1999 FORM 10-Q
United States Securities and Exchange Commission
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended September 30, 1999
Commission File Number 1-9021
WACHOVIA CORPORATION
Incorporated in the State of North Carolina
IRS Employer Identification Number 56-1473727
Address and Telephone:
100 North Main Street, Winston-Salem, North Carolina, 27101, (336) 770-5000
191 Peachtree Street NE, Atlanta, Georgia, 30303, (404) 332-5000
As of September 30, 1999, Wachovia Corporation had 202,742,870 shares of common
stock outstanding.
Wachovia Corporation (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and (2) has been subject to such filing requirements for the past 90
days.
DOCUMENTS INCORPORATED BY REFERENCE
Financial information for the quarter ended September 30, 1999 is incorporated
by reference to the Wachovia Corporation Financial Supplement (the "Financial
Supplement") in Exhibit 19 as indicated in the table below. Except for parts of
the Financial Supplement expressly incorporated herein by reference, the
Financial Supplement is not to be deemed filed with the Securities and Exchange
Commission.
PART I
Item 1. Financial Statements
The information required by this item is incorporated by reference to the tables
titled "Selected Period-End Data" and "Common Stock Data--Per Share" on page 1
of the Financial Supplement and to the following consolidated financial
statements on pages 30 through 33 of the Financial Supplement:
Consolidated Statements of Condition
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
The above referenced financial statements do not include all information and
footnotes required under generally accepted accounting principles. However, in
the opinion of management, the profit and loss information presented in the
interim financial statements reflects all adjustments necessary to present
fairly the results of operations for the periods presented. Adjustments
reflected in the third quarter of 1999 figures are of a normal, recurring
nature. The results of operations shown in the interim statements are not
necessarily indicative of the results that may be expected for the entire year.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The information required by this item is incorporated by reference to the
information appearing under the heading "Forward-Looking Statements" on page 1
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 2 through 29 of the Financial Supplement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated by reference to the
information appearing under the subheading "Market Risk and Asset/Liability
Management" on pages 16 through 18 of the Financial Supplement.
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the accompanying Index to Exhibits, immediately following
the signature page are filed as part of, or incorporated by reference into, this
report.
(b) Reports on Form 8-K
Reports on Form 8-K: None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November 10, 1999 WACHOVIA CORPORATION
By: Robert S. McCoy, Jr.
Vice Chairman
Senior Executive Vice President
Chief Financial Officer
And
By: Donald K. Truslow
Senior Executive Vice President
Treasurer/Comptroller
<PAGE>
PART II
Item 6. Exhibits
3.1 Amended and Restated Articles of Incorporation of the registrant.
(Exhibit 3.1 to Report on Form 10-Q of Wachovia Corporation for the
quarter ended June 30, 1998, File No. 1-9021*).
3.2 Bylaws of the registrant as amended (Exhibit 3.2 to Form S-4
Registration Statement of Wachovia Corporation dated December 14, 1998,
File No. 333-68823*).
4 Instruments defining the rights of security holders, including
indentures - Wachovia Corporation hereby agrees to furnish to the
Commission, upon request, a copy of any instruments defining the rights
of security holders that are not required to be filed.
4.1 Articles IV, VII, IX, X and XI of the registrant's Amended and Restated
Articles of Incorporation (Included in Exhibit 3.1 hereto).
4.2 Article 1, Section 1.8, and Article 6 of the registrant's Bylaws
(Included in Exhibit 3.2 hereto).
4.3 Indenture dated as of May 15, 1986 between South Carolina National
Corporation and Morgan Guaranty Trust Company of New York, as Trustee,
relating to $35,000,000 principal amount of 6 1/2% Convertible
Subordinated Debentures due in 2001 (Exhibit 28 to S-3 Registration
Statement of South Carolina National Corporation, File No. 33-7710*).
4.4 First Supplemental Indenture dated as of November 26, 1991 by and among
South Carolina National Corporation, Wachovia Corporation and Morgan
Guaranty Trust Company of New York, Trustee, amending the Indenture
described in Exhibit 4.3 hereto (Exhibit 4.10 to Report on Form 10-K of
Wachovia Corporation for the fiscal year ended December 31, 1991, File
No. 1-9021*).
4.5 Indenture dated as of March 15, 1991 between South Carolina National
Corporation and Bankers Trust Company, as Trustee, relating to certain
unsecured subordinated securities (Exhibit 4(a) to S-3 Registration
Statement of South Carolina National Corporation, File No. 33-39754*).
4.6 First Supplemental Indenture dated as of January 24, 1992 by and among
South Carolina National Corporation, Wachovia Corporation and Bankers
Trust Company, as Trustee, amending the Indenture described in Exhibit
4.5 hereto (Exhibit 4.12 to Report on Form 10-K of Wachovia Corporation
for the fiscal year ended December 31, 1991, File No. 1-9021*).
4.7 Indenture dated as of July 15, 1998 between Wachovia Corporation and
The Chase Manhattan Bank, as trustee, relating to subordinated debt
securities (Exhibit 4 (b) to Form S-3 Registration Statement of
Wachovia Corporation, File No. 333-59165*).
4.8 Indenture dated as of August 15, 1996 between Wachovia Corporation and
The Chase Manhattan Bank, as Trustee, relating to senior debt
securities (Exhibit 4(a) of Post-Effective Amendment No. 1 to Form S-3
Registration Statement of Wachovia Corporation, File No. 33-6280*).
4.9 Indenture between Wachovia Corporation, Wachovia Capital Trust II and
First National Bank of Chicago, as Trustee, relating to Floating Rate
Junior Subordinated Deferrable Interest Debentures (Junior Subordinated
Debentures). (Exhibit 4(c) of Amendment No. 1 to Form S-3 Registration
Statement of Wachovia Corporation and Wachovia Capital Trust II dated
January 22, 1997, File No. 333-19365*).
1
<PAGE>
4.10 Amended and Restated Declaration of Trust of Wachovia Capital Trust II,
relating to Preferred Securities (Exhibit 4(b)(iv) of Amendment No. 1
to Form S-3 Registration Statement of Wachovia Corporation and Wachovia
Capital Trust II dated January 22, 1997, File No. 333-19365*).
4.11 Preferred Securities Guarantee Agreement of Wachovia Corporation
(Exhibit 4 (g) of Amendment No. 1 to Form S-3 Registration Statement of
Wachovia Corporation and Wachovia Capital Trust II dated January 22,
1997, File No. 333-19365*).
4.12 Indenture between Central Fidelity Banks, Inc. and Chemical Bank, as
Trustee, relating to $150,000,000 principal amount of subordinated debt
securities (Exhibit 4.1 to Form 8-K of Central Fidelity Banks, Inc.,
dated November 18, 1992, File No. 0-8829*).
4.13 Indenture between Central Fidelity Banks, Inc., Central Fidelity
Capital Trust I and The Bank of New York, as Trustee, relating to
$100,000,000 Floating Rate Junior Subordinated Debentures (Exhibit 4.1
to Form S-3 Registration Statement of Central Fidelity Banks, Inc.,
dated April 23, 1997, File No. 333-28917*).
4.14 Amended and Restated Declaration of Trust of Central Fidelity Capital
Trust I (Exhibit 4.4 to Form S-3 Registration Statement of Central
Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917*).
4.15 Form of New Guarantee Agreement for the benefit of the holders of the
Trust Securities (Exhibit 4.6 to Form S-3 Registration Statement of
Central Fidelity Banks, Inc., dated as of April 23, 1997, File No.
333-28917*).
10.1 Deferred Compensation Plan of Wachovia Bank of North Carolina, N.A.
(Exhibit 10.1 to Report on Form 10-K of Wachovia Corporation for the
fiscal year ended December 31,1992, File No. 1-9021*).
10.2 1983 Amendment to Deferred Compensation Plan described in Exhibit 10.1
hereto (Exhibit 10.2 to Report on Form 10-K of Wachovia Corporation for
the fiscal year ended December 31, 1992, File No. 1-9021*).
10.3 1986 Amendment to Deferred Compensation Plan described in Exhibit 10.1
hereto (Exhibit 10.9 to Report on Form 10-K of First Wachovia
Corporation for the fiscal year ended December 31, 1986, File No.
1-9021*).
10.4 Senior Management Incentive Plan of Wachovia Corporation as amended
through January 1, 1999 (Exhibit 10.4 to Report on Form 10-Q of
Wachovia Corporation for the quarter ended June 30, 1999, File No.
1-9021*).
10.5 Retirement Savings and Profit-Sharing Benefit Equalization Plan of
Wachovia Corporation (Exhibit 10.3 to Quarterly Report on Form 10-Q of
Wachovia Corporation for the quarter ended June 30, 1995, File No.
1-9021*).
10.6 Form of Employment Agreement between Wachovia Corporation and L.M.
Baker, Jr., G. Joseph Prendergast and Walter E. Leonard, Jr. (Exhibit
10 to Quarterly Report on Form 10-Q of Wachovia Corporation for the
quarter ended March 31, 1997, File No. 1-9021*).
10.7 Employment Agreement between Wachovia Corporation and Robert S. McCoy,
Jr., dated July 24, 1998 (Exhibit 10.7 to Report on Form 10-Q of
Wachovia Corporation for the quarter ended June 30, 1999, File No.
1-9021*) .
10.8 Form of Amendment dated April 23, 1999 to Employment Agreements between
Wachovia Corporation and Messrs. L. M. Baker, Jr., Walter E. Leonard,
Jr., Robert S. McCoy, Jr., and G.
2
<PAGE>
Joseph Prendergast described in exhibit 10.6 and 10.7 hereto (Exhibit
10.8 to Report on Form 10-Q of Wachovia Corporation for the quarter
ended June 30, 1999, File No. 1-9021*) .
10.9 Employment Agreement between Wachovia Corporation and Mickey W. Dry,
dated as of April 23, 1999 (Exhibit 10.9 to Report on Form 10-Q of
Wachovia Corporation for the quarter ended June 30, 1999, File No.
1-9021*).
10.10 Form of Employment Agreement between Wachovia Corporation and Executive
Officers (other than Messrs. Baker, Dry, Leonard, McCoy and
Prendergast) (Exhibit 10.10 to Report on Form 10-Q of Wachovia
Corporation for the quarter ended June 30, 1999, File No. 1-9021*) .
10.11 Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr.
(Exhibit 10.13 to Report on Form 10-Q of Wachovia Corporation for the
quarter ended June 30, 1998, File No. 1-9021*)
10.12 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*).
10.13 Amendment to Executive Retirement Agreement described in Exhibit 10.12
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*).
10.14 Amendment to Executive Retirement Agreement described in Exhibit 10.12
hereto (Exhibit 10.3 to Quarterly Report on Form 10-Q of Wachovia
Corporation for the quarter ended September 30, 1993, File No.
1-9021*).
10.15 Amendment to Executive Retirement Agreement described in Exhibit 10.12
hereto (Exhibit 10.4 to Quarterly Report on Form 10-Q of Wachovia
Corporation for the quarter ended September 30, 1993, File No.
1-9021*).
10.16 Form of Executive Retirement Agreement between Wachovia Corporation and
L.M. Baker, Jr., 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*).
10.17 Form of Executive Retirement Agreement between Wachovia Corporation and
Messrs. G. Joseph Prendergast and Walter E. Leonard, Jr., dated October
25, 1996 (Exhibit 10.17 to Report on Form 10-Q of Wachovia Corporation
for the quarter ended June 30, 1999, File No. 1-9021*).
10.18 Senior Executive Retirement Agreement dated July 24, 1998 between
Wachovia Corporation and Mr. Robert S. McCoy, Jr. (Exhibit 10.18 to
Report on Form 10-Q of Wachovia Corporation for the quarter ended June
30, 1999, File No. 1-9021*).
10.19 Form of Amendment dated April 23, 1999 to Senior Executive Retirement
Agreements between Wachovia Corporation and Messrs. L. M. Baker, Jr.,
Walter E. Leonard, Jr., Robert S. McCoy, Jr., and G. Joseph Prendergast
described in exhibits 10.16, 10.17 and 10.18 hereto (Exhibit 10.19 to
Report on Form 10-Q of Wachovia Corporation for the quarter ended June
30, 1999, File No. 1-9021*).
10.20 Senior Executive Retirement Agreement between Wachovia Corporation and
Mickey W. Dry, dated as of April 23, 1999 (Exhibit 10.20 to Report on
Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1999,
File No. 1-9021*).
10.21 Form of Senior Executive Retirement Agreement between Wachovia
Corporation and Executive Officers (other than Messrs. Baker, Dry,
Leonard, McCoy and Prendergast) (Exhibit 10.21 to Report on Form 10-Q
of Wachovia Corporation for the quarter ended June 30, 1999, File No.
1-9021*).
3
<PAGE>
10.22 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*).
10.23 1990 Declaration of Amendment to Senior Management and Director Stock
Plan as described in Exhibit 10.22 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*).
10.24 1996 Declaration of Amendment to Senior Management and Director Stock
Plan as described in Exhibit 10.22 hereto (Exhibit 10.24 to Report on
Form 10-K of Wachovia Corporation for fiscal year ended December 31,
1996, File No. 1-9021*).
10.25 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*).
10.26 Amendment to Deferred Compensation Plan described in Exhibit 10.25
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*).
10.27 Amendment to Deferred Compensation Plan described in Exhibit 10.25
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*).
10.28 Amendment to Deferred Compensation Plan described in Exhibit 10.25
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*).
10.29 Amended and Restated Wachovia Corporation Stock Plan (Exhibit 4.1 to
S-8 Registration Statement File No. 033-53325*).
10.30 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*).
10.31 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*).
10.32 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*).
10.33 Executive Long Term Disability Income Plan. (Exhibit 10.34 to Report on
Form 10-K of Wachovia Corporation for the fiscal year ended December
31, 1997, File No. 1-9021*)
11 "Computation of Earnings Per Common Share" (Table 4 on page 3 of the
third quarter 1999 financial supplement*).
12 Statement setting forth computation of ratio of earnings to fixed
charges.
19 Financial Supplement for the Third Quarter 1999.
27 Financial Data Schedule (for SEC purposes only).
4
<PAGE>
* Incorporated by reference.
WACHOVIA CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT 12
Nine Months Year
Ended Ended
September 30, December 31,
(A) Excluding interest on deposits 1999 1998
------------- --------------
Earnings:
Income before income taxes $1,141,733 $1,303,781
Less capitalized interest (160) (593)
Fixed charges 690,708 976,201
------------- --------------
Earnings as adjusted $1,832,281 $2,279,389
============= ==============
Fixed charges:
Interest on purchased and other
short term borrowed funds $327,807 $563,846
Interest on long-term debt 344,915 390,662
Portion of rents representative of the
interest factor (1/3) of rental expense 17,986 21,693
------------- --------------
Fixed charges $690,708 $976,201
============= ==============
Ratio of earnings to fixed charges 2.65 X 2.33 X
(B) Including interest on deposits:
Adjusted earnings from (A) above $1,832,281 $2,279,389
Add interest on deposits 927,429 1,359,705
------------- --------------
Earnings as adjusted $2,759,710 $3,639,094
============= ==============
Fixed charges:
Fixed charges from (A) above $690,708 $976,201
Interest on deposits 927,429 1,359,705
------------- --------------
Adjusted fixed charges $1,618,137 $2,335,906
============= ==============
Adjusted earnings to adjusted fixed 1.71 X 1.56 X
charges
[LOGO] WACHOVIA
- --------------------------------------------------------------------------------
Financial Supplement
And Form 10-Q
Third Quarter 1999
<PAGE>
Selected Period-End Data Table 1
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
September 30
---------------------
1999 1998
-------- --------
Banking offices:
North Carolina ............................... 190 200
Virginia ..................................... 237 263
Georgia ...................................... 131 132
South Carolina ............................... 119 120
Florida ...................................... 38 40
-------- --------
Total ..................................... 715 755
======== ========
Automated banking machines:
North Carolina ............................... 445 448
Virginia ..................................... 288 311
Georgia ...................................... 302 300
South Carolina ............................... 289 288
Florida ...................................... 37 32
-------- --------
Total ..................................... 1,361 1,379
======== ========
Employees (full-time equivalent) .............. 21,722 21,248
Common stock shareholders of record ........... 52,500 54,318
Common shares outstanding (thousands) ......... 202,743 202,751
</TABLE>
Common Stock Data -- Per Share Table 2
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998
-------------------------------- --------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- --------
Market value:
Period-end ............................................. $ 78.63 $ 85.56 $ 81.19 $ 87.44 $ 85.25
High ................................................... 85.25 92.31 91.00 96.81 90.94
Low .................................................... 75.31 80.56 79.00 80.88 72.88
Book value at period-end ................................ 27.76 26.83 26.77 26.30 25.79
Dividend ................................................ .54 .49 .49 .49 .49
Price/earnings ratio (1) ................................ 16.4x 18.5x 18.3x 20.9x 28.0x
Price/earnings ratio without nonrecurring items (1), (2) 16.2 18.1 17.7 19.6 19.9
</TABLE>
(1) Based on the most recent four quarters of net income per diluted share and
end of period stock price.
(2) Excludes the after-tax impact of nonrecurring merger-related charges.
Forward-Looking Statements
- --------------------------------------------------------------------------------
The Financial Supplement and Form 10-Q of Wachovia Corporation ("the
corporation") contains forward-looking statements as encouraged by the Private
Securities Litigation Reform Act of 1995. All forward-looking statements
involve risks and uncertainty and any number of factors could cause actual
results to differ materially from the anticipated results or other expectations
expressed in the corporation's forward-looking statements. Risks and
uncertainties that may affect future results include, but are not limited to,
changes in the economy, interest rate movements, timely development by Wachovia
of technology enhancements for its products and operating systems, the ability
of Wachovia and its customers and vendors to address effectively Year 2000
issues, the impact of competitive products, services and pricing, Congressional
legislation and similar matters. Management cautions readers not to place undue
reliance on forward-looking statements, which are subject to influence by the
named risk factors and unanticipated future events.
1
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Summary Table 3
- --------------------------------------------------------------------------------
<TABLE>
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Twelve 1999
Months -----------------------------
Ended
September 30 Third Second
1999 Quarter Quarter
------------ ---------- ----------
Summary of Operations
(thousands, except per share data)
Interest income ........................ $4,618,526 $1,165,343 $1,146,605
Interest expense ....................... 2,166,594 548,238 529,603
---------- ---------- ----------
Net interest income .................... 2,451,932 617,105 617,002
Provision for loan losses .............. 316,035 76,770 74,525
---------- ---------- ----------
Net interest income after provision for
loan losses ........................... 2,135,897 540,335 542,477
Other operating revenue ................ 1,489,466 432,841 404,544
Securities gains ....................... 18,241 147 10,453
---------- ---------- ----------
Total other income ..................... 1,507,707 432,988 414,997
Personnel expense ...................... 1,165,939 317,060 307,752
Nonrecurring merger-related charges .... 20,601 5,293 8,347
Other expense .......................... 956,153 254,839 264,518
---------- ---------- ----------
Total other expense .................... 2,142,693 577,192 580,617
Income before income taxes ............. 1,500,911 396,131 376,857
Applicable income taxes ................ 511,060 138,632 129,307
---------- ---------- ----------
Net income ............................. $ 989,851 $ 257,499 $ 247,550
========== ========== ==========
Net income per common share:
Basic ................................. $ 4.87 $ 1.27 $ 1.21
Diluted ............................... $ 4.79 $ 1.25 $ 1.19
Cash dividends paid per common share ... $ 2.01 $ .54 $ .49
Cash dividends paid on common stock .... $ 408,626 $ 109,220 $ 100,292
Cash dividend payout ratio ............. 41.28% 42.42% 40.51%
Average basic shares outstanding ....... 202,961 202,167 203,746
Average diluted shares outstanding ..... 206,670 205,345 207,400
Selected Average Balances
(millions)
Total assets ........................... $ 64,996 $ 64,815 $ 65,454
Loans -- net of unearned income ........ 46,561 47,003 47,012
Securities ............................. 9,576 9,461 9,664
Other interest-earning assets .......... 1,498 1,464 1,588
Total interest-earning assets .......... 57,635 57,928 58,264
Interest-bearing deposits .............. 31,987 31,996 32,343
Short-term borrowed funds .............. 9,729 8,848 9,629
Long-term debt ......................... 7,757 8,571 7,998
Total interest-bearing liabilities ..... 49,473 49,415 49,970
Noninterest-bearing deposits ........... 8,210 8,368 8,261
Total deposits ......................... 40,197 40,364 40,604
Shareholders' equity ................... 5,335 5,391 5,459
Ratios (averages)
Annualized net loan losses to loans .... .67% .61% .63%
Annualized net yield on interest-earning
assets ................................ 4.32 4.29 4.31
Shareholders' equity to:
Total assets .......................... 8.21 8.32 8.34
Net loans ............................. 11.59 11.60 11.75
Annualized return on assets ............ 1.52 1.59 1.51
Annualized return on shareholders'
equity ................................ 18.55 19.11 18.14
Operating Performance
Excluding Nonrecurring
Items
(thousands, except per share data)
Net income ............................. $1,003,395 $ 260,939 $ 253,060
Net income per diluted share ........... $ 4.86 $ 1.27 $ 1.22
Annualized return on assets ............ 1.54% 1.61% 1.55%
Annualized return on shareholders'
equity ................................ 18.81 19.36 18.54
Cash dividend payout ratio ............. 40.72 41.86 39.63
<S> <C> <C> <C> <C> <C>
1999 1998 Nine Months Ended
---------- ------------------------ September 30
First Fourth Third ------------------------
Quarter Quarter Quarter 1999 1998
---------- ---------- ---------- ---------- ----------
Summary of Operations
(thousands, except per share data)
Interest income ........................ $1,130,386 $1,176,192 $1,171,466 $3,442,334 $3,489,053
Interest expense ....................... 522,310 566,443 582,030 1,600,151 1,747,770
---------- ---------- ---------- ---------- ----------
Net interest income .................... 608,076 609,749 589,436 1,842,183 1,741,283
Provision for loan losses .............. 80,636 84,104 72,809 231,931 215,376
---------- ---------- ---------- ---------- ----------
Net interest income after provision for
loan losses ........................... 527,440 525,645 516,627 1,610,252 1,525,907
Other operating revenue ................ 333,269 318,812 310,541 1,170,654 909,307
Securities gains ....................... 234 7,407 6,886 10,834 13,035
---------- ---------- ---------- ---------- ----------
Total other income ..................... 333,503 326,219 317,427 1,181,488 922,342
Personnel expense ...................... 271,186 269,941 263,282 895,998 785,412
Nonrecurring merger-related charges .... -- 6,961 11,934 13,640 78,351
Other expense .......................... 221,012 215,784 217,187 740,369 639,883
---------- ---------- ---------- ---------- ----------
Total other expense .................... 492,198 492,686 492,403 1,650,007 1,503,646
Income before income taxes ............. 368,745 359,178 341,651 1,141,733 944,603
Applicable income taxes ................ 125,509 117,612 114,284 393,448 311,999
---------- ---------- ---------- ---------- ----------
Net income ............................. $ 243,236 $ 241,566 $ 227,367 $ 748,285 $ 632,604
========== ========== ========== ========== ==========
Net income per common share:
Basic ................................. $ 1.20 $ 1.19 $ 1.11 $ 3.69 $ 3.07
Diluted ............................... $ 1.18 $ 1.17 $ 1.09 $ 3.62 $ 3.01
Cash dividends paid per common share ... $ .49 $ .49 $ .49 $ 1.52 $ 1.37
Cash dividends paid on common stock .... $ 99,662 $ 99,452 $ 100,784 $ 309,174 $ 282,346
Cash dividend payout ratio ............. 40.97% 41.17% 44.33% 41.32% 44.63%
Average basic shares outstanding ....... 203,119 202,824 204,832 203,007 205,811
Average diluted shares outstanding ..... 206,959 206,991 208,837 206,562 209,881
Selected Average Balances
(millions)
Total assets ........................... $ 64,408 $ 65,298 $ 63,429 $ 64,894 $ 63,494
Loans -- net of unearned income ........ 46,261 45,966 43,894 46,761 43,873
Securities ............................. 9,221 9,952 10,664 9,449 10,794
Other interest-earning assets .......... 1,313 1,622 1,508 1,455 1,565
Total interest-earning assets .......... 56,795 57,540 56,066 57,665 56,232
Interest-bearing deposits .............. 31,846 31,766 31,654 32,062 32,094
Short-term borrowed funds .............. 9,292 11,135 10,858 9,254 10,814
Long-term debt ......................... 7,627 6,830 6,080 8,069 6,093
Total interest-bearing liabilities ..... 48,765 49,731 48,592 49,385 49,001
Noninterest-bearing deposits ........... 8,062 8,148 7,874 8,232 7,687
Total deposits ......................... 39,908 39,914 39,528 40,294 39,781
Shareholders' equity ................... 5,314 5,178 5,173 5,388 5,165
Ratios (averages)
Annualized net loan losses to loans .... .69% .73% .66% .64% .65%
Annualized net yield on interest-earning
assets ................................ 4.41 4.28 4.26 4.34 4.23
Shareholders' equity to:
Total assets .......................... 8.25 7.93 8.16 8.30 8.13
Net loans ............................. 11.62 11.40 11.93 11.66 11.92
Annualized return on assets ............ 1.51 1.48 1.43 1.54 1.33
Annualized return on shareholders'
equity ................................ 18.31 18.66 17.58 18.52 16.33
Operating Performance
Excluding Nonrecurring
Items
(thousands, except per share data)
Net income ............................. $ 243,236 $ 246,160 $ 235,243 $ 757,234 $ 683,698
Net income per diluted share ........... $ 1.18 $ 1.19 $ 1.13 $ 3.67 $ 3.26
Annualized return on assets ............ 1.51% 1.51% 1.48% 1.56% 1.44%
Annualized return on shareholders'
equity ................................ 18.31 19.02 18.19 18.74 17.65
Cash dividend payout ratio ............. 40.97 40.40 42.84 40.83 41.30
</TABLE>
2
<PAGE>
Results of Operations
Overview
Wachovia Corporation ("the corporation") is a major financial
services company with dual headquarters in Winston-Salem, North
Carolina, and Atlanta, Georgia. The corporation's principal
subsidiaries are Wachovia Bank, N.A., which operates in Georgia,
North Carolina, South Carolina, Virginia and Florida; Wachovia
Securities, Inc; OFFITBANK; and The First National Bank of
Atlanta, which provides credit card services.
The U.S. economy accelerated in the third quarter of 1999 from
the second quarter, fueled, in part, by increases in consumer
spending and exports. Based on advance estimates, gross domestic
product for the three months ended September 30 grew at an
annualized rate of 4.8 percent from the second three months of
1999 compared with a revised rate of 1.9 percent annualized
growth for the previous quarter. Concerns over the pace of
growth and the persistence of tight labor markets prompted the
Federal Reserve to raise short-term interest rates for the
second time in 1999 by a quarter of a percentage point in
August. While economic growth within the corporation's primary
operating states remained generally favorable for the period,
slowdowns noted in the second quarter in some businesses
continued.
The corporation seeks to broaden its competitive position by
gaining access to new customers and by enhancing products and
services through internal development and selective acquisitions
and partnerships. Wachovia completed its acquisition of
OFFITBANK Holdings Inc., a leading wealth management company, on
September 1, 1999 and of Barry, Evans, Josephs & Snipes, Inc., a
leading national life insurance broker specializing in wealth
transfer and benefit plan strategies, on September 2. The
transactions followed the acquisition on April 1, 1999 of
Interstate/Johnson Lane Inc., a major regional investment
advisor and brokerage firm. All three acquisitions strengthen
Wachovia's wealth advisory capabilities and were accounted for
as purchases. Under purchase accounting, the excess of purchase
price over the fair market value of net assets acquired is
recorded as goodwill, and operating results are included since
the effective date of the acquisition. The corporation announced
on October 7, 1999 an agreement to acquire B C Bankshares Inc.,
parent company of the Bank of Canton, a community bank with $383
million in assets based in Cherokee County, Georgia. Cherokee
County is one of the fastest growing counties in the
metropolitan Atlanta area. The transaction will be accounted for
as a purchase and is expected to close in the first quarter of
2000, subject to regulatory and shareholder approval.
Computation of Earnings Per Common Share Table 4
- --------------------------------------------------------------------------------
(thousands, except per share)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ---- ----------- ----
Basic
Average common shares outstanding .......................... 202,167 204,832 203,007 205,811
=========== ======= =========== =======
Net income ................................................. $ 257,499 $ 227,367 $ 748,285 $ 632,604
=========== ========= =========== =========
Per share amount ........................................... $ 1.27 $ 1.11 $ 3.69 $ 3.07
Diluted
Average common shares outstanding .......................... 202,167 204,832 203,007 205,811
Dilutive common stock options at average market price ...... 2,715 3,666 3,113 3,778
Dilutive common stock awards at average market price ....... 440 313 417 278
Convertible long-term debt assumed converted ............... 23 26 25 14
----------- --------- ----------- ---------
Average diluted shares outstanding ......................... 205,345 208,837 206,562 209,881
=========== ========= =========== =========
Net income ................................................. $ 257,499 $ 227,367 $ 748,285 $ 632,604
Add interest on convertible long-term debt -- net of tax ... 18 20 54 28
----------- --------- ----------- ---------
Adjusted net income ........................................ $ 257,517 $ 227,387 $ 748,339 $ 632,632
=========== ========= =========== =========
Per share amount ........................................... $ 1.25 $ 1.09 $ 3.62 $ 3.01
</TABLE>
3
<PAGE>
Because Wachovia's growth strategy includes the use of
acquisitions, the corporation regularly evaluates opportunities
and conducts due diligence activities in connection with possible
acquisitions. As a result, 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 book value and net income per share
may occur in connection with any future transactions.
Wachovia's net income for the third quarter of 1999 was $257.499
million or $1.25 per diluted share versus $227.367 million or
$1.09 per diluted share a year earlier. For the first nine months
of 1999, net income totaled $748.285 million or $3.62 per diluted
share compared with $632.604 million or $3.01 per diluted share
in the same period of 1998. Comparisons between the 1999 and 1998
periods are impacted by merger-related expenses in both years as
well as by the additions of Interstate/Johnson Lane, OFFITBANK
Holdings, and Barry, Evans, Josephs & Snipes, which are included
in reported results from their respective acquisition dates.
Merger-related expenses on a pretax basis were $5.293 million for
the third quarter and $13.640 million for the first nine months
of 1999 versus $11.934 million and $78.351 million, respectively,
in 1998. Excluding merger-related expenses, operating net income
was $260.939 million or $1.27 per diluted share for the third
quarter of 1999 compared with $235.243 million or $1.13 per
diluted share a year earlier. Year to date, operating net income
totaled $757.234 million or $3.67 per diluted share versus
$683.698 million or $3.26 per diluted share in the same period of
1998.
Expanded discussion of results of operations and financial
condition follows. Interest income is stated on a taxable
equivalent basis, which is adjusted for the tax-favored status
of earnings from certain loans and securities. References to
changes in assets and liabilities represent daily average levels
unless otherwise noted.
Business Segments
The corporation has four reportable business segments: Consumer,
Corporate, Card, and Treasury & Administration.
The Consumer segment provides individuals and small businesses
with products and services ranging from traditional loans and
deposits, mortgages, trust services, brokerage and mutual fund
investments, including the corporation's proprietary Wachovia
Funds, to insurance, private banking and other financial
advisory services. Customers are served in the primary operating
states of Georgia, North Carolina, South Carolina, Virginia and
Florida through a wide variety of delivery channels, including
ATMs, traditional branches, work-site banking facilities,
in-store banking centers, PC Access online banking and online
investing, Wachovia On-Call telephone banking and automated
Phone Access. Major initiatives for the division include PRO
(Profitable Relationship Optimization), which is the
corporation's strategy for profitable customer selling and
retention for the highest potential retail customers; Financial
Integration, an affluent customer strategy utilizing teams of
financial advisors and specialists; and the Market Network
Model, used for determining the mix of local retail delivery
channels based on location needs and opportunities.
Corporate offers access to debt and equity capital, investment
banking, risk management, asset management, and both
institutional trust and treasury consulting and processing.
Customers range from mid-sized companies to multinational
corporations, institutions and investors. The group provides a
broad range of capital markets capabilities including investment
banking, private and public debt and equity capital, risk
management products as well as fixed income and equity
securities. The division is a leading provider of treasury
services and has deep expertise in charitable funds management,
executive services and retirement services. Corporate serves
clients in the southeast with multiple
4
<PAGE>
offices in Wachovia's home states but also extends its reach
nationally with offices in New York and Chicago. Service to
global customers is enhanced through a full-service branch in
London, representative offices in Tokyo and Hong Kong, and Banco
Wachovia in Brazil.
The Card division represents the credit card business. The
division generates revenues from interest on unpaid card
balances and from fees primarily on interchange, cash advances,
overlimit advances, late payments and servicing securitized
receivables. The division employs modeling techniques and other
credit evaluation measures to target above-average quality
credit risk customers who carry monthly balances and seek low
interest rates. Products offered include prime rate plus and
Prime Rate for Life(R) Visa and MasterCard credit cards.
The Treasury & Administration segment principally reflects asset
and liability management for interest rate risk; management of
the securities portfolio; internal compensation for deposits and
other funding sources, and charges for funds used; and other
corporate costs such as Year 2000 and nonrecurring expenses.
Business segment results are reported on a management accounting
basis. Management accounting practices are internally driven,
reflecting evolving information needs specific to the
decision-making activities of a company's business managers, and
may differ by company due to wide discretion in application. As
a consequence, the corporation's business segment results are
not necessarily comparable with those of other financial
institutions with similar segments or with those of other
companies which compete directly in one or more of the
corporation's lines of business. In addition, business segment
results may be restated in the future as management's structure,
information needs, measurement methodologies and reporting
systems evolve.
During 1999, certain changes to the management accounting
structure were implemented which have been reflected for all
periods presented. The primary change is the presentation of the
Card segment on a managed basis, with the funding impact and the
gain on the sale of the securitized portfolio reflected in
Treasury & Administration. Other changes have been implemented
with an immaterial impact.
The provision for loan losses for each business segment is
determined based on the credit risk of each segment's loan
portfolio. Overhead expense is allocated based on the proportion
of each segment's direct expenses to total direct expenses of
the combined segments. Income tax expense is calculated for each
business segment using a blended corporate-wide tax rate based
on taxable equivalent adjusted net income.
Financial results by business segment are discussed below.
CONSUMER. Net income for Consumer grew $13.490 million or 17.2
percent for the third quarter of 1999 from a year earlier and
was up $11.820 million or 4.8 percent year to date. Net interest
income rose $6.361 million or 2.4 percent for the three months
and $3.399 million or less than 1 percent for the nine months,
reflecting gains principally in Personal Financial Services
offset, in part, by narrowing interest spreads. Noninterest
income expanded $70.640 million or 47.9 percent for the quarter
and $143.549 million or 32.8 percent year to date, with growth
due to additions from purchase acquisitions as well as core
business expansion. Gains were strongest in investment fees,
deposit account charges and electronic banking revenue.
Noninterest income included gains from branch sales totaling
$7.554 million in 1999, all in the third quarter, versus $17.155
million in 1998, all of which occurred in the first quarter. The
provision for loan losses decreased $679 thousand or 14.2
percent for the quarter but was higher by $1.577 million or 12.6
percent year to date.
5
<PAGE>
Noninterest expense was up $54.984 million or 19.3 percent for
the three months and $122.973 million or 14.7 percent for the
first nine months due to additions from purchase acquisitions
and to increases in equipment expense for new computer systems
and net occupancy costs for new facilities.
CORPORATE. Net income for Corporate increased $11.111 million or
11.1 percent for the quarter and $69.026 million or 25.6 percent
year to date. Net interest income rose $34.669 million or 16.1
percent for the three months and $132.373 million or 21.8
percent for the first nine months, with growth principally in
the Corporate Services and Capital Markets areas. Noninterest
income was higher by $21.579 million or 20.2 percent for the
quarter and $68.239 million or 22.9 percent year to date. Gains
reflected additions from purchase acquisitions and business
growth. Investment fees and deposit account charges largely led
the gains in both periods, with capital markets income
contributing strongly for the nine months. The provision for
loan losses rose $11.065 million for the third period and
$17.948 million year to date, due to loan growth and higher loan
losses. Noninterest expense was up $25.526 million or 15.7
percent for the three months and $70.356 million or 14.9 percent
for the first nine months, largely due to purchase acquisitions.
Increases occurred mainly in staff costs for capital markets
activities and in net occupancy and equipment expenses.
CARD. Net income for the Card division rose $19.604 million or
78.3 percent for the third period and $33.586 million or 47.1
percent for the first nine months of 1999. Net interest income
was higher by $13.223 million or 11 percent for the quarter and
$41.419 million or 11.5 percent year to date. Noninterest income
increased $6.908 million or 19.1 percent for the three months
and $13.030 million or 12 percent for the first nine months,
largely due to higher cardholder income. The provision for loan
losses decreased $11.890 million or 17.9 percent for the quarter
and $4.706 million or 2.3 percent year to date due to improved
performance of the credit quality of the portfolio as a result
of improvements in loss control methodologies and lower
bankruptcy experience. Noninterest expense was up $776 thousand
or 1.5 percent for the three months and $5.466 million or 3.5
percent for the first nine months, driven partially by higher
amortization expense for purchased receivables.
TREASURY & ADMINISTRATION. Treasury & Administration's net
income declined $14.073 million to $9.666 million in the third
quarter of 1999 from the comparable period a year earlier. The
net interest margin was lower by $33.154 million, reflecting a
$1.247 billion reduction in interest-earning assets, primarily
securities, and a $175 million increase in interest-bearing
liabilities, entirely in long-term debt. Noninterest income for
the quarter grew $16.434 million, and included a gain of $9.934
million from a securitization and sale of $500 million of credit
card receivables in late September. For the nine months, net
income was up $1.249 million or 2.6 percent. The net interest
margin declined $88.755 million or 120.3 percent, reflecting in
large part a managed runoff of $1.345 billion in securities.
This was offset by a decline of $64.711 million in
merger-related charges attributable to this segment and by
higher levels of noninterest income, primarily the result of
securitization transactions.
6
<PAGE>
Business Segments Table 5
- --------------------------------------------------------------------------------
(three months ended September 30)
<TABLE>
<S> <C> <C> <C> <C> <C>
Consumer Corporate Card
------------------- ------------------- ---------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
Operations Summary
(millions)
External net interest margin ....... $ (8) $ (19) $ 537 $ 493 $ 214 $ 205
Internal funding (charge)
credit ............................ 278 283 (287) (278) (80) (84)
-------- -------- -------- -------- -------- --------
Net interest income* ............... 270 264 250 215 134 121
Total other income ................. 218 147 128 107 43 36
-------- -------- -------- -------- -------- --------
Total revenues ..................... 488 411 378 322 177 157
Provision for loan losses .......... 4 5 15 4 55 66
Total other expense ................ 339 285 188 162 52 51
-------- -------- -------- -------- -------- --------
Pretax profit ...................... 145 121 175 156 70 40
Income taxes (benefit) ............. 53 43 64 56 26 15
-------- -------- -------- -------- -------- --------
Net income (loss) .................. $ 92 $ 78 $ 111 $ 100 $ 44 $ 25
======== ======== ======== ======== ======== ========
Percentage contribution to
total revenues** .................. 45.35% 43.81% 35.13% 34.33% 16.45% 16.74%
Percentage contribution to net
income ............................ 35.80 34.36 43.19 44.06 17.12 11.01
Average Balances
(billions)
Total assets ....................... $ 13 $ 12 $ 34 $ 31 $ 6 $ 6
(three months ended September 30)
<S> <C> <C> <C> <C> <C> <C> <C>
Treasury &
Administration Eliminations Total Corporation
------------------- ----------------- -----------------
1999 1998 1999 1998 1999 1998
-------- ------ ------- ------- -------- ------
Operations Summary
(millions)
External net interest margin ....... $ (116) $ (78) $ (10) $ (12) $ 617 $ 589
Internal funding (charge)
credit ............................ 105 99 (16) (20) ---- ----
-------- ------ ------- ------- -------- ------
Net interest income* ............... (11) 21 (26) (32) 617 589
Total other income ................. 44 27 ---- ---- 433 317
-------- ------ ------- ------- -------- ------
Total revenues ..................... 33 48 (26) (32) 1,050 906
Provision for loan losses .......... 3 (2) ---- ---- 77 73
Total other expense ................ 14 13 (16) (19) 577 492
-------- ------- ------- ------- -------- ------
Pretax profit ...................... 16 37 (10) (13) 396 341
Income taxes (benefit) ............. 6 13 (10) (13) 139 114
-------- ------- ------- ------- -------- ------
Net income (loss) .................. $ 10 $ 24 $---- $---- $ 257 $ 227
======== ======= ======= ======= ======== ======
Percentage contribution to
total revenues** .................. 3.07% 5.12%
Percentage contribution to net
income ............................ 3.89 10.57
Average Balances
(billions)
Total assets ....................... $ 12 $ 14 $ 65 $ 63
</TABLE>
* Net interest income is reported on a taxable equivalent basis by segment and
on a nontaxable equivalent basis for the corporation, reflecting segment
eliminations.
** Percentage contribution to total revenues is based on the proportion of each
segment's revenues to the combined revenues of all segments. Revenues for
the total corporation are presented based on nontaxable equivalent net
interest income and total other income, including securities transactions.
Business Segments Table 6
- --------------------------------------------------------------------------------
(nine months ended September 30)
<TABLE>
<S> <C> <C> <C> <C> <C>
Consumer Corporate Card
------------------- ----------------- -------------------
1999 1998 1999 1998 1999 1998
-------- -------- ------- ------- -------- --------
Operations Summary
(millions)
External net interest margin ....... $ (32) $ (44) $ 1,558 $ 1,427 $ 634 $ 613
Internal funding (charge)
credit ............................ 825 833 (820) (821) (232) (252)
-------- -------- ------- ------- -------- --------
Net interest income* ............... 793 789 738 606 402 361
Total other income ................. 581 438 366 299 122 108
-------- -------- ------- ------- -------- --------
Total revenues ..................... 1,374 1,227 1,104 905 524 469
Provision for loan losses .......... 14 13 32 14 199 204
Total other expense ................ 959 836 543 473 161 155
-------- -------- ------- ------- -------- --------
Pretax profit ...................... 401 378 529 418 164 110
Income taxes (benefit) ............. 145 134 191 148 59 39
-------- -------- ------- ------- -------- --------
Net income (loss) .................. $ 256 $ 244 $ 338 $ 270 $ 105 $ 71
======== ======== ======= ======= ======== ========
Percentage contribution to
total revenues** .................. 44.34% 44.59% 35.62% 32.88% 16.91% 17.04%
Percentage contribution to net
income ............................ 34.22 38.55 45.19 42.65 14.04 11.22
Average Balances
(billions)
Total assets ....................... $ 13 $ 12 $ 34 $ 31 $ 6 $ 6
(nine months ended September 30)
<S> <C> <C> <C> <C> <C> <C> <C>
Treasury &
Administration Eliminations Total Corporation
------------------- ----------------- -----------------
1999 1998 1999 1998 1999 1998
-------- ------ ------- ------- ------- -------
Operations Summary
(millions)
External net interest margin ....... $ (289) $ (219) $ (29) $ (36) $1,842 $1,741
Internal funding (charge)
credit ............................ 274 293 (47) (53) ---- ----
-------- ------ ------- ------- ------- -------
Net interest income* ............... (15) 74 (76) (89) 1,842 1,741
Total other income ................. 112 77 ---- ---- 1,181 922
-------- ------ ------- ------- ------- -------
Total revenues ..................... 97 151 (76) (89) 3,023 2,663
Provision for loan losses .......... (13) (16) ---- ---- 232 215
Total other expense ................ 34 92 (47) (53) 1,650 1,503
-------- ------ ------- ------- ------- -------
Pretax profit ...................... 76 75 (29) (36) 1,141 945
Income taxes (benefit) ............. 27 27 (29) (36) 393 312
-------- ------ ------- ------- ------- -------
Net income (loss) .................. $ 49 $ 48 $---- $---- $ 748 $ 633
======== ====== ======= ======= ======= =======
Percentage contribution to
total revenues** .................. 3.13% 5.49%
Percentage contribution to net
income ............................ 6.55 7.58
Average Balances
(billions)
Total assets ....................... $ 12 $ 14 $ 65 $ 63
</TABLE>
* Net interest income is reported on a taxable equivalent basis by segment and
on a nontaxable equivalent basis for the corporation, reflecting segment
eliminations.
** Percentage contribution to total revenues is based on the proportion of each
segment's revenues to the combined revenues of all segments. Revenues for
the total corporation are presented based on nontaxable equivalent net
interest income and total other income, including securities transactions.
7
<PAGE>
Consolidated Financial Results
Net Interest
Income
Taxable equivalent net interest income for the third quarter of
1999 grew $24.997 million or 4.2 percent from a year earlier and
was higher by $94.494 million or 5.3 percent year to date. Gains
in both periods were driven by increased loan volume, a more
favorable interest-earning asset mix and a lower average rate
paid on interest-bearing liabilities. Taxable equivalent net
interest income was substantially unchanged from the second
quarter of 1999 as flat loan volume and a rise in the average
rate paid on funding sources offset the impact of a higher
average yield on loans. Average loans were unchanged from the
second quarter as management reduced outstandings in lower spread
discretionary loans and securitized a portion of its credit card
portfolio. The net yield on interest-earning assets (defined as
taxable equivalent net interest income as a percentage of average
interest-earning assets) increased 3 basis points for the third
quarter from a year earlier and 11 basis points year to date but
was down slightly from the second quarter, reflecting narrowing
in the interest rate spread. For the full year of 1999, taxable
equivalent net interest income is expected to rise approximately
5 percent, based on management's projections for moderate loan
growth and a favorable interest rate spread. Growth estimates for
the year exclude the impact of loan securitizations and purchase
acquisitions.
Taxable equivalent interest income decreased modestly both for
the quarter and year to date, dropping $8.794 million or less
than 1 percent for the three months and $53.125 million or 1.5
percent for the nine months. Declines in the average rate earned
on interest-earning assets, primarily loans, and the impact of
credit card securitizations accounted for the decrease in both
periods but were offset largely by higher loan volume. Loans
grew $3.109 billion or 7.1 percent for the quarter and $2.888
billion or 6.6 percent year to date, while the average yield on
loans fell 38 basis points in both periods. Taxable equivalent
interest income expanded $18.565 million or 6.4 percent
annualized from the second quarter, primarily due to a higher
average rate earned on interest-earning assets, including a 12
basis point rise in the average loan yield.
Commercial loans, including related real estate categories,
increased $3.629 billion or 14 percent for the third quarter
from a year earlier and were up $3.475 billion or 13.5 percent
year to date, accounting for substantially all of the loan
growth in both periods. Taxable commercial loans, lease
financing and commercial mortgages largely led the gains, with
strong growth also occurring in foreign loans and construction
lending. The lease-financing portfolio primarily consists of
leveraged leases and other structured corporate transactions.
Growth in foreign loans remained driven in large part by
originations in the corporation's London, England, office to
borrowers headquartered in Western Europe. Tax-exempt loans were
lower both for the quarter and nine months, reflecting continued
runoff due to the reduced availability of tax-exempt financing
under current tax laws.
8
<PAGE>
Net Interest Income and Average Balances Table 7
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Twelve
Months 1999
Ended -------------------------------------------
September 30 Third Second First
1999 Quarter Quarter Quarter
------------ ----------- ----------- -----------
Net Interest Income --
Taxable Equivalent
(thousands)
Interest income:
Loans -- including fees ........ $ 3,960,063 $ 1,004,538 $ 979,851 $ 975,011
Securities ..................... 632,374 154,296 158,519 151,879
Interest-bearing bank balances . 8,381 1,631 1,391 2,193
Federal funds sold and
securities purchased under
resale agreements ............. 29,908 7,062 8,429 5,802
Trading account assets ......... 28,268 7,335 8,107 5,653
----------- ----------- ----------- -----------
Total ........................ 4,658,994 1,174,862 1,156,297 1,140,538
Interest expense:
Interest-bearing demand ........ 57,201 15,279 13,991 12,725
Savings and money market
savings ....................... 466,496 121,106 116,476 113,547
Savings certificates ........... 458,147 110,569 110,926 113,449
Large denomination certificates 172,031 39,954 42,992 43,726
Interest-bearing deposits in
foreign offices ............... 100,801 24,730 24,039 23,920
Short-term borrowed funds ...... 462,053 112,336 112,301 103,170
Long-term debt ................. 449,865 124,265 108,877 111,773
----------- ----------- ----------- -----------
Total ........................ 2,166,594 548,239 529,602 522,310
----------- ----------- ----------- -----------
Net interest income ............. $ 2,492,400 $ 626,623 $ 626,695 $ 618,228
=========== =========== =========== ===========
Annualized net yield on interest-
earning assets ................. 4.32% 4.29% 4.31% 4.41%
Average Balances
(millions)
Assets:
Loans -- net of unearned
income ........................ $ 46,561 $ 47,003 $ 47,012 $ 46,261
Securities ..................... 9,576 9,461 9,664 9,221
Interest-bearing bank balances . 125 124 83 130
Federal funds sold and
securities purchased under
resale agreements ............. 596 550 707 483
Trading account assets ......... 777 790 798 700
----------- ----------- ----------- -----------
Total interest-earning
assets ...................... 57,635 57,928 58,264 56,795
Cash and due from banks ........ 3,051 2,888 2,975 3,071
Premises and equipment ......... 933 962 970 911
Other assets ................... 3,837 3,632 3,713 4,047
Unrealized gains (losses) on
securities available-for-sale . 79 (47) 68 119
Allowance for loan losses ...... (539) (548) (536) (535)
----------- ----------- ----------- -----------
Total assets ................. $ 64,996 $ 64,815 $ 65,454 $ 64,408
=========== =========== =========== ===========
Liabilities and shareholders'
equity:
Interest-bearing demand ........ $ 4,653 $ 4,617 $ 4,691 $ 4,665
Savings and money market
savings ....................... 13,090 13,566 13,424 12,889
Savings certificates ........... 8,854 8,696 8,746 8,846
Large denomination certificates 3,308 3,076 3,394 3,377
Interest-bearing deposits in
foreign offices ............... 2,082 2,041 2,088 2,069
Short-term borrowed funds ...... 9,729 8,848 9,629 9,292
Long-term debt ................. 7,757 8,571 7,998 7,627
----------- ----------- ----------- -----------
Total interest-bearing
liabilities ................. 49,473 49,415 49,970 48,765
Demand deposits ................ 8,210 8,368 8,261 8,062
Other liabilities .............. 1,978 1,641 1,764 2,267
Shareholders' equity ........... 5,335 5,391 5,459 5,314
----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity ........ $ 64,996 $ 64,815 $ 65,454 $ 64,408
=========== =========== =========== ===========
Total deposits .................. $ 40,197 $ 40,364 $ 40,604 $ 39,908
<S> <C> <C> <C> <C> <C>
1998 Nine Months Ended
----------------------------- September 30
Fourth Third -----------------------------
Quarter Quarter 1999 1998
------------- ------------ ------------- -----------
Net Interest Income --
Taxable Equivalent
(thousands)
Interest income:
Loans -- including fees .............. $ 1,000,663 $ 980,636 $ 2,959,400 $ 2,900,379
Securities ........................... 167,680 181,853 464,694 559,174
Interest-bearing bank balances........ 3,166 3,182 5,215 9,821
Federal funds sold and
securities purchased under
resale agreements ................... 8,615 6,168 21,293 17,188
Trading account assets ............... 7,173 11,817 21,095 38,260
------------- ------------ ------------- -----------
Total .............................. 1,187,297 1,183,656 3,471,697 3,524,822
Interest expense:
Interest-bearing demand .............. 15,206 15,526 41,995 49,324
Savings and money market
savings ............................. 115,367 115,077 351,129 336,288
Savings certificates ................. 123,203 136,462 334,944 419,274
Large denomination certificates....... 45,359 40,482 126,672 120,025
Interest-bearing deposits in
foreign offices ..................... 28,112 34,005 72,689 107,547
Short-term borrowed funds ............ 134,246 144,881 327,807 429,600
Long-term debt ....................... 104,950 95,597 344,915 285,712
------------- ------------ ------------- -----------
Total .............................. 566,443 582,030 1,600,151 1,747,770
------------- ------------ ------------- -----------
Net interest income ................... $ 620,854 $ 601,626 $ 1,871,546 $ 1,777,052
============= ============ ============= ===========
Annualized net yield on interest-
earning assets ....................... 4.28% 4.26% 4.34% 4.23%
Average Balances
(millions)
Assets:
Loans -- net of unearned
income .............................. $ 45,966 $ 43,894 $ 46,761 $ 43,873
Securities ........................... 9,952 10,664 9,449 10,794
Interest-bearing bank balances........ 163 138 112 156
Federal funds sold and
securities purchased under
resale agreements ................... 641 440 580 408
Trading account assets ............... 818 930 763 1,001
------------- ------------ ------------- -----------
Total interest-earning
assets ............................ 57,540 56,066 57,665 56,232
Cash and due from banks .............. 3,271 3,068 2,978 3,190
Premises and equipment ............... 888 874 948 846
Other assets ......................... 3,959 3,822 3,797 3,644
Unrealized gains (losses) on
securities available-for-sale ....... 177 133 46 117
Allowance for loan losses ............ (537) (534) (540) (535)
------------- ------------ ------------- -----------
Total assets ....................... $ 65,298 $ 63,429 $ 64,894 $ 63,494
============= ============ ============= ===========
Liabilities and shareholders'
equity:
Interest-bearing demand .............. $ 4,639 $ 4,646 $ 4,658 $ 5,101
Savings and money market
savings ............................. 12,481 11,873 13,295 11,308
Savings certificates ................. 9,128 9,642 8,762 10,218
Large denomination certificates....... 3,387 3,146 3,281 2,938
Interest-bearing deposits in
foreign offices ..................... 2,131 2,347 2,066 2,529
Short-term borrowed funds ............ 11,135 10,858 9,254 10,814
Long-term debt ....................... 6,830 6,080 8,069 6,093
------------- ------------ ------------- -----------
Total interest-bearing
liabilities ....................... 49,731 48,592 49,385 49,001
Demand deposits ...................... 8,148 7,874 8,232 7,687
Other liabilities .................... 2,241 1,790 1,889 1,641
Shareholders' equity ................. 5,178 5,173 5,388 5,165
------------- ------------ ------------- -----------
Total liabilities and
shareholders' equity .............. $ 65,298 $ 63,429 $ 64,894 $ 63,494
============= ============ ============= ===========
Total deposits ........................ $ 39,914 $ 39,528 $ 40,294 $ 39,781
</TABLE>
9
<PAGE>
Foreign loans at September 30, 1999 were $1.196 billion,
representing 2.5 percent of total loans compared with $985
million or 2.2 percent of total loans one year earlier and $1.451
billion or 3 percent at June 30, 1999. There were no extensions
of credit to Russia, and loans extended in Asia remained
immaterial. Foreign lease financing was $1.199 billion at the end
of the third quarter of 1999, with exposure limited entirely to
Western European countries.
Commercial real estate loans, based on regulatory definitions,
were $9.786 billion or 20.5 percent of total loans at September
30, 1999 versus $8.692 billion or 19 percent one year earlier
and $9.522 billion or 19.7 percent at June 30, 1999. Regulatory
definitions for commercial real estate loans include loans that
have real estate as the collateral but not the primary
consideration in a credit risk evaluation.
There were no significant concentrations of loans in any one
industry at September 30, 1999, one year earlier or at the end
of the second quarter of 1999.
Consumer loans, including residential mortgages, decreased $520
million or 2.9 percent for the quarter and $587 million or 3.2
percent year to date, primarily due to runoff in maturing
residential mortgages and securitization of credit cards.
Residential mortgages declined $321 million or 4.1 percent for
the three months and $538 million or 6.8 percent for the first
nine months, while credit cards were lower by $699 million or
12.5 percent for the quarter and $408 million or 7.2 percent
year to date. Declines in both periods were offset partially by
growth in indirect retail loans, which primarily consist of
automobile sales financing, and in other revolving credit. In
the third quarter of 1999, the corporation expanded its online
consumer capabilities with the introduction on its Internet site
of insurance products and applications for home equity lines of
credit, personal lines of credit, home equity loans and personal
installment loans. The new electronic credit applications build
on existing online capabilities for mortgage loans, automobile
loans and credit cards.
In late September, the corporation securitized and sold $500
million of credit card receivables from its portfolio. The
transaction followed an $896 million credit card securitization
in March. Both transactions were undertaken principally to
further broaden funding sources and to remain active in the
securitization market. Securitization involves the transfer of a
pool of assets from the balance sheet to a master trust which
then issues and sells to investors certificates representing a
pro rata interest in the underlying assets. The transaction
reduces interest income and the credit exposure associated with
the transferred receivables while increasing credit card
noninterest income in the form of gains on card sales, servicing
fees and other excess revenue earned on the securitized loans.
While securitizations are a beneficial source of funding, they
are a somewhat more expensive source than other wholesale
funding sources. At September 30, 1999, the corporation's
managed credit card portfolio, which includes securitized loans,
was $6.372 billion or 12.9 percent of total managed loans versus
$6.273 billion or 13.6 percent one year earlier and $6.340
billion or 12.7 percent at June 30, 1999. Securitized credit
card loans were $1.896 billion at September 30, 1999 compared
with $500 million one year earlier and $1.396 billion at June
30, 1999. Additional information on the corporation's
securitized loans appears on page 20.
10
<PAGE>
Period-End Loans by Category Table 8
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
1999 1999 1999 1998 1998
----------- ----------- ----------- ----------- -----------
Commercial ..................... $16,166,045 $16,852,028 $15,639,116 $14,328,152 $15,040,796
Tax-exempt ..................... 757,601 796,523 871,271 972,603 1,024,855
----------- ----------- ----------- ----------- -----------
Total commercial ........... 16,923,646 17,648,551 16,510,387 15,300,755 16,065,651
Direct retail .................. 1,053,909 1,082,526 1,066,011 1,097,574 1,111,654
Indirect retail ................ 3,616,862 3,458,466 3,324,238 3,239,532 3,143,670
Credit card .................... 4,475,973 4,944,519 4,954,671 6,049,350 5,773,009
Other revolving credit ......... 620,342 588,880 552,908 536,887 517,047
----------- ----------- ----------- ----------- -----------
Total retail ............... 9,767,086 10,074,391 9,897,828 10,923,343 10,545,380
Construction ................... 2,235,387 2,233,128 2,087,886 2,044,437 1,865,675
Commercial mortgages ........... 7,550,770 7,289,241 7,076,217 6,988,050 6,826,459
Residential mortgages .......... 7,498,541 7,385,728 7,301,984 7,490,086 7,652,614
----------- ----------- ----------- ----------- -----------
Total real estate .......... 17,284,698 16,908,097 16,466,087 16,522,573 16,344,748
Lease financing ................ 2,453,749 2,346,467 2,172,158 1,879,123 1,688,053
Foreign ........................ 1,195,842 1,450,580 1,346,672 1,093,428 984,884
----------- ----------- ----------- ----------- -----------
Total loans ................ $47,625,021 $48,428,086 $46,393,132 $45,719,222 $45,628,716
=========== =========== =========== =========== ===========
</TABLE>
Securities, the second largest category of interest-earning
assets, declined $1.203 billion or 11.3 percent for the quarter
and $1.345 billion or 12.5 percent year to date and were lower by
$203 million or 2.1 percent from the second quarter. Planned
runoff in the portfolio accounted for the decreases, with
additional runoff expected in the final three months of the year.
At September 30, 1999, securities available-for-sale were $8.014
billion and securities held-to-maturity were $1.271 billion.
Securities Table 9
- --------------------------------------------------------------------------------
September 30, 1999 (thousands)
<TABLE>
<S> <C>
Securities available-for-sale at fair value:
U.S. Government and agency ................ $3,514,300
Mortgage-backed ........................... 3,928,507
Other ..................................... 571,569
----------
Total available-for-sale ............... 8,014,376
Securities held-to-maturity:
U.S. Government and agency ................ 620,934
Mortgage-backed ........................... 430,845
State and municipal ....................... 168,614
Other ..................................... 50,744
----------
Total held-to-maturity ................. 1,271,137
----------
Total securities ....................... $9,285,513
==========
</TABLE>
Interest expense was lower both for the quarter and year to date,
decreasing $33.791 million or 5.8 percent for the three months
and $147.619 million or 8.4 percent for the first nine months.
Declines in both periods reflected a lower average rate paid on
interest-bearing liabilities, with the average rate paid down 35
basis points for the third period of 1999 and 44 basis points
year to date. Declines were offset slightly by higher levels of
interest-bearing liabilities, principally long-term debt.
Compared with the second quarter of 1999, interest expense rose
$18.637 million or 14.1 percent annualized, driven principally by
a 15 basis point increase in the average rate paid on
interest-bearing liabilities and continued expansion of long-term
debt.
The corporation utilizes a diverse funding base and believes
flexibility and ongoing innovation are required to attract
future funding sources. As part of its funding strategy, the
corporation markets traditional funding products while issuing a
variety of wholesale funding instruments. Broadened
11
<PAGE>
traditional funding sources include the corporation's Premiere
and Business Premiere accounts, both of which are high-yield
money market deposit products; PC Banking; and enhancements to
basic checking products, including the addition of Access Now(sm)
checking. Wholesale funding sources include senior and
subordinated debt, a global bank note program, capital securities
and asset-backed securitization.
Total interest-bearing deposits expanded modestly for the
quarter but were essentially flat year to date, impacted, in
part, by the divestiture of a total of $119 million in
interest-bearing deposits in August through selected branch
sales. Strong growth occurred in both periods in savings and
money market savings, which rose $1.693 billion or 14.3 percent
for the three months and $1.987 billion or 17.6 percent for the
nine months, reflecting gains in the corporation's Premiere and
Business Premiere accounts. Growth was moderated, however, by
declines in both periods largely in savings certificates and
foreign interest-bearing deposits and, to a smaller extent, by a
decrease in demand deposits. The reduction in foreign
interest-bearing deposits reflected management's utilization of
alternative wholesale funding sources. Large denomination
certificates declined modestly for the quarter but were higher
by $343 million or 11.7 percent for the nine months. While
savings and money market savings continued to expand in the
third quarter from the second quarter, total interest-bearing
deposits were lower by $347 million or 4.3 percent annualized,
primarily due to management's reduction of funding from large
denomination certificates. Gross deposits averaged $40.364
billion for the third quarter and $40.294 billion year to date,
up $836 million or 2.1 percent and $513 million or 1.3 percent,
respectively, from year-earlier periods. Collected deposits, net
of float, averaged $38.308 billion for the third period of 1999
and $38.158 billion for the first nine months, higher by $947
million or 2.5 percent and $626 million or 1.7 percent,
respectively, from the same periods in 1998.
Short-term borrowed funds decreased $2.010 billion or 18.5
percent for the three months and $1.560 billion or 14.4 percent
for the nine months, as management moved to lengthen maturities
of wholesale funding sources to reduce risk in market volatility
expected at year end. Declines occurred primarily in federal
funds purchased and securities sold under repurchase agreements,
which were lower by $1.591 billion or 21.9 percent for the
quarter and $1.580 billion or 21 percent year to date. Other
short-term borrowed funds, primarily consisting of short-term
bank notes, also declined while commercial paper borrowings rose
$94 million or 6.7 percent for the three months and $235 million
or 19.2 percent for the nine months. Short-term borrowed funds
were lower by $781 million or 8.1 percent from the second
quarter of 1999.
Long-term debt increased $2.491 billion or 41 percent for the
third quarter and $1.976 billion or 32.4 percent year to date,
principally reflecting expansion of senior and subordinated debt
notes classified as part of other long-term debt. In late June,
the corporation issued $600 million of 5-year
12
<PAGE>
senior fixed-rate notes. This followed the issuance of $400
million of 10-year subordinated fixed-rate notes both in March
1999 and December 1998. The senior notes are rated Aa3 by
Moody's and AA- by Standard & Poor's, and the subordinated notes
are rated A1 by Moody's and A+ by Standard & Poor's. At
September 30, 1999, $1.900 billion remained available under the
corporation's current $2.500 billion debt authorization approved
in April 1999. Capital securities, also classified as part of
other long-term debt, totaled $997 million at September 30,
1999. The capital securities are rated aa3 by Moody's and A by
Standard & Poor's and qualify as Tier I capital under risk-based
capital guidelines. Long-term debt was higher by $573 million or
7.2 percent from the second quarter of 1999, reflecting full
inclusion in third quarter but not second quarter average
balances of the $600 million senior notes issued in late June.
Through its global bank note program, Wachovia Bank is
authorized to issue up to $21.557 billion of bank notes. The
global bank note program consists of issuances with original
maturities beginning at seven days. Bank notes with original
maturities of one year or less are included in other short-term
borrowed funds, and bank notes with original maturities greater
than one year are considered medium-term in nature and are
classified as bank notes under long-term debt. Short-term bank
notes outstanding as of September 30, 1999 were $442.694 million
with an average cost of 5.16 percent and an average maturity of
2 months. Medium-term bank notes were $2.570 billion on the same
date, with an average cost of 5.62 percent and an average
maturity of 3.8 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.
13
<PAGE>
Taxable Equivalent Rate/Volume Variance Analysis -- Third Quarter* Table 10
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Average Volume Average Rate
--------------------- -------------------
1999 1998 1999 1998
------- ------- ------- ----
(millions)
Interest Income
Loans:
Commercial ................................. $15,444 $13,575 7.24 7.28
Tax-exempt ................................. 751 1,083 8.97 9.62
-------- --------
Total commercial ........................... 16,195 14,658 7.32 7.45
Direct retail .............................. 1,063 1,114 8.54 10.10
Indirect retail ............................ 3,551 3,090 7.85 8.23
Credit card ................................ 4,894 5,593 13.47 13.38
Other revolving credit ..................... 598 508 10.82 11.58
-------- --------
Total retail ............................... 10,106 10,305 10.82 11.39
Construction ............................... 2,257 1,876 8.49 9.03
Commercial mortgages ....................... 7,403 6,795 8.12 8.59
Residential mortgages ...................... 7,431 7,752 7.77 7.82
-------- --------
Total real estate .......................... 17,091 16,423 8.02 8.28
Lease financing ............................ 2,359 1,615 10.70 12.63
Foreign .................................... 1,252 893 6.67 6.85
-------- --------
Total loans ................................ 47,003 43,894 8.48 8.86
Securities:
Held-to-maturity:
U.S. Government and agency ................. 626 547 6.03 6.06
Mortgage-backed ............................ 456 763 8.16 8.29
State and municipal ........................ 161 188 10.27 10.70
Other ...................................... 52 97 6.41 6.59
-------- --------
Total held-to-maturity ..................... 1,295 1,595 7.32 7.71
Available-for-sale:**
U.S. Government and agency ................. 3,574 3,900 6.20 6.56
Mortgage-backed ............................ 4,031 4,513 6.31 6.56
Other ...................................... 561 656 7.38 7.13
-------- --------
Total available-for-sale ................... 8,166 9,069 6.33 6.60
-------- --------
Total securities ........................... 9,461 10,664 6.47 6.77
Interest-bearing bank balances ............. 124 138 5.23 9.13
Federal funds sold and securities
purchased under resale agreements .......... 550 440 5.09 5.56
Trading account assets ..................... 790 930 3.68 5.04
-------- --------
Total interest-earning assets .............. $57,928 $56,066 8.05 8.38
======== ========
Interest Expense
Interest-bearing demand .................... $ 4,617 $ 4,646 1.31 1.33
Savings and money market savings ........... 13,566 11,873 3.54 3.85
Savings certificates ....................... 8,696 9,642 5.04 5.61
Large denomination certificates ............ 3,076 3,146 5.15 5.10
-------- --------
Total interest-bearing deposits in
domestic offices ........................... 29,955 29,307 3.80 4.16
Interest-bearing deposits in foreign
offices .................................... 2,041 2,347 4.81 5.75
-------- --------
Total interest-bearing deposits ............ 31,996 31,654 3.86 4.28
Federal funds purchased and securities
sold under repurchase agreements ........... 5,682 7,273 4.90 5.33
Commercial paper ........................... 1,499 1,405 4.79 5.21
Other short-term borrowed funds ............ 1,667 2,180 5.74 5.23
-------- --------
Total short-term borrowed funds............. 8,848 10,858 5.04 5.29
Bank notes ................................. 2,551 2,407 5.51 6.01
Other long-term debt ....................... 6,020 3,673 5.85 6.38
-------- --------
Total long-term debt ....................... 8,571 6,080 5.75 6.24
-------- --------
Total interest-bearing liabilities ......... $49,415 $48,592 4.40 4.75
======== ======== -------- -----
Interest rate spread........................ 3.65 3.63
======== =====
Net yield on interest-earning assets and
net interest income ........................ 4.29 4.26
======== =====
<S> <C> <C> <C> <C> <C> <C>
Variance
Interest Attributable to
-------------------------- ------------------------
1999 1998 Variance Rate Volume
------------ ------------ ------------- ---------- -----------
Interest Income (thousands)
Loans:
Commercial ................................. $ 281,875 $ 248,927 $ 32,948 $ (1,155) $ 34,103
Tax-exempt ................................. 16,983 26,269 (9,286) (1,663) (7,623)
------------ ------------ -------------
Total commercial ........................... 298,858 275,196 23,662 (4,740) 28,402
Direct retail .............................. 22,875 28,373 (5,498) (4,231) (1,267)
Indirect retail ............................ 70,243 64,112 6,131 (3,107) 9,238
Credit card ................................ 166,201 188,570 (22,369) 1,362 (23,731)
Other revolving credit ..................... 16,326 14,840 1,486 (1,019) 2,505
------------ ------------ -------------
Total retail ............................... 275,645 295,895 (20,250) (14,620) (5,630)
Construction ............................... 48,287 42,688 5,599 (2,669) 8,268
Commercial mortgages ....................... 151,501 147,187 4,314 (8,401) 12,715
Residential mortgages ...................... 145,576 152,832 (7,256) (953) (6,303)
------------ ------------ -------------
Total real estate .......................... 345,364 342,707 2,657 (11,018) 13,675
Lease financing ............................ 63,604 51,423 12,181 (8,782) 20,963
Foreign .................................... 21,067 15,415 5,652 (399) 6,051
------------ ------------ -------------
Total loans ................................ 1,004,538 980,636 23,902 (43,638) 67,540
Securities:
Held-to-maturity:
U.S. Government and agency ................. 9,520 8,364 1,156 (46) 1,202
Mortgage-backed ............................ 9,384 15,945 (6,561) (238) (6,323)
State and municipal ........................ 4,168 5,067 (899) (197) (702)
Other ...................................... 845 1,602 (757) (43) (714)
------------ ------------ -------------
Total held-to-maturity ..................... 23,917 30,978 (7,061) (1,479) (5,582)
Available-for-sale:**
U.S. Government and agency ................. 55,830 64,445 (8,615) (3,397) (5,218)
Mortgage-backed ............................ 64,103 74,637 (10,534) (2,791) (7,743)
Other ...................................... 10,446 11,793 (1,347) 412 (1,759)
------------ ------------ -------------
Total available-for-sale ................... 130,379 150,875 (20,496) (5,896) (14,600)
------------ ------------ -------------
Total securities ........................... 154,296 181,853 (27,557) (7,695) (19,862)
Interest-bearing bank balances ............. 1,631 3,182 (1,551) (1,246) (305)
Federal funds sold and securities
purchased under resale agreements .......... 7,062 6,168 894 (554) 1,448
Trading account assets ..................... 7,335 11,817 (4,482) (2,877) (1,606)
------------ ------------ -------------
Total interest-earning assets .............. 1,174,862 1,183,656 (8,794) (47,357) 38,563
Interest Expense
Interest-bearing demand .................... 15,279 15,526 (247) (153) (94)
Savings and money market savings ........... 121,106 115,077 6,029 (9,552) 15,581
Savings certificates ....................... 110,569 136,462 (25,893) (13,167) (12,726)
Large denomination certificates ............ 39,954 40,482 (528) 391 (919)
------------ ------------ -------------
Total interest-bearing deposits in
domestic offices ........................... 286,908 307,547 (20,639) (27,315) 6,676
Interest-bearing deposits in foreign
offices .................................... 24,730 34,005 (9,275) (5,170) (4,105)
------------ ------------ -------------
Total interest-bearing deposits ............ 311,638 341,552 (29,914) (33,570) 3,656
Federal funds purchased and securities
sold under repurchase agreements ........... 70,153 97,672 (27,519) (7,410) (20,109)
Commercial paper ........................... 18,082 18,448 (366) (1,547) 1,181
Other short-term borrowed funds ............ 24,101 28,761 (4,660) 2,587 (7,247)
------------ ------------ -------------
Total short-term borrowed funds............. 112,336 144,881 (32,545) (6,729) (25,816)
Bank notes ................................. 35,468 36,487 (1,019) (3,143) 2,124
Other long-term debt ....................... 88,797 59,110 29,687 (5,289) 34,976
------------ ------------ -------------
Total long-term debt ....................... 124,265 95,597 28,668 (7,942) 36,610
------------ ------------ -------------
Total interest-bearing liabilities ......... 548,239 582,030 (33,791) (43,500) 9,709
------------ ------------ -------------
Interest rate spread
Net yield on interest-earning assets and
net interest income ........................ $ 626,623 $ 601,626 $ 24,997 4,908 20,089
============ ============ =============
</TABLE>
* Interest income and yields are presented on a fully taxable equivalent basis
using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense. Any variance
attributable jointly to volume and rate changes is allocated to the volume
and rate in proportion to the relationship of the absolute dollar amount of
the change in each.
** Volume amounts are reported at amortized cost; excludes pretax unrealized
losses of $47 million in 1999 and unrealized gains of $133 million in 1998.
14
<PAGE>
Taxable Equivalent Rate/Volume Variance Analysis -- Nine Months* Table 11
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Average Volume Average Rate
------------------ -------------------
1999 1998 1999 1998
------- ------- ------- ----
(millions)
Interest Income
Loans:
Commercial ................................. $15,426 $13,679 7.04 7.30
Tax-exempt ................................. 838 1,282 9.12 9.12
-------- --------
Total commercial ........................... 16,264 14,961 7.15 7.46
Direct retail .............................. 1,069 1,154 8.68 9.57
Indirect retail ............................ 3,411 3,050 7.91 8.39
Credit card ................................ 5,222 5,630 13.36 13.40
Other revolving credit ..................... 572 489 10.85 11.12
-------- --------
Total retail ............................... 10,274 10,323 10.92 11.38
Construction ............................... 2,167 1,866 8.40 9.08
Commercial mortgages ....................... 7,220 6,792 8.05 8.65
Residential mortgages ...................... 7,360 7,898 7.80 7.98
-------- --------
Total real estate .......................... 16,747 16,556 7.99 8.38
Lease financing ............................ 2,190 1,325 11.50 11.39
Foreign .................................... 1,286 708 6.44 6.85
-------- --------
Total loans ................................ 46,761 43,873 8.46 8.84
Securities:
Held-to-maturity:
U.S. Government and agency ................. 603 333 6.15 6.12
Mortgage-backed ............................ 514 846 8.24 8.31
State and municipal ........................ 163 198 10.00 10.75
Other ...................................... 62 107 6.72 6.71
-------- --------
Total held-to-maturity ..................... 1,342 1,484 7.44 8.03
Available-for-sale:**
U.S. Government and agency ................. 3,441 4,189 6.39 6.73
Mortgage-backed ............................ 4,099 4,424 6.36 6.72
Other ...................................... 567 697 7.15 7.10
-------- --------
Total available-for-sale ................... 8,107 9,310 6.43 6.75
-------- --------
Total securities ........................... 9,449 10,794 6.57 6.93
Interest-bearing bank balances ............. 112 156 6.20 8.45
Federal funds sold and securities
purchased under resale agreements .......... 580 408 4.91 5.63
Trading account assets ..................... 763 1,001 3.70 5.11
-------- --------
Total interest-earning assets .............. $57,665 $56,232 8.05 8.38
======== ========
Interest Expense
Interest-bearing demand .................... $ 4,658 $ 5,101 1.21 1.29
Savings and money market savings ........... 13,295 11,308 3.53 3.98
Savings certificates ....................... 8,762 10,218 5.11 5.49
Large denomination certificates ............ 3,281 2,938 5.16 5.46
-------- --------
Total interest-bearing deposits in
domestic offices ........................... 29,996 29,565 3.81 4.18
Interest-bearing deposits in foreign
offices .................................... 2,066 2,529 4.70 5.69
-------- --------
Total interest-bearing deposits ............ 32,062 32,094 3.87 4.30
Federal funds purchased and securities
sold under repurchase agreements ........... 5,950 7,530 4.56 5.35
Commercial paper ........................... 1,457 1,222 4.59 5.18
Other short-term borrowed funds ............ 1,847 2,062 5.41 5.26
-------- --------
Total short-term borrowed funds............. 9,254 10,814 4.74 5.31
Bank notes ................................. 2,614 2,674 5.55 6.12
Other long-term debt ....................... 5,455 3,419 5.79 6.39
-------- --------
Total long-term debt ....................... 8,069 6,093 5.71 6.27
-------- --------
Total interest-bearing liabilities..........$ 49,385 $ 49,001 4.33 4.77
======== ======== -------- -----
Interest rate spread........................ 3.72 3.61
======== =====
Net yield on interest-earning assets and
net interest income ....................... 4.34 4.23
======== =====
<S> <C> <C> <C> <C> <C> <C>
Variance
Interest Attributable to
------------------------- -------------------------
1999 1998 Variance Rate Volume
----------- ----------- ------------- ----------- -----------
Interest Income (thousands)
Loans:
Commercial ................................. $ 812,194 $ 747,231 $ 64,963 $ (27,815) $ 92,778
Tax-exempt ................................. 57,124 87,379 (30,255) 39 (30,294)
----------- ----------- -------------
Total commercial ........................... 869,318 834,610 34,708 (35,956) 70,664
Direct retail .............................. 69,398 82,554 (13,156) (7,330) (5,826)
Indirect retail ............................ 201,804 191,384 10,420 (11,367) 21,787
Credit card ................................ 521,904 564,340 (42,436) (1,637) (40,799)
Other revolving credit ..................... 46,460 40,664 5,796 (996) 6,792
----------- ----------- -------------
Total retail ............................... 839,566 878,942 (39,376) (35,264) (4,112)
Construction ............................... 136,178 126,786 9,392 (9,973) 19,365
Commercial mortgages ....................... 434,547 439,525 (4,978) (31,765) 26,787
Residential mortgages ...................... 429,583 471,324 (41,741) (10,163) (31,578)
----------- ----------- -------------
Total real estate .......................... 1,000,308 1,037,635 (37,327) (49,156) 11,829
Lease financing ............................ 188,283 112,907 75,376 1,065 74,311
Foreign .................................... 61,925 36,285 25,640 (2,304) 27,944
----------- ----------- -------------
Total loans ................................ 2,959,400 2,900,379 59,021 (126,932) 185,953
Securities:
Held-to-maturity:
U.S. Government and agency ................. 27,758 15,212 12,546 86 12,460
Mortgage-backed ............................ 31,669 52,555 (20,886) (411) (20,475)
State and municipal ........................ 12,154 15,942 (3,788) (1,053) (2,735)
Other ...................................... 3,115 5,382 (2,267) 10 (2,277)
----------- ----------- -------------
Total held-to-maturity ..................... 74,696 89,091 (14,395) (6,208) (8,187)
Available-for-sale:**
U.S. Government and agency ................. 164,569 210,843 (46,274) (10,103) (36,171)
Mortgage-backed ............................ 195,068 222,222 (27,154) (11,339) (15,815)
Other ...................................... 30,361 37,018 (6,657) 298 (6,955)
----------- ----------- -------------
Total available-for-sale ................... 389,998 470,083 (80,085) (21,467) (58,618)
----------- ----------- -------------
Total securities ........................... 464,694 559,174 (94,480) (27,323) (67,157)
Interest-bearing bank balances ............. 5,215 9,821 (4,606) (2,260) (2,346)
Federal funds sold and securities
purchased under resale agreements .......... 21,293 17,188 4,105 (2,418) 6,523
Trading account assets ..................... 21,095 38,260 (17,165) (9,226) (7,939)
----------- ----------- -------------
Total interest-earning assets .............. 3,471,697 3,524,822 (53,125) (141,586) 88,461
Interest Expense
Interest-bearing demand .................... 41,995 49,324 (7,329) (3,206) (4,123)
Savings and money market savings ........... 351,129 336,288 14,841 (40,223) 55,064
Savings certificates ....................... 334,944 419,274 (84,330) (27,343) (56,987)
Large denomination certificates ............ 126,672 120,025 6,647 (6,831) 13,478
----------- ----------- -------------
Total interest-bearing deposits in
domestic offices ........................... 854,740 924,911 (70,171) (83,481) 13,310
Interest-bearing deposits in foreign
offices .................................... 72,689 107,547 (34,858) (16,914) (17,944)
----------- ----------- -------------
Total interest-bearing deposits ............ 927,429 1,032,458 (105,029) (103,993) (1,036)
Federal funds purchased and securities
sold under repurchase agreements ........... 203,147 301,099 (97,952) (40,225) (57,727)
Commercial paper ........................... 49,997 47,342 2,655 (5,813) 8,468
Other short-term borrowed funds ............ 74,663 81,159 (6,496) 2,188 (8,684)
----------- ----------- -------------
Total short-term borrowed funds............. 327,807 429,600 (101,793) (43,643) (58,150)
Bank notes ................................. 180,522 122,320 (13,798) (11,131) (2,667)
Other long-term debt ....................... 236,393 163,392 73,001 (16,454) 89,455
----------- ----------- -------------
Total long-term debt ....................... 344,915 285,712 59,203 (27,038) 86,241
----------- ----------- -------------
Total interest-bearing liabilities ......... 1,600,151 1,747,770 (147,619) (161,215) 13,596
----------- ----------- -------------
Interest rate spread
Net yield on interest-earning assets and
net interest income ........................ $1,871,546 $1,777,052 $ 94,494 48,600 45,894
=========== =========== =============
</TABLE>
* Interest income and yields are presented on a fully taxable equivalent basis
using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense. Any variance
attributable jointly to volume and rate changes is allocated to the volume
and rate in proportion to the relationship of the absolute dollar amount of
the change in each.
** Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $46 million in 1999 and $117 million in 1998.
15
<PAGE>
Market Risk and
Asset/Liability
Management
Market risk is the risk of loss due to adverse changes in
instrument values or earnings fluctuation resulting from changes
in market factors. This includes, but may not be limited to,
changes in interest rates, foreign exchange rates, commodity
prices and other market variables including equity price risk.
Wachovia has potential exposure to interest rates, no risk in
commodity prices (since the corporation does not directly hold
commodities or trade in commodity contracts) and immaterial risk
in foreign exchange and changing equity prices. Market risks
reside in both the trading and nontrading portfolios. Trading
portfolios represent assets and off-balance sheet instruments
that are held for short periods of time and are marked-to-market
through the income statement. Nontrading portfolios represent
assets, liabilities and off-balance sheet instruments that are
not marked-to-market through the income statement but are
accounted for on an accrual basis or are marked-to-market through
equity.
The primary risk in both the trading and nontrading portfolios
is to changes in interest rates. Exposures to movements in
foreign exchange rates are predominantly in the trading
portfolio. All locations use the U.S. dollar as their functional
currency and, as a result, exposures to foreign exchange
translation risk are immaterial to consolidated net income.
Exposure to equity price movement is through holdings at the
parent company and private equity investments in the capital
markets line of business. The volatility of values in the equity
portfolios is immaterial to net income. Estimating the amount of
risk in either the trading or nontrading portfolios requires
assumptions about the future. The nature of the assumptions
causes all representations of risk to be estimates. These
estimates will be different from actual results for many
reasons, including but not limited to, changes in the growth of
the overall economy which will impact volume growth in the
company, changing credit spreads, market interest rates moving
in patterns other than the patterns chosen for analysis, changes
in customer preferences, changes in tactical and strategic plans
and initiatives, and changes in Federal Reserve policy. Stress
testing is performed on all market risk measurement analyses to
help understand the relative sensitivity of key assumptions and
thereby better understand the risk profile of the corporation.
Trading
Market Risk
Trading market risk is the risk to net income from changes in the
fair value of assets and liabilities and off-balance sheet
instruments that are marked-to-market through the income
statement. Trading portfolios are maintained to create value by
servicing customer needs for investment and risk management
products at competitive prices. The key trading portfolios by
purpose are U. S. Treasury and government agencies, municipal
bonds, residential mortgage-backed securities and money market
instruments. The corporation enters into derivatives contracts
and foreign currency exchange forward and option contracts to
service customer needs and does not take material trading
positions in either. The earnings risk due to changes in fair
value in the trading portfolios is limited by the short-term
holding periods of some of the portfolios, entering into
offsetting trades with market counterparties, establishing and
monitoring market risk limits by portfolio, and utilizing various
hedging techniques. Risk appetite, policies, practices and
procedures are established in the business units and approved by
the relevant risk committees and Board of Directors to ensure
that business objectives are met within a framework of prudent
and sound risk management.
A value-at-risk (VAR) methodology is used to gauge potential
losses in various trading portfolios due to changes in interest
rates. The VAR model is a statistical variance/covariance model
that calculates an estimate of exposure to interest rate
movements within a predetermined confidence level over a defined
forward-looking time period. The VAR estimate represents the
maximum expected loss in fair value of a trading portfolio over
a one day time horizon, given a 99 percent confidence level. In
other words, there is about a 1 percent chance, given historical
volatility of interest rates, that a loss greater than the VAR
estimate will occur by the end of the next day. The VAR estimate
takes into account
16
<PAGE>
several variables that affect the value of the trading
portfolio, including interest rates, security prices and their
volatilities, and statistical correlations. The potential
expected volatility of interest rates is calculated using a
one-year history of market movements. These historical
volatilities are exponentially weighted to give more weight to
recent market movements.
At September 30, 1999, the combined VAR exposure, given the
above calculation parameters, was $435 thousand which
represented .07 percent of the combined trading portfolio value
of $658.625 million. The combined average VAR exposure for the
third quarter of 1999 was $623 thousand which represented .13
percent of the combined average trading portfolio value of
$475.068 million. These VAR numbers are for the combined U. S.
Treasury and government agency, municipal bond, residential
mortgage-backed securities and money market instrument trading
portfolios.
Nontrading
Market Risk
Nontrading market risk is the risk to net income from changes in
interest rates on asset, liability and off-balance sheet
portfolios other than trading portfolios. The risk is driven by
potential mismatches resulting from timing differences in the
repricing of assets, liabilities and off-balance sheet
instruments, and potential exercise of explicit and embedded
options. There also is net income risk from changes in market
rate relationships known as basis risk. Treasury is charged with
the responsibility of managing the nontrading market risk.
Treasury includes asset/liability management and the management
of discretionary securities and funding portfolios. The goal of
Treasury is to maintain high quality and consistent growth in net
income, while maintaining acceptable levels of risk to changes in
interest rates, and acceptable levels of capital and liquidity.
This goal is achieved by influencing the maturity and repricing
characteristics of the various lending and deposit taking lines
of business, by managing discretionary portfolios, and by
utilizing off-balance sheet financial instruments.
Treasury operates under the policies established by the Finance
Committee of the Board of Directors and the guidance of the
Management Finance Committee. Nontrading interest rate risk,
liquidity, capital positions and discretionary on- and
off-balance sheet activity are reviewed quarterly by the Finance
Committee of the Board of Directors. Interim oversight of the
function is provided through regular meetings of Treasury
managers, the Treasurer and the Chief Financial Officer.
Treasury personnel carry out day-to-day activity within approved
risk management guidelines and strategies. The corporation uses
a number of tools to measure nontrading interest rate risk,
including simulating net income, monitoring the sensitivity of
the net present value of the balance sheet, and monitoring the
difference or gap between maturing or rate-sensitive assets and
liabilities over various time periods.
Management believes that nontrading interest rate risk is best
measured by simulation modeling which calculates expected net
income based on projected interest-earning assets,
interest-bearing liabilities, off-balance sheet financial
instruments, other income and other expense. The model
projections are based upon historical trends and management's
expectations of balance sheet growth patterns, spreads to market
rates, historical market rate relationships, prepayment
behavior, current and expected product offerings, sales
activity, and expected exercise of explicit and embedded
options. The Management Finance Committee regularly reviews the
assumptions used in the model.
The corporation monitors interest rate risk by measuring the
potential change in 12 months of net income under eight standard
interest rate scenarios. The scenarios are rolled forward by
quarter up to four quarters in the future to view income
sensitivity over any given 12-month period within the next 24
months. All of the scenarios are compared with a scenario where
current market rates are held constant for the forecast period
(i.e., the flat rate scenario). The scenarios are immediate
shocks of the yield curve up and down 100 and 200 basis points
and ramp scenarios for up and down 100 and 200 basis points
occurring evenly across the next 12 months. Policy guidelines
are approved by the
17
<PAGE>
Management Finance Committee and the Finance Committee of the
Board of Directors. For simulation, which is a dynamic
forward-looking analysis, the guidelines are focused on the 200
basis point ramp scenarios across 12 months. The policy
guideline limit for net income simulation is a negative impact
to net income of 7.5 percent for the up or down 200 basis point
ramp scenarios when compared with the flat rate scenario.
Management has generally maintained a risk position well within
the policy guideline level. The model indicated a 200 basis
point gradual rise in rates over the next 12 months would cause
approximately a 2.00 percent increase in net income at September
30, 1999 versus a .23 percent decrease one year earlier. A
gradual decrease of 200 basis points in rates over the next 12
months would cause approximately a 2.25 percent decrease in net
income as of September 30, 1999 compared with a 1.08 percent
decrease at September 30, 1998. The corporation runs additional
scenarios beyond the standard shock and ramp scenarios,
including yield curve steepening, flattening and inversion
scenarios. Various sensitivity analyses are performed on a
regular basis to segregate interest rate risk into separate
components and understand the risk attributable to prepayments,
caps and floors, and other options. Extensive assumptions
testing is performed to understand the degree of impact from
changing key assumptions such as the speed of prepayments, the
interest rate elasticity of core deposit rates and faster- or
slower-growing balance sheets.
The corporation also utilizes a present value methodology to
discern risk levels present in the balance sheet beyond the
24-month time horizon used in simulation analysis. The net
present value methodology is a point in time analysis of the
balance sheet not including new business volumes or management
initiatives. All cash flows from earning assets,
interest-bearing liabilities, noninterest-bearing deposits and
off-balance sheet instruments are discounted to a present value.
Assumptions are made to estimate the expected lives of
indeterminate maturity assets and liabilities such as line of
credit products and savings and checking accounts. Discount
rates used in the analysis are based upon forward rates implied
by the current yield curve with credit spreads added to discount
current new business back to par value. As in simulation
analysis, extensive assumptions testing is performed to
understand the degree of impact from changing key assumptions.
The policy guideline limit for present value of the balance
sheet is a negative change in value of 10 percent for up or down
shocks of 100 basis points to the beginning yield curve. As of
September 30, 1999, Wachovia was within its policy limit.
Liquidity
Management
To ensure the corporation is positioned to meet immediate and
future cash demands, management relies on liquidity analysis,
knowledge of business trends over past economic cycles and
forecasts of future conditions. Liquidity is maintained through a
strong balance sheet and operating performance that assures
market acceptance as well as through policy guidelines which
limit the level, maturity and concentration of noncore funding
sources.
Through its balance sheet, the corporation generates liquidity
on the asset side by maintaining significant amounts of
securities available-for-sale, which may be sold at any time,
and by loans which may be securitized or sold. Additionally, the
corporation generates cash through deposit growth, the issuance
of bank notes, the availability of unused lines of credit and
through other forms of debt and equity instruments.
Through policy guidelines, the corporation limits net purchased
funds to 50 percent of long-term assets, which include net loans
and leases, securities with remaining maturities over one year
and net foreclosed real estate. Policy guidelines insure against
concentrations by maturity of noncore funding sources by
limiting the cumulative percentage of purchased funds that
mature overnight, within 30 days and within 90 days. Guidelines
also require the monitoring of significant concentrations of
funds by single sources and by type of borrowing category.
18
<PAGE>
Nonperforming
Assets
Nonperforming assets at September 30, 1999 were $238.280 million
or .50 percent of loans and foreclosed property. The total was
higher by $66.601 million or 38.8 percent from one year earlier
and up $3.493 million or 1.5 percent from June 30, 1999.
Increases from both periods reflected a rise in nonaccrual loans.
In the second quarter of 1999, management noted a deterioration
in certain commercial credits and moved them to nonaccrual
status.
Historically the most cyclical category of total nonperforming
assets have been real estate related. Real estate nonperforming
assets at September 30, 1999 were $100.920 million or .58
percent of real estate loans and foreclosed real estate compared
with $127.110 million or .78 percent one year earlier and
$105.167 million or .62 percent at June 30, 1999. Included in
these totals were real estate nonperforming loans of $83.836
million at September 30, 1999 versus $105.042 million one year
earlier and $84.975 million at the end of the second quarter.
Commercial real estate nonperforming assets were $50.154 million
or .51 percent of related loans and foreclosed real estate
compared with $69.865 million or .80 percent at September 30,
1998 and $53.767 million or .56 percent at June 30, 1999.
Commercial real estate nonperforming loans were $41.334 million
versus $57.139 million at the end of the third quarter of 1998
and $41.277 million at June 30, 1999.
Nonperforming Assets and Contractually Past Due Loans Table 12
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C>
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
1999 1999 1999 1998 1998
-------- -------- -------- -------- --------
Nonperforming assets:
Cash-basis assets ............................................... $214,594 $209,550 $144,763 $157,118 $144,654
Restructured loans .............................................. -- -- -- -- --
-------- -------- -------- -------- --------
Total nonperforming loans .................................... 214,594 209,550 144,763 157,118 144,654
Foreclosed property:
Foreclosed real estate ......................................... 24,540 28,354 30,285 33,443 34,935
Less valuation allowance ....................................... 7,456 8,162 9,590 12,678 12,867
Other foreclosed assets ........................................ 6,602 5,045 4,998 3,420 4,957
-------- -------- -------- -------- --------
Total foreclosed property .................................... 23,686 25,237 25,693 24,185 27,025
-------- -------- -------- -------- --------
Total nonperforming assets ................................... $238,280 $234,787 $170,456 $181,303 $171,679
======== ======== ======== ======== ========
Nonperforming loans to period-end loans ......................... .45% .43% .31% .34% .32%
Nonperforming assets to period-end loans and foreclosed
property ....................................................... .50 .48 .37 .40 .38
Period-end allowance for loan losses times nonperforming loans .. 2.58x 2.62x 3.79x 3.49x 3.79x
Period-end allowance for loan losses times nonperforming assets . 2.32 2.34 3.22 3.02 3.19
Contractually past due loans -- accruing loans past due 90 days or
more ............................................................ $106,755 $ 99,486 $137,116 $136,807 $119,034
======== ======== ======== ======== ========
</TABLE>
Provision and
Allowance for
Loan Losses
The provision for loan losses was $76.770 million for the third
quarter and $231.931 million year to date, up $3.961 million or
5.4 percent and $16.555 million or 7.7 percent, respectively,
from year-earlier periods. Compared with the second quarter of
1999, the provision was higher by $2.245 million or 3 percent.
The provision reflects management's assessment of the adequacy
of the allowance for loan losses to absorb losses inherent in
the loan portfolio due to credit deterioration or changes in
risk profile. The assessment primarily considers allowance for
loan loss levels relative to risk weightings assigned by
management to loan types. The risk weightings are based on
several factors, as appropriate, including historical credit
loss experience, current economic conditions, the composition of
the total loan portfolio -- including industry concentrations --
and assessments of individual credits within specific loan
types. Because these factors are dynamic in nature, risk
weightings for individual loans and loan types are subject to
change and the provision for loan losses can fluctuate.
19
<PAGE>
Credit reviews are based primarily on analysis of borrowers'
cash flows, with asset values considered only as a secondary
source of repayment. Management's overall credit review process
also assesses Year 2000 compliance by borrowers.
Net loan losses for the quarter were $71.416 million or .61
percent of average loans, lower by $1.279 million or 1.8 percent
from $72.695 million or .66 percent of loans a year earlier.
Year to date, net loan losses totaled $226.068 million or .64
percent of loans, an increase of $11.042 million or 5.1 percent
from $215.026 million or .65 percent of loans in 1998. Net loan
losses decreased $2.910 million or 3.9 percent from the second
quarter of 1999. Excluding credit cards, net loan losses were
$25.458 million or .24 percent of loans for the quarter and
$52.060 million or .17 percent year to date, compared with
$11.174 million or .12 percent and $25.638 million or .09
percent, respectively, in 1998 and $13.325 million or .13
percent in the second quarter of 1999.
Comparisons of net loan losses between 1999 and 1998 periods are
impacted by the securitization of $896 million of credit card
receivables in March 1999 and $500 million in late September,
which removed these receivables from the balance sheet. Losses
on securitized receivables are not recognized with losses for
loans on the balance sheet but are deducted from net interest
payments, with the excess in cash payments recorded as
securitization fee income. In September, the corporation
modified its charge-off policy on revolving consumer credit
loans from 120 days delinquent to 150 days delinquent to conform
with industry peer practices.
Credit card net charge-offs were $45.958 million or 3.76 percent
of average credit card loans for the quarter and $174.008
million or 4.44 percent year to date, lower by $15.563 million
or 25.3 percent and $15.380 million or 8.1 percent,
respectively, from the same periods in 1998 due principally to
card securitizations. Commercial loan net losses were $14.491
million for the three months and $24.322 million for the nine
months, up $11.407 million and $18.495 million, respectively,
from year-earlier periods. Real estate loans had net charge-offs
totaling $2.881 million for the third quarter and $3.081 million
year to date compared with net recoveries of $959 thousand and
$5.231 million, respectively, in 1998.
Selected data on the corporation's managed credit card
portfolio, which includes securitized loans, appears in the
following table.
Managed Credit Card Data Table 13
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C>
1999
--------------------------------------
Third Second First
Quarter Quarter Quarter
---------- ---------- ----------
Average credit card loans ... $6,343,811 $6,327,848 $6,430,397
Period-end loans ............ 6,371,927 6,340,473 6,350,625
Net loan losses ............. 59,261 70,563 69,632
Annualized net loan losses to
average loans .............. 3.74% 4.46% 4.33%
Delinquencies (30 days or
more) to period-end loans .. 3.35 2.79 3.02
(thousands)
<S> <C> <C> <C> <C>
1998 Nine Months Ended
------------------------ September 30
Fourth Third ------------------------
Quarter Quarter 1999 1998
---------- ---------- ---------- ----------
Average credit card loans ... $6,328,905 $6,092,515 $6,367,035 $6,131,304
Period-end loans ............ 6,549,350 6,273,009 6,371,927 6,273,009
Net loan losses ............. 72,997 66,324 199,456 203,711
Annualized net loan losses to
average loans .............. 4.61% 4.35% 4.18% 4.43%
Delinquencies (30 days or
more) to period-end loans .. 3.30 3.11 3.35 3.11
</TABLE>
At September 30, 1999, the allowance for loan losses was $553.894
million, representing 1.16 percent of period-end loans and 258
percent of nonperforming loans compared with $547.686 million,
1.20 percent and 379 percent, respectively, one year earlier. The
allowance for loan losses at June 30, 1999 was $548.540 million
or 1.13 percent of loans and 262 percent of nonperforming loans.
20
<PAGE>
Allowance for Loan Losses Table 14
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C>
1999
-------------------------------------
Third Second First
Quarter Quarter Quarter
----------- -------- ---------
Summary of Transactions
Balance at beginning of period ................ $ 548,540 $548,302 $ 547,992
Additions from acquisitions ................... ---- 39 ----
Provision for loan losses ..................... 76,770 74,525 80,636
Deduct net loan losses:
Loans charged off:
Commercial .................................. 15,509 7,592 5,862
Credit card ................................. 54,925 69,619 74,094
Other revolving credit ...................... 2,305 3,126 2,889
Other retail ................................ 8,561 7,888 8,910
Real estate ................................. 4,005 1,397 1,488
Lease financing ............................. 855 585 592
Foreign ..................................... ---- ---- ----
----------- -------- ---------
Total ..................................... 86,160 90,207 93,835
Recoveries:
Commercial .................................. 1,018 1,667 1,956
Credit card ................................. 8,967 8,618 7,045
Other revolving credit ...................... 774 828 707
Other retail ................................ 2,674 2,718 2,813
Real estate ................................. 1,124 1,836 849
Lease financing ............................. 187 214 139
Foreign ..................................... ---- ---- ----
----------- -------- ---------
Total ..................................... 14,744 15,881 13,509
----------- -------- ---------
Net loan losses .............................. 71,416 74,326 80,326
----------- -------- ---------
Balance at end of period ...................... $ 553,894 $548,540 $ 548,302
=========== ======== =========
Net Loan Losses (Recoveries) by
Category
Commercial .................................... $ 14,491 $ 5,925 $ 3,906
Credit card ................................... 45,958 61,001 67,049
Other revolving credit ........................ 1,531 2,298 2,182
Other retail .................................. 5,887 5,170 6,097
Real estate ................................... 2,881 (439) 639
Lease financing ............................... 668 371 453
Foreign ....................................... ---- ---- ----
----------- -------- ---------
Total ..................................... $ 71,416 $ 74,326 $ 80,326
=========== ======== =========
Net loan losses -- excluding credit cards ..... $ 25,458 $ 13,325 $ 13,277
Annualized Net Loan Losses
(Recoveries) to Average Loans
by Category
Commercial .................................... .36% .14% .10%
Credit card ................................... 3.76 4.95 4.58
Other revolving credit ........................ 1.02 1.61 1.60
Other retail .................................. .51 .47 .56
Real estate ................................... .07 (.01) .02
Lease financing ............................... .11 .07 .09
Foreign ....................................... ---- ---- ----
Total loans ................................... .61 .63 .69
Total loans -- excluding credit cards ......... .24 .13 .13
Period-end allowance to outstanding loans ..... 1.16 1.13 1.18
<S> <C> <C> <C> <C>
1998 Nine Months Ended
----------------------- September 30
Fourth Third -----------------------
Quarter Quarter 1999 1998
----------- -------- ----------- --------
Summary of Transactions
Balance at beginning of period ................ $ 547,686 $547,572 $ 547,992 $544,723
Additions from acquisitions ................... ---- ---- 39 2,613
Provision for loan losses ..................... 84,104 72,809 231,931 215,376
Deduct net loan losses:
Loans charged off:
Commercial .................................. 7,365 4,601 28,963 10,515
Credit card ................................. 75,401 69,043 198,638 211,119
Other revolving credit ...................... 3,050 2,736 8,320 7,752
Other retail ................................ 9,851 8,515 25,359 25,527
Real estate ................................. 2,407 264 6,890 2,107
Lease financing ............................. 701 782 2,032 2,394
Foreign ..................................... ---- ---- ---- ----
----------- -------- ----------- --------
Total ..................................... 98,775 85,941 270,202 259,414
Recoveries:
Commercial .................................. 1,979 1,517 4,641 4,688
Credit card ................................. 7,073 7,522 24,630 21,731
Other revolving credit ...................... 641 610 2,309 1,930
Other retail ................................ 3,167 2,242 8,205 8,327
Real estate ................................. 2,001 1,223 3,809 7,338
Lease financing ............................. 116 132 540 374
Foreign ..................................... ---- ---- ---- ----
----------- -------- ----------- --------
Total ..................................... 14,977 13,246 44,134 44,388
----------- -------- ----------- --------
Net loan losses .............................. 83,798 72,695 226,068 215,026
----------- -------- ----------- --------
Balance at end of period ...................... $ 547,992 $547,686 $ 553,894 $547,686
=========== ======== =========== ========
Net Loan Losses (Recoveries) by
Category
Commercial .................................... $ 5,386 $ 3,084 $ 24,322 $ 5,827
Credit card ................................... 68,328 61,521 174,008 189,388
Other revolving credit ........................ 2,409 2,126 6,011 5,822
Other retail .................................. 6,684 6,273 17,154 17,200
Real estate ................................... 406 (959) 3,081 (5,231)
Lease financing ............................... 585 650 1,492 2,020
Foreign ....................................... ---- ---- ---- ----
----------- -------- ----------- --------
Total ..................................... $ 83,798 $ 72,695 $ 226,068 $215,026
=========== ======== =========== ========
Net loan losses -- excluding credit cards ..... $ 15,470 $ 11,174 $ 52,060 $ 25,638
Annualized Net Loan Losses
(Recoveries) to Average Loans
by Category
Commercial .................................... .13% .08% .20% .05%
Credit card ................................... 4.69 4.40 4.44 4.49
Other revolving credit ........................ 1.84 1.67 1.40 1.59
Other retail .................................. .62 .60 .51 .55
Real estate ................................... .01 (.02) .02 (.04)
Lease financing ............................... .13 .16 .09 .20
Foreign ....................................... ---- ---- ---- ----
Total loans ................................... .73 .66 .64 .65
Total loans -- excluding credit cards ......... .15 .12 .17 .09
Period-end allowance to outstanding loans ..... 1.20 1.20 1.16 1.20
</TABLE>
Noninterest Income
Total other operating revenue, which excludes securities sales,
increased $122.300 million or 39.4 percent for the third quarter
of 1999 from a year earlier and was up $261.347 million or 28.7
percent for the nine months. Gains reflected business expansion
in addition to the impact of purchase acquisitions completed in
the second and third quarters of 1999. Growth in both periods was
led by investment fees, credit card income, deposit account
services and trust fees.
Total other operating revenue included gains in the third
quarter of $9.934 million from the sale of loans in the
September credit card securitization and $7.554 million from
branch sales. Year to date,
21
<PAGE>
total other operating revenue included gains of $34.513 million
from credit card securitizations and the third quarter sale of
branches versus gains of $17.155 million in 1998 from branch
sales, all of which occurred in the first quarter. The gains on
the sale of loans from credit card securitizations are amortized
over the expected average life of the receivables, reducing
noninterest income in future periods.
Excluding gains from branch sales and credit card
securitizations and additions from purchase acquisitions, total
other operating revenue rose approximately 11 percent for both
the third quarter and nine months, respectively, and was up
approximately 3 percent from the second quarter of 1999. For the
full year of 1999, management estimates total other operating
revenue will increase 10 to 12 percent, excluding additions from
purchase acquisitions, based on expected growth trends largely
in financial advisory services, technology-based banking, credit
cards and capital markets income.
Investment fees rose $54.367 million for the third quarter from
a year earlier and were higher by $110.217 million for the nine
months, principally due to additions from purchase acquisitions.
Increases occurred primarily in brokerage commission income,
portfolio management fees and fees from customer mutual fund
investments.
Credit card income was higher by $27.474 million or 63.4 percent
for the third period and $65.264 million or 52.2 percent year to
date. Servicing fees and income recognized on securitized loans,
including gains from the sale of loans, principally accounted
for the rise in both periods. Excluding the gains from the sale
of loans, credit card income was up approximately 40 percent for
the quarter and 31 percent year to date.
Deposit account service charges grew $9.921 million or 11.7
percent and $24.991 million or 10.1 percent for the three and
nine months, respectively. Higher levels of commercial analysis
fees and overdraft charges primarily drove the increases.
Trust service fees rose $8.881 million or 17.4 percent for the
quarter and $18.069 million or 12.4 percent year to date. Growth
occurred primarily in employee benefits services and in fees
associated with the Wachovia Funds, the corporation's
proprietary mutual funds. In September, the corporation
announced an agreement to sell its master trust and
institutional custody business. The transaction will enable the
corporation to focus more fully on asset management and
consulting related services. The sale closed September 30.
Capital markets income expanded $4.289 million or 11.4 percent
for the three months and $27.767 million or 29.5 percent for the
nine months. Higher trading account profits from activities of
Interstate/Johnson Lane acquired in the second quarter of 1999
principally drove the gains in both periods. On April 1, the
broker-dealer subsidiary of Interstate/Johnson Lane Inc. was
merged into Wachovia's Section 20 capital markets subsidiary to
form Wachovia Securities Inc. The expanded Section 20 subsidiary
consists of a retail brokerage division -- IJL Wachovia -- and
an institutional business division -- Wachovia Capital Markets
-- with full Tier I and Tier II powers to underwrite and deal in
all types of corporate debt and equities.
Electronic banking revenue rose $3.861 million or 19.9 percent
for the third period of 1999 and $9.812 million or 18 percent
year to date, driven by increases in debit card interchange
income and ATM usage.
22
<PAGE>
Noninterest Income Table 15
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1998 Nine Months Ended
--------------------------------- --------------------- September 30
Third Second First Fourth Third -----------------------
Quarter Quarter Quarter Quarter Quarter 1999 1998
--------- -------- -------- --------- -------- ----------- ---------
Service charges on deposit accounts ........ $ 94,595 $ 91,454 $ 86,955 $ 86,967 $ 84,674 $ 273,004 $248,013
Fees for trust services .................... 60,066 54,907 49,136 53,909 51,185 164,109 146,040
Credit card income -- net of interchange
payments .................................. 70,786 58,110 61,301 46,194 43,312 190,197 124,933
Investment fees ............................ 69,364 69,877 17,362 15,170 14,997 156,603 46,386
Capital markets income ..................... 41,914 41,780 38,112 36,044 37,625 121,806 94,039
Electronic banking ......................... 23,310 22,558 18,455 19,746 19,449 64,323 54,511
Mortgage fees .............................. 7,378 9,863 10,966 13,472 12,251 28,207 31,457
Bankers' acceptance and letter of credit
fees ...................................... 11,688 11,563 10,342 9,909 9,745 33,593 29,116
Other service charges and fees ............. 19,494 18,153 15,526 13,473 13,608 53,173 41,253
Other income ............................... 34,246 26,279 25,114 23,928 23,695 85,639 93,559
--------- -------- -------- --------- -------- ----------- ---------
Total other operating revenue .......... 432,841 404,544 333,269 318,812 310,541 1,170,654 909,307
Securities gains ........................... 147 10,453 234 7,407 6,886 10,834 13,035
--------- -------- -------- --------- -------- ----------- ---------
Total .................................. $432,988 $414,997 $333,503 $326,219 $317,427 $1,181,488 $922,342
========= ======== ======== ========= ======== =========== =========
</TABLE>
Mortgage fees decreased $4.873 million or 39.8 percent for the
quarter and $3.250 million or 10.3 percent for the nine months.
Declines primarily reflected reduced sales of servicing rights on
fixed-rate mortgages due to lower business volumes. Rising
interest rates resulted in a shift toward adjustable rate
mortgages, which are retained on the balance sheet and not sold.
Rising interest rates also slowed refinancing activity, resulting
in lower origination fees. Remaining combined categories of total
other operating revenue excluding gains from branch sales were
higher by $10.826 million or 23 percent for the three months and
$18.078 million or 12.3 percent for the nine months.
Including gains from securities sales, total noninterest income
rose $115.561 million or 36.4 percent for the third quarter and
$259.146 million or 28.1 percent for the nine months. Securities
sales, primarily equities, resulted in net gains of $147
thousand for the quarter and $10.834 million year to date versus
$6.886 million and $13.035 million, respectively, in 1998.
Noninterest
Expense
Total noninterest expense for the quarter was up $84.789 million
or 17.2 percent year over year and was higher by $146.361 million
or 9.7 percent year to date. Comparisons between 1999 and 1998
periods are impacted by the addition of purchase acquisitions
effective from their respective completion dates in 1999 and by
merger-related expenses in both years. Merger-related expenses
were $5.293 million for the third period and $13.640 million for
the first nine months of 1999 versus $11.934 million and $78.351
million, respectively, in 1998. Excluding merger-related expenses
and the addition of purchase acquisitions, total noninterest
expense rose approximately 5 percent both for the third quarter
and nine months and was flat with the second quarter.
Merger-related expenses of $4 million to $6 million are expected
to be recognized in the fourth quarter of 1999. For the full year
of 1999, total noninterest expense is expected to increase
approximately 4 to 5 percent, excluding the impact of purchase
acquisitions and merger-related expenses. Expense growth for the
full year is expected to moderate from 1998's level primarily in
the area of salaries.
23
<PAGE>
Noninterest Expense Table 16
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 NineMonths Ended
------------------------------------- ------------------------ September 30
Third Second First Fourth Third --------------------------
Quarter Quarter Quarter Quarter Quarter 1999 1998
---------- ---------- ---------- ---------- ---------- ----------- -----------
Salaries ............................ $ 266,488 $ 259,733 $ 218,115 $ 221,019 $ 221,242 $ 744,336 $ 653,731
Employee benefits ................... 50,572 48,019 53,071 48,922 42,040 151,662 131,681
---------- ---------- ---------- ---------- ---------- ----------- -----------
Total personnel expense ......... 317,060 307,752 271,186 269,941 263,282 895,998 785,412
Net occupancy expense ............... 38,955 38,908 34,933 35,838 34,896 112,796 102,798
Equipment expense ................... 49,081 49,714 46,842 40,790 37,917 145,637 112,217
Postage and delivery ................ 13,700 13,670 14,128 12,962 13,373 41,498 40,019
Outside data processing, programming
and software ....................... 26,385 25,561 23,457 18,863 17,777 75,403 45,587
Stationery and supplies ............. 9,262 8,598 8,809 9,339 10,689 26,669 25,428
Advertising and sales promotion ..... 15,745 16,682 11,837 12,782 17,147 44,264 57,440
Professional services ............... 18,619 19,351 14,024 15,311 14,929 51,994 40,755
Travel and business promotion ....... 9,138 8,749 5,951 7,521 7,656 23,838 21,733
Telecommunications .................. 13,915 15,978 13,394 12,644 14,570 43,287 41,823
Amortization of intangible assets ... 13,156 12,230 10,953 10,908 9,840 36,339 28,183
Foreclosed property expense -- net of
income ............................. (470) 301 (82) 517 (164) (251) 54
Merger-related charges .............. 5,293 8,347 -- 6,961 11,934 13,640 78,351
Other expense ....................... 47,353 54,776 36,766 38,309 38,557 138,895 123,846
---------- ---------- ---------- ---------- ---------- ----------- -----------
Total ........................... $ 577,192 $ 580,617 $ 492,198 $ 492,686 $ 492,403 $ 1,650,007 $ 1,503,646
========== ========== ========== ========== ========== =========== ===========
Overhead ratio* ..................... 54.5% 56.3% 51.7% 52.4% 54.0% 54.2% 56.0%
Overhead ratio without merger-related
charges ............................ 54.0 55.5 51.7 51.7 52.7 53.8 53.1
</TABLE>
* Noninterest expense as a percentage of taxable equivalent net interest income
and total other operating revenue.
Total personnel expense increased $53.778 million or 20.4 percent
for the three months and $110.586 million or 14.1 percent for the
nine months. Compensation expense was up $45.246 million or 20.5
percent for the quarter and $90.605 million or 13.9 percent year
to date, reflecting an expanded employee base from acquisitions
and greater incentive pay for revenue-generating businesses.
Employee benefits expense rose $8.532 million or 20.3 percent for
the three months and $19.981 million or 15.2 percent for the nine
months, due to higher costs for medical and retirement profit
sharing plans. Full-time equivalent employees totaled 21,722 at
September 30, 1999 compared with 21,248 one year earlier.
Combined net occupancy and equipment expense was up $15.223
million or 20.9 percent and $43.418 million or 20.2 percent for
the quarter and year to date, respectively. Increases occurred
primarily in building and equipment depreciation and in
amortization for technology investments.
Remaining combined categories of noninterest expense excluding
merger-related expenses rose $22.429 million or 15.5 percent for
the three months and $57.068 million or 13.4 percent for the
nine months. Outside data processing, programming and software
expense was up $8.608 million or 48.4 percent for the quarter
and $29.816 million or 65.4 percent year to date, largely due to
increased software maintenance and amortization expenses related
to technology investments. Professional services expense was
higher by $3.690 million or 24.7 percent and $11.239 million or
27.6 percent for the three and nine months, respectively, driven
primarily by ongoing work for business strategies. Amortization
expense for intangible assets rose $3.316 million or 33.7
percent for the third period and $8.156 million or 28.9 percent
year to date, reflecting higher intangible assets from purchase
acquisitions.
Year 2000
The change in date to the year 2000 from 1999 will cause data
recognition problems in computers, software and facility
operations dependent on computer chip devices due to programming
standards that historically limited data date fields to two
digits. In late 1995, the corporation initiated a formal
evaluation of Year 2000 issues, establishing in the early months
of 1996 a full-time project team to
24
<PAGE>
assess and address both internal and external risks associated
with the change in date event. The project team established a
Year 2000 readiness plan consisting of five phases: problem
awareness; identification of affected systems, functions and
facilities; conversion or replacement of identified areas to
Year 2000 compliant standards; testing; and implementation. As
of June 30, 1999, all five phases had been completed.
The corporation's readiness plan encompasses both information
technology systems and computer chip embedded functions, such as
those operating facilities including elevators, security systems
and building heating and cooling. In 1996, the corporation
completed the awareness and identification phases for its own
systems and functions and has extended and completed the
processes for businesses acquired subsequent to 1996.
Conversion, testing and implementation of information technology
systems began in 1997 and were finished by the end of the second
quarter of 1999. For business entities that merged with the
corporation principally in the third quarter of 1999,
conversion, testing and implementation of mission-critical
information technology systems were completed in the third
quarter of 1999 with all Year 2000 readiness preparations
scheduled to be completed by year-end 1999. To ensure the widest
degree of systems preparedness, management elected to convert
all of the corporation's information technology systems to Year
2000 compliant standards, not limiting the process to mission
critical systems required under regulatory guidelines. Testing
was done in both a 21st and 20th century date environment, and
systems were implemented back into production as they were
tested to permit greater flexibility in the event of future
system flaws or failures. For computer chip embedded functions,
the corporation replaced and tested noncompliant functions
essential to business operations.
The corporation also has worked to assess and address Year 2000
readiness on the part of external entities, particularly
critical vendors and significant credit customers.
Identification and monitoring of external entities began in 1996
and included surveys with follow-up reviews and contacts.
Substantially all of the corporation's vendors responded to
management's surveys regarding Year 2000 readiness and indicated
that they are compliant as of June 30, 1999. During the third
quarter, all remaining vendors identified as mission critical or
critical had indicated that they are Year 2000 ready. The
project team is continuing to monitor the status of its vendors
and large corporate borrowers identified as potentially at risk.
The corporation began external entity testing in 1998 and
substantially completed testing by June 30, 1999. During the
third quarter, testing was completed with the remaining external
entity.
Management estimates that total Year 2000 project costs will be
approximately $88 million, with $82 million having been spent
through September 30, 1999 including $5 million in the third
quarter of 1999 and $16 million through the first nine months of
the year. The projected total cost is up from $80 million
estimated at year-end 1998, reflecting additional expenses
expected primarily for customer communication and preparation
refinements. During the third quarter of 1999, preparation
refinements included clean management testing to ensure
converted and implemented systems remain ready and a date change
event management exercise designed to test responsiveness to
simulated Year 2000 issues. The corporation's remaining Year
2000 project costs are not expected to have a material impact on
Wachovia's results of operations, liquidity or capital
resources.
The corporation faces a number of risks related to the year 2000
date change event, including project management risks, legal
risks and financial risks. Project management risks refer
primarily to the failure to adequately assess Year 2000 planning
and resource needs, resulting in under- or over-allotment of
resources assigned to complete the project work, missed
deadlines and estimation errors. Legal risks include the failure
to meet contractual service agreements, leading to possible
punitive actions
25
<PAGE>
including those of a regulatory nature. Financial risks concern
the possibility of lost revenues, asset quality deterioration or
even business failure. The corporation conducted a project
management risk assessment in early 1997 and continues to review
and monitor its legal and financial risks.
Management of the date change event entails additional risks
separate from those of project management. Major risks
associated with the date change event include a shutdown of
voice and data communication systems due to failure by switching
systems, satellites or telephone companies; excessive cash
withdrawal activity; cash couriers delayed or not available; ATM
failures; problems with international accounts or offices,
including inaccurate or delayed information or inaccessibility
to account data; and government offices or facilities not
opening or operating.
The corporation has identified 60 risks associated with the date
change event and has completed development of formal contingency
plans for each major risk. Management views contingency planning
as part of an overall strategy for managing the date change
event and post-event risks and considers preimplementation
mitigating actions as critical components to successful
contingency planning. In the event of a voice and data
communication system shutdown, contingency plans include
deploying cellular and field phones to communicate between
established command posts. To reduce expected cash withdrawal
demands while simultaneously preparing for higher fund
withdrawal activity, the corporation is sponsoring public
awareness programs on appropriate cash reserve levels, applying
for increased borrowing limits from the Federal Reserve and
broadening its regular liquidity management reviews. Standing
agreements with cash courier services are being reviewed to
identify and resolve potential courier service problems prior to
the date change event.
To minimize ATM failures, the corporation has upgraded its
entire network of ATMs, including their primary and backup
computer processors. Alternate cash access plans include using
existing communication channels to direct customers to working
ATMs in the event of localized ATM failures and extending branch
office hours where needed. To reduce potential problems in
international offices, the corporation converted and tested the
information systems of its Sao Paulo, Brazil, and London,
England, offices. Separate contingency plans have been developed
by each foreign office to assist independent operations. In
addition to its contingency planning, management has mapped all
information systems to its core business processes as part of
its preimplementation mitigating action plan. This will enable
the corporation to identify affected business processes should
data information problems occur during the changeover to
calendar year 2000 and in the time period immediately following.
The corporation believes the actions it is taking should reduce
the risks posed by Year 2000 challenges to its own systems.
Management recognizes, however, that unforeseen circumstances
could arise both within its own systems and with the systems of
external entities and can give no assurances that, if such
circumstances arose, they would not adversely affect the
corporation's Year 2000 compliance efforts. Further, management
cannot determine the impact that any adverse effect might have
on the corporation's operations, financial position or cash
flows.
Euro Conversion
On January 1, 1999, eleven member countries of the European Union
established the Euro as their common legal currency and
established a fixed conversion rate between their current
sovereign currencies and the Euro. From January 1, 1999 through
the end of 2001, corporations and individuals may transact
business in either the Euro or the functional currency of each
member nation. Management has a risk assessment committee that
has been examining the risks associated with the Euro
26
<PAGE>
conversion such as the adequacy of information technology
systems, currency risk and the competitive impact of
cross-border price transparency. During this interim period, the
corporation is operating parallel accounts in both the Euro and
the respective national currency in order to more effectively
process transactions. Management does not expect the impact of
the Euro conversion to have a material adverse impact on the
corporation's financial condition or results of operations.
Income Taxes
Applicable income taxes for the third quarter of 1999 increased
$24.348 million or 21.3 percent year over year and were higher by
$81.449 million or 26.1 percent year to date. The corporation's
effective tax rate has risen as a result of a decrease in
tax-exempt income as well as an increase in nondeductible
amortization associated with purchase business combinations.
Income taxes computed at the statutory rate are reduced primarily
by the assumed tax effect of interest income earned on state and
municipal loans and debt securities. Also, within certain
limitations, one-half of the interest income earned on qualifying
employee stock ownership plan loans is exempt from federal taxes.
The interest earned on certain state and municipal debt
instruments is exempt from federal taxes and in some cases state
taxes. The tax-exempt nature of these assets provides both an
attractive return for the corporation and substantial interest
savings for local governments and their constituents.
Income Taxes Table 17
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ----------- ---------
Income before income taxes .................................... $ 396,131 $ 341,651 $1,141,733 $ 944,603
========== ========== =========== ==========
Federal income taxes at statutory rate ........................ $ 138,646 $ 119,578 $ 399,607 $ 330,611
State and local income taxes -- net of federal benefit ........ 7,791 7,269 23,413 12,936
Effect of tax-exempt securities interest and other income ..... (12,944) (13,210) (35,022) (38,736)
Other items ................................................... 5,139 647 5,450 7,188
---------- ---------- ----------- ----------
Total tax expense ......................................... $ 138,632 $ 114,284 $ 393,448 $ 311,999
========== ========== =========== ==========
Current:
Federal ...................................................... $ 38,950 $ 23,793 $ 81,600 $ 120,209
Foreign ...................................................... 492 88 989 449
State and local .............................................. 8,153 5,472 21,225 11,270
---------- ---------- ----------- ----------
Total ..................................................... 47,595 29,353 103,814 131,928
Deferred:
Federal ...................................................... 87,201 79,221 274,837 171,441
State and local .............................................. 3,836 5,710 14,797 8,630
---------- ---------- ----------- ----------
Total ..................................................... 91,037 84,931 289,634 180,071
---------- ---------- ----------- ----------
Total tax expense ......................................... $ 138,632 $ 114,284 $ 393,448 $ 311,999
========== ========== =========== ==========
</TABLE>
New Accounting
Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (FASB 133).
FASB 133 establishes new accounting and reporting requirements
for derivative instruments embedded in other contracts and
hedging activities. The standard requires all derivatives to be
measured at fair value and recognized as either assets or
liabilities in the statement of condition. Under certain
conditions, a derivative may be specifically designated as a
hedge. Accounting for the changes in the fair value of a
derivative depends on the intended use of the derivative and the
resulting designation. Adoption of the standard is required for
the corporation's December 31, 2001 financial statements with
early adoption allowed as of the beginning of any quarter after
June 30, 1998. Management is in the process of assessing the
impact and plans to adopt the standard effective January 1, 2001.
Adoption is not expected to result in a material financial
impact.
27
<PAGE>
Financial Condition and Capital Ratios
Total assets at September 30, 1999 were $65.806 billion, with
$58.542 billion of interest-earning assets including $47.625
billion of loans. Comparable amounts one year earlier were
$65.574 billion of assets and $58.164 billion of interest-earning
assets, including $45.629 billion of loans. At June 30, 1999,
total assets were $67.013 billion, interest-earning assets were
$59.739 billion and loans were $48.428 billion. The decrease in
total assets from June 30, 1999 reflected securitization of
credit cards and management's decision to reduce lower yielding
discretionary loans.
Deposits at the end of the third quarter of 1999 were $39.709
billion, including $31.383 billion of interest-bearing deposits,
representing 79 percent of the total. Deposits one year earlier
were $38.807 billion with interest-bearing deposits of $31.072
billion or 80.1 percent of the total, and at June 30, 1999,
deposits were $40.816 billion, including $32.245 billion of
interest-bearing deposits or 79 percent of the total. During the
third quarter of 1999, the corporation sold selected bank branch
offices in Virginia, reducing deposits by $130 million at
September 30, 1999.
Shareholders' equity at September 30, 1999 was $5.628 billion,
up $398.892 million or 7.6 percent from $5.229 billion one year
earlier. Included in shareholders' equity at the end of the
third quarter of 1999 was $28.994 million, net of tax, of
unrealized losses on securities available-for-sale compared with
unrealized gains of $131.325 million, net of tax, one year
earlier.
The corporation repurchased a total of 1,965,000 shares of its
common stock during the third quarter of 1999 at an average
price of $79.738 per share for a total cost of $156.684 million.
Included in the total were 592,989 shares repurchased in the
quarter to offset shares issued for the purchase acquisitions of
OFFITBANK Holdings and Barry, Evans, Josephs & Snipes.
Additional shares also were repurchased for this purpose in the
second quarter. The corporation can repurchase up to 12 million
shares of its common stock under a June 23, 1998 authorization
effective through January 28, 2000. As of September 30, 1999, a
total of 6,014,211 shares had been repurchased under the June
23, 1998 authorization. Management will continue to work within
the guidelines of its share repurchase authorization while
assessing the best deployment of the corporation's capital.
At its October 22, 1999 meeting, the corporation's Board of
Directors declared a fourth quarter dividend of $.54 per share,
payable December 1 to shareholders of record as of November 4.
The dividend is higher by 10.2 percent from $.49 per share paid
in the same quarter of 1998. For the full year, the dividend
will total $2.06 per share, up 10.8 percent from $1.86 per share
in 1998.
Intangible assets at September 30, 1999 totaled $960.931
million, consisting of $831.667 million of goodwill, $83.320
million of deposit base intangibles, $35.609 million of
purchased credit card premiums, $9.899 million of mortgage
servicing rights and $436 thousand of other intangibles. The
combined acquisitions of OFFITBANK Holdings and Barry, Evans,
Josephs & Snipes in September 1999 added approximately $185
million of goodwill. Intangible assets at the end of the third
quarter of 1998 were $688.018 million, with $537.398 million of
goodwill, $97.308 million of deposit base intangibles, $42.079
million of purchased credit card premiums, $10.906 million of
mortgage servicing rights and $327 thousand of other
intangibles.
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 unrealized gain
28
<PAGE>
or loss, net of tax, on securities available-for-sale. In
addition to these capital ratios, regulatory agencies have
established a Tier I leverage ratio which measures Tier I
capital to average assets less ineligible intangible assets.
Regulatory guidelines require a minimum of total capital to
risk-adjusted assets ratio of 8 percent with at least one-half
consisting of tangible common shareholders' equity and a minimum
Tier I leverage ratio of 3 percent. Banks, which meet or exceed
a Tier I ratio of 6 percent, a total capital ratio of 10 percent
and a Tier I leverage ratio of 5 percent are considered well
capitalized by regulatory standards. It is the policy of the
corporation that it and its banking subsidiaries be well
capitalized at all times.
At September 30, 1999, the corporation's Tier I to risk-adjusted
assets ratio was 7.73 percent and total capital to risk-adjusted
assets was 11.37 percent. The Tier I leverage ratio was 8.93
percent. Capital securities included in the capital ratios were
$996.650 million and $996.274 million at September 30, 1999 and
1998, respectively.
Capital Components and Ratios Table 18
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998
----------------------------------------------- -----------------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
-------------- ------------ ----------- ------------- -----------
Tier I capital:
Common shareholders' equity ............... $ 5,628,083 $ 5,426,717 $ 5,431,939 $ 5,338,232 $ 5,229,191
Trust capital securities .................. 996,650 996,556 996,462 996,368 996,274
Less ineligible intangible assets ......... 944,304 772,696 657,717 666,672 665,408
Unrealized losses (gains) on securities
available-for-sale -- net of tax ......... 27,600 9,618 (60,642) (82,440) (131,325)
-------------- ------------ ----------- ------------- -----------
Total Tier I capital ................... 5,708,029 5,660,195 5,710,042 5,585,488 5,428,732
Tier II capital:
Allowable allowance for loan losses ....... 553,894 548,540 548,302 547,992 547,686
Allowable long-term debt .................. 2,137,158 2,136,952 2,191,701 1,794,148 1,486,537
-------------- ------------ ----------- ------------- -----------
Tier II capital additions .............. 2,691,052 2,685,492 2,740,003 2,342,140 2,034,223
-------------- ------------ ----------- ------------- -----------
Total capital .......................... $ 8,399,081 $ 8,345,687 $ 8,450,045 $ 7,927,628 $ 7,462,955
============== ============ =========== ============= ===========
Risk-adjusted assets ....................... $ 73,870,211 $ 74,897,805 $73,871,880 $69,928,737 $72,924,472
Quarterly average assets* .................. $ 63,916,969 $ 64,611,973 $63,631,476 $64,454,538 $62,630,533
Risk-based capital ratios:
Tier I capital ............................ 7.73% 7.56% 7.73% 7.99% 7.44%
Total capital ............................. 11.37 11.14 11.44 11.34 10.23
Tier I leverage ratio ...................... 8.93 8.76 8.97 8.67 8.67
</TABLE>
* Excludes ineligible intangible assets and average unrealized gains (losses)
on securities available-for-sale, net of tax.
29
<PAGE>
Consolidated Statements of Condition
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
<TABLE>
<S> <C> <C> <C>
September 30 December 31 September 30
1999 1998 1998
------------ ----------- ------------
Assets
Cash and due from banks ..................................................... $ 2,984,574 $ 3,800,265 $ 2,967,037
Interest-bearing bank balances .............................................. 128,605 109,983 156,518
Federal funds sold and securities purchased under resale agreements ......... 532,681 675,470 610,500
Trading account assets ...................................................... 970,027 664,812 1,172,683
Securities available-for-sale ............................................... 8,014,376 7,983,648 9,075,416
Securities held-to-maturity (fair value of $1,295,169, $1,442,126 and
$1,593,178, respectively)................................................... 1,271,137 1,383,607 1,520,584
Loans, net of unearned income ............................................... 47,625,021 45,719,222 45,628,716
Less allowance for loan losses .............................................. 553,894 547,992 547,686
----------- ----------- -----------
Net loans ................................................................. 47,071,127 45,171,230 45,081,030
Premises and equipment ...................................................... 963,599 901,681 886,122
Due from customers on acceptances ........................................... 122,745 348,955 732,829
Other assets ................................................................ 3,746,828 3,083,191 3,371,289
----------- ----------- -----------
Total assets .............................................................. $65,805,699 $64,122,842 $65,574,008
=========== =========== ===========
Liabilities
Deposits in domestic offices:
Demand ..................................................................... $ 8,325,960 $ 8,768,271 $ 7,734,695
Interest-bearing demand .................................................... 4,780,153 4,980,715 4,767,577
Savings and money market savings ........................................... 13,063,582 12,641,766 11,901,799
Savings certificates ....................................................... 8,841,306 8,982,396 9,491,260
Large denomination certificates ............................................ 3,271,805 3,344,553 2,733,174
----------- ----------- -----------
Total deposits in domestic offices ........................................ 38,282,806 38,717,701 36,628,505
Interest-bearing deposits in foreign offices ................................ 1,426,044 2,277,028 2,178,639
----------- ----------- -----------
Total deposits ............................................................ 39,708,850 40,994,729 38,807,144
Federal funds purchased and securities sold under repurchase agreements ..... 6,736,805 5,463,418 8,689,234
Commercial paper ............................................................ 1,540,129 1,359,382 1,408,832
Other short-term borrowed funds ............................................. 1,493,525 1,912,262 2,677,503
Long-term debt .............................................................. 8,575,556 7,596,727 6,479,125
Acceptances outstanding ..................................................... 122,745 348,955 732,829
Other liabilities ........................................................... 2,000,006 1,109,137 1,550,150
----------- ----------- -----------
Total liabilities ......................................................... 60,177,616 58,784,610 60,344,817
Shareholders' Equity
Preferred stock, par value $5 per share:
Authorized 50,000,000 shares; none outstanding ............................. ---- ---- ----
Common stock, par value $5 per share:
Authorized 1,000,000,000, shares; issued and outstanding 202,742,870,
202,986,100 and 202,751,280 shares, respectively .......................... 1,013,714 1,014,931 1,013,756
Capital surplus ............................................................. 679,200 669,244 657,923
Retained earnings ........................................................... 3,964,163 3,571,617 3,426,187
Accumulated other comprehensive income ...................................... (28,994) 82,440 131,325
----------- ----------- -----------
Total shareholders' equity ................................................ 5,628,083 5,338,232 5,229,191
----------- ----------- -----------
Total liabilities and shareholders' equity ................................ $65,805,699 $64,122,842 $65,574,008
=========== =========== ===========
</TABLE>
30
<PAGE>
Consolidated Statements of Income
- --------------------------------------------------------------------------------
thousands, except per share Wachovia Corporation and Subsidiaries
<TABLE>
<S> <C> <C>
Three Months Ended
September 30
----------------------------
1999 1998
------------- ------------
Interest Income
Loans, including fees ................................................... $ 999,849 $ 973,202
Securities available-for-sale ........................................... 127,032 147,940
Securities held-to-maturity:
State and municipal .................................................... 2,969 3,571
Other investments ...................................................... 19,452 25,709
Interest-bearing bank balances .......................................... 1,631 3,182
Federal funds sold and securities purchased under resale agreements ..... 7,062 6,168
Trading account assets .................................................. 7,348 11,694
------------- ------------
Total interest income ................................................. 1,165,343 1,171,466
Interest Expense
Deposits:
Domestic offices ....................................................... 286,907 307,547
Foreign offices ........................................................ 24,730 34,005
------------- ------------
Total interest on deposits ............................................ 311,637 341,552
Short-term borrowed funds ............................................... 112,336 144,881
Long-term debt .......................................................... 124,265 95,597
------------- ------------
Total interest expense ................................................ 548,238 582,030
Net Interest Income ..................................................... 617,105 589,436
Provision for loan losses ............................................... 76,770 72,809
------------- ------------
Net interest income after provision for loan losses ..................... 540,335 516,627
Other Income
Service charges on deposit accounts ..................................... 94,595 84,674
Fees for trust services ................................................. 60,066 51,185
Credit card income ...................................................... 70,786 43,312
Investment fees ......................................................... 69,364 14,997
Capital markets income .................................................. 41,914 37,625
Electronic banking ...................................................... 23,310 19,449
Mortgage fees ........................................................... 7,378 12,251
Other operating income .................................................. 65,428 47,048
------------- ------------
Total other operating revenue ......................................... 432,841 310,541
Securities gains ........................................................ 147 6,886
------------- ------------
Total other income .................................................... 432,988 317,427
Other Expense
Salaries ................................................................ 266,488 221,242
Employee benefits ....................................................... 50,572 42,040
------------- ------------
Total personnel expense ............................................... 317,060 263,282
Net occupancy expense ................................................... 38,955 34,896
Equipment expense ....................................................... 49,081 37,917
Merger-related charges .................................................. 5,293 11,934
Other operating expense ................................................. 166,803 144,374
------------- ------------
Total other expense ................................................... 577,192 492,403
Income before income taxes .............................................. 396,131 341,651
Income tax expense ...................................................... 138,632 114,284
------------- ------------
Net Income .............................................................. $ 257,499 $ 227,367
============= ============
Net income per common share:
Basic .................................................................. $ 1.27 $ 1.11
Diluted ................................................................ $ 1.25 $ 1.09
Average shares outstanding:
Basic .................................................................. 202,167 204,832
Diluted ................................................................ 205,345 208,837
<S> <C> <C>
Nine Months Ended
September 30
-----------------------------
1999 1998
------------- -----------
Interest Income
Loans, including fees ................................................... $ 2,943,877 $ 2,879,408
Securities available-for-sale ........................................... 380,837 461,161
Securities held-to-maturity:
State and municipal .................................................... 8,367 11,246
Other investments ...................................................... 61,680 72,875
Interest-bearing bank balances .......................................... 5,215 9,821
Federal funds sold and securities purchased under resale agreements ..... 21,293 17,188
Trading account assets .................................................. 21,065 37,354
------------- -----------
Total interest income ................................................. 3,442,334 3,489,053
Interest Expense
Deposits:
Domestic offices ....................................................... 854,740 924,911
Foreign offices ........................................................ 72,689 107,547
------------- -----------
Total interest on deposits ............................................ 927,429 1,032,458
Short-term borrowed funds ............................................... 327,807 429,600
Long-term debt .......................................................... 344,915 285,712
------------- -----------
Total interest expense ................................................ 1,600,151 1,747,770
Net Interest Income ..................................................... 1,842,183 1,741,283
Provision for loan losses ............................................... 231,931 215,376
------------- -----------
Net interest income after provision for loan losses ..................... 1,610,252 1,525,907
Other Income
Service charges on deposit accounts ..................................... 273,004 248,013
Fees for trust services ................................................. 164,109 146,040
Credit card income ...................................................... 190,197 124,933
Investment fees ......................................................... 156,603 46,386
Capital markets income .................................................. 121,806 94,039
Electronic banking ...................................................... 64,323 54,511
Mortgage fees ........................................................... 28,207 31,457
Other operating income .................................................. 172,405 163,928
------------- -----------
Total other operating revenue ......................................... 1,170,654 909,307
Securities gains ........................................................ 10,834 13,035
------------- -----------
Total other income .................................................... 1,181,488 922,342
Other Expense
Salaries ................................................................ 744,336 653,731
Employee benefits ....................................................... 151,662 131,681
------------- -----------
Total personnel expense ............................................... 895,998 785,412
Net occupancy expense ................................................... 112,796 102,798
Equipment expense ....................................................... 145,637 112,217
Merger-related charges .................................................. 13,640 78,351
Other operating expense ................................................. 481,936 424,868
------------- -----------
Total other expense ................................................... 1,650,007 1,503,646
Income before income taxes .............................................. 1,141,733 944,603
Income tax expense ...................................................... 393,448 311,999
------------- -----------
Net Income .............................................................. $ 748,285 $ 632,604
============= ===========
Net income per common share:
Basic .................................................................. $ 3.69 $ 3.07
Diluted ................................................................ $ 3.62 $ 3.01
Average shares outstanding:
Basic .................................................................. 203,007 205,811
Diluted ................................................................ 206,562 209,881
</TABLE>
31
<PAGE>
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
thousands, except shares Wachovia Corporation and Subsidiaries
<TABLE>
<S> <C> <C> <C>
Common Stock
-------------------------- Capital
Shares Amount Surplus
----------- ---------- -----------
Period ended September 30, 1998
Balance at beginning of year ............. 205,926,632 $1,029,633 $ 974,803
Net income ...............................
Unrealized holding gains on securities
available-for-sale, net of tax and
reclassification adjustment .............
Comprehensive income* ..................
Cash dividends declared on common
stock -- $1.37 a share...................
Common stock issued pursuant to:
Stock option and employee benefit plans.. 1,956,037 9,780 87,468
Dividend reinvestment plan .............. 235,799 1,179 17,410
Common stock acquired .................... (6,466,638) (32,333) (499,005)
Acquisitions ............................. 1,099,450 5,497 77,815
Miscellaneous ............................ (568)
----------- ---------- -----------
Balance at end of period ................. 202,751,280 $1,013,756 $ 657,923
============= ========== ===========
Period ended September 30, 1999
Balance at beginning of year ............. 202,986,100 $1,014,931 $ 669,244
Net income ...............................
Unrealized holding losses on securities
available-for-sale, net of tax and
reclassification adjustment .............
Comprehensive income* ..................
Cash dividends declared on common
stock -- $1.52 a share...................
Common stock issued pursuant to:
Stock option and employee benefit plans.. 1,018,957 5,094 100,342
Dividend reinvestment plan .............. 208,182 1,041 16,300
Conversion of debentures ................ 2,304 11 178
Acquisitions ............................. 4,801,989 24,010 399,059
Common stock acquired .................... (6,274,662) (31,373) (505,891)
Miscellaneous ............................ (32)
----------- ---------- -----------
Balance at end of period ................. 202,742,870 $1,013,714 $ 679,200
=========== ========== ===========
<S> <C> <C> <C>
Accumulated
Other Total
Retained Comprehensive Shareholders'
Earnings Income Equity
---------- ------------- -------------
Period ended September 30, 1998
Balance at beginning of year ............. $3,098,767 $ 71,098 $ 5,174,301
Net income ............................... 632,604 632,604
Unrealized holding gains on securities
available-for-sale, net of tax and
reclassification adjustment ............. 60,227 60,227
-------------
Comprehensive income* .................. 692,831
Cash dividends declared on common
stock -- $1.37 a share................... (282,346) (282,346)
Common stock issued pursuant to:
Stock option and employee benefit plans.. 97,248
Dividend reinvestment plan .............. 18,589
Common stock acquired .................... (531,338)
Acquisitions ............................. 83,312
Miscellaneous ............................ (22,838) (23,406)
---------- ------------- -------------
Balance at end of period ................. $3,426,187 $ 131,325 $ 5,229,191
========== ============= =============
Period ended September 30, 1999
Balance at beginning of year ............. $3,571,617 $ 82,440 $ 5,338,232
Net income ............................... 748,285 748,285
Unrealized holding losses on securities
available-for-sale, net of tax and
reclassification adjustment ............. (111,434) (111,434)
-------------
Comprehensive income* .................. 636,851
Cash dividends declared on common
stock -- $1.52 a share................... (309,174) (309,174)
Common stock issued pursuant to:
Stock option and employee benefit plans.. 105,436
Dividend reinvestment plan .............. 17,341
Conversion of debentures ................ 189
Acquisitions ............................. 423,069
Common stock acquired .................... (537,264)
Miscellaneous ............................ (46,565) (46,597)
---------- ------------- -------------
Balance at end of period ................. $3,964,163 $ (28,994) $ 5,628,083
========== ============= =============
</TABLE>
* Comprehensive income for the third quarter of 1999 and 1998 was $239,098 and
$283,702, respectively.
32
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30
-----------------------------
1999 1998
------------- -------------
Operating Activities
Net income ............................................................................... $ 748,285 $ 632,604
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses ............................................................... 231,931 215,376
Depreciation and amortization ........................................................... 178,153 110,388
Deferred income taxes ................................................................... 289,634 180,071
Securities gains ........................................................................ (10,834) (13,035)
Gain on sale of noninterest-earning assets .............................................. (12,833) (4,404)
Increase in accrued income taxes ........................................................ 29,956 79,752
(Increase) decrease in accrued interest receivable ...................................... (26,042) 11,019
Increase in accrued interest payable .................................................... 42,529 14,519
Net change in other accrued and deferred income and expense ............................. 76,003 258,133
Net trading account activities .......................................................... (190,848) (173,561)
Net loans held for resale ............................................................... 244,305 (107,458)
------------- -------------
Net cash provided by operating activities .............................................. 1,600,239 1,203,404
Investing Activities
Net increase in interest-bearing bank balances ........................................... (17,527) (23,327)
Net decrease in federal funds sold and securities purchased under resale agreements ...... 188,920 1,012,034
Purchases of securities available-for-sale ............................................... (2,146,210) (2,945,474)
Purchases of securities held-to-maturity ................................................. (57,339) (394,664)
Sales of securities available-for-sale ................................................... 227,791 208,686
Calls, maturities and prepayments of securities available-for-sale ....................... 1,743,378 2,763,134
Calls, maturities and prepayments of securities held-to-maturity ......................... 171,444 393,813
Net increase in loans made to customers .................................................. (3,395,011) (1,415,772)
Credit card receivables securitized ...................................................... 1,395,954 ----
Capital expenditures ..................................................................... (175,024) (196,690)
Proceeds from sales of premises and equipment ............................................ 23,241 31,023
Net increase in other assets ............................................................. (247,009) (484,019)
Business combinations .................................................................... (11,016) 16,108
------------- -------------
Net cash used by investing activities .................................................. (2,298,408) (1,035,148)
Financing Activities
Net decrease in demand, savings and money market accounts ................................ (221,057) (685,564)
Net decrease in certificates of deposit .................................................. (1,064,822) (3,393,053)
Net increase in federal funds purchased and securities sold under repurchase agreements .. 1,213,243 355,767
Net increase in commercial paper ......................................................... 180,747 374,808
Net (decrease) increase in other short-term borrowings ................................... (452,410) 1,924,629
Proceeds from issuance of bank notes ..................................................... 286,419 259,450
Maturities of bank notes ................................................................. (569,914) (763,857)
Proceeds from issuance of other long-term debt ........................................... 1,296,780 1,050,873
Payments on other long-term debt ......................................................... (73,605) (4,861)
Common stock issued ...................................................................... 35,234 67,417
Dividend payments ........................................................................ (309,174) (282,346)
Common stock repurchased ................................................................. (520,702) (522,750)
Net increase in other liabilities ........................................................ 81,739 196,450
------------- -------------
Net cash used by financing activities .................................................. (117,522) (1,423,037)
Decrease in Cash and Cash Equivalents .................................................... (815,691) (1,254,781)
Cash and cash equivalents at beginning of year ........................................... 3,800,265 4,221,818
------------- -------------
Cash and cash equivalents at end of period ............................................... $ 2,984,574 $ 2,967,037
============= =============
</TABLE>
33
<PAGE>
1999 Form 10-Q
- --------------------------------------------------------------------------------
United States Securities and Exchange Commission
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended September 30, 1999
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 September 30, 1999, Wachovia Corporation had 202,742,870 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 September 30, 1999
are incorporated by reference into Parts I and II as indicated in the table
below. Except for parts of the Wachovia Corporation Financial Supplement
expressly incorporated herein by reference, this Financial Supplement is not to
be deemed filed with the Securities and Exchange Commission.
<TABLE>
<S> <C> <C>
Part I Financial Information
Item 1 Financial Statements (unaudited) Page
Selected Period-End Data ............................... 1
Common Stock Data -- Per Share ......................... 1
Consolidated Statements of Condition ................... 30
Consolidated Statements of Income ...................... 31
Consolidated Statements of Shareholders' Equity ........ 32
Consolidated Statements of Cash Flows .................. 33
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 2-29
Item 3 Quantitative and Qualitative
Disclosures About Market Risk .......................... 16-18
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
Exhibits -- The complete index to exhibits has been filed as separate pages of the third quarter 1999
Form 10-Q. Copies of the complete exhibit list or of exhibits are available in the Edgar database at the SEC
Internet address at www.sec.gov or are available upon request to: Corporate Reporting, Wachovia Corporation,
P.O. Box 3099, Winston-Salem, North Carolina, 27150. A copying fee will be charged for the exhibits. A list of
those exhibits filed herewith is included below.
11 "Computation of Earnings per Common Share" is presented as Table 4 on page 3 of the third quarter
1999 financial supplement.
12 Statement setting forth computation of ratio of earnings to fixed charges.
19 "Unaudited Consolidated Financial Statements," listed in Part I, Item 1 do not include all information
and footnotes required under generally accepted accounting principles. However, in the opinion of
management, the profit and loss information presented in the interim financial statements reflects all
adjustments necessary to present fairly the results of operations for the periods presented.
Adjustments reflected in the third quarter of 1999 figures are of a normal, recurring nature. The
results of operations shown in the interim statements are not necessarily indicative of the results that
may be expected for the entire year.
27 Financial Data Schedule (for SEC purposes only).
Reports on Form 8-K -- None.
</TABLE>
Signatures
- --------------------------------------------------------------------------------
WACHOVIA CORPORATION
<TABLE>
<S> <C> <C> <C>
November 10, 1999 ROBERT S. McCOY, JR. November 10, 1999 DONALD K. TRUSLOW
Robert S. McCoy, Jr. Donald K. Truslow
Vice Chairman Senior Executive Vice President,
Chief Financial Officer Treasurer/Comptroller
</TABLE>
35
<PAGE>
Directors and Officers
Directors of Wachovia Corporation and Wachovia Bank, N.A.
- --------------------------------------------------------------------------------
L.M. BAKER, JR.
Chairman and
Chief Executive Officer
JAMES S. BALLOUN
Chairman, President and
Chief Executive Officer
National Service Industries, Inc.
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
THOMAS K. HEARN, JR.
President
Wake Forest University
GEORGE W. HENDERSON, III
Chairman and
Chief Executive Officer
Burlington Industries, Inc.
W. HAYNE HIPP
Chairman, President and
Chief Executive Officer
The Liberty Corporation
ROBERT A. INGRAM
Chief Executive Officer
Glaxo Wellcome plc
Chairman of the Board
Glaxo Wellcome Inc.
GEORGE R. LEWIS
President and
Chief Executive Officer
Philip Morris Capital Corporation
ELIZABETH VALK LONG
Executive Vice President
Time Inc.
JOHN G. MEDLIN, JR.
Chairman Emeritus
LLOYD U. NOLAND, III
Chairman, President and
Chief Executive Officer
Noland Company
MORRIS W. OFFIT
Chief Executive Officer
OFFITBANK
G. JOSEPH PRENDERGAST
President and
Chief Operating Officer
SHERWOOD H. SMITH, JR.
Chairman Emeritus
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 and
Chief Executive Officer
G. JOSEPH PRENDERGAST
President and
Chief Operating Officer
JEAN E. DAVIS
Senior Executive Vice President
Operations/Technology
MICKEY W. DRY
Senior Executive Vice President
Chief Credit Officer
STANHOPE A. KELLY
Senior Executive Vice President
General Banking
WALTER E. LEONARD, JR.
Vice Chairman
Operations/Technology
KENNETH W. MCALLISTER
Senior Executive Vice President
General Counsel/Administrative Services
ROBERT S. MCCOY, JR.
Vice Chairman
Chief Financial Officer
JOHN C. MCLEAN, JR.
Senior Executive Vice President
Corporate Financial Services
DONALD K. TRUSLOW
Senior Executive Vice President
Treasurer/Comptroller
36
<PAGE>
(WACHOVIA LOGO)
Wachovia Corporation --------------------
P.O. Box 3099 PRSRT STD
Winston-Salem, NC 27150
U.S. POSTAGE PAID
WINSTON-SALEM, N.C.
PERMIT NO. 112
--------------------
#00011-22
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,984,574
<INT-BEARING-DEPOSITS> 128,605
<FED-FUNDS-SOLD> 532,681
<TRADING-ASSETS> 970,027
<INVESTMENTS-HELD-FOR-SALE> 8,014,376
<INVESTMENTS-CARRYING> 1,271,137
<INVESTMENTS-MARKET> 1,295,169
<LOANS> 47,625,021
<ALLOWANCE> 553,894
<TOTAL-ASSETS> 65,805,699
<DEPOSITS> 39,708,850
<SHORT-TERM> 9,770,459
<LIABILITIES-OTHER> 2,122,751
<LONG-TERM> 8,575,556
0
0
<COMMON> 1,013,714
<OTHER-SE> 4,614,369
<TOTAL-LIABILITIES-AND-EQUITY> 65,805,699
<INTEREST-LOAN> 2,943,877
<INTEREST-INVEST> 450,884
<INTEREST-OTHER> 47,573
<INTEREST-TOTAL> 3,442,334
<INTEREST-DEPOSIT> 927,429
<INTEREST-EXPENSE> 1,600,151
<INTEREST-INCOME-NET> 1,842,183
<LOAN-LOSSES> 231,931
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<EXPENSE-OTHER> 1,650,007
<INCOME-PRETAX> 1,141,733
<INCOME-PRE-EXTRAORDINARY> 748,285
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<NET-INCOME> 748,285
<EPS-BASIC> 3.69
<EPS-DILUTED> 3.62
<YIELD-ACTUAL> 4.34
<LOANS-NON> 214,594
<LOANS-PAST> 106,755
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<ALLOWANCE-OPEN> 548,540
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<RECOVERIES> 14,744
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</TABLE>