for the date
change event from both an internal and external perspective and
from a preevent and post-event standpoint. This enables
management to determine both the level of control over mitigating
a risk and the time period the corporation would be impacted.
Internal, preevent contingency plans were developed in 1997 and
have been implemented on three occasions. External, preevent
contingency plans focused on vendor readiness to determine the
need for alternative vendors. Internal, post-event contingency
plans will focus on implementing alternative plans if problems
occur with application systems, infrastructure components or
branch equipment. External, post-event contingency plans will
focus on actions that can be taken if mission critical service
providers such as voice and data communication systems experience
difficulties. The corporation expects to have formal contingency
plans for the date change event and post-event risks developed by
year-end 1998.
The corporation believes the actions it is taking should reduce
the risks posed by Year 2000 challenges to its own systems.
Management recognizes that date change event problems will occur
with external entities, impacting the corporation due to the
interrelatedness of its business.
22
<PAGE>
Income
Applicable income taxes rose $20.481 million or 21.8 percent for
Taxes the quarter from a year earlier and were up $39.786 million or
14.6 percent year to date. Income taxes computed at the statutory
rate are reduced primarily by the assumed tax effect of interest
income earned on state and municipal loans and debt securities.
Also, within certain limitations, one-half of the interest income
earned on qualifying employee stock ownership plan loans is exempt
from federal taxes. The interest earned on certain state and
municipal debt instruments is exempt from federal taxes and in
some cases state taxes. The tax-exempt nature of these assets
provides both an attractive return for the corporation and
substantial interest savings for local governments and their
constituents.
- -----------------------
Income Taxes Table 10
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
1998 1997 1998 1997
--------- -------- --------- ---------
Income before income taxes ........................................ $ 341,651 $ 292,725 $ 944,603 $ 861,415
========== ========== ========== ==========
Federal income taxes at statutory rate ............................ $ 119,578 $ 102,453 $ 330,611 $ 301,495
State and local income taxes -- net of federal benefit ............ 7,269 4,380 12,936 12,781
Effect of tax-exempt securities interest and other income ......... (13,210) (10,477) (38,736) (35,010)
Other items ....................................................... 647 (2,553) 7,188 (7,053)
---------- ---------- ---------- ----------
Total tax expense ............................................ $ 114,284 $ 93,803 $ 311,999 $ 272,213
========== ========== ========== ==========
Current:
Federal .......................................................... $ 23,793 $ 55,740 $ 120,209 $ 181,335
Foreign .......................................................... 88 125 449 290
State and local .................................................. 5,472 1,437 11,270 6,042
---------- ---------- ---------- ----------
Total ........................................................ 29,353 57,302 131,928 187,667
Deferred:
Federal .......................................................... 79,221 31,201 171,441 70,927
State and local .................................................. 5,710 5,300 8,630 13,619
---------- ---------- ---------- ----------
Total ........................................................ 84,931 36,501 180,071 84,546
---------- ---------- ---------- ----------
Total tax expense ............................................ $ 114,284 $ 93,803 $ 311,999 $ 272,213
========== ========== ========== ==========
</TABLE>
New Accounting
In December 1996, the Financial Accounting Standards Board issued
Standards Statement of Financial Accounting Standards No. 127, "Deferral of
the Effective Date of Certain Provisions of FASB Statement No.
125, an amendment of FASB Statement No. 125" (FASB 127). FASB 127
delayed until 1998 certain provisions of FASB 125 that deal with
repurchase agreements, securities lending and other similar
transactions and pledged collateral. Adoption of FASB 127 was not
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 disclosure requirements of
FASB 130 have been included in the corporation's consolidated
statements of shareholders' equity.
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. FASB 131 will be adopted, as
required, beginning with year-end 1998. The disclosure
requirements will have no impact on the corporation's financial
position or results of operations.
23
<PAGE>
In March 1998, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1),
which provides guidance as to when it is or is not appropriate to
capitalize the cost of software developed or obtained for
internal use. The corporation adopted SOP 98-1 effective January
1, 1998; the effect was not material.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (FASB 133).
FASB 133 establishes new accounting and reporting requirements
for derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities.
The standard requires all derivatives to be measured at fair
value and recognized as either assets or liabilities in the
statement of condition. Under certain conditions, a derivative
may be specifically designated as a hedge. Accounting for the
changes in the fair value of a derivative depends on the intended
use of the derivative and the resulting designation. Adoption of
the standard is required for the corporation's December 31, 2000
financial statements with early adoption allowed as of the
beginning of any quarter after June 30, 1998. Management is in
the process of assessing the impact and period of adoption of the
standard. Adoption is not expected to result in a material
financial impact.
---------------------------------------------
Financial Condition and Capital Ratios
-----------------------------------------------------------------
At September 30, 1998, assets totaled $65.574 billion, including
$58.164 billion of interest-earning assets and $45.629 billion of
loans. Comparable amounts one year earlier were $58.041 billion of
assets, $51.986 billion of interest-earning assets and $40.748
billion of loans. At June 30, 1998, assets were $64.727 billion,
interest-earning assets were $57.303 billion and loans were
$44.459 billion.
Deposits were $38.807 billion at September 30, 1998, including
$31.072 billion of interest-bearing deposits, representing 80.1
percent of the total. Deposits one year earlier were $36.911
billion, with interest-bearing deposits of $29.471 billion or
79.8 percent of the total, and at June 30, 1998, deposits were
$39.915 billion, including $31.841 billion of interest-bearing
deposits or 79.8 percent of the total.
Shareholders' equity was $5.229 billion at September 30, 1998, up
$712 million or 15.8 percent from $4.517 billion one year
earlier. Included in shareholders' equity at the end of the third
quarter of 1998 was $747.744 million from common stock issued in
connection with the corporation's fourth quarter 1997 purchase
acquisitions of Jefferson Bankshares and 1st United Bancorp.
Purchase transactions consummated during the second quarter of
1998 resulted in the issuance of 1.099 million shares of common
stock with a corresponding increase in shareholders' equity of
$83.313 million. Shareholders' equity at September 30, 1998 also
included unrealized gains of $131.325 million, net of tax, on
securities available-for-sale marked to fair value compared with
$68.657 million, net of tax, one year earlier. On June 23, the
corporation's board of directors authorized the repurchase of up
to 12 million shares of the corporation's common stock effective
through January 28, 2000. During the third quarter of 1998, the
corporation repurchased a total of 4,221,400 shares of its common
stock at an average price of $82.563 per share for a total cost
of $348.530 million. At its meeting on October 23, 1998, the
corporation's board of directors declared a fourth quarter
dividend of $.49 per share, payable December 1 to shareholders of
record as of November 6. The dividend is higher by 11.4 percent
from $.44 per share paid in the same quarter of 1997. For the
full year, the dividend will total $1.86 per share, a 10.7
percent increase from $1.68 per share in 1997.
Intangible assets at September 30, 1998 totaled $688.018 million,
consisting of $537.398 million of goodwill, $97.308 million of
deposit base intangibles, $42.079 million of purchased credit
card premiums, $10.906 million of mortgage servicing rights and
$327 thousand of other intangibles. Intangible assets one year
earlier were $112.068 million, with $45.828 million of goodwill,
$51.676 million of deposit base intangibles, $13.989 million of
mortgage servicing rights and $575 thousand of other intangibles
including
24
<PAGE>
purchased credit card premiums. Goodwill and deposit base
intangibles increased from the end of the third quarter of 1997
due to purchase acquisitions of Jefferson Bankshares and 1st
United Bancorp in the fourth quarter of 1997 and of Ameribank
Bancshares in the second quarter of 1998. Purchased credit card
premiums rose due to the acquisition of receivables from Wells
Fargo & Co. in September 1998.
On January 1, 1999, eleven member countries of the European Union
will establish the Euro as their common legal currency and
establish a fixed conversion rate between their current sovereign
currencies and the Euro. Management has a risk assessment
committee that has been examining the risks associated with the
upcoming Euro conversion such as the adequacy of information
technology systems, currency risk and the competitive impact of
cross-border price transparency. Based on the findings of the
risk assessment committee, management does not expect the impact
of the Euro conversion to have a material adverse impact on the
corporation's financial condition or results of operations.
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 fair 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 percent
and a Tier I leverage ratio of 5 percent are considered well
capitalized by regulatory standards. It is the policy of the
corporation that it and its banking subsidiaries be well
capitalized at all times.
At September 30, 1998, the corporation's Tier I to risk-adjusted
assets ratio was 8.22 percent and total capital to risk-adjusted
assets was 11.30 percent. The Tier I leverage ratio was 8.67
percent. Included in the capital ratios at September 30, 1998 was
$996.274 million of trust capital securities versus $995.899
million one year earlier.
- ----------------------------------------
Capital Components and Ratios Table 11
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C>
1998
----------------------------
Third Second
Quarter Quarter
------------ --------
Tier I capital:
Common shareholders' equity ....................................... $ 5,229,191 $ 5,375,793
Trust capital securities .......................................... 996,274 996,180
Less ineligible intangible assets ................................. 665,408 669,448
Unrealized gains on securities available-for-sale, net of tax ..... (131,325) (74,990)
------------- -----------
Total Tier I capital ........................................... 5,428,732 5,627,535
Tier II capital:
Allowable allowance for loan losses ............................... 547,686 547,572
Allowable long-term debt .......................................... 1,486,537 1,138,711
------------- -----------
Tier II capital additions ...................................... 2,034,223 1,686,283
------------- -----------
Total capital .................................................. $ 7,462,955 $ 7,313,818
============= ===========
Risk-adjusted assets ............................................... $66,065,593 $63,906,411
Quarterly average assets * ......................................... $62,630,533 $63,184,419
Risk-based capital ratios:
Tier I capital .................................................... 8.22% 8.81%
Total capital ..................................................... 11.30 11.44
Tier I leverage ratio .............................................. 8.67 8.91
<S> <C> <C> <C>
1998 1997
----------- ----------------------------
First Fourth Third
Quarter Quarter Quarter
-------- ------------ --------
Tier I capital:
Common shareholders' equity ....................................... $ 5,236,700 $ 5,174,301 $ 4,517,021
Trust capital securities .......................................... 996,087 995,993 995,899
Less ineligible intangible assets ................................. 604,325 634,052 93,101
Unrealized gains on securities available-for-sale, net of tax ..... (63,849) (71,098) (68,657)
----------- ------------- -----------
Total Tier I capital ........................................... 5,564,613 5,465,144 5,351,162
Tier II capital:
Allowable allowance for loan losses ............................... 544,741 544,723 519,356
Allowable long-term debt .......................................... 1,193,533 1,193,451 1,283,165
----------- ------------- -----------
Tier II capital additions ...................................... 1,738,274 1,738,174 1,802,521
----------- ------------- -----------
Total capital .................................................. $ 7,302,887 $ 7,203,318 $ 7,153,683
=========== ============= ===========
Risk-adjusted assets ............................................... $62,747,353 $59,543,254 $56,481,076
Quarterly average assets * ......................................... $62,457,463 $59,139,712 $57,042,701
Risk-based capital ratios:
Tier I capital .................................................... 8.87% 9.18% 9.47%
Total capital ..................................................... 11.64 12.10 12.67
Tier I leverage ratio .............................................. 8.91 9.24 9.38
</TABLE>
* Excludes ineligible intangible assets and average unrealized gains on
securities available-for-sale, net of tax.
25
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------
Consolidated Statements of Condition
- --------------------------------------------------------------------------------
$ in thousands
<TABLE>
<S> <C> <C> <C>
September 30 December 31 September 30
1998 1997 1997
Assets
Cash and due from banks ..................................................... $ 2,967,037 $ 4,221,818 $ 3,511,111
Interest-bearing bank balances .............................................. 156,518 133,191 89,704
Federal funds sold and securities purchased under resale agreements ......... 610,500 1,589,234 340,104
Trading account assets ...................................................... 1,172,683 999,122 1,057,277
Securities available-for-sale ............................................... 9,075,416 8,909,537 8,533,778
Securities held-to-maturity (fair value of $1,593,178,
$1,578,464 and $1,285,503, respectively).................................... 1,520,584 1,509,339 1,217,798
Loans, net of unearned income ............................................... 45,628,716 44,194,382 40,747,609
Less allowance for loan losses .............................................. 547,686 544,723 519,356
----------- ----------- -----------
Net loans ................................................................. 45,081,030 43,649,659 40,228,253
Premises and equipment ...................................................... 886,122 810,155 809,240
Due from customers on acceptances ........................................... 732,829 628,398 649,263
Other assets ................................................................ 3,371,289 2,946,616 1,604,273
----------- ----------- -----------
Total assets .............................................................. $65,574,008 $65,397,069 $58,040,801
=========== =========== ===========
Liabilities
Deposits in domestic offices:
Demand ..................................................................... $ 7,734,695 $ 8,598,055 $ 7,439,737
Interest-bearing demand .................................................... 4,767,577 4,654,172 4,039,330
Savings and money market savings ........................................... 11,901,799 11,679,432 10,574,436
Savings certificates ....................................................... 9,491,260 10,934,720 10,189,885
Large denomination certificates ............................................ 2,733,174 2,284,068 2,902,894
----------- ----------- -----------
Total deposits in domestic offices ........................................ 36,628,505 38,150,447 35,146,282
Interest-bearing deposits in foreign offices ................................ 2,178,639 4,503,396 1,764,261
----------- ----------- -----------
Total deposits ............................................................ 38,807,144 42,653,843 36,910,543
Federal funds purchased and securities sold under repurchase agreements ..... 8,689,234 8,322,716 7,167,827
Commercial paper ............................................................ 1,408,832 1,034,024 835,478
Other short-term borrowed funds ............................................. 2,677,503 752,874 1,335,579
Long-term debt:
Bank notes ................................................................. 2,435,683 2,939,952 2,939,476
Other long-term debt ....................................................... 4,043,442 2,994,181 2,996,450
----------- ----------- -----------
Total long-term debt ...................................................... 6,479,125 5,934,133 5,935,926
Acceptances outstanding ..................................................... 732,829 628,398 649,263
Other liabilities ........................................................... 1,550,150 896,780 689,164
----------- ----------- -----------
Total liabilities ......................................................... 60,344,817 60,222,768 53,523,780
Shareholders' Equity
Preferred stock, par value $5 per share:
Authorized 50,000,000 shares; none outstanding ............................. ---- ---- ----
Common stock, par value $5 per share:
Authorized 1,000,000,000, 500,000,000 and 500,000,000 shares; issued
and outstanding 202,751,280, 205,926,632 and 193,837,284 shares,
respectively .............................................................. 1,013,756 1,029,633 969,186
Capital surplus ............................................................. 657,923 974,803 298,578
Retained earnings ........................................................... 3,426,187 3,098,767 3,180,600
Accumulated other comprehensive income ...................................... 131,325 71,098 68,657
----------- ----------- -----------
Total shareholders' equity ................................................ 5,229,191 5,174,301 4,517,021
----------- ----------- -----------
Total liabilities and shareholders' equity ................................ $65,574,008 $65,397,069 $58,040,801
=========== =========== ===========
</TABLE>
26
<PAGE>
Wachovia Corporation and Subsidiaries
- ------------------------------------
Consolidated Statements of Income
- --------------------------------------------------------------------------------
thousands, except per share
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
Interest Income
Loans, including fees ....................................... $ 973,202 $ 874,344 $ 2,879,408 $ 2,533,436
Securities available-for-sale ............................... 147,940 154,262 461,161 477,373
Securities held-to-maturity:
State and municipal ........................................ 3,571 3,747 11,246 12,393
Other investments .......................................... 25,709 21,020 72,875 64,815
Interest-bearing bank balances .............................. 3,182 1,816 9,821 3,310
Federal funds sold and securities purchased under resale
agreements ................................................. 6,168 5,980 17,188 13,777
Trading account assets ...................................... 11,694 11,752 37,354 37,664
------------ ----------- ------------- -----------
Total interest income ..................................... 1,171,466 1,072,921 3,489,053 3,142,768
Interest Expense
Deposits:
Domestic offices ........................................... 307,547 303,909 924,911 898,425
Foreign offices ............................................ 34,005 23,824 107,547 63,542
------------ ----------- ------------- -----------
Total interest on deposits ................................ 341,552 327,733 1,032,458 961,967
Short-term borrowed funds ................................... 144,881 125,116 429,600 350,858
Long-term debt .............................................. 95,597 96,428 285,712 291,848
------------ ----------- ------------- -----------
Total interest expense .................................... 582,030 549,277 1,747,770 1,604,673
Net Interest Income ......................................... 589,436 523,644 1,741,283 1,538,095
Provision for loan losses ................................... 72,809 62,756 215,376 188,034
------------ ----------- ------------- -----------
Net interest income after provision for loan losses ......... 516,627 460,888 1,525,907 1,350,061
Other Income
Service charges on deposit accounts ......................... 84,674 76,584 248,013 225,254
Fees for trust services ..................................... 51,185 43,653 146,040 128,171
Credit card income .......................................... 43,312 43,182 124,933 123,852
Electronic banking .......................................... 19,449 16,841 54,511 47,285
Capital markets income ...................................... 37,625 14,994 94,039 33,482
Investment fees ............................................. 10,712 9,721 33,568 26,710
Mortgage fees ............................................... 12,251 5,711 31,457 16,035
Other operating income ...................................... 51,333 45,361 176,746 141,721
------------ ----------- ------------- -----------
Total other operating revenue ............................. 310,541 256,047 909,307 742,510
Securities gains ............................................ 6,886 1,091 13,035 3,147
------------ ----------- ------------- -----------
Total other income ........................................ 317,427 257,138 922,342 745,657
Other Expense
Salaries .................................................... 221,242 190,434 653,731 541,247
Employee benefits ........................................... 42,040 39,918 131,681 119,660
------------ ----------- ------------- -----------
Total personnel expense ................................... 263,282 230,352 785,412 660,907
Net occupancy expense ....................................... 34,896 29,816 102,798 85,967
Equipment expense ........................................... 38,545 36,283 114,520 105,608
Merger-related charges ...................................... 11,934 ---- 78,351 ----
Other operating expense ..................................... 143,746 128,850 422,565 381,821
------------ ----------- ------------- -----------
Total other expense ....................................... 492,403 425,301 1,503,646 1,234,303
Income before income taxes .................................. 341,651 292,725 944,603 861,415
Applicable income taxes ..................................... 114,284 93,803 311,999 272,213
------------ ----------- ------------- -----------
Net Income .................................................. $ 227,367 $ 198,922 $ 632,604 $ 589,202
============ =========== ============= ===========
Net income per common share:
Basic ...................................................... $ 1.11 $ 1.02 $ 3.07 $ 2.99
Diluted .................................................... $ 1.09 $ 1.00 $ 3.01 $ 2.94
Average shares outstanding:
Basic ...................................................... 204,832 194,981 205,811 197,237
Diluted .................................................... 208,837 198,555 209,881 200,542
</TABLE>
27
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
$ in thousands, except per share
<TABLE>
<S> <C> <C> <C>
Common Stock Capital
Shares Amount Surplus
Period Ended September 30, 1997
Balance at beginning of year ..................... 201,252,539 $1,006,263 $ 706,649
Net income .......................................
Change in unrealized gains on securities
available-for-sale, net of tax and
reclassification adjustment .....................
Comprehensive income* ........................
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.24 a share............
Central Fidelity Banks, Inc. -- $.70 a share.....
Common stock issued pursuant to:
Stock option and employee benefit plans ......... 1,213,366 6,067 48,122
Dividend reinvestment plan ...................... 206,231 1,031 11,470
Conversion of debentures ........................ 3,628 18 52
Common stock acquired ............................ (8,838,480) (44,193) (468,392)
Miscellaneous .................................... 677
------------- ---------- -----------
Balance at end of period ......................... 193,837,284 $ 969,186 $ 298,578
============= ========== ===========
Period Ended September 30, 1998
Balance at beginning of year ..................... 205,926,632 $1,029,633 $ 974,803
Net income .......................................
Change in unrealized gains on securities
available-for-sale, net of tax and
reclassification adjustment .....................
Comprehensive income* ........................
Cash dividends declared on common
stock -- $1.37 a share...........................
Common stock issued pursuant to:
Stock option and employee benefit plans ......... 1,956,037 9,780 87,468
Dividend reinvestment plan ...................... 235,799 1,179 17,410
Common stock acquired ............................ (6,466,638) (32,333) (499,005)
Acquisitions ..................................... 1,099,450 5,497 77,815
Miscellaneous .................................... (568)
------------- ---------- -----------
Balance at end of period ......................... 202,751,280 $1,013,756 $ 657,923
============= ========== ===========
<S> <C> <C> <C>
Accumulated
Other Total
Retained Comprehensive Shareholders'
Earnings Income Equity
Period Ended September 30, 1997
Balance at beginning of year ..................... $2,843,803 $ 51,686 $ 4,608,401
Net income ....................................... 589,202 589,202
Change in unrealized gains on securities
available-for-sale, net of tax and
reclassification adjustment ..................... 16,971 16,971
-------------
Comprehensive income* ........................ 606,173
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.24 a share............ (200,038) (200,038)
Central Fidelity Banks, Inc. -- $.70 a share..... (40,220) (40,220)
Common stock issued pursuant to:
Stock option and employee benefit plans ......... 54,189
Dividend reinvestment plan ...................... 12,501
Conversion of debentures ........................ 70
Common stock acquired ............................ (512,585)
Miscellaneous .................................... (12,147) (11,470)
---------- ------------- -------------
Balance at end of period ......................... $3,180,600 $ 68,657 $ 4,517,021
========== ============= =============
Period Ended September 30, 1998
Balance at beginning of year ..................... $3,098,767 $ 71,098 $ 5,174,301
Net income ....................................... 632,604 632,604
Change in unrealized gains on securities
available-for-sale, net of tax and
reclassification adjustment ..................... 60,227 60,227
-------------
Comprehensive income* ........................ 692,831
Cash dividends declared on common
stock -- $1.37 a share........................... (282,346) (282,346)
Common stock issued pursuant to:
Stock option and employee benefit plans ......... 97,248
Dividend reinvestment plan ...................... 18,589
Common stock acquired ............................ (531,338)
Acquisitions ..................................... 83,312
Miscellaneous .................................... (22,838) (23,406)
---------- ------------- -------------
Balance at end of period ......................... $3,426,187 $ 131,325 $ 5,229,191
========== ============= =============
</TABLE>
* Comprehensive income for the third quarters of 1998 and 1997 was $283,702 and
$223,250, respectively.
28
<PAGE>
Wachovia Corporation and Subsidiaries
- ----------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
thousands
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30
1998 1997
Operating Activities
Net income ............................................................... $ 632,604 $ 589,202
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses ............................................... 215,376 188,034
Depreciation and amortization ........................................... 110,388 89,267
Deferred income taxes ................................................... 180,071 84,546
Securities gains ........................................................ (13,035) (3,147)
Gain on sale of noninterest-earning assets .............................. (4,404) (3,262)
Increase (decrease) in accrued income taxes ............................. 79,752 (13,095)
Decrease in accrued interest receivable ................................. 11,019 1,844
Increase in accrued interest payable .................................... 14,519 72,821
Net change in other accrued and deferred income and expense ............. 258,133 83,960
Net trading account activities .......................................... (173,561) 132,549
Net loans held for resale ............................................... (107,458) 22,214
------------- -------------
Net cash provided by operating activities ............................. 1,203,404 1,244,933
Investing Activities
Net increase in interest-bearing bank balances ........................... (23,327) (11,833)
Net decrease (increase) in federal funds sold and securities
purchased under resale agreements ....................................... 1,012,034 (64,162)
Purchases of securities available-for-sale ............................... (2,945,474) (2,378,431)
Purchases of securities held-to-maturity ................................. (394,664) (35,858)
Sales of securities available-for-sale ................................... 208,686 1,449,108
Calls, maturities and prepayments of securities available-for-sale ....... 2,763,134 2,249,696
Calls, maturities and prepayments of securities held-to-maturity ......... 393,813 173,843
Net increase in loans made to customers .................................. (1,415,772) (2,968,352)
Capital expenditures ..................................................... (196,690) (122,298)
Proceeds from sales of premises and equipment ............................ 31,023 8,094
Net (increase) decrease in other assets .................................. (484,019) 128,974
Business combinations .................................................... 16,108 (947)
------------- -------------
Net cash used by investing activities ................................. (1,035,148) (1,572,166)
Financing Activities
Net (decrease) increase in demand, savings and money market accounts ..... (685,564) 478,217
Net (decrease) increase in certificates of deposit ....................... (3,393,053) 1,110,590
Net increase in federal funds purchased and securities sold
under repurchase agreements ............................................. 355,767 11,822
Net increase in commercial paper ......................................... 374,808 126,595
Net increase in other short-term borrowings .............................. 1,924,629 248,866
Proceeds from issuance of bank notes ..................................... 259,450 948,372
Maturities of bank notes ................................................. (763,857) (2,315,367)
Proceeds from issuance of other long-term debt ........................... 1,050,873 769,612
Payments on other long-term debt ......................................... (4,861) (496,535)
Common stock issued ...................................................... 67,417 42,691
Dividend payments ........................................................ (282,346) (239,602)
Common stock repurchased ................................................. (522,750) (506,676)
Net increase (decrease) in other liabilities ............................. 196,450 (14,433)
------------- -------------
Net cash (used) provided by financing activities ...................... (1,423,037) 164,152
Decrease in Cash and Cash Equivalents .................................... (1,254,781) (163,081)
Cash and cash equivalents at beginning of year ........................... 4,221,818 3,674,192
------------- -------------
Cash and cash equivalents at end of period ............................... $ 2,967,037 $ 3,511,111
============= =============
Supplemental Disclosures
Unrealized gains on securities available-for-sale:
Increase in securities available-for-sale ............................... $ 98,364 $ 25,192
Decrease in deferred taxes .............................................. (38,109) (8,482)
Increase in shareholders' equity ........................................ 60,227 16,971
</TABLE>
29
<PAGE>
[WACHOVIA LOGO]
-----------------------------
BULK RATE
U.S. POSTAGE PAID
WACHOVIA
CORPORATION
-----------------------------
Wachovia Corporation
P.O. Box 3099
Winston-Salem, NC 27150
#11-19
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000774203
<NAME> Wachovia Third Quarter 1998
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,967,037
<INT-BEARING-DEPOSITS> 156,518
<FED-FUNDS-SOLD> 610,500
<TRADING-ASSETS> 1,172,683
<INVESTMENTS-HELD-FOR-SALE> 9,075,416<F1>
<INVESTMENTS-CARRYING> 1,520,584
<INVESTMENTS-MARKET> 1,593,178
<LOANS> 45,628,716
<ALLOWANCE> 547,686
<TOTAL-ASSETS> 65,574,008
<DEPOSITS> 38,807,144
<SHORT-TERM> 12,775,569
<LIABILITIES-OTHER> 2,282,979
<LONG-TERM> 6,479,125
0
0
<COMMON> 1,013,756
<OTHER-SE> 4,215,435
<TOTAL-LIABILITIES-AND-EQUITY> 65,574,008
<INTEREST-LOAN> 2,879,408
<INTEREST-INVEST> 545,282
<INTEREST-OTHER> 64,363
<INTEREST-TOTAL> 3,489,053
<INTEREST-DEPOSIT> 1,032,458
<INTEREST-EXPENSE> 1,747,770
<INTEREST-INCOME-NET> 1,741,283
<LOAN-LOSSES> 215,376
<SECURITIES-GAINS> 13,035
<EXPENSE-OTHER> 1,503,646
<INCOME-PRETAX> 944,603
<INCOME-PRE-EXTRAORDINARY> 632,604
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 632,604
<EPS-PRIMARY> 3.07<F2>
<EPS-DILUTED> 3.01
<YIELD-ACTUAL> 4.23
<LOANS-NON> 144,654
<LOANS-PAST> 119,034
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 544,723
<CHARGE-OFFS> 259,414
<RECOVERIES> 44,388
<ALLOWANCE-CLOSE> 547,686
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> INVESTMENTS-AVAILABLE-EQUITY
<F2> EPS-BASIC
</FN>
</TABLE>