- ----------------
1998 Form 10-Q
- --------------------------------------------------------------------------------
United States Securities and Exchange Commission
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended March 31, 1998
Commission File Number 1-9021
Wachovia Corporation
- --------------------------------------------------------------------------------
Incorporated in the State of North Carolina
IRS Employer Identification Number 56-1473727
Address and Telephone:
100 North Main Street, Winston-Salem, North Carolina, 27101,
(336) 770-5000
191 Peachtree Street NE, Atlanta, Georgia, 30303, (404) 332-5000
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 March 31, 1998, Wachovia Corporation had 206,131,388 shares of common
stock outstanding.
Wachovia Corporation (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and (2) has been subject to such filing requirements for the past 90
days.
Documents Incorporated by Reference
- --------------------------------------------------------------------------------
Portions of the financial supplement for the quarter ended March 31, 1998 are
incorporated by reference into Parts I and II as indicated in the table below.
Except for parts of the Wachovia Corporation Financial Supplement expressly
incorporated herein by reference, this Financial Supplement is not to be deemed
filed with the Securities and Exchange Commission (SEC).
<TABLE>
<S> <C> <C>
Part I Financial Information
Item 1 Financial Statements (unaudited) Page
Selected Period-End Data 3
Common Stock Data -- Per Share 3
Consolidated Statements of Condition 26
Consolidated Statements of Income 27
Consolidated Statements of Shareholders' Equity 28
Consolidated Statements of Cash Flows 29
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 2,4-25
Item 3 Quantitative and Qualitative
Disclosures about Market Risk 12-15
</TABLE>
<PAGE>
Part II Other Information
<TABLE>
<S> <C>
Item 6 Exhibits and Reports on Form 8-K
a) 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.
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 Article 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*).
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).
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
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 Wachoiva 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 for 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. 1-921*).
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 of 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 Form of Employment Agreement between Wachovia Corporation and 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*).
10.10 Form of Employment between Wachovia Corporation and Hugh M. Durden
Exhibit 10.12 to Report on Form 10-K of Wachovia Corporation for
the fiscal year ended December 31, 1996, File No. 1-9021*).
10.11 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*).
10.12 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*).
10.13 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*)
10.14 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*).
10.15 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*).
10.16 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*).
10.17 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*).
10.18 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*).
10.19 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*).
10.20 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*).
10.21 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*).
10-22 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*).
10.23 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*).
10.24 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*).
10.25 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*).
10.26 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*).
10.27 Amended and Restated Wachovia Corporation Stock Plan (Exhibit 4.1
to S-8 Registration Statement No. 033-53325*).
10.28 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*).
10.29 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*).
10.30 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*).
10.31 Executive Long Term Disability Income Plan.
11 Computation of Earnings per Share (Table 3 on page 6 of the first
quarter 1998 financial supplement*).
12 Statement setting forth computation of ratio of earnings to fixed
charges.
27 Financial Data Schedule (For SEC purposes only).
</TABLE>
* Incorporated by reference.
b) A Current Report on Form 8-K dated February 13, 1998 was filed with the
Securities and Exchange Commission to publish financial results for the
one-month period ended January 31, 1998.
Signatures
- --------------------------------------------------------------------------------
Pursuant to the requirements to Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WACHOVIA CORPORATION
<TABLE>
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May 13, 1998 ROBERT S. McCOY, JR. May 13, 1998 DONALD K. TRUSLOW
--------------------------------- ------------------
Robert S. McCoy, Jr. Donald K. Truslow
Senior Executive Vice President Comptroller
and Chief Financial Officer
</TABLE>
<PAGE>
(Wachovia Logo appears here)
Financial Supplement
And Form 10-Q
First Quarter 1998
<PAGE>
- ---------------------------------------------------
Directors and Officers
- --------------------------------------------------------------------------------
Directors of Wachovia Corporation and Wachovia Bank, N.A.
L.M. Baker, Jr.
Chairman, President and
Chief Executive Officer
James S. Balloun
Chairman, President and
Chief Executive Officer
National Service Industries, Inc.
James F. Betts
Consultant and
Former President
USLIFE Corporation
Peter C. Browning
President and
Chief Executive Officer
Sonoco Products Company
John T. Casteen III
President
University of Virginia
John L. Clendenin
Chairman Emeritus
BellSouth Corporation
Lawrence M. Gressette, Jr.
Chairman of the
Executive Committee
SCANA Corporation
Thomas K. Hearn, Jr.
President
Wake Forest University
George W. Henderson III
President and
Chief Executive Officer
Burlington Industries, Inc.
W. Hayne Hipp
President and
Chief Executive Officer
The Liberty Corporation
Robert A. Ingram
Chief Executive Officer
Glaxo Wellcome plc
Chairman, Chief Executive
Officer and President
Glaxo Wellcome Inc.
George R. Lewis
President and
Chief Executive Officer
Philip Morris Capital Corporation
John G. Medlin, Jr.
Chairman Emeritus
Lloyd U. Noland, III
Chairman, President and
Chief Executive Officer
Noland Company
Sherwood H. Smith, Jr.
Chairman of the Board
Carolina Power & Light Company
John C. Whitaker, Jr.
Chairman and
Chief Executive Officer
Inmar Enterprises, Inc.
Principal Corporate Officers of Wachovia Corporation
L.M. Baker, Jr.
Chairman, President and
Chief Executive Officer
Mickey W. Dry
Senior Executive Vice President
Chief Credit Officer
Walter E. Leonard, Jr.
Senior Executive Vice President
Operations/Technology
Kenneth W. McAllister
Senior Executive Vice President
General Counsel/Administrative Services
Robert S. McCoy, Jr.
Senior Executive Vice President
Chief Financial Officer
G. Joseph Prendergast
Senior Executive Vice President
General Banking
- ---------------------------------------------------------------
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. The corporation's Financial
Supplement and Form 10-Q can contain forward-looking statements that involve
risk and uncertainty. 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 anticipated results or
other expectations expressed in any 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.
2
<PAGE>
- --------------------------
Selected Period-End Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31 March 31
1998 1997
------- -------
<S> <C> <C>
Banking offices:
North Carolina ............................... 203 219
Virginia ..................................... 263 248
Georgia ...................................... 131 123
South Carolina ............................... 125 131
Florida ...................................... 34 --
------- -------
Total ....................................... 756 721
======= =======
Automated banking machines:
North Carolina ............................... 437 374
Virginia ..................................... 302 228
Georgia ...................................... 288 232
South Carolina ............................... 276 224
Florida ...................................... 6 --
------- -------
Total ....................................... 1,309 1,058
======= =======
Employees (full-time equivalent) .............. 21,512 20,272
Common stock shareholders of record ........... 55,111 47,710
Common shares outstanding (thousands) ......... 206,131 198,476
</TABLE>
- --------------------------------
Common Stock Data -- Per Share
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
1998 1997
------ ----------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- --------- ------- ------- -------
Market value:*
Period-end ........................ $ 84.81 $ 81.13 $ 72.00 $ 58.31 $ 54.50
High .............................. 85.75 83.94 72.38 66.88 64.63
Low ............................... 72.75 71.06 58.19 53.50 54.50
Book value at period-end** ......... 25.40 25.13 23.31 23.07 22.75
Dividend* .......................... .44 .44 .44 .40 .40
Price/earnings ratio*** ............ 28.9x 27.6x 17.7x 14.5x 13.9x
</TABLE>
* Information before the fourth quarter 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.
*** Based on the most recent twelve months of net income per diluted share and
end of period stock price. Information for periods before the fourth
quarter 1997 represents Wachovia prior to merger with Central Fidelity
Banks, Inc. Excluding the after-tax impact of nonrecurring charges, the
first quarter 1998 and fourth quarter 1997 price earnings ratios were
21.0x and 20.5x, respectively.
- -----------------------
Financial Information
- --------------------------------------------------------------------------------
Wachovia Shareholder Direct
Shareholders and other interested individuals can access timely corporate
information on Wachovia, such as earnings and dividend announcements, by
calling 1-888-4WB-NEWS (1-888-492-6397).
Internet Address
The corporation's Internet address is: www.wachovia.com
Investor Contact
Robert S. McCoy, Jr. James C. Mabry
Chief Financial Officer Senior Vice President
(336) 732-5926 Investor Relations
Winston-Salem, NC 27150 (336) 732-5788
Winston-Salem, NC 27150
3
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ---------------------------
Financial Summary Table 1
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve
Months 1998 1997
Ended --------- ----------
March 31 First Fourth
1998 Quarter Quarter
----------- --------- ----------
<S> <C> <C> <C>
Summary of Operations
(thousands, except per share data)
Interest income .................................... $4,391,989 $ 1,147,829 $1,119,617
Interest expense ................................... 2,231,531 578,686 564,145
----------- ----------- -----------
Net interest income ................................ 2,160,458 569,143 555,472
Provision for loan losses (1) ...................... 276,844 74,126 76,915
----------- ----------- -----------
Net interest income after provision for loan
losses ............................................ 1,883,614 495,017 478,557
Other operating revenue ............................ 1,062,622 283,723 263,258
Investment securities gains (losses) (2) ........... 3,053 3,157 (1,693)
----------- ----------- -----------
Total other income ................................. 1,065,675 286,880 261,565
Personnel expense .................................. 953,242 259,724 244,250
Nonrecurring charges (3) ........................... 323,100 35,568 287,532
Other expense ...................................... 796,027 198,957 200,636
----------- ----------- -----------
Total other expense ................................ 2,072,369 494,249 732,418
Income before income taxes ......................... 876,920 287,648 7,704
Applicable income taxes ............................ 282,268 92,327 4,100
----------- ----------- -----------
Net income (4) ..................................... $ 594,652 $ 195,321 $ 3,604
=========== =========== ===========
Net income per common share:
Basic ............................................. $ 2.99 $ .95 $ .02
Diluted (4) ....................................... $ 2.93 $ .93 $ .02
Cash dividends paid per common share (5) ........... $ 1.72 $ .44 $ .44
Cash dividends paid on common stock (6) ............ $ 339,587 $ 90,589 $ 87,045
Cash dividend payout ratio (7) ..................... 41.18% 41.52% 41.31%
Average basic shares outstanding ................... 199,716 205,894 201,415
Average diluted shares outstanding ................. 203,591 210,158 205,934
Selected Average Balances (millions)
Total assets ....................................... $ 59,284 $ 63,133 $ 59,835
Loans -- net of unearned income .................... 41,079 43,749 41,770
Investment securities .............................. 10,703 10,737 10,225
Other interest-earning assets ...................... 1,523 1,630 1,637
Total interest-earning assets ...................... 53,305 56,116 53,632
Interest-bearing deposits .......................... 30,470 32,455 30,706
Short-term borrowed funds .......................... 9,537 10,635 9,444
Long-term debt ..................................... 6,033 6,107 5,935
Total interest-bearing liabilities ................. 46,040 49,197 46,085
Noninterest-bearing deposits ....................... 7,090 7,240 7,484
Total deposits ..................................... 37,560 39,695 38,190
Shareholders' equity ............................... 4,689 5,109 4,884
Ratios (averages)
Annualized net loan losses to loans ................ .67% .68% .73%
Annualized net yield on interest-earning assets..... 4.16 4.21 4.21
Shareholders' equity to
Total assets ...................................... 7.91 8.09 8.16
Net loans ......................................... 11.56 11.82 11.85
Annualized return on assets (8) .................... 1.00 1.24 .02
Annualized return on shareholders'
equity (8) ........................................ 12.68 15.29 .30
<CAPTION> 1997
-------------------------------------------
Third Second First
Quarter Quarter Quarter
------ ------ ------
<S> <C> <C> <C>
Summary of Operations
(thousands, except per share data)
Interest income .................................... $ 1,072,921 $ 1,051,622 $ 1,018,225
Interest expense ................................... 549,277 539,423 515,973
----------- ----------- -----------
Net interest income ................................ 523,644 512,199 502,252
Provision for loan losses (1) ...................... 62,756 63,047 62,231
----------- ----------- -----------
Net interest income after provision for loan
losses ............................................ 460,888 449,152 440,021
Other operating revenue ............................ 256,047 259,594 226,869
Investment securities gains (losses) (2) ........... 1,091 498 1,558
----------- ----------- -----------
Total other income ................................. 257,138 260,092 228,427
Personnel expense .................................. 230,352 218,916 211,639
Nonrecurring charges (3) ........................... -- -- --
Other expense ...................................... 194,949 201,485 176,962
----------- ----------- -----------
Total other expense ................................ 425,301 420,401 388,601
Income before income taxes ......................... 292,725 288,843 279,847
Applicable income taxes ............................ 93,803 92,038 86,372
----------- ----------- -----------
Net income (4) ..................................... $ 198,922 $ 196,805 $ 193,475
=========== =========== ===========
Net income per common share:
Basic ............................................. $ 1.02 $ 1.00 $ .97
Diluted (4) ....................................... $ 1.00 $ .98 $ .95
Cash dividends paid per common share (5) ........... $ .44 $ .40 $ .40
Cash dividends paid on common stock (6) ............ $ 83,952 $ 78,001 $ 78,305
Cash dividend payout ratio (7) ..................... 42.20% 39.63% 40.47%
Average basic shares outstanding ................... 194,981 196,676 200,110
Average diluted shares outstanding ................. 198,555 199,819 203,307
Selected Average Balances (millions)
Total assets ....................................... $ 57,183 $ 57,044 $ 56,333
Loans -- net of unearned income .................... 39,731 39,100 38,223
Investment securities .............................. 10,724 11,129 11,370
Other interest-earning assets ...................... 1,457 1,370 1,316
Total interest-earning assets ...................... 51,912 51,599 50,909
Interest-bearing deposits .......................... 29,300 29,450 28,857
Short-term borrowed funds .......................... 9,172 8,917 8,403
Long-term debt ..................................... 6,031 6,063 6,465
Total interest-bearing liabilities ................. 44,503 44,430 43,725
Noninterest-bearing deposits ....................... 6,843 6,789 6,612
Total deposits ..................................... 36,143 36,239 35,469
Shareholders' equity ............................... 4,391 4,376 4,479
Ratios (averages)
Annualized net loan losses to loans ................ .63% .64% .65%
Annualized net yield on interest-earning assets..... 4.12 4.10 4.13
Shareholders' equity to
Total assets ...................................... 7.68 7.67 7.95
Net loans ......................................... 11.20 11.34 11.88
Annualized return on assets (8) .................... 1.39 1.38 1.37
Annualized return on shareholders'
equity (8) ........................................ 18.12 17.99 17.28
</TABLE>
(1) Includes $10,845 in nonrecurring merger-related provision in the twelve
months ended March 31, 1998 and in the 1997 fourth quarter.
(2) Includes $4,639 of nonrecurring losses to restructure the
available-for-sale portfolio in the twelve months ended March 31, 1998 and
in 1997 fourth quarter.
(3) Nonrecurring charges in the twelve months ended March 31, 1998 include
merger-related items of $255,898 and personal computer charges of $67,202.
Nonrecurring charges in the 1998 first quarter include merger-related
items of $35,568. Nonrecurring charges in the 1997 fourth quarter include
merger-related charges of $220,330 and personal computer impairment charge
of $67,202.
(4) Net income excluding nonrecurring items was $824,622 in the twelve months
ended March 31, 1998, $218,168 in the 1998 first quarter and $210,727 in
the 1997 fourth quarter. Net income per diluted share excluding
nonrecurring items was $4.04 in the twelve months ended March 31, 1998,
$1.04 in the 1998 first quarter and $1.02 in the 1997 fourth quarter.
(5) Cash dividends per common share are those of Wachovia Corporation prior to
the merger with Central Fidelity Banks, Inc.
(6) Includes amounts of pooled companies.
(7) Includes amounts of pooled companies and excludes the after-tax impact of
nonrecurring charges. Cash dividend payout ratio including nonrecurring
items was 57.11% in the twelve months ended March 31, 1998, 46.38% in the
1998 first quarter and 2415.23% in the 1997 fourth quarter.
(8) Excluding the after-tax impact of nonrecurring charges of $229,970 in the
twelve months ended March 31, 1998, annualized returns were 1.39% on
assets and 17.59% on shareholders' equity. Excluding the after-tax impact
of nonrecurring charges of $22,847 in the 1998 first quarter, annualized
returns were 1.38% on assets and 17.08% on shareholders' equity. Excluding
the after-tax impact of nonrecurring charges of $207,123 in the 1997
fourth quarter, annualized returns were 1.41% on assets and 17.26% on
shareholders' equity.
4
<PAGE>
--------------------------
Results of Operations
-----------------------------------------------------------------
Overview Wachovia Corporation ("Wachovia") is a southeastern interstate
bank holding company with dual head quarters in Atlanta, Georgia,
and Winston-Salem, North Carolina. The corporation's principal
banking subsidiaries are Wachovia Bank, N. A., which maintains
operations in Georgia, North Carolina, South Carolina and
Virginia; First National Bank of Atlanta, which provides credit
card services; and 1st United Bank, which operates in Florida. On
March 20, 1998, Central Fidelity National Bank and Jefferson
National Bank were merged into Wachovia Bank, N. A. On April 1,
1998, Wachovia Corporation acquired Ameribank Bancshares, Inc., a
$280 million asset Florida bank holding company and parent of
American Bank of Hollywood, Florida. The acquisition was accounted
for as a purchase transaction. Subsequent to the acquisition,
American Bank was merged into 1st United Bank, which became a
subsidiary of Wachovia Corporation on November 11, 1997. It is
anticipated that 1st United Bank will be merged into Wachovia
Bank, N. A., in late summer 1998.
The corporation regularly evaluates acquisition opportunities and
conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some
cases, negotiations may take place and future acquisitions
involving cash, debt or equity securities may occur. Acquisitions
typically involve the payment of a premium over book values, and,
therefore, some dilution of the corporation's book value and net
income per share may occur in connection with any future
transactions.
Economic growth in the U.S. continued at a moderately strong pace
in the first quarter of 1998, with gross domestic product up an
annualized 4.2 percent from the preceding three months based on
advance estimates. Seasonally adjusted unemployment for the
nation remained unchanged from the fourth quarter of 1997 at 4.7
percent. Within Wachovia's primary operating states, economic
conditions for the period were good. Seasonally adjusted
unemployment averaged 4.7 percent in Florida, 4.1 percent in
Georgia, 3.7 percent in North Carolina, 3.2 percent in South
Carolina and 3.3 percent in Virginia.
Wachovia's net income for the first quarter of 1998 was $195.321
million or $.93 per diluted share compared with $193.475 million
or $.95 per diluted share a year earlier. Results for the quarter
included $35.568 million, pretax, in previously announced
merger-related charges, taken primarily for systems conversions
and signage changes in Virginia. The net impact of the charges
was $22.847 million, after-tax, or $.11 per diluted share. On an
operating basis, excluding the merger-related charges, net income
for the first quarter of 1998 totaled $218.168 million or $1.04
per diluted share. Remaining integration charges of between $15
million to $20 million, pretax, are expected to be taken later in
1998, primarily in the second quarter of the year.
Expanded discussion of operating results and the corporation's
financial condition is presented in the following narrative with
accompanying tables. Interest income is stated on a taxable
equivalent basis, which is adjusted for the tax-favored status of
earnings from certain loans and investments. References to
changes in assets and liabilities represent daily average levels
unless otherwise noted. Prior year financial results have been
restated to reflect the corporation's pooling-of-interests merger
with Central Fidelity Banks, Inc., effective December 15, 1997
but have not been restated for the corporation's purchase
acquisitions of Jefferson Bankshares, Inc., and 1st United
Bancorp in the fourth quarter of 1997.
5
<PAGE>
- -------------------------------------------------
Components of Earnings Per Basic Share Table 2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
First First
Quarter Quarter Change
------- ------- ----
<S> <C> <C> <C>
Interest income ............................................. $ 5.57 $ 5.09 $ .48
Interest expense ............................................ 2.81 2.58 .23
-------- -------- ------
Net interest income ......................................... 2.76 2.51 .25
Provision for loan losses ................................... .36 .31 .05
-------- -------- ------
Net interest income after provision for loan losses ......... 2.40 2.20 .20
Other operating revenue ..................................... 1.38 1.13 .25
Investment securities gains ................................. .02 .01 .01
-------- -------- ------
Total other income .......................................... 1.40 1.14 .26
Personnel expense ........................................... 1.26 1.06 .20
Merger-related charges ...................................... .17 -- .17
Other expense ............................................... .97 .88 .09
-------- -------- ------
Total other expense ......................................... 2.40 1.94 .46
Income before income taxes .................................. 1.40 1.40 --
Applicable income taxes ..................................... .45 .43 .02
-------- -------- ------
Net income .................................................. $ .95 $ .97 ($ .02)
======== ======== ======
</TABLE>
- ----------------------------------------------------
Computation of Earnings Per Common Share Table 3
- --------------------------------------------------------------------------------
(thousands, except per share)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31 March 31
1998 1997
-------- --------
<S> <C> <C>
Basic
Average common shares outstanding .............................. 205,894 200,110
======== ========
Net income ..................................................... $195,321 $193,475
======== ========
Per share amount ............................................... $ .95 $ .97
Diluted
Average common shares outstanding .............................. 205,894 200,110
Dilutive common stock options at average market price .......... 3,987 3,019
Dilutive common stock awards at average market price ........... 272 169
Convertible long-term debt assumed converted ................... 5 9
-------- --------
Average diluted shares outstanding ............................. 210,158 203,307
======== ========
Net income ..................................................... $195,321 $193,475
Add interest on convertible long-term debt, net of tax ......... 1 2
-------- --------
Adjusted net income ............................................ $195,322 $193,477
======== ========
Per share amount ............................................... $ .93 $ .95
</TABLE>
6
<PAGE>
Net Interest Taxable equivalent net interest income for the first quarter of
Income 1998 increased $62.876 million or 12.1 percent from the
same period a year earlier. The gain reflected strong loan growth
and a higher average earning yield, with the corporation
benefiting also from continued balance sheet management efforts.
Compared with the fourth quarter of 1997, taxable equivalent net
interest income was up $12.271 million or 2.2 percent, due to
continued good loan demand and a lower average rate paid on
interest-bearing liabilities. The net yield on interest-earning
assets (taxable equivalent net interest income as a percentage of
average interest-earning assets) improved 8 basis points from a
year earlier to 4.21 percent and was unchanged from the fourth
quarter.
Taxable equivalent interest income for the quarter rose $125.589
million or 12.1 percent year over year, the result of solid loan
expansion and a higher average rate earned on interest-earning
assets. Loans advanced $5.526 billion or 14.5 percent, paced
primarily by the commercial sector, and represented 78.1 percent
of total interest-earning assets compared with 75.2 percent in
the same three months of 1997. The average rate earned on
interest-earning assets rose 15 basis points to 8.40 percent,
with the average loan yield increasing 11 basis points. Taxable
equivalent interest income grew $26.812 million or 2.4 percent
from the fourth quarter of 1997, due principally to a higher
level of interest-earning assets. Loans increased $1.979 billion
or 4.7 percent, driven largely by taxable commercial loans and
commercial real estate.
Commercial loans, including related real estate categories, grew
$4.485 billion or 21.5 percent year over year. Gains were led by
taxable commercial loans, which increased $3.037 billion or 28.7
percent; commercial mortgages, up $973 million or 16.8 percent;
and construction loans, which expanded $540 million or 41.2
percent. Based on regulatory definitions, commercial real estate
loans were $8.699 billion or 19.5 percent of total loans at March
31, 1998 compared with $7.207 billion or 18.3 percent one year
earlier and with $8.570 billion or 19.4 percent at year-end 1997.
Regulatory definitions for commercial real estate include loans
which have real estate as the collateral but not the primary
consideration in a credit risk evaluation. Good growth also
occurred in foreign loans and in lease financing, which primarily
consists of commercial leases and other structured corporate
transactions. The corporation's foreign loan exposure at March
31, 1998 was $548 million, representing 1.2 percent of total
loans outstanding. Tax-exempt loans declined for the period,
reflecting paydowns in employee stock ownership plan loans and
the reduced availability of tax-exempt borrowing and lending at
attractive rates under current tax laws.
Consumer loans, including residential mortgages, were higher by
$1.041 billion or 6 percent, with gains occurring primarily in
residential mortgages and credit cards. Residential mortgages
increased $844 million or 11.8 percent, reflecting growth in home
equity loans and in adjustable rate mortgages, while credit cards
were up $170 million or 3.1 percent. At March 31, 1998, the
corporation's managed credit card portfolio, which includes
securitized loans, was $6.103 billion, representing 13.6 percent
of total managed loans. This compared with $6.180 billion in
managed credit card outstandings, representing 15.5 percent of
total managed loans one year earlier and with $6.419 billion or
14.4 percent at year-end 1997. Managed credit card amounts
included $500 million of securitized loans at March 31, 1998,
$615 million one year earlier and $500 million at December 31,
1997. Additional information on the corporation's managed credit
card portfolio is presented on page 17.
7
<PAGE>
- ---------------------------------------------------
Net Interest Income and Average Balances Table 4
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve
Months 1998
Ended ------
March 31 First
1998 Quarter
----------- ----------
<S> <C> <C>
Net Interest Income -- Taxable
Equivalent (thousands)
Interest income:
Loans ......................................... $3,622,311 $ 952,282
Investment securities ......................... 739,817 185,655
Interest-bearing bank balances ................ 7,782 3,228
Federal funds sold and securities
purchased under resale agreements ............ 24,726 5,285
Trading account assets ........................ 51,231 13,130
----------- ------------
Total ...................................... 4,445,867 1,159,580
Interest expense:
Interest-bearing demand ....................... 65,979 16,751
Savings and money market savings .............. 422,416 111,133
Savings certificates .......................... 585,802 146,030
Large denomination certificates ............... 157,803 34,117
Time deposits in foreign offices .............. 106,161 36,210
Short-term borrowed funds ..................... 510,092 138,892
Long-term debt ................................ 383,277 95,553
----------- ------------
Total ...................................... 2,231,530 578,686
----------- ------------
Net interest income ............................ $2,214,337 $ 580,894
=========== ============
Annualized net yield on
interest-earning assets ....................... 4.16% 4.21%
Average Balances (millions)
Assets:
Loans -- net of unearned income ............... $ 41,079 $ 43,749
Investment securities ......................... 10,624 10,623
Interest-bearing bank balances ................ 123 189
Federal funds sold and securities
purchased under resale agreements ............ 436 374
Trading account assets ........................ 964 1,067
----------- ------------
Total interest-earning assets .............. 53,226 56,002
Cash and due from banks ....................... 3,035 3,340
Premises and equipment ........................ 810 819
Other assets .................................. 2,661 3,396
Unrealized gains on securities
available-for-sale ........................... 79 114
Allowance for loan losses ..................... (527) (538)
----------- ------------
Total assets ............................... $ 59,284 $ 63,133
=========== ============
Liabilities and shareholders' equity:
Interest-bearing demand ....................... $ 4,594 $ 5,984
Savings and money market savings .............. 10,637 10,334
Savings certificates .......................... 10,544 11,044
Large denomination certificates ............... 2,786 2,449
Time deposits in foreign offices .............. 1,909 2,644
Short-term borrowed funds ..................... 9,537 10,635
Long-term debt ................................ 6,033 6,107
----------- ------------
Total interest-bearing liabilities ......... 46,040 49,197
Demand deposits in domestic offices ........... 7,077 7,234
Demand deposits in foreign offices ............ 1 1
Noninterest-bearing deposits in
domestic offices ............................. 12 5
Other liabilities ............................. 1,465 1,587
Shareholders' equity .......................... 4,689 5,109
----------- ------------
Total liabilities and
shareholders' equity ...................... $ 59,284 $ 63,133
=========== ============
Total deposits ................................. $ 37,560 $ 39,695
<CAPTION>
<S> <C> <C> <C> <C>
1997
---------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
--------- ------ ------ ------
Net Interest Income -- Taxable
Equivalent (thousands)
Interest income:
Loans ......................................... $ 930,055 $ 883,318 $ 856,656 $ 821,962
Investment securities ......................... 179,283 183,759 191,120 194,924
Interest-bearing bank balances ................ 1,920 1,816 818 675
Federal funds sold and securities
purchased under resale agreements ............ 8,542 5,980 4,919 2,878
Trading account assets ........................ 12,968 12,063 13,070 13,552
------------- ------------ ------------ ------------
Total ...................................... 1,132,768 1,086,936 1,066,583 1,033,991
Interest expense:
Interest-bearing demand ....................... 17,333 16,009 15,886 15,021
Savings and money market savings .............. 108,682 102,930 99,671 94,161
Savings certificates .......................... 150,959 145,163 143,650 142,372
Large denomination certificates ............... 40,830 39,806 43,050 40,705
Time deposits in foreign offices .............. 23,778 23,825 22,348 17,370
Short-term borrowed funds ..................... 127,304 125,115 118,781 106,961
Long-term debt ................................ 95,259 96,428 96,037 99,383
------------- ------------ ------------ ------------
Total ...................................... 564,145 549,276 539,423 515,973
------------- ------------ ------------ ------------
Net interest income ............................ $ 568,623 $ 537,660 $ 527,160 $ 518,018
============= ============ ============ ============
Annualized net yield on
interest-earning assets ....................... 4.21% 4.12% 4.10% 4.13%
Average Balances (millions)
Assets:
Loans -- net of unearned income ............... $ 41,770 $ 39,731 $ 39,100 $ 38,223
Investment securities ......................... 10,126 10,649 11,102 11,310
Interest-bearing bank balances ................ 116 126 62 50
Federal funds sold and securities
purchased under resale agreements ............ 594 423 352 215
Trading account assets ........................ 927 908 956 1,051
------------- ------------ ------------ ------------
Total interest-earning assets .............. 53,533 51,837 51,572 50,849
Cash and due from banks ....................... 3,165 2,797 2,844 2,808
Premises and equipment ........................ 844 790 788 791
Other assets .................................. 2,733 2,206 2,321 2,336
Unrealized gains on securities
available-for-sale ........................... 99 76 28 61
Allowance for loan losses ..................... (539) (523) (509) (512)
------------- ------------ ------------ ------------
Total assets ............................... $ 59,835 $ 57,183 $ 57,044 $ 56,333
============= ============ ============ ============
Liabilities and shareholders' equity:
Interest-bearing demand ....................... $ 4,368 $ 4,000 $ 4,047 $ 4,017
Savings and money market savings .............. 11,189 10,603 10,413 10,163
Savings certificates .......................... 10,676 10,207 10,258 10,316
Large denomination certificates ............... 2,816 2,776 3,099 3,029
Time deposits in foreign offices .............. 1,657 1,714 1,633 1,332
Short-term borrowed funds ..................... 9,444 9,172 8,917 8,403
Long-term debt ................................ 5,935 6,031 6,063 6,465
------------- ------------ ------------ ------------
Total interest-bearing liabilities ......... 46,085 44,503 44,430 43,725
Demand deposits in domestic offices ........... 7,469 6,829 6,776 6,601
Demand deposits in foreign offices ............ 1 -- -- --
Noninterest-bearing deposits in
domestic offices ............................. 14 14 13 11
Other liabilities ............................. 1,382 1,446 1,449 1,517
Shareholders' equity .......................... 4,884 4,391 4,376 4,479
------------- ------------ ------------ ------------
Total liabilities and
shareholders' equity ...................... $ 59,835 $ 57,183 $ 57,044 $ 56,333
============= ============ ============ ============
Total deposits ................................. $ 38,190 $ 36,143 $ 36,239 $ 35,469
</TABLE>
8
<PAGE>
Loans outstanding at March 31, 1998 and the preceding four
quarters are presented in the following table.
<TABLE>
<CAPTION>
March 31 Dec. 31 Sept. 30 June 30 March 31
$ in thousands 1998 1997 1997 1997 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial ................. $14,519,889 $13,528,344 $12,133,710 $11,838,009 $11,620,696
Tax-exempt ................. 1,379,660 1,607,159 1,695,993 1,848,958 1,830,264
----------- ----------- ----------- ----------- -----------
Total commercial ........... 15,899,549 15,135,503 13,829,703 13,686,967 13,450,960
Direct retail .............. 1,160,162 1,249,612 1,161,279 1,177,404 1,174,380
Indirect retail ............ 3,038,397 3,028,288 2,879,128 2,905,645 3,013,780
Credit card ................ 5,603,381 5,919,098 5,693,563 5,587,343 5,565,152
Other revolving credit ..... 485,093 459,563 422,389 418,214 419,095
----------- ----------- ----------- ----------- -----------
Total retail ............... 10,287,033 10,656,561 10,156,359 10,088,606 10,172,407
Construction ............... 1,873,528 1,779,522 1,553,500 1,534,364 1,357,319
Commercial mortgages ....... 6,824,990 6,790,446 6,098,647 6,022,473 5,849,521
Residential mortgages ...... 7,959,185 8,098,794 7,563,967 7,357,546 7,186,219
----------- ----------- ----------- ----------- -----------
Total real estate .......... 16,657,703 16,668,762 15,216,114 14,914,383 14,393,059
Lease financing ............ 1,105,555 1,094,169 1,049,269 1,013,115 849,408
Foreign .................... 548,441 639,387 496,164 497,905 516,891
----------- ----------- ----------- ----------- -----------
Total loans ................ $44,498,281 $44,194,382 $40,747,609 $40,200,976 $39,382,725
=========== =========== =========== =========== ===========
</TABLE>
Investment securities, the second largest category of
interest-earning assets, decreased $687 million or 6.1
percent year over year but were up $497 million or 4.9 percent
from the fourth quarter. The decline from a year earlier
reflected runoff in the available-for-sale portfolio, and the
company anticipates additional runoff of investment securities
throughout 1998 as part of the corporation's balance sheet
management efforts. At March 31, 1998, available-for-sale
securities were $9.871 billion and held-to-maturity securities
were $1.376 billion, as shown in the following table.
<TABLE>
<CAPTION>
$ in thousands
<S> <C>
Securities available-for-sale at fair value:
U.S. Government and agency ......................... $ 4,436,446
Mortgage-backed securities ......................... 4,685,716
Other .............................................. 749,087
-----------
Total securities available-for-sale ........ 9,871,249
Securities held-to-maturity:
U.S. Government and agency ......................... 157,694
Mortgage-backed securities ......................... 904,090
State and municipal ................................ 199,663
Other .............................................. 114,512
-----------
Total securities held-to-maturity ............ 1,375,959
-----------
Total investment securities .................. $11,247,208
===========
</TABLE>
Securities held-to-maturity had a fair value of $1.440 billion at
March 31, 1998, representing a $64 mil lion appreciation over book
value. Marking the available-for-sale securities portfolio at
March 31, 1998 to fair value resulted in an unrealized gain over
amortized cost of $104.220 million, pretax, and $63.849 million,
net of tax. Marking the average available-for-sale securities to
fair value resulted in an unrealized gain over amortized cost of
$113.970 million, pretax, and $70.913 million, net of tax, for the
quarter. The unrealized gain is included, net of tax, in
shareholders' equity.
Interest expense for the period rose $62.713 million or 12.2
percent year over year. Interest-bearing liabilities were up
$5.472 billion or 12.5 percent, accounting for the increase which
was offset slightly by a decline of 2 basis points in the average
rate paid. Compared with the fourth quarter of 1997, interest
9
<PAGE>
expense was up $14.541 million or 2.6 percent, reflecting higher
levels of interest-bearing liabilities, primarily deposits and
short-term borrowings. Interest-bearing liabilities rose $3.112
billion or 6.8 percent from the fourth quarter, while the average
rate paid decreased 9 basis points muting the growth in interest
expense.
As part of its funding strategy, the corporation is innovatively
marketing traditional funding products while issuing a variety of
debt instruments. Traditional funding sources are being broadened
through marketing of the corporation's Premiere and Business
Premiere accounts, both of which are high-yield money market
deposit products; the 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
continued flexibility and innovation will be required of
financial institutions to attract future funding through deposit
products and alternative sources.
Interest-bearing deposits grew $3.598 billion or 12.5 percent
year over year. Growth occurred primarily in demand deposits,
which increased $1.967 billion or 49 percent, and in savings
certificates, up $728 million or 7.1 percent. Reflecting their
attractiveness relative to alternative wholesale funding sources,
foreign deposits were increased sharply for the period, while
large denomination certificates were reduced. Interest-bearing
deposits were higher by $1.749 billion or 5.7 percent from the
fourth quarter of 1997, driven by continued growth in demand
deposits and savings certificates as well as by increases made in
foreign deposits. Total gross deposits averaged $39.695 billion
for the quarter, up $4.226 billion or 11.9 percent from $35.469
billion a year earlier. Collected deposits, net of float,
averaged $37.423 billion for the first three months of 1998, an
increase of $3.877 billion or 11.6 percent from $33.546 billion
in the same period of 1997.
Short-term borrowings rose $2.232 billion or 26.6 percent from
the year-earlier quarter and were higher by $1.191 billion or
12.6 percent from the preceding three months. Growth from both
periods was led by other short-term borrowings, which primarily
consists of short-term bank notes, with all categories of
short-term borrowings increasing both year over year and from the
preceding quarter.
Long-term debt, consisting of medium-term bank notes and other
long-term debt, decreased $358 million or 5.5 percent year over
year but was up $172 million or a modest 2.9 percent from the
fourth quarter of 1997. Lower levels of medium-term bank notes
accounted for the decline from the year-earlier period, which was
partially offset by growth in other long-term debt, primarily in
trust capital securities. Other long-term debt at March 31, 1998
included a total of $996 million of trust capital securities
issued in December 1996, and in January, April and June 1997. The
trust capital securities qualify as part of Tier I capital under
risk-based capital guidelines and are rated Aa3 by Moody's and A+
by Standard & Poor's.
10
<PAGE>
- ----------------------------------------------------------------------------
Taxable Equivalent Rate/Volume Variance Analysis -- First Quarter* Table 5
- --------------------------------------------------------------------------------
+ (Millions)
++ (Thousands)
<TABLE>
<CAPTION>
Average Volume+ Average Rate
- ----------------------- -------------------
1998 1997 1998 1997
- --------- ------- ------- ---- Interest Income
<S> <C> <C> <C> Loans:
$13,602 $10,565 7.22 7.24 Commercial .....................................
1,455 1,857 8.57 9.03 Tax-exempt .....................................
- ----------- --------
15,057 12,422 7.35 7.50 Total commercial ...............................
1,209 1,192 9.18 8.96 Direct retail ..................................
3,033 3,066 8.58 8.71 Indirect retail ................................
5,743 5,573 13.43 12.61 Credit card ....................................
465 422 10.05 12.25 Other revolving credit .........................
- ----------- --------
10,450 10,253 11.38 11.00 Total retail ...................................
1,851 1,311 9.16 9.53 Construction ...................................
6,771 5,798 8.83 8.18 Commercial mortgages ...........................
7,976 7,132 8.15 7.95 Residential mortgages ..........................
- ----------- --------
16,598 14,241 8.54 8.19 Total real estate ..............................
1,095 840 9.77 8.97 Lease financing ................................
549 467 7.42 6.88 Foreign ........................................
- ----------- --------
43,749 38,223 8.83 8.72 Total loans ....................................
Investment securities:
Held-to-maturity:
160 -- 6.33 -- U.S. Government and agency .....................
917 1,105 8.32 8.08 Mortgage-backed securities .....................
208 236 10.81 12.42 State and municipal ............................
118 2 6.68 12.98 Other ..........................................
- ----------- --------
1,403 1,343 8.32 8.85 Total securities held-to-maturity ..............
Available-for-sale:**
4,464 5,466 6.84 6.67 U.S. Government and agency .....................
4,023 3,332 6.90 6.92 Mortgage-backed securities .....................
733 1,169 7.29 6.54 Other ..........................................
- ----------- --------
9,220 9,967 6.90 6.74 Total securities available-for-sale ............
- ----------- --------
10,623 11,310 7.09 6.99 Total investment securities ....................
189 50 6.92 5.46 Interest-bearing bank balances .................
Federal funds sold and securities purchased
374 215 5.74 5.43 under resale agreements ........................
1,067 1,051 4.99 5.23 Trading account assets .........................
- ----------- --------
$56,002 $50,849 8.40 8.25 Total interest-earning assets ..................
=========== ========
Interest Expense
$ 5,984 $ 4,017 1.14 1.52 Interest-bearing demand ........................
10,334 10,163 4.36 3.76 Savings and money market savings ...............
11,044 10,316 5.36 5.60 Savings certificates ...........................
2,449 3,029 5.65 5.45 Large denomination certificates ................
- ----------- --------
Total interest-bearing deposits in
29,811 27,525 4.19 4.31 domestic offices ...............................
2,644 1,332 5.55 5.29 Time deposits in foreign offices ...............
- ----------- --------
32,455 28,857 4.30 4.35 Total interest-bearing deposits ................
Federal funds purchased and securities sold
7,575 6,738 5.35 5.16 under repurchase agreements ....................
1,046 680 5.14 4.88 Commercial paper ...............................
2,014 985 5.17 5.39 Other short-term borrowed funds ................
- ----------- --------
10,635 8,403 5.30 5.16 Total short-term borrowed funds.................
2,975 3,558 6.43 6.03 Bank notes .....................................
3,132 2,907 6.27 6.48 Other long-term debt ...........................
- ----------- --------
6,107 6,465 6.35 6.23 Total long-term debt ...........................
- ----------- --------
$49,197 $43,725 4.77 4.79 Total interest-bearing liabilities .............
=========== ======== -------- -----
3.63 3.46 Interest rate spread
======== =====
Net yield on interest-earning assets and net
4.21 4.13 interest income ................................
======== =====
<S> <C> <C> <C> <C> <C> <C>
Variance
Interest Attributable to
-------------------------- ------------------------------------
1998 1997 Variance++ Rate Volume
------------ ------------ ---------- ---------- ----------
Interest Income
Loans:
Commercial ..................................... $ 242,308 $ 188,491 $ 53,817 $ (520) $ 54,337
Tax-exempt ..................................... 30,764 41,359 (10,595) (2,018) (8,577)
------------ ------------ ----------
Total commercial ............................... 273,072 229,850 43,222 (4,677) 47,899
Direct retail .................................. 27,361 26,325 1,036 663 373
Indirect retail ................................ 64,190 65,836 (1,646) (954) (692)
Credit card .................................... 190,228 173,229 16,999 11,577 5,422
Other revolving credit ......................... 11,527 12,740 (1,213) (2,435) 1,222
------------ ------------ ----------
Total retail ................................... 293,306 278,130 15,176 9,764 5,412
Construction ................................... 41,809 30,804 11,005 (1,237) 12,242
Commercial mortgages ........................... 147,402 116,910 30,492 9,798 20,694
Residential mortgages .......................... 160,275 139,763 20,512 3,595 16,917
------------ ------------ ----------
Total real estate .............................. 349,486 287,477 62,009 12,728 49,281
Lease financing ................................ 26,370 18,567 7,803 1,771 6,032
Foreign ........................................ 10,048 7,938 2,110 653 1,457
------------ ------------ ----------
Total loans .................................... 952,282 821,962 130,320 10,457 119,863
Investment securities:
Held-to-maturity:
U.S. Government and agency ..................... 2,489 -- 2,489 -- 2,489
Mortgage-backed securities ..................... 18,815 22,012 (3,197) 637 (3,834)
State and municipal ............................ 5,557 7,231 (1,674) (881) (793)
Other .......................................... 1,937 61 1,876 (44) 1,920
------------ ------------ ----------
Total securities held-to-maturity .............. 28,798 29,304 (506) (1,791) 1,285
Available-for-sale:**
U.S. Government and agency ..................... 75,264 89,944 (14,680) 2,233 (16,913)
Mortgage-backed securities ..................... 68,414 56,810 11,604 (164) 11,768
Other .......................................... 13,179 18,866 (5,687) 1,970 (7,657)
------------ ------------ ----------
Total securities available-for-sale ............. 156,857 165,620 (8,763) 3,861 (12,624)
------------ ------------ ----------
Total investment securities ..................... 185,655 194,924 (9,269) 2,744 (12,013)
Interest-bearing bank balances .................. 3,228 675 2,553 224 2,329
Federal funds sold and securities purchased
under resale agreements ......................... 5,285 2,878 2,407 173 2,234
Trading account assets .......................... 13,130 13,552 (422) (619) 197
------------ ------------ ----------
Total interest-earning assets ................... 1,159,580 1,033,991 125,589 19,111 106,478
Interest Expense
Interest-bearing demand ........................ 16,751 15,021 1,730 (4,395) 6,125
Savings and money market savings ............... 111,133 94,161 16,972 15,356 1,616
Savings certificates ........................... 146,030 142,372 3,658 (6,209) 9,867
Large denomination certificates ................ 34,117 40,705 (6,588) 1,447 (8,035)
------------ ------------ ----------
Total interest-bearing deposits in
domestic offices ............................... 308,031 292,259 15,772 (8,234) 24,006
Time deposits in foreign offices ............... 36,210 17,370 18,840 896 17,944
------------ ------------ ----------
Total interest-bearing deposits ................ 344,241 309,629 34,612 (3,594) 38,206
Federal funds purchased and securities sold
under repurchase agreements .................... 99,963 85,686 14,277 3,266 11,011
Commercial paper ............................... 13,274 8,184 5,090 458 4,632
Other short-term borrowed funds ................ 25,655 13,091 12,564 (556) 13,120
------------ ------------ ----------
Total short-term borrowed funds................. 138,892 106,961 31,931 2,958 28,973
Bank notes ..................................... 47,142 52,905 (5,763) 3,335 (9,098)
Other long-term debt ........................... 48,411 46,478 1,933 (1,549) 3,482
------------ ------------ ----------
Total long-term debt ........................... 95,553 99,383 (3,830) 1,854 (5,684)
------------ ------------ ----------
Total interest-bearing liabilities ............. 578,686 515,973 62,713 (2,146) 64,859
------------ ------------ ----------
Interest rate spread
Net yield on interest-earning assets and net
interest income ................................ $ 580,894 $ 518,018 $ 62,876 10,086 52,790
============ ============ ==========
* 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 $114 million in 1998 and $60 million in 1997.
</TABLE>
11
<PAGE>
Wachovia Bank has an ongoing $16 billion global bank note program
consisting of issues with original maturities beginning at 7 days.
Bank notes with original maturities of one year or less are
included in other short-term borrowed funds; bank notes with
original maturities greater than one year are classified as
long-term debt. The bank note program will be replaced by a new
$18 billion global bank note program authorized by the
corporation's board of directors at its meeting on April 24, 1998.
The new global bank note program is expected to become effective
in the second quarter of 1998. At March 31, 1998, short-term bank
notes were $1.122 billion with an average cost of 5.53 percent and
an average maturity of 3 months. Medium-term bank notes totaled
$3.010 billion and had an average cost of 6.03 percent and an
average maturity of 2.6 years. Short-term issues under the global
bank note program are rated P-1 by Moody's and A-1+ by Standard &
Poor's, while medium-term issues are rated Aa2 by Moody's and AA+
by Standard & Poor's.
Asset and The income stream of the corporation is subject to risk
Liability resulting from interest rate fluctuations to the extent there is a
Management, difference between the amount of the corporation's interest-
Interest earning assets and the amount of interest-bearing liabilities that
Rate are prepaid, withdrawn, mature or reprice in specified periods.
Sensitivity The goal of asset and liability management is to maintain high
and quality and consistent growth of net interest income with
Liquidity acceptable levels of risk to changes in interest rates. The
Management corporation seeks to meet this goal by influManagement encing 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. Management believes
that rate risk is best measured by simulation modeling which
calculates expected net interest income based on projected
interest-earning assets, interest-bearing liabilities,
off-balance sheet financial instruments and interest rates. The
model projections are based 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 points up or down over the same period. The corporation
policy limit for the maximum negative impact on net
12
<PAGE>
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 March 31, 1998, 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 .5 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 March 31, 1998.
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 March 31, 1998, the
corporation had $2.768 billion notional amount of derivatives
outstanding for asset and liability management purposes. Credit
risk of off-balance sheet derivative financial instruments is
equal to the fair value gain of the instrument if a counterparty
fails to perform. The credit risk is normally a small percentage
of the notional amount and fluctuates as interest rates move up
or down. The corporation mitigates this risk by subjecting the
transactions to the same rigorous approval and monitoring process
as is used for on-balance sheet credit transactions, by dealing
in the national market with highly rated counterparties, by
executing transactions under International Swaps and Derivatives
Association Master Agreements and by using collateral instruments
to reduce exposure where appropriate. Collateral is delivered by
either party when the fair value of a particular transaction or
group of transactions with the same counterparty on a net basis
exceeds an acceptable threshold of exposure. The threshold level
is determined based on the strength of the individual
counterparty.
The fair value of all asset and liability derivative positions
for which the corporation was exposed to counterparties totaled
$79 million at March 31, 1998. The fair value of all asset and
liability derivative
13
<PAGE>
positions for which counterparties were exposed to the
corporation amounted to $12 million on the same date. Fair value
details and additional asset and liability derivative information
are included in the following tables.
Estimated Fair Value of Asset and Liability Management
Derivatives by Purpose
-----------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
March 31, 1998
----------------------------------------------------
Net Net
Fair Fair
Fair Fair Value
Notional Value Value Gains
$ in millions Value Gains (Losses) (Losses)
---------- ------ --------- -----------
Convert floating rate liabilities to
fixed:
Swaps -- pay fixed/receive
floating .............................. $ 451 $ 1 $ (3) $ (2)
Convert fixed rate assets to
floating:
Swaps -- pay fixed/receive
floating .............................. 333 -- (9) (9)
Forward starting swaps --
pay fixed/receive floating ............ -- -- -- --
Convert fixed rate liabilities to
floating:
Swaps -- receive fixed/pay
floating .............................. 1,375 71 -- 71
Convert term liabilities with
quarterly rate resets to monthly:
Swaps -- receive floating/pay
floating .............................. 300 -- -- --
Convert floating rate assets to
fixed:
Swaps -- receive fixed/pay
floating .............................. 309 7 -- 7
Index amortizing swaps --
receive fixed/pay floating ............ -- -- -- --
--------- ----- ----------- -----------
Total derivatives ........... $ 2,768 $ 79 $ (12) $ 67
========= ===== =========== ===========
<S> <C> <C> <C> <C>
March 31, 1997
-------------------------------------------
Net
Fair
Fair Fair Value
Notional Value Value Gains
$ in millions Value Gains (Losses) (Losses)
-------- ----- -------- --------
Convert floating rate liabilities to
fixed:
Swaps -- pay fixed/receive
floating .............................. $ 214 $ 2 $ (2) $ --
Convert fixed rate assets to
floating:
Swaps -- pay fixed/receive
floating .............................. 368 -- (4) (4)
Forward starting swaps --
pay fixed/receive floating ............ 18 -- (1) (1)
Convert fixed rate liabilities to
floating:
Swaps -- receive fixed/pay
floating .............................. 1,100 2 (19) (17)
Convert term liabilities with
quarterly rate resets to monthly:
Swaps -- receive floating/pay
floating .............................. 300 -- -- --
Convert floating rate assets to
fixed:
Swaps -- receive fixed/pay
floating .............................. 310 -- (1) (1)
Index amortizing swaps --
receive fixed/pay floating ............ 250 3 -- 3
--------- ----- ----------- -----------
Total derivatives ........... $ 2,560 $ 7 $ (27) $ (20)
========= ===== =========== ===========
</TABLE>
Maturity Schedule of Asset and Liability Management Derivatives
-----------------------------------------------------------------
March 31, 1998
<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.................. $ 258 $ 224 $ 17 $ 102 $ 18 $ 165 $ 784 2.28
Weighted average rates received.. 5.04% 5.19% 5.80% 5.92% 5.69% 5.56% 5.34%
Weighted average rates paid ..... 6.77 6.23 6.89 6.48 7.94 6.60 6.57
Receive fixed/pay floating:
Notional amount ................. $ 151 $ 151 $ 103 $ 2 $ 350 $ 927 $1,684 10.64
Weighted average rates received.. 6.57% 6.63% 6.48% 10.11% 7.28% 7.48% 7.22%
Weighted average rates paid ..... 5.69 5.66 5.76 8.50 5.70 5.91 5.82
Receive floating/pay floating:
Notional amount ................. -- -- -- $ 300 -- -- $ 300 3.18
Weighted average rates received.. -- -- -- 5.75% -- -- 5.75%
Weighted average rates paid ..... -- -- -- 5.66 -- -- 5.66
Total interest rate swaps:
Notional amount ................. $ 409 $ 375 $ 120 $ 404 $ 368 $1,092 $2,768 7.46
Weighted average rates received.. 5.61% 5.77% 6.38% 5.81% 7.20% 7.19% 6.53%
Weighted average rates paid ..... 6.37 6.00 5.93 5.88 5.81 6.01 6.01
Total Derivatives
(notional amount) ............... $ 409 $ 375 $ 120 $ 404 $ 368 $1,092 $2,768 7.46
</TABLE>
* Maturity is based upon expected average lives rather than contractual lives.
14
<PAGE>
Asset and liability transactions are accounted for following
hedge accounting rules. Accordingly, gains and
losses related to the fair value of derivative contracts used for
asset and liability management purposes are not immediately
recognized in earnings. If the hedged or altered balance sheet
amounts were marked to market, the resulting unrealized balance
sheet gains or losses could be expected to approximately offset
unrealized derivatives gains and losses.
To ensure the corporation is positioned to meet immediate and
future cash demands, management relies on liquidity analysis,
knowledge of business trends over past economic cycles and
forecasts of future conditions. Liquidity is maintained through a
strong balance sheet and operating performance that assures
market acceptance as well as through policy guidelines which
limit the level, maturity and concentration of noncore funding
sources.
Through its balance sheet, the corporation generates liquidity on
the asset side by maintaining significant amounts of
available-for-sale investment securities, which may be sold at
any time, and by loans which may be securitized or sold.
Additionally, the corporation generates cash through deposit
growth, the issuance of bank notes, the availability of unused
lines of credit and through other forms of debt and equity
instruments.
Through policy guidelines, the corporation limits net purchased
funds to 50 percent of long-term assets, which include net loans
and leases, 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.
Non- Nonperforming assets at March 31, 1998 were $147.723 million or
performing .33 percent of period-end loans and foreclosed property. The total
Assets was up $18.512 million or 14.3 percent from one year earlier and
was higher by $18.228 million or 14.1 percent from December 31,
1997. The rise in nonperforming assets both year over year and
from the preceding quarter end reflected increased levels of
cash-basis assets largely attributable to one credit.
The largest category of nonperforming assets are real estate
related. Real estate nonperforming assets at March 31, 1998 were
$102.530 million or .61 percent of real estate loans and
foreclosed real estate versus $111.271 million or .77 percent one
year earlier and $106.318 million or .64 percent at the end of
the fourth quarter of 1997. Included in real estate nonperforming
assets were real estate nonperforming loans of $81.766 million at
March 31, 1998, $80.569 million one year earlier and $84.872
million at December 31, 1997.
Commercial real estate nonperforming assets totaled $47.125
million or .54 percent of related loans and foreclosed real
estate compared with $72.972 million or 1.01 percent at first
quarter close 1997 and with $50.930 million or .59 percent at
year-end 1997. Commercial real estate nonperforming loans were
$40.981 million at March 31, 1998, $52.495 million one year
earlier and $45.335 million at December 31, 1997.
15
<PAGE>
- -----------------------------------------------------------------------
NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 6
- --------------------------------------------------------------------------------
(Thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Mar 31 Dec 31 Sept 30 June 30 Mar 31
1998 1997 1997 1997 1997
-------- ----------- -------- -------- ---------
Nonperforming assets:
Cash-basis assets ................................... $121,734 $101,156 $95,580 $97,813 $95,444
Restructured loans .................................. -- -- -- -- --
-------- ----------- -------- -------- ---------
Total nonperforming loans ........................ 121,734 101,156 95,580 97,813 95,444
Foreclosed property:
Foreclosed real estate ............................. 35,518 38,071 33,930 35,710 36,843
Less valuation allowance ........................... 14,754 16,625 10,983 11,038 10,782
Other foreclosed assets ............................ 5,225 6,893 5,534 6,103 7,706
-------- ----------- -------- -------- ---------
Total foreclosed property ........................ 25,989 28,339 28,481 30,775 33,767
-------- ----------- -------- -------- ---------
Total nonperforming assets ....................... $147,723 $129,495 $124,061 $128,588 $129,211
======== =========== ======== ======== =========
Nonperforming loans to period-end loans ............. .27% .23% .23% .24% .24%
Nonperforming assets to period-end loans and
foreclosed property ................................ .33 .29 .30 .32 .33
Period-end allowance for loan losses times
nonperforming loans ................................ 4.47x 5.38x 5.43x 5.31x 5.44x
Period-end allowance for loan losses times
nonperforming assets ............................... 3.69 4.21 4.19 4.04 4.02
Contractually past due loans -- accruing loans past due
90 days or more ..................................... $87,569 $114,343 $81,931 $86,084 $79,155
======== =========== ======== ======== =========
</TABLE>
Provision The provision for loan losses for the first quarter of 1998 was
and $74.126 million, up $11.895 million or 19.1 percent from $62.231
Allowance million a year earlier. The provision was lower by $2.789 million
for Loan or 3.6 percent from the fourth quarter of 1997, which included
Losses $10.845 million in a special merger-related charge to align the
practices of merged entities with those of the corporation.
Excluding this special charge, the provision for loan losses in
the first quarter of 1998 increased $8.056 million or 12.2 percent
from the preceding three-month period.
The provision reflects management's assessment of the adequacy of
the allowance for loan losses to absorb potential write-offs in
the loan portfolio due to credit deterioration or changes in risk
profile. Factors considered in this assessment include the
strength and consistency of the corporation's underwriting
standards and charge-off policy, current and anticipated economic
conditions, historical credit loss experience and the composition
of the loan portfolio. Credit evaluations are made on a cash flow
analysis basis with follow-up credit reviews consistently
maintained. In addition, the corporation enforces an aggressive
loan loss policy of early recognition and charge-off of troubled
credits. Effective with the first quarter of 1998, management
began implementing as part of its overall credit review process
assessments of Year 2000 compliance among borrowers.
16
<PAGE>
Net loan losses for the period totaled $74.108 million or .68
percent annualized of average loans, up $11.892 million or 19.1
percent from $62.216 million or .65 percent of loans a year
earlier. Higher losses in credit cards accounted for the rise.
Net loan losses were lower by $2.081 million or 2.7 percent from
the fourth quarter of 1997, due primarily to reduced charge-offs
in real estate loans and to a decline in net loan losses
associated with commercial loans and other revolving credit.
Excluding credit cards, net charge-offs for the quarter were
$8.986 million or .09 percent annualized of average loans, down
$4.186 million or 31.8 percent from the year-earlier period and
lower by $4.658 million or 34.1 percent from the fourth quarter
of 1997.
Credit card net charge-offs totaled $65.122 million or 4.54
percent annualized of average credit card loans, up $16.078
million or 32.8 percent from $49.044 million or 3.52 percent of
credit card loans in the first three months of 1997. The increase
in credit card net charge-offs from a year earlier largely
reflected accelerated recognition in the Virginia portfolio of
credit card losses by approximately 30 days. The change for the
Virginia portfolio was implemented effective with the fourth
quarter of 1997 to align its practices with those of the
corporation's. Net loan losses in commercial loans and in lease
financing declined $1.523 million or 66.7 percent and $527
thousand or 40.3 percent, respectively. Net recoveries of real
estate loans increased to $1.328 million or .03 percent of
average real estate loans from $211 thousand or .01 percent of
real estate loans a year earlier.
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>
1998 1997
------ -------------------------------------------------------------
First Fourth Third Second First
$ in thousands Quarter Quarter Quarter Quarter Quarter
--------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Average credit card outstanding $ 6,246,315 $ 6,281,488 $ 6,221,174 $ 6,154,577 $ 6,197,630
Net loan losses ................. 69,409 67,735 59,595 58,762 54,296
Net loan losses to average loans 4.44% 4.31% 3.83% 3.82% 3.50%
Delinquencies (30 days or more) to
period-end loans .............. 2.68 2.75 2.77 2.44 2.45
</TABLE>
At March 31, 1998, the allowance for loan losses was $544.741
million, representing 1.22 percent of loans and 447 percent of
nonperforming loans. This compared with $519.312 million,
representing 1.32 percent of loans and 544 percent of
nonperforming loans one year earlier, and with $544.723 million,
representing 1.23 percent of loans and 538 percent of
nonperforming loans at year-end 1997.
17
<PAGE>
- -----------------------------------------------
Quarterly Allowance for Loan Losses Table 7
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<CAPTION>
1998 1997
------ -------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Summary of Transactions
Balance at beginning of period ....................... $544,723 $ 519,356 $519,335 $519,312 $519,297
Additions from acquisitions .......................... -- 24,641 -- -- --
Provision for loan losses ............................ 74,126 76,915 62,756 63,047 62,231
Deduct net loan losses:
Loans charged off:
Commercial ......................................... 2,662 3,801 686 1,772 2,995
Credit card ........................................ 72,061 68,796 61,277 59,935 56,000
Other revolving credit ............................. 2,089 3,659 2,520 2,259 2,126
Other retail ....................................... 10,388 9,032 8,777 10,027 11,965
Real estate ........................................ 2,040 5,786 1,469 1,764 2,545
Lease financing .................................... 886 916 988 1,218 1,366
Foreign ............................................ -- -- -- -- --
-------- ----------- --------- -------- --------
Total ............................................ 90,126 91,990 75,717 76,975 76,997
Recoveries:
Commercial ......................................... 1,900 1,184 988 1,289 710
Credit card ........................................ 6,939 6,251 6,894 6,573 6,956
Other revolving credit ............................. 690 588 575 591 607
Other retail ....................................... 3,015 2,577 2,638 2,929 3,693
Real estate ........................................ 3,368 5,125 1,787 2,465 2,756
Lease financing .................................... 106 76 100 104 59
Foreign ............................................ -- -- -- -- --
-------- ----------- --------- -------- --------
Total ............................................ 16,018 15,801 12,982 13,951 14,781
-------- ----------- --------- -------- --------
Net loan losses ..................................... 74,108 76,189 62,735 63,024 62,216
-------- ----------- --------- -------- --------
Balance at end of period ............................. $544,741 $ 544,723 $519,356 $519,335 $519,312
======== =========== ========= ======== ========
Net Loan Losses (Recoveries)
by Category
Commercial ........................................... $ 762 $ 2,617 $ (302) $ 483 $ 2,285
Credit card .......................................... 65,122 62,545 54,383 53,362 49,044
Other revolving credit ............................... 1,399 3,071 1,945 1,668 1,519
Other retail ......................................... 7,373 6,455 6,139 7,098 8,272
Real estate .......................................... (1,328) 661 (318) (701) (211)
Lease financing ...................................... 780 840 888 1,114 1,307
Foreign .............................................. -- -- -- -- --
-------- ----------- --------- -------- --------
Total ............................................ $ 74,108 $ 76,189 $62,735 $ 63,024 $ 62,216
======== =========== ========= ======== ========
Net loan losses -- excluding credit cards ............ $ 8,986 $ 13,644 $ 8,352 $ 9,662 $ 13,172
Annualized Net Loan Losses (Recoveries) to Average
Loans by Category
Commercial ........................................... .02% .08% (.01%) .01% .07%
Credit card .......................................... 4.54 4.36 3.85 3.85 3.52
Other revolving credit ............................... 1.20 2.81 1.87 1.59 1.44
Other retail ......................................... .70 .61 .61 .69 .78
Real estate .......................................... (.03) .02 (.01) (.02) (.01)
Lease financing ...................................... .29 .32 .35 .50 .62
Foreign .............................................. -- -- -- -- --
Total loans .......................................... .68 .73 .63 .64 .65
Total loans -- excluding credit cards ................ .09 .15 .10 .12 .16
Period-end allowance to outstanding loans ............ 1.22% 1.23% 1.27% 1.29% 1.32%
</TABLE>
18
<PAGE>
Noninterest Total other operating revenue, which excludes investment
Income securities sales, rose $56.854 million or 25.1 percent for
the first quarter compared with a year earlier. Solid growth
occurred in all major categories, including capital markets
income, deposit account revenues, trust fees and investment fee
income. Included in total other operating revenue for the first
quarter of 1998 was a gain of $17.155 million from sales of branch
offices divested as part of the corporation's Virginia merger
agreement. Excluding the gain from branch sales, total other
operating revenue increased $39.699 million or 17.5 percent year
over year and was higher by $3.310 million or 1.3 percent from the
fourth quarter of 1997.
Capital markets income grew $8.798 million or 120.3 percent year
over year, reflecting gains largely in foreign exchange income
and in trading account profits. Capital markets income includes
revenues from foreign exchange transactions; corporate financing
activities such as loan syndications, private placements and
variable rate demand bond usage; derivatives activities; trading
account profits; and consulting services.
Deposit account service charge revenues rose $6.780 million or
9.2 percent. Growth occurred primarily in commercial analysis
fees, insufficient funds charges and overdraft charges.
Income from trust service fees increased $5.203 million or 12.7
percent, representing gains largely in trust and investment
management services, institutional trust and retirement services
and asset management fees. On March 31, 1998, the corporation
announced it had reached a definitive agreement to acquire Hunt,
DuPree, Rhine and Associates, Inc., a benefits consulting firm,
and its affiliate, Retirement Plan Securities, Inc., a registered
investment advisor. Acquisition of the two affiliated firms will
enable the corporation to offer expanded benefit consulting
services to its middle market corporate customers.
Investment fee income, consisting of fees received from annuity
income, mutual fund income, portfolio management, fixed income
securities and brokerage commissions, grew $2.735 million or 32.3
percent. Higher mutual fund income accounted for the majority of
the growth, with increased brokerage commission income also
contributing to the rise.
Mortgage fee income was up $2.534 million or 49 percent. Growth
reflected greater volume in mortgage servicing activity as well
as increased gains on sales of mortgage loans to the secondary
market.
Credit card income expanded $1.688 million or 4.6 percent.
Increased credit card sales transactions and higher overlimit
charge activity primarily accounted for the rise.
Electronic banking revenues, consisting of fees from debit cards
and ATM usage, rose $1.629 million or 11 percent. Gains reflected
increases in ATM foreign access fees and in debit card
interchange income.
19
<PAGE>
Remaining combined categories of total other operating revenue,
excluding gains from branch sales, were up $10.332 million or
26.2 percent. Bankers' acceptance and letter of credit fees were
higher by $1.658 million or 21 percent, and insurance premiums
and commissions rose $668 thousand or 9.7 percent. Other service
charges and fees were up modestly for the period, while other
income expanded $7.856 million or 54.7 percent.
Including investment securities sales, total noninterest income
for the first quarter of 1998 was higher by $58.453 million or
25.6 percent. Investment securities sales resulted in net gains
of $3.157 million for the period versus $1.558 million a year
earlier.
- ----------------------------
Noninterest Income Table 8
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<CAPTION>
1998 1997
-------- ---------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Noninterest Income
Service charges on deposit accounts ....................... $ 80,874 $ 80,977 $ 76,584 $ 74,576 $ 74,094
Fees for trust services ................................... 46,053 47,378 43,653 43,668 40,850
Credit card income -- net of interchange payments ......... 38,544 38,382 43,182 43,814 36,856
Electronic banking ........................................ 16,395 17,355 16,841 15,678 14,766
Capital markets income .................................... 16,110 16,040 14,994 11,176 7,312
Investment fee income ..................................... 11,191 9,541 9,721 8,533 8,456
Mortgage fee income ....................................... 7,704 7,509 5,711 5,154 5,170
Insurance premiums and commissions ........................ 7,568 7,169 7,966 8,170 6,900
Bankers' acceptance and letter of credit fees ............. 9,569 8,116 9,589 8,910 7,911
Other service charges and fees ............................ 10,350 9,257 9,671 9,622 10,200
Other income .............................................. 39,365 21,534 18,135 30,293 14,354
--------- --------- -------- -------- --------
Total other operating revenue ......................... 283,723 263,258 256,047 259,594 226,869
Investment securities gains (losses) ...................... 3,157 (1,693) 1,091 498 1,558
--------- --------- -------- -------- --------
Total ................................................. $286,880 $261,565 $257,138 $260,092 $228,427
========= ========= ======== ======== ========
</TABLE>
Noninterest Total noninterest expense for the first quarter was up $105.648
Expense million or 27.2 percent year over year and included $35.568
million in pretax merger-related charges associated primarily with
systems conversions and signage changes in Virginia. On a core
operating basis excluding nonrecurring charges, total noninterest
expense increased $70.080 million or 18 percent from a year
earlier and was higher by $13.795 million or 3.1 percent from the
fourth quarter of 1997. The corporation's overhead ratio measuring
noninterest expense as a percentage of total revenues (taxable
equivalent net interest income plus total other operating revenue)
was 53.1 percent on a core operating basis versus 52.2 percent in
the same period a year earlier and 53.5 percent in the fourth
quarter of 1997.
Total personnel expense for the quarter rose $48.085 million or
22.7 percent year over year, accounting for the majority of the
core growth in total noninterest expense. Salaries expense
increased $40.932 million or 23.8 percent, primarily reflecting a
higher employee base and greater incentive pay. Employee benefits
expense was up $7.153 million or 18 percent, largely due to
expanded payroll taxes and growth in retirement savings benefits
expenses.
Combined net occupancy and equipment expense increased $6.443
million or 10.4 percent. Higher net occupancy expenses,
associated largely with premise leasing, building depreciation
and building maintenance costs, accounted for most of the growth.
20
<PAGE>
Remaining combined categories of noninterest expense, excluding
merger-related charges, rose $15.552 million or 13.5 percent.
Amortization expense increased $6.853 million, principally due to
higher levels of goodwill and deposit base intangibles following
the corporation's purchase acquisitions in the fourth quarter of
1997. Advertising expense was up $2.164 million or 13.9 percent,
reflecting greater marketing costs, while professional services
expense grew $2.026 million or 21.8 percent, largely due to Year
2000 project costs.
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-year 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. In addition, the
corporation is working to convert and test all of its application
systems by year-end 1998 and not simply those considered critical
to operations. 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 $44 million has
been spent through March 31, 1998. 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 fully at this
time.
- -----------------------------
Noninterest Expense Table 9
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<CAPTION>
1998 1997
------ ----------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
-------- -------- ----- ----- -------
<S> <C> <C> <C> <C> <C>
Noninterest Expense
Salaries .................................................. $ 212,758 $ 200,859 $ 190,434 $ 178,987 $171,826
Employee benefits ......................................... 46,966 43,391 39,918 39,929 39,813
--------- ----------- --------- --------- --------
Total personnel expense ............................... 259,724 244,250 230,352 218,916 211,639
Net occupancy expense ..................................... 33,783 30,687 29,816 27,657 28,494
Equipment expense ......................................... 34,687 36,619 36,283 35,792 33,533
Postage and delivery ...................................... 13,278 12,539 11,883 11,899 12,336
Outside data processing, programming and software ......... 12,737 22,952 21,980 26,988 14,577
Stationery and supplies ................................... 7,506 7,637 8,415 7,676 7,232
Advertising and sales promotion ........................... 17,738 15,768 20,355 20,349 15,574
Professional services ..................................... 11,304 16,348 14,102 14,385 9,278
Travel and business promotion ............................. 6,439 7,433 6,120 6,154 5,508
Regulatory agency fees and other bank services ............ 4,485 3,523 3,458 3,791 3,828
Amortization of intangible assets ......................... 9,117 6,433 2,347 2,264 2,264
Foreclosed property expense ............................... 130 492 487 951 (55)
Personal computer impairment charge ....................... -- 67,202 -- -- --
Merger-related charges .................................... 35,568 220,330 -- -- --
Other expense ............................................. 47,753 40,205 39,703 43,579 44,393
--------- ----------- --------- --------- --------
Total ................................................. $ 494,249 $ 732,418 $ 425,301 $ 420,401 $388,601
========= =========== ========= ========= ========
Overhead ratio* ........................................... 57.2% 88.0% 53.6% 53.4% 52.2%
</TABLE>
* Overhead ratio excluding the impact of nonrecurring charges was 53.1% in the
1998 first quarter and 53.5% in the 1997 fourth quarter.
21
<PAGE>
Income Applicable income taxes for the quarter were higher by $5.955
Taxes million or 6.9 percent from a year earlier. 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.
- -----------------------
Income Taxes Table 10
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31 March 31
1998 1997
------------ ------------
<S> <C> <C>
Income before income taxes ........................................ $287,648 $279,847
======== ========
Federal income taxes at statutory rate ............................ $100,677 $97,946
State and local income taxes -- net of federal benefit ............ (1,021) 3,709
Effect of tax-exempt securities interest and other income ......... (12,382) (12,414)
Other items ....................................................... 5,053 (2,869)
-------- --------
Total tax expense .............................................. $92,327 $86,372
======== ========
Current:
Federal ......................................................... $68,763 $66,882
Foreign ......................................................... 115 59
State and local ................................................. 3,729 1,878
-------- --------
Total .......................................................... 72,607 68,819
Deferred:
Federal ......................................................... 25,021 13,729
State and local ................................................. (5,301) 3,824
-------- --------
Total .......................................................... 19,720 17,553
-------- --------
Total tax expense .............................................. $92,327 $86,372
======== ========
</TABLE>
22
<PAGE>
New In December 1996, the Financial Accounting Standards Board issued
Accounting Statement of Financial Accounting Standards No. 127, "Deferral of
Standards the Effective Date of Certain Provisions of FASB Statement No.
125, an amendment of FASB Statement No. 125" (FASB 127). FASB 127
delayed until 1998 certain provisions of FASB 125 that deal with
repurchase agreements, securities lending and other similar
transactions and pledged collateral. Adoption of FASB 127 was not
material.
In June 1997, Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FASB 130), was issued and
establishes standards for reporting and displaying comprehensive
income and its components. FASB 130 requires comprehensive income
and its components, as recognized under the accounting standards,
to be displayed in a financial statement with the same prominence
as other financial statements. The disclosure requirements of
FASB 130 have been included in the corporation's consolidated
statements of shareholders' equity.
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (FASB
131), also issued in June 1997, establishes new standards for
reporting information about operating segments in annual and
interim financial statements. The standard also requires
descriptive information about the way the operating segments are
determined, the products and services provided by the segments
and the nature of differences between reportable segment
measurements and those used for the consolidated enterprise. This
standard is effective for years beginning after December 15,
1997. Adoption in interim financial statements is not required
until the year after initial adoption, however comparative prior
period information is required. FASB 131 will be adopted, as
required, beginning with year-end 1998; the disclosure
requirements will have no impact on the corporation's financial
position or results of operations.
In March 1998, the Accounting Standards Executive Committee of
the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal
Use" (SOP 98-1), which provides guidance as to when it is or is
not appropriate to capitalize the cost of software developed or
obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998
with early adoption encouraged. Management is in the process of
assessing the impact and period of adoption of this standard.
23
<PAGE>
---------------------------------------------
Financial Condition and Capital Ratios
-----------------------------------------------------------------
Assets at March 31, 1998 totaled $65.125 billion, with $57.464
billion of interest-earning assets and $44.498 billion of loans.
Comparable amounts one year earlier were $58.060 billion of
assets, $52.258 billion of interest-earning assets and $39.383
billion of loans. At December 31, 1997, total assets were $65.397
billion, interest-earning assets were $57.335 billion and loans
were $44.194 billion.
Deposits at the end of the first quarter of 1998 were $39.857
billion, including $31.331 billion of interest-bearing deposits,
representing 78.6 percent of the total. Deposits one year earlier
were $36.849 billion with interest-bearing deposits of $29.159
billion or 79.1 percent of the total, and at December 31, 1997,
deposits were $42.654 billion, including $34.056 billion of
interest-bearing deposits or 79.8 percent of the total. The
decrease in deposits from year-end 1997 resulted from the
corporation divesting selected branches in the first quarter of
1998 in connection with the Virginia merger.
Shareholders' equity at March 31, 1998 was $5.237 billion, up
$738.369 million or 16.4 percent from $4.498 billion one year
earlier. Included in shareholders' equity at March 31, 1998 was
$747.744 million from common stock issued in connection with the
corporation's fourth quarter 1997 purchase acquisitions of
Jefferson Bankshares and 1st United Bancorp. Shareholders' equity
at March 31, 1998 also included $63.849 million, net of tax, in
unrealized gains on securities available-for-sale marked to fair
value compared with an unrealized loss of $4 thousand, net of
tax, one year earlier. During the first quarter of 1998, the
corporation repurchased a total of 850,000 shares of its common
stock at an average cost of $78.261 per share for a total cost of
$66.522 million. The shares were repurchased under a January 23,
1998 authorization by the corporation's board of directors to
repurchase shares of stock in connection with Wachovia's purchase
acquisition of Ameribank Bancshares. Total repurchases are
authorized up to an amount that would preserve the accounting for
Wachovia's merger in the fourth quarter of 1997 with Central
Fidelity Banks, Inc., as a pooling-of-interests. At its meeting
on April 24, 1998, the corporation's board of directors declared
a second quarter dividend of $.44 per common share payable June 1
to shareholders of record on May 7. The dividend is higher by 10
percent from $.40 per share paid in the same three months of
1997. For the year to date, the dividend will total $.88 per
share, an increase of 10 percent from $.80 per share paid in
1997.
Intangible assets at March 31, 1998 totaled $619.334 million,
consisting of $508.010 million of goodwill, $96.315 million of
deposit base intangibles, $13.530 million of mortgage servicing
rights, and $1.480 million of other intangibles, principally
purchased credit card premiums. Intangible assets at first
quarter close 1997 were $107.210 million, with $40.558 million of
goodwill, $54.427 million of deposit base intangibles, $11.078
million of mortgage servicing rights, and $1.147 million of other
intangibles. The increase in goodwill and deposit base
intangibles from March 31, 1997 resulted from the corporation's
purchase acquisitions 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
24
<PAGE>
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 March 31, 1998, the corporation's Tier I to risk-adjusted
assets ratio was 8.87 percent and total capital to risk-adjusted
assets was 11.64 percent. The Tier I leverage ratio was 8.91
percent. Included in the capital ratios at March 31, 1998 was
$996.087 million of trust capital securities versus $596.578
million one year earlier.
- -----------------------------------------
Capital Components and Ratios Table 11
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<CAPTION>
1998 1997
------- --------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
--------- ------------ -------- -------- -------
<S> <C> <C> <C> <C> <C>
Tier I capital:
Common shareholders' equity ................. $ 5,236,700 $ 5,174,301 $ 4,517,021 $ 4,483,461 $ 4,498,331
Trust capital securities .................... 996,087 995,993 995,899 995,804 596,578
Less ineligible intangible assets ........... 604,325 634,052 93,101 94,767 89,890
Unrealized (gains) losses on securities
available-for-sale, net of tax ............. (63,849) (71,098) (68,657) (44,329) 4
----------- ------------- ----------- ----------- ------------
Total Tier I capital ..................... 5,564,613 5,465,144 5,351,162 5,340,169 5,005,023
Tier II capital:
Allowable allowance for loan losses ......... 544,741 544,723 519,356 519,335 519,312
Allowable long-term debt .................... 1,193,533 1,193,451 1,283,165 1,283,093 1,288,138
----------- ------------- ----------- ----------- ------------
Tier II capital additions ................ 1,738,274 1,738,174 1,802,521 1,802,428 1,807,450
----------- ------------- ----------- ----------- ------------
Total capital ............................ $ 7,302,887 $ 7,203,318 $ 7,153,683 $ 7,142,597 $ 6,812,473
=========== ============= =========== =========== ============
Risk-adjusted assets ......................... $62,747,353 $59,543,254 $56,481,076 $52,408,490 $ 50,933,933
Quarterly average assets* .................... $62,457,463 $59,139,712 $57,042,701 $56,931,778 $ 56,205,483
Risk-based capital ratios:
Tier I capital .............................. 8.87% 9.18% 9.47% 10.19% 9.83%
Total capital ............................... 11.64 12.10 12.67 13.63 13.38
Tier I leverage ratio ........................ 8.91 9.24 9.38 9.38 8.90
</TABLE>
* Excludes ineligible intangible assets and average unrealized gains (losses)
on securities available-for-sale, net of tax.
25
<PAGE>
Wachovia Corporation and Subsidiaries
- ---------------------------------------
Consolidated Statements of Condition
- --------------------------------------------------------------------------------
$ in thousands
<TABLE>
<CAPTION>
March 31 December 31 March 31
1998 1997 1997
<S> <C> <C> <C>
Assets
Cash and due from banks ..................................................... $3,661,602 $ 4,221,818 $ 3,266,242
Interest-bearing bank balances .............................................. 154,415 133,191 36,581
Federal funds sold and securities purchased under resale agreements ......... 365,987 1,589,234 386,205
Trading account assets ...................................................... 1,198,056 999,122 1,058,687
Securities available-for-sale ............................................... 9,871,249 8,909,537 10,068,609
Securities held-to-maturity (fair value of $1,440,438, $1,578,464 and
$1,377,812 respectively).................................................... 1,375,959 1,509,339 1,325,556
Loans and leases, net of unearned income .................................... 44,498,281 44,194,382 39,382,725
Less allowance for loan losses .............................................. 544,741 544,723 519,312
------------ ----------- ---------------
Net loans and leases ...................................................... 43,953,540 43,649,659 38,863,413
Premises and equipment ...................................................... 840,350 810,155 795,524
Due from customers on acceptances ........................................... 692,444 628,398 637,117
Other assets ................................................................ 3,011,113 2,946,616 1,622,153
------------ ----------- ---------------
Total assets .............................................................. $ 65,124,715 $65,397,069 $58,060,087
============ =========== ===============
Liabilities
Deposits in domestic offices:
Demand ..................................................................... $ 8,521,550 $ 8,589,595 $ 7,676,554
Interest-bearing demand .................................................... 4,831,044 4,654,172 4,072,727
Savings and money market savings ........................................... 11,687,725 11,679,432 10,396,101
Savings certificates ....................................................... 10,093,897 10,934,720 10,275,042
Large denomination certificates ............................................ 2,854,234 2,284,068 3,254,373
Noninterest-bearing time ................................................... 4,698 8,460 13,531
------------ ----------- ---------------
Total deposits in domestic offices ........................................ 37,993,148 38,150,447 35,688,328
Time deposits in foreign offices ............................................ 1,863,739 4,503,396 1,160,977
------------ ----------- ---------------
Total deposits ............................................................ 39,856,887 42,653,843 36,849,305
Federal funds purchased and securities sold under repurchase agreements ..... 8,796,505 8,322,716 7,272,047
Commercial paper ............................................................ 1,217,459 1,034,024 663,525
Other short-term borrowed funds ............................................. 1,935,326 752,874 1,404,537
Long-term debt:
Bank notes ................................................................. 3,010,426 2,939,952 3,065,344
Other long-term debt ....................................................... 3,445,940 2,994,181 2,999,917
------------ ----------- ---------------
Total long-term debt ...................................................... 6,456,366 5,934,133 6,065,261
Acceptances outstanding ..................................................... 692,444 628,398 637,117
Other liabilities ........................................................... 933,028 896,780 669,964
------------ ----------- ---------------
Total liabilities ......................................................... 59,888,015 60,222,768 53,561,756
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 206,131,388,
205,926,632 and 198,476,424 respectively .................................. 1,030,657 1,029,633 992,382
Capital surplus ............................................................. 941,071 974,803 562,420
Retained earnings ........................................................... 3,201,123 3,098,767 2,943,533
Accumulated other comprehensive income (loss) ............................... 63,849 71,098 (4)
------------ ----------- ----------------
Total shareholders' equity ................................................ 5,236,700 5,174,301 4,498,331
------------ ----------- ---------------
Total liabilities and shareholders' equity ................................ $ 65,124,715 $65,397,069 $58,060,087
============ =========== ===============
</TABLE>
26
<PAGE>
Wachovia Corporation and Subsidiaries
- ------------------------------------
Consolidated Statements of Income
- -------------------------------------------------------------------------------
In thousands, except per share
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
<S> <C> <C>
Interest Income
Loans .................................................................... $ 945,437 $ 811,917
Securities available-for-sale:
Other investments ....................................................... 153,938 162,888
Securities held-to-maturity:
State and municipal ..................................................... 3,936 4,496
Other investments ....................................................... 23,241 22,170
Interest-bearing bank balances ........................................... 3,228 675
Federal funds sold and securities purchased under resale agreements ...... 5,285 2,878
Trading account assets ................................................... 12,764 13,201
------------ -----------
Total interest income .................................................. 1,147,829 1,018,225
Interest Expense
Deposits:
Domestic offices ........................................................ 308,030 292,259
Foreign offices ......................................................... 36,210 17,370
------------ -----------
Total interest on deposits ............................................. 344,240 309,629
Short-term borrowed funds ................................................ 138,893 106,961
Long-term debt ........................................................... 95,553 99,383
------------ -----------
Total interest expense ................................................. 578,686 515,973
Net Interest Income ...................................................... 569,143 502,252
Provision for loan losses ................................................ 74,126 62,231
------------ -----------
Net interest income after provision for loan losses ...................... 495,017 440,021
Other Income
Service charges on deposit accounts ...................................... 80,874 74,094
Fees for trust services .................................................. 46,053 40,850
Credit card income ....................................................... 38,544 36,856
Electronic banking ....................................................... 16,395 14,766
Capital markets income ................................................... 16,110 7,312
Investment fee income .................................................... 11,191 8,456
Mortgage fee income ...................................................... 7,704 5,170
Other operating income ................................................... 66,852 39,365
------------ -----------
Total other operating revenue .......................................... 283,723 226,869
Investment securities gains .............................................. 3,157 1,558
------------ -----------
Total other income ..................................................... 286,880 228,427
Other Expense
Salaries ................................................................. 212,758 171,826
Employee benefits ........................................................ 46,966 39,813
------------ -----------
Total personnel expense ................................................ 259,724 211,639
Net occupancy expense .................................................... 33,783 28,494
Equipment expense ........................................................ 34,687 33,533
Merger-related charges ................................................... 35,568 --
Other operating expense .................................................. 130,487 114,935
------------ -----------
Total other expense .................................................... 494,249 388,601
Income before income taxes ............................................... 287,648 279,847
Applicable income taxes .................................................. 92,327 86,372
------------ -----------
Net Income ............................................................... $ 195,321 $ 193,475
============ ===========
Net income per common share:
Basic ................................................................... $ .95 $ .97
Diluted ................................................................. $ .93 $ .95
Average shares outstanding:
Basic ................................................................... 205,894 200,110
Diluted ................................................................. 210,158 203,307
</TABLE>
27
<PAGE>
Wachovia Corporation and Subsidiaries
- --------------------------------------------------
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
$ in thousands, except per share
<TABLE>
<CAPTION>
Common Stock Capital
Shares Amount Surplus
<S> <C> <C> <C>
Period ended March 31, 1997
Balance at beginning of year ............... 201,252,539 $1,006,263 $ 706,649
Net income .................................
Change in unrealized gains on securities
available-for-sale, net of tax and
reclassification adjustment ...............
Comprehensive income ...................
Cash dividends declared by pooled
companies:
Wachovia Corporation -- $.40 a share.......
Central Fidelity Banks, Inc. -- $.20 a
share ....................................
Common stock issued pursuant to:
Stock option and employee benefit
plans .................................... 519,385 2,596 27,309
Dividend reinvestment plan ................ 58,328 292 3,231
Common stock acquired ...................... (3,353,828) (16,769) (175,446)
Miscellaneous .............................. 677
------------- ----------- -----------
Balance at end of period ................... 198,476,424 $ 992,382 $ 562,420
============= ========== ===========
Period ended March 31, 1998
Balance at beginning of year ............... 205,926,632 $1,029,633 $ 974,803
Net income .................................
Change in unrealized gains on securities
available-for-sale, net of tax and
reclassification adjustment ...............
Comprehensive income ...................
Cash dividends declared on common
stock -- $.44 a share......................
Common stock issued pursuant to:
Stock option and employee benefit
plans .................................... 1,084,512 5,423 31,249
Dividend reinvestment plan ................ 77,565 388 5,741
Common stock acquired ...................... (957,321) (4,787) (70,220)
Miscellaneous .............................. (502)
----------- ----------- -----------
Balance at end of period ................... 206,131,388 $1,030,657 $ 941,071
============= ========== ===========
<S> <C> <C> <C>
Accumulated
Other Total
Retained Comprehensive Shareholders'
Earnings Income Equity
Period ended March 31, 1997
Balance at beginning of year ............... $2,843,803 $ 51,686 $ 4,608,401
Net income ................................. 193,475 193,475
Change in unrealized gains on securities
available-for-sale, net of tax and
reclassification adjustment ............... (51,690) (51,690)
-------------
Comprehensive income ................... 141,785
Cash dividends declared by pooled
companies:
Wachovia Corporation -- $.40 a share....... (65,408) (65,408)
Central Fidelity Banks, Inc. -- $.20 a
share .................................... (12,897) (12,897)
Common stock issued pursuant to:
Stock option and employee benefit
plans .................................... 29,905
Dividend reinvestment plan ................ 3,523
Common stock acquired ...................... (192,215)
Miscellaneous .............................. (15,440) (14,763)
---------- ------------- -------------
Balance at end of period ................... $2,943,533 $ (4) $ 4,498,331
========== ============= =============
Period ended March 31, 1998
Balance at beginning of year ............... $3,098,767 $ 71,098 $ 5,174,301
Net income ................................. 195,321 195,321
Change in unrealized gains on securities
available-for-sale, net of tax and
reclassification adjustment ............... (7,249) (7,249)
-------------
Comprehensive income ................... 188,072
Cash dividends declared on common
stock -- $.44 a share...................... (90,589) (90,589)
Common stock issued pursuant to:
Stock option and employee benefit
plans .................................... 36,672
Dividend reinvestment plan ................ 6,129
Common stock acquired ...................... (75,007)
Miscellaneous .............................. (2,376) (2,878)
---------- -------------- -------------
Balance at end of period ................... $3,201,123 $ 63,849 $ 5,236,700
========== ============= =============
</TABLE>
28
<PAGE>
Wachovia Corporation and Subsidiaries
- ----------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
$ in thousands
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
<S> <C> <C>
Operating Activities
Net income ............................................................... $ 195,321 $ 193,475
Adjustments to reconcile net income to
net cash provided by operations:
Provision for loan losses ............................................... 74,126 62,231
Depreciation and amortization ........................................... 34,125 27,783
Deferred income taxes ................................................... 19,720 16,483
Investment securities gains ............................................. (3,157) (1,558)
Gain on sale of noninterest-earning assets .............................. (508) (609)
Increase in accrued income taxes ........................................ 59,442 58,786
Increase in accrued interest receivable ................................. (14,746) (8,651)
Increase in accrued interest payable .................................... 45,300 53,158
Net change in other accrued and deferred income and expense ............. (22,789) (55,824)
Net trading account activities .......................................... (198,934) 131,023
Net loans held for resale ............................................... (158,512) (290,254)
------------- -------------
Net cash provided by operating activities .............................. 29,388 186,043
Investing Activities
Net (increase) decrease in interest-bearing bank balances ................ (21,224) 41,290
Net decrease (increase) in federal funds sold and securities
purchased under resale agreements ....................................... 1,223,247 (110,264)
Purchases of securities available-for-sale ............................... (1,677,570) (1,001,781)
Purchases of securities held-to-maturity ................................. ---- (35,152)
Sales of securities available-for-sale ................................... 166 203,490
Calls, maturities and prepayments of securities available-for-sale ....... 711,186 464,125
Calls, maturities and prepayments of securities held-to-maturity ......... 134,927 62,719
Net increase in loans made to customers .................................. (222,157) (1,154,616)
Capital expenditures ..................................................... (72,658) (32,259)
Proceeds from sales of premises and equipment ............................ 16,535 870
Net (increase) decrease in other assets .................................. (96,137) 240,446
------------- -------------
Net cash used by investing activities .................................. (3,685) (1,321,132)
Financing Activities
Net increase in demand, savings and money market accounts ................ 113,358 582,245
Net (decrease) increase in certificates of deposit ....................... (2,910,314) 945,328
Net increase in federal funds purchased and securities sold
under repurchase agreements ............................................. 473,789 66,042
Net increase (decrease) in commercial paper .............................. 183,435 (48,517)
Net increase in other short-term borrowings .............................. 1,182,452 370,981
Proceeds from issuance of bank notes ..................................... 100,000 ----
Maturities of bank notes ................................................. (29,867) (1,241,283)
Proceeds from issuance of other long-term debt ........................... 455,764 316,633
Payments on other long-term debt ......................................... (4,288) (27,032)
Common stock issued ...................................................... 29,733 12,846
Dividend payments ........................................................ (90,589) (78,467)
Common stock repurchased ................................................. (69,066) (188,899)
Net (decrease) increase in other liabilities ............................. (20,326) 17,262
------------- -------------
Net cash (used) provided by financing activities ....................... (585,919) 727,139
Decrease in Cash and Cash Equivalents .................................... (560,216) (407,950)
Cash and cash equivalents at beginning of year ........................... 4,221,818 3,674,192
------------- -------------
Cash and cash equivalents at end of period ............................... $ 3,661,602 $ 3,266,242
============= =============
Supplemental Disclosures
Unrealized losses on securities available-for-sale:
Decrease in securities available-for-sale ............................... $ (10,641) $ (85,218)
Increase in deferred taxes .............................................. 3,396 31,854
Decrease in shareholders' equity ........................................ (7,249) (51,690)
</TABLE>
29
<PAGE>
[WACHOVIA LOGO APPEARS HERE]
Wachovia Corporation BULK RATE
P.O. Box 3099 U.S. POSTAGE PAID
Winston-Salem, NC 27150 WACHOVIA
CORPORATION
WACHOVIA CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12
Three Months Year
Ended Ended
March 31, December 31,
(A) EXCLUDING INTEREST ON DEPOSITS 1998 1997
Earnings: --------- ----------
Income before income taxes $287,648 $869,119
Less capitalized interest (202) (167)
Fixed charges 240,017 884,806
--------- ----------
Earnings as adjusted $527,463 $1,753,758
========= ==========
Fixed charges:
Interest on purchased and other
short term borrowed funds $138,893 $478,162
Interest on long-term debt 95,553 387,107
Portion of rents representative of the
interest factor (1/3) of rental expense 5,571 19,537
--------- ----------
Fixed charges $240,017 $884,806
========= ==========
Ratio of earnings to fixed charges 2.20 X 1.98 X
(B) INCLUDING INTEREST ON DEPOSITS:
Adjusted earnings from (A) above $527,463 $1,753,758
Add interest on deposits 344,240 1,303,549
--------- ----------
Earnings as adjusted $871,703 $3,057,307
========= ==========
Fixed charges:
Fixed charges from (A) above $240,017 $884,806
Interest on deposits 344,240 1,303,549
--------- ----------
Adjusted fixed charges $584,257 $2,188,355
========= ==========
Adjusted earnings to adjusted fixed 1.49 X 1.40 X
charges
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,661,602
<INT-BEARING-DEPOSITS> 154,415
<FED-FUNDS-SOLD> 365,987
<TRADING-ASSETS> 1,198,056
<INVESTMENTS-HELD-FOR-SALE> 9,871,249
<INVESTMENTS-CARRYING> 1,375,959
<INVESTMENTS-MARKET> 1,440,438
<LOANS> 44,498,281
<ALLOWANCE> 544,741
<TOTAL-ASSETS> 65,124,715
<DEPOSITS> 39,856,887
<SHORT-TERM> 11,949,290
<LIABILITIES-OTHER> 1,625,472
<LONG-TERM> 6,456,366
0
0
<COMMON> 1,030,657
<OTHER-SE> 4,206,043
<TOTAL-LIABILITIES-AND-EQUITY> 65,124,715
<INTEREST-LOAN> 945,437
<INTEREST-INVEST> 181,115
<INTEREST-OTHER> 21,277
<INTEREST-TOTAL> 1,147,829
<INTEREST-DEPOSIT> 344,240
<INTEREST-EXPENSE> 578,686
<INTEREST-INCOME-NET> 569,143
<LOAN-LOSSES> 74,126
<SECURITIES-GAINS> 3,157
<EXPENSE-OTHER> 494,249
<INCOME-PRETAX> 287,648
<INCOME-PRE-EXTRAORDINARY> 195,321
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195,321
<EPS-PRIMARY> 0.95<F1>
<EPS-DILUTED> 0.93
<YIELD-ACTUAL> 4.21
<LOANS-NON> 121,734
<LOANS-PAST> 87,569
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 544,723
<CHARGE-OFFS> 90,126
<RECOVERIES> 16,018
<ALLOWANCE-CLOSE> 544,741
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>BASIC
</FN>
</TABLE>
