1997 Form 10-K
United States Securities and Exchange Commission
Washington, DC 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number 1-9021
Wachovia Corporation
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Incorporated in the State of North Carolina
IRS Employer Identification Number 56-1473727
Address and Telephone:
100 North Main Street, Winston-Salem, North Carolina, 27101,
(336) 770-5000
191 Peachtree Street NE, Atlanta, Georgia, 30303, (404) 332-5000
Securities registered pursuant to Section 12(b) of the Act: Common Stock --
$5.00 par value, which is registered on the New York Stock Exchange.
As of February 5, 1998, Wachovia Corporation had 205,872,778 shares of common
stock outstanding. The aggregate market value of Wachovia Corporation common
stock held by nonaffiliates on February 5, 1998 was approximately $16.255
billion and the number of shares held by nonaffiliates was 205,765,238.
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.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Documents Incorporated by Reference
- --------------------------------------------------------------------------------
Portions of the Wachovia Corporation's Proxy Statement for its 1998 Annual
Shareholders' Meeting, which will be filed with the Commission by April 30,
1998 are incorporated by reference into Part III of this report. Portions of
the annual report to shareholders for the year ended December 31, 1997 are
incorporated by reference into Parts I and II as indicated in the table below.
Except for parts of the Wachovia Corporation Annual Report expressly
incorporated herein by reference, this Annual Report is not to be deemed filed
with the Securities and Exchange Commission.
<PAGE>
Part I Page
Item 1 Business:
Description of Business.......................... 1, 20-48, 78-80, 81
Subsidiaries of Wachovia
Corporation...................................... Page 2 of Form 10-K
Average Balance Sheets/
Interest/Rates..................................... 70-71, 74-75, 76
Volume and Rate
Variance Analysis............................................ 24, 48
Securities................................................ 26, 57-58
Loans............................................. 25, 33, 58-59, 77
Allowance for Loan Losses
and Loan Loss Experience.................................. 33-35, 48
Deposits....................................... 27-28, 31, 70-71, 76
Return on Equity and Assets...................................... 76
Short-Term Borrowed Funds........................................ 32
Item 2 Properties........................................ Page 2 of Form 10-K
Item 3 Legal Proceedings................................................ 65
Item 4 Submission of Matters to a Vote
of Security Holders............................................ None
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters............................... 78-79
Item 6 Selected Financial Data................................... 72-73, 77
Part II -- Continued Page
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations................................. 20-48, 81
Item 8 Financial Statements and Supplementary Data................... 43-69
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure........................................... None
Part III
Item 10 Directors and Executive Officers
of the Registrant................................... Proxy Statement
Item 11 Executive Compensation.............................. Proxy Statement
Item 12 Security Ownership of
Certain Beneficial Owners
and Management...................................... Proxy Statement
Item 13 Certain Relationships and
Related Transactions................................ Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................ Page 3 of Form 10-K
1
<PAGE>
Subsidiaries of Wachovia Corporation
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The following table sets forth the subsidiaries of Wachovia Corporation on
December 31, 1997. The common stock of each of these subsidiaries is 100
percent owned by its parent. The financial statements of all subsidiaries are
included in the consolidated statements of Wachovia Corporation and
subsidiaries.
Organized under the
laws of the state of:
Wachovia Bank, N.A. the United States
Wachovia International Banking Corporation the United States*
Wachovia Leasing Corporation North Carolina
Wachovia Insurance Services, Inc. North Carolina
Greenville Agricultural Credit Corporation North Carolina
Wachovia Auto Leasing Company of Georgia Georgia
WMCS, Inc. Georgia
Wachovia Capital Associates, Inc. Georgia
Wachovia Insurance Services of South
Carolina, Inc. South Carolina
First National Properties, Inc. South Carolina
Central Fidelity National Bank the United States
Mulberry Corporation Virginia
G.C. Leasing, Inc. Virginia
North Hart Run, Inc. Virginia
New Salem of Virginia, Inc. Virginia
S. Brooke, Corporation Virginia
Central Fidelity Properties, Inc. Virginia
Central Fidelity Services, Inc. Virginia
CFB Insurance Agency, Inc. Virginia
1st United Bank Florida
Island Investment Services Florida
Jefferson National Bank the United States
Jefferson Properties, Inc. Virginia
Southern Provident Life Insurance Company Arizona
Atlantic Savings Bank, FSB the United States
Atlantic Mortgage Corporation of South
Carolina, Inc. South Carolina
Organized under the
laws of the state of:
Wachovia Mortgage Company North Carolina
New Salem, Inc. North Carolina
Wachovia Investments, Inc. North Carolina
Wachovia Corporate Services, Inc. North Carolina
Wachovia Operational Services Corporation North Carolina
Wachovia Trust Services, Inc. North Carolina
The First National Bank of Atlanta (Delaware) the United States
Wachovia Bank Card Services, Inc. Delaware
Financial Life Insurance Company of Georgia Georgia
The Wachovia Insurance Agency of Georgia, Inc. Georgia
First Atlanta Lease Liquidating Corporation Georgia
Wachovia Corporation of Florida Florida
Wachovia Corporation of Alabama Alabama
Wachovia Corporation of Tennessee Tennessee
Wachovia Capital Markets, Inc. Georgia
Wachovia International Capital Corporation Georgia
WSH Holdings, Ltd. Cayman Islands,
British West Indies
Banco Wachovia Brazil
Wachovia International Servicos Limitada Brazil
Wachovia Capital Trust I Delaware
Wachovia Capital Trust II Delaware
Wachovia Capital Trust V Delaware
Central Fidelity Capital Trust I Delaware
Wachovia Community Development Corporation North Carolina
* Organized under Chapter 25(a) of the Federal Reserve Act of the United
States
Properties
- --------------------------------------------------------------------------------
The principal offices of the Corporation and Wachovia Bank, N.A., are located
at 100 North Main Street, Winston-Salem, North Carolina, where the company owns
and occupies approximately 535,000 square feet of office space. Offices are
also maintained at 191 Peachtree Street, N.E., Atlanta, Georgia, under a
380,000 square foot office space lease expiring in 2008, and at the Palmetto
Center at 1426 Main Street, Columbia, South Carolina, under a 15,660 square
foot lease expiring
in 2003.
Central Fidelity National Bank occupies approximately 201,665 square feet of
office space in the James Center at 1021 East Cary Street, Richmond, Virginia,
under a lease expiring in 2002.
Jefferson National Bank owns and occupies approximately 37,400 square feet of
office space at 123 East Main Street, Charlottesville, Virginia.
1st United Bank occupies approximately 8,000 square feet of office space at 980
North Federal Highway, Boca Raton, Florida, under a lease expiring in 2002.
The table on page 3 lists the number of banking offices. The Corporation's
banking subsidiaries own in fee 516 offices while the others are leased or are
located on leased land. The approximate lease terms range from one to fifty
years on these properties. In addition, the Corporation's banking subsidiaries
own in fee or lease a number of multistory office buildings which house
supporting services. Other subsidiaries of the Corporation maintain leased
office space in cities in which they conduct their respective operations.
2
<PAGE>
Exhibits, Financial Statement Schedules and Reports on Form 8-K
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Exhibits -- The index of exhibits has been filed as separate pages of the 1997
Form 10-K. Copies of the exhibit list or of Exhibits are available upon request
to: Corporate Reporting, Wachovia Corporation, P.O. Box 3099, Winston-Salem,
North Carolina, 27150. A copying fee will be charged for the Exhibits.
Financial Statement Schedules -- Omitted due to inapplicability or because
required information is shown in the Financial Statements or the Notes thereto.
Financial Data Schedule (for SEC purposes only).
Reports on Form 8-K -- A Current Report on Form 8-K dated October 15, 1997 was
filed with the Securities and Exchange Commission relating to Wachovia
Corporation's third quarter earnings announcement. A Current Report on Form 8-K
dated December 15, 1997 was filed relating to consummation of the merger with
Central Fidelity Banks, Inc. A Current Report on Form 8-K dated Decem-ber 19,
1997 was filed relating to the announcement of three special charges in the
fourth quarter of 1997.
Signatures
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Pursuant to the requirements to Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 18, 1998.
WACHOVIA CORPORATION
ROBERT S. McCOY, JR.
- --------------------
Robert S. McCoy, Jr.
Senior Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 18, 1998.
L. M. BAKER, JR.
- ----------------
L. M. Baker, Jr.
Director, President
and Chief Executive Officer
ROBERT S. McCOY, JR.
- --------------------
Robert S. McCoy, Jr.
Senior Executive Vice President
and Chief Financial Officer
DONALD K. TRUSLOW
- -----------------
Donald K. Truslow
Comptroller
The Directors of Wachovia Corporation (listed below) have executed a power of
attorney appointing Kenneth W. McAllister, their attorney-in-fact, empowering
him to sign this report on their behalf:
James S. Balloun
James F. Betts
Peter C. Browning
John T. Casteen, III
John L. Clendenin
Lawrence M. Gressette, Jr.
Thomas K. Hearn, Jr.
George W. Henderson, III
W. Hayne Hipp
Robert M. Holder, Jr.
Robert A. Ingram
James W. Johnston
George R. Lewis
John G. Medlin, Jr.
Lloyd U. Noland, III
Wyndham Robertson
Herman J. Russell
Sherwood H. Smith, Jr.
John C. Whitaker, Jr.
KENNETH W. McALLISTER
- ---------------------
Kenneth W. McAllister
Attorney-in-Fact
3
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The names, ages and positions of the executive officers of Wachovia as of
January 31, 1998 are shown below along with their business experience during the
past five years and the year of their employment with Wachovia and subsidiaries.
Officers are elected annually by the Board of Directors and hold office for one
year or until their successors are chosen and qualified. There are no family
relationships between any of them, nor is there any arrangement or understanding
between any officer and any other person pursuant to which the officer was
selected. The required information for the directors is included in the Proxy
Statement.
Name, Age Business Experience During Past
and Position Five Years and Year Employed
- ------------ ----------------------------
L. M. Baker, Jr., 55 President and Chief Executive Officer of
Director, President since Wachovia Bank, N.A. since June 1997;
1993 and Chief Executive Chief Operating Officer of Wachovia
Officer since January 1994 Corporation, February-December 1993;
Executive Vice President of Wachovia
Corporation until January 1993;
President and Chief Executive Officer
of Wachovia Corporation of North
Carolina, January 1990-March 1993;
President and Chief Executive Officer
of Wachovia Bank of North Carolina,
N.A., January 1990-May 1993. Employed in
1969.
Mickey W. Dry, 58 Executive Vice President of Wachovia
Senior Executive Vice Corporation, November 1989-October 1997;
President since October 1997 Senior Executive Vice President of
and Chief Credit Officer Wachovia Bank, N.A. since July 1997;
since November 1989 Executive Vice President of Wachovia Bank
of North Carolina, N.A., October 1989-July
1997. Employed in 1961.
Hugh M. Durden, 54 President of Wachovia Corporate
Executive Vice President Services, Inc. since July 1994;
since 1994 President of Wachovia Trust Services,
Inc., January-June 1994; Executive Vice
President of Wachovia Bank, N.A.; Western
Division Executive, Wachovia Bank of North
Carolina, N.A., 1991-1994; Employed
in 1972.
<PAGE>
Item 10. Directors and Executive Officers of the Registrant (Continued)
Name, Age Business Experience During Past
and Position Five Years and Year Employed
- ------------ ----------------------------
Stanhope A. Kelly, 40 Senior Vice President of Wachovia
Executive Vice President Corporation, 1996-1997; Regional Vice
since October 1997 President of Wachovia Bank of North
Carolina, N.A., 1994-1996. Employed
in 1980.
Robert S. Kniejski, 42 Executive in charge of Wachovia
Executive Vice President Corporation's Personal Financial
since October 1997 Services Group since 1995 (Chairman
of Wachovia Investments, Inc. and
Wachovia Insurance Services, Inc.,
Director and President of Wachovia
Trust Services, Inc.); Senior Vice
President of Wachovia Corporation,
1996-1997; Senior Vice President/Group
Executive of Wachovia Investments, Inc.,
1993-1995; Senior Vice President/Group
Executive of Wachovia Bank, N.A. since
1991 (Trust Marketing and Development,
1991-1993). Employed in 1987.
Walter E. Leonard, Jr. 52 Executive Vice President of Wachovia
Senior Executive Vice Corporation, October 1988-October 1997;
President since October Senior Executive Vice President of
1997 Wachovia Bank, N.A. since July 1997;
Executive Vice President of Wachovia
Bank of Georgia, N.A. until June 1997;
President of Wachovia Operational Services
Corporation since 1988. Employed in 1965.
Kenneth W. McAllister, 49 Executive Vice President of Wachovia
Senior Executive Vice Corporation, January 1994-October 1997.
President since October Employed in 1988.
1997 and General Counsel
since 1988
Robert S. McCoy, Jr., 59 Executive Vice President of Wachovia
Senior Executive Vice Corporation, January 1992-October 1997;
President since October 1997 Senior Executive Vice President of Wachovia
and Chief Financial Officer Bank, N.A. since July 1997; Executive Vice
since September 1992 President of Wachovia Bank of North Carolina,
N.A., 1992-1997; Chief Financial Officer of
Wachovia Bank of North Carolina, N.A. since
1992. Employed in 1984.
4
<PAGE>
Item 10. Directors and Executive Officers of the Registrant (Continued)
Name, Age Business Experience During Past
and Position Five Years and Year Employed
- ------------ ----------------------------
John C. McLean, Jr., 48 Executive in charge of Wachovia Corporation's
Executive Vice President capital markets and investment banking
since October 1997 activities since September 1997 (President
and CEO of Wachovia Capital Markets, Inc. and
related subsidiaries); Senior Vice President
of Wachovia Corporation, 1993-1997; Division
Executive for Consumer Credit and Emerging
Businesses, 1996-1997; Comptroller of
Wachovia Corporation, 1993-1996; Senior Vice
President of Wachovia Bank, N.A., 1990-1993.
Employed in 1975.
G. Joseph Prendergast, 52 Executive Vice President of Wachovia
Senior Executive Vice Corporation, October 1988-October 1997;
President since October 1997 Senior Executive Vice President of Wachovia
Bank, N.A. since July 1997; Chairman of
Wachovia Bank of Georgia, N.A., January 1994-
June 1997; Chairman of Wachovia Bank of South
Carolina, N.A., July 1995-June 1997;
President and Chief Executive Officer of
Wachovia Bank of Georgia, N.A., January 1993-
January 1995; President and Chief Executive
Officer of Wachovia Corporate Services, Inc.
until July 1994; President and Chief
Executive Officer of Wachovia Corporation of
Georgia, January 1993-March 1993; Employed in
1973.
Donald K. Truslow, 39 Senior Vice President of Wachovia
Executive Vice President Corporation, April 1996-October 1997;
since October 1997, Comptroller Executive Vice President, Wachovia
since June 1996 and Treasurer Corporate Services, September 1995-
since January 1998 April 1996; Executive Vice President
and Chief Credit Officer, Wachovia Bank of
South Carolina, N.A., January 1992-September
1995. Employed in 1980.
5
<PAGE>
Item 10. Directors and Executive Officers of the Registrant (Continued)
Name, Age Business Experience During Past
and Position Five Years and Year Employed
- ------------ ----------------------------
Beverly B. Wells, 47 Manager of Consumer Lending and
Executive Vice President Emerging Businesses since September
since October 1997 1997; President of Wachovia Bank Card
Services, 1994-1997; Manager of Wachovia
Treasury Services, 1993- 1994; Employed in
1976.
During the past five years, there have been no events under any bankruptcy act,
no criminal proceedings and no judgments or injunctions material to an
evaluation of the ability or integrity of any of Wachovia's executive officers,
directors, or any persons nominated to become directors.
6
<PAGE>
PART IV
Item 14. Exhibits
2.1 Agreement and Plan of Merger, dated as of November 17, 1997, by
and between Wachovia Corporation, The American Bank of Hollywood
and Ameribank Bancshares, Inc.
2.2 Agreement and Plan of Merger, dated as of August 6, 1997, by and
between Wachovia Corporation and 1st United Bancorp (Exhibit 2.1
to Quarterly Report on Form 10-Q of Wachovia Corporation for the
quarter ended September 30, 1997, File No. 1-9021*).
2.3 Agreement and Plan of Merger, dated as of June 23, 1997, by and
between Wachovia Corporation and Central Fidelity Banks, Inc.
(Exhibit 2.2 to Quarterly Report on Form 10-Q of Wachovia
Corporation for the quarter ended June 30, 1997, File No.
1-9021*).
2.4 Agreement and Plan of Merger, dated as of June 9, 1997, by and
between Wachovia Corporation and Jefferson Bankshares, Inc.
(Exhibit 2.1 to Quarterly Report on Form 10-Q of Wachovia
Corporation for the quarter ended June 30, 1997, File No.
1-9021*).
3.1 Amended and Restated Articles of Incorporation of the registrant
(Exhibit 3.1 to Report on Form 10-K of Wachovia Corporation for
the fiscal year ended December 31, 1993, 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*).
4.1 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, as 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*).
7
<PAGE>
Item 14. Exhibits (Continued)
4.6 First Supplemental Indenture dated as of January 24, 1992 by and
among South Carolina National Corporation, Wachovia Corporation
and Bankers Trust Company, as Trustee, amending the Indenture
described in Exhibit 4.5 hereto (Exhibit 4.12 to Report on Form
10-K of Wachovia Corporation for the fiscal year ended December
31, 1991, File No. 1-9021*).
4.7 Indenture dated as of August 22, 1989 between First Wachovia
Corporation and The Philadelphia National Bank, as Trustee,
relating to $300,000,000 principal amount of subordinated debt
securities (Exhibit 4(c) to S-3 (Shelf) Registration Statement
of First Wachovia Corporation, File No. 33-30721*).
4.8 First Supplemental Indenture, dated as of September 15, 1992
between Wachovia Corporation and CoreStates Bank, National
Association, as Trustee, amending the Indenture described in
Exhibit 4.7 hereto (Exhibit 4(d) to Report on Form 8 of Wachovia
Corporation, filed on October 15, 1992, File No. 1-9021*).
4.9 Indenture dated as of March 1, 1993 between Wachovia Corporation
and CoreStates Bank, National Association, as Trustee, relating
to subordinated debt securities (Exhibit 4 to S-3 (Shelf)
Registration Statement of Wachovia Corporation, File No.
333-06319*).
4.10 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*).
4.11 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.)
4.12 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).
4.13 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).
4.14 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).
4.15 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).
8
<PAGE>
Item 14. Exhibits (Continued)
4.16 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).
4.17 Form of New Guarantee Agreement for the benefit of the
holders of the Trust Securities (Exhibit 4.6 to Form S-3
Registration Statement of Central Fidelity Banks, Inc.,
dated as of April 23, 1997, File No. 333-28917
10.1 Deferred Compensation Plan of Wachovia Bank of North Carolina,
N.A. (Exhibit 10.1 to Report on Form 10-K of Wachovia
Corporation for the fiscal year ended December 31, 1992, File
No. 1-9021*).
10.2 1983 Amendment to Deferred Compensation Plan described in Exhibit
10.1 hereto (Exhibit 10.2 to Report on Form 10-K of Wachovia
Corporation for the fiscal year ended December 31, 1992, File
No. 1-9021*).
10.3 1986 Amendment to Deferred Compensation Plan described in Exhibit
10.1 hereto (Exhibit 10.9 to Report on Form 10-K of First
Wachovia Corporation for the fiscal year ended December 31,
1986, File No. 1-9021*).
10.4 1986 Senior Management Stock Option Plan of Wachovia Corporation
(Exhibit 10.20 to Report on Form 10-K of First Wachovia
Corporation for the fiscal year ended December 31, 1986, File
No. 1-9021*).
10.5 1987 Declaration of Amendment to 1986 Senior Management Stock
Option Plan described in Exhibit 10.4 hereto (Exhibit 10.21 to
Report on Form 10-K of First Wachovia Corporation for the fiscal
year ended December 31, 1986, File No. 1-9021*).
10.6 1996 Declaration of Amendment to 1986 Senior Management Stock
Option Plan as described in Exhibit 10.4 hereto. (Exhibit 10.6
to Report on Form 10-K of Wachovia Corporation for the fiscal
year ended December 31, 1996, File No. 1-9021*).
10.7 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*).
10.8 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*).
10.9 Employment Agreements between Wachovia Corporation and Messrs. L.
M. Baker, Jr., Robert S. McCoy, Jr., G. Joseph Prendergast, Hugh
M. Durden and Walter E. Leonard, Jr. (Exhibit 10.17 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 Employment Agreements described in Exhibit 10.9
hereto (Exhibit 10.14 to Report on Form 10-K of First Wachovia
Corporation for the fiscal year ended December 31, 1990, File
No. 1-9021*).
10.11 Amendment to Employment Agreements described in Exhibit 10.9
hereto with L.M. Baker, Jr., Robert S. McCoy, Jr., G. Joseph
Prendergast and Walter E. Leonard, Jr. (Exhibit 10.11 to Report
on Form 10-K of Wachovia Corporation for the fiscal year ended
December 31, 1996, File No. 1-9021*).
10.12 Amended and Restated Employment Agreements described in 10.9
hereto with 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*).
10.13 Amendment to Employment Agreement described in Exhibit 10.9
hereto with 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*).
9
<PAGE>
Item 14. Exhibits (Continued)
10.14 Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr.
(Exhibit 10.16 to Report on Form 10-K of Wachovia Corporation
for the fiscal year ended December 31, 1993, File No. 1-9021*).
10.15 Amendment to Agreement between Wachovia Corporation and Mr. John
G. Medlin, Jr. described in Exhibit 10.14 hereto(Exhibit 10.4 to
Quarterly Report on Form 10-Q of Wachovia Corporation for the
quarter ended June 30, 1995, File No. 1-9021*).
10.16 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*).
10.17 Amendment to Executive Retirement Agreement described in Exhibit
10.16 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*).
10.18 Amendment to Executive Retirement Agreement between Wachovia
Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.3 to
Quarterly Report on Form 10-Q of Wachovia Corporation for the
quarter ended September 30, 1993, File No. 1-9021*).
10.19 Amendment to Executive Retirement Agreement between Wachovia
Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.4 to
Quarterly Report on Form 10-Q of Wachovia Corporation for the
quarter ended September 30, 1993, File No. 1-9021*).
10.20 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*).
10.21 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*).
10.22 Amendment to Executive Retirement Agreements described in Exhibits
10.20 and 10.21 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*).
10.23 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*).
10.24 1990 Declaration of Amendment to Senior Management and Director
Stock Plan as described in Exhibit 10.23 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*).
10.25 1996 Declaration of Amendment to Senior Management and Director
Stock Plan as described in Exhibit 10.23 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
<PAGE>
Item 14. Exhibits (Continued)
10.26 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*).
10.27 Amendment to Deferred Compensation Plan described in Exhibit 10.26
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*).
10.28 Amendment to Deferred Compensation Plan described in Exhibit 10.26
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*).
10.29 Amendment to Deferred Compensation Plan described in Exhibit 10.26
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*).
10.30 Amended and Restated Wachovia Corporation Stock Plan (Exhibit 4.1
to S-8 Registration No. 033-53325.)
10.31 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*).
10.32 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*).
10.33 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*).
10.34 Executive Long Term Disability Income Plan.
10.35 Form 11-K of the Wachovia Corporation Retirement Savings and
Profit-Sharing Plan, to be filed as an amendment to Form 10-K
for the year ended December 31, 1997.
11 Computation of Earnings Per Share (Note P to 1997 Consolidated
Financial Statements of Wachovia Corporation and Subsidiaries,
page 68 of 1997 Annual Report to Shareholders*).
12 Statement setting forth computation of ratio of earnings to fixed
charges.
11
<PAGE>
Item 14. Exhibits (Continued)
13 Wachovia Corporation 1997 Annual Report to Shareholders, with the
Report of Independent Auditors therein being manually signed in
one copy by Ernst & Young LLP. (Except for those portions
thereof which are expressly incorporated by reference herein,
this report is not "filed" as a part of this Report on Form
10-K).
21 Subsidiaries of the Registrant (listed under "Subsidiaries of
Wachovia Corporation" and included on page 2 of Report on Form
10-K for the fiscal year ended December 31, 1997*).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
24 Power of Attorney.
27.1 Financial Data Schedule (for SEC purposes only).
27.2 1996 restated Financial Data Schedule (for SEC purposes only).
27.3 1995 restated Financial Data Schedule (for SEC purposes only).
27.4 Third quarter 1997 restated Financial Data Schedule (for
SEC purposes only).
27.5 Second quarter 1997 restated Financial Data Schedule (for
SEC purposes only).
27.6 First quarter 1997 restated Financial Data Schedule (for SEC
purposes only).
27.7 Third quarter 1996 restated Financial Data Schedule (for SEC
purposes only).
27.8 Second quarter 1996 restated Financial Data Schedule (for SEC
purposes only).
27.9 First quarter 1996 restated Financial Data Schedule (for SEC
purposes only).
99.1 Opinion of KPMG Peat Marwick LLP, Independent Accountants, on
the financial statements of Central Fidelity National Bank and
subsidiaries, a wholly-owned subsidiary of Wachovia
Corporation.
99.2 Opinion of KPMG Peat Marwick LLP, Independent Accountants, on
the financial statements of Central Fidelity Banks, Inc. and
subsidiaries.
* Incorporated by reference.
12
<PAGE>
================================================================================
AGREEMENT AND PLAN OF MERGER
dated as of November 17, 1997
by and between
Wachovia Corporation,
The American Bank of Hollywood
and
Ameribank Bancshares, Inc.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS......................................................................1
ARTICLE 1 Certain Definitions................................................2
1.1 Certain Definitions................................................2
ARTICLE 2 The Merger and Bank Merger.........................................7
2.1 The Merger.........................................................7
2.2 Effective Date and Effective Time..................................7
2.3 Plan of Merger.....................................................8
2.4 Bank Merger........................................................8
ARTICLE 3 Consideration; Exchange Procedures.................................8
3.1 Merger Consideration...............................................8
3.2 Rights as Stockholders; Stock Transfers............................8
3.3 Fractional Shares..................................................9
3.4 Exchange Procedures................................................9
3.5 Anti-Dilution Provisions...........................................10
ARTICLE 4 Actions Pending Acquisition........................................10
4.1 Forbearances of X..................................................10
4.2 Forbearances of YZ.................................................13
ARTICLE 5 Representations and Warranties.....................................13
5.1 Disclosure Schedules...............................................13
5.2 Standard...........................................................13
5.3 Representations and Warranties of X................................13
5.4 Representations and Warranties of YZ...............................24
ARTICLE 6 Covenants..........................................................27
6.1 Reasonable Best Efforts............................................27
6.2 Stockholder Approvals..............................................28
6.3 Registration Statement/Exemption...................................28
6.4 Press Releases.....................................................29
6.5 Access; Information................................................29
6.6 Acquisition Proposals..............................................30
6.7 Affiliate Agreements...............................................31
6.8 Takeover Laws......................................................31
6.9 Certain Policies...................................................31
6.10 NYSE Listing.......................................................32
6.11 Regulatory Applications............................................32
6.12 Indemnification....................................................32
<PAGE>
6.13 Benefit Plans......................................................33
6.14 Accountants' Letters...............................................34
6.15 Notification of Certain Matters....................................34
6.17 Dividend Coordination..............................................34
ARTICLE 7 Conditions to Consummation of the Merger...........................35
7.1 Conditions to Each Party's Obligation to Effect the Merger.........35
7.2 Conditions to Obligation of X......................................36
7.3 Conditions to Obligation of YZ.....................................36
ARTICLE 8 Termination........................................................37
8.1 Termination........................................................37
8.2 Effect of Termination and Abandonment..............................38
ARTICLE 9 Miscellaneous......................................................39
9.1 Survival...........................................................39
9.2 Waiver; Amendment..................................................39
9.3 Counterparts.......................................................39
9.4 Governing Law......................................................39
9.5 Expenses...........................................................39
9.6 Notices............................................................40
9.7 Entire Understanding; No Third Party Beneficiaries.................41
9.8 Interpretation; Effect.............................................41
EXHIBIT A Form of Stock Option Agreement
EXHIBIT B Form of Shareholder Agreement
EXHIBIT C Form of Plan of Merger
EXHIBIT D Form of Bank Merger Agreement
EXHIBIT E Form of Non-Competition Agreement
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of November 17, 1997 (this
"Agreement") by and between Ameribank Bancshares, Inc. ("Bancshares"), The
American Bank of Hollywood ("American") and Wachovia Corporation ("Wachovia").
RECITALS
A. Ameribank Bancshares. Bancshares is a Florida corporation, having its
principal place of business in Hollywood, Florida and the owner of 100% of the
issued and outstanding shares of American, a Florida chartered bank.
B. Wachovia Corporation. Wachovia is a North Carolina corporation, having
its principal place of business in Winston-Salem, North Carolina and Atlanta,
Georgia and the owner of 100% of the issued and outstanding shares of 1st United
Bank ("1st United").
C. Stock Option Agreement. As a condition and an inducement to Wachovia's
entering into this Agreement, Bancshares has granted to Wachovia an option
pursuant to a stock option agreement, in substantially the form of Exhibit A.
D. Shareholder Agreement. As a further condition and inducement to the
willingness of Wachovia to enter into this Agreement, shareholders of Bancshares
who own not less than 50% of the Bancshares Common Stock issued and outstanding
have entered into agreements (a "Voting Agreement") with Wachovia, in the form
of Exhibit B hereto, under which each shareholder has agreed to vote in favor of
this Agreement.
E. Non-Competition Agreements. As a further condition and inducement to the
willingness of Wachovia to enter into this Agreement, the directors and certain
of the senior officers of Bancshares and American have entered into
Non-Competition Agreements in the form of Exhibit "E" hereto.
F. Intentions of the Parties. It is the intention of the parties to this
Agreement that the business combination contemplated hereby be accounted for
under the pooling of interest accounting method (but such accounting treatment
shall not be a condition precedent to closing) and be treated as a
"reorganization" under Section 368 of the Internal Revenue Code of 1986 (the
"Code").
G. Board Action. The respective Boards of Directors of each of Wachovia,
American and Bancshares have determined that it is in the best interests of
their respective companies and their stockholders to consummate the strategic
business combination transactions provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
<PAGE>
ARTICLE 1
Certain Definitions
1.1. Certain Definitions. The following terms are used in this Agreement
with the meanings set forth below:
"1st United" has the meaning set forth in the preamble to this Agreement.
"Acquisition Proposal" has the meaning set forth in Section 6.6.
"Agreement" means this Agreement, as amended or modified from time to time
in accordance with Section 9.2.
"American" has the meaning set forth in the preamble to this Agreement.
"American Board" means the Board of Directors of American.
"American By-Laws" means the By-Laws of American.
"American Certificate" means the Articles of Incorporation of American.
"Bancshares" has the meaning set forth in the preamble to this Agreement.
"Bancshares Affiliate" has the meaning set forth in Section 6.7(a).
"Bancshares Board" means the Board of Directors of Bancshares.
"Bancshares By-Laws" means the By-laws of Bancshares.
"Bancshares Certificate" means the Articles of Incorporation of Bancshares.
"Bancshares Common Stock" means the common stock, par value $5.00 per
share, of Bancshares.
"Bancshares Meeting" has the meaning set forth in Section 6.2.
"Bank Merger" means the merger of American with and into 1st United.
"Bank Merger Agreement" has the meaning set forth in Section 2.4.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Compensation and Benefit Plans" has the meaning set forth in Section
5.3(m).
"Costs" has the meaning set forth in Section 6.12(a).
"Disclosure Schedule" has the meaning set forth in Section 5.1.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the effective time of the Merger, as provided for in
Section 2.2.
"Environmental Laws" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Clean Water Act,
the Federal Clean Air Act, and the Occupational Safety and Health Act, each as
amended, regulations promulgated thereunder, and state counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 5.3(m).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.4.
"Exchange Ratio" has the meaning set forth in Section 3.1.
"Exemption" has the meaning set forth in Section 6.3.
"FBCA" means the Florida Business Corporation Act.
"Fairness Order" has the meaning set forth in Section 6.3.
"FDIC" means the Federal Deposit Insurance Corporation.
"Financial Statements" has the meaning set forth in Section 5.3(g).
"Florida Department of State" has the meaning set forth in Section 2.1(b).
"Florida Comptroller" means the Comptroller of the State of Florida acting
as the head of the Florida Department of Banking and Finance.
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<PAGE>
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Indemnified Party" has the meaning set forth in Section 6.12(a).
"Insurance Amount" has the meaning set forth in Section 6.12(b).
"Insurance Policy" has the meaning set forth in Section 5.3(t).
"Lien" means any charge, mortgage, pledge, security interest, restriction,
claim, lien, or encumbrance.
"Material Adverse Effect" means, with respect to Wachovia, Bancshares or
the Surviving Corporation, any effect that (i) is material and adverse to the
financial position, results of operations or business of Wachovia and its
Subsidiaries taken as a whole, Bancshares and its Subsidiaries taken as a whole,
or the Surviving Corporation and its Subsidiaries taken as a whole,
respectively, or (ii) would materially impair the ability of Wachovia or
Bancshares or their Subsidiaries to perform their obligations under this
Agreement or the Bank Merger Agreement or otherwise materially threaten or
materially impede the consummation of the Merger, the Bank Merger and the other
transactions contemplated by this Agreement; provided, however, that Material
Adverse Effect shall not be deemed to include the impact of (a) changes in
banking and similar laws of general applicability or interpretations thereof by
courts or governmental authorities, (b) changes in generally accepted accounting
principles or regulatory accounting requirements applicable to banks and their
holding companies generally, (c) any modifications or changes to valuation
policies and practices in connection with the Merger or the Bank Merger or
restructuring charges taken in connection with the Merger or the Bank Merger, in
each case in accordance with generally accepted accounting principles, (d)
effects of any action taken with the prior written consent of Wachovia and (e)
changes in conditions or circumstances that affect the banking industry
generally.
"Merger" has the meaning set forth in Section 2.1.
"Merger Consideration" has the meaning set forth in Section 2.1.
"Multiemployer Plans" has the meaning set forth in Section 5.3(m).
"NCBCA" means the North Carolina Business Corporation Act.
"New Certificate" has the meaning set forth in Section 3.4.
"North Carolina Secretary" has the meaning set forth in Section 2.1(b).
"NYSE" means the New York Stock Exchange, Inc.
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<PAGE>
"Offering Circular" has the meaning set forth in Section 6.3.
"Old Certificate" has the meaning set forth in Section 3.4.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has the meaning set forth in Section 5.3(m).
"Person" means any individual, bank, corporation, partnership, association,
joint-stock company, business trust or unincorporated organization.
"Plans" has the meaning set forth in Section 5.3(m).
"Previously Disclosed" by a party shall mean information set forth in its
Disclosure Schedule.
"Proxy Statement" has the meaning set forth in Section 6.3.
"Registration Statement" has the meaning set forth in Section 6.3.
"Regulatory Authority" has the meaning set forth in Section 5.3(i).
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such person.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 5.4(g).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Stock Option Agreement" has the meaning set forth in Recital C.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed to
them in Rule 1-02 of Regulation S-X of the SEC.
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<PAGE>
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Takeover Laws" has the meaning set forth in Section 5.3(o).
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gross receipts, gains, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise,
windfall profits, license, withholding, payroll, employment, disability,
employer health, excise, estimated, severance, stamp, occupation, property,
environmental, unemployment or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority whether
arising before, on or after the Effective Date.
"Tax Returns" means any return, amended return or other report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be filed with respect to any Tax.
"Treasury Stock" shall mean shares of Bancshares Common Stock held by
Bancshares or any of its Subsidiaries or by Wachovia or any of its Subsidiaries,
in each case other than in a fiduciary capacity or as a result of debts
previously contracted in good faith.
"Voting Agreement" has the meaning set forth in the preamble to this
Agreement.
"Wachovia" has the meaning set forth in the preamble to this Agreement.
"Wachovia Board" means the Board of Directors of Wachovia.
"Wachovia Common Stock" means the common stock, par value $5.00 per share,
of Wachovia.
"Wachovia Preferred Stock" means the preferred stock, par value $5.00 per
share, of Wachovia.
"Wachovia Stock" means, collectively, Wachovia Common Stock and Wachovia
Preferred Stock.
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<PAGE>
ARTICLE 2
The Merger and Bank Merger
2.1. The Merger. (a) At the Effective Time, Bancshares shall merge with and
into Wachovia (the "Merger"), the separate corporate existence of Bancshares
shall cease and Wachovia shall survive and continue to exist as a North Carolina
corporation (Wachovia, as the surviving corporation in the Merger, sometimes
being referred to herein as the "Surviving Corporation"). Wachovia may at any
time prior to the Effective Time change the method of effecting the combination
with Bancshares (including, without limitation, the provisions of this Article
II) or the Bank Merger Agreement or the method of effecting the combination of
American and 1st United pursuant to the Bank Merger Agreement if and to the
extent it deems such change to be necessary or appropriate; provided, however,
that no such change shall (i) alter or change the amount or kind of
consideration to be issued to holders of Bancshares Common Stock as provided for
in this Agreement (the "Merger Consideration"), (ii) adversely affect the tax
treatment of Bancshares's stockholders as a result of receiving the Merger
Consideration or (iii) materially impede or delay consummation of the
transactions contemplated by this Agreement.
(b) Subject to the satisfaction or waiver of the conditions set forth in
Article VII, the Merger shall become effective upon the occurrence of the filing
in the office of the Florida Department of State of articles of merger in
accordance with Section 607.1105 of the FBCA and the filing in the Office of the
Secretary of State of the State of North Carolina (the "North Carolina
Secretary") of articles of merger in accordance with Section 55-11-05 of the
NCBCA or such later date and time as may be set forth in such articles. The
Merger shall have the effects prescribed in the NCBCA and the FBCA.
(c) Articles of Incorporation and By-Laws. The articles of incorporation
and by-laws of Wachovia immediately after the Merger shall be those of Wachovia
as in effect immediately prior to the Effective Time.
(d) Directors and Officers of Wachovia. The directors and officers of
Wachovia immediately after the Merger shall be the directors and officers of
Wachovia immediately prior to the Effective Time, until such time as their
successors shall be duly elected and qualified.
2.2. Effective Date and Effective Time. Subject to the satisfaction or
waiver of the conditions set forth in Article VII, the parties shall cause the
effective date of the Merger (the "Effective Date") to occur on (i) the tenth
business day to occur after the last of the conditions set forth in Article VII
shall have been satisfied or waived in accordance with the terms of this
Agreement (or, at the election of Wachovia, on another business day prior to
such tenth business
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<PAGE>
day) or (ii) such other date to which the parties may agree in writing. The time
on the Effective Date when the Merger shall become effective is referred to as
the "Effective Time."
2.3. Plan of Merger. Wachovia and Bancshares hereby adopt a separate plan
of merger, in substantially the form of Exhibit C, for purposes of any filing
requirement.
2.4. Bank Merger. Promptly after execution of this Agreement, Wachovia and
Bancshares shall cause 1st United and American to enter into the merger
agreement in the form attached hereto as Exhibit D (the "Bank Merger Agreement")
pursuant to which, immediately after the Effective Time, American will be merged
with and into 1st United on the terms of the Bank Merger Agreement.
ARTICLE 3.
Consideration; Exchange Procedures
3.1. Merger Consideration. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any action
on the part of any Person:
(a) Outstanding Bancshares Common Stock. Each share, excluding
Treasury Stock, of Bancshares Common Stock, issued and outstanding
immediately prior to the Effective Time shall become and be converted into
the number of shares of Wachovia Common Stock equal to the Exchange Ratio
(as defined in the following sentence). The "Exchange Ratio" shall mean
3.5019 shares of Wachovia Common Stock for each share of Bancshares Common
Stock.
(b) Outstanding Wachovia Stock. Each share of Wachovia Stock issued
and outstanding immediately prior to the Effective Time shall remain issued
and outstanding and unaffected by the Merger.
(c) Treasury Shares. Each share of Bancshares Stock held as Treasury
Stock immediately prior to the Effective Time shall be canceled and retired
at the Effective Time and no consideration shall be issued in exchange
therefor.
3.2. Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of Bancshares Stock shall cease to be, and shall have no rights as,
stockholders of Bancshares, other than to receive any dividend or other
distribution with respect to such Bancshares Stock with a record date occurring
prior to the Effective Time and the consideration provided under this Article
III. After the Effective Time, there shall be no transfers on the stock transfer
books of Bancshares or the Surviving Corporation of shares of Bancshares Stock.
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<PAGE>
3.3. Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Wachovia Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Wachovia shall pay to each holder of Bancshares Common Stock who would
otherwise be entitled to a fractional share of Wachovia Common Stock (after
taking into account all Old Certificates delivered by such holder) an amount in
cash (without interest) determined by multiplying such fraction by the average
of the last sale prices of Wachovia Common Stock, as reported by the NYSE
Composite Transactions Reporting System (as reported in The Wall Street Journal
or, if not reported therein, in another authoritative source), for the five NYSE
trading days immediately preceding the Effective Date.
3.4. Exchange Procedures. (a) As promptly as practicable but in no event
more than 20 days after the Effective Date, Wachovia or Wachovia Bank, N.A. (in
such capacity, the "Exchange Agent"), shall send or cause to be sent to each
former holder of record of shares of Bancshares Common Stock immediately prior
to the Effective Time transmittal materials for use in exchanging such
stockholder's certificates formerly representing shares of Bancshares Common
Stock ("Old Certificates") for the consideration set forth in this Article III.
Wachovia shall cause the certificates representing the shares of Wachovia Common
Stock ("New Certificates") into which shares of a stockholder's Bancshares
Common Stock are converted on the Effective Date and/or any check in respect of
any fractional share interests or dividends or distributions which such person
shall be entitled to receive to be delivered to such stockholder upon delivery
to the Exchange Agent of Old Certificates representing such shares of Bancshares
Common Stock (or indemnity reasonably satisfactory to Wachovia and the Exchange
Agent, if any of such certificates are lost, stolen or destroyed) owned by such
stockholder. No interest will be paid on any such cash to be paid in lieu of
fractional share interests or in respect of dividends or distributions which any
such person shall be entitled to receive pursuant to this Article III upon such
delivery.
(b) Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to any former holder of Bancshares Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(c) At the election of Wachovia, no dividends or other distributions
with respect to Wachovia Common Stock with a record date occurring after
the Effective Time shall be paid to the holder of any unsurrendered Old
Certificate representing shares of Bancshares Common Stock converted in the
Merger into the right to receive shares of such Wachovia Common Stock until
the holder thereof shall be entitled to receive New Certificates in
exchange therefor in accordance with the procedures set forth in this
Section 3.4, and no such shares of Bancshares Common Stock shall be
eligible to vote until the holder of Old Certificates is entitled to
receive New Certificates in accordance with the procedures set forth in
this Section 3.4. After becoming so entitled in accordance with this
Section 3.4, the record holder thereof also shall be entitled to receive
any such dividends or other distributions, without any interest thereon,
which theretofore
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had become payable with respect to shares of Wachovia Common Stock such
holder had the right to receive upon surrender of the Old Certificate.
3.5. Anti-Dilution Provisions. In the event Wachovia changes (or
establishes a record date for changing) the number of shares of Wachovia Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Wachovia Common Stock and the record date therefor shall be
prior to the Effective Date, the Exchange Ratio shall be proportionately
adjusted.
ARTICLE 4.
Actions Pending Acquisition
4.1. Forbearances of Bancshares. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of Wachovia, Bancshares will not, and will cause each of its
Subsidiaries not to:
(a) Ordinary Course. Conduct the business of Bancshares and its
Subsidiaries other than in the ordinary and usual course or fail to use
reasonable efforts to preserve intact their business organizations and
assets and maintain their rights, franchises and existing relations with
customers, suppliers, employees and business associates, or take any action
reasonably likely to have an adverse affect upon Bancshares's or its
Subsidiaries' ability to perform any of its material obligations under this
Agreement or the Bank Merger Agreement.
(b) Capital Stock. Issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of
Bancshares Common Stock or any Rights, (B) enter into any agreement with
respect to the foregoing, (C) permit any additional shares of Bancshares
Common Stock to become subject to new grants of employee or director stock
options, other Rights or similar stock-based employee rights, (D)
repurchase any shares of Bancshares Common Stock, (E) declare or pay a
dividend in Bancshares Common Stock or Rights for Bancshares Common Stock
or (F) except as Previously Disclosed enter into contracts with officers,
directors or shareholders pursuant to which such officers, directors or
shareholders will receive cash payments, Bancshares Common Stock or other
valuable consideration from Bancshares or its Subsidiaries.
(c) Dividends, Etc. (a) Make, declare, pay or set aside for payment
any dividend (other than (A) quarterly cash dividends on Bancshares Common
Stock in an amount not to exceed $.75 per share (the "Permitted Dividend
Amount") with record and payment dates consistent with past practice if
such payment dates occur before the Effective Time and the payment of the
dividend will not result in the Bancshares Shareholders receiving the
Bancshares dividend and the corresponding Wachovia quarterly dividend and
(B) dividends from American to Bancshares on or in respect of, or
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declare or make any distribution on any shares of Bancshares common Stock
or (b) directly or indirectly adjust, split, combine, redeem, reclassify,
purchase or otherwise acquire, any shares of its capital stock or Rights
thereto.
(d) Compensation; Employment Agreements; Etc. Except as Previously
Disclosed enter into or amend or renew any employment, consulting,
severance or similar agreements or arrangements with any director, officer
or employee of Bancshares or its Subsidiaries, or, other than as Previously
Disclosed, grant any salary or wage increase or increase any employee
benefit (including incentive or bonus payments), except (i) for normal
individual increases in compensation to employees or officers in the
ordinary course of business consistent with past practice, (ii) for other
changes that are required by applicable law, (iii) to satisfy Previously
Disclosed contractual obligations existing as of the date hereof, or (iv)
for grants of awards to newly hired employees consistent with past
practice.
(e) Benefit Plans. Except as Previously Disclosed enter into,
establish, adopt or amend (except (i) as may be required by applicable law
or (ii) to satisfy Previously Disclosed contractual obligations existing as
of the date hereof) any pension, retirement, stock option, stock purchase,
savings, profit sharing, deferred compensation, consulting, bonus, group
insurance or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement (or similar arrangement) related
thereto, in respect of any director, officer or employee of Bancshares or
its Subsidiaries, or take any action to accelerate the vesting or
exercisability of stock options, restricted stock or other compensation or
benefits payable thereunder.
(f) Dispositions. Except as Previously Disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its
assets, deposits, business or properties except in the ordinary course of
business and in a transaction that is not material to it and its
Subsidiaries taken as a whole and further except that in the ordinary
course of business and with Wachovia's prior approval which will not be
unreasonably withheld or delayed Bancshares and its Subsidiaries may sell
assets now or hereafter owned by Bancshares or its Subsidiaries which have
been acquired in the realization of security for debts previously
contracted even though such sales may be material to Bancshares and its
Subsidiaries taken as a whole.
(g) Acquisitions. Except as Previously Disclosed, acquire (other than
by way of foreclosures or acquisitions of control in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good faith,
in each case in the ordinary and usual course of business consistent with
past practice) all or any portion of, the assets, business, deposits or
properties of any other entity except in the ordinary course of business
and in a transaction that is not material to it and its Subsidiaries taken
as a whole.
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(h) Governing Documents. Amend the Bancshares Certificate, Bancshares
By-laws or the certificate of incorporation or by-laws (or similar
governing documents) of any of Bancshares's Subsidiaries.
(i) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by generally accepted accounting principles.
(j) Contracts. Except as Previously Disclosed and except in the
ordinary course of business consistent with past practice, enter into or
terminate any material contract (as defined in Section 5.3(k)) or amend or
modify in any material respect any of its existing material contracts.
(k) Claims. Except in the ordinary course of business consistent with
past practice, settle any claim, action or proceeding, except for any
claim, action or proceeding involving solely money damages in an amount,
individually or in the aggregate for all such settlements, that is not
material to Bancshares and its Subsidiaries taken as a whole.
(l) Adverse Actions. (a) Except as Previously Disclosed take any
action reasonably likely to prevent or impede the Merger from qualifying
for accounting treatment as a pooling of interests and as a reorganization
within the meaning of Section 368 of the Code; or (b) knowingly take any
action that is intended or is reasonably likely to result in (i) any of its
representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time at or prior to the
Effective Time, (ii) any of the conditions to the Merger set forth in
Article VII not being satisfied or (iii) a material violation of any
provision of this Agreement except, in each case, as may be required by
applicable law or regulation.
(m) Risk Management. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate
and other risk management policies, procedures or practices; (ii) fail to
follow its existing policies or practices with respect to managing its
exposure to interest rate and other risk; or (iii) fail to use commercially
reasonable means to avoid any material increase in its aggregate exposure
to interest rate risk.
(n) Indebtedness. Incur any indebtedness for borrowed money other than
in the ordinary course of business.
(o) Commitments. Agree or commit to do any of the foregoing.
4.2. Forbearances of Wachovia. From and after the date hereof until the
Effective Time, except as expressly contemplated by this Agreement, without the
prior written consent of Bancshares, Wachovia will not, and will cause each of
its Subsidiaries not to, take any action
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reasonably likely to prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code.
ARTICLE 5.
Representations and Warranties
5.1. Disclosure Schedules. On or prior to the date hereof, Wachovia has
delivered to Bancshares a schedule and Bancshares has delivered to Wachovia a
schedule (respectively, its "Disclosure Schedule") setting forth, among other
things, items the disclosure of which is necessary or appropriate either in
response to an express disclosure requirement contained in a provision hereof or
as an exception to one or more representations or warranties contained in
Section 5.3 or 5.4 or to one or more of its covenants contained in Article IV;
provided, that (a) no such item is required to be set forth in a Disclosure
Schedule as an exception to a representation or warranty if its absence would
not be reasonably likely to result in the related representation or warranty
being deemed untrue or incorrect under the standard established by Section 5.2,
and (b) the mere inclusion of an item in a Disclosure Schedule as an exception
to a representation or warranty shall not be deemed an admission by a party that
such item represents a material exception or fact, event or circumstance or that
such item is reasonably likely to result in a Material Adverse Effect.
5.2. Standard. No representation or warranty of Bancshares or Wachovia
contained in Section 5.3 or 5.4 shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event or circumstance unless such
fact, circumstance or event, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or warranty
contained in Section 5.3 or 5.4 has had or is reasonably likely to have a
Material Adverse Effect except for the representations and warranties in Section
5.3(b), (c), (d), (e), (g), (m)(i) and (v) which shall be true, correct and
complete in all material respects.
5.3. Representations and Warranties of Bancshares. Subject to Sections 5.1
and 5.2 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, Bancshares hereby
represents and warrants to Wachovia:
(a) Organization, Standing and Authority. Bancshares is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida. Bancshares is duly qualified to do business and is in
good standing in the states of the United States and any foreign
jurisdictions where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified.
(b) Bancshares Stock. As of the date hereof, the authorized capital
stock of Bancshares consists solely of 400,000 shares of Bancshares Common
Stock, of which 270,328 shares were outstanding as of the date hereof. As
of the date hereof, 29,672
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shares of Bancshares Common Stock were held in treasury by Bancshares or
otherwise owned by Bancshares or its Subsidiaries ("Treasury Stock"). The
outstanding shares of Bancshares Common Stock have been duly authorized and
are validly issued and outstanding, fully paid and nonassessable, and
subject to no preemptive rights (and were not issued in violation of any
preemptive rights). As of the date hereof, except as Previously Disclosed
in its Disclosure Schedule, there are no shares of Bancshares Common Stock
authorized and reserved for issuance, Bancshares does not have any Rights
issued or outstanding with respect to Bancshares Stock, and Bancshares does
not have any commitment to authorize, issue or sell any Bancshares Common
Stock or Rights, except pursuant to this Agreement and the Stock Option
Agreement.
(c) Subsidiaries. (i)(A) Bancshares has Previously Disclosed a list of
all of its Subsidiaries together with the jurisdiction of organization of
each such Subsidiary, (ii) except as Previously Disclosed, it owns,
directly or indirectly, all the issued and outstanding equity securities of
each of its Subsidiaries, (iii) no equity securities of any of its
Subsidiaries are or may become required to be issued (other than to it or
its wholly-owned Subsidiaries) by reason of any Right or otherwise, (iv)
there are no contracts, commitments, understandings or arrangements by
which any of such Subsidiaries is or may be bound to sell or otherwise
transfer any equity securities of any such Subsidiaries (other than to it
or its wholly-owned Subsidiaries), (v) there are no contracts, commitments,
understandings, or arrangements relating to its rights to vote or to
dispose of such securities and (vi) all the equity securities of each
Subsidiary held by Bancshares or its Subsidiaries are fully paid and
nonassessable and are owned by Bancshares or its Subsidiaries free and
clear of any Liens.
(ii) Bancshares does not own beneficially, directly or indirectly, any
equity securities or similar interests of any Person, or any interest in a
partnership or joint venture of any kind, other than its Subsidiaries.
(iii) Each of Bancshares's Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and in good standing in
the jurisdictions where its ownership or leasing of property or the conduct
of its business requires it to be so qualified.
(d) Corporate Power. Bancshares and each of its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Bancshares and
American each has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement, the Bank Merger Agreement and
the Stock Option Agreement and to consummate the transactions contemplated
hereby and thereby.
(e) Corporate Authority. Subject in the case of this Agreement to
receipt of the requisite approval of the Merger set forth in this Agreement
and the requisite approval
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of the Bank Merger as set forth in the Bank Merger Agreement by the holders
of a majority of the outstanding shares of Bancshares Common Stock entitled
to vote on the Merger unless Wachovia is the beneficial owner of more than
10% of the Bancshares Common Stock in which event the required percentage
of outstanding shares of Bancshares Common Stock will be 80%, and the vote
of Bancshares as the sole shareholder as American on the Bank Merger (which
are the only shareholder votes required thereon), this Agreement, the Bank
Merger Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby have been authorized by all necessary
corporate action of Bancshares and the Bancshares Board and American and
the American Board prior to the date hereof. This Agreement is a valid and
legally binding obligation of Bancshares and the Bank Merger Agreement is
the valid and legally binding obligation of American, each enforceable in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles). The Bancshares Board of
Directors has received the written opinion of Allen C. Ewing & Co. to the
effect that as of the date hereof the Exchange Ratio is fair to the holders
of Bancshares Common Stock from a financial point of view.
(f) Regulatory Filings; No Defaults. (i) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by Bancshares or any of its
Subsidiaries in connection with the execution, delivery or performance by
Bancshares of this Agreement or the Stock Option Agreement or by American
of the Bank Merger Agreement or to consummate the Merger and the Bank
Merger except for (A) the filing of a notice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (B) filings of
applications or notices with federal and Florida banking authorities, (C)
filings with the SEC and state securities authorities, (D) the filing of
articles of merger with the North Carolina Secretary pursuant to the NCBCA
and the Florida Department of State pursuant to the FBCA, and (E) the
approvals set forth in Section 7.1(b). As of the date hereof, Bancshares is
not aware of any reason why the approvals set forth in Section 7.1(b) will
not be received without the imposition of a condition, restriction or
requirement of the type described in Section 7.1(b).
(ii) Except as Previously Disclosed, subject to receipt of the
regulatory approvals referred to in the preceding paragraph, and expiration
of related waiting periods, and required filings under federal and state
securities laws, the execution, delivery and performance of this Agreement,
the Bank Merger Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby do not and
will not (A) constitute a breach or violation of, or a default under, or
give rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or
instrument of Bancshares or of any of its Subsidiaries or to which
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Bancshares or any of its Subsidiaries or properties is subject or bound,
(B) constitute a breach or violation of, or a default under, the American
Certificate, the American By-Laws, the Bancshares Certificate or the
Bancshares By-Laws, or (C) require any consent or approval under any such
law, rule, regulation, judgment, decree, order, governmental permit or
license, agreement, indenture or instrument.
(g) Financial Reports; No Material Adverse Effect. (i) Bancshares's
audited annual consolidated financial statements for the fiscal years ended
December 31, 1994, 1995 and 1996, and the unaudited consolidated financial
statement prepared by Bancshares for the period January 1, 1997 through
September 30, 1997, copies of which have been provided to Wachovia (the
"Financial Statements") (A) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis through the
periods involved and fairly present the financial position of Bancshares
and its Subsidiaries as of its date, and each of the statements of income
and changes in stockholders' equity and cash flows or equivalent statements
in such financial statements (including any related notes and schedules
thereto) fairly presents the results of operations, changes in
stockholders' equity and changes in cash flows, as the case may be, of
Bancshares and its Subsidiaries for the periods to which they relate, in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except unaudited
statements are subject to normal year-end audit adjustments, and (B) did
not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
(ii) Except as Previously Disclosed, since December 31, 1996,
Bancshares and its Subsidiaries have not incurred any liability other than
in the ordinary course of business consistent with past practice.
(iii) Except as Previously Disclosed, since December 31, 1996, (A)
Bancshares and its Subsidiaries have conducted their respective businesses
in the ordinary and usual course consistent with past practice (excluding
the incurrence of expenses related to this Agreement and the transactions
contemplated hereby) and (B) no event has occurred or circumstance arisen
that, individually or taken together with all other facts, circumstances
and events (described in any paragraph of Section 5.3 or otherwise), is
reasonably likely to have a Material Adverse Effect with respect to
Bancshares.
(h) Litigation. Except as Previously Disclosed, no litigation, claim
or other proceeding before any court or governmental agency is pending
against Bancshares or any of its Subsidiaries and, to Bancshares's
knowledge, no such litigation, claim or other proceeding has been
threatened.
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<PAGE>
(i) Regulatory Matters. (i) Neither Bancshares nor any of its
Subsidiaries or properties is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with,
or a commitment letter or similar submission to, or extraordinary
supervisory letter from, any federal or state governmental agency or
authority charged with the supervision or regulation of financial
institutions or issuers of securities or engaged in the insurance of
deposits (including, without limitation, the Federal Reserve Board and the
FDIC) or the supervision or regulation of it or any of its Subsidiaries
(collectively, the "Regulatory Authorities").
(ii) Neither Bancshares nor any of its Subsidiaries has been advised
by any Regulatory Authority that such Regulatory Authority is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar submission.
(j) Compliance with Laws. Bancshares and each of its Subsidiaries:
(i) Except as Previously Disclosed, is in compliance with all
applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees
applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the
Fair Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure Act and all other applicable fair lending laws and other
laws relating to discriminatory business practices;
(ii) Has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to
permit them to own or lease their properties and to conduct their
businesses as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect and, to Bancshares's knowledge, no suspension or cancellation
of any of them is threatened; and
(iii) Except as Previously Disclosed, has received no
notification or communication from any Governmental Authority (A)
asserting that Bancshares or any of its Subsidiaries is not in
substantial compliance with any of the statutes, regulations, or
ordinances which such Governmental Authority enforces or (B)
threatening to revoke any license, franchise, permit, or governmental
authorization (nor, to Bancshares's knowledge, do any grounds for any
of the foregoing exist).
(k) Material Contracts; Defaults. Except as Previously Disclosed,
neither Bancshares nor any of its Subsidiaries is a party to, bound by or
subject to any agreement,
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contract, arrangement, commitment or understanding (whether written or
oral) (i) that is a "material contract" within the meaning of Item
601(b)(10) of the SEC's Regulation S-K or (ii) that in any respect
restricts the conduct of business by it or any of its Subsidiaries. Neither
it nor any of its Subsidiaries is in default under any contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to
which it is a party, by which its respective assets, business, or
operations may be bound or affected, or under which it or its respective
assets, business, or operations receives benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice or
both, would constitute such a default.
(l) No Brokers. No action has been taken by Bancshares that would give
rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement, excluding a fee of not more
than $15,000.00 to be paid to Allen C. Ewing & Co. for its fairness
opinion.
(m) Employee Benefit Plans. (i) Section 5.3(m)(i) of Bancshares's
Disclosure Schedule contains a complete and accurate list of all existing
bonus, incentive, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock, stock option, severance, welfare and
fringe benefit plans, employment or severance agreements and all similar
practices, policies and arrangements in which any employee or former
employee (the "Employees"), consultant or former consultant (the
"Consultants") or director or former director (the "Directors") of
Bancshares or any of its Subsidiaries participates or to which any such
Employees, Consultants or Directors are a party (the "Compensation and
Benefit Plans"). Except as Previously Disclosed, neither Bancshares nor any
of its Subsidiaries has any commitment to create any additional
Compensation and Benefit Plan or to modify or change any existing
Compensation and Benefit Plan.
(ii) Each Compensation and Benefit Plan has been operated and
administered in all material respects in accordance with its terms and with
applicable law, including, but not limited to, ERISA, the Code, the
Securities Act, the Exchange Act, the Age Discrimination in Employment Act,
and any regulations or rules promulgated thereunder, and all filings,
disclosures and notices required by ERISA, the Code, the Securities Act,
the Exchange Act, the Age Discrimination in Employment Act or any other
applicable law have been timely made. Each Compensation and Benefit Plan
which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA (a "Pension Plan") and which is intended to be qualified
under Section 401(a) of the Code has received a favorable determination
letter (including, if such plan is other than a "prototype" plan, a
determination that the related trust under such Compensation and Benefit
Plan is exempt from tax under Section 501(a) of the Code) from the Internal
Revenue Service ("IRS") for "TRA" (as defined in Rev. Proc. 93-39), or will
file for such determination letter prior to the expiration of the remedial
amendment period for such Compensation and Benefit
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Plan, and Bancshares is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. There is no material
pending or, to the knowledge of Bancshares, threatened legal action, suit
or claim relating to the Compensation and Benefit Plans, other than routine
claims for benefits. Neither Bancshares nor any of its Subsidiaries has
engaged in a transaction, or omitted to take any action, with respect to
any Compensation and Benefit Plan that would reasonably be expected to
subject Bancshares or any of its Subsidiaries to a material tax or penalty
imposed by either Section 4975 of the Code or Section 502 of ERISA,
assuming for purposes of Section 4975 of the Code that the taxable period
of any such transaction expired as of the date hereof.
(iii) No material liability (other than for payment of premiums to the
PBGC which have been made or will be made on a timely basis) under Title IV
of ERISA has been or is expected to be incurred by Bancshares or any of its
Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them, or any single-employer
plan of any entity (an "ERISA Affiliate") which is considered one employer
with Bancshares under Section 4001(a)(14) of ERISA or Section 414(b) or (c)
of the Code (an "ERISA Affiliate Plan"). None of Bancshares, any of its
Subsidiaries or any ERISA Affiliate has contributed, or has been obligated
to contribute, to a multiemployer plan under Subtitle E of Title IV of
ERISA at any time since September 26, 1980. No notice of a "reportable
event", within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed
for any Compensation and Benefit Plan or by any ERISA Affiliate Plan within
the 12-month period ending on the date hereof, and to the knowledge of
Bancshares no such notice will be required to be filed as a result of the
transactions contemplated by this Agreement. The PBGC has not instituted
proceedings to terminate any Pension Plan or ERISA Affiliate Plan and, to
Bancshares's knowledge, no condition exists that presents a material risk
that such proceedings will be instituted. To the knowledge of Bancshares,
there is no pending investigation or enforcement action by the PBGC, the
Department of Labor (the "DOL") or IRS or any other governmental agency
with respect to any Compensation and Benefit Plan. Under each Pension Plan
and ERISA Affiliate Plan, as of the date of the most recent actuarial
valuation performed prior to the date of this Agreement, the actuarially
determined present value of all "benefit liabilities", within the meaning
of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in such actuarial valuation of such Pension
Plan or ERISA Affiliate Plan), did not exceed the then current value of the
assets of such Pension Plan or ERISA Affiliate Plan and since such date
there has been neither an adverse change in the financial condition of such
Pension Plan or ERISA Affiliate Plan nor any amendment or other change to
such Pension Plan or ERISA Affiliate Plan that would increase the amount of
benefits thereunder which reasonably could be expected to change such
result.
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(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan or ERISA Affiliate Plan or any employee
benefit arrangements under any collective bargaining agreement to which
Bancshares or any of its Subsidiaries is a party have been timely made or
have been reflected on Bancshares's financial statements. Neither any
Pension Plan nor any ERISA Affiliate Plan has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA and all required payments to the PBGC with
respect to each Pension Plan or ERISA Affiliate Plan have been made on or
before their due dates. None of Bancshares, any of its Subsidiaries or any
ERISA Affiliate (x) has provided, or would reasonably be expected to be
required to provide, security to any Pension Plan or to any ERISA Affiliate
Plan pursuant to Section 401(a)(29) of the Code, and (y) has taken any
action, or omitted to take any action, that has resulted, or would
reasonably be expected to result, in the imposition of a lien under Section
412(n) of the Code or pursuant to ERISA.
(v) Except as Previously Disclosed, neither Bancshares nor any of its
Subsidiaries has any obligations to provide retiree health and life
insurance or other retiree death benefits under any Compensation and
Benefit Plan, other than benefits mandated by Section 4980B of the Code,
and each such Compensation and Benefit Plan may be amended or terminated
without incurring liability thereunder. Except as Previously Disclosed,
there has been no communication to Employees by Bancshares or any of its
Subsidiaries that would reasonably be expected to promise or guarantee such
Employees retiree health or life insurance or other retiree death benefits
on a permanent basis.
(vi) With respect to each Compensation and Benefit Plan, if
applicable, Bancshares has provided, or made available to Wachovia, true
and complete copies of existing: (A) Compensation and Benefit Plan
documents and amendments thereto; (B) trust instruments and insurance
contracts; (C) two most recent Forms 5500 filed with the IRS; (D) most
recent actuarial report and financial statement; (E) the most recent
summary plan description; (F) forms filed with the PBGC (other than for
premium payments); (G) most recent determination letter issued by the IRS;
(H) any Form 5310 or Form 5330 filed with the IRS; and (I) most recent
nondiscrimination tests performed under ERISA and the Code (including
401(k) and 401(m) tests).
(vii) Except as Previously Disclosed, the consummation of the
transactions contemplated by this Agreement would not, directly or
indirectly (including, without limitation, as a result of any termination
of employment prior to or following the Effective Time) reasonably be
expected to (A) entitle any Employee, Consultant or Director to any payment
(including severance pay or similar compensation) or any increase in
compensation, (B) result in the vesting or acceleration of any benefits
under any Compensation and Benefit Plan or (C) result in any material
increase in benefits payable under any Compensation and Benefit Plan.
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(viii) Neither Bancshares nor any of its Subsidiaries maintains any
compensation plans, programs or arrangements the payments under which would
not reasonably be expected to be deductible as a result of the limitations
under Section 162(m) of the Code and the regulations issued thereunder.
(ix) Except as Previously Disclosed, as a result, directly or
indirectly, of the transactions contemplated by this Agreement (including,
without limitation, as a result of any termination of employment prior to
or following the Effective Time), none of Wachovia, Bancshares or the
Surviving Corporation, or any of their respective Subsidiaries will be
obligated to make a payment that would be characterized as an "excess
parachute payment" to an individual who is a "disqualified individual" (as
such terms are defined in Section 280G of the Code), without regard to
whether such payment is reasonable compensation for personal services
performed or to be performed in the future.
(n) Labor Matters. Neither Bancshares nor any of its Subsidiaries is a
party to or is bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization,
nor is Bancshares or any of its Subsidiaries the subject of a proceeding
asserting that it or any such Subsidiary has committed an unfair labor
practice (within the meaning of the National Labor Relations Act) or
seeking to compel Bancshares or any such Subsidiary to bargain with any
labor organization as to wages or conditions of employment, nor is there
any strike or other labor dispute involving it or any of its Subsidiaries
pending or, to Bancshares's knowledge, threatened, nor is Bancshares aware
of any activity involving its or any of its Subsidiaries' employees seeking
to certify a collective bargaining unit or engaging in other organizational
activity.
(o) Takeover Laws; Dissenters Rights. Bancshares has taken all action
required to be taken by it in order to exempt this Agreement, the Bank
Merger Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby from, and this Agreement, the Bank Merger
Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby are exempt from, the requirements of any "moratorium",
"control share", "fair price" "affiliate transaction", "business
combination" or other antitakeover laws and regulations of any state
(collectively, "Takeover Laws"), including, without limitation, the State
of Florida, and including, without limitation, Sections 607.0901 and
607.0902 of the FBCA. Holders of Bancshares Common Stock do have dissenters
rights in connection with the Merger. which rights and the procedure for
exercise of which will be fully disclosed in the Proxy Statement.
(p) Environmental Matters. Except as Previously Disclosed, to the
knowledge of Bancshares and its Subsidiaries, neither the conduct nor
operation of Bancshares or its
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Subsidiaries nor any condition of any property presently or previously
owned, leased or operated by any of them (including, without limitation, in
a fiduciary or agency capacity), or on which any of them holds a Lien,
violates or violated Environmental Laws and no condition has existed or
event has occurred with respect to any of them or any such property that,
with notice or the passage of time, or both, is reasonably likely to result
in liability under Environmental Laws. Except as Previously Disclosed,
neither Bancshares nor any of its Subsidiaries has received any notice from
any person or entity that Bancshares or its Subsidiaries or the operation
or condition of any property ever owned, leased, operated, or held as
collateral or in a fiduciary capacity by any of them are or were in
violation of or otherwise are alleged to have liability under any
Environmental Law, including, but not limited to, responsibility (or
potential responsibility) for the cleanup or other remediation of any
pollutants, contaminants, or hazardous or toxic wastes, substances or
materials at, on, beneath, or originating from any such property.
(q) Tax Matters. Except as Previously Disclosed, (i) all Tax Returns
that are required to be filed by or with respect to Bancshares and its
Subsidiaries have been duly filed, (ii) all Taxes shown to be due on the
Tax Returns referred to in clause (i) have been paid in full, (iii) no
audits of or to Bancshares knowledge inquiries into the Tax Returns
referred to in clause (i) by the Internal Revenue Service or the
appropriate state, local or foreign taxing authority are ongoing, (iv) all
deficiencies asserted or assessments made as a result of such examinations
have been paid in full, (v) no issues that have been raised by the relevant
taxing authority in connection with the examination of any of the Tax
Returns referred to in clause (i) are currently pending, and (vi) no
waivers of statutes of limitation have been given by or requested with
respect to any Taxes of Bancshares or its Subsidiaries. Bancshares has made
available to Wachovia true and correct copies of the United States federal
income Tax Returns filed by Bancshares and its Subsidiaries for each of the
three most recent fiscal years ended on or before December 31, 1996.
Neither Bancshares nor any of its Subsidiaries has any liability with
respect to income, franchise or similar Taxes that accrued on or before the
end of the most recent period covered by the Financial Statement in excess
of the amounts accrued with respect thereto that are reflected in the
Financial Statements. Neither Bancshares nor any of its Subsidiaries has
any reason to believe that any conditions exist that might prevent or
impede the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(r) Risk Management Instruments. Bancshares has not entered into any
interest rate swaps, caps, floors, option agreements, futures and forward
contracts and other similar risk management arrangements, whether entered
into for Bancshares's own account, or for the account of one or more of
Bancshares's Subsidiaries or their customers.
(s) Books and Records. The books and records of Bancshares and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects,
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and there are no material inaccuracies or discrepancies of any kind
contained or reflected therein, and they fairly present the financial
position of Bancshares and its Subsidiaries.
(t) Insurance. Bancshares's Disclosure Schedule sets forth all of the
insurance policies, binders, or bonds maintained by Bancshares or its
Subsidiaries or under which Bancshares pays the premiums ("Insurance
Policies"). Bancshares and its Subsidiaries are insured with reputable
insurers against such risks and in such amounts as the management of
Bancshares reasonably has determined to be prudent in accordance with
industry practices. All the Insurance Policies are in full force and
effect; Bancshares and its Subsidiaries are not in material default
thereunder; and all claims thereunder have been filed in due and timely
fashion.
(u) Asset Classification. Bancshares has Previously Disclosed a list,
accurate and complete in all material respects, of the aggregate amounts of
loans, extensions of credit or other assets of it and its Subsidiaries that
have been classified by it as of September 30, 1997 (the "Asset
Classification"); and no amounts of loans, extensions of credit or other
assets that have been classified as of September 30, 1997 by any Regulatory
Authority as "Other Loans Specially Mentioned", "Substandard", "Doubtful",
"Loss", or words of similar import are excluded from the amounts disclosed
in the Asset Classification, other than amounts of loans, extensions of
credit or other assets that were charged off by it or a Subsidiary prior to
September 30, 1997.
(v) Related Party Transactions. Bancshares has Previously Disclosed a
list, accurate and complete in all material respects, of all loans,
extensions of credit and contracts between Bancshares or its Subsidiaries
and any officer or director of Bancshares or its Subsidiaries or the
spouse, parents, children or siblings of any such officer or director.
(w) Prior Actions. Except as Previously Disclosed Bancshares and
American have not during the period beginning June 1, 1995 (i) repurchased
any Bancshares Common Stock or Rights, (ii) issued any Bancshares Common
Stock or Rights, (iii) declared or paid a dividend in Bancshares Common
Stock or (iv) implemented any significant increase or decrease in cash
dividends inconsistent with prior practices.
(x) Disclosure. The representations and warranties contained in this
Section 5.3 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 5.3 not misleading.
5.4. Representations and Warranties of Wachovia. Subject to Sections 5.1
and 5.2 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, Wachovia hereby
represents and warrants to Bancshares as follows:
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(a) Organization, Standing and Authority. Wachovia is duly organized,
validly existing and in good standing under the laws of the State of North
Carolina. Wachovia is duly qualified to do business and is in good standing
in the states of the United States and foreign jurisdictions where its
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified. Wachovia has in effect all federal, state,
local, and foreign governmental authorizations necessary for it to own or
lease its properties and assets and to carry on its business as it is now
conducted.
(b) Wachovia Stock. (i) As of the date hereof, the authorized capital
stock of Wachovia consists solely of 500,000,000 shares of Wachovia Common
Stock, of which ___________ shares were outstanding as of November 14, 1997
and 50,000,000 shares of Wachovia Preferred Stock, of which no shares were
outstanding as of the date hereof. As of the date hereof, except as set
forth in its Disclosure Schedule and except in connection with its publicly
disclosed acquisitions, Wachovia does not have any Rights issued or
outstanding with respect to Wachovia Stock, and Wachovia does not have any
commitment to authorize, issue or sell any Wachovia Stock or Rights, except
pursuant to this Agreement.
(ii) The shares of Wachovia Common Stock to be issued in exchange for
shares of Bancshares Common Stock in the Merger, when issued in accordance
with the terms of this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable.
(c) Subsidiaries. Each of Wachovia's Significant Subsidiaries has been
duly organized and is validly existing in good standing under the laws of
the jurisdiction of its organization, and is duly qualified to do business
and in good standing in the jurisdictions where its ownership or leasing of
property or the conduct of its business requires it to be so qualified and
it owns, directly or indirectly, all the issued and outstanding equity
securities of each of its Significant Subsidiaries.
(d) Corporate Power. Wachovia and each of its Significant Subsidiaries
has the corporate power and authority to carry on its business as it is now
being conducted and to own all its properties and assets; and Wachovia and
1st United each has the corporate power and authority to execute, deliver
and perform its obligations under this Agreement and the Bank Merger
Agreement and to consummate the transactions contemplated hereby and
thereby.
(e) Corporate Authority. This Agreement and the transactions
contemplated hereby have been authorized by all necessary corporate action
of Wachovia and its Board of Directors and does not require any vote of
stockholders. This Agreement and the Bank Merger Agreement are valid and
legally binding agreements of Wachovia and 1st United respectively
enforceable in accordance with their terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent
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transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles).
(f) Regulatory Approvals; No Defaults. (i) No consents or approvals
of, or filings or registrations with, any court, administrative agency or
commission or other governmental authority or instrumentality or with any
third party are required to be made or obtained by Wachovia or any of its
Subsidiaries in connection with the execution, delivery or performance by
Wachovia of this Agreement or to consummate the Merger except for (A) the
filing of applications and notices, as applicable, with the federal and
state banking authorities; (B) approval of the listing on the NYSE of
Wachovia Common Stock to be issued in the Merger; (C) the filing and
declaration of effectiveness of the Registration Statement or the receipt
by Wachovia of the Fairness Order; (D) the filing of articles of merger
with the North Carolina Secretary pursuant to the NCBCA and the Florida
Department of State pursuant to the FBCA; (E) such filings as are required
to be made or approvals as are required to be obtained under the securities
or "Blue Sky" laws of various states in connection with the issuance of
Wachovia Stock in the Merger; and (F) receipt of the approvals set forth in
Section 7.1(b). As of the date hereof, Wachovia is not aware of any reason
why the approvals set forth in Section 7.1(b) will not be received without
the imposition of a condition, restriction or requirement of the type
described in Section 7.1(b).
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph and expiration of the related waiting periods, and
required filings or satisfaction of the requirements for exemptions from
filing under federal and state securities laws, the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (A) constitute a breach or
violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law, rule
or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of Wachovia or of any of its
Subsidiaries or to which Wachovia or any of its Subsidiaries or properties
is subject or bound, (B) constitute a breach or violation of, or a default
under, the certificate of incorporation or by-laws (or similar governing
documents) of Wachovia or any of its Subsidiaries, or (C) require any
consent or approval under any such law, rule, regulation, judgment, decree,
order, governmental permit or license, agreement, indenture or instrument.
(g) Financial Reports and SEC Documents; Material Adverse Effect. (i)
Wachovia's Annual Reports on Form 10K and all other reports, registration
statements or information statements filed or to be filed by it or any of
its Subsidiaries subsequent to December 31, 1994 under the Securities Act
or under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form
filed or to be filed (collectively, the "SEC Documents"), as of the date
filed, (A) complied or will comply in all material respects as to form with
the applicable requirements under the Securities Act or the Exchange Act,
as the case may
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be, and (B) did not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and each of the balance sheets
contained in or incorporated by reference into any such SEC Document
(including the related notes and schedules thereto) fairly presents, or
will fairly present, the financial position of Wachovia and its
Subsidiaries as of its date, and each of the statements of income and
changes in stockholders' equity and cash flows or equivalent statements in
such SEC Documents (including any related notes and schedules thereto)
fairly presents, or will fairly present, the results of operations, changes
in stockholders' equity and changes in cash flows, as the case may be, of
Wachovia and its Subsidiaries for the periods to which they relate, in each
case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as
may be noted therein, subject to normal year-end audit adjustments in the
case of unaudited statements.
(ii) Since December 31, 1996, no event has occurred or circumstance
arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section 5.4 or
otherwise), is reasonably likely to have a Material Adverse Effect with
respect to Wachovia.
(h) Litigation; Regulatory Action. (i) No litigation, claim or other
proceeding before any Governmental Authority is pending against Wachovia or
any of its Subsidiaries and, to the best of Wachovia's knowledge, no such
litigation, claim or other proceeding has been threatened.
(ii) Neither Wachovia nor any of its Subsidiaries or properties is a
party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory letter from a
Regulatory Authority, nor has Wachovia or any of its Subsidiaries been
advised by a Regulatory Authority that such agency is contemplating issuing
or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar submission.
(i) Compliance with Laws. Wachovia and each of its Subsidiaries:
(i) in the conduct of its business, is in compliance with all
applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees
applicable thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity Act, the
Fair Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure Act and all other applicable fair lending laws and other
laws relating to discriminatory business practices; and
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(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to
permit them to conduct their businesses substantially as presently
conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to the best of
its knowledge, no suspension or cancellation of any of them is
threatened.
(j) No Brokers. No action has been taken by Wachovia that would give
rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement.
(k) Tax Treatment. As of the date hereof, Wachovia has no reason to
believe that any conditions exist that might prevent or impede the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of
the Code.
(l) Disclosure. The representations and warranties contained in this
Section 5.4 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 5.4 not misleading.
(m) Transferability. The offer and sale of Wachovia Common Stock
constituting the Merger Consideration will either be registered under the
Securities Act pursuant to the Registration Statement or exempt from such
registration pursuant to the Exemption. If such Wachovia Common Stock is
offered and sold pursuant to the Exemption, it will be transferable under
applicable Federal securities laws as set forth in SEC Staff Legal Bulletin
#3 (CF) dated July 25, 1997.
ARTICLE 6.
Covenants
6.1. Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of Bancshares and Wachovia agrees to use its reasonable best
efforts in good faith to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of the Merger as promptly as
practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end (it being understood that any amendments to the Registration Statement
or the Offering Circular or a resolicitation of proxies as a consequence of an
acquisition or other agreement involving Wachovia or any of its Subsidiaries
shall not violate this covenant).
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6.2. Stockholder Approvals. Bancshares agrees to take, in accordance with
applicable law and its articles of incorporation and by-laws, all action
necessary to convene an appropriate meeting of stockholders of Bancshares to
consider and vote upon the approval and adoption of this Agreement and any other
matters required to be approved by Bancshares's stockholders for consummation of
the Merger (including any adjournment or postponement, the "Bancshares Meeting")
as promptly as practicable after the Fairness Order is obtained or the
Registration Statement is declared effective. Except to the extent legally
required for the discharge by the Bancshares Board of its fiduciary duties as
advised in writing by its counsel, the Bancshares Board shall recommend such
approval, and Bancshares shall take all reasonable, lawful action to solicit
such approval by its stockholders. At the request of Wachovia, Bancshares will
utilize a professional proxy solicitation firm to assist it in procuring the
necessary stockholder vote.
6.3. Registration Statement/Exemption. (a) Wachovia, in Wachovia's sole
discretion, agrees to either (i) prepare a registration statement on Form S-4
(the "Registration Statement") to be filed by Wachovia with the SEC in
connection with the issuance of Wachovia Stock in the Merger (including the
proxy statement and prospectus and other proxy solicitation materials of
Bancshares constituting a part thereof (the "Proxy Statement") and all related
documents) or (ii) take such steps as are necessary to qualify the Wachovia
Stock to be issued in the Merger for an exemption (the "Exemption") from
registration with the SEC pursuant to Section 3(a)(10) of the Securities Act
including, without limitation, a determination by the Florida Comptroller of the
fairness of the Merger and the Bank Merger to the shareholders of Bancshares
(the "Fairness Order") and prepare an offering circular (including the Proxy
Statement (the "Offering Circular")) . Each of the parties hereto agrees to
cooperate, and to cause its Subsidiaries to cooperate, with the other, its
counsel and its accountants, in preparation of the Registration Statement, Proxy
Statement and Offering Circular and, if chosen by Wachovia, in the process of
obtaining the Fairness Order and the Exemption. If Wachovia elects to file a
Registration Statement, Wachovia agrees to file the Registration Statement with
the SEC as soon as reasonably practicable. Each of Bancshares and Wachovia and
their subsidiaries agrees to use all reasonable efforts to cause the Fairness
Order and Exemption to be obtained or the Registration Statement to be declared
effective under the Securities Act as promptly as reasonably practicable after
filing thereof. Wachovia also agrees to use all reasonable efforts to obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement. Bancshares agrees to
furnish to Wachovia all information concerning Bancshares, its Subsidiaries,
officers, directors and stockholders as may be reasonably requested in
connection with the foregoing.
(b) Each of Bancshares and Wachovia agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) the
Offering Circular and/or Proxy Statement and any amendment or supplement thereto
will, at the date of mailing to
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stockholders and at the time of the Bancshares Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or any
statement which, in the light of the circumstances under which such statement is
made, will be false or misleading with respect to any material fact, or which
will omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier statement in the Proxy Statement or any amendment or supplement thereto.
Each of Bancshares and Wachovia further agrees that if it shall become aware
prior to the Effective Date of any information furnished by it that would cause
any of the statements in the Offering Circular and/or Proxy Statement to be
false or misleading with respect to any material fact, or to omit to state any
material fact necessary to make the statements therein not false or misleading,
to promptly inform the other party thereof and to take the necessary steps to
correct the Proxy Statement.
(a) Wachovia agrees to advise Bancshares, promptly after Wachovia
receives notice thereof, of the time when the Fairness Order has been
obtained or the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order
or the suspension of the qualification of Wachovia Stock for offering or
sale in any jurisdiction, of the initiation or threat of any proceeding for
any such purpose, or of any request by the SEC for the amendment or
supplement of the Registration Statement or for additional information.
6.4. Press Releases. Each of Bancshares and Wachovia agrees that it will
not, without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or NYSE rules.
6.5. Access; Information. (a) Each of Bancshares and Wachovia agrees that
upon reasonable notice and subject to applicable laws relating to the exchange
of information, it shall afford the other party and the other party's officers,
employees, counsel, accountants and other authorized representatives, such
access during normal business hours throughout the period prior to the Effective
Time to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as any party may reasonably request and, during such period, it
shall furnish promptly to such other party (i) a copy of each material report,
schedule and other document filed by it pursuant to the requirements of federal
or state securities or banking laws, and (ii) all other information concerning
the business, properties and personnel of it as the other may reasonably
request.
(b) Each agrees that it will not, and will cause its representatives
not to, use any information obtained pursuant to this Section 6.5 (as well
as any other information obtained prior to the date hereof in connection
with the entering into of this Agreement) for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. Subject to
the requirements of law, each party will keep confidential, and will cause
its representatives to keep confidential, all information and documents
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obtained pursuant to this Section 6.5 (as well as any other information
obtained prior to the date hereof in connection with the entering into of
this Agreement) unless such information (i) was already known to such
party, (ii) becomes available to such party from other sources not known by
such party to be bound by a confidentiality obligation, (iii) is disclosed
with the prior written approval of the party to which such information
pertains or (iv) is or becomes readily ascertainable from published
information or trade sources. In the event that this Agreement is
terminated or the transactions contemplated by this Agreement shall
otherwise fail to be consummated, each party shall promptly cause all
copies of documents or extracts thereof containing information and data as
to another party hereto to be returned to the party which furnished the
same. No investigation by either party of the business and affairs of the
other shall affect or be deemed to modify or waive any representation,
warranty, covenant or agreement in this Agreement, or the conditions to
either party's obligation to consummate the transactions contemplated by
this Agreement.
6.6. Acquisition Proposals. Bancshares agrees that neither it nor any of
its Subsidiaries nor any of the respective officers and directors of Bancshares
or its Subsidiaries shall, and Bancshares shall direct and use its reasonable
best efforts to cause its employees, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
or any of its Subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any enquiries or the making of any proposal or offer (including,
without limitation, any proposal or offer to stockholders of Bancshares) with
respect to a merger, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, Bancshares or its Significant Subsidiary (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or, except to
the extent legally required for the discharge by the Bancshares Board of its
fiduciary duties as advised in writing by its counsel, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to implement an Acquisition Proposal.
Bancshares shall immediately cease and cause to be terminated any activities,
discussions or negotiations conducted prior to the date of this Agreement with
any parties other than Wachovia with respect to any of the foregoing and shall
use its reasonable best efforts to enforce any confidentiality or similar
agreement relating to an Acquisition Proposal. Bancshares shall promptly (within
24 hours) advise Wachovia following the receipt by Bancshares of any Acquisition
Proposal and the substance thereof (including the identity of the person making
such Acquisition Proposal), and advise Wachovia of any developments with respect
to such Acquisition Proposal immediately upon the occurrence thereof.
6.7. Affiliate Agreements. (a) Not later than the 15th day prior to the
mailing of the Proxy Statement, Bancshares shall deliver to Wachovia a schedule
of each person that, to the best of its knowledge, is or is reasonably likely to
be, as of the date of the Bancshares Meeting, deemed to be an "affiliate" of
Bancshares (each, an "Bancshares Affiliate") as that term is used in Rule 145
under the Securities Act or SEC Accounting Series Releases 130 and 135.
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(b) Bancshares shall use its reasonable best efforts to cause each
person who may be deemed to be an Bancshares Affiliate, to execute and
deliver to Wachovia on or before the date of mailing of the Proxy Statement
an agreement in form and substance reasonably satisfactory to Wachovia.
6.8. Takeover Laws. No party hereto shall take any action that would cause
the transactions contemplated by this Agreement, the Bank Merger Agreement or
the Stock Option Agreement to be subject to requirements imposed by any Takeover
Law and each of them shall take all necessary steps within its control to exempt
(or ensure the continued exemption of) the transactions contemplated by this
Agreement from, or if necessary challenge the validity or applicability of, any
applicable Takeover Law, as now or hereafter in effect.
6.9. Certain Policies. Prior to the Effective Date, Bancshares shall,
consistent with generally accepted accounting principles and on a basis mutually
satisfactory to it and Wachovia, modify and change its loan, litigation and real
estate valuation policies and practices (including loan classifications and
levels of reserves) so as to be applied on a basis that is consistent with those
of Wachovia; provided, however, that Bancshares shall not be obligated to book
any accruals earlier than 7 days prior to closing and take any other such action
pursuant to this Section 6.9 unless and until Wachovia acknowledges that all
conditions to its obligation to consummate the Merger have been satisfied. Prior
to the Effective Time all accruals for compensation and benefit plans will be
made in accordance with generally accepted accounting principles and the
retirement bonus to William B. Allender will be paid. The July, 1998 portion of
the 25th Anniversary Bonus to be paid to employees and officers of Bancshares
who are employees or officers on the date of this Agreement will be paid by
Wachovia to the Bancshares employees or officers in July, 1998 if the employee
or officer is still employed by Wachovia at that time or at such earlier time as
the employment of that employee or officer is terminated by Wachovia, in which
event the December, 1997 and July, 1998 installments of the 25th Anniversary
Bonus will be credited against any severance benefits to which the employee or
officer might otherwise be entitled under Wachovia's policies.
6.10. NYSE Listing. Wachovia agrees to use its reasonable best efforts to
list, prior to the Effective Date, on the NYSE, subject to official notice of
issuance, the shares of Wachovia Common Stock to be issued to the holders of
Bancshares Common Stock in the Merger.
6.11. Regulatory Applications. (a) Wachovia and Bancshares and their
respective Subsidiaries shall cooperate and use their respective reasonable best
efforts to prepare all documentation, to effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the transactions contemplated
by this Agreement. Each of Wachovia and Bancshares shall have the right to
review in advance, and to the extent practicable each will consult with the
other, in each case subject to applicable laws relating to the exchange of
information, with respect to, all material
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written information submitted to any third party or any Governmental Authority
in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the parties hereto agrees to act
reasonably and as promptly as practicable. Each party hereto agrees that it will
consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
party appraised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with
all information concerning itself, its Subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with any filing, notice or application made by or
on behalf of such other party or any of its Subsidiaries to any third party
or Governmental Authority.
6.12. Indemnification. (a) Following the Effective Date and for a period of
six years thereafter, Wachovia shall indemnify, defend and hold harmless the
present directors and officers of Bancshares and its Subsidiaries (each, an
"Indemnified Party") against all costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred and advance legal expenses incurred by an
Indemnified Party in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this Agreement)
to the fullest extent that Bancshares is permitted to indemnify (and advance
expenses to) its directors and officers under the laws of the State of Florida,
the Bancshares Certificate and the Bancshares By-Laws as in effect on the date
hereof; provided that any determination required to be made with respect to
whether an officer's or director's conduct complies with the standards set forth
under Florida law, the Bancshares Certificate and the Bancshares By-Laws shall
be made by independent counsel (which shall not be counsel that provides
material services to Wachovia) selected by Wachovia and reasonably acceptable to
such officer or director; and provided, further, that in the absence of
applicable judicial precedent to the contrary, such counsel, in making such
determination, shall presume such officer's or director's conduct complied with
such standard and Wachovia shall have the burden to demonstrate that such
officer's or director's conduct failed to comply with such standard.
(b) For a period of three years from the Effective Time, Wachovia
shall use its reasonable best efforts to provide that portion of director's
and officer's liability insurance that serves to reimburse the present and
former officers and directors of Bancshares or any of its Subsidiaries
(determined as of the Effective Time) (as opposed to Bancshares) with
respect to claims against such directors and officers arising from facts or
events which occurred before the Effective Time, which insurance shall
contain at least the same coverage and amounts, and contain terms and
conditions no less advantageous, as that coverage currently provided by
Bancshares; provided, however, that
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in no event shall Wachovia be required to expend for coverage for the
entire three year period more than 300 percent of the current amount
expended by Bancshares per year (the "Insurance Amount") to maintain or
procure such directors and officers insurance coverage; provided, further,
that if Wachovia is unable to maintain or obtain the insurance called for
by this Section 6.12(b), Wachovia shall use its reasonable best efforts to
obtain as much comparable insurance as is available for the Insurance
Amount; provided, further, that officers and directors of Bancshares or any
Subsidiary may be required to make application and provide customary
representations and warranties to Wachovia's insurance carrier for the
purpose of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under
Section 6.12(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify Wachovia thereof;
provided that the failure so to notify shall not affect the obligations of
Wachovia under Section 6.12(a) unless and to the extent that Wachovia is
actually prejudiced as a result of such failure.
(d) If Wachovia or any of its successors or assigns shall consolidate
with or merge into any other entity and shall not be the continuing or
surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any entity, then and in each case,
proper provision shall be made so that the successors and assigns of
Wachovia shall assume the obligations set forth in this Section 6.12.
6.13. Benefit Plans. As soon as practicable following the Effective Time
(but, with respect to tax qualified employee pension plans within the meaning of
Section 3(2) of ERISA for which earlier participation is not possible under the
plan documents, in no event later than July 1, 1998 if the Effective Time occurs
prior to July 1, 1998) (i) Wachovia will provide employees of Bancshares who
become employees of Wachovia with employee benefit plans no less favorable in
the aggregate than those provided to similarly situated employees of Wachovia;
(ii) any such employees will receive credit for service with Bancshares or any
of its Subsidiaries or predecessors prior to the Effective Time for the purpose
of determining eligibility and vesting; (iii) Wachovia shall cause any and all
pre-existing condition limitations (to the extent such limitations do not apply
to a pre-existing condition under the Bancshares Compensation and Benefits
Plans) and eligibility waiting periods under group health plans to be waived
with respect to such participants and their eligible dependents; and (iv)
Wachovia shall extend its Retirement Medical Plan to employees of Bancshares who
become employees of Wachovia and retire following December 31, 1997 or the
Effective Date, if later; and would qualify for retirement under the Bancshares
Retirement Savings Plan and; provided, further, that a maximum of 20 years of
service with Bancshares shall be recognized for benefit accrual purposes under
the Retirement Medical Plan. All discretionary awards and benefits under any
employee benefit plans of Wachovia shall be subject to the discretion of the
persons or committee administering such plans. Wachovia shall honor, pursuant to
the terms of the Bancshares Compensation and Benefit Plans Previously Disclosed,
all employee benefit obligations to current and former employees of Bancshares
under such Plans.
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<PAGE>
6.14. Accountants' Letters. Each of Bancshares and Wachovia shall use its
reasonable best efforts to cause to be delivered to the other party, and to
Wachovia's directors and officers who sign the Registration Statement, letters
of Lexow, Brackins, Koffler, CPA independent auditors for Bancshares and Ernst &
Young, LLP, independent auditors for Wachovia, dated (i) the date on which the
Registration Statement shall become effective and (ii) a date shortly prior to
the Effective Date, and addressed to such other party, and such directors and
officers, in form and substance customary for "comfort" letters delivered by
independent accountants in accordance with Statement of Accounting Standards No.
72.
6.15. Notification of Certain Matters. Each of Bancshares and Wachovia
shall give prompt notice to the other of any fact, event or circumstance known
to it that (i) is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (ii) would cause or constitute a material
breach of any of its representations, warranties, covenants or agreements
contained herein.
6.16. Dividend Coordination. If necessary to avoid missing a dividend
payment by Bancshares in accordance with its regular dividend payment schedule,
the Board of Directors of Bancshares may cause its regular quarterly dividend
record dates and payment dates for Bancshares Common Stock to be the same as
Wachovia's regular quarterly dividend record dates and payment dates for
Wachovia Common Stock, and Bancshares shall not thereafter change its regular
dividend payment dates and record dates.
6.17. Noncompetition Agreements. Simultaneously with the execution of this
Agreement, Bancshares shall cause each director and Officer of Bancshares, other
than Robert Butler during the period he is incapacitated, and its Significant
Subsidiary ranking above Senior Vice President on the date of this Agreement to
execute and deliver to Wachovia a noncompetition agreement in the form attached
hereto as Exhibit "E"
ARTICLE 7.
Conditions to Consummation of the Merger
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of Wachovia and Bancshares to consummate the
Merger is subject to the fulfillment or written waiver by Wachovia and
Bancshares prior to the Effective Time of each of the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly adopted
by the affirmative vote of the holders of a number of the outstanding
shares of Bancshares Common Stock entitled to vote thereon in accordance
with Section 607.1103 of the
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FBCA, other applicable law and the Bancshares Certificate and the
Bancshares By-Laws sufficient to approve the plan of merger and the Merger.
(b) Regulatory Approvals. All regulatory approvals required to
consummate the transactions contemplated hereby, including, without
limitation, the Bank Merger, shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof
shall have expired and no such approvals shall contain any conditions,
restrictions or requirements which the Wachovia Board reasonably determines
in good faith would (i) following the Effective Time, have a Material
Adverse Effect on the Surviving Corporation and its Subsidiaries taken as a
whole or (ii) reduce the benefits of the transactions contemplated hereby
to such a degree that Wachovia would not have entered into this Agreement
had such conditions, restrictions or requirements been known at the date
hereof.
(c) No Injunction. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the transactions contemplated by this Agreement.
(d) Registration Statement/Exemption. The Fairness Order has been
entered or the Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
(e) Blue Sky Approvals. All permits and other authorizations under
state securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of Wachovia Common Stock to be issued in the
Merger shall have been received and be in full force and effect.
(f) Listing. The shares of Wachovia Common Stock to be issued in the
Merger shall have been approved for listing on the NYSE, subject to
official notice of issuance.
7.2. Conditions to Obligation of Bancshares. The obligation of Bancshares
to consummate the Merger is also subject to the fulfillment or written waiver by
Bancshares prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Wachovia set forth in this Agreement shall be true and correct as of the
date of this, after giving effect to Sections 5.1 and 5.2, Agreement and as
of the Effective Date as though made on and as of the Effective Date
(except that representations and warranties that by
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<PAGE>
their terms speak as of the date of this Agreement or some other date shall
be true and correct as of such date), and Bancshares shall have received a
certificate, dated the Effective Date, signed on behalf of Wachovia by the
Chief Executive Officer and the Chief Financial Officer of Wachovia to such
effect.
(b) Performance of Obligations of Wachovia. Wachovia shall have
performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Effective Time, and
Bancshares shall have received a certificate, dated the Effective Date,
signed on behalf of Wachovia by the Chief Executive Officer and the Chief
Financial Officer of Wachovia to such effect.
(c) Opinion of Bancshares's Counsel. Bancshares shall have received an
opinion of Luse, Lehman, Gorman, Pomerenk & Schick, counsel to Bancshares,
to the effect that, on the basis of facts, representations and assumptions
set forth in such opinion, (i) the Merger constitutes a "reorganization"
within the meaning of Section 368 of the Code and (ii) no gain or loss will
be recognized by stockholders of Bancshares who receive shares of Wachovia
Common Stock in exchange for shares of Bancshares Common Stock, except that
gain or loss may be recognized as to cash received in lieu of fractional
share interests. In rendering its opinion, Luse, Lehman, Gorman, Pomerenk &
Schick may require and rely upon representations contained in letters from
Bancshares and others.
(d) Accountants' Letters. Bancshares shall have received the letters
referred to in Section 6.14 from Ernst & Young, LLP, Wachovia's independent
auditors.
7.3. Conditions to Obligation of Wachovia. The obligation of Wachovia to
consummate the Merger is also subject to the fulfillment or written waiver by
Wachovia prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Bancshares set forth in this Agreement, after giving effect to Sections
5.1 and 5.2, shall be true and correct as of the date of this Agreement and
as of the Effective Date as though made on and as of the Effective Date
(except that representations and warranties that by their terms speak as of
the date of this Agreement or some other date shall be true and correct as
of such date) and Wachovia shall have received a certificate, dated the
Effective Date, signed on behalf of Bancshares by the Chief Executive
Officer and the Chief Financial Officer of Bancshares to such effect.
(b) Performance of Obligations of Bancshares. Bancshares shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and Wachovia
shall have received a certificate, dated the Effective Date, signed on
behalf of Bancshares by the Chief Executive Officer and the Chief Financial
Officer of Bancshares to such effect.
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<PAGE>
(c) Opinion of Wachovia's Counsel. Wachovia shall have received an
opinion of Akerman, Senterfitt & Eidson, P.A., special counsel to Wachovia,
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, the Merger
constitutes a reorganization under Section 368 of the Code. In rendering
its opinion, Akerman, Senterfitt & Eidson, P.A. may require and rely upon
representations contained in letters from Wachovia and others.
(d) Accountants' Letters. Wachovia and its directors and officers who
sign the Registration Statement shall have received the letters referred to
in Section 6.14 from Lexow, Brackins, Koffler, CPA, Bancshares's
independent auditors.
(e) Bank Merger. The Bank Merger may be effected and is expected to be
effected immediately following the Effective Time.
ARTICLE 8.
Termination
8.1. Termination. This Agreement may be terminated, and the Acquisition may
be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of Wachovia and Bancshares, if the Board of Directors of
Bancshares so determines by vote of a majority of the members of its entire
Board and the Chief Executive Officer or the Chief Financial Officer of
Wachovia so determines.
(b) Breach. At any time prior to the Effective Time, by Wachovia if
its Chief Executive Officer or Chief Financial Officer so determines or
Bancshares, if its Board of Directors so determines by vote of a majority
of the members of its entire Board, in the event of either: (i) a breach by
the other party of any representation or warranty contained herein (subject
to the standard set forth in Section 5.2), which breach cannot be or has
not been cured within 30 days after the giving of written notice to the
breaching party of such breach; or (ii) a breach by the other party of any
of the covenants or agreements contained herein, which breach cannot be or
has not been cured within 30 days after the giving of written notice to the
breaching party of such breach, provided that such breach (whether under
(i) or (ii)) would be reasonably likely, individually or in the aggregate
with other breaches, to result in a Material Adverse Effect.
(c) Delay. At any time prior to the Effective Time, by Wachovia if its
Chief Executive Officer or Chief Financial Officer so determines or
Bancshares, if its Board of Directors so determines by vote of a majority
of the members of its entire Board, in the event that the Merger is not
consummated by September 30, 1998, except to the extent that the failure of
the Merger then to be consummated arises out of or results from the
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<PAGE>
knowing action or inaction of the party seeking to terminate pursuant to
this Section 8.01(c).
(d) No Approval. By Bancshares if its Chief Executive Officer or Chief
Financial Officer so determines or Wachovia, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in
the event (i) the approval of any Governmental Authority required for
consummation of the Merger and the other transactions contemplated by this
Agreement shall have been denied by final nonappealable action of such
Governmental Authority or (ii) the stockholder approval required by Section
7.1(a) herein is not obtained at the Bancshares Meeting.
(e) Failure to Recommend, Etc. At any time prior to the Bancshares
Meeting, by Wachovia if its Chief Executive Officer or Chief Financial
Officer so determines if Bancshares Board shall have failed to make its
recommendation referred to in Section 6.2, withdrawn such recommendation or
modified or changed such recommendation in a manner adverse in any respect
to the interests of Wachovia.
8.2. Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Acquisition pursuant to this Article
VIII, no party to this Agreement shall have any liability or further obligation
to any other party hereunder except (i) as set forth in Section 9.1 and (ii)
that termination will not relieve a breaching party from liability for any
willful breach of this Agreement giving rise to such termination.
ARTICLE 9.
Miscellaneous
9.1. Survival. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 5.4(m) and 6.12 and this Article IX which shall survive the Effective
Time) or the termination of this Agreement if this Agreement is terminated prior
to the Effective Time (other than Sections 6.3(b), 6.5(b), 8.2 and this Article
IX which shall survive such termination).
9.2. Waiver; Amendment. Prior to the Effective Time, any provision of this
Agreement may be (i) waived by the party benefited by the provision, or (ii)
amended or modified at any time, by an agreement in writing between the parties
hereto executed in the same manner as this Agreement, except that, after the
Bancshares Meeting, this Agreement may not be amended if it would violate the
FBCA.
9.3. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
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<PAGE>
9.4. Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of North Carolina applicable to contracts
made and to be performed entirely within such State (except to the extent that
mandatory provisions of Federal law or of the FBCA are applicable).
9.5. Expenses. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, except
that printing expenses shall be shared equally between Bancshares and Wachovia.
9.6. Notices. All notices, requests and other communications hereunder to a
party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to such party at its address set forth below or such other
address as such party may specify by notice to the parties hereto.
If to Bancshares, to:
Ameribank Bancshares, Inc.
6600 Taft Street
Hollywood, FL 33024
Attention: David Cory, President
Telephone: (954) 966-9810
Facsimile: (954) 966-4329
With a copy to:
Luse, Lehman, Gorman, Pomerenk & Schick
5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20015
Attention: Kenneth Lehman, Esq.
Telephone: (202) 274-2000
Facsimile: (202) 362-2902
If to Wachovia, to:
Wachovia Corporation
301 North Main Street
Winston-Salem, North Carolina 27101
Attention: Chairman of the Board
Telephone: (910) 770-5000
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<PAGE>
Facsimile: (910) 770-5959
With a copy to:
Wachovia Corporation
301 North Main Street
Winston-Salem, North Carolina 27101
Attention: Kenneth W. McAllister
Telephone: (910) 732-5141
Facsimile: (910) 732-5959
With a copy to:
Akerman, Senterfitt & Eidson, P.A.
Phillips Point - East Tower
777 South Flagler Drive, Suite 900
West Palm Beach, Florida 33401
Attention: Russell T. Kamradt, Esquire
Telephone: (561) 659-5990
Facsimile: (561) 659-6313
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Mark J. Menting, Esq.
Telephone: (212) 558-4000
Facsimile: (212) 558-3588
9.7. Entire Understanding; No Third Party Beneficiaries. This Agreement and
the Stock Option Agreement entered into represent the entire understanding of
the parties hereto with reference to the transactions contemplated hereby and
thereby and this Agreement supersedes any and all other oral or written
agreements heretofore made (other than the Stock Option Agreement). Except for
Section 6.12, nothing in this Agreement expressed or implied, is intended to
confer upon any person, other than the parties hereto or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
9.8. Interpretation; Effect. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this
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<PAGE>
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and are not part of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.9. JURY TRIAL. THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
CLAIMS MADE BETWEEN THEM WHETHER NOW EXISTING OR ARISING IN THE FUTURE,
INCLUDING, WITHOUT LIMITATION, ANY AND ALL CLAIMS, DEFENSES, COUNTERCLAIMS,
THIRD PARTY CLAIMS AND INTERVENOR'S CLAIMS BASED HEREON OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT, ANY DOCUMENTS EXECUTED PURSUANT TO THIS
AGREEMENT, OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF THE PARTIES HERETO IN CONJUNCTION THEREWITH.
* * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
AMERIBANK BANCSHARES, INC
By:______________________________________
Print Name:______________________________
Title:___________________________________
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WACHOVIA CORPORATION
By:______________________________________
Print Name:______________________________
Title:___________________________________
AMERICAN BANK OF HOLLYWOOD
By:______________________________________
Print Name:______________________________
Title:___________________________________
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================================================================================
WACHOVIA CORPORATION
EXECUTIVE LONG TERM DISABILITY INCOME PLAN
================================================================================
================
GENERAL OVERVIEW
================
The purpose of the Executive Long Term Disability Income Plan is to provide
long term disability income protection more commensurate with the pay
levels of the eligible executives.
o Eligible executives who elect to participate under the Executive Long Term
Disability Income Plan will be afforded with an individual disability
insurance policy currently issued by Provident Life and Accident Insurance
Company. The amount of coverage provided to an executive who participates
under the plan will be 66 2/3% of the base pay plus incentive pay of the
covered executive less amounts payable from the Wachovia group long term
disability plan. The cost of coverage is paid by Wachovia while the
individual is employed.
o The policy is owned by the individual executive and in the event the
participant terminates employment or retires, the individual may continue
the supplemental coverage at their own expense.
o Eligible executives who elect to participate in the plan will continue to
participate in the Company's group Long Term Disability plan at the 66 2/3%
level of coverage.
====================
SPECIFIC INFORMATION
====================
o Eligibility
- Executives whose base pay rate equals or exceeds $100,000 for the
first time may be presented for eligibility consideration to the
Management Resources and Compensation Committee (the "Committee")
periodically for confirmation. The Committee may also impose a service
requirement. It is anticipated that this periodic review will occur
annually, but the Committee reserves the right to request less
frequent updates.
- Executives who are offered participation and elect to participate
would be eligible to participate effective the first of the next
calendar year. The Committee reserves the right to permit an earlier
effective date for participation under the plan.
- If an executive declines to participate, his/her Choice Benefits long
term disability coverage will continue unchanged. If at a future time
the executive wishes to participate, he/she will have to wait until
the next enrollment opportunity.
o Coverage
- Executives who elect to participate under the Executive Insurance Plan
will be afforded an individual long term disability policy covering 66
2/3% of the sum of (1) base compensation and (2) the three year
average incentive compensation, less benefits payable from the
company's group long term disability plan at the 66 2/3% level of
coverage. Coverage in excess of the medical underwriting limit
established by the insurance company may require a physical
examination.
- The executive may elect to continue coverage in the event of
retirement or employment is terminated.
<PAGE>
- If an executive's base pay and/or incentive would warrant the movement
into a category with a higher amount of coverage, such a change would
be considered at the next enrollment opportunity, but only with the
confirmation of the Committee.
o Premium Payments
- Wachovia is scheduled to pay premiums on behalf of the executive.
These annual premiums would be payable while the executive is employed
by Wachovia.
- The executive may elect to continue coverage at his or her own expense
in the event of retirement or termination of employment.
- If an executive leaves Wachovia, he/she will be responsible for the
ongoing payment of premiums
- All premiums paid by Wachovia will be considered as taxable income,
and as such, will be subject to withholding throughout the executive's
tax year.
o Policy Ownership
- The executive will be the owner of the policy.
- As a result of this ownership, the executive may exercise all options
afforded him/her, if any, under the policy.
o Underwriting
- The plan, as designed, is configured for guaranteed issue up to a
limit of $10,000 per month in addition to coverage provided by the
company's group disability plan. Underwriting may be required for
coverage in excess of this amount up to an overall maximum of $25,000
per month.
- However, if an executive declines coverage and later wishes to
participate, it is possible that guaranteed issue may not be available
and some underwriting may be required. If any additional cost is
incurred, as a result of such circumstances, Wachovia reserves the
right to only pay for the cost of the policy on a guaranteed issue
basis.
o Administration
- The Committee is hereby designated as the named fiduciary under this
plan. The Committee shall have the authority to control and manage the
operation and administration of this Plan, and it shall be responsible
for establishing and carrying out a funding policy and method
consistent with the objectives of this plan.
The Committee shall make all determinations as to the rights to
benefits under this Plan in accordance with the claims procedures set
forth in Section 503 of ERISA and the regulations thereunder, which
procedures are incorporated herein by this reference.
o Plan Changes
- The Committee reserves the right to amend, modify or terminate the
commitment by Wachovia to continue payment of premiums as described
above with at least 30 days notice to the affected participants.
Effective - October 1, 1997
EXHIBIT 12
WACHOVIA CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
(A) Excluding interest on deposits. 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes $ 869,119 $ 1,100,308 $ 1,023,290 $ 885,402 $ 834,791
Less capitalized interest (167) -- (1,530) (362) --
Fixed charges 884,806 900,277 885,040 603,157 350,292
----------- ----------- ----------- ----------- -----------
Earnings as adjusted $ 1,753,758 $ 2,000,585 $ 1,906,800 $ 1,488,197 $ 1,185,083
=========== =========== =========== =========== ===========
Fixed charges:
Interest on purchased and other
short term borrowed funds $ 478,162 $ 482,236 $ 527,765 $ 318,301 $ 206,195
Interest on long-term debt 387,107 399,796 340,211 267,841 125,756
Portion of rents representative of the
interest factor (1/3) of rental expense 19,537 18,245 17,064 17,015 18,341
----------- ----------- ----------- ----------- -----------
Fixed charges $ 884,806 $ 900,277 $ 885,040 $ 603,157 $ 350,292
=========== =========== =========== =========== ===========
Ratio of earnings to fixed charges 1.98 X 2.22 X 2.15 X 2.47 X 3.38 X
(B) Including interest on deposits:
Adjusted earnings from (A) above $ 1,753,758 $ 2,000,585 $ 1,906,800 $ 1,488,197 $ 1,185,083
Add interest on deposits 1,303,549 1,203,739 1,143,179 782,864 796,758
----------- ----------- ----------- ----------- -----------
Earnings as adjusted $ 3,057,307 $ 3,204,324 $ 3,049,979 $ 2,271,061 $ 1,981,841
=========== =========== =========== =========== ===========
Fixed charges:
Fixed charges from (A) above $ 884,806 $ 900,277 $ 885,040 $ 603,157 $ 350,292
Interest on deposits 1,303,549 1,203,739 1,143,179 782,864 796,758
----------- ----------- ----------- ----------- -----------
Adjusted fixed charges $ 2,188,355 $ 2,104,016 $ 2,028,219 $ 1,386,021 $ 1,147,050
=========== =========== =========== =========== ===========
Adjusted earnings to adjusted fixed 1.40 X 1.52 X 1.50 X 1.64 X 1.73 X
charges
</TABLE>
<PAGE>
Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Financial Highlights ...................................................... 2
Wachovia Corporation ...................................................... 3
Selected Year-End Data .................................................... 3
Letter to Shareholders .................................................... 4
Special Section -- Consumer Initiatives ................................... 7
Management's Discussion and Analysis
of Financial Condition and Results of Operations ......................... 20
Results of Operations -- 1997 vs. 1996 ................................... 21
Shareholders' Equity and Capital Ratios .................................. 40
Fourth Quarter Analysis .................................................. 43
Results of Operations -- 1996 vs. 1995 ................................... 47
Management's Responsibility for Financial Reporting ....................... 49
Report of Independent Auditors ............................................ 49
Financial Statements ...................................................... 50
Six-Year Financial Summaries .............................................. 70
Stock Data ................................................................ 78
Historical Comparative Data ............................................... 80
Supervision and Regulation ................................................ 81
Wachovia Corporation Directors and Officers ............................... 82
Shareholder Information ................................................... 83
</TABLE>
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
The Private Securities Litigation Reform Act of 1995 evidences Congress'
determination that the disclosure of forward-looking information is desirable
for investors and encourages such disclosure by providing a safe harbor for
forward-looking statements by corporate management. This Annual Report,
including the Letter to Shareholders and the Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements that involve risk and uncertainty. In order to
comply with the terms of the safe harbor, the corporation notes that a variety
of factors could cause the corporation's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the corporation's forward-looking statements.
The risks and uncertainties that may affect the operations, performance,
development, growth projections and results of the corporation's business
include, but are not limited to, the growth of the economy, interest rate
movements, timely development by the corporation of technology enhancements for
its products and operating systems, the impact of competitive products,
services and pricing, customer business requirements, Congressional legislation
and similar matters. Readers of this report are cautioned not to place undue
reliance on forward-looking statements which are subject to influence by the
named risk factors and unanticipated future events. Actual results,
accordingly, may differ materially from management expectations.
1
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percent
1997 1996 Change
------- --------- --------
Earnings and Dividends
(thousands, except per share data)
Net income (1) ........................................... $ 592,806 $ 757,259 (21.7)
Cash dividends paid on common stock ...................... 327,303 305,740 7.1
Payout ratio (total cash dividends / net income) ......... 55.2% 40.4%
Net income per common share:
Basic ................................................... $ 2.99 $ 3.70 (19.2)
Diluted (1) ............................................. $ 2.94 $ 3.65 (19.5)
Cash dividends paid per common share (2) ................. $ 1.68 $ 1.52 10.5
Average basic shares outstanding ......................... 198,290 204,889 (3.2)
Average diluted shares outstanding ....................... 201,901 207,432 (2.7)
Return on average assets (3) ............................. 1.03% 1.36%
Return on average shareholders' equity (3) ............... 13.08 16.99
Balance Sheet Data at Year-End
(millions, except per share data)
Total assets ............................................. $ 65,397 $ 57,229 14.3
Interest-earning assets .................................. 57,335 50,728 13.0
Loans -- net of unearned income .......................... 44,194 38,007 16.3
Deposits ................................................. 42,654 35,322 20.8
Interest-bearing liabilities ............................. 50,100 43,989 13.9
Shareholders' equity ..................................... 5,174 4,608 12.3
Shareholders' equity to total assets ..................... 7.91% 8.05%
Risk-based capital ratios:
Tier I capital .......................................... 9.18 9.46
Total capital ........................................... 12.10 13.04
Per share:
Book value .............................................. $ 25.13 $ 22.90 9.7
Common stock closing price (NYSE) ....................... 81.125 56.500 43.6
Price/earnings ratio (4) ................................ 27.6x 14.8x
</TABLE>
(1) Nonrecurring items in 1997 include merger-related charges of $231,175,
personal computer impairment charge of $67,202 and investment securities
losses of $4,639. Excluding the after-tax impact of these charges, operating
net income was $799,929, and operating net income per diluted share was
$3.96.
(2) Cash dividends per common share are those of Wachovia Corporation paid prior
to merger with Central Fidelity Banks, Inc.
(3) Excluding the 1997 after-tax impact of nonrecurring charges of $207,123,
returns were 1.39% on assets and 17.65% on shareholders' equity.
(4) Price earnings ratio is based on end-of-year stock price and net income per
diluted share. Information for years before 1997 represents that of Wachovia
Corporation prior to merger with Central Fidelity Banks, Inc. Excluding the
after-tax impact of nonrecurring charges, the 1997 price earnings ratio was
20.5x.
2
<PAGE>
Wachovia Corporation
- --------------------------------------------------------------------------------
Wachovia Corporation is an interstate bank holding company providing financial
services to consumers and corporations. At December 31, 1997, Wachovia's assets
of $65.4 billion and market capitalization of $16.7 billion ranked 17th and
15th in size, respectively, among the 25 largest U.S. banking companies.
Wachovia offers credit and deposit services, insurance, investment and trust
products, and information services to consumers, primarily in Florida, Georgia,
North Carolina, South Carolina and Virginia, and to corporations both in and
outside the United States. Consumer products and services are provided through
a network of retail branches, ATMs, Wachovia On-Call 24-hour telephone banking,
automated Phone Access and internet-based investing and banking at
www.wachovia.com. In addition, Wachovia serves consumers nationwide through its
credit card business. Wachovia provides global solutions to corporate clients
through locations in Chicago, London, New York and S-o Paulo, through
representatives in Hong Kong and Tokyo, and through worldwide strategic
alliances. Founded in 1879, Wachovia maintains dual headquarters in
Winston-Salem, North Carolina, and Atlanta, Georgia.
Selected Year-End Data
- ----------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992
-------- -------- ------- ------- ------- ---------
Trust assets (millions):
Discretionary management ..................... $ 33,568 $ 26,161 $ 22,409 $ 18,122 $ 18,904 $ 17,172
Total ........................................ $129,079 $108,557 $ 97,952 $ 83,973 $ 97,451 $ 90,969
Banking offices:
North Carolina ............................... 201 220 219 216 223 222
Virginia ..................................... 341 242 242 228 228 228
Georgia ...................................... 130 123 124 127 129 134
South Carolina ............................... 125 145 146 150 157 158
Florida ...................................... 33 ---- ---- ---- ---- ----
--------- --------- --------- --------- --------- ---------
Total ..................................... 830 730 731 721 737 742
========= ========= ========= ========= ========= =========
Automated banking machines:
North Carolina ............................... 423 351 328 297 251 221
Virginia ..................................... 325 221 211 194 195 192
Georgia ...................................... 282 222 204 189 180 173
South Carolina ............................... 272 213 180 166 167 164
Florida ...................................... 6 ---- ---- ---- ---- ----
--------- --------- --------- --------- --------- ---------
Total ..................................... 1,308 1,007 923 846 793 750
========= ========= ========= ========= ========= =========
Employees (full time equivalent) .............. 21,652 19,969 19,642 19,148 18,989 19,499
Common stock shareholders ..................... 55,681 47,892 42,868 43,503 45,838 42,672
Common shares outstanding (thousands) ......... 205,927 201,253 208,341 208,095 208,253 207,789
</TABLE>
3
<PAGE>
Letter To Shareholders
-----------------------------------------------------------------
Dear Wachovia Shareholder
The past year was very productive for Wachovia. Core operating
earnings grew. Four bank mergers were announced with expansion
into Virginia and Florida. Critical investment spending
continued, while consumer and corporate banking initiatives
produced attractive revenue growth. Year 2000 compliance issues
were aggressively addressed. Risk management skills remained
sharply honed. Wachovia's stock performed well, producing a total
return of 47.4 percent.
Wachovians'
spirit is trans-
forming the
company
These accomplishments reflect the dedication, enthusiasm and hard
work of Wachovians across the company. They have been moving
forward while buffeted by a whirlwind of change. They are leaping
over hurdles, overcoming obstacles, winning new customers and
strengthening relationships with existing ones. This spirit is
helping transform Wachovia into a financial service
company with a broad product array being sold to a growing
base of customers in attractive markets. This positions
Wachovia well as the world races toward the new
millennium.
For the full year, operating earnings were $3.96 per diluted
share compared with $3.65 in 1996. Operating net income totaled
$799.9 million versus $757.3 million. Operating earnings exclude
three special charges taken in the 1997 fourth quarter. They are,
on a pretax basis, $231.2 million related to Wachovia's mergers
with Central Fidelity Banks, Inc., Jefferson Bankshares and 1st
United Bancorp; $67.2 million to dispose of personal computer
hardware and software in order to adopt a company-wide
distributed technology platform; and $4.6 million in losses from
the sale of investment securities. The net impact of all three
charges on an after-tax basis was $207.1 million or $1.02 per
diluted share for the full year.
On a core operating basis, Wachovia's return on shareholders'
equity was 17.6 percent for 1997 and return on assets was 1.39
percent compared with five-year averages of 17.0 percent and 1.37
percent, respectively. Average common equity to assets was 7.87
percent. Wachovia's historical performance results have been
restated for the pooling-of-interests merger with Central
Fidelity.
At December 31, 1997, nonperforming assets were .29 percent of
loans and foreclosed property. The corporation's reserve coverage
of nonperforming loans was 538 percent. The corporation's
overhead or efficiency ratio on a core operating basis was 53.2
percent for the year. Wachovia's core performance in these key
measures compares favorably relative to its industry peers.
Common stock's
total return is
47.4 percent
The total return on Wachovia's common stock, including price
appreciation and dividends, was 47.4 per cent for 1997. This
compares with 46.2 percent for the Keefe, Bruyette & Woods Index
of 50 money center and regional banks and 33.4 percent for the
Standard & Poor's 500 Index. The respective five-year compound
annual rates of growth were 22.9 percent, 27.1 percent and 20.3
percent.
The special charges taken in the fourth quarter were deliberate
and forward-looking moves which provide a stronger foundation for
the future. The mergers position Wachovia in significant new
markets with attractive customer households. Adoption of a common
distributed technology platform facilitates
4
<PAGE>
Letter to Shareholders
-----------------------------------------------------------------
improved employee communication and more efficient desktop
maintenance and support across our expanding franchise. The sale
of investment securities will help restructure the portfolio for
higher yields.
Mergers
enhance
business
franchise
The single most important strategic development for Wachovia in
1997 was expansion into Virginia and Florida. The Jefferson and
Central Fidelity mergers were announced in June, consummated in
October and December, respectively, and full consolidation of
these Virginia banks with Wachovia systems is expected in late
March 1998. Wachovia's merger with 1st United Bancorp,
headquartered in Boca Raton, Florida, was announced in
August and consummated in November. The acquisition of
Ameribank Bancshares of Hollywood, Florida, announced in
November, is scheduled for completion in early 1998.
We are delighted to welcome these fine organizations to Wachovia.
With these mergers, Wachovia has added over 700,000 Virginia and
Florida households to its franchise in the Carolinas and Georgia,
gained a major deposit market share in five of Virginia's six
largest MSAs, established a presence in one of Florida's most
attractive markets and added almost $14 billion in assets.
Exciting results
achieved with
initiatives
The Virginia and Florida markets are particularly fertile fields
to leverage results stemming from the sizeable investment made in
our consumer financial service area. Exciting progress is being
made as a result of Wachovia's brand campaign, market network,
PRO, financial integrator and consumer lending strategies. These
initiatives are profiled in the following section which summarizes
each program, how it is being executed and results achieved. I
encourage you to take time to review it. These activities will be
the source of even greater revenue and profit contribution over
the years.
There also are major revenue-generating initiatives under way in
corporate banking. Wachovia Corporate Financial Services has
1,300 employees supporting business relationships in 50 states
and global activity in 40 countries. Teams of financial
specialists are equipped with a sophisticated array of services
to support companies who seek real value from financial partners.
To strengthen these relationships and gain new ones, Wachovia's
corporate group is enhancing its ability to fulfill clients'
trade needs and support their investments in global markets. We
are adding capabilities required to supply and deliver capital
and risk management solutions. Actions are under way to sustain
Wachovia's leadership position as a top tier provider of cash
management services.
Sound
technology will
differentiate
some banks
All of these initiatives are based on a substantial commitment to
technology. Wachovia has invested heavily in branch automation,
interactive data bases, image processing, systems strengthening
risk management and performance measurement. The corporation is
aggressively addressing operating challenges posed by the "Year
2000." Technology is one of the most critical factors
influencing our business today. Soundly developed and
intelligently deployed, it is a major way for companies to
differentiate themselves
5
<PAGE>
Letter to Shareholders
-----------------------------------------------------------------
in a crowded and competitive marketplace. There are pitfalls in
this critical area which can be as troublesome as loan portfolios
have been in the past. Recognition of the challenges associated
with technology investment is a force driving industry
consolidation.
As banking moves rapidly toward the new millennium, it is
undergoing profound change and facing challenges in its ability
to continue growing revenue and produce attractive and sustained
profitability. Stronger competition, a moderately advancing
economy, narrowing margins, rising consumer loan losses, expense
pressures and investments in complicated technology are
challenging many financial service companies.
Wachovia is
well-positioned
for the future
I believe we are well-positioned for the future. Wachovia is in
excellent markets and is expanding its geographic franchise. We
have an attractive customer base, sophisticated technology and
unwavering commitment to high service through relationship
banking. We have invested in a strong portfolio of growth
initiatives. And, Wachovia is privileged with an enviable
reputation for high ethics, stability and superior quality.
Wachovia can become larger, enhance its position in markets
served and generate impressive financial performance. I believe
these ambitious and challenging goals can be accomplished while
sticking to the sound risk, expense and investment management
practices which have served so well historically. My confidence
is based on our people. It is their daily commitment to
unparalleled service which always has made Wachovia excellent.
They deliver the promise of always being there when needed for
customers. They have earned a reputation for trust. That trust
is, and will remain, the cornerstone of Wachovia, in a world
where boundaries are steadily slipping away.
Sincerely,
/s/ L. M. Baker, Jr.
L. M. Baker, Jr.
Chief Executive Officer
February 27, 1998
6
<PAGE>
Brand Campaign
Market Network
(Picture of chess piece
appears here)
PRO
Financial Integration
Consumer Lending
Market Management
7
<PAGE>
Brand Campaign
- -----------------------------------------------------------------------
(arrow) Concept
Claim and distinctly deliver the
value proposition that Wachovia
has "your best interest at heart."
The Wachovia Promise:
---------------------
"We are Wachovia. We are the
kind of people you can have faith
in and trust without question to
always have your best interest at
heart. The kind of people who take
a genuine interest in your financial
well-being. We are not flashy. We
are not pushy. We could brag about
our accomplishments. But we don't.
We are quiet strength you can feel.
We are unselfish. We are thoughtful
and knowledgeable. You have a
sense you can trust us just by
hearing how we talk. We are more
than a bank. We create meaningful
financial relationships."
Execution
(arrow)
Developed internal and external
communication strategy to
deliver the message to targeted
customers and noncustomers
through television, radio, print,
billboards, interactive media
and other points of
customer contact.
(arrow)
Results
(arrow)
(Picture of magazines
appears here)
Where Are You? We Are Here.
Let's Get Started.(sm) are brand
elements that embody
Wachovia's solutions-oriented
sales approach
(photo of eyeglasses on magazine appears here)
(arrow)
In 1997, the brand campaign included
more than 168 million television
impressions in Georgia, North Carolina
and South Carolina; during the year,
96% of people between 25-54 were
reached an average of 20 times
(arrow)
Sales of new deposit accounts were up 10% and new
balances grew 30% in 1997 in markets of concentrated
brand investment, significantly higher growth than
achieved in nontargeted markets
(photo of child appears here) Going your
(arrow) own way?
Brand positioning and execution
adopted by all lines of business
8
<PAGE>
(photo of smiling people appears here)
(arrow)
The brand campaign message was embraced by Wachovians
who are delivering the Wachovia Promise
(arrow)
Brand campaign advertising was created with a commitment
to representing the diversity of Wachovia's employees
and customers
(photo of reports appears here)
(arrow)
Brand message reinforced at all points of customer
contact, including targeted direct mail which increased
75% in core southeastern markets
(arrow)
Customer research indicates Wachovia's image is
strengthening relative to competition in targeted households
(photo of Lynn J. Brown appears here)
(arrow)
Lynn J. Brown, marketing
executive with responsibility
for advertising and other
marketing activities throughout
the corporation.
Joined Wachovia in 1996.
Previous experience in product
development and segment management at
BANC ONE and earlier at Kraft General
Foods and Leo Burnett Advertising.
"Wachovia is in an enviable
position as it moves forward with
its brand campaign throughout
its markets. The corporation
has a long history in both its
consumer and corporate markets
for being a relationship-driven
company. It has a heritage of
integrity, excellence in service and
providing relevant solutions to its
customers - the underpinnings
of trust and knowledge. And,
Wachovia is strengthening
relationship delivery at all points
of customer contact. This is a
recipe for brand-building success."
- -----------------------------------------------------------------
Consumer Initiatives
9
<PAGE>
Market Network
- ------------------------------------------------------------------
(arrow)
Concept
To ensure that Wachovia is
located in the most opportune
markets, with a convenient
network of sales and service
points to retain and capture the
lion's share of the market at an
optimal cost structure.
(arrow)
Execution
Expand, contract and reconfigure
optimum combination of channels
to serve targeted customer segments
in targeted MSAs through traditional
stores, in-supermarket locations,
workplace stores, ATMs, Wachovia
On-Call,(R) and PC Access(sm) Online
Banking and Investing.
Continuous management of
Wachovia Market Network in
order to most effectively capitalize
on unique market opportunities
and customer needs.
(photo of computer/menu screen/ appears here)
(arrow)
Introduced online brokerage and
banking services through Wachovia's
web site www.wachovia.com
(arrow)
Project up to 100,000 users over next 12
months
(photo of a Wachovia Bank appears here)
(arrow)
Wachovia On-Call and Phone
Access(R) serve customers
24-hours-a-day, 7-days-a-week
(arrow)
Provided convenience and
service to customers in 1997 by
handling 37 million telephone
calls with more than 88%
served via automation
(photo of Customer Service personnel appears here)
(arrow)
43 in-supermarket banking centers
(arrow)
Serving customers at 1/4 the cost of a traditional branch
10
<PAGE>
(photo of a Wachovia building appears here)
(arrow)
8 new stores opened plus selective consolidation of
30 existing stores
(arrow)
Continuing to meet the needs of customers by handling
more than 86 million transactions in 1997
Consumer Initiatives
(photo of Wachovia ATM appears here)
(arrow)
Increased to 163 the number of bank-at-work ATMs which
help build wallet share with employees, while enhancing
overall corporate relationships
(arrow)
Cost per transaction 1/10 the cost of an in-branch transaction
(photo of David L. Pope)
David L. Pope, senior vice
president in the Consumer
Financial Services Group with
responsibilities for Consumer
Sales & Service, Small Business
Banking, Wachovia On-Call
and Training.
Joined Wachovia in 1984. A variety of
consumer, private and business-banking
responsibilities, and consumer strategy
development and implementation.
"Market Network is a powerful
quantitative and qualitative
management process used to
assess, plan and strengthen delivery
channels in our growing geographic
franchise, as well as help identify
new expansion opportunities.
An excellent example is the robust
Research Triangle Park market in
North Carolina's Central Region.
"Five years ago, we had 30 full-
service branches, each with an ATM.
Today, this market has 22 full-
service stores, 8 banking convenience
stores, 42 Wachovia store ATMs, 33
off-site ATMs in hospitals, colleges
and airports, and 32 workplace
ATMs. This has enabled us to grow
market share and significantly
enhance customer convenience,
while reducing the overhead ratio
of this market to 46 percent.
"This process is an integral
component in delivering the
Wachovia Promise."
11
<PAGE>
(arrow)
Concept
Profitable Relationship
Optimization (PRO) is a
distinctive, integrated strategy
employing information, technol-
ogy and local market sales
execution. The PRO strategy
enables proactive and continual
relationship management to
targeted high-value customers
from professionals they trust.
(arrow)
Execution
Systematically leverage customer
information to determine household
profitability potential and identify the
next most likely financial service
for targeted customers.
Utilize automated customer
management system to direct
leads daily to market-based
sales professionals.
Proactively contact customers
with suggested service and capture
results via automated feedback
loop to build institutional
knowledge and enhance next
customer interaction.
(arrow) Results
Customer information
analyzed and next likely
service determined
PRO begins with robust 1 2
customer information Customer leads
scored and
Continuous 3 distributed
Relationship electronically
Management to sales
professionals
Feedback loop 6
enriches customer
information file, 4
facilitates learning
and continuous Targeted customers contacted
improvement 5 for relationship-based dialogue
Results of customer contacts
captured electronically
Results
(arrow)
(picture of shooting light beams)
Common systems, sales training and
products are required for PRO and enable
efficient distribution and sales execution
in local markets
12
<PAGE>
(photo of operator appears here)
(arrow)
Each business morning, 1,200 sales
professionals will receive targeted
customer leads when PRO is fully
implemented in 5 states
(arrow)
1 in 4 leads have resulted in a sale
(photo of persons appears here)
(arrow)
60,000 customers were proactively contacted in
1997 during program rollout in 3 states
(arrow)
Feedback from customer research is very positive
(arrow)
Customer retention and cross-selling is improving
(Photo of computer menu screen appears here)
(arrow)
Data warehouse contains up
to 2,000 data elements on
each customer
(arrow)
Customer files updated daily
(arrow)
Account, customer and
household profitability
continuously updated
and potential modeled
(Photo of Stanhope A. Kelly appears here)
Stanhope (Stan) A. Kelly,
executive vice president for
Consumer Financial Services.
Joined Wachovia in 1980.
A variety of line experience
including executive for the North
Carolina bank's Central Region
(Raleigh, Durham, Chapel Hill) and broad
experience in consumer banking.
(arrow) (arrow) (arrow) (arrow)
"PRO is a fully integrated
relationship management system
enabling Wachovia to leap towards
one-on-one customer development.
Every business morning, the PRO
system enables our relationship
managers to open their playbook
with the click of a mouse. This
year, 1,200 sales professionals will
contact up to 5,000 high-value
customers each business day to
extend value through retaining
and growing relationships.
"PRO matches our most distinctive
advantage, our employees, with our
most highly valued customers to
deliver our 'Best Interest at Heart'
brand promise. The PRO strategy
can distance Wachovia from the
competition by claiming the high
ground as the 'customer-intimate'
financial service company."
Consumer Initiatives
13
<PAGE>
Financial Integration
- -------------------------------------------------------------------------
(arrow)
Concept
Enable affluent consumers to
optimize their financial affairs
and achieve balance and peace of
mind by providing integrated
financial solutions from
someone they trust.
(arrow) Execution
Core competencies have been
strengthened to ensure superb
delivery of private banking, invest-
ment services, insurance and estate
planning, the foundation on which
financial integration rests. In 1997,
Personal Financial Services defined
its optimal market coverage,
deployed sales teams of financial
advisors and specialists, enhanced
its product array and delivery
channels, designed integrated
compensation programs for sales
team members and introduced
financial planning. Building on this
foundation, a learning experiment
was conducted to validate the
financial integration strategy, test
the process and judge consumer
and employee acceptance
of the concept.
(Picture of Wachovia report appears here)
PRIVATE FINANCIAL
ADVISORS TEAM
Retirement Planning-Mortgage-Education Funding
ESTATE INSURANCE ADVISOR
PLANNING Banking/Credit-
ADVISOR Brokerage Services-
CLIENT Tax Planning
FINANCIAL ADVISOR
Financial Planning-Business Services-Trusts
INVESTMENT
MANAGEMENT
ADVISOR
(arrow)
Teams of financial, investment management, insurance and
estate planning advisors deployed to 27 market areas; supported
by mortgage, brokerage, credit and business banking experts
(arrow)
Financial advisors completed financial planning course work
(arrow)
Investment services sales up 380% and estate planning sales
increased 470% from 1996
(arrow)
Introduced Internet-based online investing services
integrated with online banking and 24-hours-a-day,
7-days-a-week automated telephone investing capability
(arrow)
Offered no-load fund supermarket, wrap account featuring
Wachovia Funds, customized affluent mortgage products
and new multitiered financial planning product
(arrow)
Made available life, disability, long-term care,
impaired risk and nonqualified deferred
compensation insurance products
14
<PAGE>
Consumer Initiatives
Private Financial
Advisors Process
Plan Devlopment
by a team of
Wachovia Advisors
Analysis
- Complete financial review
- Evaluation of financial needs
- Review by Wachovia specialists
as required
Customer
Financial
Information
Expectations Coordination
And Goals with an attorney
and other advisors
Ongoing
Review
Implementation
(arrow)
28 affluent clients participated in financial integration learning
experiment, completing in-depth financial analysis with their team
of advisors resulting in blueprint for delivery of their financial
peace of mind
(arrow)
78% of participants increased their relationships with Wachovia
(arrow)
Revenue potential of participants increased by over 118% and
profit contribution potential increased by over 100%
Comments from learning experiment participants:
(arrow)
"They did a very thorough job of looking at what I
have and analyzing the relationship to each other."
(arrow)
"Logic would lead you to believe that if the
bank puts its strength, energy and corporate
philosophy behind something, it will outpace
anything else out there. They don't even
have to outperform times two...and I'll
move the whole block over."
(arrow)
"Finding people who you're confident have
your interests at heart, who are able to look
at all the aspects of your financial affairs,
makes a lot of sense."
(Photo of Robert S. Kniejski appears here)
Robert S. Kniejski, executive
vice president for Personal
Financial Services with
responsibility for Personal Trust,
Capital Management, Private
Banking, Investment Counselors,
Investments Direct, the
Wachovia Funds and Insurance Services.
Joined Wachovia in 1987. Various
positions in the trust and investment areas,
including the development of Wachovia's
Investment Counselor program and the
Wachovia Funds.
(arrow) (arrow) (arrow) (arrow)
"Affluent consumers face a variety
of financial issues related to invest-
ments, insurance, stock options,
estate and will planning, and fund-
ing for education and retirement.
They are seeking someone with
knowledge and expertise they can
trust to help them manage these
critical but complex everyday
and life decisions.
"Advisors focus on understanding
an individual's comprehensive
financial situation and how their
financial assets and services should
work with each other. They specifi-
cally address inefficiencies in the
day-to-day management of an
individual's financial affairs.
Advisors address these issues on
an ongoing basis and deliver a
careful and considered approach
that helps an individual achieve
financial peace of mind."
(Photo of individuals in line formation appears here)
- ----------------------------------------------------------
15
<PAGE>
- -----------------------------------------------------------
Consumer Lending
Concept
(arrow)
Meeting consumer demand for
readily available credit with
quick response, competitive rates
and flexible products. Providing
increasing return for Wachovia
by deploying the "science" of
marketing, risk and return
management integrated with
efficient operational delivery.
Execution
(arrow)
The Mortgage Division is deploying
point-of-sale technology (Decision
Now sm) and reengineering operations
to respond to customers' mortgage
loan needs quickly while increasing
profit. Specialized mortgage products
are developed for all our different
market segments.
The Credit Card Division models
external and internal information
to optimize customer response,
risk and return to increase the
lifetime value of more than
three million accounts.
An automated centralized buying
center for indirect automobile
loans and leases and other
consumer loans is supporting
a six-state dealer network.
Results
(Picture of man, woman and child appears here)
(arrow) More than 68% of mortgage loans
were approved using Decision Now,
with 50% of these loans approved
on-the-spot by the mortgage lender
(arrow)
For Decision Now loan applications,
time from application to closing
averaged only 8 days, and operational
support costs were reduced by
approximately 30%
(arrow)
Mortgage loans designed for the
affluent customer generated 785
loans totaling $160 million and a
low-income mortgage focus produced
2,500 loans totaling $165 million
(Picture of Business Man at board appears here)
(arrow)
Analysis of prospective customers' needs and
risk criteria allowed targeting of individuals to
build a $1 billion home equity loan portfolio
(Picture of credit scoring appears here)
(arrow)
Automated credit scoring and tiered
pricing created more consistent
decision-making that is responsive to
a changing risk environment to help
build and manage an indirect lending
portfolio of more than $4 billion
(arrow)
Automation and centralization
created a 30% reduction in
operational delivery costs
(arrow)
Faster response benefited 1,800
dealers and 225,000 consumers
across 6 states
16
<PAGE>
(Picture of real estate sign appears at top of page)
Consumer Initiatives
(Picture of graph appears below showing MasterCard and Visa cards)
New Account
Acquisition Cost
1995 $60
1996 $49
1997 $41
(arrow) A 16% reduction in the cost of acquiring new credit
card accounts; more than 600,000 new accounts
generated in 1997
(arrow)
An estimated 30% increase in lifetime value of a credit
card customer; in 1997, the net yield for the $6.2 billion
credit card portfolio increased 70 basis points
(arrow)
A continued commitment to enhancing underwriting
skills produced a loss rate about 55% of the industry
average, supporting continued delivery of low rate credit
card products to customers in all 50 states
(Photo of Beverly B. Wells apperas here)
Beverly (Bev) B. Wells, executive
vice president for Consumer
Credit with responsibility for
credit card, sales finance (indirect
automobile lending), residential
mortgage origination and
emerging businesses.
Joined Wachovia in 1976. A variety of
operational and line experience, including
management of Treasury Services and the
credit card area.
(arrow) (arrow) (arrow) (arrow)
"Consumer lending is an intensely
competitive business. The public
has become an increasingly well-
educated, demanding shopper
looking for value and service.
We provide both, and our goal is
to continue doing so profitably by
offsetting growing margin pressures
with excellent credit risk and
expense management.
"Wachovia's information-driven
approach to consumer lending is
supported by strong analytical
skills, allowing for optimal new
customer acquisition and portfolio
performance management.
"We will continue to build and
leverage the 'science' that allows
us to manage our risk-adjusted
returns in consumer lending,
while maintaining a strong focus
on customer needs, ensuring that
consumer lending continues to
be a cornerstone of our
consumer franchise."
- -------------------------------------------------------------
17
<PAGE>
(Picture of map of southeastern United States appears here)
Market Management
(Photo of D. Gary Thompson appears here)
(arrow)
D. Gary Thompson
Chief executive officer, Georgia banking
Joined Wachovia in 1969. Variety of experience
in consumer and corporate banking. Assumed
current position in 1995.
"Georgia, led by Atlanta, is one of the fastest-
growing markets in the country. In 1997, Georgia
was the second most attractive state for people to
move to from other parts of the country. In a highly
competitive marketplace, customers want fast,
reliable, convenient access to financial information,
products and services. Wachovia is thriving as it
meets this challenge by aggressively implementing
the company's initiatives. For example, the Market
Network program allowed us to augment our
existing network with actions like opening six new
outlets in Harris Teeter supermarkets, while also
adding eight new banking offices and 60 new
ATMs in Georgia growth markets."
(Photo of Warren S. Orlando appears here)
(arrow)
Warren S. Orlando
Chief executive officer, Florida banking
Joined Wachovia through merger with 1st United Bancorp
where he was president and chief executive officer.
In banking since 1965.
"Our past success in the heart of Florida's southeast coast has
centered largely around an attractive base of small and
mid-sized businesses and various consumer markets, including
professionals. Wachovia's PRO and Financial Integrator
strategies are exactly what we need to profitably improve wallet
share, particularly among the affluent market segments.
We provide Wachovia an excellent base from which to expand
its footprint in one of the most dynamic states in the country."
18
<PAGE>
(Picture of Lewis N. Miller, Jr. appears here)
(arrow)
Lewis N. Miller, Jr.
Chief executive officer, Virginia banking
Joined Wachovia through merger with Central Fidelity
where he was chairman and chief executive officer.
In banking since 1972.
"The Central Fidelity/Jefferson combination gives Wachovia an
excellent position in one of the fastest-growing states in the
Southeast. Like Wachovia, we have always been customer and
shareholder focused. The merger with Wachovia gives our
Virginia team a formidable arsenal of product capabilities and
technological expertise to enhance service to existing customers,
add new ones and raise the growth rate of the Virginia franchise."
(Picture of J. Walter McDowell)
(arrow)
J. Walter McDowell
Chief executive officer, North Carolina banking
Joined Wachovia in 1973. Variety of experience in
consumer and corporate banking. Assumed current position in 1993.
"Rapid growth in entrepreneurial, technology, bioscience
and service-sector companies is complementing North Carolina's
traditional strengths in manufacturing and agribusiness.
Individuals and companies are prospering in North Carolina's
healthy business environment and Wachovia is well-positioned
to grow and prosper with its customers. Differentiating capabil-
ities, added convenience, a blend of high-tech and high-touch,
professional employees and a sincere commitment to do what is
in the customer's best interest are a winning recipe for North
Carolina and Wachovia."
(Picture of Will B. Spence, Jr.)
(arrow)
Will B. Spence, Jr.
Chief executive officer, South Carolina banking
Joined Wachovia in 1969. Variety of experience in
consumer and corporate banking. Assumed current
position in 1995.
"In South Carolina, we have kept our expenses virtually
flat for three consecutive years, while growing revenue and
our profit contribution at double-digit rates. The business
climate in our state is highly conducive to growth with another
record-breaking year in capital investment and a continued surge
in the tourism industry. In this context, we have implemented
aggressive, carefully planned strategies to zero in on business
opportunities and bring value to our customers and to the bank
while containing costs. Wachovia's products and technology have
given us the edge to operate in a lean and efficient manner while
providing exceptional service."
(Photo of G. Joseph Prendergast)
G. Joseph Prendergast,
Banking Division
executive responsible
for Wachovia's corporate and
consumer banking and
Wachovia Bank, N.A., offices.
Joined Wachovia in 1973.
Experience includes international
banking, president of Wachovia Corporate
Banking subsidiary, president of Wachovia
Bank of Georgia prior to its merger into
Wachovia Bank, N.A.
(arrow) (arrow) (arrow) (arrow)
"Wachovia is exceptionally
well-positioned in the vibrant
southeastern United States where
economic growth has outpaced the
nation for several years. We have
statewide operations in Georgia,
North Carolina, South Carolina,
Virginia and an attractive presence
in key Florida markets. These five
states combined are growing faster
than the entire region.
"An excellent opportunity exists for
Wachovia to systematically leverage
the consumer initiatives reviewed in
this report across our existing
franchise and to rapidly introduce
them into new markets we will
enter. Our early success in
executing these growth initiatives
provides confidence that they are
well-conceived, are relevant across
a broad spectrum of consumers
and markets, and that the
philosophical and technological
foundations upon which they
are built make them readily
transportable in a merger
environment. They provide a
winning combination for
shareholders, customers
and employees."
19
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ---------------------------
Financial Summary Table 1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
----------- ----------- ----------
Summary of Operations
(thousands, except per share data)
Interest income ......................... $ 4,262,385 $ 4,009,508 $3,790,110
Interest expense ........................ 2,168,818 2,085,771 2,011,155
----------- ----------- ----------
Net interest income ..................... 2,093,567 1,923,737 1,778,955
Provision for loan losses (1) ........... 264,949 193,776 130,504
----------- ----------- ----------
Net interest income after provision
for loan losses ........................ 1,828,618 1,729,961 1,648,451
Other operating revenue ................. 1,005,768 874,732 757,115
Gain on sale of mortgage servicing
portfolio .............................. ---- ---- 79,025
Gain on sale of subsidiary .............. ---- ---- ----
Investment securities gains
(losses) (2) ........................... 1,454 4,588 (19,672)
----------- ----------- ----------
Total other income ...................... 1,007,222 879,320 816,468
Personnel expense ....................... 905,157 796,932 733,790
Nonrecurring charges (3) ................ 287,532 ---- ----
Other expense ........................... 774,032 712,041 707,839
----------- ----------- ----------
Total other expense ..................... 1,966,721 1,508,973 1,441,629
Income before income taxes .............. 869,119 1,100,308 1,023,290
Applicable income taxes ................. 276,313 343,049 315,377
----------- ----------- ----------
Net income (4) .......................... $ 592,806 $ 757,259 $ 707,913
=========== =========== ==========
Net income per common share:
Basic .................................. $ 2.99 $ 3.70 $ 3.40
Diluted (4) ............................ $ 2.94 $ 3.65 $ 3.36
Cash dividends paid per common
share (5) .............................. $ 1.68 $ 1.52 $ 1.38
Cash dividends paid on common
stock (6) .............................. $ 327,303 $ 305,740 $ 282,517
Cash dividend payout ratio (6) .......... 55.2% 40.4% 39.9%
Average basic shares outstanding ........ 198,290 204,889 208,230
Average diluted shares outstanding ...... 201,901 207,432 210,600
Selected Average
Balances (millions)
Total assets ............................ $ 57,607 $ 55,584 $ 51,703
Loans -- net of unearned income ......... 39,716 36,739 33,510
Investment securities ................... 10,859 11,969 12,011
Other interest-earning assets ........... 1,446 1,629 1,257
Total interest-earning assets ........... 52,021 50,337 46,778
Interest-bearing deposits ............... 29,582 27,609 25,601
Short-term borrowed funds ............... 8,987 9,018 8,860
Long-term debt .......................... 6,122 6,693 5,695
Total interest-bearing liabilities ...... 44,691 43,320 40,156
Noninterest-bearing deposits ............ 6,934 6,491 6,234
Total deposits .......................... 36,516 34,100 31,835
Shareholders' equity .................... 4,533 4,458 4,164
Ratios (averages)
Net loan losses to loans ................ .67% .53% .38%
Net yield on interest-earning assets..... 4.14 3.98 4.04
Shareholders' equity to:
Total assets ........................... 7.87 8.02 8.05
Net loans .............................. 11.57 12.31 12.62
Return on assets (7) .................... 1.03 1.36 1.37
Return on shareholders' equity (7) ...... 13.08 16.99 17.00
<S> <C> <C> <C> <C>
Five-Year
Compound
1994 1993 1992 Growth Rate
---------- ----------- ----------- -----------
Summary of Operations
(thousands, except per share data)
Interest income ......................... $3,025,654 $ 2,738,164 $ 2,803,880 8.7%
Interest expense ........................ 1,369,006 1,128,709 1,252,659 11.6
---------- ----------- -----------
Net interest income ..................... 1,656,648 1,609,455 1,551,221 6.2
Provision for loan losses (1) ........... 96,122 172,161 219,177 3.9
---------- ----------- -----------
Net interest income after provision
for loan losses ........................ 1,560,526 1,437,294 1,332,044 6.5
Other operating revenue ................. 690,099 669,469 595,849 11.0
Gain on sale of mortgage servicing
portfolio .............................. ---- ---- ----
Gain on sale of subsidiary .............. ---- 8,030 19,486
Investment securities gains
(losses) (2) ........................... (21,972) 74,256 54,151 (51.5)
---------- ----------- -----------
Total other income ...................... 668,127 751,755 669,486 8.5
Personnel expense ....................... 691,512 685,623 645,179 7.0
Nonrecurring charges (3) ................ ---- ---- ----
Other expense ........................... 651,739 668,635 650,850 3.5
---------- ----------- -----------
Total other expense ..................... 1,343,251 1,354,258 1,296,029 8.7
Income before income taxes .............. 885,402 834,791 705,501 4.3
Applicable income taxes ................. 261,480 239,779 193,760 7.4
---------- ----------- -----------
Net income (4) .......................... $ 623,922 $ 595,012 $ 511,741 3.0
========== =========== ===========
Net income per common share:
Basic .................................. $ 3.00 $ 2.84 $ 2.51 3.6
Diluted (4) ............................ $ 2.96 $ 2.80 $ 2.46 3.6
Cash dividends paid per common
share (5) .............................. $ 1.23 $ 1.11 $ 1.00 10.9
Cash dividends paid on common
stock (6) .............................. $ 254,397 $ 230,430 $ 199,495 10.4
Cash dividend payout ratio (6) .......... 40.8% 38.7% 39.0%
Average basic shares outstanding ........ 208,117 208,880 203,803 (.5)
Average diluted shares outstanding ...... 210,651 212,584 208,759 (.7)
Selected Average
Balances (millions)
Total assets ............................ $ 46,542 $ 42,529 $ 39,249 8.0
Loans -- net of unearned income ......... 29,533 25,776 23,754 10.8
Investment securities ................... 11,225 10,993 9,286 3.2
Other interest-earning assets ........... 1,025 1,379 1,986 (6.1)
Total interest-earning assets ........... 41,783 38,148 35,026 8.2
Interest-bearing deposits ............... 22,847 22,860 23,062 5.1
Short-term borrowed funds ............... 7,369 6,500 5,898 8.8
Long-term debt .......................... 5,154 2,530 483 66.2
Total interest-bearing liabilities ...... 35,370 31,890 29,443 8.7
Noninterest-bearing deposits ............ 6,292 6,199 5,683 4.1
Total deposits .......................... 29,139 29,059 28,745 4.9
Shareholders' equity .................... 3,812 3,519 3,100 7.9
Ratios (averages)
Net loan losses to loans ................ .30% .56% .65%
Net yield on interest-earning assets..... 4.23 4.50 4.68
Shareholders' equity to:
Total assets ........................... 8.19 8.27 7.90
Net loans .............................. 13.14 13.92 13.32
Return on assets (7) .................... 1.34 1.40 1.30
Return on shareholders' equity (7) ...... 16.37 16.91 16.51
</TABLE>
(1) Includes $10,845 in nonrecurring merger-related provision in 1997 to align
the practices of the merged entities with those of the corporation.
(2) Includes $4,639 of nonrecurring losses to restructure the
available-for-sale portfolio in 1997.
(3) Nonrecurring charges in 1997 include merger-related items of $220,330 and
personal computer hardware and software disposal charge of $67,202.
(4) Net income excluding nonrecurring items was $799,929 for 1997. Net income
per diluted share, excluding nonrecurring items, was $3.96 for 1997.
(5) Cash dividends per common share are those of Wachovia Corporation paid
prior to merger with Central Fidelity Banks, Inc.
(6) Includes amounts of pooled companies.
(7) Excluding the after-tax impact of nonrecurring charges of $207,123 returns
were 1.39% on assets and 17.65% on shareholders' equity for 1997.
20
<PAGE>
Results of Operations
-----------------------------------------------------------------
1997 vs. 1996
Overview
The U.S. economy rose at a moderately strong pace in 1997, with
gross domestic product up 3.8 percent, based on preliminary data.
Economic expansion continued largely free of inflationary
pressures but was hampered by growing strains from consumer
indebtedness and cautiousness. Based on preliminary data, the
nation's annual average unemployment rate fell to 4.9 percent from
5.4 percent in 1996. Economic conditions within Wachovia
Corporation's primary operating states remained generally strong,
with unemployment averaging 4.8 percent in Florida, 4.3 percent in
Georgia, 3.6 percent in North Carolina, 4.6 percent in South
Carolina and 4 percent in Virginia.
Wachovia Corporation announced merger agreements with four banking
companies in 1997: Jefferson Bankshares, Inc., of Charlottesville,
Virginia; Central Fidelity Banks, Inc., of Richmond, Virginia; 1st
United Bancorp of Boca Raton, Florida; and Ameribank Bancshares,
Inc., of Hollywood, Florida. The merger agreements with Jefferson
Bankshares, Central Fidelity Banks and 1st United Bancorp closed
in the fourth quarter of 1997, with the Central Fidelity
transaction accounted for on a pooling-of-interests basis and the
others on a purchase basis. The Ameribank Bancshares agreement is
expected to close in the early part of 1998 and will be accounted
for as a purchase transaction. 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.
NET INCOME PER SHARE
(DILUTED)
(Graph appears here with the following plot points.)
1992 1993 1994 1995 1996 1997
2.46 2.80 2.96 3.36 3.65 2.94*
*EXCLUDING NONRECURRING ITEMS, NET INCOME PER DILUTED SHARE WAS $3.96.
NET INCOME
(MILLIONS)
(Graph appears here with the following plot points.)
1992 1993 1994 1995 1996 1997
511.7 595.0 623.9 707.9 757.3 592.8*
*EXCLUDING NONRECURRING ITEMS, NET INCOME WAS $799.9 MILLION.
21
<PAGE>
Consolidated net income for 1997 was $592.806 million or $2.94
per diluted share compared with $757.259 million or $3.65 per
diluted share in 1996. Results for 1997 include the impact of
three special charges taken in the fourth quarter: $231.175
million, pretax, related to the corporation's mergers with
Central Fidelity Banks, Jefferson Bankshares and 1st United
Bancorp; $67.202 million, pretax, to write-down and dispose of
personal computer hardware and software in order to adopt a
company-wide distributed technology platform; and $4.639 million
in pretax losses from the sale of investment securities to
restructure the portfolio for higher yields. The net impact of
all three charges was $207.123 million, after-tax, or $1.02 per
diluted share. On an operating basis, excluding these special
charges, the corporation's consolidated net income was $799.929
million or $3.96 per diluted share for 1997.
Historical financial results have been restated to reflect the
corporation's pooling-of-interests merger with Central Fidelity
Banks, Inc. In addition, all per share earnings are reported on a
basic and diluted basis versus primary and fully diluted basis in
compliance with Statement of Financial Accounting Standards No.
128, "Earnings Per Share." The accounting standard became
effective for December 31, 1997 financial statements with
restatement of past periods required; the impact was not
material.
Expanded discussion of operating results and the corporation's
financial condition is presented in the following narrative with
accompanying tables and charts. Interest income is stated on a
taxable equivalent basis, which is adjusted for the tax-favored
status of earnings from certain loans and investments. References
to changes in assets and liabilities represent daily average
levels unless otherwise noted. The narrative should be read in
conjunction with the Consolidated Financial Statements and Notes
on pages 50 through 69. Expanded six-year financial data appears
on pages 70 through 77.
22
<PAGE>
Net Interest
Income
Taxable equivalent net interest income rose $150.683 million or
7.5 percent in 1997, the result of good loan growth, changes in
the mix of interest-earning assets and a higher average rate
earned. The net yield on interest-earning assets (taxable
equivalent net interest income as a percentage of average
interest-earning assets) improved 16 basis points to 4.14 percent
for the year, reflecting a wider interest rate spread and
assertive balance sheet management. Taxable equivalent net
interest income is expected to rise at a more subdued pace in 1998
given the outlook for a slower economy and moderating loan demand.
Based on the relationship between short- and long-term interest
rates in early 1998, management expects the net yield on
interest-earning assets to be modestly lower for the full year.
NET INTEREST INCOME*
(MILLIONS)
(Graph appears here with the following plot points.)
1992 1993 1994 1995 1996 1997
Interest Income 2891.00 2845.00 3135.00 3898.00 4087.00 4320.00
Interest Expenses 1253.00 1129.00 1369.00 2011.00 2086.00 2169.00
Net Interest Income 1639.00 1716.00 1766.00 1887.00 2001.00 2151.00
*Taxable Equivalent
Components of Earnings Per Basic Share Table 2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Change Change
1997 1996 1995 1997/1996 1996/1995
-------- -------- -------- ---------- ----------
Interest income ............................................. $ 21.50 $ 19.57 $ 18.20 $ 1.93 $ 1.37
Interest expense ............................................ 10.94 10.18 9.66 .76 .52
-------- -------- -------- ---------- ----------
Net interest income ......................................... 10.56 9.39 8.54 1.17 .85
Provision for loan losses ................................... 1.34 .95 .63 .39 .32
-------- -------- -------- ---------- ----------
Net interest income after provision for loan losses ......... 9.22 8.44 7.91 .78 .53
Other operating revenue ..................................... 5.07 4.27 3.65 .80 .62
Gain on sale of mortgage servicing portfolio ................ ---- ---- .38 ---- (.38)
Investment securities gains (losses) ........................ .01 .02 (.11) (.01) .13
-------- -------- -------- ---------- ----------
Total other income .......................................... 5.08 4.29 3.92 .79 .37
Personnel expense ........................................... 4.57 3.89 3.52 .68 .37
Personal computer impairment charge ......................... .34 ---- ---- .34 ----
Merger-related charges ...................................... 1.11 ---- ---- 1.11 ----
Other expense ............................................... 3.90 3.47 3.40 .43 .07
-------- -------- -------- ---------- ----------
Total other expense ......................................... 9.92 7.36 6.92 2.56 .44
Income before income taxes .................................. 4.38 5.37 4.91 (.99) .46
Applicable income taxes ..................................... 1.39 1.67 1.51 (.28) .16
-------- -------- -------- ---------- ----------
Net income .................................................. $ 2.99 $ 3.70 $ 3.40 $ (.71) $ .30
======== ======== ======== ========== ==========
</TABLE>
23
<PAGE>
Taxable Equivalent Rate/Volume Variance Analysis* Table 3
- --------------------------------------------------------------------------------
+(millions)
++(thousands)
<TABLE>
<CAPTION>
<C> <C> <C> <C> <S>
Average Volume+ Average Rate
- ----------------------- -------------------
1997 1996 1997 1996
- --------- ------- ------- ----
Interest Income
Loans:
$11,327 $10,481 7.32 7.13 Commercial .....................................
1,743 2,126 8.93 8.95 Tax-exempt .....................................
- ----------- --------
13,070 12,607 7.54 7.44 Total commercial ...............................
1,194 1,194 8.99 8.93 Direct retail ..................................
2,966 3,139 8.56 8.49 Indirect retail ................................
5,626 4,949 12.92 12.03 Credit card ....................................
424 418 12.27 12.21 Other revolving credit .........................
- ----------- --------
10,210 9,700 11.17 10.51 Total retail ...................................
1,499 1,069 9.40 9.30 Construction ...................................
6,067 5,453 8.34 8.30 Commercial mortgages ...........................
7,422 6,797 7.99 8.14 Residential mortgages ..........................
- ----------- --------
14,988 13,319 8.27 8.30 Total real estate ..............................
955 656 9.71 9.42 Lease financing ................................
493 457 6.93 7.02 Foreign ........................................
- ----------- --------
39,716 36,739 8.79 8.59 Total loans ....................................
Investment securities:
Held-to-maturity:
30 ---- 6.12 ---- U.S. Government and agency .....................
1,049 1,197 8.03 8.04 Mortgage-backed securities .....................
221 274 11.87 12.26 State and municipal ............................
23 2 6.94 8.80 Other ..........................................
- ----------- --------
1,323 1,473 8.61 8.83 Total securities held-to-maturity ..............
Available-for-sale:**
5,269 5,678 6.62 6.71 U.S. Government and agency .....................
3,174 3,594 6.91 6.82 Mortgage-backed securities .....................
1,027 1,131 6.54 6.59 Other ..........................................
- ----------- --------
9,470 10,403 6.71 6.73 Total securities available-for-sale ............
- ----------- --------
10,793 11,876 6.94 6.99 Total investment securities ....................
89 421 5.89 7.91 Interest-bearing bank balances .................
Federal funds sold and securities purchased
397 286 5.62 5.38 under resale agreements ........................
960 922 5.38 5.61 Trading account assets .........................
- ----------- --------
$51,955 $50,244 8.32 8.13 Total interest-earning assets ..................
=========== ========
Interest Expense
$ 4,109 $ 3,993 1.56 1.50 Interest-bearing demand ........................
10,595 9,441 3.83 3.57 Savings and money market savings ...............
10,365 10,522 5.62 5.69 Savings certificates ...........................
2,929 2,612 5.61 5.88 Large denomination certificates ................
- ----------- --------
27,998 26,568 4.34 4.32 Total time deposits in domestic offices ........
1,585 1,041 5.51 5.28 Time deposits in foreign offices ...............
- ----------- --------
29,583 27,609 4.41 4.36 Total time deposits ............................
Federal funds purchased and securities sold
6,744 7,136 5.30 5.37 under repurchase agreements ....................
781 596 5.06 4.88 Commercial paper ...............................
1,462 1,286 5.57 5.46 Other short-term borrowed funds ................
- ----------- --------
8,987 9,018 5.32 5.35 Total short-term borrowed funds.................
3,075 4,610 6.14 5.74 Bank notes .....................................
3,046 2,083 6.51 6.50 Other long-term debt ...........................
- ----------- --------
6,121 6,693 6.32 5.97 Total long-term debt ...........................
- ----------- --------
$44,691 $43,320 4.85 4.81 Total interest-bearing liabilities .............
=========== ======== -------- -----
3.47 3.32 Interest rate spread
======== ===== Net yield on interest-earning assets and net
4.14 3.98 interest income ................................
======== =====
<S> <C> <C> <C> <C> <C>
Variance
Interest Attributable to
--------------------------
1997 1996 Variance++ Rate Volume
---------- ---------- ----------- ---------- -----------
Interest Income
Loans:
Commercial ..................................... $ 829,406 $ 747,463 $ 81,943 $ 20,413 $ 61,530
Tax-exempt ..................................... 155,689 190,285 (34,596) (366) (34,230)
----------- ----------- ----------
Total commercial ............................... 985,095 937,748 47,347 12,610 34,737
Direct retail .................................. 107,326 106,634 692 763 (71)
Indirect retail ................................ 254,001 266,435 (12,434) 2,292 (14,726)
Credit card .................................... 727,114 595,208 131,906 46,494 85,412
Other revolving credit ......................... 52,007 51,026 981 252 729
----------- ----------- ----------
Total retail ................................... 1,140,448 1,019,303 121,145 65,971 55,174
Construction ................................... 140,780 99,470 41,310 1,028 40,282
Commercial mortgages ........................... 505,876 452,576 53,300 2,081 51,219
Residential mortgages .......................... 592,907 552,944 39,963 (10,134) 50,097
----------- ----------- ----------
Total real estate .............................. 1,239,563 1,104,990 134,573 (3,430) 138,003
Lease financing ................................ 92,721 61,717 31,004 1,976 29,028
Foreign ........................................ 34,164 32,098 2,066 (406) 2,472
----------- ----------- ----------
Total loans .................................... 3,491,991 3,155,856 336,135 75,779 260,356
Investment securities:
Held-to-maturity:
U.S. Government and agency ..................... 1,843 ---- 1,843 ---- 1,843
Mortgage-backed securities ..................... 84,191 96,316 (12,125) (177) (11,948)
State and municipal ............................ 26,259 33,547 (7,288) (1,047) (6,241)
Other .......................................... 1,597 193 1,404 (49) 1,453
----------- ----------- ----------
Total securities held-to-maturity .............. 113,890 130,056 (16,166) (3,170) (12,996)
Available-for-sale:**
U.S. Government and agency ..................... 348,763 380,768 (32,005) (4,932) (27,073)
Mortgage-backed securities ..................... 219,293 244,933 (25,640) 3,285 (28,925)
Other .......................................... 67,139 74,501 (7,362) (518) (6,844)
----------- ----------- ----------
Total securities available-for-sale ............ 635,195 700,202 (65,007) (2,481) (62,526)
----------- ----------- ----------
Total investment securities .................... 749,085 830,258 (81,173) (6,017) (75,156)
Interest-bearing bank balances ................. 5,230 33,284 (28,054) (6,861) (21,193)
Federal funds sold and securities purchased
under resale agreements ........................ 22,319 15,411 6,908 713 6,195
Trading account assets ......................... 51,654 51,740 (86) (2,201) 2,115
----------- ----------- ----------
Total interest-earning assets .................. 4,320,279 4,086,549 233,730 92,646 141,084
Interest Expense
Interest-bearing demand ........................ 64,249 59,761 4,488 2,728 1,760
Savings and money market savings ............... 405,444 336,596 68,848 25,818 43,030
Savings certificates ........................... 582,145 598,869 (16,724) (7,852) (8,872)
Large denomination certificates ................ 164,391 153,571 10,820 (7,180) 18,000
----------- ----------- ----------
Total time deposits in domestic offices ........ 1,216,229 1,148,797 67,432 5,369 62,063
Time deposits in foreign offices ............... 87,320 54,942 32,378 2,475 29,903
----------- ----------- ----------
Total time deposits ............................ 1,303,549 1,203,739 99,810 12,956 86,854
Federal funds purchased and securities sold
under repurchase agreements .................... 357,190 382,976 (25,786) (4,967) (20,819)
Commercial paper ............................... 39,566 29,054 10,512 1,154 9,358
Other short-term borrowed funds ................ 81,406 70,206 11,200 1,445 9,755
----------- ----------- ----------
Total short-term borrowed funds................. 478,162 482,236 (4,074) (2,425) (1,649)
Bank notes ..................................... 188,710 264,486 (75,776) 17,330 (93,106)
Other long-term debt ........................... 198,397 135,310 63,087 335 62,752
----------- ----------- ----------
Total long-term debt ........................... 387,107 399,796 (12,689) 22,601 (35,290)
----------- ----------- ----------
Total interest-bearing liabilities ............. 2,168,818 2,085,771 83,047 16,574 66,473
----------- ----------- ----------
Interest rate spread
Net yield on interest-earning assets and net
interest income ................................ $2,151,461 $2,000,778 $ 150,683 81,276 69,407
=========== =========== ==========
</TABLE>
* Interest income and yields are presented on a fully taxable equivalent basis
using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense.
** Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $66 million in 1997 and $94 million in 1996.
24
<PAGE>
Interest Income
Taxable equivalent interest income expanded $233.730 million or
5.7 percent for the year, fueled by good loan growth, shifts in
the interest-earning asset mix to reduce investment securities and
a higher average rate earned on loans. Average loans were up
$2.977 billion or 8.1 percent, representing 76.4 percent of total
interest-earning assets compared with 73.1 percent in 1996. The
average rate earned on loans increased 20 basis points to 8.79
percent. Management anticipates loan growth of approximately 6
percent in 1998, led by real estate loans in the commercial
portfolio and by credit cards and residential mortgages, including
home equity lending, in the consumer portfolio.
Commercial loans, including related real estate categories, grew
$1.842 billion or 9.1 percent. All categories advanced for the
year except tax-exempt loans, which decreased due to paydowns in
employee stock ownership plan loans and to the reduced
availability under current tax laws of tax-exempt borrowing and
lending at acceptable rates. Growth in the portfolio was led by
taxable commercial loans, which rose $846 million or 8.1 percent;
commercial mortgages, which increased $614 million or 11.3
percent; and construction loans, up $430 million or 40.2 percent.
Based on regulatory definitions, commercial real estate loans at
December 31, 1997 were $8.570 billion or 19.4 percent of total
loans versus $6.930 billion or 18.2 percent one year earlier.
Regulatory definitions for commercial real estate include loans
that have real estate as the collateral but not the primary
consideration in a credit risk evaluation. Lease financing, which
primarily consists of commercial leases and other structured
corporate transactions, rose $299 million or 45.6 percent for the
year, while foreign loans grew $36 million or 7.9 percent.
The corporation has foreign credit exposure to companies and
financial institutions primarily in Europe, Canada and Latin
America with minimal overall exposure. At December 31, 1997,
Wachovia had cross-border commitments, primarily consisting of
loans and leases, of $562 million, representing .86 percent of
total assets. This compared with cross-border commitments of $510
million or .89 percent of total assets one year earlier. The
loans and leases are predominately dollar denominated, minimizing
the corporation's exposure to fluctuations in the value of
foreign currencies. All cross-border commitments were to
corporations and financial institutions with no loans or
commitments extended to foreign governments at either year-end.
Selected Loan Maturities and Interest Sensitivity Table 4
- --------------------------------------------------------------------------------
December 31, 1997 (thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One year One to Over
Total or less Five Years Five Years
-------- -------------- ------------- -------------
Commercial, financial and other ....................... $13,528,344 $12,084,421 $ 947,804 $ 496,119
Industrial revenue and other tax-exempt financing ..... 1,607,159 826,534 325,995 454,630
Construction and land development ..................... 1,779,522 1,355,162 424,360 ----
Commercial mortgages .................................. 6,790,446 3,258,841 1,410,718 2,120,887
Foreign ............................................... 639,387 639,387 ---- ----
----------- ----------- ---------- ----------
Selected loans, net ................................ $24,344,858 $18,164,345 $3,108,877 $3,071,636
=========== =========== ========== ==========
Interest sensitivity:
Loans with predetermined interest rates .............. $ 6,658,973 $ 2,598,638 $2,320,908 $1,739,427
Loans with floating interest rates ................... 17,685,885 15,565,707 787,969 1,332,209
----------- ----------- ---------- ----------
Total .............................................. $24,344,858 $18,164,345 $3,108,877 $3,071,636
=========== =========== ========== ==========
</TABLE>
25
<PAGE>
Investment Securities Table 5
- --------------------------------------------------------------------------------
December 31 (thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1997
------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
-------------- ----------- ----------- ----------
Held-to-Maturity
U.S. Treasury and other U.S.
Government agencies:
Within one year .................... $ 97,213 $ 65 $ 49 $ 97,229
One to five years .................. 105,700 753 139 106,314
Five to ten years .................. ---- ---- ---- ----
Over ten years ..................... ---- ---- ---- ----
-------------- ----------- ----------- -----------
Total ............................ 202,913 818 188 203,543
State and municipal:
Within one year .................... 16,033 174 ---- 16,207
One to five years .................. 59,950 4,337 ---- 64,287
Five to ten years .................. 94,835 13,068 ---- 107,903
Over ten years ..................... 52,085 5,315 ---- 57,400
-------------- ----------- ----------- -----------
Total ............................ 222,903 22,894 ---- 245,797
Mortgage-backed:
Within one year .................... 553 ---- 3 550
One to five years .................. 103,233 1,883 10 105,106
Five to ten years .................. 129,809 2,676 1 132,484
Over ten years ..................... 728,566 40,547 173 768,940
-------------- ----------- ----------- -----------
Total ............................ 962,161 45,106 187 1,007,080
Other interest-earning
investments:
Within one year .................... 37,793 276 ---- 38,069
One to five years .................. 83,219 395 ---- 83,614
Five to ten years .................. 350 11 ---- 361
Over ten years ..................... ---- ---- ---- ----
-------------- ----------- ----------- -----------
Total ............................ 121,362 682 ---- 122,044
-------------- ----------- ----------- -----------
Total held-to-maturity ........... 1,509,339 69,500 375 1,578,464
Available-for-Sale
U.S. Treasury and other U.S.
Government agencies:
Within one year .................... 1,428,265 8,166 257 1,436,174
One to five years .................. 2,966,942 43,418 282 3,010,078
Five to ten years .................. 98,262 1,842 478 99,626
Over ten years ..................... 8,078 4,153 ---- 12,231
-------------- ----------- ----------- -----------
Total ............................ 4,501,547 57,579 1,017 4,558,109
State and municipal:
Within one year .................... 10,033 58 ---- 10,091
One to five years .................. 36,592 843 2 37,433
Five to ten years .................. 17,015 578 1 17,592
Over ten years ..................... 16,155 1,671 4 17,822
-------------- ----------- ----------- -----------
Total ............................ 79,795 3,150 7 82,938
Mortgage-backed:
Within one year .................... 25,113 45 13 25,145
One to five years .................. 772,458 6,105 464 778,099
Five to ten years .................. 557,712 5,087 689 562,110
Over ten years ..................... 2,188,428 28,730 1,329 2,215,829
-------------- ----------- ----------- -----------
Total ............................ 3,543,711 39,967 2,495 3,581,183
Other interest-earning
investments:
Within one year .................... 52,435 252 11 52,676
One to five years .................. 350,400 2,550 ---- 352,950
Five to ten years .................. 6,524 394 1 6,917
Over ten years ..................... 99,616 59 850 98,825
-------------- ----------- ----------- -----------
Total ............................ 508,975 3,255 862 511,368
-------------- ----------- ----------- -----------
Total available-for-sale interest
earning investments ................ 8,634,028 103,951 4,381 8,733,598
Federal Reserve Bank stock and
other investments .................. 160,649 15,443 153 175,939
-------------- ----------- ----------- -----------
Total available-for-sale ......... 8,794,677 119,394 4,534 8,909,537
-------------- ----------- ----------- -----------
Total portfolio .................. $10,304,016 $ 188,894 $ 4,909 $10,488,001
============== =========== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
---------------------------- ------------------------- -------------------------
Taxable
Average Equivalent Amortized Fair Amortized Fair
Maturity Yield* Cost Value Cost Value
----------- ---------- ------------ ----------- ----------- -----------
(Yrs./Mos.)
Held-to-Maturity
U.S. Treasury and other U.S.
Government agencies:
Within one year .................... 5.75% $ ---- $ ---- $ ---- $ ----
One to five years .................. 6.33 ---- ---- ---- ----
Five to ten years .................. ---- ---- ---- ----
Over ten years ..................... ---- ---- ---- ----
------------ ----------- ------------ -----------
Total ............................ 1/4 6.05 ---- ---- ---- ----
State and municipal:
Within one year .................... 9.73 9,128 9,212 54,702 55,343
One to five years .................. 11.69 24,822 27,490 99,231 105,795
Five to ten years .................. 12.69 74,129 85,625 103,983 120,449
Over ten years ..................... 11.29 59,822 66,425 63,129 72,841
------------ ----------- ------------ -----------
Total ............................ 6/11 11.82 167,901 188,752 321,045 354,428
Mortgage-backed:
Within one year .................... 5.37 ---- ---- ---- ----
One to five years .................. 7.24 125,681 127,541 ---- ----
Five to ten years .................. 6.88 164,342 168,203 192,917 197,342
Over ten years ..................... 8.01 814,332 854,940 1,105,018 1,168,952
------------ ----------- ------------ -----------
Total ............................ 17/5 7.77 1,104,355 1,150,684 1,297,935 1,366,294
Other interest-earning
investments:
Within one year .................... 6.64 5,399 5,442 ---- ----
One to five years .................. 6.32 29,111 30,350 250 250
Five to ten years .................. 5.14 37,711 40,193 250 250
Over ten years ..................... 7,614 8,134 ---- ----
------------ ----------- ------------ -----------
Total ............................ 1/7 6.42 79,835 84,119 500 500
------------ ----------- ------------ -----------
Total held-to-maturity ........... 12/5 8.03 1,352,091 1,423,555 1,619,480 1,721,222
Available-for-Sale
U.S. Treasury and other U.S.
Government agencies:
Within one year .................... 6.80 2,118,932 2,122,993 571,027 576,392
One to five years .................. 6.64 3,000,028 3,038,951 5,377,907 5,512,426
Five to ten years .................. 4.30 5,149 5,500 251 266
Over ten years ..................... 13.60 11,166 15,858 16,188 23,272
------------ ----------- ------------ -----------
Total ............................ 2/4 6.66 5,135,275 5,183,302 5,965,373 6,112,356
State and municipal:
Within one year .................... 7.63 15,649 15,855 23,910 23,961
One to five years .................. 7.33 35,119 35,841 24,321 25,153
Five to ten years .................. 7.87 29,038 29,571 48,245 49,411
Over ten years ..................... 9.86 17,445 18,307 18,604 20,050
------------ ----------- ------------ -----------
Total ............................ 5/4 8.02 97,251 99,574 115,080 118,575
Mortgage-backed:
Within one year .................... 7.16 159,978 159,890 208,119 207,974
One to five years .................. 5.34 1,243,815 1,252,752 1,522,543 1,536,221
Five to ten years .................. 7.14 972,528 973,369 948,784 958,930
Over ten years ..................... 6.77 1,010,796 1,021,108 1,093,040 1,121,124
------------ ----------- ------------ -----------
Total ............................ 15/0 6.52 3,387,117 3,407,119 3,772,486 3,824,249
Other interest-earning
investments:
Within one year .................... 7.13 166,407 166,905 151,196 152,589
One to five years .................. 6.72 801,346 803,543 618,844 628,774
Five to ten years .................. 7.54 ---- ---- 248 256
Over ten years ..................... 6.55 ---- ---- 73,200 73,200
------------ ----------- ------------ -----------
Total ............................ 7/6 6.74 967,753 970,448 843,488 854,819
------------ ----------- ------------ -----------
Total available-for-sale interest
earning investments ................ 7/10 6.62 9,587,396 9,660,443 10,696,427 10,909,999
Federal Reserve Bank stock and
other investments .................. 153,852 164,309 110,652 123,908
------------ ----------- ------------ -----------
Total available-for-sale ......... 9,741,248 9,824,752 10,807,079 11,033,907
------------ ----------- ------------ -----------
Total portfolio .................. $11,093,339 $11,248,307 $12,426,559 $12,755,129
============ =========== ============ ===========
</TABLE>
* Yields are presented on a fully taxable equivalent basis using the federal
income tax rate and state tax rates, as applicable.
26
<PAGE>
Consumer loans, including residential mortgages, increased $1.135
billion or 6.9 percent. Credit cards and residential mortgages
accounted for substantially all the growth, rising $677 million or
13.7 percent and $625 million or 9.2 percent, respectively. Growth
in residential mortgages reflected gains in adjustable rate
mortgages and equity banklines, with both categories combined
advancing every month in 1997. Reduced net margins in automobile
sales financing helped push indirect retail loans lower by $173
million or 5.5 percent, while direct retail loans remained
essentially unchanged. The corporation's managed credit card
portfolio, which includes securitized loans, was $6.419 billion or
14.4 percent of total managed loans at December 31, 1997 compared
with $6.221 billion or 16.1 percent one year earlier. Included in
the managed credit card amounts was $500 million of securitized
loans at year-end 1997 versus $625 million at the end of 1996.
Additional data on the corporation's managed credit cards,
including net charge-offs and delinquency ratios, is presented on
page 34.
Investment securities, the second largest category of
interest-earning assets, decreased $1.083 billion or 9.1 percent
for the year with portions of the portfolio allowed to runoff as
part of the corporation's balance sheet management strategy.
Available-for-sale securities declined $933 million or 9 percent,
reflecting decreases primarily in U.S. Government and agency
securities and in mortgage-backed securities. Held-to-maturity
securities were lower by $150 million or 10.2 percent. At
December 31, 1997, available-for-sale securities totaled $8.910
billion and held-to-maturity securities were $1.509 billion.
Marking average available-for-sale securities to fair market
value resulted in an unrealized gain over amortized cost of
$65.846 million, pretax, and $41.028 million, net of tax, for the
year. The unrealized gain is included, net of tax, in average
shareholders' equity.
Interest Expense
Interest expense for 1997 was up $83.047 million or 4 percent. The
increase was driven primarily by deposit growth to fund loan
expansion, with a higher average rate paid on interest-bearing
liabilities also contributing to the rise.
As part of its funding strategy, the corporation is innovatively
marketing traditional funding sources 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 introduction of PC Banking; and significant
enhancements to the corporation's basic checking products.
Wholesale funding sources include senior debt, trust capital
securities and a global bank note program. Management believes
that financial institutions will need continued flexibility and
innovation to attract future funding through deposit products and
alternative sources. Discussion of the corporation's liquidity
policies may be found on pages 32 through 33.
Interest-bearing time deposits rose $1.974 billion or 7.1
percent, accounting for all the year's growth in interest-bearing
liabilities. Interest-bearing time deposits increased to 66.2
percent of total interest-bearing liabilities from 63.7 percent
in 1996, helping moderate the rise in the average rate paid on
interest-bearing liabilities. Growth in interest-bearing time
deposits occurred primarily in savings and money market savings,
which expanded $1.154 billion or 12.2 percent, reflecting
increases in the corporation's Premiere account. Good gains also
occurred in foreign time deposits and in large denomination
certificates, due to their attractiveness relative to other
sources of wholesale funds. Interest-bearing demand deposits were
modestly higher for the year, while savings certificates
decreased slightly. Gross deposits averaged $36.516 billion for
the year, an increase of $2.416 billion or 7.1 percent from
$34.100 billion in 1996. Collected deposits, net of float,
averaged $34.518 billion, higher by $2.315 billion or 7.2 percent
from $32.203 billion in the previous year.
Short-term borrowings remained essentially unchanged. Lower
levels of federal funds purchased and securities sold under
repurchase agreements were offset by increases in commercial
paper borrowings and in other short-term borrowings, which
largely consists of short-term bank notes.
27
<PAGE>
Long-term debt declined $572 million or 8.5 percent. Medium-term
bank notes decreased $1.535 billion or 33.3 percent, reflecting
maturation and runoff in note borrowings. Other long-term debt
rose $963 million or 46.2 percent, partially offsetting the
decline in medium-term bank notes. Included in other long-term
debt at December 31, 1997 was a total of $995.993 million of
trust capital securities issued in December 1996 and January,
April and June 1997; $200 million of 10-year senior debt fixed
rate notes issued in November 1996; and $250 million of 30-year
subordinated debt with a 10-year put option issued in the fourth
quarter of 1995. 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.
Wachovia Bank has an ongoing $16 billion global bank note program
consisting of short-term issues of 7 days to one year and
medium-term issues of greater than one year. At December 31,
1997, short-term bank notes were $227 million with an average
cost of 5.64 percent and an average maturity of .7 months
compared with $515 million, 5.44 percent and 3.6 months,
respectively, one year earlier. Medium-term bank notes totaled
$2.940 billion and had an average cost of 6.12 percent and an
average maturity of 2.9 years versus $4.308 billion, 5.81 percent
and 1.8 years, respectively, at the end of 1996. Included in
medium-term bank notes at December 31, 1997 were four issues
placed in Europe: $350 million of five-year floating rate notes
issued in May 1997; $250 million of 12-year fixed rate notes
issued in October 1996; $100 million of two-year fixed rate notes
issued in August 1996; and $500 million of five-year floating
rate notes issued in May 1996. Medium-term issues under the
global bank note program are rated Aa2 by Moody's and AA+ by
Standard & Poor's, and short-term issues are rated P-1 by Moody's
and A-1+ by Standard & Poor's.
Asset and Liability
Management and
Interest Rate
Sensitivity
The income stream of the corporation is subject to risk resulting
from interest rate fluctuations to the extent there is a
difference between the amount of the corporation's
interest-earning assets and the amount of interest-bearing
liabilities that are prepaid, withdrawn, mature or reprice in
specified periods. The goal of asset and liability management is
to maintain high quality and consistent growth of net interest
income with acceptable levels of risk to changes in interest
rates. The corporation seeks to meet this goal by influencing 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 positions and discretionary on- and off-balance
sheet activity is reviewed quarterly by the Board Finance
Committee. Interim oversight of the asset and 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. The rate sensitivity
gap table on page 29 sets forth the volume of interest-earning
assets and interest-bearing liabilities outstanding as of
year-ends 1997 and 1996 which mature or are projected to reprice
in each of the future time periods shown. The projected asset
repricing volumes include management assumptions of prepayments
of mortgage related assets and automobile financing. Also, the
projected interest checking and savings and money market savings
repricing volumes are based on management assumptions of the
sensitivity of these accounts in relationship to changes in
28
<PAGE>
short-term money market interest rates. Since assets and
liabilities within each interest-sensitive period may not reprice
by the same amount or at the same time, the following table may
not be reflective of changes in net interest income which would
result from changes in the general level of interest rates.
Interest Rate Sensitivity Gap Analysis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Interest Sensitive Period
------------------------------------
0 to 3 4 to 6 7 to 12
Months Months Months
-------- ------- -------
$ in millions
December 31, 1997
- -----------------
Loans and net leases, net of unearned income ............................... $26,681 $1,920 $3,044
Investment securities ...................................................... 1,395 1,126 1,179
Interest-bearing bank balances ............................................. 133 ---- ----
Federal funds sold and securities purchased under resale agreements ........ 1,589 ---- ----
Trading account assets ..................................................... 999 ---- ----
-------- ------- -------
Total interest-earning assets ........................................... 30,797 3,046 4,223
Interest-bearing demand .................................................... 608 147 295
Savings and money market savings ........................................... 7,269 345 690
Savings certificates ....................................................... 3,263 1,937 2,809
Large denomination certificates ............................................ 1,070 415 510
Time deposits in foreign offices ........................................... 4,502 2 ----
Federal funds purchased and securities sold under repurchase agreements..... 8,314 1 ----
Commercial paper ........................................................... 1,034 ---- ----
Other short-term borrowed funds ............................................ 648 11 2
Bank notes ................................................................. 997 450 424
Other long-term debt ....................................................... 598 20 ----
-------- ------- -------
Total interest-bearing liabilities ...................................... 28,303 3,328 4,730
Interest rate swaps ........................................................ (808) (315) (34)
-------- ------- -------
Interest sensitivity gap ................................................ 1,686 (597) (541)
-------- ------- -------
Cumulative interest sensitivity gap ..................................... $ 1,686 $1,089 $ 548
======== ======= =======
December 31, 1996
- -----------------
Loans and net leases, net of unearned income ............................... $21,543 $1,705 $2,579
Investment securities ...................................................... 1,071 964 1,817
Interest-bearing bank balances ............................................. 78 ---- ----
Federal funds sold and securities purchased under resale agreements ........ 276 ---- ----
Trading account assets ..................................................... 1,188 1 ----
-------- ------- -------
Total interest-earning assets ........................................... 24,156 2,670 4,396
Interest-bearing demand .................................................... 491 145 290
Savings and money market savings ........................................... 6,062 438 876
Savings certificates ....................................................... 2,329 1,897 2,078
Large denomination certificates ............................................ 1,104 481 236
Time deposits in foreign offices ........................................... 1,156 29 ----
Federal funds purchased and securities sold under repurchase agreements..... 7,171 15 ----
Commercial paper ........................................................... 706 ---- ----
Other short-term borrowed funds ............................................ 762 220 1
Bank notes ................................................................. 2,514 150 275
Other long-term debt ....................................................... 213 48 49
-------- ------- -------
Total interest-bearing liabilities ...................................... 22,508 3,423 3,805
Interest rate swaps ........................................................ (627) (139) (1)
-------- ------- --------
Interest sensitivity gap ................................................ 1,021 (892) 590
-------- ------- -------
Cumulative interest sensitivity gap ..................................... $ 1,021 $ 129 $ 719
======== ======= =======
<S> <C> <C> <C>
Interest Sensitive Period
-------------------------------------------
Over One
Total Within Year and
One Year Nonsensitive Total
-------------- ------------ -------
$ in millions
December 31, 1997
- -----------------
Loans and net leases, net of unearned income ............................... $31,645 $12,549 $44,194
Investment securities ...................................................... 3,700 6,719 10,419
Interest-bearing bank balances ............................................. 133 ---- 133
Federal funds sold and securities purchased under resale agreements ........ 1,589 ---- 1,589
Trading account assets ..................................................... 999 ---- 999
------- ------- -------
Total interest-earning assets ........................................... 38,066 19,268 57,334
Interest-bearing demand .................................................... 1,050 3,604 4,654
Savings and money market savings ........................................... 8,304 3,375 11,679
Savings certificates ....................................................... 8,009 2,926 10,935
Large denomination certificates ............................................ 1,995 289 2,284
Time deposits in foreign offices ........................................... 4,504 (1) 4,503
Federal funds purchased and securities sold under repurchase agreements..... 8,315 8 8,323
Commercial paper ........................................................... 1,034 ---- 1,034
Other short-term borrowed funds ............................................ 661 92 753
Bank notes ................................................................. 1,871 1,069 2,940
Other long-term debt ....................................................... 618 2,376 2,994
------- -------- -------
Total interest-bearing liabilities ...................................... 36,361 13,738 50,099
Interest rate swaps ........................................................ (1,157) 1,157 ----
------- -------- -------
Interest sensitivity gap ................................................ $ 548 6,687 $ 7,235
======= -------- =======
Cumulative interest sensitivity gap ..................................... $ 7,235
========
December 31, 1996
- -----------------
Loans and net leases, net of unearned income ............................... $25,827 $12,180 $38,007
Investment securities ...................................................... 3,852 7,325 11,177
Interest-bearing bank balances ............................................. 78 ---- 78
Federal funds sold and securities purchased under resale agreements ........ 276 ---- 276
Trading account assets ..................................................... 1,189 1 1,190
------- -------- -------
Total interest-earning assets ........................................... 31,222 19,506 50,728
Interest-bearing demand .................................................... 926 3,266 4,192
Savings and money market savings ........................................... 7,376 2,700 10,076
Savings certificates ....................................................... 6,304 4,057 10,361
Large denomination certificates ............................................ 1,821 378 2,199
Time deposits in foreign offices ........................................... 1,185 ---- 1,185
Federal funds purchased and securities sold under repurchase agreements..... 7,186 20 7,206
Commercial paper ........................................................... 706 ---- 706
Other short-term borrowed funds ............................................ 983 56 1,039
Bank notes ................................................................. 2,939 1,369 4,308
Other long-term debt ....................................................... 310 2,407 2,717
------- -------- -------
Total interest-bearing liabilities ...................................... 29,736 14,253 43,989
Interest rate swaps ........................................................ (767) 767 ----
------- -------- -------
Interest sensitivity gap ................................................ $ 719 6,020 $ 6,739
======= -------- =======
Cumulative interest sensitivity gap ..................................... $ 6,739
========
</TABLE>
Note: Refer to page 28 for details on management's assumptions of the repricing
characteristics of certain accounts without contractual maturity dates.
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
and off-balance sheet financial instruments. The model
projections are based upon 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
29
<PAGE>
points up or down over the same period. The corporation policy
limit for the maximum negative impact on net interest income from
a gradual change in interest rates of 200 basis points over 12
months is 7.5 percent. Management generally has maintained a risk
position well within the policy guideline level. As of December
31, 1997, the model indicated the impact of a 200 basis point
gradual rise in rates over 12 months would approximate a .9
percent decrease in net interest income, while a 200 basis point
decline in rates over the same period would approximate a .7
percent increase from an unchanged rate environment. At December
31, 1996, the model indicated the impact of a 200 basis point
gradual rise in rates over 12 months would approximate a 1
percent decrease in net interest income, while a 200 basis point
decline in rates over the same period would approximate a 1
percent increase from 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
December 31, 1997. In addition to on-balance sheet instruments
such as investment securities and purchased funds, the
corporation uses off-balance sheet derivative instruments to
manage interest rate risk, liquidity and net interest income.
Off-balance sheet instruments include interest rate swaps,
futures and options with indices that directly correlate to
on-balance sheet instruments. The corporation has used
off-balance sheet financial instruments, principally interest
rate swaps, over a number of years and believes their use on a
sound basis enhances the effectiveness of asset and liability and
interest rate sensitivity management.
Off-balance sheet asset and liability derivative transactions are
based on referenced or notional amounts. At December 31, 1997,
the corporation had $3.925 billion notional amount of derivatives
outstanding for asset and liability management purposes. Details
on the maturity schedule of asset and liability management
derivatives including notional amounts and average maturities are
contained in the following table.
Maturity Schedule of Asset and Liability Management Derivatives
-----------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
Within Over Average
One Two Three Four Five Five Life
$ in millions Year Years Years Years Years Years Total (Years)
----- --- --- --- --- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate swaps:
Pay fixed/receive floating:
Notional amount ..................... $ 267 $ 338 $ 25 $ 3 $ 1 $ 82 $ 716 1.63
Weighted average rates received ..... 4.88% 5.77% 6.01% 6.40% 5.88% 5.91% 5.47%
Weighted average rates paid ......... 7.29 6.10 6.54 9.03 6.19 7.92 6.78
Receive fixed/pay floating:
Notional amount ..................... $ 476 $ 101 $ 53 $ 102 $ 250 $ 802 $1,784 10.84
Weighted average rates received ..... 7.04% 6.59% 6.92% 6.44% 7.09% 7.55% 7.21%
Weighted average rates paid ......... 5.86 5.80 6.04 6.02 5.85 5.99 5.93
Receive floating/pay floating:
Notional amount ..................... ---- ---- ---- $ 300 ---- ---- $ 300 3.43
Weighted average rates received ..... ---- ---- ---- 5.89% ---- ---- 5.89%
Weighted average rates paid ......... ---- ---- ---- 5.99 ---- ---- 5.99
Index amortizing swaps:*
Receive fixed/pay floating:
Notional amount ..................... $ 125 ---- ---- ---- ---- ---- $ 125 .07
Weighted average rates received ..... 8.56% ---- ---- ---- ---- ---- 8.56%
Weighted average rates paid ......... 5.81 ---- ---- ---- ---- ---- 5.81
Total interest rate swaps:
Notional amount ..................... $ 868 $ 439 $ 78 $ 405 $ 251 $ 884 $2,925 7.36
Weighted average rates received ..... 6.60% 5.96% 6.62% 6.03% 7.08% 7.40% 6.71%
Weighted average rates paid ......... 6.29 6.03 6.21 6.02 5.86 6.17 6.14
Futures ................... $ 1,000 ---- ---- ---- ---- ---- $1,000 .10
Total derivatives
(notional amount) ................... $ 1,868 $ 439 $ 78 $ 405 $ 251 $ 884 $3,925 5.51
</TABLE>
* Maturity is based upon expected average lives rather than contractual lives.
30
<PAGE>
Credit risk of off-balance sheet derivative financial instruments
is equal to the fair value gain of the instrument if a
counterparty fails to perform. The credit risk is normally a
small percentage of the notional amount and fluctuates as
interest rates move up or down. The corporation mitigates this
risk by subjecting the transactions to the same rigorous approval
and monitoring process as is used for on-balance sheet credit
transactions, by dealing in the national market with highly rated
counterparties, by executing transactions under International
Swaps and Derivatives Association Master Agreements and by using
collateral instruments to reduce exposure where appropriate.
Collateral is delivered by either party when the fair value of a
particular transaction or group of transactions with the same
counterparty on a net basis exceeds an acceptable threshold of
exposure. The threshold level is determined based on the strength
of the individual counterparty.
The fair value of all asset and liability derivative positions
for which the corporation was exposed to counterparties totaled
$74.012 million at December 31, 1997. The fair value of all asset
and liability derivative positions for which counterparties were
exposed to the corporation amounted to $11.455 million on the
same date. Details of the net fair value gain of $62.557 million
are included in Note K of Notes to Consolidated Financial
Statements.
Asset and liability transactions are accounted for following
hedge accounting rules. Accordingly, gains and losses related to
the fair value of derivative contracts used for asset and
liability management purposes are not immediately recognized in
earnings. If the hedged or altered balance sheet amounts were
marked to market, the resulting unrealized balance sheet gains or
losses could be expected to approximately offset unrealized
derivatives gains and losses.
The corporation uses derivative financial contracts to (1) swap
floating rate assets or liabilities to fixed rate; (2) convert
fixed rate assets or liabilities to floating rate; (3) hedge the
interest rate spread between assets and liabilities; and (4)
hedge the yield or rate on future transactions. These
transactions serve to better match the repricing characteristics
of various assets and liabilities, reduce spread risk, adjust
overall rate sensitivity and enhance net interest income.
- ------------------------------------
Large Denomination Deposits* Table 6
- ------------------------------------
December 31, 1997 (thousands)
Remaining Maturities
Three months or less ............... $ 1,059,160
Over three through six months ...... 431,190
Over six through twelve months ..... 499,781
Over twelve months ................. 293,937
-----------
Total .............................. $ 2,284,068
===========
* Includes domestic office certificates of deposit of $100 or more.
31
<PAGE>
- ------------------------------------
Short-Term Borrowed Funds Table 7
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
Amount Rate Amount Rate Amount Rate
----------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
At year-end:
Federal funds purchased and securities sold under
repurchase agreements ......................... $ 8,322,716 5.48% $7,206,005 5.71% $6,892,491 5.13%
Commercial paper ................................ 1,034,024 4.66 706,376 4.69 535,218 4.30
Other borrowed funds ............................ 752,874 5.39 1,039,221 5.46 1,775,555 5.79
------------ ----------- -----------
Total ......................................... $10,109,614 5.39 $8,951,602 5.60 $9,203,264 5.21
============ =========== ===========
Average for the year:
Federal funds purchased and securities sold under
repurchase agreements ......................... $ 6,743,997 5.30 $7,136,064 5.37 $6,263,319 5.97
Commercial paper* ............................... 781,345 5.06 595,806 4.88 535,210 5.48
Other borrowed funds ............................ 1,461,781 5.57 1,286,160 5.46 2,061,418 6.03
------------ ----------- -----------
Total ......................................... $ 8,987,123 5.32 $9,018,030 5.35 $8,859,947 5.96
============ =========== ===========
Maximum month-end balance:
Federal funds purchased and securities sold under
repurchase agreements ......................... $ 8,322,716 $8,519,928 $8,051,601
Commercial paper ................................ 1,034,024 706,376 599,146
Other borrowed funds ............................ 1,953,440 1,961,632 2,971,885
</TABLE>
* Average interest rate for each year includes effect of fees paid on back-up
lines of credit.
Changing the repricing characteristics of liabilities to match the
assets they support generally is accom plished through an interest
rate swap whereby the corporation pays a fixed rate and receives a
floating rate. This allows the corporation to acquire fixed-rate
assets without increasing exposure to rising interest rates.
Converting fixed-rate debt to a floating rate is accomplished
generally by receiving fixed on an interest rate swap and paying
floating. The corporation has used this type of transaction to
convert long-term subordinated debt to a floating rate. This
transaction increases liquidity by allowing a long-term liability
to replace a short-term liability, yet have a rate that is
consistent with and fluctuates with short-term rates. Receiving a
fixed rate on an interest rate swap and paying a floating rate has
the effect of converting floating-rate assets to fixed-rate
assets. The results are essentially the same as acquiring a
fixed-rate security funded with a floating-rate liability. Both
transactions reduce asset sensitivity. The corporation has used
this type of transaction to convert a portion of the floating-rate
credit card portfolio to fixed rates.
Hedging the spread between the rate received and the rate paid on
certain assets and liabilities can be achieved by the use of
options contracts such as caps and floors. Changes in the yield
or rate on anticipated future transactions can be hedged by
purchasing or selling futures contracts on which change in price
is highly correlated with the anticipated transaction. The
corporation has used both futures contracts and options contracts
to hedge spreads and anticipated transactions.
Liquidity To ensure the corporation is positioned to meet immediate and
Management future cash demands, management relies on liquidity analysis,
knowledge of business trends over past economic cycles and
forecasts of future conditions. Liquidity is monitored through
policy guidelines, which limit the level, maturity and
concentration of noncore funding sources. Liquidity is maintained
through a strong balance sheet and operating performance that
generates high credit ratings for funding at attractive rates and
that assures market acceptance. At December 31, 1997, the
corporation's senior debt was rated Aa3 by Moody's and AA by
Standard & Poor's. Subordinated debt was rated A1 and AA- by
Moody's and Standard & Poor's, respectively. Commercial paper was
rated P-1 by Moody's and A-1+ by Standard & Poor's.
Through its balance sheet, the corporation generates liquidity on
the asset side by maintaining significant amounts of
available-for-sale investment securities, which may be sold at
any time, and 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.
32
<PAGE>
Through policy guidelines, the corporation limits net purchased
funds to 50 percent of long-term assets, which include net loans
and leases, investment securities with remaining maturities over
one year and net foreclosed real estate. Policy guidelines insure
against concentrations by maturity of noncore funding sources by
limiting the cumulative percentage of purchased funds that mature
overnight, within 30 days and within 90 days. Guidelines also
require the monitoring of significant concentrations of funds by
single sources and by type of borrowing category.
Nonperforming Nonperforming assets at December 31, 1997 totaled $129.495 million
Assets or .29 percent of period-end loans and foreclosed property. The
total was down $2.023 million or 1.5 percent from one year
earlier, primarily reflecting lower valuations for foreclosed real
estate. The corporation's nonperforming assets historically have
remained relatively low due to strong underwriting standards and a
consistent and disciplined credit review policy.
Real estate nonperforming assets, the largest category of total
nonperforming assets, were $106.318 million or .64 percent of
real estate loans and foreclosed real estate compared with
$110.590 million or .79 percent at year-end 1996. Included in
real estate nonperforming assets were real estate nonperforming
loans of $84.872 million at December 31, 1997 versus $85.923
million one year earlier.
Commercial real estate nonperforming assets totaled $50.930
million or .59 percent of related loans and foreclosed real
estate compared with $61.574 million or .89 percent at year-end
1996. Commercial real estate nonperforming loans were $45.335
million versus $55.007 million at the end of 1996.
- -----------------------------------------------------------------
Nonperforming Assets and Contractually Past Due Loans Table 8
- --------------------------------------------------------------------------------
December 31 (thousands)
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Nonperforming Assets
Cash-basis assets ............................. $ 101,156 $ 98,638
Restructured loans ............................ ---- ----
--------- ---------
Total nonperforming loans ................. 101,156 98,638
Foreclosed property:
Foreclosed real estate ....................... 38,071 35,472
Less valuation allowance ..................... 16,625 10,805
Other foreclosed assets ...................... 6,893 8,213
--------- ---------
Total foreclosed property ................. 28,339 32,880
--------- ---------
Total nonperforming assets ................ $ 129,495 $ 131,518
========= =========
Nonperforming loans to year-end loans ......... .23% .26%
Nonperforming assets to year-end loans and
foreclosed property .......................... .29 .35
Year-end allowance for loan losses times
nonperforming loans .......................... 5.38x 5.26x
Year-end allowance for loan losses times
nonperforming assets ......................... 4.21 3.95
Contractually Past Due Loans
(accruing loans past due 90 days or more)
Borrowers ..................................... $ 114,343 $ 84,788
========= =========
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Nonperforming Assets
Cash-basis assets ............................. $ 102,310 $ 146,246 $ 202,231 $ 258,378
Restructured loans ............................ ---- ---- 686 377
--------- --------- --------- ---------
Total nonperforming loans ................. 102,310 146,246 202,917 258,755
Foreclosed property:
Foreclosed real estate ....................... 39,877 53,746 101,253 127,971
Less valuation allowance ..................... 11,136 12,112 19,974 11,597
Other foreclosed assets ...................... 4,212 2,931 3,406 2,842
--------- --------- --------- ---------
Total foreclosed property ................. 32,953 44,565 84,685 119,216
--------- --------- --------- ---------
Total nonperforming assets ................ $ 135,263 $ 190,811 $ 287,602 $ 377,971
========= ========= ========= =========
Nonperforming loans to year-end loans ......... .29% .46% .73% 1.03%
Nonperforming assets to year-end loans and
foreclosed property .......................... .38 .60 1.03 1.50
Year-end allowance for loan losses times
nonperforming loans .......................... 5.07x 3.53x 2.51x 1.86x
Year-end allowance for loan losses times
nonperforming assets ......................... 3.84 2.70 1.77 1.27
Contractually Past Due Loans
(accruing loans past due 90 days or more)
Borrowers ..................................... $ 69,953 $ 48,050 $ 51,239 $ 64,464
========= ========= ========= =========
</TABLE>
Provision The provision for loan losses was $264.949 million, exceeding net
and loan losses for the year and up for $71.173 million or 36.7
Allowance percent from $193.776 million in 1996. Included in the provision
for Loan for 1997 was a special merger-related charge of $10.845 million to
Losses align the practices of the merged entities with those of the
corporation.
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
33
<PAGE>
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.
Net loan losses for the year totaled $264.164 million or .67
percent of average loans compared with $193.487 million or .53
percent of loans in 1996, an increase of $70.677 million or 36.5
percent. The rise in net loan losses was driven primarily by
higher charge-offs in credit cards, reflecting continued growth
industry-wide in bankruptcy losses. Also contributing to the
increase in net loan losses for the year were lower recoveries in
real estate loans. Excluding credit cards, net loan losses
totaled $44.830 million or .13 percent of average loans versus
$30.545 million or .10 percent in 1996. Management anticipates
net loan losses to continue to rise in 1998, primarily reflecting
higher bankruptcy-driven credit card losses.
Credit card net loan losses were $219.334 million or 3.90 percent
of average credit card loans, up $56.392 million or 34.6 percent
from $162.942 million or 3.29 percent of average receivables in
1996. Net recoveries in real estate loans totaled $569 thousand
for the year compared with $8.573 million in 1996, a decline of
$8.004 million.
Selected data on the corporation's managed credit card portfolio,
which includes securitized loans, appears in the following table.
Managed credit card data
-----------------------------------------------------------
<TABLE>
<CAPTION>
$ in thousands 1997 1996 1995
------- ---- ----
<S> <C> <C> <C>
Average credit card outstandings ..................... $ 6,179,456 $ 5,573,626 $ 4,767,657
Net loan losses ...................................... 240,388 183,082 114,014
Net loan losses to average loans ..................... 3.89% 3.28% 2.39%
Delinquencies (30 days or more) to period-end loans .. 2.75 2.35 2.31
</TABLE>
The allowance for loan losses at December 31, 1997 was $544.723
million, representing 1.23 percent of year-end loans and 538
percent of nonperforming loans. This compared with a balance of
$519.297 million, representing 1.37 percent of loans and 526
percent of nonperforming loans one year earlier.
ALLOWANCE FOR LOAN LOSSES
(MILLIONS)
(Graph appears below)
1992 1993 1994 1995 1996 1997
Year-End Loan Loss
Allowance 1.86x 2.51x 3.53x 5.07x 5.26x 5.38x
x Allowance Times
Nonperforming Loans
EARNINGS COVERAGE OF NET LOAN LOSSES*
(MILLIONS)
(Graph appears below)
1992 1993 1994 1995 1996 1997
Earnings Before Income
Taxes and Provision for
Loan Losses 5.52x 6.43x 11.18x 8.56x 6.66x 5.38x
x Number of Times
Earnings Covered
Net Loan Losses
*Excluding Nonrecurring Items
and Securities Transactions
LOAN LOSS EXPERIENCE
(MILLIONS)
(Graph appears below)
1992 1993 1994 1995 1996 1997
Credit Card 69.0 62.0 69.7 109.7 162.9 219.3
Commercial 6.1 8.3 7.5 - 0.5 5.1
Real Estate 58.0 63.3 - - - -
Other 21.1 10.1 12.8 24.7 38.7 40.4
.65% .56% .30% .38% .53% .67%
% Net Loan Losses to Average Loans
34
<PAGE>
- ------------------------------------
Allowance for Loan Losses Table 9
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
------ ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Summary of Transactions
Balance at beginning of year ...................... $519,297 $518,808 $516,132 $509,798 $481,357 $421,193
Additions from acquisitions ....................... 24,641 200 ---- ---- ---- ----
Allowance of company sold ......................... ---- ---- ---- ---- ---- (4,811)
Provision for loan losses ......................... 264,949 193,776 130,504 96,122 172,161 219,177
Deduct net loan losses:
Loans charged off:
Commercial ...................................... 9,254 6,375 6,364 14,319 15,047 20,007
Credit card ..................................... 246,008 184,387 125,301 83,597 75,325 82,272
Other revolving credit .......................... 10,564 8,834 5,966 4,933 5,259 6,468
Other retail .................................... 39,801 41,581 26,958 15,696 12,611 22,441
Real estate ..................................... 11,564 7,915 15,299 18,292 75,136 66,286
Lease financing ................................. 4,488 1,635 892 226 458 668
Foreign ......................................... ---- ---- ---- ---- ---- 960
-------- -------- -------- -------- -------- --------
Total ......................................... 321,679 250,727 180,780 137,063 183,836 199,102
Recoveries:
Commercial ...................................... 4,171 5,905 9,078 6,848 6,720 13,860
Credit card ..................................... 26,674 21,445 15,644 13,913 13,350 13,292
Other revolving credit .......................... 2,361 1,695 1,369 1,278 1,328 1,223
Other retail .................................... 11,837 11,524 7,472 6,505 6,545 7,889
Real estate ..................................... 12,133 16,488 19,239 18,495 11,877 8,307
Lease financing ................................. 339 183 142 204 264 322
Foreign ......................................... ---- ---- 8 32 32 7
-------- -------- -------- -------- -------- --------
Total ......................................... 57,515 57,240 52,952 47,275 40,116 44,900
-------- -------- -------- -------- -------- --------
Net loan losses .................................. 264,164 193,487 127,828 89,788 143,720 154,202
-------- -------- -------- -------- -------- --------
Balance at end of year ............................ $544,723 $519,297 $518,808 $516,132 $509,798 $481,357
======== ======== ======== ======== ======== ========
Net Loan Losses (Recoveries) by
Category
Commercial ........................................ $ 5,083 $ 470 $(2,714) $ 7,471 $ 8,327 $ 6,147
Credit card ....................................... 219,334 162,942 109,657 69,684 61,975 68,980
Other revolving credit ............................ 8,203 7,139 4,597 3,655 3,931 5,245
Other retail ...................................... 27,964 30,057 19,486 9,191 6,066 14,552
Real estate ....................................... (569) (8,573) (3,940) (203) 63,259 57,979
Lease financing ................................... 4,149 1,452 750 22 194 346
Foreign ........................................... ---- ---- (8) (32) (32) 953
-------- -------- ---------- -------- -------- --------
Total ......................................... $264,164 $193,487 $127,828 $ 89,788 $143,720 $154,202
======== ======== ========= ======== ======== ========
Net loan losses -- excluding credit cards ......... $ 44,830 $ 30,545 $18,171 $ 20,104 $ 81,745 $ 85,222
Net Loan Losses (Recoveries) to
Average Loans by Category
Commercial ........................................ .04% ----% (.02%) .07% .10% .07%
Credit card ....................................... 3.90 3.29 2.41 1.74 2.07 3.22
Other revolving credit ............................ 1.93 1.71 1.15 .96 1.06 1.42
Other retail ...................................... .67 .69 .47 .23 .17 .45
Real estate ....................................... ---- (.06) (.03) ---- .64 .62
Lease financing ................................... .43 .22 .27 .01 .14 .28
Foreign ........................................... ---- ---- ---- (.03) (.04) 1.32
Total loans ....................................... .67 .53 .38 .30 .56 .65
Total loans -- excluding credit cards ............. .13 .10 .06 .08 .36 .39
Year-end allowance to outstanding loans ........... 1.23% 1.37% 1.46% 1.63% 1.84% 1.92%
Earnings coverage of net loan losses* ............. 5.38x 6.66x 8.56x 11.18x 6.43x 5.52x
Allocation of Allowance for Loan
Losses**
Commercial ........................................ $120,195 $117,883 $123,161 $135,725 $135,898 $122,404
Credit card ....................................... 221,142 191,606 141,763 130,111 94,697 71,863
Other revolving credit ............................ 10,682 8,268 7,174 6,433 5,812 5,615
Other retail ...................................... 36,669 48,011 42,999 38,175 39,384 34,368
Real estate ....................................... 93,821 94,167 127,763 143,659 147,570 161,240
Lease financing ................................... 6,537 3,685 1,666 2,211 2,018 1,994
Foreign ........................................... 3,702 3,702 3,697 3,830 931 715
Unallocated ....................................... 51,975 51,975 70,585 55,988 83,488 83,158
-------- -------- --------- -------- -------- --------
Total ......................................... $544,723 $519,297 $518,808 $516,132 $509,798 $481,357
======== ======== ========= ======== ======== ========
</TABLE>
* Earnings before income taxes and provision for loan losses excluding
subsidiary sale, securities transactions and nonrecurring charges.
** The allocation of the allowance for loan losses above represents an estimate
based on historical loss experience, individual credits, economic
conditions and other judgmental factors. Since any allocation is judgmental
and involves consideration of many factors, the allocation may be more or
less than the charge-offs that may ultimately occur. The entire allowance
is available for charge-offs in any category of loans. See page 77 for
percentages of loan categories to total loans.
35
<PAGE>
Noninterest Total other operating revenue, which excludes investment
Income securities sales, increased $131.036 million or 15 percent. All
major categories of total other operating revenue advanced for the
year, reflecting stronger sales efforts, higher fee volume and
good gains from the corporation's consumer banking initiatives.
Included in total other operating revenue for 1997 was a gain of
approximately $21.096 million from sales of branch offices versus
a gain of $12.496 million in 1996 from the sale of the
corporation's bond trustee business. Excluding these one-time
gains, total other operating revenue rose $122.436 million or 14.2
percent in 1997. Based on economic trends known at the end of
1997, management has targeted growth of approximately 14 percent
in total other operating revenue for 1998 led by trust services,
deposit charge revenues, debit card income, capital markets income
and investment fee services.
Deposit account service charge revenues rose $25.561 million or
9.1 percent. Higher commercial analysis fees, insufficient funds
charges and overdraft fees primarily accounted for the year's
increase.
Trust service fees grew $20.928 million or 13.5 percent,
reflecting greater business volume as well as increased fees from
higher portfolio asset values. Good gains occurred in trust and
investment management services, in institutional trust and
retirement services and in asset management services, with fees
collected from the Wachovia Funds also showing good growth for
the year. At December 31, 1997, trust assets totaled $129.079
billion, including $33.568 billion under management, versus
$108.557 billion with $26.161 billion under management at
year-end 1996.
Credit card income was up $18.852 million or 13.1 percent. Growth
primarily reflected higher overlimit charges, greater card sales
transactions and an increase in net revenues recognized from
securitized loans. Active managed credit card accounts totaled
2.307 million at December 31, 1997 compared with 2.271 million
one year earlier.
Investment fee income rose $9.740 million or 22.3 percent. Gains
occurred largely in mutual fund income, brokerage commissions and
corporate financing activities, which are part of capital markets
income. Included in investment fee income are sales by investment
counselors of the Wachovia Funds, the corporation's proprietary
family of mutual funds. The Wachovia Funds had assets totaling
$5.062 billion at December 31, 1997 versus $3.739 billion one
year earlier.
- -----------------------------
Noninterest Income Table 10
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts .................. $ 306,231 $280,670 $ 244,671 $ 231,646 $237,328 $219,881
Fees for trust services .............................. 175,549 154,621 145,464 142,026 133,651 121,712
Credit card income -- net of interchange
payments ............................................ 162,234 143,382 127,153 126,886 104,922 83,104
Electronic banking ................................... 64,640 56,226 39,722 28,347 17,857 15,290
Investment fee income ................................ 53,487 43,747 27,656 14,522 17,153 13,021
Mortgage fee income .................................. 23,544 21,371 26,139 33,997 41,339 41,747
Trading account profits (losses) -- excluding
interest ............................................ 26,851 22,654 24,235 8,794 20,063 (5,199)
Insurance premiums and commissions ................... 30,205 20,562 17,455 17,018 16,566 17,359
Bankers' acceptance and letter of credit fees ........ 34,526 28,243 25,953 25,801 22,277 22,438
Student loan servicing ............................... ---- ---- ---- ---- 5,535 33,250
Other service charges and fees ....................... 38,750 38,590 30,271 22,876 22,094 22,852
Other income ......................................... 89,751 64,666 48,396 38,186 30,684 10,394
----------- --------- ---------- ---------- --------- ---------
Total other operating revenue .................... 1,005,768 874,732 757,115 690,099 669,469 595,849
Gain on sale of mortgage servicing portfolio ......... ---- ---- 79,025 ---- ---- ----
Gain on sale of subsidiary ........................... ---- ---- ---- ---- 8,030 19,486
Investment securities gains (losses) ................. 1,454 4,588 (19,672) (21,972) 74,256 54,151
----------- --------- ---------- ---------- --------- ---------
Total ............................................ $1,007,222 $879,320 $ 816,468 $ 668,127 $751,755 $669,486
=========== ========= ========== ========== ========= =========
</TABLE>
36
<PAGE>
Electronic banking income, consisting of fees from debit card and
ATM usage, increased $8.414 million or 15 percent for the year.
Growth was driven principally by higher debit card interchange
income and ATM foreign access fees.
Trading account profits grew $4.197 million or 18.5 percent,
reflecting gains from sales of U.S. Treasury securities and
mortgage-backed securities as well as from derivatives income and
foreign exchange trading. Both derivatives income and foreign
exchange trading are part of the corporation's expanding capital
markets services.
Mortgage fee income was higher by $2.173 million or 10.2 percent.
Gains on sales of mortgage loans to the secondary market and
increased volume in mortgage servicing activities acquired
through the merger with Central Fidelity principally accounted
for the year's growth.
Remaining combined categories of total other operating revenue
rose $41.171 million or 27.1 percent. Insurance premiums and
commissions were up $9.643 million or 46.9 percent, and bankers'
acceptance and letter of credit fees grew $6.283 million or 22.2
percent. Other service charges and fees were modestly higher,
while other income expanded $25.085 million or 38.8 percent.
Included in other income in 1997 and in 1996 were the gains on
branch sales and the gain from the sale of the corporation's bond
trustee business, respectively.
Including investment securities sales, total noninterest income
increased $127.902 million or 14.5 percent for the year.
Investment securities sales resulted in a net gain of $1.454
million in 1997 compared with $4.588 million in 1996.
Noninterest Noninterest expense was up $457.748 million or 30.3 percent for
Expense the year and included a total of $287.532 million, pretax, in
nonrecurring charges taken in the fourth quarter. The corporation
recorded a merger-related charge of $220.330 million, pretax, for
its integration of Central Fidelity Banks, Inc., Jefferson
Bankshares and 1st United Bancorp and a technology impairment
charge of $67.202 million, pretax, for the write-down and disposal
of personal computer hardware and software purchased before 1997.
The merger-related charge covered pretax expenses of $114.079
million for severance and personnel related costs; $66.953 million
for systems and operating charges; $16.316 million for business
line and branch integration expenses; and $22.982 million for deal
costs and other expenses. The technology impairment charge was
taken because the corporation adopted a plan to implement a
company-wide distributed technology platform for improved employee
communication capabilities.
Excluding the fourth quarter special charges, noninterest expense
on a core operating basis rose $170.216 million or 11.3 percent
for the year and the corporation's overhead ratio measuring
noninterest expense as a percentage of total adjusted revenues
(taxable equivalent net interest income and total other operating
revenue) was 53.19 percent. Growth in noninterest expense was
driven principally by higher personnel costs and increased
programming and consulting expenses associated with Year 2000
systems conversions. Management expects noninterest expense to
increase modestly on a core basis in 1998 from 1997's core
operating expense level of $1.679 billion. Excluded from the 1998
projection are additional expenses of approximately $50 million
for merger-related costs that will be recognized primarily in the
first half of the year and approximately $17 million for Year
2000 project costs.
37
<PAGE>
- -------------------------------
Noninterest Expense Table 11
- --------------------------------------------------------------------------------
(thousands)
1997 1996
------- ----
Salaries ............................... $ 742,106 $ 655,065
Employee benefits ...................... 163,051 141,867
----------- -----------
Total personnel expense ............ 905,157 796,932
Net occupancy expense .................. 116,654 114,001
Equipment expense ...................... 142,227 132,775
Postage and delivery ................... 48,657 47,195
Outside data processing, programming
and software .......................... 86,497 51,139
Stationery and supplies ................ 30,960 30,043
Advertising and sales promotion ........ 72,046 68,639
Professional services .................. 54,113 41,223
Travel and business promotion .......... 25,215 21,096
Regulatory agency fees and other bank
services .............................. 14,600 16,771
Amortization of intangible assets ...... 13,308 9,163
Foreclosed property expense ............ 1,875 1,930
Personal computer impairment charge..... 67,202 ----
Merger-related charges ................. 220,330 ----
Other expense .......................... 167,880 178,066
----------- -----------
Total .............................. $ 1,966,721 $ 1,508,973
=========== ===========
Overhead ratio* ........................ 62.3% 52.5%
<TABLE>
<CAPTION>
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries ............................... $ 604,041 $ 566,368 $ 545,869 $ 533,000
Employee benefits ...................... 129,749 125,144 139,754 112,179
----------- ----------- ----------- -----------
Total personnel expense ............ 733,790 691,512 685,623 645,179
Net occupancy expense .................. 109,543 102,131 101,225 100,818
Equipment expense ...................... 127,268 124,321 119,340 116,993
Postage and delivery ................... 44,553 41,169 44,051 42,771
Outside data processing, programming
and software .......................... 47,737 39,870 42,810 37,562
Stationery and supplies ................ 30,238 27,327 28,100 29,120
Advertising and sales promotion ........ 57,957 42,576 43,972 33,091
Professional services .................. 41,152 23,326 19,025 19,692
Travel and business promotion .......... 20,267 16,743 15,977 13,927
Regulatory agency fees and other bank
services .............................. 63,136 79,693 80,341 78,009
Amortization of intangible assets ...... 12,296 21,042 30,276 35,855
Foreclosed property expense ............ 2,420 7,508 22,929 14,850
Personal computer impairment charge..... ---- ---- ---- ----
Merger-related charges ................. ---- ---- ---- ----
Other expense .......................... 151,272 126,033 120,589 128,162
----------- ----------- ----------- -----------
Total .............................. $ 1,441,629 $ 1,343,251 $ 1,354,258 $ 1,296,029
=========== =========== =========== ===========
Overhead ratio* ........................ 54.5% 54.7% 56.8% 58.0%
</TABLE>
* Overhead ratio excluding the after-tax impact of nonrecurring charges was
53.19% in 1997.
The corporation has been working since late 1995 to identify and
begin remediating data recognition problems that will be caused in
computer systems and software by the change in date from the year
1999 to the year 2000. Management has identified all business and
operational functions that will be impacted by the date change and
is moving aggressively to convert its application systems for year
2000 date recognition. Conversion and testing of all in-house
application systems is expected to be completed by mid-1998, with
testing of remaining vendor application system packages expected
to be finished by the end of 1998. While many companies will be
doing their 21st century date testing beginning in 1999, Wachovia
already has included 21st century date testing as part of its
conversion process. Throughout 1999, the corporation will conduct
testing with external entities, such as business partners and the
Federal Reserve, as they become Year 2000 ready. The corporation
also is working to assess year 2000 readiness on the part of its
current and future vendors, particularly those vendors considered
critical to the ongoing operations and business of the
corporation. Management estimates that total Year 2000 project
costs will be approximately $55 million, of which $38 million has
been spent through 1997. The corporation's Year 2000 project costs
are not expected to have a material impact on its results of
operations, liquidity or capital resources. The impact of Year
2000 noncompliance by all outside parties with whom the
corporation may transact business cannot be gauged at this time.
Total personnel costs for 1997 grew $108.225 million or 13.6
percent. Salaries expense increased $87.041 million or 13.3
percent, primarily reflecting a shift by management in its
workforce composition toward higher skilled and more revenue
generating personnel. Employee benefits expense was up $21.184
million or 14.9 percent, fueled by increased medical and
retirement benefit expenses and by higher payroll taxes.
Combined net occupancy and equipment expense rose $12.105 million
or 4.9 percent. Equipment expense accounted for most of the rise,
growing $9.452 million or 7.1 percent, largely due to higher
depreciation charges.
38
<PAGE>
Excluding the $220.330 million for merger-related charges and the
$67.202 million for the technology impairment charge, remaining
combined categories of noninterest expense increased $49.886
million or 10.7 percent. Outside data processing, programming and
software expense rose $35.358 million or 69.1 percent, reflecting
Year 2000 contract programming expenses. Professional services
expense grew $12.890 million or 31.3 percent, due to consulting
costs for Year 2000 project issues. In April, the corporation
launched its brand awareness advertising campaign as part of its
growth initiatives. Advertising expense for the year increased
$3.407 million or 5 percent.
Income Taxes Applicable income taxes decreased $66.736 million or 19.5 percent,
reflecting the reduction in the corpo ration's income before
income taxes for the year. Income taxes computed at the statutory
rate are reduced primarily by the 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. All Georgia and North
Carolina state and municipal debt instruments are exempt from
Georgia and North Carolina taxes but are taxable in other states.
State and municipal obligations of other states are generally
subject to state taxes. The tax-exempt nature of these assets
provide both an attractive return for the corporation and
substantial interest savings for local governments and their
constituents.
New In June 1996, the Financial Accounting Standards Board issued
Accounting Statement of Financial Accounting Standards No. 125, "Accounting
Standards for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (FASB 125), which provides new
accounting and reporting standards for sales, securitizations, and
servicing of receivables and other financial assets and
extinguishments of liabilities. FASB 125 is effective for
transactions occurring after December 31, 1996, except for the
provisions relating to repurchase agreements, securities lending
and other similar transactions and pledged collateral, which were
delayed until after December 31, 1997 by FASB 127, "Deferral of
the Effective Date of Certain Provisions of FASB Statement No.
125, an amendment of FASB Statement No. 125." Adoption of FASB 125
was not material; FASB 127 will be adopted as required in 1998 and
will not be material.
In June 1997, Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FASB 130), was issued and
establishes standards for reporting and displaying comprehensive
income and its components. FASB 130 requires comprehensive income
and its components, as recognized under the accounting standards,
to be displayed in a financial statement with the same prominence
as other financial statements. Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (FASB 131), also issued in June 1997,
establishes new standards for reporting information about
operating segments in annual and interim financial statements.
The standard also requires descriptive information about the way
the operating segments are determined, the products and services
provided by the segments and the nature of differences between
reportable segment measurements and those used for the
consolidated enterprise. This standard is effective for years
beginning after December 15, 1997. Adoption in interim financial
statements is not required until the year after initial adoption,
however comparative prior period information is required. The
corporation plans to adopt these standards, as required,
beginning in 1998; the disclosure requirements will have no
impact on the corporation's financial position or results of
operations.
39
<PAGE>
-----------------------------------------------
Shareholders' Equity and Capital Ratios
-----------------------------------------------------------------
At December 31, 1997, shareholders' equity was $5.174 billion, up
$566 million or 12.3 percent from $4.608 billion one year
earlier. In connection with its purchase acquisitions of
Jefferson Bankshares and 1st United Bancorp, the corporation
issued 11.743 million shares of its common stock, resulting in an
increase in shareholders' equity of $747.744 million. Included in
shareholders' equity at December 31, 1997 was $71.098 million,
net of tax, of unrealized gains on securities available-for-sale
marked to fair value versus $51.686 million, net of tax, at
year-end 1996. Wachovia's book value at December 31, 1997 was
$25.13, an increase of 9.7 percent from $22.90 one year earlier.
The corporation's internal capital generation rate (net income
less dividends as a percentage of average equity) was 5.9 percent
in 1997 and 10.1 percent in 1996. The decline reflected the
decrease in the corporation's net income for 1997 due to
nonrecurring charges taken in the fourth quarter.
- -----------------------------------------
Capital Components and Ratios Table 12
- --------------------------------------------------------------------------------
December 31 (thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------- ---- ----
<S> <C> <C> <C>
Tier I capital:
Common shareholders' equity ............... $ 5,174,301 $ 4,608,401 $ 4,600,304
Trust capital securities .................. 995,993 300,000 ----
Less ineligible intangible assets ......... 634,052 91,509 93,308
Unrealized (gains) losses on securities
available-for-sale, net of tax ........... (71,098) (51,686) (139,978)
----------- ----------- -----------
Total Tier I capital .................... 5,465,144 4,765,206 4,367,018
Tier II capital:
Allowable allowance for loan losses ....... 544,723 519,297 518,808
Allowable long-term debt .................. 1,193,451 1,288,041 1,358,479
----------- ----------- -----------
Tier II capital additions ............... 1,738,174 1,807,338 1,877,287
----------- ----------- -----------
Total capital ........................... $ 7,203,318 $ 6,572,544 $ 6,244,305
=========== =========== ===========
Risk-adjusted assets ....................... $59,543,254 $50,391,406 $45,974,802
Quarterly average assets* .................. $59,139,712 $55,897,010 $53,829,501
Risk-based capital ratios:
Tier I capital ............................ 9.18% 9.46% 9.50%
Total capital ............................. 12.10 13.04 13.58
Tier I leverage ratio ...................... 9.24% 8.52% 8.11%
Shareholders' equity to total assets ....... 7.91% 8.05% 8.25%
<S> <C> <C> <C>
1994 1993 1992
---- ---- ----
Tier I capital:
Common shareholders' equity ............... $ 3,909,580 $ 3,744,084 $ 3,378,702
Trust capital securities .................. ---- ---- ----
Less ineligible intangible assets ......... 61,995 65,835 69,600
Unrealized (gains) losses on securities
available-for-sale, net of tax ........... 139,861 (45,853) ----
------------ ----------- ------------
Total Tier I capital .................... 3,987,446 3,632,396 3,309,102
Tier II capital:
Allowable allowance for loan losses ....... 516,132 457,571 424,054
Allowable long-term debt .................. 980,782 733,738 494,983
------------ ----------- ------------
Tier II capital additions ............... 1,496,914 1,191,309 919,037
------------ ----------- ------------
Total capital ........................... $ 5,484,360 $ 4,823,705 $ 4,228,139
============ =========== ============
Risk-adjusted assets ....................... $ 42,300,758 $36,553,436 $ 33,867,036
Quarterly average assets* .................. $ 48,087,128 $44,516,447 $ 40,756,615
Risk-based capital ratios:
Tier I capital ............................ 9.43% 9.94% 9.77%
Total capital ............................. 12.97 13.20 12.48
Tier I leverage ratio ...................... 8.29% 8.16% 8.12%
Shareholders' equity to total assets ....... 7.94% 8.11% 8.03%
</TABLE>
* Excludes ineligible intangible assets and average unrealized gains (losses)
on securities available-for-sale, net of tax.
During 1997, the corporation repurchased a total of 6,913,400
shares of its common stock under three separate authorizations by
the board of directors. The shares were repurchased at an average
price of $61.78 per share for a total cost of $427.111 million.
In 1996, the corporation repurchased a total of 7,931,100 shares
at an average price of $47.21 per share for a total cost of
$374.408 million. The majority of the shares repurchased in 1997
was under the corporation's January 24, 1997 authorization to
repurchase up to 10 million shares of its common stock. The
authorization was rescinded by the board of directors effective
with the corporation's pooling-of-interests merger announcement
with Central Fidelity Banks on June 24, 1997. Repurchases by
Central Fidelity (adjusted for the exchange ratio of 0.63 to 1)
during 1997 and 1996 totaled 1,883,196 and 818,370 shares at an
average cost of $58.53 and $36.75, respectively. On January 23,
1998, the board of directors authorized the repurchase of up to
946,662 shares to be issued in connection with the pending merger
with Ameribank Bancshares, Inc., to be accounted for as a
purchase transaction. Total repurchases were authorized up to an
amount that would preserve the accounting for the merger with
Central Fidelity as a pooling-of-interests.
Intangible assets at December 31, 1997 totaled $649.542 million,
consisting of $520.803 million in goodwill, $113.248 million in
deposit base intangibles, $13.780 million in mortgage servicing
rights and $1.711 million in other intangibles, primarily
purchased credit card intangibles. This compared with intangible
assets of $109.367 million one year earlier, with $41.147 million
in goodwill, $55.803 million
40
<PAGE>
in deposit base intangibles, $10.972 million in mortgage
servicing rights and $1.445 million in other intangible assets.
The increase in goodwill and deposit base intangibles from
year-end 1996 resulted from the corporation's purchase
acquisitions of Jefferson Bankshares and 1st United Bancorp in
the fourth quarter of 1997.
Regulatory agencies divide capital into Tier I (consisting of
shareholders' equity and certain cumulative preferred stock
instruments less ineligible intangible assets) and Tier II
(consisting of the allowable portion of the reserve for loan
losses and certain long-term debt) and measure capital adequacy
by applying both capital levels to a banking company's
risk-adjusted assets and off-balance sheet items. Regulatory
requirements presently specify that Tier I capital should exclude
the market appreciation or depreciation of securities
available-for-sale arising from marking the securities portfolio
to market value. In addition to these capital ratios, regulatory
agencies have established a Tier I leverage ratio which measures
Tier I capital to average assets less ineligible intangible
assets.
Regulatory guidelines require a minimum of total capital to
risk-adjusted assets ratio of 8 percent with at least one-half
consisting of tangible common shareholders' equity and a minimum
Tier I leverage ratio of 3 percent. Banks, which meet or exceed a
Tier I ratio of 6 percent, a total capital ratio of 10 percent
and a Tier I leverage ratio of 5 percent are considered well
capitalized by regulatory standards.
At December 31, 1997, the corporation's Tier I to risk-adjusted
assets ratio was 9.18 percent and total capital to risk-adjusted
assets was 12.10 percent. The Tier I leverage ratio was 9.24
percent. The capital ratios at year-end 1997 and 1996 included
$995.993 million and $300 million, respectively, of trust capital
securities.
Dividends Cash dividends paid in 1997 totaled $327.303 million on a combined
basis, an increase of $21.563 mil lion or 7.1 percent from
$305.740 million paid in1996. The payout ratio of cash dividends
paid to net income was 55.2 percent in 1997 and 40.4 percent in
1996, with the rise in 1997 principally attributable to the year's
decrease in net income after special charges. Cash dividends paid
per common share in 1997 by Wachovia Corporation prior to its
merger with Central Fidelity were $1.68, higher by 10.5 percent
from $1.52 paid in 1996.
The corporation's board of directors declared at its meeting on
January 23, 1998 a first quarter dividend of $.44 per common
share, payable March 2, 1998 to shareholders of record on
February 5. The dividend is higher by 10 percent from $.40 per
share paid in the same quarter of 1997. Additional dividend
information may be found on page 78.
YEAR-END SHAREHOLDERS' EQUITY PER SHARE
Five-Year Compound Growth Rate = 9.1%
(Graph appears below)
1992 16.25
1993 17.98
1994 18.79
1995 22.08
1996 22.90
1997 25.13
41
<PAGE>
- -----------------------------
Financial Summary Table 13
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
-------------------------------------------
Fourth Third Second
Quarter Quarter Quarter
------------ ------ -------
<S> <C> <C> <C>
Summary of Operations
(thousands, except per share
data)
Interest income ..................... $1,119,617 $ 1,072,921 $ 1,051,622
Interest expense .................... 564,145 549,277 539,423
------------ ----------- -----------
Net interest income ................. 555,472 523,644 512,199
Provision for loan losses (1) ....... 76,915 62,756 63,047
------------ ----------- -----------
Net interest income after
provision for loan losses .......... 478,557 460,888 449,152
Other operating revenue ............. 263,258 256,047 259,594
Investment securities (losses)
gains (2) .......................... (1,693) 1,091 498
------------ ----------- -----------
Total other income .................. 261,565 257,138 260,092
Personnel expense ................... 244,250 230,352 218,916
Nonrecurring charges (3) ............ 287,532 ---- ----
Other expense ....................... 200,636 194,949 201,485
------------ ----------- -----------
Total other expense ................. 732,418 425,301 420,401
Income before income taxes .......... 7,704 292,725 288,843
Applicable income taxes ............. 4,100 93,803 92,038
------------ ----------- -----------
Net income (4) ...................... $ 3,604 $ 198,922 $ 196,805
============ =========== ===========
Net income per common
share:
Basic .............................. $ .02 $ 1.02 $ 1.00
Diluted (4) ........................ $ .02 $ 1.00 $ .98
Cash dividends paid per
common share (5) ................... $ .44 $ .44 $ .40
Average basic shares
outstanding ........................ 201,415 194,981 196,676
Average diluted shares
outstanding ........................ 205,934 198,555 199,819
Selected Average
Balances (millions)
Total assets ........................ $ 59,835 $ 57,183 $ 57,044
Loans -- net of unearned
income ............................. 41,770 39,731 39,100
Investment securities ............... 10,225 10,724 11,129
Other interest-earning assets ....... 1,637 1,457 1,370
Total interest-earning assets ....... 53,632 51,912 51,599
Interest-bearing deposits ........... 30,706 29,300 29,449
Short-term borrowed funds ........... 9,444 9,172 8,917
Long-term debt ...................... 5,935 6,031 6,063
Total interest-bearing liabilities... 46,085 44,503 44,429
Noninterest-bearing deposits ........ 7,484 6,844 6,789
Total deposits ...................... 38,190 36,144 36,238
Shareholders' equity ................ 4,884 4,391 4,376
Ratios (averages)
Annualized net yield on
interest-earning assets ............ 4.21% 4.12% 4.10%
Annualized return on
assets (6) ......................... .02 1.39 1.38
Annualized return on
shareholders' equity (6) ........... .30 18.12 17.99
1996
--------- --------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- ---------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Summary of Operations
(thousands, except per share
data)
Interest income ..................... $ 1,018,225 $ 1,023,499 $ 1,020,667 $986,332 $ 979,010
Interest expense .................... 515,973 522,595 529,286 514,293 519,597
----------- ------------- ----------- -------- ---------
Net interest income ................. 502,252 500,904 491,381 472,039 459,413
Provision for loan losses (1) ....... 62,231 59,295 51,792 45,048 37,641
----------- ------------- ----------- -------- ---------
Net interest income after
provision for loan losses .......... 440,021 441,609 439,589 426,991 421,772
Other operating revenue ............. 226,869 227,740 220,529 220,428 206,035
Investment securities (losses)
gains (2) .......................... 1,558 3,318 424 (172) 1,018
----------- ------------- ----------- -------- ---------
Total other income .................. 228,427 231,058 220,953 220,256 207,053
Personnel expense ................... 211,639 205,579 200,734 194,667 195,952
Nonrecurring charges (3) ............ ---- ---- ---- ---- ----
Other expense ....................... 176,962 180,447 183,713 175,186 172,695
----------- ------------- ----------- -------- ---------
Total other expense ................. 388,601 386,026 384,447 369,853 368,647
Income before income taxes .......... 279,847 286,641 276,095 277,394 260,178
Applicable income taxes ............. 86,372 85,133 86,367 89,222 82,327
----------- ------------- ----------- -------- ---------
Net income (4) ...................... $ 193,475 $ 201,508 $ 189,728 $188,172 $ 177,851
=========== ============= =========== ======== =========
Net income per common
share:
Basic .............................. $ .97 $ 1.00 $ .93 $ .91 $ .86
Diluted (4) ........................ $ .95 $ .98 $ .92 $ .90 $ .85
Cash dividends paid per
common share (5) ................... $ .40 $ .40 $ .40 $ .36 $ .36
Average basic shares
outstanding ........................ 200,110 202,139 203,801 205,967 207,694
Average diluted shares
outstanding ........................ 203,307 205,179 206,167 208,209 210,211
Selected Average
Balances (millions)
Total assets ........................ $ 56,333 $ 56,034 $ 56,088 $ 55,311 $ 54,894
Loans -- net of unearned
income ............................. 38,223 37,746 37,200 36,439 35,556
Investment securities ............... 11,370 11,413 11,957 12,053 12,459
Other interest-earning assets ....... 1,316 1,489 1,698 1,621 1,710
Total interest-earning assets ....... 50,909 50,648 50,855 50,113 49,725
Interest-bearing deposits ........... 28,857 28,087 27,716 27,110 27,514
Short-term borrowed funds ........... 8,403 8,594 9,101 9,257 9,123
Long-term debt ...................... 6,465 6,766 7,016 6,777 6,208
Total interest-bearing liabilities... 43,725 43,447 43,834 43,145 42,845
Noninterest-bearing deposits ........ 6,612 6,701 6,458 6,459 6,343
Total deposits ...................... 35,469 34,788 34,174 33,569 33,857
Shareholders' equity ................ 4,479 4,493 4,431 4,435 4,472
Ratios (averages)
Annualized net yield on
interest-earning assets ............ 4.13% 4.08% 3.99% 3.95% 3.90%
Annualized return on
assets (6) ......................... 1.37 1.44 1.35 1.36 1.30
Annualized return on
shareholders' equity (6) ........... 17.28 17.94 17.13 16.97 15.91
</TABLE>
(1) Includes $10,845 in nonrecurring merger-related provision in the 1997
fourth quarter.
(2) Includes $4,639 of nonrecurring losses to restructure the
available-for-sale portfolio in the 1997 fourth quarter.
(3) Nonrecurring charges in the 1997 fourth quarter include merger-related
items of $220,330 and personal computer hardware and software disposal charge
of $67,202.
(4) Net income excluding nonrecurring items was $210,727 for the 1997 fourth
quarter. Net income per diluted share was $1.02 for the 1997 fourth quarter.
(5) Cash dividends per common share are those of Wachovia Corporation paid
prior to merger with Central Fidelity Banks, Inc.
(6) Excluding the after-tax impact of nonrecurring charges of $207,123,
annualized returns were 1.41% on assets and 17.26% on shareholders' equity for
the 1997 fourth quarter.
42
<PAGE>
-----------------------------
Fourth Quarter Analysis
-----------------------------------------------------------------
Net income per diluted share was $.02 for the fourth quarter of
1997 compared with $.98 per diluted share in the same period of
1996. Net income totaled $3.604 million versus $201.508 million a
year earlier and was reduced by special charges taken in the
fourth quarter to complete three merger transactions, write-down
the value of personal computer hardware and software, and
restructure the investment securities portfolio. The net impact
of the special charges was $207.123 million, after-tax, or $1.00
per diluted share. On an operating basis, excluding the special
charges, net income per diluted share was $1.02 and net income
was $210.727 million.
Total revenues grew $85.250 million or 11.4 percent for the
quarter. Taxable equivalent net interest income increased $49.732
million or 9.6 percent, and total other operating revenue rose
$35.518 million or 15.6 percent.
Growth in taxable equivalent net interest income was fueled by
increased loan volume, with a higher average rate earned also
contributing to the rise. Loans expanded $4.024 billion or 10.7
percent, led by gains in taxable commercial loans, residential
mortgages, commercial mortgages, construction loans and credit
QUARTERLY NET INCOME PER SHARE, 1997
(DILUTED)
(Graph appears below)
1st Quarter .95
2nd Quarter .98
3rd Quarter 1.00
4th Quarter .02*
*Excluding nonrecurring items, net income per
diluted share was $1.02.
QUARTERLY NET INCOME PER SHARE, 1996
(DILUTED)
(Graph appears below)
1st Quarter .85
2nd Quarter .90
3rd Quarter .92
4th Quarter .98
- --------------------------------------------------
Components of Earnings Per Basic Share Table 14
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
Fourth Fourth
Quarter Quarter Change
------- ------- ----
<S> <C> <C> <C>
Interest income ............................................. $ 5.56 $ 5.06 $ .50
Interest expense ............................................ 2.80 2.58 .22
-------- -------- -------
Net interest income ......................................... 2.76 2.48 .28
Provision for loan losses ................................... .38 .29 .09
-------- -------- -------
Net interest income after provision for loan losses ......... 2.38 2.19 .19
Other operating revenue ..................................... 1.31 1.12 .19
Investment securities (losses) gains ........................ ( .01) .02 ( .03)
-------- -------- -------
Total other income .......................................... 1.30 1.14 .16
Personnel expense ........................................... 1.21 1.02 .19
Personal computer impairment charge ......................... .33 ---- .33
Merger-related charges ...................................... 1.10 ---- 1.10
Other expense ............................................... 1.00 .89 .11
-------- -------- -------
Total other expense ......................................... 3.64 1.91 1.73
Income before income taxes .................................. .04 1.42 (1.38)
Applicable income taxes ..................................... .02 .42 ( .40)
-------- -------- -------
Net income .................................................. $ .02 $ 1.00 $ (.98)
======== ======== =======
</TABLE>
43
<PAGE>
cards. The average rate earned on loans improved 17 basis points.
Increased funding for loan growth came primarily from
interest-bearing time deposits, which rose $2.619 billion or 9.3
percent, reflecting gains largely in the corporation's Premiere
account. Short-term borrowings also increased for the period
while long-term debt declined.
- -------------------------------------------------------------------------------
Taxable Equivalent Rate/Volume Variance Analysis -- Fourth Quarter* Table 15
- --------------------------------------------------------------------------------
+ (Millions)
++ (Thousands)
<TABLE>
<CAPTION>
<C> <C> <C> <C> <S>
Average Volume+ Average Rate
- ----------------------- -------------------
1997 1996 1997 1996
- --------- ------- ------- ----
Interest Income
Loans:
$12,173 $10,493 7.40 7.15 Commercial .....................................
1,616 2,031 8.85 8.85 Tax-exempt .....................................
- ----------- --------
13,789 12,524 7.57 7.43 Total commercial ...............................
1,235 1,214 9.07 8.95 Direct retail ..................................
2,976 3,113 8.46 8.52 Indirect retail ................................
5,735 5,313 13.14 12.30 Credit card ....................................
437 420 12.33 12.19 Other revolving credit .........................
- ----------- --------
10,383 10,060 11.28 10.72 Total retail ...................................
1,689 1,219 9.30 8.79 Construction ...................................
6,444 5,681 8.50 8.33 Commercial mortgages ...........................
7,894 7,026 7.89 8.08 Residential mortgages ..........................
- ----------- --------
16,027 13,926 8.28 8.24 Total real estate ..............................
1,057 771 10.46 10.20 Lease financing ................................
514 465 7.13 6.93 Foreign ........................................
- ----------- --------
41,770 37,746 8.83 8.66 Total loans ....................................
Investment securities:
Held-to-maturity:
119 ---- 6.12 ---- U.S. Government and agency .....................
981 1,128 8.04 7.97 Mortgage-backed securities .....................
218 248 11.63 12.21 State and municipal ............................
85 2 6.62 10.13 Other ..........................................
- ----------- --------
1,403 1,378 8.35 8.74 Total securities held-to-maturity ..............
Available-for-sale:**
4,781 5,288 6.78 6.61 U.S. Government and agency .....................
3,141 3,451 6.94 6.77 Mortgage-backed securities .....................
801 1,222 6.53 6.82 Other ..........................................
- ----------- --------
8,723 9,961 6.81 6.69 Total securities available-for-sale ............
- ----------- --------
10,126 11,339 7.02 6.94 Total investment securities ....................
116 280 6.56 7.90 Interest-bearing bank balances .................
Federal funds sold and securities purchased
594 211 5.71 5.43 under resale agreements ........................
927 998 5.55 5.48 Trading account assets .........................
- ----------- --------
$53,533 $50,574 8.39 8.19 Total interest-earning assets ..................
=========== ========
Interest Expense
$ 4,368 $ 4,069 1.57 1.51 Interest-bearing demand ........................
11,189 9,851 3.85 3.67 Savings and money market savings ...............
10,676 10,450 5.61 5.65 Savings certificates ...........................
2,816 2,430 5.75 5.81 Large denomination certificates ................
- ----------- --------
29,049 26,800 4.34 4.31 Total time deposits in domestic offices.........
1,657 1,287 5.69 5.30 Time deposits in foreign offices ...............
- ----------- --------
30,706 28,087 4.41 4.35 Total time deposits ............................
Federal funds purchased and securities sold
7,091 6,794 5.34 5.23 under repurchase agreements ....................
887 666 5.10 4.84 Commercial paper ...............................
1,466 1,134 5.54 5.36 Other short-term borrowed funds ................
- ----------- --------
9,444 8,594 5.35 5.22 Total short-term borrowed funds ................
2,940 4,397 6.14 5.81 Bank notes .....................................
2,995 2,369 6.59 6.44 Other long-term debt ...........................
- ----------- --------
5,935 6,766 6.37 6.03 Total long-term debt ...........................
- ----------- --------
$46,085 $43,447 4.86 4.79 Total interest-bearing liabilities .............
=========== ======== -------- -----
3.53 3.40 Interest rate spread
======== ===== Net yield on interest-earning assets and net
4.21 4.08 interest income ................................
======== =====
</TABLE>
<TABLE>
<CAPTION>
Variance
Interest Attributable to
----------------------- ---------------------
1997 1996 Variance++ Rate Volume
--------- --------- ------ ------- ----
<S> <C> <C> <C> <C> <C>
Interest Income
Loans:
Commercial ..................................... $ 227,131 $ 188,657 $ 38,474 $ 6,911 $ 31,563
Tax-exempt ..................................... 36,043 45,183 (9,140) ---- (9,140)
------------ ------------ ----------
Total commercial ............................... 263,174 233,840 29,334 4,625 24,709
Direct retail .................................. 28,237 27,323 914 397 517
Indirect retail ................................ 63,469 66,695 (3,226) (447) (2,779)
Credit card .................................... 189,903 164,305 25,598 11,854 13,744
Other revolving credit ......................... 13,573 12,860 713 157 556
------------ ------------ ----------
Total retail ................................... 295,182 271,183 23,999 14,870 9,129
Construction ................................... 39,604 26,946 12,658 1,658 11,000
Commercial mortgages ........................... 138,084 118,917 19,167 2,537 16,630
Residential mortgages .......................... 156,915 142,705 14,210 (3,373) 17,583
------------ ------------ ----------
Total real estate .............................. 334,603 288,568 46,035 1,439 44,596
Lease financing ................................ 27,860 19,787 8,073 521 7,552
Foreign ........................................ 9,236 8,097 1,139 243 896
------------ ------------ ----------
Total loans .................................... 930,055 821,475 108,580 16,927 91,653
Investment securities:
Held-to-maturity:
U.S. Government and agency ..................... 1,843 ---- 1,843 ---- 1,843
Mortgage-backed securities ..................... 19,874 22,590 (2,716) 201 (2,917)
State and municipal ............................ 6,390 7,614 (1,224) (345) (879)
Other .......................................... 1,407 54 1,353 (25) 1,378
------------ ------------ ----------
Total securities held-to-maturity .............. 29,514 30,258 (744) (1,304) 560
Available-for-sale:**
U.S. Government and agency ..................... 81,648 87,909 (6,261) 2,246 (8,507)
Mortgage-backed securities ..................... 54,939 58,714 (3,775) 1,481 (5,256)
Other .......................................... 13,182 20,947 (7,765) (856) (6,909)
------------ ------------ ----------
Total securities available-for-sale ............ 149,769 167,570 (17,801) 3,013 (20,814)
------------ ------------ ----------
Total investment securities .................... 179,283 197,828 (18,545) 2,319 (20,864)
Interest-bearing bank balances ................. 1,920 5,554 (3,634) (819) (2,815)
Federal funds sold and securities purchased
under resale agreements ........................ 8,542 2,872 5,670 156 5,514
Trading account assets ......................... 12,968 13,757 (789) 179 (968)
------------ ------------ ----------
Total interest-earning assets .................. 1,132,768 1,041,486 91,282 26,920 64,362
Interest Expense
Interest-bearing demand ........................ 17,333 15,401 1,932 681 1,251
Savings and money market savings ............... 108,682 90,920 17,762 4,720 13,042
Savings certificates ........................... 150,959 148,321 2,638 (934) 3,572
Large denomination certificates ................ 40,830 35,513 5,317 (365) 5,682
------------ ------------ ----------
Total time deposits in domestic offices......... 317,804 290,155 27,649 2,124 25,525
Time deposits in foreign offices ............... 23,778 17,132 6,646 1,357 5,289
------------ ------------ ----------
Total time deposits ............................ 341,582 307,287 34,295 4,427 29,868
Federal funds purchased and securities sold
under repurchase agreements .................... 95,440 89,326 6,114 1,987 4,127
Commercial paper ............................... 11,411 8,112 3,299 461 2,838
Other short-term borrowed funds ................ 20,453 15,276 5,177 536 4,641
------------ ------------ ----------
Total short-term borrowed funds ................ 127,304 112,714 14,590 2,944 11,646
Bank notes ..................................... 45,501 64,221 (18,720) 3,497 (22,217)
Other long-term debt ........................... 49,758 38,373 11,385 925 10,460
------------ ------------ ----------
Total long-term debt ........................... 95,259 102,594 (7,335) 5,632 (12,967)
------------ ------------ ----------
Total interest-bearing liabilities ............. 564,145 522,595 41,550 8,086 33,464
------------ ------------ ----------
Interest rate spread
Net yield on interest-earning assets and net
interest income ................................ $ 568,623 $ 518,891 $ 49,732 17,557 32,175
============ ============ ==========
</TABLE>
* Interest income and yields are presented on a fully taxable equivalent basis
using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense.
** Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $99 million in 1997 and $74 million in 1996.
44
<PAGE>
- -------------------------------------
Allowance for Loan Losses Table 16
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<CAPTION>
1997
---------------------------------------
Fourth Third Second
Quarter Quarter Quarter
----------- ------ ------
<S> <C> <C> <C>
Summary of Transactions
Balance at beginning of period ..... $ 519,356 $519,335 $ 519,312
Additions from acquisitions ........ 24,641 ---- ----
Provision for loan losses .......... 76,915 62,756 63,047
Deduct net loan losses:
Loans charged off:
Commercial ....................... 3,801 686 1,772
Credit card ...................... 68,796 61,277 59,935
Other revolving credit ........... 3,659 2,520 2,259
Other retail ..................... 9,032 8,777 10,027
Real estate ...................... 5,786 1,469 1,764
Lease financing .................. 916 988 1,218
Foreign .......................... ---- ---- ----
----------- --------- ---------
Total .......................... 91,990 75,717 76,975
Recoveries:
Commercial ....................... 1,184 988 1,289
Credit card ...................... 6,251 6,894 6,573
Other revolving credit ........... 588 575 591
Other retail ..................... 2,577 2,638 2,929
Real estate ...................... 5,125 1,787 2,465
Lease financing .................. 76 100 104
Foreign .......................... ---- ---- ----
----------- --------- ---------
Total .......................... 15,801 12,982 13,951
----------- --------- ---------
Net loan losses ................... 76,189 62,735 63,024
----------- --------- ---------
Balance at end of period ........... $ 544,723 $519,356 $ 519,335
=========== ========= =========
Net Loan Losses
(Recoveries) by
Category
Commercial ......................... $ 2,617 $ (302) $ 483
Credit card ........................ 62,545 54,383 53,362
Other revolving credit ............. 3,071 1,945 1,668
Other retail ....................... 6,455 6,139 7,098
Real estate ........................ 661 (318) (701)
Lease financing .................... 840 888 1,114
Foreign ............................ ---- ---- ----
----------- --------- ---------
Total .......................... $ 76,189 $62,735 $ 63,024
=========== ========= =========
Net loan losses -- excluding
credit cards ...................... $ 13,644 $ 8,352 $ 9,662
Annualized Net Loan
Losses (Recoveries) to
Average Loans by
Category
Commercial ......................... .08% (.01%) .01%
Credit card ........................ 4.36 3.85 3.85
Other revolving credit ............. 2.81 1.87 1.59
Other retail ....................... .61 .61 .69
Real estate ........................ .02 (.01) (.02)
Lease financing .................... .32 .35 .50
Foreign ............................ ---- ---- ----
Total loans ........................ .73 .63 .64
Total loans -- excluding credit
cards ............................. .15 .10 .12
Period-end allowance to
outstanding loans ................. 1.23% 1.27% 1.29%
</TABLE>
<TABLE>
<CAPTION>
1996
-------- ------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Summary of Transactions
Balance at beginning of period ..... $519,297 $519,271 $519,205 $518,928 $518,808
Additions from acquisitions ........ ---- ---- ---- 200 ----
Provision for loan losses .......... 62,231 59,295 51,792 45,048 37,641
Deduct net loan losses:
Loans charged off:
Commercial ....................... 2,995 1,181 2,875 796 1,523
Credit card ...................... 56,000 53,907 46,967 44,456 39,057
Other revolving credit ........... 2,126 3,313 2,266 1,823 1,432
Other retail ..................... 11,965 11,714 10,338 9,626 9,903
Real estate ...................... 2,545 2,897 1,270 2,572 1,176
Lease financing .................. 1,366 675 348 235 377
Foreign .......................... ---- ---- ---- ---- ----
-------- ----------- -------- --------- --------
Total .......................... 76,997 73,687 64,064 59,508 53,468
Recoveries:
Commercial ....................... 710 2,555 887 1,466 997
Credit card ...................... 6,956 5,849 5,431 5,405 4,760
Other revolving credit ........... 607 456 547 340 352
Other retail ..................... 3,693 2,855 3,027 3,137 2,505
Real estate ...................... 2,756 2,673 2,388 4,148 7,279
Lease financing .................. 59 30 58 41 54
Foreign .......................... ---- ---- ---- ---- ----
-------- ----------- -------- --------- --------
Total .......................... 14,781 14,418 12,338 14,537 15,947
-------- ----------- -------- --------- --------
Net loan losses ................... 62,216 59,269 51,726 44,971 37,521
-------- ----------- -------- --------- --------
Balance at end of period ........... $519,312 $519,297 $519,271 $519,205 $518,928
======== =========== ======== ========= ========
Net Loan Losses
(Recoveries) by
Category
Commercial ......................... $ 2,285 $(1,374) $ 1,988 $ (670) $ 526
Credit card ........................ 49,044 48,058 41,536 39,051 34,297
Other revolving credit ............. 1,519 2,857 1,719 1,483 1,080
Other retail ....................... 8,272 8,859 7,311 6,489 7,398
Real estate ........................ (211) 224 (1,118) (1,576) (6,103)
Lease financing .................... 1,307 645 290 194 323
Foreign ............................ ---- ---- ---- ---- ----
-------- ----------- -------- --------- --------
Total .......................... $ 62,216 $59,269 $ 51,726 $44,971 $ 37,521
======== =========== ======== ========= ========
Net loan losses -- excluding
credit cards ...................... $ 13,172 $11,211 $ 10,190 $ 5,920 $ 3,224
Annualized Net Loan
Losses (Recoveries) to
Average Loans by
Category
Commercial ......................... .07% (.04%) .06% (.02%) .02%
Credit card ........................ 3.52 3.62 3.31 3.27 2.94
Other revolving credit ............. 1.44 2.72 1.64 1.42 1.04
Other retail ....................... .78 .82 .67 .60 .68
Real estate ........................ (.01) .01 (.03) (.05) (.19)
Lease financing .................... .62 .33 .17 .12 .24
Foreign ............................ ---- ---- ---- ---- ----
Total loans ........................ .65 .63 .56 .49 .42
Total loans -- excluding credit
cards ............................. .16 .14 .13 .07 .04
Period-end allowance to
outstanding loans ................. 1.32% 1.37% 1.36% 1.40% 1.43%
</TABLE>
45
<PAGE>
The provision for loan losses was $76.915 million, exceeding net
charge-offs and up $17.620 million or 29.7 percent from $59.295
million in the fourth quarter of 1996. Included in the provision
for the fourth quarter of 1997 was $10.845 million for a special
merger-related charge. Net loan losses were $76.189 million or .73
percent annualized of average loans, an increase of $16.920
million or 28.5 percent from $59.269 million or .63 percent of
loans a year earlier. Credit card net loan losses were $62.545
million or 4.36 percent of average credit cards, up $14.487
million or 30.1 percent from a year earlier and accounted for most
of the rise in total net loan losses. On a managed basis,
including securitized loans, net credit card losses were $67.735
million or 4.31 percent of averaged managed receivables compared
with $53.562 million or 3.61 percent a year earlier. Managed
credit card outstandings averaged $6.281 billion for the period
versus $5.938 billion in 1996. Excluding credit cards, net loan
losses totaled $13.644 million or .15 percent of average loans
compared with $11.211 million or .14 percent in the same period of
1996.
Gains occurred in all major categories of total other operating
revenue. Deposit account service charge revenues were up $8.667
million or 12 percent, trust service fees increased $8.430
million or 21.6 percent, and investment fee income rose $3.986
million or 34.4 percent, leading the growth. Including investment
securities sales, total noninterest income was higher by $30.507
million or 13.2 percent. Sales of investment securities resulted
in a net loss of $1.693 million in the fourth quarter of 1997,
including a loss of $4.639 million from sales to restructure the
available-for-sale portfolio for higher yields.
Noninterest expense, including $287.532 million in special
charges, was up $346.392 million or 89.7 percent. The special
charges were $220.330 million for merger-related expenses and
$67.202 million for the write-down and disposal of personal
computer hardware and software. Excluding these nonrecurring
charges, noninterest expense for the quarter rose $58.860 million
or 15.2 percent. Growth was driven primarily by personnel costs,
which rose $38.671 million or 18.8 percent, reflecting increased
compensation levels and larger medical and retirement benefit
expenses. Outside data processing, programming and software
expense and professional services expense were up $9.711 million
or 73.3 percent and $5.908 million or 56.6 percent, respectively,
due largely to continued Year 2000 project costs.
- -----------------------------
Noninterest Income Table 17
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<CAPTION>
1997
---------------------------------
Fourth Third Second
Quarter Quarter Quarter
---------- ------ ------
<S> <C> <C> <C>
Service charges on deposit accounts .............. $ 80,977 $ 76,584 $ 74,576
Fees for trust services .......................... 47,378 43,653 43,668
Credit card income -- net of interchange
payments ........................................ 38,382 43,182 43,814
Electronic banking ............................... 17,355 16,841 15,678
Investment fee income ............................ 15,564 14,798 11,710
Mortgage fee income .............................. 7,509 5,711 5,154
Trading account profits -- excluding
interest ........................................ 9,170 6,890 6,511
Insurance premiums and commissions ............... 7,169 7,966 8,170
Bankers' acceptance and letter of credit fees..... 8,116 9,589 8,910
Other service charges and fees ................... 9,257 9,671 9,622
Other income ..................................... 22,381 21,162 31,781
---------- -------- --------
Total other operating revenue ................ 263,258 256,047 259,594
Investment securities (losses) gains ............. (1,693) 1,091 498
---------- -------- --------
Total ........................................ $261,565 $257,138 $260,092
========== ======== ========
1996
-------- --------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts .............. $ 74,094 $ 72,310 $ 71,766 $ 70,507 $ 66,087
Fees for trust services .......................... 40,850 38,948 38,053 38,980 38,640
Credit card income -- net of interchange
payments ........................................ 36,856 36,803 38,258 34,799 33,522
Electronic banking ............................... 14,766 15,767 15,471 14,154 10,834
Investment fee income ............................ 11,415 11,578 10,447 11,177 10,545
Mortgage fee income .............................. 5,170 6,135 5,797 3,834 5,605
Trading account profits -- excluding
interest ........................................ 4,280 6,655 5,686 7,175 3,138
Insurance premiums and commissions ............... 6,900 5,299 5,581 5,035 4,647
Bankers' acceptance and letter of credit fees..... 7,911 7,450 7,389 6,857 6,547
Other service charges and fees ................... 10,200 9,070 9,815 9,373 10,332
Other income ..................................... 14,427 17,725 12,266 18,537 16,138
-------- --------- -------- -------- --------
Total other operating revenue ................ 226,869 227,740 220,529 220,428 206,035
Investment securities (losses) gains ............. 1,558 3,318 424 (172) 1,018
-------- --------- -------- -------- --------
Total ........................................ $228,427 $231,058 $220,953 $220,256 $207,053
======== ========= ======== ======== ========
</TABLE>
46
<PAGE>
- -------------------------------
Noninterest Expense Table 18
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
1997
-------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- ------ ------ -------
<S> <C> <C> <C> <C>
Salaries ................................... $ 200,859 $ 190,434 $ 178,987 $ 171,826
Employee benefits .......................... 43,391 39,918 39,929 39,813
----------- ---------- ---------- ---------
Total personnel expense .................. 244,250 230,352 218,916 211,639
Net occupancy expense ...................... 30,687 29,816 27,657 28,494
Equipment expense .......................... 36,619 36,283 35,792 33,533
Postage and delivery ....................... 12,539 11,883 11,899 12,336
Outside data processing, programming
and software .............................. 22,952 21,980 26,988 14,577
Stationery and supplies .................... 7,637 8,415 7,676 7,232
Advertising and sales promotion ............ 15,768 20,355 20,349 15,574
Professional services ...................... 16,348 14,102 14,385 9,278
Travel and business promotion .............. 7,433 6,120 6,154 5,508
Regulatory agency fees and other bank
services .................................. 3,523 3,458 3,791 3,828
Amortization of intangible assets .......... 6,433 2,347 2,264 2,264
Foreclosed property expense ................ 492 487 951 (55)
Personal computer impairment charge ........ 67,202 ---- ---- ----
Merger-related charges ..................... 220,330 ---- ---- ----
Other expense .............................. 40,205 39,703 43,579 44,393
----------- ---------- ---------- ---------
Total .................................... $ 732,418 $ 425,301 $ 420,401 $ 388,601
=========== ========== ========== =========
Overhead ratio* ............................ 88.0% 53.6% 53.4% 52.2%
1996
-------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
--------- ------ ------ ------
<S> <C> <C> <C> <C>
Salaries ................................... $ 171,923 $ 164,886 $ 159,617 $ 158,639
Employee benefits .......................... 33,656 35,848 35,050 37,313
------------ ---------- ---------- ----------
Total personnel expense .................. 205,579 200,734 194,667 195,952
Net occupancy expense ...................... 27,792 29,179 28,153 28,877
Equipment expense .......................... 33,575 33,664 32,381 33,155
Postage and delivery ....................... 11,716 11,779 11,546 12,154
Outside data processing, programming
and software .............................. 13,241 12,985 12,804 12,109
Stationery and supplies .................... 7,201 6,950 7,917 7,975
Advertising and sales promotion ............ 15,419 16,569 17,561 19,090
Professional services ...................... 10,440 8,795 11,426 10,562
Travel and business promotion .............. 6,180 5,071 5,500 4,345
Regulatory agency fees and other bank
services .................................. 844 11,298 2,432 2,197
Amortization of intangible assets .......... 2,290 2,296 2,299 2,278
Foreclosed property expense ................ 523 50 595 762
Personal computer impairment charge ........ ---- ---- ---- ----
Merger-related charges ..................... ---- ---- ---- ----
Other expense .............................. 51,226 45,077 42,572 39,191
------------ ---------- ---------- ----------
Total .................................... $ 386,026 $ 384,447 $ 369,853 $ 368,647
============ ========== ========== ==========
Overhead ratio* ............................ 51.7% 52.6% 51.9% 53.7%
</TABLE>
* Overhead ratio excluding the after-tax impact of nonrecurring charges was
53.48% in the 1997 fourth quarter.
--------------------------
Results of Operations
-----------------------------------------------------------------
1996 vs. Consolidated net income for 1996 totaled $757.259 million or $3.65
1995 per diluted share compared with $707.913 million or $3.36 per
diluted share in 1995. Results for the year reflected good revenue
growth moderated by a higher provision for loan losses and
increased spending primarily for personnel.
Taxable equivalent net interest income rose $113.804 million or 6
percent. Increased loan volume drove the growth, offsetting the
impact of a lower average rate earned and higher levels of
interest-bearing liabilities. The net yield on interest-earning
assets declined 6 basis points to 3.98 percent for the year.
Taxable equivalent interest income was higher by $188.420 million
or 4.8 percent. Average loans expanded $3.229 billion or 9.6
percent, while the average rate earned declined 26 basis points.
All loan categories were up for the year, with gains strongest in
taxable commercial loans, residential mortgages, commercial
mortgages and credit cards.
Interest expense increased $74.616 million or 3.7 percent.
Average interest-bearing liabilities rose $3.164 billion or 7.9
percent, reflecting growth primarily in time deposits and
long-term debt. The average rate paid on interest-bearing
liabilities decreased 20 basis points, moderating the rise in
interest expense.
The following table summarizes the variances in taxable
equivalent interest income and interest expense due to changes in
rates and volumes between 1996 and 1995. Changes that are not due
solely to rate or volume are allocated proportionately to rate
and volume.
47
<PAGE>
<TABLE>
<CAPTION>
1996 over 1995
---------------------------------------
Attributable to
---------------------------
Rate Volume Total
-------- ----- ----
<S> <C> <C> <C>
$ in thousands
Increase (decrease) in interest income:
Loans ................................................................. ($ 90,809) $ 279,379 $ 188,570
Investment securities:
Held-to-maturity:
State and municipal ................................................... 1,722 (18,367) (16,645)
Other ................................................................. 26,567 (201,350) (174,783)
Available-for-sale:
Other ................................................................. (64) 173,979 173,915
Interest-bearing bank balances ........................................ 57 23,850 23,907
Federal funds sold and securities purchased under resale agreements ... (1,476) 3,608 2,132
Trading account assets ................................................ (9,045) 369 (8,676)
----------
Total interest-earning assets ......................................... (97,965) 286,385 188,420
Increase (decrease) in interest expense:
Total time deposits in domestic offices ............................... (27,203) 74,697 47,494
Time deposits in foreign offices ...................................... (2,413) 15,479 13,066
Total short-term borrowed funds ....................................... (54,802) 9,273 (45,529)
Total long-term debt .................................................. (36) 59,621 59,585
----------
Total interest-bearing liabilities .................................... (79,724) 154,340 74,616
----------
Increase in net interest income ............................... $ 113,804
==========
</TABLE>
Nonperforming assets at December 31, 1996 were $131.518 million
or .35 percent of loans and foreclosed property. The total was
lower by $3.745 million or 2.8 percent from year-end 1995,
reflecting lower levels of nonperforming loans and foreclosed
real estate.
The provision for loan losses was $193.776 million, slightly
exceeding net charge-offs and up $63.272 million or 48.5 percent
from $130.504 million in 1995. Net loan losses totaled $193.487
million or .53 percent of average loans versus $127.828 million
or .38 percent a year earlier, an increase of $65.659 million or
51.4 percent. The rise in net charge-offs reflected higher losses
in consumer loans, primarily credit cards and other retail loans,
partially offset by greater net recoveries in real estate loans.
Credit card net charge-offs were $162.942 million or 3.29 percent
of average outstandings compared with $109.657 million or 2.41
percent in 1995. Excluding credit cards, net loan losses totaled
$30.545 million or .10 percent of average loans versus $18.171
million or .06 percent a year earlier. At December 31, 1996, the
allowance for loan losses was $519.297 million, representing 1.37
percent of period-end loans and 526 percent of nonperforming
loans compared with $518.808 million, 1.46 percent and 507
percent, respectively, at year-end 1995.
Total other operating revenue grew $117.617 million or 15.5
percent, with all major categories increasing for the year except
mortgage fee income and trading account profits. Gains were led
by deposit account service charges, which rose $35.999 million or
14.7 percent; electronic banking revenues, which were higher by
$16.504 million or 41.5 percent; credit card fee income, up
$16.229 million or 12.8 percent; and investment fee income, which
increased $16.091 million or 58.2 percent. Including sales of
investment securities and the sale in 1995 of a
mortgage-servicing portfolio, total noninterest income for 1996
was up $62.852 million or 7.7 percent from 1995. Investment
securities sales resulted in a net gain of $4.588 million in 1996
versus a net loss of $19.672 million in 1995, with the loss in
1995 resulting from portfolio restructuring to improve yields. In
1995, a portion of the corporation's mortgage servicing portfolio
was sold, resulting in a pretax gain of $79.025 million.
Total noninterest expense increased $67.344 million or 4.7
percent, driven principally by higher personnel expense. Salaries
expense grew $51.024 million or 8.4 percent and employee benefits
expense rose $12.118 million or 9.3 percent, reflecting expansion
of the corporation's workforce in sales and in other business
growth areas. Combined net occupancy and equipment expense was up
moderately, while remaining other combined categories of
noninterest expense declined due largely to the Federal Deposit
Insurance Corporation's elimination in 1996 of insurance premiums
for well-capitalized banks.
48
<PAGE>
Management's Responsibility for Financial Reporting
The management of Wachovia Corporation is responsible for the preparation of
the financial statements, related financial data and other information in this
annual report. The financial statements are prepared in accordance with
generally accepted accounting principles and include amounts based on
management's estimates and judgment where appropriate. Financial information
appearing throughout this annual report is consistent with the financial
statements.
In meeting its responsibility both for the integrity and fairness of these
statements and information, management depends on the accounting system and
related internal controls that are designed to provide reasonable assurances
that transactions are authorized and recorded in accordance with established
procedures and that assets are safeguarded and proper and reliable records are
maintained.
The concept of reasonable assurance is based on the recognition that the cost
of internal controls should not exceed the related benefits. As an integral
part of internal controls, the corporation maintains a professional staff of
internal auditors who monitor compliance with and assess the effectiveness of
internal controls and coordinate audit coverage with the independent auditors.
The Audit Committee of Wachovia's Board of Directors, composed solely of
outside directors, meets regularly with the corporation's management, internal
auditors, independent auditors and regulatory examiners to review matters
relating to financial reporting, internal controls and the nature, extent and
results of the audit effort. The independent auditors, internal auditors and
banking regulators have direct access to the Audit Committee with or without
management present.
The financial statements have been audited by Ernst & Young LLP, independent
auditors, who render an independent professional opinion on management's
financial statements. Their appointment was recommended by the Audit Committee,
approved by the Board of Directors and ratified by the shareholders. Their
examination provides an objective assessment of the degree to which the
corporation's management meets its responsibility for financial reporting.
Their opinion on the financial statements is based on auditing procedures which
include reviewing the internal controls and performing selected tests of
transactions and records as they deem appropriate. These auditing procedures
are designed to provide a reasonable level of assurance that the financial
statements are presented fairly in all material respects.
Report of Independent Auditors
The Board of Directors
Wachovia Corporation
We have audited the accompanying consolidated statements of condition of
Wachovia Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the consolidated financial statements of
Central Fidelity National Bank and subsidiaries for the year ended December 31,
1997 or the consolidated financial statements of Central Fidelity Banks, Inc.
and subsidiaries for the years ended December 31, 1996 and 1995, which
statements reflect total assets constituting 16% in 1997 and 18% in 1996, and
total interest income constituting 20% in 1997, 19% in 1996 and 20% in 1995 of
the related consolidated totals. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as
it relates to data included for Central Fidelity National Bank and subsidiaries
and Central Fidelity Banks, Inc. and subsidiaries, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Wachovia Corporation and
subsidiaries at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Winston-Salem, North Carolina
January 20, 1998
49
<PAGE>
Wachovia Corporation and Subsidiaries
- ---------------------------------------
Consolidated Statements of Condition
- --------------------------------------------------------------------------------
$ in thousands
<TABLE>
<CAPTION>
December 31 December 31
1997 1996
------------ -----------
<S> <C> <C>
Assets
Cash and due from banks .................................................................. $ 4,221,818 $ 3,674,192
Interest-bearing bank balances ........................................................... 133,191 77,871
Federal funds sold and securities purchased under resale agreements ...................... 1,589,234 275,941
Trading account assets ................................................................... 999,122 1,189,826
Securities available-for-sale ............................................................ 8,909,537 9,824,752
Securities held-to-maturity (market value of $1,578,464 in 1997 and $1,423,555 in 1996)... 1,509,339 1,352,091
Loans and net leases ..................................................................... 44,210,286 38,033,031
Less unearned income on loans ............................................................ 15,904 25,802
----------- -----------
Total loans ............................................................................ 44,194,382 38,007,229
Less allowance for loan losses ........................................................... 544,723 519,297
----------- -----------
Net loans .............................................................................. 43,649,659 37,487,932
Premises and equipment ................................................................... 810,155 793,929
Due from customers on acceptances ........................................................ 628,398 751,893
Other assets ............................................................................. 2,946,616 1,800,213
----------- -----------
Total assets ........................................................................... $65,397,069 $57,228,640
=========== ===========
Liabilities
Deposits in domestic offices:
Demand .................................................................................. $ 8,589,595 $ 7,300,819
Interest-bearing demand ................................................................. 4,654,172 4,192,185
Savings and money market savings ........................................................ 11,679,432 10,076,268
Savings certificates .................................................................... 10,934,720 10,361,404
Large denomination certificates ......................................................... 2,284,068 2,198,567
Noninterest-bearing time ................................................................ 8,460 7,822
----------- -----------
Total deposits in domestic offices ..................................................... 38,150,447 34,137,065
Time deposits in foreign offices ......................................................... 4,503,396 1,184,829
----------- -----------
Total deposits ......................................................................... 42,653,843 35,321,894
Federal funds purchased and securities sold under repurchase agreements .................. 8,322,716 7,206,005
Commercial paper ......................................................................... 1,034,024 706,376
Other short-term borrowed funds .......................................................... 752,874 1,039,221
Long-term debt:
Bank notes .............................................................................. 2,939,952 4,307,802
Other long-term debt .................................................................... 2,994,181 2,716,837
----------- -----------
Total long-term debt ................................................................... 5,934,133 7,024,639
Acceptances outstanding .................................................................. 628,398 751,893
Other liabilities ........................................................................ 896,780 570,211
----------- -----------
Total liabilities ...................................................................... 60,222,768 52,620,239
Off-balance sheet items, commitments and contingent liabilities -- Notes J, K and M
Shareholders' Equity
Preferred stock, par value $5 per share:
Authorized 50,000,000 shares; none issued or outstanding ................................ ---- ----
Common stock, par value $5 per share:
Authorized 500,000,000 shares; issued and outstanding 205,926,632 shares in 1997 and
201,252,539 shares in 1996 ............................................................. 1,029,633 1,006,263
Capital surplus .......................................................................... 974,803 706,649
Retained earnings ........................................................................ 3,098,767 2,843,803
Unrealized gains on securities available-for-sale, net of tax ............................ 71,098 51,686
----------- -----------
Total shareholders' equity ............................................................. 5,174,301 4,608,401
----------- -----------
Total liabilities and shareholders' equity ............................................. $65,397,069 $57,228,640
=========== ===========
</TABLE>
See notes to consolidated financial statements
50
<PAGE>
Wachovia Corporation and Subsidiaries
- ------------------------------------
Consolidated Statements of Income
- --------------------------------------------------------------------------------
$ in thousands, except per share
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Interest Income
Loans .................................................................... $ 3,455,296 $ 3,109,698 $2,910,678
Securities available-for-sale:
Other investments ....................................................... 625,139 684,134 506,713
Securities held-to-maturity:
State and municipal ..................................................... 16,452 21,039 34,023
Other investments ....................................................... 87,632 96,508 260,218
Interest-bearing bank balances ........................................... 5,230 33,284 9,376
Federal funds sold and securities purchased under resale agreements ...... 22,319 15,411 12,930
Trading account assets ................................................... 50,317 49,434 56,172
------------- ----------- ----------
Total interest income .................................................. 4,262,385 4,009,508 3,790,110
Interest Expense
Deposits:
Domestic offices ........................................................ 1,216,229 1,148,797 1,101,303
Foreign offices ......................................................... 87,320 54,942 41,876
------------- ----------- ----------
Total interest on deposits ............................................. 1,303,549 1,203,739 1,143,179
Short-term borrowed funds ................................................ 478,162 482,236 527,765
Long-term debt ........................................................... 387,107 399,796 340,211
------------- ----------- ----------
Total interest expense ................................................. 2,168,818 2,085,771 2,011,155
Net Interest Income ...................................................... 2,093,567 1,923,737 1,778,955
Provision for loan losses ................................................ 264,949 193,776 130,504
------------- ----------- ----------
Net interest income after provision for loan losses ...................... 1,828,618 1,729,961 1,648,451
Other Income
Service charges on deposit accounts ...................................... 306,231 280,670 244,671
Fees for trust services .................................................. 175,549 154,621 145,464
Credit card income ....................................................... 162,234 143,382 127,153
Electronic banking ....................................................... 64,640 56,226 39,722
Investment fee income .................................................... 53,487 43,747 27,656
Mortgage fee income ...................................................... 23,544 21,371 26,139
Trading account profits .................................................. 26,851 22,654 24,235
Other operating income ................................................... 193,232 152,061 122,075
------------- ----------- ----------
Total other operating revenue .......................................... 1,005,768 874,732 757,115
Gain on sale of mortgage servicing portfolio ............................. ---- ---- 79,025
Investment securities gains (losses) ..................................... 1,454 4,588 (19,672)
------------- ----------- ----------
Total other income ..................................................... 1,007,222 879,320 816,468
Other Expense
Salaries ................................................................. 742,106 655,065 604,041
Employee benefits ........................................................ 163,051 141,867 129,749
------------- ----------- ----------
Total personnel expense ................................................ 905,157 796,932 733,790
Net occupancy expense .................................................... 116,654 114,001 109,543
Equipment expense ........................................................ 142,227 132,775 127,268
Personal computer impairment charge ...................................... 67,202 ---- ----
Merger-related charges ................................................... 220,330 ---- ----
Other operating expense .................................................. 515,151 465,265 471,028
------------- ----------- ----------
Total other expense .................................................... 1,966,721 1,508,973 1,441,629
Income before income taxes ............................................... 869,119 1,100,308 1,023,290
Applicable income taxes .................................................. 276,313 343,049 315,377
------------- ----------- ----------
Net Income ............................................................... $ 592,806 $ 757,259 $ 707,913
============= =========== ==========
Net income per common share:
Basic ................................................................... $ 2.99 $ 3.70 $ 3.40
Diluted ................................................................. $ 2.94 $ 3.65 $ 3.36
Average shares outstanding:
Basic ................................................................... 198,290 204,889 208,230
Diluted ................................................................. 201,901 207,432 210,600
</TABLE>
See notes to consolidated financial statements
51
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
$ in thousands, except per share
<TABLE>
<CAPTION>
Common Stock
Shares Amount
<S> <C> <C>
Year Ended December 31, 1995
Balance at beginning of year ......................... 195,708,013 $ 978,540
Net income ...........................................
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.38 a share................
Central Fidelity Banks, Inc. -- $.79 a share.........
Common stock issued pursuant to:
Stock option and employee benefit plans ............. 1,230,527 6,154
Dividend reinvestment plan .......................... 466,784 2,334
Conversion of debentures ............................ 165,885 829
Common stock acquired ................................ (1,890,517) (9,453)
Unrealized gains on securities available-for-sale,
net of tax ..........................................
Miscellaneous ........................................ (674) (4)
------------- ------------
Balance at end of year ............................... 195,680,018 $ 978,400
============= ===========
Year Ended December 31, 1996
Balance at beginning of year ......................... 195,680,018 $ 978,400
Net income ...........................................
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.52 a share................
Central Fidelity Banks, Inc. -- $.86 a share.........
Common stock issued pursuant to:
Stock option and employee benefit plans ............. 1,056,131 5,280
Dividend reinvestment plan .......................... 349,928 1,750
Conversion of debentures ............................ 312,594 1,563
Acquisition of bank ................................. 208,207 1,041
Common stock acquired ................................ (8,885,278) (44,426)
Three-for-two common stock split by Central
Fidelity Banks, Inc. ................................ 12,530,939 62,655
Unrealized losses on securities available-for-sale,
net of tax ..........................................
Miscellaneous ........................................
------------- -----------
Balance at end of year ............................... 201,252,539 $1,006,263
============= ===========
Year Ended December 31, 1997
Balance at beginning of year ......................... 201,252,539 $1,006,263
Net income ...........................................
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.68 a share................
Central Fidelity Banks, Inc. -- $.94 a share.........
Common stock issued pursuant to:
Stock option and employee benefit plans ............. 1,547,645 7,737
Dividend reinvestment plan .......................... 298,553 1,493
Conversion of debentures ............................ 3,628 18
Common stock acquired ................................ (8,918,515) (44,593)
Unrealized gains on securities available-for-sale,
net of tax ..........................................
Acquisition of banks ................................. 11,742,782 58,715
Miscellaneous ........................................
------------- -----------
Balance at end of year ............................... 205,926,632 $1,029,633
============= ===========
<S> <C> <C> <C>
Unrealized
Securities
Capital Retained Gains
Surplus Earnings (Losses)
Year Ended December 31, 1995
Balance at beginning of year ......................... $ 995,155 $2,075,746 ($ 139,861)
Net income ........................................... 707,913
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.38 a share................ (235,495)
Central Fidelity Banks, Inc. -- $.79 a share......... (47,022)
Common stock issued pursuant to:
Stock option and employee benefit plans ............. 27,667
Dividend reinvestment plan .......................... 16,374
Conversion of debentures ............................ 2,355
Common stock acquired ................................ (60,026)
Unrealized gains on securities available-for-sale,
net of tax .......................................... 279,839
Miscellaneous ........................................ 1,103 (1,844)
----------- ---------- -----------
Balance at end of year ............................... $ 982,628 $2,499,298 $ 139,978
=========== ========== ===========
Year Ended December 31, 1996
Balance at beginning of year ......................... $ 982,628 $2,499,298 $ 139,978
Net income ........................................... 757,259
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.52 a share................ (254,458)
Central Fidelity Banks, Inc. -- $.86 a share......... (51,282)
Common stock issued pursuant to:
Stock option and employee benefit plans ............. 33,250
Dividend reinvestment plan .......................... 15,130
Conversion of debentures ............................ 4,444
Acquisition of bank ................................. 9,003
Common stock acquired ................................ (375,138)
Three-for-two common stock split by Central
Fidelity Banks, Inc. ................................ 36,797 (99,530)
Unrealized losses on securities available-for-sale,
net of tax .......................................... (88,292)
Miscellaneous ........................................ 535 (7,484)
----------- ---------- -----------
Balance at end of year ............................... $ 706,649 $2,843,803 $ 51,686
=========== ========== ===========
Year Ended December 31, 1997
Balance at beginning of year ......................... $ 706,649 $2,843,803 $ 51,686
Net income ........................................... 592,806
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.68 a share................ (273,301)
Central Fidelity Banks, Inc. -- $.94 a share......... (54,002)
Common stock issued pursuant to:
Stock option and employee benefit plans ............. 55,689
Dividend reinvestment plan .......................... 18,030
Conversion of debentures ............................ 52
Common stock acquired ................................ (500,343)
Unrealized gains on securities available-for-sale,
net of tax .......................................... 19,412
Acquisition of banks ................................. 689,029
Miscellaneous ........................................ 5,697 (10,539)
----------- ---------- -----------
Balance at end of year ............................... $ 974,803 $3,098,767 $ 71,098
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements
52
<PAGE>
Wachovia Corporation and Subsidiaries
- ----------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
$ in thousands
<TABLE>
<CAPTION>
Year Ended
December 31
1997
<S> <C>
Operating Activities
Net income ............................................................................ $ 592,806
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses ............................................................ 264,949
Depreciation and amortization ........................................................ 165,692
Deferred income taxes ................................................................ 35,169
Investment securities (gains) losses ................................................. (1,454)
Gain on sale of mortgage servicing portfolio ......................................... ----
Gain on sale of noninterest-earning assets ........................................... (4,775)
(Decrease) increase in accrued income taxes .......................................... (6,416)
Decrease (increase) in accrued interest receivable ................................... 9,173
Increase (decrease) in accrued interest payable ...................................... 36,764
Net change in other accrued and deferred income and expense .......................... 196,902
Net trading account activities ....................................................... 190,704
Net loans held for resale ............................................................ 144,849
--------------
Net cash provided by operating activities ........................................... 1,624,363
Investing Activities
Net decrease (increase) in interest-bearing bank balances ............................. 393
Net (increase) decrease in federal funds sold and securities purchased under resale
agreements ........................................................................... (1,258,355)
Purchases of securities available-for-sale ............................................ (3,418,951)
Purchases of securities held-to-maturity .............................................. (36,340)
Sales of securities available-for-sale ................................................ 2,211,721
Calls, maturities and prepayments of securities available-for-sale .................... 2,341,747
Calls, maturities and prepayments of securities held-to-maturity ...................... 273,696
Net increase in loans made to customers ............................................... (4,639,373)
Capital expenditures .................................................................. (162,286)
Proceeds from sales of premises and equipment ......................................... 46,164
Proceeds from sale of mortgage servicing portfolio .................................... ----
Net increase in other assets .......................................................... (476,129)
Business combinations ................................................................. 133,081
--------------
Net cash used by investing activities ............................................... (4,984,632)
Financing Activities
Net increase in demand, savings and money market accounts ............................. 1,719,641
Net increase (decrease) in certificates of deposit .................................... 3,076,795
Net increase (decrease) in federal funds purchased and securities sold under
repurchase agreements ................................................................ 1,041,778
Net increase in commercial paper ...................................................... 327,648
Net (decrease) increase in other short-term borrowings ................................ (286,347)
Proceeds from issuance of bank notes .................................................. 948,372
Maturities of bank notes .............................................................. (2,315,367)
Proceeds from issuance of other long-term debt ........................................ 687,940
Payments on other long-term debt ...................................................... (418,982)
Common stock issued ................................................................... 59,281
Dividend payments ..................................................................... (327,303)
Common stock repurchased .............................................................. (532,682)
Other equity transactions ............................................................. (154)
Net (decrease) increase in other liabilities .......................................... (72,725)
--------------
Net cash provided by financing activities ........................................... 3,907,895
Increase in Cash and Cash Equivalents ................................................. 547,626
Cash and cash equivalents at beginning of year ........................................ 3,674,192
--------------
Cash and cash equivalents at end of period ............................................ $ 4,221,818
==============
Supplemental Disclosures
Unrealized gains (losses) on securities available-for-sale:
Increase (decrease) in securities available-for-sale ................................. $ 31,356
(Decrease) increase in deferred taxes ................................................ (11,944)
Increase (decrease) in shareholders' equity .......................................... 19,412
1996 1995
<S> <C> <C>
Operating Activities
Net income ............................................................................ $ 757,259 $ 707,913
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses ............................................................ 193,776 130,504
Depreciation and amortization ........................................................ 117,731 104,113
Deferred income taxes ................................................................ 50,052 5,943
Investment securities (gains) losses ................................................. (4,588) 19,672
Gain on sale of mortgage servicing portfolio ......................................... ---- (79,025)
Gain on sale of noninterest-earning assets ........................................... (2,486) (7,467)
(Decrease) increase in accrued income taxes .......................................... 8,092 89,928
Decrease (increase) in accrued interest receivable ................................... 34,917 (72,375)
Increase (decrease) in accrued interest payable ...................................... (42,086) 67,953
Net change in other accrued and deferred income and expense .......................... (7,300) 46,316
Net trading account activities ....................................................... (74,401) (223,973)
Net loans held for resale ............................................................ 524,191 (346,542)
-------------- --------------
Net cash provided by operating activities ........................................... 1,555,157 442,960
Investing Activities
Net decrease (increase) in interest-bearing bank balances ............................. 448,408 (494,516)
Net (increase) decrease in federal funds sold and securities purchased under resale
agreements ........................................................................... 30,398 96,626
Purchases of securities available-for-sale ............................................ (1,358,041) (5,068,510)
Purchases of securities held-to-maturity .............................................. (45,679) (665,727)
Sales of securities available-for-sale ................................................ 541,533 2,980,553
Calls, maturities and prepayments of securities available-for-sale .................... 1,912,940 1,201,551
Calls, maturities and prepayments of securities held-to-maturity ...................... 318,205 508,830
Net increase in loans made to customers ............................................... (3,138,067) (3,711,173)
Capital expenditures .................................................................. (223,153) (205,521)
Proceeds from sales of premises and equipment ......................................... 100,515 31,972
Proceeds from sale of mortgage servicing portfolio .................................... ---- 142,011
Net increase in other assets .......................................................... (401,488) (41,031)
Business combinations ................................................................. 2,814 413,022
-------------- --------------
Net cash used by investing activities ............................................... (1,811,615) (4,811,913)
Financing Activities
Net increase in demand, savings and money market accounts ............................. 1,719,718 1,204,766
Net increase (decrease) in certificates of deposit .................................... (781,971) 2,400,814
Net increase (decrease) in federal funds purchased and securities sold under
repurchase agreements ................................................................ 313,514 (46,777)
Net increase in commercial paper ...................................................... 203,881 103,315
Net (decrease) increase in other short-term borrowings ................................ (769,057) 731,414
Proceeds from issuance of bank notes .................................................. 2,465,005 1,349,812
Maturities of bank notes .............................................................. (2,498,492) (1,525,294)
Proceeds from issuance of other long-term debt ........................................ 950,796 610,587
Payments on other long-term debt ...................................................... (94,803) (924)
Common stock issued ................................................................... 37,445 43,151
Dividend payments ..................................................................... (304,733) (281,466)
Common stock repurchased .............................................................. (415,084) (65,032)
Other equity transactions ............................................................. (78) ----
Net (decrease) increase in other liabilities .......................................... 71,406 (75,275)
-------------- --------------
Net cash provided by financing activities ........................................... 897,547 4,449,091
Increase in Cash and Cash Equivalents ................................................. 641,089 80,138
Cash and cash equivalents at beginning of year ........................................ 3,033,103 2,952,965
-------------- --------------
Cash and cash equivalents at end of period ............................................ $ 3,674,192 $ 3,033,103
============== ==============
Supplemental Disclosures
Unrealized gains (losses) on securities available-for-sale:
Increase (decrease) in securities available-for-sale ................................. $ (143,324) $ 445,944
(Decrease) increase in deferred taxes ................................................ 55,032 (166,105)
Increase (decrease) in shareholders' equity .......................................... (88,292) 279,839
</TABLE>
See notes to consolidated financial statements
53
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
$ in thousands
Note A -- Accounting Policies
Nature of Operations -- The Corporation is a southeastern interstate bank
holding company maintaining dual headquarters in Atlanta, Georgia, and
Winston-Salem, North Carolina. The corporation's principal banking subsidiary
is Wachovia Bank, N.A., which maintains operations in Georgia, North Carolina
and South Carolina. Credit Card services are provided through The First
National Bank of Atlanta. In addition to general commercial banking, the
Corporation and its subsidiaries are engaged in trust and investment
management, residential mortgage origination, leasing, state and local
government securities underwriting, foreign exchange, corporate finance and
other money market services.
Wachovia Corporation acquired three bank holding companies in 1997. Jefferson
Bankshares, Inc., of Charlottesville, Virginia, and 1st United Bancorp of Boca
Raton, Florida, were accounted for as purchase transactions. The acquisition of
Central Fidelity Banks, Inc., of Richmond, Virginia, was accounted for as a
pooling-of-interests. In November 1997, Wachovia announced a definitive
agreement to acquire Ameribank Bancshares of Hollywood, Florida. Ameribank has
total assets of approximately $293,000 at December 31, 1997 and will be
accounted for as a purchase transaction during 1998.
Principles of Consolidation -- The consolidated financial statements include
the accounts of Wachovia Corporation and its subsidiaries after elimination of
all material intercompany balances and transactions.
Business Combinations -- In business combinations accounted for as
poolings-of-interests, the financial position and results of operations and
cash flows of the respective companies are restated as though the companies
were combined for all historical periods.
In business combinations accounted for using the purchase method of accounting,
the net assets of the companies acquired are recorded at their fair values at
the date of acquisition. Goodwill is amortized on a straight-line basis over
the estimated periods benefited. Identifiable intangibles, including deposit
base intangibles, are amortized on an accelerated or straight-line basis over
the estimated periods benefited. The results of operations of the acquired
companies are included since the date of acquisition.
Use of Estimates -- The financial statements are prepared in accordance with
generally accepted accounting principles which require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Due From Banks -- The Corporation considers cash and due from banks,
all of which are maintained in financial institutions, as cash and cash
equivalents for purposes of the Consolidated Statements of Cash Flows.
Trading Instruments -- The Corporation maintains trading positions in both
derivative and nonderivative (or cash) financial instruments. Trading cash
instruments are held for distribution through retail sales or in anticipation
of market movements and are carried at fair value. Gains and losses, both
realized and unrealized, are included in trading account profits (losses).
Interest revenue arising from cash financial instruments is included in
interest income-trading account assets. Trading cash instruments are comprised
primarily of securities backed by the U.S. Treasury and various federal
agencies and state and local governmental bodies.
Trading derivative financial instruments are customer oriented, and trading
positions are established as necessary to accommodate customers' requirements.
Gains and losses from securities trading derivatives and foreign exchange
activities are included in other income.
Investment Securities Held-to-Maturity and Available-for-Sale -- Management
determines the appropriate classification of debt securities at the time of
purchase. Debt securities are classified as held-to-maturity when the
Corporation has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity or trading and marketable
equity securities are classified as available-for-sale and are stated at fair
value. Unrealized gains and losses, net of tax, on available-for-sale
securities are recorded in a separate component of shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. The specific identification method is used to
determine realized gains and losses on sales of securities, which are reported
as investment securities gains and losses.
Risk Management Instruments -- Interest rate swaps and options (caps and
floors) are used as part of the Corporation's overall interest rate risk
management and are designated as hedges of interest-bearing assets,
liabilities, firm commitments and anticipated transactions. These derivatives
modify the interest rate characteristics of specified financial instruments.
Amounts receivable or payable under interest rate swap and option agreements
are recognized in net interest income. Derivative instruments not qualifying as
end-user positions are treated as trading positions and marked-to-market. To
qualify as a hedge, the swap or option must be designated and documented as a
hedge and be effective in reducing the market risk associated with the existing
asset, liability, firm commitment, or identified anticipated transaction which
is probable to occur. Effectiveness of the hedge is evaluated on an initial and
ongoing basis using statistical calculations of correlation. Gains and losses
on risk management derivatives that are terminated early are deferred and
amortized to net interest income over the remaining period originally covered
by the instrument. If the underlying designated item is no longer held, or if
an anticipated transaction is no longer likely to occur, any previously
unrecognized gain or loss on the derivative contract is recognized in earnings
and the contract is subsequently accounted for at fair value.
Loans and Allowance for Loan Losses -- Loans are carried at their principal
amount outstanding, except for loans held for resale which are carried at the
lower of cost or market. Interest on loans is accrued and recorded as interest
income based upon the principal amount outstanding. Except for revolving credit
loans, the recognition of interest income is discontinued when a loan becomes
90 days past due as to principal and interest or when, in management's
judgment, the interest will not be collectible in the normal course of
business. When interest accruals are discontinued, the balance of accrued
interest is reversed. Management may elect to continue the accrual of interest
when the estimated net realizable value of collateral is sufficient to cover
the principal balance and accrued interest and the loan is in the process of
collection. Interest is accrued on revolving credit loans until payments become
120 days delinquent, at which time the outstanding principal balance and
accrued unpaid interest is charged off.
54
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note A -- Accounting Policies -- Concluded
The allowance is maintained at a level believed to be adequate by management to
absorb potential losses in the loan portfolio. Management's determination of
the adequacy of the allowance is based on an evaluation of the portfolio, past
loan loss experience, current domestic and international economic conditions,
volume and composition of the loan portfolio and other risks inherent in the
portfolio.
Premises and Equipment -- Premises, equipment and leasehold improvements are
stated at cost less accumulated depreciation and amortization. Depreciation is
computed on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight-line basis over the
shorter of the life of the leasehold asset or the lease term.
Impairment of Long-Lived Assets -- Effective January 1, 1996, the Corporation
prospectively adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" (FASB 121). The statement requires recognition of impairment
losses on long-lived assets to be held and used whenever events or changes in
circumstances result in the carrying value of the assets exceeding the sum of
the expected future cash flows. The measurement of the impairment losses
recognized is based on the difference between the fair value and carrying value
of the assets. FASB 121 also requires long-lived assets to be disposed of be
reported at the lower of carrying value or fair value less cost to sell. The
effect of the adoption of this policy in 1996 was not material.
Income Taxes -- The Corporation applies Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FASB 109). Under FASB 109,
deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Each subsidiary provides
for income taxes based on its contribution to income taxes (benefit) of the
consolidated group. The Corporation and its subsidiaries file a consolidated
tax return.
Stock-Based Compensation -- The Corporation applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Corporation's stock at the date of grant over the
amount an employee must pay to acquire the stock. Compensation cost for stock
awards and appreciation rights is recorded based on the market price at the end
of the period. Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (FASB 123), encourages, but does not require,
adoption of a fair value method of accounting for employee stock-based
compensation plans. The Corporation follows the pro forma disclosure provisions
of FASB 123.
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities -- In June 1996, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(FASB 125), which prescribes accounting and reporting standards for sales,
securitizations, and servicing of receivables and other financial assets and
extinguishments of liabilities.
The Corporation adopted FASB 125 for transactions occurring after December 31,
1996, except those provisions relating to repurchase agreements, securities
lending and other similar transactions and pledged collateral, which have been
delayed until after December 31, 1997 by FASB 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125, an amendment of FASB
Statement No. 125." Adoption of FASB 125 was not material; FASB 127 will be
adopted as required in 1998 and is not expected to be material.
Earnings Per Share -- In accordance with the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," all earnings per
share amounts have been restated to present basic and diluted earnings per
share. The effect of the new standard was not material.
Reporting Comprehensive Income -- 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 accounting standards, to be displayed in a
financial statement with the same prominence as other financial statements. The
Corporation plans to adopt the standard, as required, in 1998.
Disclosures about Segments of an Enterprise and Related Information --
In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information," was issued and
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.
The Corporation plans to adopt the standard, as required, in 1998.
- --------------------------------------------------------------------------------
Note B -- Business Combinations
On December 15, 1997, the Corporation merged with Central Fidelity Banks, Inc.
(Central Fidelity), headquartered in Richmond, Virginia. Each outstanding share
of Central Fidelity common stock was converted into and exchanged for .63 of a
share of the Corporation's common stock, resulting in the issuance of
approximately 36.3 million shares. The acquisition was accounted for as a
pooling-of-interests, and accordingly, all historical financial information for
the Corporation has been restated to include Central Fidelity historical
information for all periods presented herein. Intercompany transactions prior
to the merger have been eliminated, and certain reclassifications were made to
the Central Fidelity financial statements to conform to the Corporation's
presentations. No material adjustments were recorded to conform Central
Fidelity's accounting policies.
In connection with the merger, the Corporation recorded charges of $220,330 for
direct and other merger-related costs. The merger plan includes restructuring
activities that will result in consolidation of operations, business line
locations and administrative functions. These activities are expected to be
completed during 1998. The charge includes $114,079 for severance and personnel
related costs; $66,953 for
55
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note B -- Business Combinations -- Concluded
systems and operations conversion costs; $22,982 for deal costs and other
expenses; and $16,316 for business line and branch integration expenses.
Included in systems and operations conversion costs and business line and
integration costs are activities such as contract termination, write down of
unutilized assets and other business and systems conversion costs. The
liability at December 31, 1997 represents severance, contract termination costs
and deal fees. Management anticipates recording an additional $50,000 merger
charge in 1998, relating primarily to integration expenses.
Details of the merger-related costs follow.
1997 Utilized
Provision in 1997 Balance
-------- --------- ------
Severance and personnel related
costs ............................... $114,079 $ ---- $114,079
Systems and operations
conversion costs .................... 66,953 51,530 15,423
Business line and integration
expenses ............................ 16,316 9,660 6,656
Deal costs and other expenses ......... 22,982 20,031 2,951
-------- ------- --------
Total .......................... $220,330 $81,221 $139,109
======== ======= ========
On October 31, 1997, the Corporation completed its merger with Jefferson
Bankshares, Inc. (Jefferson), headquartered in Charlottesville, Virginia. Each
outstanding share of Jefferson common stock was converted into and exchanged
for .625 shares of the Corporation's common stock, resulting in the issuance of
approximately 8.7 million shares of common stock valued at $554,337. The
transaction was accounted for as a purchase; accordingly, operating results of
Jefferson have been included in the consolidated financial statements since the
date of acquisition. The purchase price was allocated to the net assets
acquired, based on preliminary estimates of fair value and resulted in $337,452
of goodwill and $41,512 of deposit base intangibles.
On November 11, 1997, the Corporation completed its merger with 1st United
Bancorp (1st United), headquartered in Boca Raton, Florida. Each outstanding
share of 1st United common stock was converted into and exchanged for .3 shares
of the Corporation's common stock, resulting in the issuance of approximately
3.0 million shares of common stock valued at $193,407. The transaction was
accounted for as a purchase; accordingly, operating results of 1st United have
been included in the consolidated financial statements since the date of
acquisition. The purchase price was allocated to the net assets acquired, based
on preliminary estimates of fair value and resulted in $141,154 of goodwill and
$22,718 of deposit base intangibles.
Goodwill and deposit base intangibles, arising from the Jefferson and 1st
United purchase transactions, are being amortized over 25 and 7 years,
respectively. Changes to the preliminary purchase price allocation are not
expected to be significant.
Merger-related expenses of $23,055 were accrued to reflect management's best
estimate of severance costs related to premerger Jefferson and 1st United
employees and other expenses of premerger activities related to the Jefferson
and 1st United transactions. The fair value of Jefferson and 1st United assets
and liabilities acquired at the dates of acquisition was $3,426,567 and
$2,678,823, respectively. The pro forma results, giving effect to the purchase
transactions as though they occurred as of the beginning of the reporting
periods, do not vary significantly from actual results.
- --------------------------------------------------------------------------------
Note C -- Fair Value of Financial Instruments
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments. In cases where
quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rates
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts. Also, the fair
value estimates presented are based on pertinent information available to
management as of December 31, 1997 and 1996. Such amounts have not been
comprehensively revalued for purposes of these financial statements since those
dates and therefore, current estimates of fair value may differ significantly
from the amounts presented.
Trading Account Assets -- Fair values are based on quoted market prices as
recognized in the statements of condition.
Investment Securities -- Fair values are based on quoted market prices. If a
quoted market price is not available, fair value is estimated using market
prices for similar securities.
Loans -- For credit card, equity lines and other loans with short-term or
variable rate characteristics, the carrying value reduced by an estimate of
credit losses inherent in the portfolio is a reasonable estimate of fair value.
The fair value of all other loans is estimated by discounting their future cash
flows using interest rates currently being offered for loans with similar
terms, reduced by an estimate of credit losses inherent in the portfolio. The
discount rates used are commensurate with the interest rate and prepayment
risks involved for the various types of loans.
Deposits -- The fair values disclosed for demand deposits (e.g., interest- and
noninterest-bearing demand, savings and money market savings) are equal to the
amounts payable on demand at the reporting date (i.e., their carrying amounts).
Fair values for certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated monthly maturities.
56
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note C -- Fair Value of Financial Instruments -- Concluded
Long-Term Debt -- Fair values are estimated using discounted cash flow
analyses, based on the Corporation's current incremental borrowing rates for
similar types of borrowing arrangements.
Many of the Corporation's assets and liabilities are short-term financial
instruments whose carrying amounts reported in the statements of condition
approximate fair value. These items include cash and due from banks,
interest-bearing bank balances, federal funds sold and securities purchased
under resale agreements, due from customers on acceptances, short-term borrowed
funds, acceptances outstanding, and the financial instruments included in other
assets and liabilities. The estimated fair values of the Corporation's
remaining on-balance sheet financial instruments as of December 31 are
summarized below.
1997
-----------------------------
Carrying Estimated
Value Fair Value
------------ -------------
Financial assets:
Trading account assets ......... $ 999,122 $ 999,122
Investment securities .......... 10,418,876 10,488,001
Loans, net of allowance for loan
losses ...................... 43,649,659 43,944,373
Financial liabilities:
Deposits ....................... 42,653,843 42,757,011
Long-term debt ................. 5,934,133 6,041,697
1996
-----------------------------
Carrying Estimated
Value Fair Value
---------- -------------
Financial assets:
Trading account assets ......... $1,189,826 $1,189,826
Investment securities .......... 11,176,843 11,248,307
Loans, net of allowance for loan
losses ....................... 37,487,932 37,546,451
Financial liabilities:
Deposits ....................... 35,321,894 35,527,581
Long-term debt ................. 7,024,639 7,088,339
Off-Balance Sheet Instruments -- Fair values are based on fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counterparties' credit standing for loan
commitments and letters of credit, and the estimated amount the Corporation
would receive or pay to terminate or replace the contract at current market
rates for the remainder of the off-balance sheet instruments. See Notes J and K
for additional information about off-balance sheet financial instruments.
The estimated fair values of the Corporation's off-balance sheet financial
instruments as of December 31 are summarized below. The amounts for commitments
and letters of credit are presented as negative in order to represent the
approximate cost the Corporation would incur to pay third parties to assume
these commitments. Interest rate contracts and other off-balance sheet
financial instruments represent the net fair value gain or loss of the
contracts.
1997 1996
Estimated Estimated
Fair Value Fair Value
------------ -------------
Unfunded commitments to extend credit ......... ($ 44,682) ($ 40,736)
Letters of credit ............................. (58,429) (41,469)
Interest rate contracts issued for trading
purposes .................................... 5,990 3,997
Interest rate contracts held for purposes
other than trading .......................... 62,557 1,828
Other off-balance sheet financial
instruments issued or held for trading or
lending purposes ............................ 3,318 3,647
This presentation excludes certain financial instruments and all nonfinancial
instruments. The disclosures exclude all nonfinancial instruments such as
customer relationships, deposit base intangibles and goodwill. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Corporation.
- --------------------------------------------------------------------------------
Note D -- Investment Securities
The aggregate amortized cost, fair value and gross unrealized gains and losses
of investment securities as of December 31 were as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------
Amortized Unrealized Unrealized
Cost Gains Losses
------------- ------------- -----------
<S> <C> <C> <C>
Held-to-Maturity
- ------------------------------------------
U.S. Treasury and other agencies ......... $ 202,913 $ 818 $ 188
State and municipal ...................... 222,903 22,894 ----
Mortgage-backed .......................... 962,161 45,106 187
Other .................................... 121,362 682 ----
------------- -------- -----------
$1,509,339 $ 69,500 $ 375
============= ======== ===========
Available-for-Sale
- -------------------------------------------
U.S. Treasury and other agencies ......... $4,501,547 $ 57,579 $ 1,017
State and municipal ...................... 79,795 3,150 7
Mortgage-backed .......................... 3,543,711 39,967 2,495
Other .................................... 508,975 3,255 862
Equity ................................... 160,649 15,443 153
------------- -------- -----------
$8,794,677 $119,394 $ 4,534
============= ======== ===========
1996
----------- --------------------------------------------------
Fair Amortized Unrealized Unrealized Fair
Value Cost Gains Losses Value
-------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Held-to-Maturity
- -------------------------------------------
U.S. Treasury and other agencies ......... $ 203,543 $ ---- $ ---- $ ---- $ ----
State and municipal ...................... 245,797 167,901 20,949 98 188,752
Mortgage-backed .......................... 1,007,080 1,104,355 46,727 398 1,150,684
Other .................................... 122,044 79,835 4,291 7 84,119
---------- ---------- -------- ------- ----------
$1,578,464 $1,352,091 $ 71,967 $ 503 $1,423,555
========== ========== ======== ======= ==========
Available-for-Sale
- -------------------------------------------
U.S. Treasury and other agencies ......... $4,558,109 $5,135,275 $ 57,175 $ 9,148 $5,183,302
State and municipal ...................... 82,938 97,251 2,432 109 99,574
Mortgage-backed .......................... 3,581,183 3,387,117 37,338 17,336 3,407,119
Other .................................... 511,368 967,753 4,101 1,406 970,448
Equity ................................... 175,939 153,852 10,705 248 164,309
---------- ---------- -------- ------- ----------
$8,909,537 $9,741,248 $111,751 $28,247 $9,824,752
========== ========== ======== ======= ==========
</TABLE>
57
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note D -- Investment Securities -- Concluded
The amortized cost and estimated fair value of investment securities at
December 31, 1997, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations.
Amortized Fair
Cost Value
-------- ------
Held-to-Maturity
- -------------------------------------------------
Due in one year or less ........................ $ 151,592 $ 152,055
Due after one year through five years .......... 352,102 359,321
Due after five years through ten years ......... 224,994 240,748
Due after ten years ............................ 780,651 826,340
----------- -----------
Total .................................... 1,509,339 1,578,464
Available-for-Sale
- --------------------------------------------------
Due in one year or less ........................ 1,515,846 1,524,086
Due after one year through five years .......... 4,126,392 4,178,560
Due after five years through ten years ......... 679,513 686,245
Due after ten years ............................ 2,312,277 2,344,707
----------- -----------
Total .................................... 8,634,028 8,733,598
No contractual maturity ........................ 160,649 175,939
----------- -----------
Total .................................... 8,794,677 8,909,537
----------- -----------
Total investment securities .............. $10,304,016 $10,488,001
=========== ===========
Proceeds, gross gains and losses realized from the sales, calls and prepayments
of available-for-sale securities for December 31 were as follows:
1997 1996
---------- --------
Proceeds ............. $2,211,721 $541,533
Gross gains .......... 6,576 6,838
Gross losses ......... 5,122 2,250
Trading account assets are reported at fair value with net unrealized gains
(losses) of ($1,736), $906 and ($836) included in earnings during 1997, 1996
and 1995, respectively.
At December 31, 1997 and 1996, investment securities with a carrying value of
$6,259,029 and $7,357,835, respectively, were pledged as collateral to secure
public deposits and for other purposes. There were no obligations of any one
issuer exceeding 10% of consolidated shareholders' equity at December 31, 1997.
There were no transfers or sales of held-to-maturity securities during 1997 or
1996.
- --------------------------------------------------------------------------------
Note E -- Loans and Allowance for Loan Losses
Loans at December 31 are summarized as follows:
1997 1996
----------- -----------
Commercial:
Commercial, financial and other ......... $13,528,344 $10,340,809
Tax-exempt .............................. 1,607,159 2,015,725
Retail:
Direct .................................. 1,249,612 1,217,961
Indirect ................................ 3,028,288 3,082,440
Credit card ............................. 5,919,098 5,596,334
Other revolving credit .................. 459,563 424,543
Real estate:
Construction ............................ 1,779,522 1,246,687
Commercial mortgages .................... 6,790,446 5,683,762
Residential mortgages ................... 8,098,794 7,132,129
Lease financing -- net ..................... 1,094,169 831,135
Foreign .................................... 639,387 435,704
----------- -----------
Total loans -- net .................... $44,194,382 $38,007,229
=========== ===========
Loans at December 31, 1997 and 1996 that had been placed on a cash basis were
$101,156 and $98,638, respectively. Interest income which would have been
recorded pursuant to the original terms of loans restructured to below market
rates was $11,390 and $10,665 on the preceding dates. Interest income recorded
on these loans was $4,606 and $5,184, respectively.
Loans totaling $197 at December 31, 1997, which have been restructured at
market rates and have been returned to accrual status, are not included in the
nonperforming loan total. Foregone interest on these balances is included in
the above amounts.
The Corporation follows Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (FASB 114). A loan is
defined as impaired when, based on current information and events, it is
probable that the creditor will be unable to collect all amounts of principal
and interest due according to the contractual terms of the loan agreement.
Impaired loans are included as a portion of cash-basis assets. The following
table summarizes impaired loans and related allowance information at
December 31.
1997 1996 1995
------- ------- -------
Impaired loans with related
allowance ......................... $15,711 $21,179 $32,907
Impaired loans with no related
allowance ......................... 32,207 39,533 27,246
------- ------- -------
Total impaired loans ......... $47,918 $60,712 $60,153
======= ======= =======
Allowance on impaired loans ......... $ 2,209 $ 5,011 $ 8,232
======= ======= =======
Year Ended December 31
---------------------------------
1997 1996 1995
------- ------- -------
Average impaired loans ............. $47,862 $62,742 $61,227
Interest income .................... 1,957 3,308 1,737
Cash-basis interest income ......... 614 1,014 1,640
At December 31, 1997, the Corporation had no significant outstanding
commitments to lend additional funds to borrowers whose loans have been
restructured.
Changes in the allowance for loan losses for the three years ended December 31
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year ......... $519,297 $518,808 $516,132
Additions from acquisitions .......... 24,641 200 ----
Provision for loan losses ............ 264,949 193,776 130,504
Recoveries on loans previously
charged off ........................ 57,515 57,240 52,952
Loans charged off .................... (321,679) (250,727) (180,780)
-------- -------- --------
Balance at end of year ............... $544,723 $519,297 $518,808
======== ======== ========
</TABLE>
Loans totaling $17,413, $16,236 and $10,337 were transferred to foreclosed real
estate during 1997, 1996 and 1995, respectively.
It is the policy of the Corporation to review each prospective credit in order
to determine an adequate level of security or collateral to obtain prior to
making the loan. The type of collateral will vary and ranges
58
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note E -- Loans and Allowance for Loan Losses -- Concluded
from liquid assets to real estate. The Corporation's access to collateral, in
the event of borrower default, is assured through adherence to state lending
laws and the Corporation's sound lending standards and credit monitoring
procedures. The Corporation regularly monitors its credit concentrations on
loan purpose, industry and customer bases. At year-end, there were no
significant credit concentrations within these categories. See Note J for
discussion of off-balance sheet credit issues.
The Corporation's subsidiaries have granted loans and extended letters of
credit to certain directors and executive officers of the Corporation and its
subsidiaries and to their associates. The aggregate amount of loans was
$272,695 and $525,968 at December 31, 1997 and 1996, respectively. During 1997,
$589,777 in new loans were made and repayments totaled $843,050. Outstanding
standby letters of credit to related parties totaled $1,922 and $31,646 at
December 31, 1997 and 1996, respectively. Related party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and
do not involve more than the normal risk of collectibility.
Loans held for sale at December 31 along with activity during the period are
summarized as follows:
1997 1996
----------- -----------
Balance at beginning of year ......... $ 254,281 $ 778,473
Originations/purchases ............... 12,006,679 16,780,536
Sales/transfers ...................... (12,149,714) (17,304,728)
----------- -----------
Balance at end of year ............... $ 111,246 $ 254,281
=========== ===========
- --------------------------------------------------------------------------------
Note F -- Premises, Equipment and Leases
Premises and equipment at December 31 are summarized as follows:
1997 1996
--------- ---------
Land ....................................... $ 127,976 $ 112,267
Premises ................................... 632,555 545,606
Equipment .................................. 778,652 810,785
Leasehold improvements ..................... 121,829 103,795
--------- ---------
1,661,012 1,572,453
Less accumulated depreciation and
amortization ............................. 850,857 778,524
--------- ---------
Total premises and equipment ......... $ 810,155 $ 793,929
========= =========
The annual minimum rentals under the terms of the Corporation's noncancelable
operating leases as of December 31, 1997 are as follows:
1998 ........................................ $ 60,197
1999 ........................................ 54,425
2000 ........................................ 47,443
2001 ........................................ 40,995
2002 ........................................ 30,599
Thereafter .................................. 113,578
--------
Total minimum lease payments ......... $347,237
========
The net rental expense for all operating leases amounted to $63,701 in 1997,
$58,239 in 1996 and $56,534 in 1995. Certain leases have various renewal
options and require increased rentals under cost of living escalation clauses.
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was
$154,223, $109,901 and $97,163, respectively.
During 1997, an impairment charge of $67,202, which approximated the carrying
value of the assets, was recorded as a result of the Corporation's plan to
implement a company-wide distributed technology platform for improved employee
communication capabilities. The plan involves the write-down and disposal of
personal computer hardware and software acquired before 1997.
- --------------------------------------------------------------------------------
Note G -- Credit Arrangements, Short-Term Borrowed Funds and Certificates of
Deposit
At December 31, 1997 and 1996, lines of credit arrangements aggregating
$400,000 and $300,000, respectively, were available to the Corporation from
unaffiliated banks. Commitment fees were 8 basis points in 1997 and 1996;
compensating balances are not required. The unused portion of these banking
arrangements principally serves as commercial paper back-up lines. There were
no borrowings outstanding under credit arrangements during 1997 or 1996.
Federal funds purchased and securities sold under repurchase agreements
generally mature within one to four days from the transaction date. Securities
sold under repurchase agreements are delivered to either broker-dealers or to
custodian accounts for customers. The broker-dealers may have sold, loaned or
otherwise disposed of such securities to other parties in the normal course of
their operations, and have agreed to resell to the Corporation identical
securities at the maturity of the agreements. Other borrowed funds consist of
term federal funds purchased, treasury tax and loan deposits and short-term
bank notes and are generally repaid within seven to 120 days from the
transaction date. Information concerning short-term borrowed funds is included
in Table 7 of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The scheduled maturities of certificates of deposit subsequent to December 31,
1997 are $9,920,561 in 1998, $1,790,107 in 1999, $975,710 in 2000, $344,732 in
2001 and $196,138 thereafter.
- --------------------------------------------------------------------------------
59
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note H -- Long-Term Debt
Long-term debt at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Bank notes, net of discount of $5,548 and $5,948, respectively (a)........................ $2,939,952 $4,307,802
Other long-term debt:
Federal Home Loan Bank borrowings (b) ................................................... 307,186 400,080
7.0% subordinated debt securities due in 1999, net of discount of $915 and $1,343,
respectively (c)........................................................................ 299,085 298,657
6.375% subordinated debt securities due in 2003, net of discount of $1,163 and $1,346,
respectively (c)........................................................................ 248,837 248,654
6.8% subordinated notes due in 2005, net of discount of $291 and $320, respectively (c).. 249,709 249,680
6.375% subordinated notes due in 2009, net of discount of $267 and $284, respectively (c) 249,733 249,716
6.605% subordinated notes due in 2025 (c) ............................................... 250,000 250,000
Wachovia Capital Trust I-7.64% Capital Securities due in 2027 (d) ....................... 300,000 300,000
Wachovia Capital Trust II-Floating Rate Capital Securities due in 2027, net of discount
of $3,161 (e)........................................................................... 296,839 ----
Wachovia Capital Trust V-7.965% Capital Securities due in 2027 (f) ...................... 300,000 ----
Central Fidelity Capital Trust I-Floating Rate Capital Securities due in 2027, net of
discount of $846 (g).................................................................... 99,154 ----
6.625% senior notes due in 2006, net of discount of $793 and $858, respectively.......... 199,207 199,142
8.15% subordinated notes due in 2002 (c) ................................................ 150,000 150,000
5.664% mandatorily redeemable securities due in 1999 .................................... ---- 331,100
Other ................................................................................... 44,431 39,808
---------- ----------
Total other long-term debt ............................................................ 2,994,181 2,716,837
---------- ----------
Total long-term debt .................................................................. $5,934,133 $7,024,639
========== ==========
</TABLE>
(a) Wachovia Bank, N.A. has an ongoing bank note program under which the bank
may offer an aggregate principal amount of up to $16 billion. The notes
can be issued globally as fixed or floating rate and with maturities
beginning at seven days. Bank notes with original maturities of one year
or less are included in other short-term borrowed funds. Bank notes with
original maturities greater than one year are classified as long-term
debt. Interest rates on long-term notes ranged from 4.9% to 7.75% and 4.5%
to 7.75% with maturities ranging from 1998 to 2008 and 1997 to 2008 at
December 31, 1997 and 1996, respectively. The average rates were 6.12% and
5.81% with average maturities of 2.9 years and 1.8 years at December 31,
1997 and 1996, respectively.
(b) The Federal Home Loan borrowings were issued as fixed or floating rate with
terms of 2 years to 6 years. Interest rates on the borrowings ranged from
5.63% to 8.31% for December 31, 1997 and 1996 and with maturities ranging
from 1998 to 2003 and 1997 to 2003 at December 31, 1997 and 1996,
respectively.
(c) Obligation qualifies for inclusion in the determination of total capital
under the Risk-Based Capital guidelines.
(d) In December 1996, Wachovia Capital Trust I (WCT I), a wholly owned
subsidiary, issued $300,000 of 7.64% Capital Securities due in 2027. WCT I
invested the proceeds of the Capital Securities, together with $9,280 paid
by the Corporation for WCT I's Common Securities, in $309,280 of the
Corporation's 7.64% Junior Subordinated Deferrable Interest Debentures.
WCT I's sole asset is the Junior Subordinated Deferrable Interest
Debentures which mature in 2027. The Corporation has guaranteed all of WCT
I's obligations under the Capital Securities. Additionally, the Capital
Securities qualify for inclusion in Tier I capital under the Risk-Based
Capital guidelines.
(e) In January 1997, Wachovia Capital Trust II (WCT II), a wholly owned
subsidiary, issued $300,000 Floating Rate Capital Securities due in 2027.
WCT II invested the proceeds of the Capital Securities, together with
$9,280 paid by the Corporation for WCT II's Common Securities, in
$305,692, net of discount of $3,588, of the Corporation's Floating Rate
Junior Subordinated Deferrable Interest Debentures. WCT II's sole asset is
the Junior Subordinated Deferrable Interest Debentures which mature in
2027. The Corporation has guaranteed all of WCT II's obligations under the
Capital Securities. Additionally, the Capital Securities qualify for
inclusion in Tier I capital under the Risk-Based Capital guidelines.
(f) In June 1997, Wachovia Capital Trust V (WCT V), a wholly owned subsidiary,
issued $300,000 of 7.965% Capital Securities due in 2027. WCT V invested
the proceeds of the Capital Securities, together with $9,280 paid by the
Corporation for WCT V's Common Securities, in $309,280 of the
Corporation's 7.965% Junior Subordinated Deferrable Interest Debentures.
WCT V's sole asset is the Junior Subordinated Deferrable Interest
Debentures which mature in 2027. The Corporation has guaranteed all of WCT
V's obligations under the Capital Securities. Additionally, the Capital
Securities qualify for inclusion in Tier I capital under the Risk-Based
Capital guidelines.
(g) In April 1997, Central Fidelity Capital Trust I (CFCT I), a wholly owned
subsidiary, issued $100,000 Floating Rate Capital Securities due in 2027.
CFCT I invested the proceeds of the Capital Securities, together with
$3,093 paid by the Corporation for CFCT I's Common Securities, in $103,093
of the Corporation's Floating Rate Junior Subordinated Debt Securities.
CFCT I's sole asset is the Junior Subordinated Debt Securities which
mature in 2027. The Corporation has guaranteed all of CFCT I's obligations
under the Capital Securities. Additionally, the Capital Securities qualify
for inclusion in Tier I capital under the Risk-Based Capital guidelines.
The principal maturities of long-term debt subsequent to December 31, 1997 are
$1,048,191 in 1998, $924,832 in 1999, $67,391 in 2000, $832,723 in 2001,
$604,212 in 2002 and $2,456,784 thereafter. Interest paid on deposits and other
borrowings was $2,132,054 in 1997, $2,127,857 in 1996 and $1,943,202 in 1995.
- --------------------------------------------------------------------------------
Note I -- Capital Stock
At December 31, 1997, 28,344,740 common shares were reserved for the conversion
of notes and issuance for employee benefit plans and the dividend reinvestment
plan.
During 1997, the Corporation repurchased 6,913,400 shares pursuant to three
separate stock repurchase authorizations by the Board of Directors. Repurchased
shares will be used for various corporate purposes including the issuance of
shares for purchase business combinations, employee benefit plans and the
dividend reinvestment plan. In January 1998, the Board of Directors authorized
the repurchase of up to 946,662 shares to be issued in connection with the
Ameribank purchase transaction. Total repurchases were authorized up to an
amount that would preserve the accounting for the merger with Central Fidelity
as a pooling-of-interests. Common stock repurchases by Central Fidelity during
1997 (adjusted for the exchange ratio) totaled 1,883,196 shares.
The Corporation has one active stock option plan, the restated 1994 Wachovia
Corporation Stock Plan. Under this Plan, up to 2.5% of the Corporation's
outstanding common stock at year-end may be granted to selected key employees
and nonemployee directors in the form of incentive and nonqualified stock
options, stock appreciation rights (SARS), restricted stock awards and
restricted units. Since the inception, a total of 4,994,608 options, 659,374
awards and 125,000 SARS have been granted. The Corporation also has several
predecessor plans, the 1989 and 1986 Plans, and plans of merged entities which
were assumed with appropriate conversion shares under option and option price.
These plans continue to have options outstanding which may be exercised.
The Corporation's stock plans provide for the granting of options or awards for
the purchase or issuance of 10,309,408 shares at 100% of the fair market value
of the stock at the date of the grant. A committee of the Board of Directors
determines such times options and awards
60
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note I -- Capital Stock -- Concluded
shall be granted and exercised and the term of the exercise period (not to
exceed 10 years). The plan awards officers shares of restricted stock earned
contingent upon both a performance requirement and time period requirement (5
years). Additionally, newly elected nonemployee directors are granted a
one-time award of 1,000 shares of restricted stock to be earned over a
three-year period and nonemployee directors are awarded 250 shares of
restricted stock annually which are earned over a one-year period.
The Corporation follows APB 25 and related interpretations to account for its
employee stock options, stock awards and SARS. Accordingly, compensation cost
is measured as the excess, if any, of the quoted market price of the
Corporation's stock at the date of grant over the amount an employee must pay
to acquire the stock. The cost relating to performance-based stock compensation
was $9,131, $4,522 and $1,975 during 1997, 1996 and 1995, respectively.
The following table reflects pro forma net income and earnings per share had
the Company elected to adopt the fair value approach of FASB 123.
1997 1996 1995
-------- ----- -----
Net Income:
As reported .......... $592,806 $757,259 $707,913
Pro forma ............ 585,442 751,226 706,032
Basic earnings per share:
As reported .......... $ 2.99 $ 3.70 $ 3.40
Pro forma ............ 2.95 3.67 3.39
These pro forma amounts may not be representative of future years since only
awards and options granted after January 1, 1995 have been included in
accordance with FASB 123.
The weighted average fair values of options at their grant date during 1997,
1996 and 1995 were $13.29, $9.53 and $8.67, respectively. The estimated fair
value of each option granted is calculated using the Black-Scholes
option-pricing model. The following summarizes the weighted-average of the
assumptions used in the model.
1997 1996 1995
------ ---- ----
Risk-free interest rate ............... 6.50% 5.67% 7.41%
Expected years until exercise ......... 6.30 6.32 6.34
Expected stock volatility ............. 22% 22% 24%
Dividend yield ........................ 3.31% 3.40% 3.38%
Activity in the option and award plans during 1997, 1996 and 1995 is summarized
as follows:
<TABLE>
<CAPTION>
Options and Awards
Outstanding
Available --------------------------- Option Price
for Grant Awards Options Per Share
--------------- ------- ------ ------------------
<S> <C> <C> <C> <C>
Balance December 31,
1994 .................... 5,978,364 225,588 6,628,982 $ 5.41-37.00
Authorized by
Central Fidelity ..... 1,653,750 ---- ---- ----
Granted ................. (1,136,806) 109,750 1,027,056 28.06-36.875
Exercised ............... ---- (60,898) (1,104,614) 5.41-34.625
Forfeited ............... 39,757 (1,674) (93,045) 18.3855-34.625
---------- ------- ----------
Total December 31,
1995 .................... 6,535,065 272,766 6,458,379 12.50-36.875
Granted ................. (2,043,839) 242,107 1,801,732 24.85-47.125
Exercised ............... ---- (68,366) (1,015,339) 12.50-43.75
Forfeited ............... 65,296 (2,500) (85,616) 28.13-43.75
---------- ------- ----------
Total December 31,
1996 .................... 4,556,522 444,007 7,159,156 15.4165-47.125
Granted ................. (2,732,191) 243,517 2,488,674 43.56-76.6875
Assumed (Jefferson
and 1st United)....... ---- ---- 217,355 11.10-45.30
Exercised ............... ---- (26,000) (1,477,080) 15.4165-45.30
Cancelled ............... (552,633) ---- ---- ----
Authorized .............. 3,794,392 ---- ---- ----
Forfeited ............... 82,075 (1,550) (92,444) 21.6875-57.25
---------- ------- ----------
Total December 31,
1997 .................... 5,148,165 659,974 8,295,661 15.729-76.6875
========== ======= ==========
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ------------------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 11.10-25.00 1,142,239 2.36 $ 18.30 1,142,239 $ 18.30
28.25-34.625 3,163,684 5.53 32.04 2,246,317 31.24
36.875-47.125 2,197,139 7.22 41.56 1,263,499 39.96
55.50-76.6875 1,792,599 9.11 57.86 67,974 71.09
--------- ---------
8,295,661 4,720,029
========= =========
</TABLE>
- --------------------------------------------------------------------------------
Note J -- Off-Balance Sheet Trading and Lending Activities
The Corporation maintains positions in a variety of financial instruments with
off-balance sheet risk to accommodate customers' financing objectives and
management of interest rate and foreign currency risk. The Corporation
maintains active trading positions in foreign exchange forward contracts and
manages credit risk through the establishment of offsetting sell positions, as
well as standard limit and monitoring procedures. The Corporation maintains a
trading portfolio of interest rate swap and option (caps and floors) contracts
and foreign exchange options consisting of generally matched, offsetting
contracts with customer and market counterparties.
Off-balance sheet financial instruments involve, in varying degrees, exposure
to credit and interest rate risk in excess of the amount recognized in the
statements of financial condition. The Corporation follows the same credit
policies and careful underwriting practices in making commitments and
conditional obligations as it does for on-balance sheet instruments. In those
instances where collateral is necessary to support financial instrument credit
risk, the Corporation assures its ability to access borrower's collateral, in
the event of default, through strict adherence to corporate lending policy and
applicable state lending laws.
61
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note J -- Off-Balance Sheet Trading and Lending Activities -- Continued
Derivative Financial Instruments Held or Issued for Trading Purposes -- The
amounts disclosed below represent the year end notional and fair value of
derivative financial instruments held or issued for trading purposes and the
average fair value during the year. Notional principal amounts are often used
to express the volume of these transactions but do not represent the much
smaller amounts potentially subject to credit risk. The Corporation's credit
exposure to off-balance sheet derivative financial instruments is represented
by the fair value gain of the instrument if a counterparty fails to perform.
Options written do not expose the Corporation to credit risk, except to the
extent of the underlying risk in the debt instrument that the Corporation may
be obligated to acquire under certain written put options. The present value of
purchased caps and floors in a gain position represents the Corporation's
potential credit exposure.
<TABLE>
<CAPTION>
1997
------------------------------------------------------
Notional Fair Value Fair Value Average
Value Gains (Losses) Fair Value
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. dollar interest rate contracts as
intermediary:
Interest rate swaps-pay fixed .............. $3,624,822 $8,423 ($ 32,930) $ (94)
Interest rate swaps-pay floating ........... 4,206,981 38,366 (7,876) 116
Interest rate caps and floors written ...... 1,886,230 1,729 ---- 21
Interest rate caps and floors purchased..... 1,867,736 ---- (1,722) (21)
Securities trading activities:
Commitments to purchase securities,
futures and forward contracts ............. 537,237 1,768 (163) (66)
Commitments to sell securities, futures
and forward contracts ..................... 584,187 357 (1,896) 222
Net options written to purchase or sell
securities ................................ ---- ---- ---- ----
Foreign exchange trading activities:
Commitments to purchase foreign
exchange .................................. 1,457,485 5,725 (28,525) 7,162
Commitments to sell foreign exchange ....... 1,460,270 30,816 (4,776) (4,696)
Foreign exchange options written ........... 12,737 179 (15) 62
Foreign exchange options purchased ......... 12,070 13 (165) (49)
1996
---------------------------------------------------------
Notional Fair Value Fair Value Average
Value Gains (Losses) Fair Value
---------- ------ --------- ---------------
U.S. dollar interest rate contracts as
intermediary:
Interest rate swaps-pay fixed .............. $2,238,309 $8,351 ($12,926) $ (31)
Interest rate swaps-pay floating ........... 2,298,809 16,353 (7,786) 54
Interest rate caps and floors written ...... 698,219 1,228 ---- 25
Interest rate caps and floors purchased..... 696,219 ---- (1,222) (25)
Securities trading activities:
Commitments to purchase securities,
futures and forward contracts ............. 284,160 457 (782) 69
Commitments to sell securities, futures
and forward contracts ..................... 309,745 957 (452) 219
Net options written to purchase or sell
securities ................................ 196,000 ---- (72) (3)
Foreign exchange trading activities:
Commitments to purchase foreign
exchange .................................. 1,480,039 70,338 (8,816) 12,692
Commitments to sell foreign exchange ....... 1,478,494 11,694 (69,686) (10,657)
Foreign exchange options written ........... 15,323 119 (3) 44
Foreign exchange options purchased ......... 6,111 3 (108) (36)
</TABLE>
The Corporation controls the credit risk of these instruments through adherence
to credit approval policies, monetary limits and monitoring procedures.
Entering into interest rate swap agreements involves not only credit risk but
also interest rate and foreign currency risk associated with unmatched
positions. The Corporation controls the interest rate and foreign currency risk
inherent in the derivative trading portfolio by entering into offsetting
positions or by using other hedging techniques. Risks are further mitigated for
those instruments that trade on organized exchanges, as the exchanges provide
oversight and determine who may buy and sell such instruments.
Interest Rate Swaps -- These transactions generally involve the exchange of
fixed and floating rate payments without the exchange of the underlying
principal amounts. Payments made or received under swap contracts are accrued
based on contractual terms and are reported as other operating income. The
related accrued amounts receivable or payable to customers or counterparties
are included in other assets or liabilities. Revenues from the customer
portfolio represent a small profit margin on intermediated transactions. The
difference in the fair value of the offsetting contracts is not material.
At December 31, 1997, the weighted average maturity of pay-fixed swaps and
receive-fixed swaps held in the customer portfolio was 3.8 years. Under
pay-fixed swap agreements, the Corporation paid interest at a weighted average
fixed rate of 5.17% and received interest at a weighted average floating rate
of 5.747% (based on year-end rates). Under receive-fixed swap agreements, the
Corporation received interest at a weighted average fixed rate of 5.30% and
paid interest at a weighted average floating rate of 5.743% (based on year-end
rates).
Interest Rate Caps and Floors -- These instruments are written by the
Corporation to enable its customers to transfer, modify, or reduce their
interest rate risk exposure. In a cap or floor contract, the purchaser pays a
premium at the initiation of the contract for the right to receive payments if
market interest rates are greater than the strike price of a cap or less than
the strike price of a floor. Payments made or received under cap or floor
contracts are accrued based on contractual terms and are reported as other
operating income.
Commitments to Purchase and Sell Securities, Futures and Forward Contracts --
These instruments are contracts for delayed delivery of securities or money
market instruments in which the seller agrees to deliver a specified instrument
at a specified price or yield at a specified date. Commitments to purchase and
sell securities, futures and forward contracts used in securities trading
operations are recognized currently at market value and are reported as trading
account profits (losses).
Net Options Written to Purchase and Sell Foreign Exchange -- Forward
commitments involve the purchase or sale of foreign currency amounts for
delivery at a specified future date. Payments on forward commitments are
exchanged on the delivery date based on the exchange rate in the contract.
Forward commitments to purchase and sell foreign exchange are recognized at
market value and are reported as other operating income.
62
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note J -- Off-Balance Sheet Trading and Lending Activities -- Concluded
Foreign Exchange Options -- These agreements represent rights to purchase or
sell foreign currency at a predetermined price at a future date. The purchaser
pays a premium at the initiation of the contract for the right to exchange a
specified amount at the contract's exchange rate at the maturity of the option.
Revenues from the derivative trading portfolio are shown below.
1997 1996 1995
------- ------- ------
Interest rate contracts ............. $ 8,020 $ 3,071 $4,332
Securities activities ............... (3,035) 2,772 (7,569)
Foreign exchange activities ......... 11,283 10,292 12,123
------- ------- ------
Total .......................... $16,268 $16,135 $8,886
======= ======= ======
Off-Balance Sheet Financial Instruments Issued for Lending
Activities -- The Corporation issues off-balance sheet financial instruments as
part of its commercial and consumer lending activities. The contract amounts of
these instruments represent potential credit risk at December 31 as shown
below:
1997 1996
----------- -----------
Commercial and consumer lending
activities:
Unfunded commitments to extend
credit .......................... $44,484,255 $36,200,295
Standby letters of credit ......... 8,106,782 5,845,756
Commercial and similar letters of
credit .......................... 183,695 147,346
Participations in bankers'
acceptances ..................... 5,850 5,438
Commitments to Extend Credit -- These are legally binding contracts to lend to
a customer, provided there is no contract violation. These commitments have
fixed termination dates and generally require payment of a fee. As most
commitments expire prior to being drawn, the amounts shown do not necessarily
represent the future cash requirements of the contracts. Credit worthiness is
evaluated and in some instances collateral is obtained to support the
borrowing. At December 31, 1997 and 1996, approximately 15% and 14%,
respectively, of unfunded commitments to extend credit were supported by
collateral. Of the total unfunded commitment amounts presented, approximately
25% in 1997 and 30% in 1996 were comprised of cancelable credit card
commitments, and approximately 10% in 1997 and 1996 were represented by real
estate commitments.
Standby, Commercial and Similar Letters of Credit -- These instruments are
conditional commitments issued by the Corporation guaranteeing the performance
of a customer to a third party. These guarantees are issued primarily to
support public and private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
credit to customers and is subject to the Corporation's underwriting process.
At December 31, 1997 and 1996, approximately 4% and 2%, respectively, of these
instruments were supported by collateral. There were no significant
concentrations of letters of credit to any one group of borrowers at either
year-end.
Participation in Bankers' Acceptances -- These instruments represent risk
participation in time drafts drawn by customers under a committed multibank
credit facility. These drafts have been accepted and remarketed by other
financial institutions. Under the terms of these arrangements, the Corporation
may be required to reimburse the accepting financial institution for the
Corporation's pro rata share of any payment default by the customer.
- --------------------------------------------------------------------------------
Note K -- Off-Balance Sheet Risk Management Activities
The Corporation uses a variety of off-balance sheet financial instruments as
part of its overall interest rate risk management process. The Corporation's
principal objective of asset/liability management activities is to provide
maximum levels of net interest income while maintaining acceptable
levels of interest rate and liquidity risk and facilitating the Corporation's
funding needs. Accordingly, the Corporation uses a combination of derivative
financial instruments, including interest rate swaps, futures and options with
indices that correlate to on-balance sheet instruments to modify the repricing
characteristics of interest-earning assets and interest-bearing liabilities.
63
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note K -- Off-Balance Sheet Risk Management Activities -- Concluded
The amounts disclosed below represent the period-end notional and fair value of
derivative financial instruments held for risk management purposes. The
Corporation's credit exposure to off-balance sheet derivative financial
instruments is represented by the fair value gain of the instrument if a
counterparty fails to perform. There were no deferred losses resulting from
terminated swap contracts at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997
-------------------------
Notional Fair Value
Value Gains
------------- ------------
<S> <C> <C>
Convert floating rate liabilities to fixed:
Swaps-pay fixed/receive floating ....................................... $ 357,056 $ 287
Convert fixed rate assets to floating:
Swaps-pay fixed/receive floating ....................................... 358,299 ----
Forward starting swaps-pay fixed/receive floating ...................... ----- ----
Convert fixed rate liabilities to floating:
Swaps-receive fixed/pay floating ....................................... 1,375,000 65,915
Convert liabilities with quarterly rate resets to monthly:
Swaps-receive floating/pay floating .................................... 300,000 ----
Convert floating rate assets to fixed:
Swaps-receive fixed/pay floating ....................................... 409,196 6,932
Index amortizing swaps-receive fixed/pay floating ...................... 125,000 878
------------- -------
Total interest rate swaps and options ................................. 2,924,551 74,012
Financial futures contracts -- hedge of federal funds purchased ......... 1,000,000 ----
------------- -------
Total derivatives ..................................................... $3,924,551 $74,012
============= =======
<S> <C> <C> <C> <C>
1996
----------- ------------------------------------
Fair Value Notional Fair Value Fair Value
(Losses) Value Gains (Losses)
--------- ---------- ------- ---------
Convert floating rate liabilities to fixed:
Swaps-pay fixed/receive floating ....................................... $(2,366) $ 122,239 $ 625 $(1,773)
Convert fixed rate assets to floating:
Swaps-pay fixed/receive floating ....................................... (8,689) 431,465 ---- (6,912)
Forward starting swaps-pay fixed/receive floating ...................... ---- 18,200 ---- (984)
Convert fixed rate liabilities to floating:
Swaps-receive fixed/pay floating ....................................... ---- 800,000 7,934 (5,477)
Convert liabilities with quarterly rate resets to monthly:
Swaps-receive floating/pay floating .................................... (279) 300,000 ---- (348)
Convert floating rate assets to fixed:
Swaps-receive fixed/pay floating ....................................... (75) 314,859 3,462 (830)
Index amortizing swaps-receive fixed/pay floating ...................... ---- 250,000 6,131 ----
--------- ---------- ------- ---------
Total interest rate swaps and options ................................. (11,409) 2,236,763 18,152 (16,324)
Financial futures contracts -- hedge of federal funds purchased ......... (46) ---- ---- ----
--------- ---------- ------- ---------
Total derivatives ..................................................... ($ 11,455) $2,236,763 $18,152 ($ 16,324)
========= ========== ======= =========
</TABLE>
- --------------------------------------------------------------------------------
Note L -- Income Taxes
The provision for income taxes is summarized below. Included in these amounts
are income taxes related to securities transactions of $648, $1,557 and
($7,437) in 1997, 1996 and 1995, respectively. The Corporation made income tax
payments totaling $304,072 in 1997, $273,422 in 1996 and $290,026 in 1995.
1997 1996 1995
-------- -------- --------
Currently payable:
Federal ............................ $233,618 $282,405 $297,114
Foreign ............................ 594 542 288
State and local .................... 6,932 10,050 12,032
-------- --------- ---------
Total currently payable ......... 241,144 292,997 309,434
Deferred:
Federal ............................ 23,453 51,383 13,631
State .............................. 11,716 (1,331) (7,688)
-------- --------- ---------
Total deferred .................. 35,169 50,052 5,943
-------- --------- ---------
Total tax expense ............... $276,313 $343,049 $315,377
======== ========= =========
The reasons for the difference between consolidated income tax expense and the
amount computed by applying the statutory federal income tax rate of 35% to
income before taxes were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---------- ----------
<S> <C> <C> <C>
Income before income taxes ........... $869,119 $1,100,308 $1,023,290
======== ========== ==========
Federal income taxes at
statutory rate .................... $304,192 $ 385,108 $ 358,152
State and local income taxes,
net of federal benefit ............ 12,121 5,648 2,824
Effect of tax-exempt securities
interest and other income ......... (42,031) (38,457) (50,387)
Other items .......................... 2,031 (9,250) 4,788
-------- ---------- ----------
Total tax expense ............. $276,313 $ 343,049 $ 315,377
======== ========== ==========
</TABLE>
Under FASB 109, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Corporation's deferred tax assets and liabilities
at December 31 are as follows:
Deferred Tax Assets
----------------------------
1997 1996
-------- --------
Allowance for loan losses ................ $197,012 $192,375
Employee compensation and retirement
benefits ............................... 72,602 29,293
Other .................................... 40,630 29,527
-------- --------
Gross deferred tax assets ......... $310,244 $251,195
======== ========
Deferred Tax Liabilities
----------------------------
1997 1996
--------- --------
Unrealized gains on securities available-
for-sale .................................... $ 42,468 $ 31,818
Depreciation .................................. 4,052 43,260
Lease financing ............................... 200,921 95,001
Accretion of discounts on securities .......... 18,326 17,137
Identifiable intangibles ...................... 22,898 ----
Other ......................................... 19,922 8,799
--------- --------
Gross deferred tax liabilities ......... $ 308,587 $196,015
========= ========
Net deferred tax asset ................. $ 1,657 $ 55,180
========= ========
Management believes that the Corporation will fully realize the net deferred
tax asset as of December 31, 1997 based on the Corporation's refundable taxes
from carryback years, as well as its current level of operating income.
- --------------------------------------------------------------------------------
64
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note M -- Cash, Dividend, Loan Restrictions, Capital Ratios and Contingent
Liabilities
In the normal course of business, the Corporation and its subsidiaries enter
into agreements, or are subject to regulatory requirements, that result in
cash, debt and dividend restrictions. A summary of the most restrictive items
follows.
The Corporation's banking subsidiaries are required to maintain average reserve
balances with the Federal Reserve Bank. The average amount of those reserve
balances for the year ended December 31, 1997 was approximately $335,656.
Under current Federal Reserve regulations, the banking subsidiaries also are
limited in the amount they may loan to their affiliates, including the
Corporation. Loans to a single affiliate may not exceed 10% and loans to all
affiliates may not exceed 20% of the bank's capital, surplus and undivided
profits plus the allowance for loan losses. Based on these limitations,
approximately $618,035 was available for loans to the Corporation at December
31, 1997.
The approval of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the bank's
net profits, as defined, for that year combined with its retained net profits
for the preceding two calendar years. Under this formula, the banking
subsidiaries cannot distribute as dividends to the Corporation in 1998, without
the approval of the Comptroller of the Currency, more than $156,426 plus an
additional amount equal to the banks' retained net profits for 1998 up to the
date of any dividend declaration.
As a result of the above dividend and loan restrictions, approximately
$5,103,144 of consolidated net assets of the Corporation's banking subsidiaries
at December 31, 1997 was restricted from transfer to the Corporation in the
form of cash dividends, loans or advances.
The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Under the
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Failure to meet minimum capital requirements can initiate
certain mandatory, and possible discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Corporation's financial
statements.
The Corporation and its banking subsidiaries are required to maintain minimum
Tier I capital, total risk-based capital and Tier I leverage ratios of 4%, 8%
and 3%, respectively. The Corporation and its banking subsidiaries meet all
capital adequacy requirements to which they are subject.
At December 31, 1997, the most recent notification from the Comptroller of the
Currency categorized the Corporation's banking subsidiaries as well capitalized
under the regulatory framework for prompt corrective action. To be well
capitalized, the banking subsidiaries must maintain minimum Tier I capital,
total risk-based capital, and Tier I leverage ratios of 6%, 10% and 5%,
respectively. There are no conditions or events since that notification that
management believes have changed the banking subsidiaries' well capitalized
status.
The actual capital amounts and ratios for the Corporation and its principal
banking subsidiaries at December 31 are presented in the following table. The
capital amounts and ratios for Wachovia Bank, N.A. at December 31, 1996, have
been restated to reflect the merger of Wachovia Bank of North Carolina, N.A.,
Wachovia Bank of Georgia, N.A., and Wachovia Bank of South Carolina, N.A., into
a single bank at June 1, 1997.
1997 1996
----------------------- ----------------------
Amount Ratio Amount Ratio
---------- ------- ---------- ---
Wachovia Corporation
Tier I capital ........... $5,465,144 9.18% $4,765,206 9.46%
Total risk-based capital.. 7,203,318 12.10 6,572,544 13.04
Tier I leverage .......... 5,465,144 9.24 4,765,206 8.52
Wachovia Bank, N.A.
Tier I capital ........... $3,613,618 7.43% $3,594,498 8.50%
Total risk-based capital.. 5,155,622 10.59 4,598,799 10.87
Tier I leverage .......... 3,613,618 7.85 3,594,498 8.07
Central Fidelity National
Bank
Tier I capital ........... $ 718,679 8.89% $ 748,814 9.71%
Total risk-based capital.. 902,097 11.15 995,337 12.91
Tier I leverage .......... 718,679 7.08 748,814 7.31
The Corporation and its subsidiaries are defendants in certain legal
proceedings arising in connection with their business. In the opinion of
management and general counsel, the ultimate resolution of those proceedings
will result in no material adverse effect on the Corporation's financial
position and results of operations. There are no known situations where the
Corporation has an environmental liability that will materially affect the
financial position or results of operations.
- --------------------------------------------------------------------------------
Note N -- Pension and Other Postretirement Benefits The Corporation maintains
a defined benefit pension plan which covers substantially all employees. The
plan provides pension benefits that are based upon the employee's length of
credited service and final average compensation as defined in the plan. The
pension expense of the plan is determined using the projected unit credit
method. The Corporation's policy is to fund amounts allowable for federal
income tax purposes. The following table sets forth the funded status of the
Corporation's defined benefit pension plan and the amounts recognized in the
Consolidated Statements of Condition at December 31.
65
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note N -- Pension and Other Postretirement Benefits -- Continued
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation:
Vested .......................................... $520,038 $414,169
Nonvested ....................................... 38,279 30,136
--------- ---------
Total ...................................... $558,317 $444,305
========= =========
Actuarial present value of projected benefit
obligation for service rendered to date ......... ($680,780) ($521,112)
Plan assets at fair value -- primarily listed
stocks, fixed income securities and collective
funds ........................................... 742,203 603,675
--------- ---------
Plan assets in excess of projected benefit
obligation ...................................... 61,423 82,563
Unrecognized net actuarial loss ................... 6,273 1,973
Unrecognized prior service cost ................... 63 (17,012)
Unrecognized transition asset ..................... (28,643) (34,322)
--------- ---------
Prepaid pension cost .............................. $39,116 $33,202
========= =========
Net pension cost included the following components:
1997 1996 1995
-------- ------- --------
Service cost -- benefits earned
during the period ................... $ 23,130 $21,777 $ 15,328
Interest cost on projected benefit
obligation .......................... 41,580 37,081 33,207
Actual return on plan assets .......... (130,114) (72,033) (108,518)
Net amortization and deferral ......... 71,063 19,254 62,639
-------- ------- --------
Net periodic pension cost ............. $ 5,659 $ 6,079 $ 2,656
======== ======= ========
</TABLE>
The rates used in determining the actuarial present value of the projected
benefit obligation were as follows:
1997 1996
----- ----
Discount rates ................................... 7.25% 7.75%
Rates of increase in compensation levels ......... 5% 4% - 5%
The expected long-term rate of return on plan assets used to determine the net
periodic pension benefit was 8%, 8% - 9.25%, and 8% - 9% for 1997, 1996 and
1995, respectively.
The Corporation also sponsors separate unfunded nonqualified pension plans that
provide certain officers with defined pension benefits in excess of limits
imposed on qualified plans by federal tax law and for certain compensation not
covered in the qualified plans. The following table summarizes the plans at
December 31.
1997 1996
-------- --------
Actuarial present value of accumulated benefit
obligation:
Vested .......................................... $54,057 $44,925
Nonvested ....................................... 5,969 5,615
-------- --------
Total ....................................... $60,026 $50,540
======== ========
Actuarial present value of projected benefit
obligation for service rendered to date ......... ($73,959) ($64,734)
Unrecognized net actuarial loss ................... 19,333 15,221
Unrecognized transition obligation ................ 4,615 5,112
Unrecognized prior service cost ................... 6,383 7,093
-------- --------
Accrued pension cost .............................. ($43,628) ($37,308)
======== ========
Net pension cost included the following components:
1997 1996 1995
------ ------ ------
Service cost -- benefits earned during
the period .......................... $1,530 $1,519 $1,122
Interest cost on projected benefit
obligation .......................... 5,046 4,310 4,035
Net amortization and deferral ......... 2,761 2,670 2,016
------ ------ ------
Net periodic pension cost ............. $9,337 $8,499 $7,173
====== ====== ======
The rates used in determining the actuarial present value of the projected
benefit obligation were as follows:
1997 1996
----- ----
Discount rates ................................... 7.25% 7.75%
Rates of increase in compensation levels ......... 5% 4% - 5%
The Corporation also provides supplemental benefits to substantially all
employees through defined contribution plans designed to encourage participants
to save on a regular basis and to provide such participants with deferred
compensation and additional performance incentive. Total expense relating to
these plans, which represented the Corporation's matching and discretionary
contributions, was $25,969 in 1997, $19,847 in 1996 and $19,059 in 1995.
Employee participants may elect to contribute from 1% to 12% of base salary,
with the Corporation matching 50% of each participant's contribution up to a
maximum employer contribution of 3% of base salary. The plans provide for
additional contributions of up to 3% of salary in accordance with a
preestablished formula based on certain earnings performance criteria and also
for special discretionary employer contributions of up to 4% of each eligible
employee's base salary as approved annually by the Board of Directors.
The Corporation and its subsidiaries provide certain health care benefits for
retired employees. Substantially all of the employees may become eligible for
these benefits if they reach normal retirement age while working for the
Corporation or its subsidiaries. The benefits are provided through self-insured
plans administered by insurance companies whose premiums are based on the
claims paid during the year.
The following table presents the status of the plan as of December 31.
1997 1996
---------- ----------
Accumulated postretirement benefit
obligation:
Retirees ........................................ ($ 50,326) ($ 49,968)
Fully eligible active plan participants ......... (11,103) (7,987)
Other active plan participants .................. (24,223) (14,777)
---------- ----------
Total ....................................... (85,652) (72,732)
Plan assets at fair value -- primarily insurance
contracts ....................................... 12,170 12,786
Unrecognized net actuarial gain ................... (8,167) (19,177)
Unrecognized transition obligation ................ 59,695 63,674
Unrecognized prior service cost ................... 626 683
---------- ----------
Accrued postretirement benefit cost ............... ($ 21,328) ($ 14,766)
=========== ==========
66
<PAGE>
Wachovia Corporation and Subsidiaries
- ---------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note N -- Pension and Other Postretirement Benefits -- Concluded
Net periodic postretirement benefit cost included the following components:
1997 1996 1995
------- ------ -------
Service cost ............................ $ 2,407 $1,955 $ 1,391
Interest cost ........................... 5,718 5,245 5,603
Actual return on plan assets ............ (895) (770) ----
Amortization of gain .................... (484) (476) (707)
Amortization of transition obligation
over 20 years ......................... 3,980 3,979 3,980
Amortization of prior service cost ...... 57 57 57
-------- ------- ---------
Net periodic postretirement benefit
cost .................................. $10,783 $9,990 $10,324
======== ======= =========
The annual assumed rate of increase in health care costs used in determining
the accumulated postretirement benefit obligation and net periodic
postretirement benefit costs were 8% - 8.4% for retirees under age 65 and 6% -
8.4% for retirees age 65 and over for 1997, 8% - 8.4% for retirees under age 65
and 6% - 8.4% for retirees age 65 and over for 1996, and 8% - 8.6% for retirees
under age 65 and 6% - 8.6% for retirees age 65 and over for 1995. These rates
are assumed to remain constant for each of these categories of retirees. The
health care cost trend rate assumption has a significant effect on the amounts
reported. Increasing the assumed health care cost trend rates by one percentage
point would increase the accumulated postretirement benefit obligation for the
plan as of December 31, 1997 and 1996 by $5,086 and $4,633, respectively, and
the aggregate of the service and interest cost of the net periodic
postretirement benefit cost for 1997, 1996 and 1995 by $617, $617 and $268,
respectively. The discount rates used in determining the accumulated
postretirement benefit obligations at December 31, 1997 and 1996 were 7.25% and
7.75%, respectively.
- --------------------------------------------------------------------------------
Note O -- Selected Income Statement Information
The components of other operating income and expense for the three years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Other operating income:
Insurance premiums and commissions ...................... $ 30,205 $ 20,562 $ 17,455
Bankers' acceptance and letter of credit fees ........... 34,526 28,243 25,953
Other service charges and fees .......................... 38,750 38,590 30,271
Other income ............................................ 89,751 64,666 48,396
--------- --------- ---------
Total other operating income .......................... $193,232 $152,061 $122,075
========= ========= =========
Other operating expense:
Postage and delivery .................................... $ 48,657 $ 47,195 $ 44,553
Outside data processing, programming and software ....... 86,497 51,139 47,737
Stationery and supplies ................................. 30,960 30,043 30,238
Advertising and sales promotion ......................... 72,046 68,639 57,957
Professional services ................................... 54,113 41,223 41,152
Travel and business promotion ........................... 25,215 21,096 20,267
Regulatory agency fees and other bank services .......... 14,600 16,771 63,136
Amortization of intangible assets ....................... 13,308 9,163 12,296
Foreclosed property expense ............................. 1,875 1,930 2,420
Other expense ........................................... 167,880 178,066 151,272
--------- --------- ---------
Total other operating expense ......................... $515,151 $465,265 $471,028
========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
67
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands
Note P -- Earnings Per Share
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1997 1996 1995
-------- ---- ----
<S> <C> <C> <C>
Basic (thousands, except per share)
Average common shares outstanding .............................. 198,290 204,889 208,230
======== ======= =======
Net income ..................................................... $592,806 $757,259 $707,913
======== ======== ========
Per share amount ............................................... $ 2.99 $ 3.70 $ 3.40
Diluted (thousands, except per share)
Average common shares outstanding .............................. 198,290 204,889 208,230
Dilutive common stock options at average market price .......... 3,394 2,322 1,877
Dilutive common stock awards at average market price ........... 210 126 88
Convertible long-term debt assumed converted ................... 7 95 405
-------- -------- --------
Average diluted shares outstanding ............................. 201,901 207,432 210,600
======== ======== ========
Net income ..................................................... $592,806 $757,259 $707,913
Add interest on convertible long-term debt, net of tax ......... 6 65 330
-------- -------- --------
Adjusted net income ............................................ $592,812 $757,324 $708,243
======== ======== ========
Per share amount ............................................... $ 2.94 $ 3.65 $ 3.36
</TABLE>
- --------------------------------------------------------------------------------
Note Q -- Wachovia Corporation (Parent Company Only) Information
The following is a condensed statement of financial condition of the parent
company at December 31.
1997 1996
---------- ----------
Assets
- -------
Cash on demand deposit with bank
subsidiary ................................. $ 6,968 $ 44
Interest-bearing bank balances with bank
subsidiaries ............................... 856,503 1,171,697
Securities available-for-sale ................ 51,523 378,222
Demand loans to nonbank subsidiaries ......... 993,073 464,101
Capital notes receivable from bank
subsidiaries ............................... 1,506,529 936,677
Investments in:
Bank subsidiaries .......................... 5,260,189 4,520,586
Nonbank subsidiaries ....................... 224,157 191,395
Other assets ................................. 164,910 138,192
---------- ----------
Total assets ............................. $9,063,852 $7,800,914
========== ==========
Liabilities and Shareholders' Equity
- -------------------------------------
Parent company commercial paper .............. $1,034,024 $ 706,376
Subordinated capital notes includes
$1,080,659 from nonbank subsidiaries
in 1997; $693,297 in 1996................... 2,553,612 2,165,667
6.625% senior notes due 2006 ................. 199,207 199,142
Demand loans from bank and bank
holding company subsidiaries ............... 18,015 18,015
Other liabilities ............................ 84,693 103,313
Shareholders' equity ......................... 5,174,301 4,608,401
---------- ----------
Total liabilities and shareholders'
equity ................................. $9,063,852 $7,800,914
========== ==========
The principal maturities of the parent company's long-term debt subsequent to
December 31, 1997 are $3,822 in 1998, $352,915 in 1999, none in 2000, $25,592
in 2001, $151,678 in 2002 and $2,218,812, thereafter.
The operating results of the parent company for the three years ended December
31 are shown below.
1997 1996 1995
-------- -------- --------
Income
- ------
Dividends from:
Bank subsidiaries ................... $658,800 $561,800 $257,700
Nonbank subsidiaries ................ 11,060 800 52,075
Interest from subsidiaries ............ 184,476 104,823 89,278
Other interest income ................. 15,320 16,877 571
Other income .......................... 34,012 55,243 49,272
-------- --------- ---------
Total income ..................... 903,668 739,543 448,896
Expense
- -------
Interest on short-term borrowed
funds ............................... 39,566 30,491 29,394
Interest on long-term debt ............ 169,192 105,075 79,632
Interest paid to subsidiaries ......... 22,354 15,488 4,781
Other expense ......................... 50,655 34,349 30,056
-------- --------- ---------
Total expense .................... 281,767 185,403 143,863
Income before income taxes and
equity in undistributed net
income of subsidiaries .............. 621,901 554,140 305,033
Applicable income taxes
(benefit) ........................... (16,519) (7,055) (1,889)
-------- --------- ---------
Income before equity in
undistributed net income of
subsidiaries ........................ 638,420 561,195 306,922
Equity in (excess dividends)
undistributed net income of
subsidiaries ........................ (45,614) 196,064 400,991
-------- --------- ---------
Net income ....................... $592,806 $757,259 $707,913
======== ========= =========
68
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Concluded
- --------------------------------------------------------------------------------
$ in thousands
Note Q -- Wachovia Corporation (Parent Company Only) Information -- Concluded
The cash flows for the parent company for the three years ended December 31,
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating Activities
- --------------------
Net Income ............................ $592,806 $757,259 $707,913
Other, net ............................ 23,830 (7,177) 14,320
Equity in excess dividends
(undistributed net income) of
subsidiaries ....................... 45,614 (196,064) (400,991)
-------- -------- --------
Net cash provided by
operations ....................... 662,250 554,018 321,242
Investing Activities
- --------------------
Net decrease (increase) in
interest-bearing bank
balances ........................... 315,194 (406,418) (387,154)
Purchases of securities
available-for-sale ................. (17,097) (334,586) (67,360)
Sale of securities
available-for-sale ................. 349,052 30,485 65,749
Net (increase) decrease in
demand loans to nonbank
subsidiaries ....................... (559,130) (149,483) 47,708
Capital notes issued to bank
subsidiaries ....................... (550,000) ---- (250,000)
Capital notes repaid by bank
subsidiaries ....................... ---- 585 30,500
Net (increase) decrease in other
assets ............................. (5,154) 26,771 (54,137)
Equity investment in
subsidiaries ....................... (45,956) (68,252) (55,551)
-------- -------- --------
Net cash used by investing
activities ..................... (513,091) (900,898) (670,245)
Financing Activities
- --------------------
Net increase in demand loans
from subsidiaries .................. 355,340 629,616 60,558
Net increase in commercial
paper .............................. 327,648 204,090 95,430
Proceeds from long-term debt .......... ---- 196,106 496,387
Decrease in other liabilities ......... (19,346) (462) (54)
Issuance of stock ..................... 59,281 37,445 43,151
Dividend payments ..................... (327,303) (304,733) (281,466)
Common stock repurchased .............. (537,855) (415,162) (65,032)
-------- -------- --------
Net cash (used) provided by
financing activities ............. (142,235) 346,900 348,974
-------- -------- --------
Increase (decrease) in cash ........... 6,924 20 (29)
Cash at beginning of year ............. 44 24 53
-------- -------- --------
Cash at end of year ................... $ 6,968 $ 44 $ 24
======== ======== ========
Noncash investing and financing
activities:
Common stock issued on
conversion of long-term
debt ............................. $ 70 $ 6,007 $ 3,184
</TABLE>
On December 1, 1995, South Carolina National Corporation was merged into
Wachovia Corporation; the assets and liabilities merged into Wachovia
Corporation totaled $54,664 and $45,506, respectively.
- --------------------------------------------------------------------------------
69
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------
Consolidated Average Balances
- --------------------------------------------------------------------------------
thousands
<TABLE>
<CAPTION>
1997 1996
Amount % Amount %
<S> <C> <C> <C> <C>
Assets
Loans -- net of unearned income:
Commercial ................................................................ $11,326,589 19.7 $10,480,829 18.9
Tax-exempt ................................................................ 1,743,227 3.0 2,126,486 3.8
------------ ----- ------------ -----
Total commercial ....................................................... 13,069,816 22.7 12,607,315 22.7
Direct retail ............................................................. 1,193,557 2.1 1,194,349 2.1
Indirect retail ........................................................... 2,966,521 5.1 3,138,707 5.6
Credit card ............................................................... 5,626,062 9.8 4,948,626 8.9
Other revolving credit .................................................... 423,900 .7 417,953 .8
------------ ----- ------------ -----
Total retail ........................................................... 10,210,040 17.7 9,699,635 17.4
Construction .............................................................. 1,498,438 2.6 1,069,576 1.9
Commercial mortgages ...................................................... 6,067,194 10.5 5,452,795 9.8
Residential mortgages ..................................................... 7,422,225 12.9 6,796,978 12.2
------------ ----- ------------ -----
Total real estate ...................................................... 14,987,857 26.0 13,319,349 23.9
Lease financing ........................................................... 955,055 1.7 655,485 1.2
Foreign ................................................................... 493,110 .9 457,500 .8
------------ ----- ------------ -----
Total loans ............................................................ 39,715,878 69.0 36,739,284 66.0
Investment securities:
Held-to-maturity:
State and municipal ...................................................... 221,196 .4 273,529 .5
Other investments ........................................................ 1,101,603 1.8 1,199,467 2.1
------------ ----- ------------ -----
Total securities held-to-maturity ...................................... 1,322,799 2.2 1,472,996 2.6
Available-for-sale:
Other investments (1) .................................................... 9,535,910 16.5 10,495,775 18.8
------------ ----- ------------ -----
Total investment securities ............................................ 10,858,709 18.7 11,968,771 21.4
Interest-bearing bank balances ............................................. 88,801 .2 420,838 .8
Federal funds sold and securities purchased under resale agreements ........ 397,213 .7 286,478 .5
Trading account assets ..................................................... 960,244 1.7 921,764 1.7
------------ ----- ------------ -----
Total interest-earning assets .......................................... 52,020,845 90.3 50,337,135 90.4
Cash and due from banks .................................................... 2,904,160 5.0 2,789,738 5.1
Premises and equipment ..................................................... 803,362 1.4 785,438 1.4
Other assets ............................................................... 2,399,430 4.2 2,184,835 4.0
Allowance for loan losses .................................................. (520,722) (.9) (512,943) (.9)
------------ ------ ------------ ------
Total assets ........................................................... $57,607,075 100.0 $55,584,203 100.0
============ ====== ============ ======
Liabilities and Shareholders' Equity
Time deposits in domestic offices:
Interest-bearing demand ................................................... $ 4,108,606 7.1 $ 3,993,079 7.2
Savings and money market savings .......................................... 10,594,764 18.4 9,440,738 17.0
Savings certificates ...................................................... 10,364,936 18.0 10,521,925 18.9
Large denomination certificates ........................................... 2,929,042 5.1 2,612,410 4.7
------------ ------ ------------ ------
Total time deposits in domestic offices ................................ 27,997,348 48.6 26,568,152 47.8
Time deposits in foreign offices ........................................... 1,585,149 2.8 1,040,585 1.9
------------ ------ ------------ ------
Total interest-bearing deposits ........................................ 29,582,497 51.4 27,608,737 49.7
Federal funds purchased and securities sold under repurchase agreements..... 6,743,997 11.7 7,136,064 12.8
Commercial paper ........................................................... 781,345 1.4 595,806 1.1
Other short-term borrowed funds ............................................ 1,461,781 2.5 1,286,160 2.3
------------ ------ ------------ ------
Total short-term borrowed funds ........................................ 8,987,123 15.6 9,018,030 16.2
Bank notes ................................................................. 3,075,331 5.3 4,609,878 8.3
Other long-term debt ....................................................... 3,046,492 5.3 2,082,894 3.7
------------ ------ ------------ ------
Total long-term debt ................................................... 6,121,823 10.6 6,692,772 12.0
------------ ------ ------------ ------
Total interest-bearing liabilities ..................................... 44,691,443 77.6 43,319,539 77.9
Other deposits:
Demand in domestic offices ................................................ 6,921,083 12.0 6,476,977 11.7
Demand in foreign offices ................................................. 169 .0 1,563 .0
Noninterest-bearing time in domestic offices .............................. 13,192 .0 12,362 .0
Other liabilities .......................................................... 1,447,863 2.5 1,315,939 2.4
Shareholders' equity ....................................................... 4,533,325 7.9 4,457,823 8.0
------------ ------ ------------ ------
Total liabilities and shareholders' equity ............................. $57,607,075 100.0 $55,584,203 100.0
============ ====== ============ ======
Total Deposits ............................................................. $36,516,941 $34,099,639
</TABLE>
(1) Includes unrealized gains (losses) of $65,846 in 1997, $93,556 in 1996,
$34,248 in 1995 and ($12,405) in 1994
70
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five-Year
1995 1994 1993 1992 Compound
Amount % Amount % Amount % Amount % Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9,727,718 18.8 $ 7,923,773 17.1 $ 6,691,358 15.8 $ 6,315,629 16.1 12.4%
2,067,016 4.0 2,066,908 4.4 1,993,493 4.7 2,118,900 5.4 (3.8)
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
11,794,734 22.8 9,990,681 21.5 8,684,851 20.5 8,434,529 21.5 9.2
1,177,466 2.3 1,087,952 2.3 955,942 2.2 926,881 2.4 5.2
2,973,026 5.8 2,862,342 6.2 2,593,024 6.1 2,326,705 5.9 5.0
4,551,448 8.8 4,014,135 8.6 2,993,593 7.1 2,145,377 5.5 21.3
398,693 .8 382,216 .8 370,403 .9 369,819 .9 2.8
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
9,100,633 17.7 8,346,645 17.9 6,912,962 16.3 5,768,782 14.7 12.1
948,248 1.8 791,154 1.7 801,627 1.9 942,000 2.4 9.7
4,902,241 9.5 4,529,213 9.7 4,131,072 9.7 4,030,680 10.3 8.5
6,182,282 12.0 5,587,543 12.0 5,028,473 11.9 4,381,737 11.2 11.1
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
12,032,771 23.3 10,907,910 23.4 9,961,172 23.5 9,354,417 23.9 9.9
278,038 .5 180,022 .4 140,887 .3 124,415 .3 50.3
304,277 .6 108,028 .2 76,212 .2 72,347 .2 46.8
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
33,510,453 64.9 29,533,286 63.4 25,776,084 60.8 23,754,490 60.6 10.8
423,747 .8 599,206 1.3 826,228 1.9 966,746 2.5 (25.6)
3,735,893 7.1 3,371,132 7.1 9,146,254 21.5 7,557,743 19.2 (32.0)
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
4,159,640 7.9 3,970,338 8.4 9,972,482 23.4 8,524,489 21.7 (31.1)
7,851,827 15.2 7,255,003 15.6 1,020,590 2.4 761,192 1.9 65.8
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
12,011,467 23.1 11,225,341 24.0 10,993,072 25.8 9,285,681 23.6 3.2
119,277 .2 31,941 .1 92,927 .2 316,967 .8 (22.5)
221,359 .4 303,177 .7 564,358 1.3 589,261 1.5 (7.6)
916,140 1.8 689,417 1.5 721,892 1.7 1,079,314 2.7 (2.3)
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
46,778,696 90.4 41,783,162 89.7 38,148,333 89.8 35,025,713 89.2 8.2
2,801,993 5.5 2,688,765 5.9 2,640,520 6.2 2,616,485 6.7 2.1
722,418 1.4 663,773 1.4 613,822 1.4 585,401 1.5 6.5
1,917,594 3.7 1,922,633 4.1 1,630,243 3.8 1,498,474 3.8 9.9
(517,430) (1.0) (516,702) ( 1.1) (503,697) (1.2) (477,562) (1.2) 1.8
- ------------- ------ ------------- ------ ------------- ------ ------------- ------
$51,703,271 100.0 $46,541,631 100.0 $42,529,221 100.0 $39,248,511 100.0 8.0
============= ====== ============= ====== ============= ====== ============= ======
$ 3,923,942 7.6 $ 4,047,307 8.7 $ 3,851,842 9.1 $ 3,362,915 8.6 4.1
8,318,312 16.1 7,973,997 17.1 7,906,297 18.6 7,565,250 19.3 7.0
10,435,857 20.3 8,419,653 18.0 8,372,243 19.6 8,799,194 22.4 3.3
2,173,624 4.2 1,889,807 4.1 2,263,284 5.3 2,912,041 7.4 .1
- ------------- ------ ------------- ------ ------------- ------ ------------- ------
24,851,735 48.2 22,330,764 47.9 22,393,666 52.6 22,639,400 57.7 4.3
749,511 1.4 516,157 1.1 466,571 1.1 423,069 1.1 30.2
- ------------- ------ ------------- ------ ------------- ------ ------------- ------
25,601,246 49.6 22,846,921 49.0 22,860,237 53.7 23,062,469 58.8 5.1
6,263,319 12.1 6,146,656 13.2 5,015,727 11.8 4,017,740 10.2 10.9
535,210 1.0 524,715 1.1 503,317 1.2 489,551 1.3 9.8
2,061,418 4.0 697,743 1.5 981,020 2.3 1,390,607 3.5 1.0
- ------------- ------ ------------- ------ ------------- ------ ------------- ------
8,859,947 17.1 7,369,114 15.8 6,500,064 15.3 5,897,898 15.0 8.8
4,174,561 8.1 3,629,703 7.8 1,535,750 3.6 272,688 .7 62.4
1,520,122 2.9 1,524,081 3.3 994,090 2.3 210,530 .5 70.7
- ------------- ------ ------------- ------ ------------- ------ ------------- ------
5,694,683 11.0 5,153,784 11.1 2,529,840 5.9 483,218 1.2 66.2
- ------------- ------ ------------- ------ ------------- ------ ------------- ------
40,155,876 77.7 35,369,819 75.9 31,890,141 74.9 29,443,585 75.0 8.7
6,214,100 12.0 6,215,419 13.4 6,117,579 14.4 5,587,641 14.3 4.4
6,823 .0 5,380 .0 5,516 .0 5,759 .0 (50.6)
12,537 .0 70,997 .2 75,976 .2 89,599 .2 (31.8)
1,150,355 2.2 1,067,818 2.3 921,075 2.2 1,022,218 2.6 7.2
4,163,580 8.1 3,812,198 8.2 3,518,934 8.3 3,099,709 7.9 7.9
- ------------- ------ ------------- ------ ------------- ------ ------------- ------
$51,703,271 100.0 $46,541,631 100.0 $42,529,221 100.0 $39,248,511 100.0 8.0
============= ====== ============= ====== ============= ====== ============= ======
$31,834,706 $29,138,717 $29,059,308 $28,745,468 4.9
</TABLE>
71
<PAGE>
Wachovia Corporation and Subsidiaries
- ------------------------
Summary of Operations
- --------------------------------------------------------------------------------
thousands
<TABLE>
<CAPTION>
1997 1996
Amount % Amount %
<S> <C> <C> <C> <C>
Interest Income ............................................. $ 4,262,385 80.9 $ 4,009,508 82.0
Interest Expense ............................................ 2,168,818 41.2 2,085,771 42.7
------------- ---- ------------- ----
Net Interest Income ......................................... 2,093,567 39.7 1,923,737 39.3
Provision for loan losses ................................... 264,949 5.0 193,776 4.0
------------- ---- ------------- ----
Net interest income after provision for loan losses ......... 1,828,618 34.7 1,729,961 35.3
Other Income
Service charges on deposit accounts ......................... 306,231 5.8 280,670 5.7
Fees for trust services ..................................... 175,549 3.3 154,621 3.2
Credit card income .......................................... 162,234 3.1 143,382 2.9
Electronic banking .......................................... 64,640 1.2 56,226 1.2
Investment fee income ....................................... 53,487 1.0 43,747 .9
Mortgage fee income ......................................... 23,544 .4 21,371 .4
Trading account profits (losses) ............................ 26,851 .5 22,654 .5
Student loan servicing ...................................... ---- ---- ---- ----
Other operating income ...................................... 193,232 3.8 152,061 3.1
------------- ----- ------------- -----
Total other operating revenue ........................... 1,005,768 19.1 874,732 17.9
Gain on sale of mortgage servicing portfolio ................ ---- ---- ---- ----
Gain on sale of subsidiary .................................. ---- ---- ---- ----
Investment securities gains (losses) ........................ 1,454 ---- 4,588 .1
------------- ----- ------------- -----
Total other income ...................................... 1,007,222 19.1 879,320 18.0
Other Expense
Salaries .................................................... 742,106 14.1 655,065 13.4
Employee benefits ........................................... 163,051 3.1 141,867 2.9
------------- ----- ------------- -----
Total personnel expense ................................. 905,157 17.2 796,932 16.3
Net occupancy expense ....................................... 116,654 2.2 114,001 2.3
Equipment expense ........................................... 142,227 2.7 132,775 2.7
Personal computer impairment charge ......................... 67,202 1.3 ---- ----
Merger-related charges ...................................... 220,330 4.2 ---- ----
Other operating expense ..................................... 515,151 9.8 465,265 9.5
------------- ----- ------------- -----
Total other expense ..................................... 1,966,721 37.3 1,508,973 30.8
Income before income taxes .................................. 869,119 16.5 1,100,308 22.5
Applicable income taxes ..................................... 276,313 5.2 343,049 7.0
------------- ----- ------------- -----
Net Income .................................................. $ 592,806 11.3 $ 757,259 15.5
============= ===== ============= =====
Net income per common share:
Basic ...................................................... $ 2.99 $ 3.70
Diluted .................................................... $ 2.94 $ 3.65
Cash dividends paid per common share (2) .................... $ 1.68 $ 1.52
Average shares outstanding:
Basic ...................................................... 198,290 204,889
Diluted .................................................... 201,901 207,432
</TABLE>
(1) Percentages reflected above are based on total income (interest plus
other).
(2) Cash dividends per common share are those of Wachovia Corporation paid
prior to merger with Central Fidelity Banks, Inc.
72
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five-Year
1995 1994 1993 1992 Compound
Amount % Amount % Amount % Amount % Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,790,110 82.3 $3,025,654 81.9 $ 2,738,164 78.5 $2,803,880 80.7 8.7%
2,011,155 43.7 1,369,006 37.1 1,128,709 32.4 1,252,659 36.1 11.6
- ----------- ---- ----------- ---- ------------- ---- ----------- ----
1,778,955 38.6 1,656,648 44.8 1,609,455 46.1 1,551,221 44.6 6.2
130,504 2.8 96,122 2.6 172,161 4.9 219,177 6.3 3.9
- ----------- ---- ----------- ---- ------------- ---- ----------- ----
1,648,451 35.8 1,560,526 42.2 1,437,294 41.2 1,332,044 38.3 6.5
244,671 5.2 231,646 6.3 237,328 6.8 219,881 6.3 6.8
145,464 3.2 142,026 3.8 133,651 3.8 121,712 3.5 7.6
127,153 2.7 126,886 3.4 104,922 3.0 83,104 2.4 14.3
39,722 .9 28,347 .8 17,857 .5 15,290 .4 33.4
27,656 .6 14,522 .4 17,153 .5 13,021 .4 32.7
26,139 .6 33,997 .9 41,339 1.2 41,747 1.2 (10.8)
24,235 .5 8,794 .2 20,063 .6 (5,199) (.1)
---- ---- ---- ---- 5,535 .2 33,250 1.0 (100.0)
122,075 2.7 103,881 2.9 91,621 2.6 73,043 2.1 21.5
- ----------- ----- ----------- ----- ------------- ---- ----------- -----
757,115 16.4 690,099 18.7 669,469 19.2 595,849 17.2 11.0
79,025 1.7 ---- ---- ---- ---- ---- ----
---- ---- ---- ---- 8,030 .2 19,486 .6 (100.0)
(19,672) (.4) (21,972) (.6) 74,256 2.1 54,151 1.5 (51.5)
- ----------- ----- ----------- ----- ------------- ----- ----------- -----
816,468 17.7 668,127 18.1 751,755 21.5 669,486 19.3 8.5
604,041 13.1 566,368 15.3 545,869 15.6 533,000 15.3 6.8
129,749 2.8 125,144 3.4 139,754 4.0 112,179 3.2 7.8
- ----------- ----- ----------- ----- ------------- ----- ----------- -----
733,790 15.9 691,512 18.7 685,623 19.6 645,179 18.5 7.0
109,543 2.4 102,131 2.8 101,225 2.9 100,818 2.9 3.0
127,268 2.8 124,321 3.4 119,340 3.4 116,993 3.4 4.0
---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ----
471,028 10.2 425,287 11.5 448,070 12.9 433,039 12.5 3.5
- ----------- ----- ----------- ----- ------------- ----- ----------- -----
1,441,629 31.3 1,343,251 36.3 1,354,258 38.8 1,296,029 37.3 8.7
1,023,290 22.2 885,402 24.0 834,791 23.9 705,501 20.3 4.3
315,377 6.8 261,480 7.1 239,779 6.9 193,760 5.6 7.4
- ----------- ----- ----------- ----- ------------- ----- ----------- -----
$ 707,913 15.4 $ 623,922 16.9 $ 595,012 17.0 $ 511,741 14.7 3.0
=========== ===== =========== ===== ============= ===== =========== =====
$ 3.40 $ 3.00 $ 2.84 $ 2.51 3.6
$ 3.36 $ 2.96 $ 2.80 $ 2.46 3.6
$ 1.38 $ 1.23 $ 1.11 $ 1.00 10.9
208,230 208,117 208,880 203,803 (.5)
210,600 210,651 212,584 208,759 (.7)
</TABLE>
73
<PAGE>
Wachovia Corporation and Subsidiaries
- ------------------------------------------
Net Interest Income -- Taxable Equivalent
- --------------------------------------------------------------------------------
thousands
<TABLE>
<CAPTION>
1997 1996
Amount % Amount %
<S> <C> <C> <C> <C>
Interest Income
Loans:
Commercial ................................................................. $ 829,406 19.2 $ 747,463 18.3
Tax-exempt ................................................................. 155,689 3.6 190,285 4.7
----------- ----- ------------- -----
Total commercial ........................................................ 985,095 22.8 937,748 23.0
Direct retail .............................................................. 107,326 2.5 106,634 2.6
Indirect retail ............................................................ 254,001 5.9 266,435 6.5
Credit card ................................................................ 727,114 16.8 595,208 14.6
Other revolving credit ..................................................... 52,007 1.2 51,026 1.2
----------- ----- ------------- -----
Total retail ............................................................ 1,140,448 26.4 1,019,303 24.9
Construction ............................................................... 140,780 3.3 99,470 2.4
Commercial mortgages ....................................................... 505,876 11.7 452,576 11.1
Residential mortgages ...................................................... 592,907 13.7 552,944 13.5
----------- ----- ------------- -----
Total real estate ....................................................... 1,239,563 28.7 1,104,990 27.0
Lease financing ............................................................ 92,721 2.1 61,717 1.5
Foreign .................................................................... 34,164 .8 32,098 .8
----------- ----- ------------- -----
Total loans ............................................................. 3,491,991 80.8 3,155,856 77.2
Investment securities:
Held-to-maturity:
State and municipal ...................................................... 26,259 .6 33,547 .8
Other investments ........................................................ 87,631 2.0 96,509 2.4
----------- ----- ------------- -----
Total securities held-to-maturity ....................................... 113,890 2.6 130,056 3.2
Available-for-sale:
Other investments ........................................................ 635,195 14.7 700,202 17.1
----------- ----- ------------- -----
Total investment securities ............................................. 749,085 17.3 830,258 20.3
Interest-bearing bank balances .............................................. 5,230 .1 33,284 .8
Federal funds sold and securities purchased under resale agreements ......... 22,319 .5 15,411 .4
Trading account assets ...................................................... 51,654 1.3 51,740 1.3
----------- ----- ------------- -----
Total interest income .................................................... 4,320,279 100.0 4,086,549 100.0
Interest Expense
Interest-bearing demand ..................................................... 64,249 1.5 59,761 1.5
Savings and money market savings ............................................ 405,444 9.4 336,596 8.2
Savings certificates ........................................................ 582,145 13.4 598,869 14.6
Large denomination certificates ............................................. 164,391 3.8 153,571 3.8
----------- ----- ------------- -----
Total time deposits in domestic offices ................................. 1,216,229 28.1 1,148,797 28.1
Time deposits in foreign offices ............................................ 87,320 2.0 54,942 1.3
----------- ----- ------------- -----
Total time deposits ..................................................... 1,303,549 30.1 1,203,739 29.4
Federal funds purchased and securities sold under repurchase agreements ..... 357,190 8.3 382,976 9.4
Commercial paper ............................................................ 39,566 .9 29,054 .7
Other short-term borrowed funds ............................................. 81,406 1.9 70,206 1.7
----------- ----- ------------- -----
Total short-term borrowed funds ......................................... 478,162 11.1 482,236 11.8
Bank notes .................................................................. 188,710 4.4 264,486 6.5
Other long-term debt ........................................................ 198,397 4.6 135,310 3.3
----------- ----- ------------- -----
Total long-term debt .................................................... 387,107 9.0 399,796 9.8
----------- ----- ------------- -----
Total interest expense .................................................. 2,168,818 50.2 2,085,771 51.0
----------- ----- ------------- -----
Net Interest Income ......................................................... $2,151,461 49.8 $ 2,000,778 49.0
=========== ===== ============= =====
Percentage of interest-earning assets:
Interest income ............................................................ 8.32% 8.13%
Interest expense ........................................................... 4.18 4.15
----------- -------------
Net interest income ..................................................... 4.14% 3.98%
=========== =============
Taxable equivalent adjustment included in interest income:
Loans ...................................................................... $ 36,695 $ 46,158
Investment securities ...................................................... 19,862 28,577
Trading account assets ..................................................... 1,337 2,306
----------- -------------
Total (2) ............................................................... $ 57,894 $ 77,041
=========== =============
</TABLE>
(1) Percentages reflected above are based on total interest income.
(2) The taxable equivalent adjustment for 1997, 1996, 1995, 1994 and 1993
reflects the federal income tax rate of 35% and state tax rates, as
applicable, reduced by the nondeductible portion of interest expense; the
taxable equivalent adjustment for 1992 reflects the federal income tax
rate of 34%.
74
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five-Year
1995 1994 1993 1992 Compound
Amount % Amount % Amount % Amount % Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 728,263 18.7 $ 486,566 15.6 $ 362,764 12.7 $ 384,266 13.3 16.6%
203,551 5.2 186,360 5.9 181,785 6.4 185,892 6.4 ( 3.5)
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
931,814 23.9 672,926 21.5 544,549 19.1 570,158 19.7 11.6
103,522 2.7 86,093 2.7 80,775 2.8 100,424 3.5 1.3
245,936 6.3 223,830 7.1 220,751 7.8 224,607 7.8 2.5
566,391 14.5 453,117 14.6 359,334 12.6 313,955 10.9 18.3
50,544 1.3 44,904 1.4 42,392 1.5 44,711 1.5 3.1
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
966,393 24.8 807,944 25.8 703,252 24.7 683,697 23.7 10.8
93,152 2.4 70,261 2.2 58,712 2.1 70,729 2.4 14.8
423,149 10.9 352,563 11.2 308,194 10.8 324,085 11.2 9.3
505,995 13.0 434,177 13.9 410,837 14.5 398,592 13.9 8.3
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
1,022,296 26.3 857,001 27.3 777,743 27.4 793,406 27.5 9.3
24,173 .6 14,090 .4 12,540 .4 12,423 .4 49.5
22,610 .6 6,162 .2 3,318 .1 3,760 .1 55.5
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
2,967,286 76.2 2,358,123 75.2 2,041,402 71.7 2,063,444 71.4 11.1
50,192 1.3 75,069 2.4 97,057 3.4 113,159 3.9 (25.3)
271,292 7.0 234,557 7.5 596,239 21.0 562,245 19.4 (31.0)
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
321,484 8.3 309,626 9.9 693,296 24.4 675,404 23.3 (30.0)
526,287 13.5 416,408 13.3 60,408 2.1 57,284 2.0 61.8
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
847,771 21.8 726,034 23.2 753,704 26.5 732,688 25.3 .4
9,377 .2 1,322 .0 2,980 .1 13,444 .5 (17.2)
13,279 .3 13,262 .4 18,675 .7 21,326 .7 .9
60,416 1.5 36,407 1.2 28,481 1.0 60,510 2.1 ( 3.1)
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
3,898,129 100.0 3,135,148 100.0 2,845,242 100.0 2,891,412 100.0 8.4
74,179 1.9 70,890 2.3 76,099 2.7 89,164 3.0 ( 6.3)
304,294 7.8 221,317 7.1 209,608 7.4 252,399 8.7 9.9
596,122 15.2 383,670 12.2 384,360 13.5 479,400 16.6 4.0
126,708 3.3 84,669 2.7 112,188 3.9 166,611 5.8 ( .3)
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
1,101,303 28.2 760,546 24.3 782,255 27.5 987,574 34.1 4.3
41,876 1.1 22,318 .7 14,503 .5 15,646 .5 41.0
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
1,143,179 29.3 782,864 25.0 796,758 28.0 1,003,220 34.6 5.4
374,158 9.6 268,155 8.6 159,265 5.7 145,448 5.1 19.7
29,324 .8 20,587 .7 15,103 .5 17,199 .6 18.1
124,283 3.2 29,559 .9 31,827 1.1 58,744 2.0 6.7
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
527,765 13.6 318,301 10.2 206,195 7.3 221,391 7.7 16.6
258,885 6.6 203,777 6.5 79,734 2.8 13,183 .5 70.3
81,326 2.1 64,064 2.0 46,022 1.6 14,865 .5 67.9
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
340,211 8.7 267,841 8.5 125,756 4.4 28,048 1.0 69.0
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
2,011,155 51.6 1,369,006 43.7 1,128,709 39.7 1,252,659 43.3 11.6
- ------------- ----- ------------- ----- ------------- ----- ------------- -----
$ 1,886,974 48.4 $ 1,766,142 56.3 $ 1,716,533 60.3 $ 1,638,753 56.7 5.6
============= ===== ============= ===== ============= ===== ============= =====
8.35% 7.50% 7.46% 8.26%
4.31 3.28 2.96 3.58
- ------------- ------------- ------------- -------------
4.04% 4.22% 4.50% 4.68%
============= ============= ============= =============
$ 55,068 $ 52,918 $ 53,899 $ 49,073
46,817 52,268 52,426 40,368
4,594 2,871 2,235 719
- ------------- ------------- ------------- -------------
$ 106,479 $ 108,057 $ 108,560 $ 90,160
============= ============= ============= =============
</TABLE>
75
<PAGE>
Wachovia Corporation and Subsidiaries
- ---------------------
Statistical Summary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Average Yields Earned (taxable equivalent)
Loans:
Commercial ................................................ 7.32% 7.13% 7.49% 6.14% 5.42% 6.08%
Tax-exempt ................................................ 8.93 8.95 9.85 9.02 9.12 8.77
Total commercial ........................................ 7.54 7.44 7.90 6.74 6.27 6.76
Direct retail ............................................. 8.99 8.93 8.79 7.91 8.45 10.83
Indirect retail ........................................... 8.56 8.49 8.27 7.82 8.51 9.65
Credit card ............................................... 12.92 12.03 12.44 11.29 12.00 14.63
Other revolving credit .................................... 12.27 12.21 12.68 11.75 11.44 12.09
Total retail ............................................ 11.17 10.51 10.62 9.68 10.17 11.85
Construction .............................................. 9.40 9.30 9.82 8.88 7.32 7.51
Commercial mortgages ...................................... 8.34 8.30 8.63 7.78 7.46 8.04
Residential mortgages ..................................... 7.99 8.14 8.18 7.77 8.17 9.10
Total real estate ....................................... 8.27 8.30 8.50 7.86 7.81 8.48
Lease financing ........................................... 9.71 9.42 8.69 7.83 8.90 9.99
Foreign ................................................... 6.93 7.02 7.43 5.70 4.35 5.20
Total loans ............................................. 8.79 8.59 8.85 7.98 7.92 8.69
Held-to-maturity:
State and municipal ....................................... 11.87 12.26 11.84 12.53 11.75 11.71
Other investments ......................................... 7.95 8.05 7.26 6.96 6.52 7.44
Total securities held-to-maturity ....................... 8.61 8.83 7.73 7.80 6.95 7.92
Available-for-sale:
Other investments ......................................... 6.71 6.73 6.73 5.73 5.92 7.53
Total investment securities ............................. 6.94 6.99 7.08 6.46 6.86 7.89
Interest-bearing bank balances ............................. 5.89 7.91 7.86 4.14 3.21 4.24
Federal funds sold and securities purchased under resale
agreements ................................................ 5.62 5.38 6.00 4.37 3.31 3.62
Trading account assets ..................................... 5.38 5.61 6.59 5.28 3.95 5.61
Total interest income ................................... 8.32 8.13 8.34 7.50 7.46 8.26
Average Rates Paid
Interest-bearing demand .................................... 1.56% 1.50% 1.89% 1.75% 1.98% 2.65%
Savings and money market savings ........................... 3.83 3.57 3.66 2.78 2.65 3.34
Savings certificates ....................................... 5.62 5.69 5.71 4.56 4.59 5.45
Large denomination certificates ............................ 5.61 5.88 5.83 4.48 4.96 5.72
Total time deposits in domestic offices ................. 4.34 4.32 4.43 3.41 3.49 4.36
Time deposits in foreign offices ........................... 5.51 5.28 5.59 4.32 3.11 3.70
Total time deposits ..................................... 4.41 4.36 4.47 3.43 3.49 4.35
Federal funds purchased and securities sold under repurchase
agreements ................................................ 5.30 5.37 5.97 4.36 3.18 3.62
Commercial paper ........................................... 5.06 4.88 5.48 3.92 3.00 3.51
Other short-term borrowed funds ............................ 5.57 5.46 6.03 4.24 3.24 4.22
Total short-term borrowed funds ......................... 5.32 5.35 5.96 4.32 3.17 3.75
Bank notes ................................................. 6.14 5.74 6.20 5.61 5.19 4.83
Other long-term debt ....................................... 6.51 6.50 5.35 4.20 4.63 7.06
Total long-term debt .................................... 6.32 5.97 5.97 5.20 4.97 5.80
Total interest bearing liabilities ...................... 4.85 4.81 5.01 3.87 3.54 4.25
Interest rate spread ....................................... 3.47 3.32 3.33 3.63 3.92 4.01
Net yield on interest-earning assets ....................... 4.14 3.98 4.04 4.23 4.50 4.68
Ratios (averages)
Shareholders' equity to:
Total assets .............................................. 7.87% 8.02% 8.05% 8.19% 8.27% 7.90%
Net loans ................................................. 11.57 12.31 12.62 13.14 13.92 13.32
Deposits .................................................. 12.41 13.07 13.08 13.08 12.11 10.78
Equity and long-term debt ................................. 42.54 39.98 42.24 42.52 58.17 86.52
Return on assets ........................................... 1.03 1.36 1.37 1.34 1.40 1.30
Return on shareholders' equity ............................. 13.08 16.99 17.00 16.37 16.91 16.51
Return on deposits ......................................... 1.62 2.22 2.22 2.14 2.05 1.78
Dividends paid as a percentage of net income ............... 55.21 40.37 39.91 40.77 38.73 38.98
</TABLE>
76
<PAGE>
Wachovia Corporation and Subsidiaries
- ----------------------
Year-End Information
- --------------------------------------------------------------------------------
1997 1996
Condensed Balance Sheet (millions)
Cash and due from banks .............................. $ 4,222 $ 3,674
Interest-bearing bank balances ....................... 133 78
Federal funds sold and securities
purchased under resale agreements ................... 1,589 276
Trading account assets ............................... 999 1,190
Investment securities
Available-for-sale .................................. 8,960 9,825
Held-to-maturity .................................... 1,458 1,352
Loans and net leases ................................. 44,210 38,033
Less unearned income on loans ........................ 16 26
-------- --------
Total loans ........................................ 44,194 38,007
Less allowance for loan losses ....................... 544 519
-------- --------
Net loans .......................................... 43,650 37,488
Premises and equipment ............................... 810 794
Other assets ......................................... 3,576 2,552
-------- --------
Total assets ....................................... $ 65,397 $ 57,229
======== ========
Deposits in domestic offices ......................... $ 38,151 $ 34,137
Deposits in foreign offices .......................... 4,503 1,185
-------- --------
Total deposits ..................................... 42,654 35,322
Federal funds purchased and securities
sold under repurchase agreements .................... 8,323 7,206
Commercial paper ..................................... 1,034 707
Other short-term borrowed funds ...................... 753 1,039
Bank notes ........................................... 2,940 4,308
Other long-term debt ................................. 2,994 2,717
Other liabilities .................................... 1,525 1,322
Shareholders' equity ................................. 5,174 4,608
-------- --------
Total liabilities and shareholders' equity ......... $ 65,397 $ 57,229
======== ========
Loan Portfolio (millions)
Domestic borrowers:
Commercial .......................................... $ 13,528 $ 10,341
Tax-exempt .......................................... 1,607 2,016
Direct retail ....................................... 1,250 1,218
Indirect retail ..................................... 3,028 3,082
Credit card ......................................... 5,919 5,596
Other revolving credit .............................. 460 424
Construction ........................................ 1,780 1,247
Commercial mortgages ................................ 6,790 5,684
Residential mortgages ............................... 8,099 7,132
Lease financing, net ................................ 1,094 831
-------- --------
Total .............................................. 43,555 37,571
Foreign ............................................. 639 436
-------- --------
Total loans ........................................ $ 44,194 $ 38,007
======== ========
Loan Portfolio (percentages)
Commercial ........................................... 34.2 32.5
Credit card .......................................... 13.4 14.7
Other revolving credit ............................... 1.0 1.1
Other retail ......................................... 9.7 11.3
Real estate .......................................... 37.7 37.0
Lease financing ...................................... 2.5 2.2
Foreign .............................................. 1.5 1.2
--------- ---------
Total .............................................. 100.0 100.0
========= =========
<TABLE>
<CAPTION>
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Condensed Balance Sheet (millions)
Cash and due from banks .............................. $ 3,033 $ 2,953 $ 2,839 $ 2,925
Interest-bearing bank balances ....................... 526 7 13 224
Federal funds sold and securities
purchased under resale agreements ................... 302 399 884 701
Trading account assets ............................... 1,115 891 791 897
Investment securities
Available-for-sale .................................. 11,034 7,018 4,094 43
Held-to-maturity .................................... 1,620 4,185 7,879 10,346
Loans and net leases ................................. 35,617 31,692 27,776 25,075
Less unearned income on loans ........................ 32 28 22 25
-------- -------- -------- --------
Total loans ........................................ 35,585 31,664 27,754 25,050
Less allowance for loan losses ....................... 519 516 510 482
-------- -------- -------- --------
Net loans .......................................... 35,066 31,148 27,244 24,568
Premises and equipment ............................... 781 690 650 591
Other assets ......................................... 2,315 1,951 1,794 1,783
-------- -------- -------- --------
Total assets ....................................... $ 55,792 $ 49,242 $ 46,188 $ 42,078
======== ======== ======== ========
Deposits in domestic offices ......................... $ 33,594 $ 29,380 $ 29,201 $ 29,528
Deposits in foreign offices .......................... 761 916 807 519
-------- -------- -------- --------
Total deposits ..................................... 34,355 30,296 30,008 30,047
Federal funds purchased and securities
sold under repurchase agreements .................... 6,892 6,939 6,198 4,887
Commercial paper ..................................... 535 432 606 405
Other short-term borrowed funds ...................... 1,776 1,044 1,101 859
Bank notes ........................................... 4,691 4,751 2,782 758
Other long-term debt ................................. 1,493 997 751 607
Other liabilities .................................... 1,449 873 998 1,136
Shareholders' equity ................................. 4,601 3,910 3,744 3,379
-------- -------- -------- --------
Total liabilities and shareholders' equity ......... $ 55,792 $ 49,242 $ 46,188 $ 42,078
======== ======== ======== ========
Loan Portfolio (millions)
Domestic borrowers:
Commercial .......................................... $ 10,365 $ 8,915 $ 7,250 $ 6,802
Tax-exempt .......................................... 2,328 1,907 2,055 2,071
Direct retail ....................................... 1,197 1,128 1,008 926
Indirect retail ..................................... 3,118 2,813 2,804 2,452
Credit card ......................................... 4,610 4,522 3,586 2,605
Other revolving credit .............................. 417 398 382 376
Construction ........................................ 1,008 829 747 768
Commercial mortgages ................................ 5,113 4,673 4,242 4,086
Residential mortgages ............................... 6,537 6,028 5,444 4,760
Lease financing, net ................................ 502 197 163 131
-------- -------- -------- --------
Total .............................................. 35,195 31,410 27,681 24,977
Foreign ............................................. 390 254 73 73
-------- -------- -------- --------
Total loans ........................................ $ 35,585 $ 31,664 $ 27,754 $ 25,050
======== ======== ======== ========
Loan Portfolio (percentages)
Commercial ........................................... 35.7 34.2 33.5 35.4
Credit card .......................................... 12.9 14.3 12.9 10.4
Other revolving credit ............................... 1.2 1.3 1.4 1.5
Other retail ......................................... 12.1 12.4 13.7 13.5
Real estate .......................................... 35.6 36.4 37.6 38.4
Lease financing ...................................... 1.4 .6 .6 .5
Foreign .............................................. 1.1 .8 .3 .3
--------- --------- --------- ---------
Total .............................................. 100.0 100.0 100.0 100.0
========= ========= ========= =========
</TABLE>
77
<PAGE>
Stock Data
The following charts present high and low trading ranges for the corporation's
common stock, price to earnings ratios and data on cash dividends per share and
cash dividend payouts for the most recent six years. Stock price trading ranges
and price to earnings ratios for the most recent eight quarters also are
provided.
The Five-Year Total Return chart compares Wachovia, the S&P 500 Index and the
Keefe, Bruyette & Woods (KBW) 50 Total Return Index in stock price appreciation
and dividends, assuming quarterly reinvestment, from the base period December
31, 1992 through year-end 1997. The KBW 50 Index is a market capitalization
weighted measure of total return for 50 of the largest U.S. banking companies
including all money center and most regional banks.
Wachovia's common stock is listed on the New York Stock Exchange under the
trading symbol WB. The corporation is a member of the Standard & Poor's 500
Index of stocks and the S&P 500 Major Regional Banks Industry Group.
COMMON STOCK PRICE RANGE* NYSE SYMBOL: WB
(Graph appears below)
High Low
1992 34.75 28.25
1993 40.50 31.68
1994 35.38 30.13
1995 48.25 32.00
1996 60.25 39.63
1997 83.94 53.50
* Prices represent those of Wachovia Corporation
prior to merger with Central Fidelity Banks, Inc.
COMMON STOCK PRICE/EARNINGS RATIOS*
(Graph appears below)
High Low
1992 14.0 11.4
1993 14.4 11.3
1994 11.3 9.7
1995 13.8 9.1
1996 15.8 10.4
1997 28.6 18.2
* Amounts based on high and low common stock prices for each year
and annual net income per diluted share as originally reported by
Wachovia Corporation. The 1997 amounts were based on net income
reported by the pooled companies.
CASH DIVIDENDS PER SHARE*
Five Year Compound Growth Rate = 10.9%
(Graph appears below)
1992 1.00
1993 1.11
1994 1.23
1995 1.38
1996 1.52
1997 1.68
* Dividends per share represent those paid by Wachovia Corporation
prior to merger with Central Fidelity Banks, Inc.
CASH DIVIDEND PAYOUT*
(MILLIONS)
(Graph appears below)
1992 39.0%
1993 38.7%
1994 40.8%
1995 39.9%
1996 40.4%
1997 55.2%
* Dividends include amounts paid by pooled companies.
% Payout ratio (total dividends as a percentage
of net income)
- -----------------------------------------
Common Stock Data -- Per Share Table 19
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Market value: *
End of year ..................... $ 81.13 $ 56.50 $ 45.75 $ 32.25 $ 33.50 $ 34.12
High ............................ 83.94 60.25 48.25 35.38 40.50 34.75
Low ............................. 53.50 39.63 32.00 30.13 31.88 28.25
Book value ** .................... 25.13 22.90 22.08 18.79 17.98 16.25
Dividend * ....................... 1.68 1.52 1.38 1.23 1.11 1.00
Price/earnings ratio *** ......... 27.6 x 14.8 x 13.1 x 10.3 x 11.9 x 13.8 x
</TABLE>
* Information for years before 1997 represents that of Wachovia
Corporation prior to merger with Central Fidelity Banks, Inc.
** Book value per share has been restated to reflect the merger with Central
Fidelity Banks, Inc., as a pooling-of-interests.
*** Price earnings ratio is based on end-of-year stock price and net income per
diluted share. Information for years before 1997 represents that of Wachovia
Corporation prior to merger with Central Fidelity Banks, Inc. Excluding the
after-tax impact of nonrecurring charges, the 1997 price earnings ratio was
20.5x.
78
<PAGE>
QUARTERLY COMMON STOCK PRICE RANGE*
(Graph appears below)
Low High
1996
1st Quarter 41.25 48.38
2nd Quarter 40.88 46.25
3rd Quarter 39.63 49.88
4th Quarter 48.75 60.25
1997
1st Quarter 54.50 64.63
2nd Quarter 53.50 66.88
3rd Quarter 58.19 72.38
4th Quarter 71.06 83.94
* Prices represent those of Wachovia Corporation
prior to merger with Central Fidelity Banks, Inc.
QUARTERLY COMMON STOCK PRICE/EARNINGS RATIOS*
(Graph appears below)
Low High
1996
1st Quarter 11.6 13.6
2nd Quarter 11.5 13.1
3rd Quarter 10.9 13.7
4th Quarter 12.8 15.8
1997
1st Quarter 13.9 16.4
2nd Quarter 13.3 16.7
3rd Quarter 14.3 17.8
4th Quarter 23.2 27.4
* Amounts based on high and low common stock prices for each period
and net income per diluted share for the 12 months ended on the last
day of each period as originally reported by Wachovia Corporation prior
to merger with Central Fidelity Banks, Inc. The 1997 fourth quarter amounts
were based on net income reported by the pooled companies.
FIVE-YEAR TOTAL RETURN*
(Graph appears below)
Wachovia S&P 500 KBW 50 Index
1992 100% 100% 100%
1993 101.28 105.54 110.08
1994 101.23 100.16 111.53
1995 148.93 160.41 153.44
1996 190.05 226.91 188.67
1997 280.10 331.73 251.62
* Base period 12/31/92 = 100. Dividends reinvested. Data for the
KBW 50 Index is weighted by market capitalization.
79
<PAGE>
Historical Comparative Data
The following charts present six-year comparative data for Wachovia Corporation
and the median of the 25 largest U.S. bank holding companies based on assets as
of each year-end. The median is representative of the typical bank holding
company within the comparison group.
All historical data is as originally reported, not restated for pooling-
of-interests mergers or acquisitions. Wachovia's results for 1997 were impacted
by nonrecurring charges taken in the fourth quarter.
Results on an operating basis are footnoted in the relevant charts below.
Return on Assets
(Average)
(Graph appears below)
Wachovia 25 Largest U.S. Banks (Median)
1992 1.36 .90
1993 1.46 1.20
1994 1.46 1.21
1995 1.45 1.21
1996 1.43 1.29
1997 1.03* 1.26
* Excluding nonrecurring items, the return was 1.39%.
Return on Common Equity
(Average)
(Graph appears below)
Wachovia 25 Largest U.S. Banks (Median)
1992 16.69 14.18
1993 17.13 16.94
1994 17.41 16.10
1995 17.67 16.77
1996 17.62 17.02
1997 13.08* 18.53
* Excluding nonrecurring items, the return was 17.65%.
Common Equity to Assets
(Average)
(Graph appears below)
Wachovia 25 Largest U.S. Banks (Median)
1992 8.16 6.16
1993 8.54 6.57
1994 8.36 6.86
1995 8.22 7.00
1996 8.09 7.47
1997 7.87 7.36
Net Interest Income* as a Percentage
of Average Earning Assets
(Graph appears below)
Wachovia 25 Largest U.S. Banks (Median)
1992 4.75 4.44
1993 4.64 4.48
1994 4.34 4.34
1995 4.16 4.45
1996 4.02 4.36
1997 4.14 4.24
* Taxable Equivalent
Noninterest Expense as a Percentage
of Total Adjusted Revenues*
(Graph appears below)
Wachovia 25 Largest U.S. Banks (Median)
1992 58.61 64.85
1993 57.05 62.54
1994 54.15 61.88
1995 54.23 61.72
1996 52.21 60.91
1997 62.29** 60.88
* Excluding sales of securities transactions, mortgage
servicing portfolio and subsidiary.
** Excluding nonrecurring items, the ratio was 53.19%.
Net Loan Losses to Average Loans
(Graph appears below)
Wachovia 25 Largest U.S. Banks (Median)
1992 .48 1.25
1993 .31 .75
1994 .29 .39
1995 .37 .44
1996 .49 .53
1997 .67 .63
Nonperforming Assets to Year-End Loans
and Foreclosed Property
(Graph appears below)
Wachovia 25 Largest U.S. Banks (Median)
1992 1.25 3.09
1993 .67 1.90
1994 .39 1.03
1995 .24 .80
1996 .25 .76
1997 .29 .62
80
Supervision and Regulation
Wachovia Corporation is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, (BHC Act) and is subject to the
supervision of, and regulation by, the Board of Governors of the Federal
Reserve System (FRB). State banking commissions also serve in a supervisory and
regulatory capacity with respect to bank holding company activities. Wachovia
Corporation is also a savings and loan holding company registered under the
Home Owners' Loan Act of 1933 (HOLA), as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (FIRREA), and is subject to the
examination, supervision and reporting requirements of the Office of Thrift
Supervision (OTS).
As federally insured national banks, Wachovia Bank, N.A., The First National
Bank of Atlanta, Jefferson National Bank and Central Fidelity National Bank,
are subject to the regulation, supervision and reporting requirements of the
Office of the Comptroller of the Currency (OCC) and the Federal Deposit
Insurance Corporation (FDIC). 1st United Bank is an FDIC insured, state
chartered bank in Florida, and is subject to the regulation, supervision and
reporting requirements of the FDIC, as well as the Florida Department of
Banking and Finance (FDBF). The Corporation's banking subsidiaries are directly
affected by the actions of the FRB in managing the money supply and credit
availability in the economy.
The Corporation's nonbanking subsidiaries are subject to a variety of state and
federal laws. For example, the Corporation's discount brokerage and investment
advisory subsidiary is subject to supervision and regulation by the Securities
and Exchange Commission (SEC), the National Association of Securities Dealers,
Inc., state securities regulators and the various exchanges through which it
conducts business. The Corporation's insurance subsidiaries are subject to the
insurance laws of the states in which they are active. All nonbanking
subsidiaries are supervised by the FRB.
Federal law regulates transactions among Wachovia Corporation and its
affiliates, including the amount of banking affiliates' loans to or investments
in nonbank affiliates and the amount of advances to third parties
collateralized by securities of an affiliate. In addition, various requirements
and restrictions under federal and state laws regulate the operations of the
Corporation's banking affiliates, requiring the maintenance of reserves against
deposits, limiting the nature of loans and interest that may be charged
thereon, restricting investments and other activities.
Under FRB policy, the Corporation is expected to act as a source of financial
strength to, and commit resources to support, each of its subsidiary banks. In
addition, FIRREA provides that a depository institution insured by the FDIC can
be held liable by the FDIC for any loss incurred or reasonably expected to be
incurred in connection with the default of a commonly controlled FDIC insured
depository institution. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), federal banking regulators are required to
take prompt corrective action in respect of depository institutions that do not
meet minimum capital requirements. FDICIA imposes substantial examination,
audit and reporting requirements on insured depository institutions. The
regulation also requires that risk-based capital standards be revised to
incorporate interest rate risk, market risk, concentration of credit risk and
the risks of nontraditional activities.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
Act) enabled nationwide interstate banking through bank subsidiaries and
interstate bank mergers. Effective September 29, 1995, the bill allowed
adequately capitalized and managed bank holding companies to acquire control of
a bank in any state subject to concentration limits. Beginning June 1, 1997,
banks are permitted to merge with one another across state lines. The
legislation preserves state laws which require that a bank must be in existence
for a minimum period of five years or less before being acquired. The
legislation has relevance for the banking industry due to increased competition
from institutions consolidating through mergers and moving into new markets by
branching across state lines.
During January 1997, the Corporation's Board of Directors approved a plan of
merger whereby Wachovia Bank of Georgia and Wachovia Bank of South Carolina
would be merged with and into Wachovia Bank of North Carolina, which, as the
survivor, would change its name to Wachovia Bank, N.A. The merger took place on
June 1, 1997 pursuant to the authority of the Act. The merger builds on the
many efficiencies already achieved through standardization of operations and
delivery systems and results in additional cost savings from consolidated
financial reporting and reduced regulatory fees.
There continue to be a number of legislative and regulatory proposals that
would have an impact on the operation of bank holding companies and their
banks. While the potential effects of legislation currently under consideration
cannot be measured with any degree of certainty, the Corporation is unaware of
any pending legislative reforms or regulatory activities which would materially
affect its financial position or operating results in the foreseeable future.
81
<PAGE>
Directors and Officers
Directors of Wachovia Corporation and Wachovia Bank, N.A.
- --------------------------------------------------------------------------------
L.M. Baker, Jr.
President and
Chief Executive Officer
John G. Medlin, Jr.
Chairman of the Board
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 Operating 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
President and
Chief Executive Officer
Burlington Industries, Inc.
W. Hayne Hipp
President and
Chief Executive Officer
The Liberty Corporation
Robert M. Holder, Jr.
Chairman
RMH Group, LLC
Robert A. Ingram
Chief Executive Officer
Glaxo Wellcome plc
Chairman, Chief Executive
Officer and President
Glaxo Wellcome Inc.
James W. Johnston
President and
Chief Executive Officer
Stonemarker Enterprises, Inc.
George R. Lewis
President and
Chief Executive Officer
Philip Morris Capital Corporation
Lloyd U. Noland, III
Chairman, President and
Chief Executive Officer
Noland Company
Wyndham Robertson
Writer and Retired
Vice President, Communications
University of North Carolina
Herman J. Russell
Chairman of the Board
H.J. Russell & Company
Sherwood H. Smith, Jr.
Chairman of the Board
Carolina Power & Light Company
John C. Whitaker, Jr.
Chairman and
Chief Executive Officer
Inmar Enterprises, Inc.
Principal Corporate Officers of Wachovia Corporation
- --------------------------------------------------------------------------------
L.M. Baker, Jr.
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
82
<PAGE>
Shareholder Information
Corporate Headquarters
Wachovia Corporation
100 North Main Street
Winston-Salem, NC 27150
191 Peachtree Street, NE
Atlanta, GA 30303
Corporate Mailing Addresses and
Telephone Numbers
Wachovia Corporation
P.O. Box 3099
Winston-Salem, NC 27150
336-770-5000
P.O. Box 4148
Atlanta, GA 30302
404-332-5000
Notice of Annual Meeting
The Annual Meeting of Shareholders of Wachovia Corporation will be held Friday,
April 24, 1998 at 10:30 a.m. EDT, in the Jefferson Hotel, Franklin & Adams
Streets, Richmond, Virginia. All shareholders are invited to attend.
Common Stock
Wachovia common stock trades on the New York Stock Exchange under the ticker
symbol WB.
Transfer Agent
Wachovia Bank, N.A.
Winston-Salem, NC
1-800-633-4236
Correspondence and transfer requests should be sent to the following:
Wachovia Shareholder Services
P.O. Box 8218
Boston, MA 02266-8218
Shareholder Account Assistance
Shareholders who wish to change the address or ownership of stock, report lost
certificates, eliminate duplicate mailings or for other account reregistration
procedures and assistance should contact the Transfer Agent at the address or
phone number above.
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). The toll-free service will be
available beginning April 15, 1998, 24-hours-a-day, 7-days-a-week.
Internet Address
The corporation's Internet address is:
www.wachovia.com
Investor Contact
Robert S. McCoy, Jr.
Chief Financial Officer
336-732-5926
James C. Mabry
Senior Vice President
Investor Relations
336-732-5788
Winston-Salem, NC 27150
Shareholder Relations Contact
H. Jo Barlow
Assistant Vice President
336-732-5787
Winston-Salem, NC 27150
Dividend Services
Through the Dividend Reinvestment and Common Stock Purchase Plan record
shareholders can invest dividends as well as optional cash payments in
additional shares without payment of brokerage commissions or service charges.
Direct Deposit of Cash Dividends is a timesaving method of receiving cash
dividends through automatic deposit to an account at any financial institution
that participates in an Automated Clearing House.
Independent Auditors
Ernst & Young LLP
83
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8: Nos. 33-34386, 33-15706, 33-54094, 33-53325, 333-02239, 333-32255,
33-35357, 333-37339, 333-36889, 333-45099: Form S-3: Nos 33-2232, 333-06319) of
Wachovia Corporation and in the related prospectuses of our report dated January
20, 1998, with respect to the consolidated financial statements of Wachovia
Corporation incorporated by reference in this Annual Report (Form 10-K) for the
year ended December 31, 1997.
Ernst & Young LLP
Winston-Salem, North Carolina
March 27, 1998
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8: Nos. 33-34386, 33-15706, 33-54094, 33-53325, 333-02239, 333-32255,
33-35357, 333-37339, 333-36889, 333-45099: Form S-3: Nos 33-2232, 333-06319) of
Wachovia Corporation of our report dated January 20, 1998, relating to the
consolidated balance sheet of Central Fidelity National bank and subsidiaries as
December 31, 1997, and the related consolidated statements of income, cash flows
and changes in shareholder's equity for the year then ended, and of our report
dated January 15, 1997, relating to the consolidated balance sheet of Central
Fidelity Banks, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, cash flows and changes in
shareholder's equity for each of the year in the three-year period ended
December 31, 1996, which reports appear in the December 31, 1997 annual report
on Form 10-K of Wachovia Corporation.
/s/ KPMG peat Marwick LLP
Richmond, Virginia
March 27, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
We, the undersigned directors of Wachovia Corporation, and each of us,
do hereby make, constitute and appoint Kenneth W. McAllister and Alice
Washington Grogan, and each of them (either of whom may act without the consent
or joinder of the other), our attorneys-in-fact and agents with full power of
substitution for us and in our name, place and stead, in any and all capacities,
to execute for us and in our behalf the Annual Report on Form 10-K of Wachovia
Corporation for the year ended December 31, 1997 and any and all amendments to
the foregoing Report and any other documents and instruments incidental thereto,
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as we might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and/or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, we the undersigned have executed this Power of
Attorney this 23rd day of January, 1998.
/s/ L. M. Baker, Jr. /s/ James S. Balloun
- ---------------------------------- ------------------------------------
L. M. Baker, Jr. James S. Balloun
/s/ James F. Betts /s/ Peter C. Browning
- ---------------------------------- ------------------------------------
James F. Betts Peter C. Browning
/s/ John T. Casteen III /s/ John L. Clendenin
- ---------------------------------- ------------------------------------
John T. Casteen III John L. Clendenin
/s/ Lawrence M. Gressette, Jr. /s/ Thomas K. Hearn, Jr.
- ---------------------------------- ------------------------------------
Lawrence M. Gressette, Jr. Thomas K. Hearn, Jr.
/s/ George W. Henderson III /s/ W. Hayne Hipp
- ---------------------------------- ------------------------------------
George W. Henderson III W. Hayne Hipp
/s/ Robert A. Ingram
- ---------------------------------- ------------------------------------
Robert M. Holder, Jr. Robert A. Ingram
/s/ James W. Johnston /s/ George R. Lewis
- ---------------------------------- ------------------------------------
James W. Johnston George R. Lewis
/s/ John G. Medlin, Jr. /s/ Lloyd U. Noland III
- ---------------------------------- ------------------------------------
John G. Medlin, Jr. Lloyd U. Noland III
- ---------------------------------- ------------------------------------
Wyndham Robertson Herman J. Russell
/s/ Sherwood H. Smith, Jr. /s/ John C. Whitaker, Jr.
- ---------------------------------- ------------------------------------
Sherwood H. Smith, Jr. John C. Whitaker, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
I, the undersigned director of Wachovia Corporation, do hereby make,
constitute and appoint Kenneth W. McAllister and Alice Washington Grogan, and
each of them (either of whom may act without the consent or joinder of the
other), my attorneys-in-fact and agents with full power of substitution for me
and in my name, place and stead, in any and all capacities, to execute for me
and in my behalf the Annual Report on Form 10-K of Wachovia Corporation for the
year ended December 31, 1997 and any and all amendments to the foregoing Report
and any other documents and instruments incidental thereto, and to file the
same, with all exhibits thereto, and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as I might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents
and/or any of them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I the undersigned have executed this Power of Attorney
this 30th day of January, 1998.
/s/ Herman J. Russell
------------------------------------
Herman J. Russell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
I, the undersigned director of Wachovia Corporation, do hereby make,
constitute and appoint Kenneth W. McAllister and Alice Washington Grogan, and
each of them (either of whom may act without the consent or joinder of the
other), my attorneys-in-fact and agents with full power of substitution for me
and in my name, place and stead, in any and all capacities, to execute for me
and in my behalf the Annual Report on Form 10-K of Wachovia Corporation for the
year ended December 31, 1997 and any and all amendments to the foregoing Report
and any other documents and instruments incidental thereto, and to file the
same, with all exhibits thereto, and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as I might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents
and/or any of them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I the undersigned have executed this Power of Attorney
this 30th day of January, 1998.
/s/ Wyndham Robertson
------------------------------------
Wyndham Robertson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
I, the undersigned director of Wachovia Corporation, do hereby make,
constitute and appoint Kenneth W. McAllister and Alice Washington Grogan, and
each of them (either of whom may act without the consent or joinder of the
other), my attorneys-in-fact and agents with full power of substitution for me
and in my name, place and stead, in any and all capacities, to execute for me
and in my behalf the Annual Report on Form 10-K of Wachovia Corporation for the
year ended December 31, 1997 and any and all amendments to the foregoing Report
and any other documents and instruments incidental thereto, and to file the
same, with all exhibits thereto, and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as I might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents
and/or any of them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I the undersigned have executed this Power of
Attorney this 30th day of January, 1998.
/s/ Robert M. Holder, Jr.
------------------------------------
Robert M. Holder, Jr.
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0
0
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<FN>
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</FN>
</TABLE>
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0
0
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</TABLE>
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0
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0
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<FN>
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</FN>
</TABLE>
[LOGO]
KPMG Peat Marwick LLP
Suite 1900
1021 East Cary Street
Richmond, VA 23219-4023
Independent Auditors' Report
Shareholders of Central Fidelity National Bank
and subsidiaries:
We have audited the consolidated balance sheet of Central Fidelity National Bank
and subsidiaries (the "Company") as of December 31, 1997, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for the year then ended (not presented separately herein). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial positions of Central Fidelity
National Bank and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
January 20, 1998
- -------------------------------
Independent Auditor's Report
- -------------------------------
- --------------------------------------------------------------------------------
KPMG Peat Marwick LLP
Certified Public Accountants
Suite 1900
1021 East Cary Street
Richmond, Virginia 23219-4023
The Board of Directors and Shareholders
Central Fidelity Banks, Inc.:
We have audited the consolidated balance sheet of Central Fidelity Banks,
Inc. and subsidiaries (the "Company") as of December 31, 1996, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for the years ended December 31, 1996 and 1995 (not presented separately
herein). These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial positions of Central
Fidelity Banks, Inc. and subsidiaries as of December 31, 1996, and the results
of their operations and their cash flows for the years ended December 31, 1996
and 1995 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 15, 1997
