1998 FORM 10-K
United States Securities and Exchange Commission
Washington, DC 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number 1-9021
WACHOVIA CORPORATION
Incorporated in the State of North Carolina
IRS Employer Identification Number 56-1473727
Address and Telephone:
100 North Main Street, Winston-Salem, North Carolina, 27150, (336) 770-5000
191 Peachtree Street NE, Atlanta, Georgia, 30303, (404) 332-5000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock-$5.00 par value, which is registered on the New York
Stock Exchange.
As of February 4, 1999, Wachovia Corporation had 203,240,721 shares of
common stock outstanding. The aggregate market value of Wachovia Corporation
common stock held by nonaffiliates on February 4, 1999 was approximately $17.241
billion and the number of shares held by nonaffiliates was 203,137,636.
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.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Wachovia Corporation's Proxy Statement for its 1999 Annual
Shareholder's Meeting are incorporated by reference into Part III of this
report. Portions of Wachovia Corporation's Annual Report to Shareholders (the
"Annual Report") for the year ended December 31, 1998 (filed herewith as Exhibit
13) are incorporated by reference into Parts I and II as indicated below. Except
for parts of the Annual Report expressly incorporated herein by reference, this
Annual Report is not to be deemed filed with the Securities and Exchange
Commission.
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PART I PAGE
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Item 1 - Business:
Description of Business 3, 26-59, 89-91, 95-96
Subsidiaries of Wachovia Corporation 93
Average Balance Sheets/Interest/Rates 84-85, 86-87, 88
Volume and Rate Variance Analysis 32, 59
Securities 34, 69
Loans 33, 40, 70, 83
Allowance for Loan Losses and Loan
Loss Experience 41-43, 59
Deposits 35-36, 71, 84-85, 88
Return on Equity and Assets 26, 88
Short-Term Borrowed Funds 36
Item 2 - Properties 93
Item 3 - Legal Proceedings 77
Item 4 - Submission of Matters to a Vote
of Security Holders None
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PART II
Item 5 - Market for Registrant's Common Equity
and Related Stockholder Matters 90-91
Item 6 - Selected Financial Data 26
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 26-59, 95-96
Item 7a - Quantitative and Qualitative
Disclosures About Market Risk 37-39
Item 8 - Financial Statements and Supplementary Data 60-82
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure None
PART III
Item 10 - Directors and Executive Officers of the Registrant
The names, ages and positions of the executive officers of Wachovia as of
January 31, 1999 are shown below along with their business experience during the
past five years and the year of their employment with Wachovia and subsidiaries.
Officers are elected annually by the Board of Directors and hold office for one
year or until their successors are chosen and qualified. There are no family
relationships between any of them, nor is there any arrangement or understanding
between any officer and any other person pursuant to which the officer was
selected. The required information for the directors is included in the Proxy
Statement.
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Name, Age Business Experience During Past
and Position Five Years and Year Employed
- ------------ ----------------------------
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L. M. Baker, Jr., 56 Chairman of the Board of Wachovia Bank, N.A. since April 1998; President and
Chairman of the Board Chief Executive Officer of Wachovia Bank, N.A. since June 1997; Chief Operating
since April 1998; Officer of Wachovia Corporation, February-December 1993; Executive Vice
Director, President since President of Wachovia Corporation until January 1993; President and Chief
1993 and Chief Executive Executive Officer of Wachovia Corporation of North Carolina, January 1990-March
Officer since January 1994 1993. President and Chief Executive Officer of Wachovia Bank of North Carolina,
N.A., January 1990-May 1993. Employed in 1969.
Mickey W. Dry, 59 Executive Vice President of Wachovia Corporation, November 1989-October 1997;
Senior Executive Vice Senior Executive Vice President of Wachovia Bank, N.A. since July 1997;
President since October 1997 Executive Vice President of Wachovia Bank of North Carolina, N.A., October
and Chief Credit Officer 1989-July 1997. Employed in 1961.
since November 1989
Hugh M. Durden, 55 President of Wachovia Corporate Services, Inc. since July 1994; President of
Executive Vice President Wachovia Trust Services, Inc., January -June 1994; Executive Vice President of
since 1994 Wachovia Bank, N.A.; Western Division Executive, Wachovia Bank of North
Carolina, N.A., 1991-1994; Employed in 1972.
Stanhope A. Kelly, 41 Senior Vice President of Wachovia Corporation, 1996-1997; Regional Vice
Executive Vice President President of Wachovia Bank of North Carolina, N.A., 1994-1996. Employed in 1980.
since October 1997
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Name, Age Business Experience During Past
and Position Five Years and Year Employed
- ------------ ----------------------------
Robert S. Kniejski, 43 Executive in charge of Wachovia Corporation's Personal Financial Services Group
Executive Vice President since 1995 (Chairman of Wachovia Investments, Inc. and Wachovia Insurance
since October 1997 Services, Inc., Director and President of Wachovia Trust Services, Inc.); Senior
Vice President of Wachovia Corporation, 1996-1997; Senior Vice President/Group
Executive of Wachovia Investments, Inc., 1993-1995; Senior Vice President/Group
Executive of Wachovia Bank, N.A. since 1991.
Employed in 1987.
Walter E. Leonard, Jr., 53 Executive Vice President of Wachovia Corporation, October 1988-October 1997;
Senior Executive Vice Senior Executive Vice President of Wachovia Bank, N.A. since July 1997;
President since October 1997 Executive Vice President of Wachovia Bank of Georgia, N.A. until June 1997;
President of Wachovia Operational Services Corporation since 1988. Employed in 1965.
Kenneth W. McAllister, 50 Executive Vice President of Wachovia Corporation, January 1994-October 1997.
Senior Executive Vice Employed in 1988.
President since October 1997
and General Counsel
since 1988
Robert S. McCoy, Jr., 60 Executive Vice President of Wachovia Corporation, January 1992-October 1997;
Senior Executive Vice Senior Executive Vice President of Wachovia Bank, N.A. since July 1997;
President since October 1997 Executive Vice President of Wachovia Bank of North Carolina, N.A., 1992-1997;
and Chief Financial Officer Chief Financial Officer of Wachovia Bank of North Carolina, N.A. since 1992.
since September 1992. Employed in 1984.
John C. McLean, Jr., 50 Executive in charge of Wachovia Corporation's capital markets and investment
Executive Vice President banking activities since September 1997 (Director of Wachovia Capital Markets,
since October 1997 Inc. and related subsidiaries since September 1997; President and CEO September
1997-April 1998); Senior Vice President of Wachovia Corporation, 1993-1997;
Division Executive for Consumer Credit and Emerging Businesses, 1996-1997;
Comptroller of Wachovia Corporation, 1993-1996; Senior Vice President of
Wachovia Bank, N.A., 1990-1993. Employed in 1975.
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Name, Age Business Experience During Past
and Position Five Years and Year Employed
- ------------ -------------------------------
G. Joseph Prendergast, 53 Executive Vice President of Wachovia Corporation, October 1988-October 1997;
Senior Executive Vice Senior Executive Vice President of Wachovia Bank, N.A. since July 1997; Chairman
President since October 1997 of Wachovia Bank of Georgia, N.A., January 1994-June 1997; Chairman of Wachovia
Bank of South Carolina, N.A., July 1995-June 1997; President and Chief Executive
Officer of Wachovia Bank of Georgia, N.A., January 1993-January 1995; President
and Chief Executive Officer of Wachovia Corporate Services, Inc. until July
1994; President and Chief Executive Officer of Wachovia Corporation of Georgia,
January 1993-March 1993; Employed in 1973.
Donald K. Truslow, 40 Senior Vice President of Wachovia Corporation, April 1996-October 1997;
Executive Vice President Executive Vice President, Wachovia Corporate Services, September 1995-April
since October 1997, Comptroller 1996; Executive Vice President and Chief Credit Officer, Wachovia Bank of South
since June 1996 and Treasurer Carolina, N.A., January 1992-Septermber 1995. Employed in 1980.
since January 1998
Beverly B. Wells, 48 Manager of Consumer Lending and Emerging Businesses since September 1997;
Executive Vice President President of Wachovia Bank Card Services, 1994-1997; Manager of Wachovia
since October 1997 Treasury Services, 1993-1994; Employed in 1976.
</TABLE>
During the past five years, there have been no events under any bankruptcy act,
no criminal proceedings and no judgments or injunctions material to an
evaluation of the ability or integrity of any of Wachovia's executive officers,
directors, or any persons nominated to become directors.
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Item 11 - Executive Compensation Proxy Statement
Item 12 - Security Ownership of Certain
Beneficial Owners and Management Proxy Statement
Item 13 - Certain Relationships and Related
Transactions Proxy Statement
PART IV
Item 14 - Exhibits, Financial Statement
Schedules and Reports on Form 8-K
Exhibits See Separate Index
Financial Statement Schedules None
Reports on Form 8-K 94
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SIGNATURES
Pursuant to the requirements to Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on January 22, 1999.
WACHOVIA CORPORATION
ROBERT S. McCOY, JR.
- --------------------
Robert S. McCoy, Jr.
Senior Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on January 22, 1999.
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L. M. BAKER, JR.
- ---------------- The Directors of Wachovia Corporation (listed below) have executed a power of
L. M. Baker, Jr. attorney appointing Kenneth W. McAllister, their attorney-in-fact, empowering
Chairman of the Board, President and him to sign this report on their behalf:
Chief Executive Officer
ROBERT S. McCOY, JR.
- ------------------- JAMES S. BALLOUN W. HAYNE HIPP
Robert S. McCoy, Jr. JAMES F. BETTS ROBERT A. INGRAM
Senior Executive Vice President PETER C. BROWNING GEORGE R. LEWIS
and Chief Financial Officer JOHN T. CASTEEN, III ELIZABETH VALK LONG
JOHN L. CLENDENIN JOHN G. MEDLIN, JR.
LAWRENCE M. GRESSETTE, JR. LLOYD U. NOLAND, III
DONALD K. TRUSLOW THOMAS K. HEARN, JR. SHERWOOD H. SMITH, JR.
- ----------------- GEORGE W. HENDERSON, III JOHN C. WHITAKER, JR.
Donald K. Truslow
Executive Vice President, Comptroller
and Treasurer
KENNETH W. McALLISTER
----------------------
Kenneth W. McAllister
Attorney-in-Fact
</TABLE>
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Exhibits
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2.1 Agreement and Plan of Merger, dated as of October 27, 1998 by and between Wachovia Corporation and
Interstate/Johnson Lane, Inc. (Exhibit 2.1 to Form S-4 Registration Statement of Wachovia
Corporation, dated December 14, 1998, File No. 333-68823*).
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 Form of Indenture dated July 15, 1998 between The Chase Manhattan Bank, as trustee, and Wachovia Corporation
relating to subordinated debt securities (Exhibit 4 (b) to Form S-3 Registration Statement of
Wachovia Corporation, File No. 333-59165*).
4.8 Indenture dated as of August 15, 1996 between Wachovia Corporation and The Chase Manhattan Bank, as
Trustee, relating to senior securities (Exhibit 4(a) of Post-Effective Amendment No. 1 to Form S-3
(Shelf) Registration Statement of Wachovia Corporation, File No. 33-6280*).
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1
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4.9 Indenture between Wachovia Corporation, Wachovia Capital Trust II and First National Bank of Chicago, as Trustee,
relating to Floating Rate Junior Subordinated Deferrable Interest Debentures (Junior Subordinated Debentures).
(Exhibit 4(c) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia Corporation and
Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365.)
4.10 Amended and Restated Declaration of Trust of Wachovia Capital Trust II, relating to Preferred
Securities (Exhibit 4(b)(iv) of Amendment No. 1 to Form S-3 Registration Statement of Wachovia
Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365).
4.11 Preferred Securities Guarantee Agreement of Wachovia Corporation (Exhibit 4 (g) of Amendment No. 1
to Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II dated
January 22, 1997, File No. 333-19365).
4.12 Indenture between Central Fidelity Banks, Inc. and Chemical Bank, as Trustee, relating to
$150,000,000 principal amount of subordinated debt securities (Exhibit 4.1 to Form 8-K of Central
Fidelity Banks, Inc., dated November 18, 1992, File No. 0-8829).
4.13 Indenture between Central Fidelity Banks, Inc., Central Fidelity Capital Trust I and The Bank of
New York, as Trustee, relating to $100,000,000 Floating Rate Junior Subordinated Debentures
(Exhibit 4.1 to Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23,
1997, File No. 333-28917).
4.14 Amended and Restated Declaration of Trust of Central Fidelity Capital Trust I (Exhibit 4.4 to Form S-3
Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File No. 333-28917).
4.15 Form of New Guarantee Agreement for the benefit of the holders of the Trust Securities (Exhibit 4.6 to
Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated as of April 23,
1997, File No. 333-28917).
10.1** Deferred Compensation Plan of Wachovia Bank of North Carolina, N.A. (Exhibit 10.1 to Report on Form 10-K
of Wachovia Corporation for the fiscal year ended December 31,1992, File No. 1-9021*).
10.2** 1983 Amendment to Deferred Compensation Plan described in Exhibit 10.1 hereto (Exhibit 10.2 to Report on
Form 10-K Wachovia Corporation for the fiscal year ended December 31, 1992, File No. 1-9021*).
10.3** 1986 Amendment to Deferred Compensation Plan described in Exhibit 10.1 hereto (Exhibit 10.9 to Report on
Form 10-K of First Wachovia Corporation for the fiscal year ended December 31, 1986, File No. 1-9021*).
10.4** Senior Management Incentive Plan of Wachovia Corporation as amended through April 22, 1994 (Exhibit 10.2 to
Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended March 31, 1994, File No. 1-9021*).
10.5** Retirement Savings and Profit-Sharing Benefit Equalization Plan of Wachovia Corporation (Exhibit 10.3 to
Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995,
File No. 1-9021*).
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10.6** Form of Employment Agreement between Wachovia Corporation and L.M. Baker, Jr., Robert S. McCoy, Jr.,
G. Joseph Prendergast and Walter E. Leonard, Jr. (Exhibit 10 to Quarterly Report on Form 10-Q of
Wachovia Corporation for the quarter ended March 31, 1997, File No. 1-9021*).
10.7** Form of Employment Agreement between Wachovia Corporation and Hugh M. Durden (Exhibit 10.12 to Report
on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1996, File No. 1-9021*).
10.8** Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit 10.13 to Report on
Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1998, File No. 1-9021*)
10.9** Executive Retirement Agreement between Wachovia Corporation and Mr. John G. Medlin, Jr. (Exhibit
10.18 to Report on Form 10-K of First Wachovia Corporation for the fiscal year ended December 31,
1987, File No. 1-9021*).
10.10** Amendment to Executive Retirement Agreement described in Exhibit 10.9 hereto (Exhibit 10.17 to
Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1991,
File No. 1-9021*).
10.11** Amendment to Executive Retirement Agreement described in Exhibit 10.9 hereto (Exhibit 10.3 to
Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993,
File No. 1-9021*).
10.12** Amendment to Executive Retirement Agreement described in Exhibit 10.9 hereto (Exhibit 10.4 to Quarterly
Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30, 1993,
File No. 1-9021*).
10.13** Form of Executive Retirement Agreements between Wachovia Corporation and Messrs. L.M. Baker, Jr.,
G. Joseph Prendergast, Walter E. Leonard, Jr., and Hugh M. Durden, dated as of January 27, 1995
(Exhibit 10.1 to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June
30, 1995, File No. 1-9021*).
10.14** Executive Retirement Agreement between Wachovia Corporation and Mr. Robert S. McCoy, Jr. (Exhibit 10.2
to Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1995,
File No. 1-9021*).
10.15** Amendment to Executive Retirement Agreements described in Exhibits 10.13 and 10.14 hereto (Exhibit 10.21
to Report on Form 10-K of Wachovia Corporation for the fiscal year ended December 31, 1996,
File No. 1-9021*).
10.16** Senior Management and Director Stock Plan of Wachovia Corporation (Exhibit 10 to Quarterly Report on
Form 10-Q of First Wachovia Corporation for the quarter ended March 31, 1989, File No. 1-9021*).
10.17** 1990 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.16
hereto (Exhibit 10.17 to Report on Form 10-K of First Wachovia Corporation for fiscal year
ended December 31, 1989, File No. 1-9021*).
10.18** 1996 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.16
hereto (Exhibit 10.24 to Report on Form 10-K of Wachovia Corporation for fiscal year ended
December 31, 1996, File No. 1-9021*).
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10.19** Deferred Compensation Plan dated as of January 19, 1987, as amended (Exhibit 10(c) to Report on Form 10-K
of South Carolina National Corporation for the fiscal year ended December 31, 1986,
File No. 0-7042*).
10.20** Amendment to Deferred Compensation Plan described in Exhibit 10.19 hereto (Exhibit 19(b) to
Quarterly Report on Form 10-Q of South Carolina National Corporation for the quarter ended September 30,
1987, File No. 0-7042*).
10.21** Amendment to Deferred Compensation Plan described in Exhibit 10.19 hereto (Exhibit 10(d) to Report on Form 10-K
of South Carolina National Corporation for the fiscal year ended December 31, 1988, File No. 0-7042*).
10.22** Amendment to Deferred Compensation Plan described in Exhibit 10.19 hereto (Exhibit 10.35 to Report on Form 10-K
of Wachovia Corporation for the fiscal year ended December 31, 1993, File No. 1-9021*).
10.23** Amended and Restated Wachovia Corporation Stock Plan (Exhibit 4.1 to S-8 Registration Statement No. 033-53325*).
10.24** Wachovia Corporation Director Deferred Stock Unit Plan (Exhibit 10.37 to Report on Form 10-K of
Wachovia Corporation for the fiscal year ended December 31, 1996, File No. 1-9021*).
10.25** Wachovia Corporation Incentive Plan Deferral Arrangement (Exhibit 10.35 to Report on Form 10-K of
Wachovia Corporation for the fiscal year ended December 31, 1995, File No. 1-9021*).
10.26** Wachovia Corporation Executive Insurance Plan (Exhibit 10.36 to Report on Form 10-K of Wachovia Corporation
for the fiscal year ended December 31, 1995, File No. 1-9021*).
10.27** Executive Long Term Disability Income Plan. (Exhibit 10.34 to Report on Form 10-K of Wachovia
Corporation for the fiscal year ended December 31, 1997, File No. 1-9021*)
10.28 Form 11-K of the Retirement Savings and Profit Sharing Plan of Wachovia Corporation, to be filed as an amendment
to Form 10-K for the year ended December 31, 1998.
11 Computation of Earnings Per Share (Note P on page 79 of the 1998 Annual Report Exhibit 13 hereto*).
12 Statement setting forth computation of ratio of earnings to fixed charges.
13 Wachovia Corporation 1998 Annual Report with the Report of Independent Auditors therein being manually signed in
one copy by Ernst & Young LLP. (Except for those portions expressly incorporated by reference herein, this report
is not "filed" as a part of this Report on Form 10-K.)
21 List of subsidiaries (Page 93 of the 1998 Annual Report (Exhibit 13 hereto)*)
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG LLP.
24 Power of Attorney
27 Financial Data Schedule (for SEC purposes only).
99.1 Opinion of KPMG LLP, Independent Accountants, on the financial statements of Central Fidelity
National Bank and subsidiaries, a wholly-owned subsidiary of Wachovia Corporation.
99.2 Opinion of KPMG LLP, Independent Accountants, on the financial statements of Central Fidelity
Banks, Inc. and subsidiaries.
</TABLE>
* Incorporated by reference.
** Management contract or compensatory plan or arrangement of the corporation
required to be filed as an exhibit.
4
EXHIBIT 12
WACHOVIA CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
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(A) Excluding interest on deposits 1998 1997 1996 1995 1994
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------------ ------------- ------------ ------------- ------------
Earnings:
Income before income taxes $1,303,781 $869,119 $1,100,308 $1,023,290 $885,402
Less capitalized interest (593) (167) - (1,530) (362)
Fixed charges 976,201 884,806 900,277 885,040 603,157
------------ ------------- ------------ ------------- ------------
Earnings as adjusted $2,279,389 $1,753,758 $2,000,585 $1,906,800 $1,488,197
============ ============= ============ ============= ============
Fixed charges:
Interest on purchased and other
short term borrowed funds $563,846 $478,162 $482,236 $527,765 $318,301
Interest on long-term debt 390,662 387,107 399,796 340,211 267,841
Portion of rents representative of the
interest factor (1/3) of rental expense 21,693 19,537 18,245 17,064 17,015
------------ ------------- ------------ ------------- ------------
Fixed charges $976,201 $884,806 $900,277 $885,040 $603,157
============ ============= ============ ============= ============
Ratio of earnings to fixed charges 2.33 X 1.98 X 2.22 X 2.15 X 2.47 X
(B) Including interest on deposits:
Adjusted earnings from (A) above $2,279,389 $1,753,758 $2,000,585 $1,906,800 $1,488,197
Add interest on deposits 1,359,705 1,303,549 1,203,739 1,143,179 782,864
------------ ------------- ------------ ------------- ------------
Earnings as adjusted $3,639,094 $3,057,307 $3,204,324 $3,049,979 $2,271,061
============ ============= ============ ============= ============
Fixed charges:
Fixed charges from (A) above $976,201 $884,806 $900,277 $885,040 $603,157
Interest on deposits 1,359,705 1,303,549 1,203,739 1,143,179 782,864
------------ ------------- ------------ ------------- ------------
Adjusted fixed charges $2,335,906 $2,188,355 $2,104,016 $2,028,219 $1,386,021
============ ============= ============ ============= ============
Adjusted earnings to adjusted fixed 1.56 X 1.40 X 1.52 X 1.50 X 1.64 X
charges
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1998
ANNUAL REPORT
AND FORM 10-K
[WACHOVIA LOGO APPEARS HERE]
- --------------------------------------------------------------------------------
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Contents
Financial Highlights ..............................................2
Wachovia Corporation ..............................................3
Selected Year-End Data ............................................3
Forward-Looking Statements ........................................3
Letter to Shareholders ............................................4
Special Section -- Continuous Relationship Management .............9
Management's Discussion and Analysis
of Financial Condition and Results of Operations ...............26
Results of Operations -- 1998 vs. 1997 ...........................27
Year 2000 Discussion .............................................46
Shareholders' Equity and Capital Ratios ..........................50
Fourth Quarter Analysis ..........................................53
Results of Operations -- 1997 vs. 1996 ...........................57
Management's Responsibility for Financial Reporting ..............60
Report of Independent Auditors ...................................60
Financial Statements .............................................61
Six-Year Financial Summaries .....................................83
Historical Comparative Data ......................................89
Stock Data .......................................................90
1998 Form 10-K ...................................................92
Supervision and Regulation .......................................95
Directors and Officers ...........................................97
Shareholder Information ..........................................98
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Financial Highlights
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Percent
1998 1997 Change
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Earnings and Dividends
(thousands, except per share data)
Net income (1) ........................................... $ 874,170 $ 592,806 47.5
Cash dividends paid on common stock ...................... 381,798 327,303 16.6
Payout ratio (total cash dividends / net income) ......... 43.7 % 55.2 %
Net income per common share:
Basic ................................................... $ 4.26 $ 2.99 42.5
Diluted ................................................. $ 4.18 $ 2.94 42.2
Cash dividends paid per common share (2) ................. $ 1.86 $ 1.68 10.7
Average basic shares outstanding ......................... 205,058 198,290 3.4
Average diluted shares outstanding ....................... 209,153 201,901 3.6
Return on average assets ................................. 1.37% 1.03%
Return on average shareholders' equity ................... 16.92 13.08
Balance Sheet Data at Year-End
(millions, except per share data)
Total assets ............................................. $ 64,123 $ 65,397 (1.9)
Interest-earning assets .................................. 56,537 57,335 (1.4)
Loans -- net of unearned income .......................... 45,719 44,194 3.5
Deposits ................................................. 40,995 42,654 (3.9)
Interest-bearing liabilities ............................. 48,558 50,100 (3.1)
Shareholders' equity ..................................... 5,338 5,174 3.2
Shareholders' equity to total assets ..................... 8.32% 7.91%
Risk-based capital ratios:
Tier I capital .......................................... 7.99 8.43
Total capital ........................................... 11.34 11.11
Per share:
Book value .............................................. $ 26.30 $ 25.13 4.7
Common stock closing price (NYSE) ....................... 87.44 81.13 7.8
Price/earnings ratio (3) ................................ 20.92 x 27.59 x
Excluding Effects of Nonrecurring Items (1)
(thousands, except per share data)
Net income ............................................... $929,847 $799,929 16.2
Net income per diluted common share ...................... $ 4.45 $ 3.96 12.4
Return on average assets ................................. 1.45% 1.39%
Return on average shareholders' equity ................... 17.99 17.65
Price/earnings ratio (3) ................................. 19.65x 20.49x
</TABLE>
(1) Nonrecurring items in 1998 include merger-related charges of $85,312 and in
1997 include merger-related charges of $231,175, a personal computer
impairment charge of $67,202 and securities losses of $4,639 resulting from
restructuring the available-for-sale portfolio.
(2) Cash dividends per common share in 1997 are those of Wachovia Corporation
paid prior to merger with Central Fidelity Banks, Inc.
(3) Price earnings ratio is based on end-of-year stock price and net income per
diluted share.
2
<PAGE>
- -------------------------------------------------------
Wachovia Corporation
- --------------------------------------------------------------------------------
Wachovia Corporation is an interstate bank holding company providing financial
services to consumers and corporations. At December 31, 1998, Wachovia's assets
of $64.1 billion and market capitalization of $17.7 billion both ranked 16th
among U. S. banking companies. Wachovia offers credit and deposit services,
insurance, investment and trust products, and information services to
consumers, primarily in Florida, Georgia, North Carolina, South Carolina and
Virginia, and to corporations both in and outside the United States. Consumer
products and services are provided through a network of retail branches, ATMs,
Wachovia On-Call telephone banking, automated Phone Access and internet-based
investing and banking at www.wachovia.com. In addition, Wachovia serves
consumers nationwide through its credit card business. Wachovia provides global
solutions to corporate clients through locations in Chicago, London, New York
and Sao Paulo, through representatives in Hong Kong and Tokyo, and through
worldwide strategic alliances. Founded in 1879, Wachovia maintains dual
headquarters in Winston-Salem, North Carolina, and Atlanta, Georgia.
- ------------------------------------------------------------
Selected Year-End Data
- --------------------------------------------------------------------------------
<TABLE>
1998 1997 1996 1995 1994 1993
--------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Trust assets (millions):
Discretionary management ..................... $ 42,025 $ 33,568 $ 26,161 $22,409 $18,122 $18,904
Total ........................................ $138,130 $129,079 $108,557 $97,952 $83,973 $97,451
Banking offices:
North Carolina ............................... 198 201 220 219 216 223
Virginia ..................................... 263 341 242 242 228 228
Georgia ...................................... 131 130 123 124 127 129
South Carolina ............................... 120 125 145 146 150 157
Florida ...................................... 40 33 ---- ---- ---- ----
--------- -------- -------- ------- ------- -------
Total ..................................... 752 830 730 731 721 737
========= ======== ======== ======= ======= =======
Automated banking machines:
North Carolina ............................... 446 423 351 328 297 251
Virginia ..................................... 304 325 221 211 194 195
Georgia ...................................... 299 282 222 204 189 180
South Carolina ............................... 289 272 213 180 166 167
Florida ...................................... 34 6 ---- ---- ---- ----
--------- -------- -------- ------- ------- -------
Total ..................................... 1,372 1,308 1,007 923 846 793
========= ======== ======== ======= ======= =======
Employees (full time equivalent) .............. 20,936 21,652 19,969 19,642 19,148 18,989
Common stock shareholders ..................... 53,971 55,681 47,892 42,868 43,503 45,838
Common shares outstanding (thousands) ......... 202,986 205,927 201,253 208,341 208,095 208,253
</TABLE>
- -----------------------------------------------------------------------
Forward-Looking Statements
- --------------------------------------------------------------------------------
The Annual Report and Form 10-K 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.
3
<PAGE>
Letter To Shareholders
Dear Wachovia Shareholder
Wachovia achieved strong performance in 1998 while strengthening its ability to
serve customers. Once again, in a difficult and challenging environment, the
considerable strengths of Wachovia stood out.
For the full year, operating earnings were $4.45 per diluted share compared with
$3.96 in 1997. Operating net income totaled $929.8 million versus $799.9
million. Operating earnings exclude merger-related expenses of $85.3 million,
pretax, for 1998 and special charges in the 1997 fourth quarter totaling $303
million, pretax, primarily for merger integration expenses. Including the
special charges, Wachovia's net income for 1998 was $874.2 million or $4.18 per
diluted share compared with $592.8 million or $2.94 per diluted share for 1997.
On an operating basis, Wachovia's return on shareholders' equity was 18 percent,
and return on assets was 1.45 percent compared with five-year averages of 17.2
percent and 1.38 percent, respectively. Average common equity to assets was 8.08
percent for 1998.
Net loan losses were .67 percent of average loans. Losses were .11 percent,
excluding the credit card portfolio. At December 31, nonperforming assets were
.40 percent of loans and foreclosed property and the corporation's reserve
coverage of nonperforming loans was 349 percent. Wachovia's overhead or
efficiency ratio on a core operating basis was 52.7 percent. A series of graphs
depicting Wachovia's performance compared with the median for the 25 largest
U.S. banks is presented on page 89.
The total return on Wachovia's common stock, including price appreciation and
reinvested dividends, was 10.2 percent for 1998. This compares with 8.3 percent
for the Keefe, Bruyette & Woods Index of 50 money center and regional banks and
28.6 percent for the Standard & Poor's 500 Index. The five-year compound annual
total return for Wachovia was 25 percent. For the KBW Index and the S&P 500
Index, it was 27.8 percent and 24.1 percent, respectively.
4
<PAGE>
Letter to Shareholders
Strong revenue growth drove Wachovia's 1998 financial performance. Total revenue
advanced $468.8 million for the year, with fee-based income contributing 47
percent of the growth. This diverse and robust revenue stream reflects
Wachovia's ability to achieve growth in key lines of business. A new story is
being written at Wachovia. That story tells of an unwavering commitment to
growth and excellent revenue gains.
[GRAPHIC APPEARS ON RIGHT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
DIVERSE, ROBUST
REVENUE STREAM
At the end of 1998, Wachovia had relationships with 3.5 million households and
200,000 small businesses in the Carolinas, Florida, Georgia and Virginia. In
addition, Wachovia had 28,000 large and middle market corporate relationships in
its home markets, nationally and abroad. Wachovia's merger with
Interstate/Johnson Lane, a leading regional securities firm in Charlotte, North
Carolina, will add more customers and strengthen product and service
capabilities for consumers and corporate capital markets customers. The merger
is expected to be consummated in early April 1999.
Expense growth during 1998 principally reflects investment spending to attract,
motivate and retain high-performing people, strengthen service delivery,
enhance products and strengthen capabilities in technology. The growth rate in
expenses is expected to moderate. Wachovia's attractive results have been
achieved even as the corporation has continued to invest.
The ability of financial service companies to grow at an attractive rate while
managing risk and costs will become more challenging as the structural change
permeating our society accelerates. Four fundamental factors are propelling this
change. They include lower nominal growth, forces at work favoring deflation,
the transition to a global construct, and a revolution in technology and
communication.
America finds itself in an economy where nominal growth will be subdued. A
nominal growth rate of about three to five percent is a dramatic swing from
double-digit nominal growth experienced during the 1980s. Inflation will not
provide the pricing buoyancy that helped many corporations
5
<PAGE>
Letter to Shareholders
sustain top-line growth in the past. In the future, the economy will perform
well but at a more moderate pace, and many businesses in America may be hard
pressed to achieve sustainable earnings growth.
From time to time in the coming decade, price levels will be deflationary. In
some cases, the cost of raw materials may moderate, reflecting new processing
and extractive techniques influenced by technology. Labor costs will be kept
subdued by an abundance of low wage talent from the emerging world. New
capabilities arising from technology will make manufacturing more efficient.
While investment in technology remains high, the cost of technology longer term
is a moderating factor potentially helping to retard expense growth.
Consumers are informed and aggressive in seeking discounts. They buy by
telephone and computers. Corporations have new procurement efforts under way
dramatically wringing costs from purchases of goods and services. The whole
world is searching for bargains.
The third major factor at work is the global construct. Today, the world is
defined by capital, ideas and energy. These do not abide by artificial or
political boundaries. New and exciting uses of information are changing
traditional alignments. Many countries are experiencing difficulty adjusting to
the new global economy. Their currency values are under extreme pressure as they
struggle to compete. This has subdued the rate of growth in global economies but
it does not alter the long-term attractiveness of emerging markets. Around the
world millions of people are free and they will work hard to achieve a better
life.
Finally, the most significant factor is the rapid diffusion of technology
throughout society and the ability to use information more productively. In
history, major changes in products, processes and technology have evolved
through gradual periods of development. For decades, computers and communication
systems processed information for select audiences. Information was controlled
by large entities such as governments, universities and large corporations. Now,
useful technology and inexpensive information are available to everyone.
Information is diffused throughout society and across the globe.
6
<PAGE>
Letter To Shareholders
For almost every purpose, large and small organizations and individuals have
economical access to vast storehouses of knowledge. The lower cost and greater
availability of information make it a trump card for innovators and, in the
future, this incredible capability will destroy artificial, inefficient
structures at all levels of society. This revolution threatens the existence of
traditional distribution systems.
The combination of lower nominal growth, deflationary pressures, the global
construct, and the permeation of knowledge and technology places the world in an
unprecedented period of revolution. America, the world's leader in innovation,
is undergoing painful change. Financial service companies are at a critical
juncture. How do they embrace change and continue to grow and generate earnings
that reward investors?
Wachovia is very optimistic about the future and the potential for meeting the
financial needs of its customers. I have mentioned before and still believe that
customers to a large degree remain poorly served by the financial service
industry. They have a growing appetite for information, service and solutions
from someone they trust. This is an ideal environment for Wachovia. Throughout
Wachovia you will find people who possess integrity, professionalism and a
passion for outstanding service to customers. They deliver a robust menu of
consumer and corporate products supported by outstanding technology. Wachovia
enjoys an enviable track record of risk management, strong capital and reliable
earnings.
[GRAPHIC APPEARS ON RIGHT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
IDEAL ENVIRONMENT
FOR WACHOVIA
In recent years, Wachovia has worked hard to aggressively prepare for this new
world. We have rebuilt businesses to achieve sound growth. Existing products
have been strengthened and new ones added. Technology investment has been
deployed more directly to support sales and service. Mergers, acquisitions and
alliances have allowed us access to new customers and capabilities. Our capital
base, which is always strong, is being more effectively invested.
7
<PAGE>
Letter to Shareholders
Wachovia faces the future exceptionally well positioned to serve customers and
generate attractive growth. The section following describes Wachovia's
Continuous Relationship Management strategy. This effort is helping us grow.
[GRAPHIC APPEARS ON LEFT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
WACHOVIANS SERVING
CUSTOMERS, COMMUNITIES
Wachovians across the company have been extraordinarily busy serving customers,
strengthening capabilities and expanding into new markets. But as Wachovians,
they also find time to serve fellow human beings. They devote countless hours to
church, civic and charitable organizations. Their own citizenship is mirrored by
the company. Wachovia's Community Development Corporation has increased its
lending. A new affordable mortgage lending sales force has been deployed.
Communities continue to benefit from Wachovia's financial support. As we address
the exciting and demanding realities of a new environment, exemplary corporate
citizenship remains a defining characteristic of Wachovia.
Thank you for your loyalty and support. Your comments are always welcomed.
Sincerely,
/s/ L. M. Baker, Jr.
L. M. Baker, Jr.
Chief Executive Officer
February 26, 1999
8
<PAGE>
<PAGE>
[GRAPHIC APPEARS BELOW WITH THE FOLLOWING INFORMATION:]
A.
BY ADDING VALUE TO CUSTOMER
RELATIONSHIPS THROUGH
A DISTINCTIVE
CONTINUOUS RELATIONSHIP
MANAGEMENT STRATEGY.
10
<PAGE>
[GRAPHICS APPEAR BELOW WITH THE FOLLOWING INFORMATION:]
ACQUIRING CUSTOMERS
Attracting a larger share of
excellent customers in current
markets and through expansion
into new territory.
MANAGING CUSTOMER
INFORMATION
Managing information in a way
that continually renews and revises
intelligence about customers to
better serve them.
STRENGTHENING
CUSTOMER
RELATIONSHIPS
Creating closer ties with and
becoming more important to
customers, resulting in a higher
level of profitable business in
each relationship.
COST-TO-SERVE
Continued emphasis on effective
resource management.
11
<PAGE>
[GRAPHIC APPEARS BELOW WITH THE FOLLOWING INFORMATION:]
Q. HOW DOES WACHOVIA CREATE ENHANCED EARNINGS GROWTH?
<PAGE>
A. BY BUILDING ON WACHOVIA'S STRONG FOUNDATION TO SUCCESSFULLY EXECUTE
CONTINUOUS RELATIONSHIP MANAGEMENT.
On the threshold of the 21st century, Wachovia is well positioned to continue
producing attractive financial returns. Current aspirations are for:
o Annual earnings per share growth of 10 to 12 percent over time.
o Return on equity of 18 to 20 percent.
o Return on assets of 1.45 percent.
o Continued dividend growth with a payout ratio of 40 percent.
These targets are dependent on the continuation of an attractive economic
environment and Wachovia's ability to successfully develop and implement
strategies and initiatives, which allow the corporation to profitably add value
for a growing number of customers.
This performance will distinguish the corporation during a time when the
environment will be exceptionally challenging. In the coming decade, the economy
will grow more slowly but it will still grow. Global opportunities will
influence the behavior of corporations. Consumers will demand more value.
Knowledge distribution and service and sales delivery will be transformed by
technology. Organizations that ignore or are unprepared for these issues will
not prosper and some may not survive. Those anticipating and embracing dramatic
change will offer exceptional value for shareholders.
12
<PAGE>
We are optimistic about the outlook for Wachovia. The company has an enviable
history of rewarding shareholders since its founding in 1879. We believe
prospects for the future are bright and the company is well positioned.
In the future, the solution for growing revenue and sustaining profitability
lies in bringing value to customers. Wachovia has its customers' best interests
at heart. We use information to identify needs, offer solutions to problems and
deliver unparalleled service. This differentiating strategy is implemented by a
process we call Continuous Relationship Management (CRM). Several essential and
historic Wachovia characteristics form a strong foundation for CRM. They include
outstanding risk management, exemplary service quality, knowledgeable and
engaged employees, and a distinctive reputation for trust and integrity. CRM is
extremely difficult to deliver and requires competence in certain critical
capabilities:
o Acquiring Customers - attracting a larger share of excellent customers in
currently served markets and through expansion into new territory.
o Strengthening Customer Relationships - creating closer ties with and
becoming more important to customers. This results in a higher level of
profitable business from each relationship.
o Cost-To-Serve - continued emphasis on effective resource management.
o Managing Customer Information - managing information in a way that
continually renews and revises intelligence about customers in order to
better serve them. This is a fundamental capability. It enables Wachovia
to more effectively refine strategies, acquire and strengthen customer
relationships, manage expenses and better focus on acquisition
initiatives.
[GRAPHIC APPEARS ON RIGHT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
WACHOVIA'S
PROCESS FOR
ENHANCED EARNINGS
ACQUIRING
CUSTOMERS
MANAGING
CUSTOMER
INFORMATION
STRENGTHENING
CUSTOMER
RELATIONSHIPS
COST-TO-SERVE
Some financial service companies are working on Continuous Relationship
Management, but few have developed and aligned strategies across these elements.
Even fewer, if any, are weaving them together across geography, distribution
channels, product lines and customer segments.
By executing CRM through a multitude of consumer and corporate initiatives,
Wachovia has developed diverse streams of revenue from a variety of new and
existing customers, across business lines and in markets with high potential for
growth. This disciplined approach to markets helps Wachovia stand out in the
minds of customers.
13
<PAGE>
ACQUIRING CUSTOMERS
The ability to attract the right new customer is the next horizon in revenue and
earnings growth. As technology and competition neutralize service advantage and
compress margins, it is vital to be in attractive markets and to find innovative
ways to win relationships.
[GRAPHICS APPEAR BELOW WITH THE FOLLOWING INFORMATION:]
WHERE ARE YOU?
A. BY ATTRACTING MORE CUSTOMERS IN EXISTING MARKETS WITH A SUPERIOR BLEND OF
SERVICE, SOLUTIONS, CAPABILITIES AND CONVENIENCE.
WE ARE HERE.
Wachovia is in the heart of a rich economic area. The corporation serves 3.5
million households and approximately 200,000 small businesses with annual sales
of up to $2 million in North and South Carolina, Georgia, Virginia and Florida.
This region is outpacing the U. S. in population and household income growth,
providing fertile ground for customer acquisition. Wachovia is the 11th largest
credit card issuer among banks, with 2.4 million accounts across the country at
December 31, 1998. Wachovia is a leading corporate bank with over 28,000
business relationships in 50 states and global activity in 40 countries.
Corporate customers range from $2 million in sales to the largest multinational
corporations.
Key consumer and corporate initiatives are under way to increase the number of
customers served by Wachovia.
In 1998, Wachovia added more than 200,000 new households through a variety of
Consumer Financial Services initiatives. One example is an innovative work site
marketing strategy, which combines the convenience of banking where people work
with an expanded, attractively packaged product line. In 1998, the program
served more than 1,900 companies and 120,000 households, and contributed about
$37 million to revenue. This strategy is a cost-effective, value-added approach
to acquiring new customers
LET'S GET
STARTED(SM).
14
<PAGE>
who tend to stay with Wachovia longer and buy more products over time. Other
initiatives range from programs targeted to college students to products such as
Wachovia Access Now,(sm) which provides low fees for customers who do all or
most of their banking electronically.
Another major ingredient of customer acquisition is the Market Network Strategy.
The strategy is a comprehensive management process used to assess, plan and
strengthen delivery channels in the existing geographic franchise and help
identify new expansion opportunities. With 76 per cent of new Wachovia customers
still opening initial accounts at a branch, the strategy ensures that Wachovia's
752 branches and 1,372 ATMs are effectively deployed in high growth markets.
Wachovia plans to gain up to 300,000 additional households in 1999 by delving
deeper into its rich geography and expanding efforts on new customer
initiatives.
[GRAPHIC APPEARS ON RIGHT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
ACQUIRING
CUSTOMERS
Consumer Financial Services also is pursuing an aggressive strategy to add more
small businesses. A group of 102 bankers is focused on meeting the needs of the
business itself, its owners and employees. The bankers provide technical
capability,
15
<PAGE>
rapid credit decisions and high quality sales and service delivery.
A series of products has been developed, ranging from an extranet banking
service designed for unique needs of small businesses to lines of credit and
express loan packages. During 1998, this initiative contributed more than $89
million in revenue. Twenty percent of this revenue was from noninterest income.
Opportunity with these customers is immense. There are over 720,000 small
business companies with sales up to $2 million located in our home states.
Wachovia Corporate Financial Services has a global perspective and reflects a
combination of market segmentation, solutions-oriented sales and recognized
product leadership. The corporate market ranges from Business Banking with sales
starting at $2 million to Large Corporate with sales greater than $2 billion.
Additional corporate areas, such as Commercial Real Estate,
[GRAPHICS APPEAR BELOW WITH THE FOLLOWING INFORMATION:]
A. BY CAPITALIZING ON STRATEGICALLY COMPELLING, FINANCIALLY REWARDING
OPPORTUNITIES FOR MERGERS OR ACQUISITIONS.
16
<PAGE>
Financial Institutions, Structured Finance and other specialized finance groups,
support specific customer segments.
Business Banking is a market segment with particularly attractive growth
prospects. In the five states, more than 245 bankers are in contact with 19,000
customers to offer lending, capital solutions, financial advisory services, cash
management and investment capabilities through a suite of services called the
Wachovia Business Choice Account.(R) During 1998, Business Banking grew loans 31
percent, deposits 18 percent and fee income 45 percent. The area's profit
contribution increased 32 percent. With 51,000 targeted companies in Business
Banking's home markets, Wachovia anticipates continued opportunities for strong
growth.
Many businesses are seeking financial partners to help them understand
and evaluate product and service capabilities available in today's competitive
marketplace. At Wachovia, sales professionals in teams work closely with
customers to understand their unique needs. They develop appropriate solutions
and maintain regular contact to broaden and deepen the relationship as
customers' needs evolve.
The corporation's product leadership remains a major source of new business.
Wachovia consistently ranks in the top tier of high quality cash management
banks. Recently we were recognized in separate surveys as having one of the
highest overall quality ratings in the nation, exceeding all competitors in
customer satisfaction ratings for product leadership and innovation. During
1998, marketplace recognition of this expertise helped Wachovia's Treasury
Services add $20 million from new sales alone.
Wachovia has an excellent track record of adding new customers and building
capabilities through mergers and acquisitions. Interstate/Johnson Lane, which is
scheduled to become part of Wachovia in April 1999, had 175,000 active retail
accounts and client assets of $17.8 billion at December 31, 1998. Wachovia added
210,000 credit card customers with the September 1998 purchase of $269 million
of receivables. Accounts in 40 states are included in the purchase with 25
percent located in Wachovia's five core states.
Acquisitions will continue to be studied. As industry performance pressure
mounts, Wachovia believes there will be opportunities to expand in existing and
new markets. As in the past, any mergers or acquisitions must be strategically
compelling and financially rewarding.
[GRAPHIC APPEARS ON RIGHT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
ACQUIRING
CUSTOMERS
17
<PAGE>
STRENGTHENING CUSTOMER
RELATIONSHIPS
Winning new customers is expensive if there is no commitment and process to grow
and strengthen relationships. Wachovia's consumer and corporate areas are
devoting considerable energy to this second component of the CRM process.
Two key consumer growth projects are Consumer Financial Services' Profitable
Relationship Optimization strategy, called PRO Banking, and Personal Financial
Services' Financial Integration initiative.
PRO is direct outreach to the most important 25 percent of retail customers.
This comprehensive,
[GRAPHICS APPEAR BELOW WITH THE FOLLOWING INFORMATION:]
A. THROUGH GROWING AND STRENGTHENING RELATIONSHIPS WITH EXISTING CUSTOMERS.
integrated process begins with a robust data base that provides targeted leads
to sales professionals. Customer contact results are fed back into the system,
enhancing knowledge about how to best serve customers. PRO has grown
dramatically since a pilot phase in December 1996. In early 1999, 5,000
high-value customers will be contacted each day through 140 fully dedicated
Personal Financial Advisors and 1,100 Personal Bankers in branches and the call
center. These sales professionals engage customers in discussions about their
financial situation, offering product ideas and solutions.
This relationship-based approach is achieving a sustained sales rate of 20
percent. Most important, PRO is improving customer retention. As a result of
PRO, the high-value household annual retention rate is virtually 100 percent
compared with a normal annual retention rate in the mid-'90s for this customer
segment. This increase is significant and accounts for millions of dollars of
retained annual income. This retention is a leading indicator of momentum yet to
be fully reflected in share of market gains and enduring loyalty to Wachovia.
Wachovia's front-line sales professionals have never been more engaged in
meeting customer needs and creating value for them. Customers feel the
difference. Research verifies that the percentage of PRO customers expressing
satisfaction has improved to 84 percent, up 11 percentage points since the
program began.
Progress to date is very pleasing but the strategy's potential is even more
encouraging. Refinements to PRO are expected to deliver $10 million in improved
revenue in 1999 alone, and new opportunities are consistently identified. PRO
will continue to be a leading strategy with high-value customers.
18
<PAGE>
Serving the affluent market is another key to profitability. The needs of these
customers are complex and their service expectations are high. Relationship
profit potential also is high. As a result of a new Financial Integration
strategy launched in 1997 by Personal Financial Services, these customers now
are served through sales teams by bankers known as Financial Advisors.
Twenty-nine teams are in target markets across five states. Teams are linked by
location, training, management, sales goals and compensation programs to
concentrate on a full array of financial service needs for each client
relationship. A major focus of these teams is developing integrated financial
plans for certain households. During 1998, more than 5,300 relationship reviews
and financial plans were conducted with private clients.
Wachovia's Investment Counselor program grew profit contribution by 127 percent
for 1998. Through this program, Wachovia Investment Counselors located in
branches provide customers assistance with investments and insurance. Revenue
from the Wachovia Funds, which had assets of $6.4 billion under management at
December 31, 1998, grew 59 percent in 1998. This is important core growth from
relationship customers.
All these initiatives helped Personal Financial Services achieve a 27 percent
increase in profit contribution for 1998. The area had increases of 31 percent
in investment management business and 10 percent in estate planning business.
Loan and deposit production grew 48 percent and 13 percent, respectively, in
1998 over 1997. Growth prospects for Personal Financial Services have been
enhanced by Wachovia's merger with Interstate/Johnson Lane, which will provide
Wachovia full-service brokerage capability supported by 466 financial
consultants in 63 branches across the Southeast.
[GRAPHIC APPEARS ON RIGHT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
STRENGTHENING
CUSTOMER
RELATIONSHIPS
The Financial Integration strategy brings real talent to bear on customer needs.
Current research indicates that a fully integrated, affluent customer is worth
twice as much revenue as one not fully integrated. Financial Integration is
delivered by professionals customers can trust. Across the company, capital
markets and corporate bankers are teaming up with financial advisors and wealth
strategists to broaden relationships by addressing both individual and corporate
aspects of customers' lives.
A typical example of this intracompany synergy occurred during 1998. A company
that had a long relationship with Wachovia was being sold.
19
<PAGE>
Wachovia's regional banking executive introduced the firm to Wachovia's Capital
Markets group, which represented the sellers getting a price almost double
competitive valuations. Wachovia's regional executive, local Private Financial
Advisors manager and the Personal Financial Services' Wealth Strategy unit
identified opportunities to assist the sellers with investment, estate planning,
insurance and lending needs.
In competition with area and money center banks and brokerage firms, Wachovia
secured
[GRAPHICS APPEAR BELOW WITH THE FOLLOWING INFORMATION:]
A. THROUGH THE DAILY DELIVERY OF THE WACHOVIA PROMISE - HAVING THE CUSTOMER'S
BEST INTEREST AT HEART - BY ALL WACHOVIANS.
a $34 million investment management account, credit cards, bank lines,
two mortgage loans, five brokerage accounts and ongoing estate planning work.
This convergence of multiple opportunities with other business units increases
our optimism about revenue and profit potential for Personal Financial Services.
The key to strengthening corporate relationships is a sales team approach from
Capital Markets, Global Services, Treasury Services, Institutional Trust and
Risk Management disciplines. These teams of relationship management and
specialized product expertise individuals enlarge our collective knowledge of
customers and foster relationship planning and integrated solutions. These
solutions are backed by a strong product line and superb execution.
In Capital Markets, Wachovia expanded capabilities in financial advisory
services, risk management products, commercial real estate, leasing and fixed-
income distribution. Establishment of a Tier I, Section 20 securities subsidiary
has enabled Wachovia to underwrite and deal in municipal revenue bonds,
one-to-four family mortgage-backed securities, consumer receivable-related
securities and commercial paper. When our merger with Interstate/Johnson Lane
is completed, equity research and underwriting, investment banking and
institutional equity and fixed-income distribution will strengthen Wachovia's
ability to serve the complete debt and equity needs of corporate clients. Fee
income from Capital Markets rose 163 percent for 1998 and good growth is
expected in the future.
Treasury Services continued to build processing capabilities. During 1998,
Wachovia introduced image-based receivables solutions to streamline the
application, research and resolution of payments received through corporate
lockboxes. Wachovia's Integrated Payables service has been enhanced to accept
and process instructions for international wires and foreign drafts. Wachovia
Connection(R) Plus, introduced in 1998, is a browser-based platform that will
host the exceptional Wachovia Connection family of products. With these new
product developments, Treasury
20
<PAGE>
Services is well positioned to accelerate revenue growth and outstanding service
to customers.
Institutional Trust and Retirement Services generated a record level of new
business during 1998 while laying the foundation for future growth. The
acquisition of Hunt, DuPree, Rhine and Associates Inc., allows Wachovia to
respond more fully to the needs of corporate clients with expanded benefits
consulting and actuarial services, advanced savings and pension plan
administration, and flexible spending account administration. The division also
introduced a new 401(k) plan service tied to outside families of mutual funds
and the Wachovia Funds. New products and capabilities were added to the
Executive Services Group, strengthening Wachovia's national leadership as
consultant, trustee and administrator for nonqualified benefits plans. Revenues
from this activity increased 57 percent in 1998 versus a year earlier.
During 1998, Global Services continued to capitalize on its impressive
international alliances, partnerships and capabilities. Among these are a full
operating branch in London, Banco Wachovia in Brazil, The Hongkong and Shanghai
Banking Corporation Ltd., alliance for Asian import letters of credit, the NAFTA
partnership for cross-border cash management solutions and global information
reporting for multiple foreign currency accounts.
Another major capability strengthening customer relationships is Wachovia's
asset management business. At December 31, 1998, assets under management totaled
$42 billion, including $6.4 billion from the Wachovia Funds. A particularly
unique Wachovia Asset Management product is timberland investment management for
large institutional investors. Wachovia is a recognized leader in this asset
class, which approximated $700 million at the end of 1998. Wachovia's investment
results compare quite favorably with its competitors.
With these consumer and corporate initiatives, Wachovia is building strong
customer relationships and providing great value to customers. During 1999,
these strategies will be refined and new learning will be applied to find more
innovative customer solutions. Through each of these efforts, Wachovia is
enhancing future revenue prospects. But it is not enough to work only on
revenue. Exceptional companies must have an intense focus on efficiency.
[GRAPHIC APPEARS ON RIGHT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
STRENGTHENING
CUSTOMER
RELATIONSHIPS
21
<PAGE>
COST-TO-SERVE
Wachovia continues to have one of the lowest overhead ratios (noninterest
expense as a percentage of taxable equivalent net interest income plus fee
income) in the industry. The CRM process, by providing better information about
customer needs and behavior, directly affects our ability to manage the physical
network and people, process and technology expenses. This information, combined
with knowledge of local markets, helps Wachovia efficiently match resources with
customer potential.
Since implementing the Market Network Strategy in North Carolina, South Carolina
and Georgia in 1996, Wachovia has been decreasing the number of higher-cost
full-service branches.
[GRAPHICS APPEAR BELOW WITH THE FOLLOWING INFORMATION:]
A. BY CONTINUED EMPHASIS ON EFFECTIVE RESOURCE MANAGEMENT, REDUCING THE COST-
TO-SERVE WHILE REWARDING CUSTOMERS.
Resources have been deployed into more efficient delivery systems, including
convenience centers, express offices, work site banking centers, ATMs, internet
and telephone. These increased points of banking presence provide better service
to more customers.
The traditional bank staff has been trained to focus sales resources toward the
most opportune customers. Increasingly, branch staff members are being
reassigned into dedicated sales teams serving high value, affluent and small
business segments. This redeployment is allowing a reduction in staff serving
the mass market. During this transition, productivity and profitability are
increasing.
From 1996 through 1998, North Carolina, South Carolina and Georgia banking
operations' combined compound annual growth rate for fee income was 14 percent;
noninterest expenses, 2 percent; and pretax profit contribution, 13 percent.
During the same period, the number of employees declined a total of 8 percent.
And, in each of these states, Wachovia ranks first for deposits per branch
against strong competitors. The Market Network Strategy also is being used in
Virginia and Florida. Market Network will be a continuous process as Wachovia
constantly calibrates its sales and service.
More efficient management of Wachovia's consumer credit portfolios is
strengthening returns while Wachovia continues to improve products. Wachovia
Decision Now(sm) is an on-the-spot mortgage origination capability valued by
time-starved mortgage shoppers who will pay for added convenience. Credit card's
product array includes a broad range of interest rate and fee combinations
exemplified by the highly successful Prime for Life(R) offering.
The use of consumer credit scoring models and workflow alignment has supported
process improvement. Sales finance improved the rate
22
<PAGE>
of converting applications to loans to 32 percent in 1998 from 21 percent in
1997. The overall cost of creating a mortgage loan declined 32 percent. The
total servicing cost of a credit card account decreased 7 percent from an
already low base. Credit card net loan losses at 4.54 percent for 1998 continued
to perform better than industry averages. The rate of automated loan decisions
in retail branch lending grew to 24 percent from 13 percent in 1997.
Prime Capture and Archive, a robust mainframe computer architecture, is the
backbone of a company-wide integration of image technology. Its use will support
new services and products for consumers and corporations. This system
economically creates, indexes, stores and retrieves every paid or deposited
check and related paper documents Wachovia receives. Speedy retrieval of these
images keeps a tight rein on Wachovia's costs and offers customers easy access
to essential information as they collect returns, monitor credit, field
inquiries and reduce document storage expense.
The multidiscipline corporate sales team is enhancing sales and service
efficiency by focusing the right sales professional on the right activities at
the right time. Supporting this capability are centralized processes such as
Business Banking's loan documentation group, which allows relationship managers
to spend more time addressing customer solutions.
[GRAPHIC APPEARS ON RIGHT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
COST-TO-SERVE
23
<PAGE>
Managing Customer Information
The foundation for Continuous Relationship Management is information. Wachovia
has invested millions of dollars in building and upgrading data bases, and we
are delivering timely and relevant information to the sales staff. Information
from customers and sales staff is analyzed, refined and updated. Fresh, accurate
information enhances decision making and facilitates cost control.
Wachovia is consolidating and integrating consumer, credit card, trust and
corporate information systems. To help the corporation better understand key
drivers of earnings, an enhanced profitability measurement system is scheduled
to become part of this comprehensive information resource in late 1999. These
actions will strengthen the ability to sell the right products to the right
customers at the right time.
Raw information provides no advantage. The way financial service companies
distinguish themselves is to competently process, distribute and use information
to serve customers. At Wachovia, the goal of employees is to know and understand
customers and their cares and concerns better than any other financial
institution.
Wachovia's brand campaign has played a central role in helping 21,000 Wachovians
move toward the same vision. Recent quantitative research scored the campaign as
more memorable, relevant
A. BY COMPETENTLY PROCESSING, DISTRIBUTING AND USING INFORMATION TO SERVE
CUSTOMERS BETTER THAN ANY OTHER FINANCIAL INSTITUTION.
24
<PAGE>
and likeable than those of key competitors. Wachovia believes that a strong
brand identity in financial service will become more important as individuals
and businesses are confronted with a bewildering array of financial choices.
Wachovia is committed to delivering the brand promise at every point of contact.
The world ahead is going to be fascinating. In this new world, sustaining strong
earnings growth will be challenging work. But Wachovians understand the formula
for success in this demanding environment. The basic equation is simple -
attract the right customers, sell them multiple services important to their
lives, do the right things to keep their business, deliver as efficiently as
possible and let them know that at Wachovia they have a friend they can trust.
Determined and impassioned Wachovians are weaving these components together
daily. They are defining Wachovia's future by addressing difficult questions and
building answers that bring pleasure to customers.
[GRAPHICS APPEARS ON RIGHT SIDE OF PAGE WITH THE FOLLOWING INFORMATION:]
WACHOVIA'S
PROCESS FOR
ENHANCED EARNINGS
ACQUIRING
CUSTOMERS
MANAGING
CUSTOMER
INFORMATION
STRENGTHENING
CUSTOMER
RELATIONSHIPS
COST-TO-SERVE
25
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Summary Table 1
- --------------------------------------------------------------------------------
<TABLE>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Summary of Operations
(thousands, except per share data)
Interest income ........................... $ 4,665,245 $ 4,262,385 $ 4,009,508
Interest expense .......................... 2,314,213 2,168,818 2,085,771
----------- ----------- -----------
Net interest income ....................... 2,351,032 2,093,567 1,923,737
Provision for loan losses (1) ............. 299,480 264,949 193,776
----------- ----------- -----------
Net interest income after provision for
loan losses .............................. 2,051,552 1,828,618 1,729,961
Other operating revenue ................... 1,228,119 1,005,768 874,732
Gain on sale of mortgage servicing
portfolio ................................ ---- ---- ----
Gain on sale of subsidiary ................ ---- ---- ----
Securities gains (losses) (2) ............. 20,442 1,454 4,588
----------- ----------- -----------
Total other income ........................ 1,248,561 1,007,222 879,320
Personnel expense ......................... 1,055,353 905,157 796,932
Nonrecurring charges (3) .................. 85,312 287,532 ----
Other expense ............................. 855,667 774,032 712,041
----------- ----------- -----------
Total other expense ....................... 1,996,332 1,966,721 1,508,973
Income before income tax expense .......... 1,303,781 869,119 1,100,308
Income tax expense ........................ 429,611 276,313 343,049
----------- ----------- -----------
Net income (4) ............................ $ 874,170 $ 592,806 $ 757,259
=========== =========== ===========
Net income per common share:
Basic .................................... $ 4.26 $ 2.99 $ 3.70
Diluted (4) .............................. $ 4.18 $ 2.94 $ 3.65
Cash dividends paid per common
share (5) ................................ $ 1.86 $ 1.68 $ 1.52
Cash dividends paid on common
stock (6) ................................ $ 381,798 $ 327,303 $ 305,740
Cash dividend payout ratio (6) ............ 43.7 % 55.2 % 40.4 %
Average basic shares outstanding .......... 205,058 198,290 204,889
Average diluted shares outstanding ........ 209,153 201,901 207,432
Selected Average
Balances (millions)
Total assets .............................. $ 63,949 $ 57,607 $ 55,584
Loans -- net of unearned income ........... 44,401 39,716 36,739
Securities ................................ 10,582 10,793 11,876
Other interest-earning assets ............. 1,579 1,446 1,629
Total interest-earning assets ............. 56,562 51,955 50,244
Interest-bearing deposits ................. 32,011 29,582 27,609
Short-term borrowed funds ................. 10,895 8,987 9,018
Long-term debt ............................ 6,279 6,122 6,693
Total interest-bearing liabilities ........ 49,185 44,691 43,320
Noninterest-bearing deposits .............. 7,803 6,934 6,491
Total deposits ............................ 39,814 36,516 34,100
Shareholders' equity ...................... 5,168 4,533 4,458
Ratios (averages)
Net loan losses to loans .................. .67% .67% .53%
Net yield on interest-earning assets ...... 4.24 4.14 3.98
Shareholders' equity to:
Total assets ............................. 8.08 7.87 8.02
Net loans ................................ 11.78 11.57 12.31
Return on assets (7) ...................... 1.37 1.03 1.36
Return on shareholders' equity (7) ........ 16.92 13.08 16.99
Five-Year
Compound
1995 1994 1993 Growth Rate
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Summary of Operations
(thousands, except per share data)
Interest income ........................... $3,790,110 $3,025,654 $ 2,738,164 11.2%
Interest expense .......................... 2,011,155 1,369,006 1,128,709 15.4
---------- ---------- -----------
Net interest income ....................... 1,778,955 1,656,648 1,609,455 7.9
Provision for loan losses (1) ............. 130,504 96,122 172,161 11.7
---------- ---------- -----------
Net interest income after provision for
loan losses .............................. 1,648,451 1,560,526 1,437,294 7.4
Other operating revenue ................... 757,115 690,099 669,469 12.9
Gain on sale of mortgage servicing
portfolio ................................ 79,025 ---- ----
Gain on sale of subsidiary ................ ---- ---- 8,030
Securities gains (losses) (2) ............. (19,672) (21,972) 74,256 (22.7)
---------- ---------- -----------
Total other income ........................ 816,468 668,127 751,755 10.7
Personnel expense ......................... 733,790 691,512 685,623 9.0
Nonrecurring charges (3) .................. ---- ---- ----
Other expense ............................. 707,839 651,739 668,635 5.1
---------- ---------- -----------
Total other expense ....................... 1,441,629 1,343,251 1,354,258 8.1
Income before income tax expense .......... 1,023,290 885,402 834,791 9.3
Income tax expense ........................ 315,377 261,480 239,779 12.4
---------- ---------- -----------
Net income (4) ............................ $ 707,913 $ 623,922 $ 595,012 8.0
========== ========== ===========
Net income per common share:
Basic .................................... $ 3.40 $ 3.00 $ 2.84 8.4
Diluted (4) .............................. $ 3.36 $ 2.96 $ 2.80 8.3
Cash dividends paid per common
share (5) ................................ $ 1.38 $ 1.23 $ 1.11 10.9
Cash dividends paid on common
stock (6) ................................ $ 282,517 $ 254,397 $ 230,430 10.6
Cash dividend payout ratio (6) ............ 39.9 % 40.8 % 38.7 %
Average basic shares outstanding .......... 208,230 208,117 208,880 ( .4)
Average diluted shares outstanding ........ 210,600 210,651 212,584 ( .3)
Selected Average
Balances (millions)
Total assets .............................. $ 51,703 $ 46,542 $ 42,529 8.5
Loans -- net of unearned income ........... 33,510 29,533 25,776 11.5
Securities ................................ 11,977 11,238 10,993 ( .8)
Other interest-earning assets ............. 1,257 1,025 1,379 2.7
Total interest-earning assets ............. 46,744 41,796 38,148 8.2
Interest-bearing deposits ................. 25,601 22,847 22,860 7.0
Short-term borrowed funds ................. 8,860 7,369 6,500 10.9
Long-term debt ............................ 5,695 5,154 2,530 19.9
Total interest-bearing liabilities ........ 40,156 35,370 31,890 9.1
Noninterest-bearing deposits .............. 6,234 6,292 6,199 4.7
Total deposits ............................ 31,835 29,139 29,059 6.5
Shareholders' equity ...................... 4,164 3,812 3,519 8.0
Ratios (averages)
Net loan losses to loans .................. .38% .30% .56%
Net yield on interest-earning assets ...... 4.04 4.23 4.50
Shareholders' equity to:
Total assets ............................. 8.05 8.19 8.27
Net loans ................................ 12.62 13.14 13.92
Return on assets (7) ...................... 1.37 1.34 1.40
Return on shareholders' equity (7) ........ 17.00 16.37 16.91
</TABLE>
(1) Includes $10,845 in nonrecurring merger-related provision in 1997 to align
the practices of the merged entities with those of the corporation.
(2) Includes $4,639 of nonrecurring losses to restructure the
available-for-sale portfolio in 1997.
(3) Nonrecurring charges in 1998 and 1997 include merger-related items of
$85,312 and $220,330, respectively, and a personal computer hardware and
software disposal charge of $67,202 in 1997.
(4) Net income excluding the effect of nonrecurring items was $929,847 and
$799,929 for 1998 and 1997, respectively. Net income per diluted share
excluding the effect of nonrecurring items was $4.45 and $3.96 for 1998 and
1997, respectively.
(5) Cash dividends per common share are those of Wachovia Corporation paid
prior to merger with Central Fidelity Banks, Inc.
(6) Includes amounts of pooled companies.
(7) Excluding the after-tax impact of nonrecurring charges of $55,677 and
$207,123, returns were 1.45% and 1.39% on assets and 17.99% and 17.65% on
shareholders' equity for 1998 and 1997, respectively.
26
<PAGE>
--------------------------
Results of Operations
-----------------------------------------------------------------
1998 vs. 1997
Overview
During 1998, the U. S. economy continued its eighth successive
year of expansion amidst softening caused by turmoil in foreign
markets and higher domestic wages. Based on advance estimates,
gross domestic product for the year rose 3.9 percent, matching
1997's growth rate, with activity boosted in the latter months of
1998 by three reductions in short-term interest rates. Economic
growth within Wachovia Corporation's home states remained good
during 1998. Unemployment for the year averaged 4.5 percent in
Florida, 4 percent in Georgia, 3.5 percent in North Carolina, 3.5
percent in South Carolina and 3.1 percent in Virginia compared
with 4.5 percent nationwide.
The corporation seeks to broaden its competitive position by
gaining access to new customers and by enhancing its products and
services through internal development and through selective
partnerships and acquisitions. Management pursues a variety of
initiatives as part of this strategy. During 1998, these included
integrating new banking partners in Virginia and Florida;
significantly expanding capital markets' capabilities; installing
new systems for trust and loans; acquiring a South Carolina-based
benefits consulting firm; purchasing a credit card portfolio; and
announcing plans to acquire Interstate/Johnson Lane, a major
regional investment advisory and brokerage firm with offices
primarily in North Carolina, Georgia, South Carolina and
Virginia.
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 the corporation's book value and net
income per share may occur in connection with any future
transactions.
Wachovia's net income for 1998 totaled $874.170 million or $4.18
per diluted share compared with $592.806 million or $2.94 per
diluted share in 1997. Results for both years included
nonrecurring charges, which totaled $85.312 million, pretax, in
1998 for merger integration expenses and $303.016 million,
pretax, in 1997 for merger-related charges, an equipment
impairment charge and restructuring of the securities portfolio.
The net after-tax impact of the nonrecurring charges was $55.677
million or $.27 per diluted share for 1998 and $207.123 million
or $1.02 per diluted share for 1997. Excluding the nonrecurring
charges, net income on an operating basis was $929.847 million or
$4.45 per diluted share in 1998 versus $799.929 million or $3.96
per diluted share in 1997.
NET INCOME PER SHARE
(DILUTED)
(A bar graph appears here. See the table below for plot points.)
1993 1994 1995 1996 1997 1998
2.80 2.96 3.36 3.65 2.94 4.18*
*EXCLUDING NONRECURRING ITEMS, NET INCOME PER DILUTED SHARE WAS $3.96 IN 1997
AND $4.45 IN 1998.
NET INCOME
(MILLIONS)
(A bar graph appears here. See the table below for plot points.)
1993 1994 1995 1996 1997 1998
595.0 623.9 707.9 757.3 592.8* 874.2*
*EXCLUDING NONRECURRING ITEMS, NET INCOME WAS $799.9 MILLION IN 1997 AND $929.8
MILLION IN 1998.
27
<PAGE>
The corporation's operating results for the year reflected strong
revenue growth, with total revenues rising $468.796 million or
14.8 percent to $3.626 billion. Good gains occurred in both net
interest income and fee-generating businesses as the corporation
expanded on its consumer and corporate banking initiatives and
moved forward with technology enhancements. Moderating the
revenue gains for the year were higher credit losses and
increases in noninterest expense.
Expanded discussion of the corporation's results of operations
and financial condition is presented in the following narrative
with accompanying tables and charts. Historical financial results
include the corporation's acquisition of Central Fidelity Banks,
Inc., on a pooling-of-interests basis but do not include the
corporation's purchases of Jefferson Bankshares, Inc., and 1st
United Bancorp in the fourth quarter of 1997 and of Ameribank
Bancshares in the second quarter of 1998 prior to the date of
their acquisitions. Interest income is stated on a taxable
equivalent basis, which is adjusted for the tax-favored status of
earnings from certain loans and securities. References to changes
in assets and liabilities represent daily averages unless
otherwise noted. The narrative should be read in conjunction with
the Consolidated Financial Statements and Notes on pages 61
through 82. Expanded six-year financial data appears on pages 83
through 88.
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 corporation's 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, 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; 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 credit, specialized finance, investment and
processing services. Customers range from businesses with annual
sales of $2 million and above to major multinational
corporations. The division is a leading provider of treasury
services and certain corporate and charitable trust products.
Significantly broadened capabilities have been added in capital
markets, including merchant banking and financial advisory
services, commercial real estate corporate finance, asset
securitization and equipment leasing. The corporation's planned
acquisition of Interstate/Johnson Lane is expected to augment the
division's capital markets capabilities. The Corporate Division
also is enhancing service and product offerings through its
global services area. Recent initiatives include conversion of
the corporation's London office to
28
<PAGE>
branch bank status, enabling Wachovia to provide credit and
deposit services for European-based companies, and acquisition of
a Sao Paulo, Brazil, bank to facilitate trade capabilities for
customers conducting business in Latin America.
The Card division represents the corporation's credit card
business. The division generates revenues from interest on unpaid
card balances and from fees primarily on interchange, cash
advances, over limit advances, late payments and servicing
securitized receivables. The division employs modeling techniques
and other credit evaluation measures to target above-average
credit risk customers who carry monthly balances and seek low
interest rates. Products offered include prime rate plus and
Prime for Life(R) Visa and MasterCard credit cards. At year-end
1998, Card had a national portfolio of managed credit card
outstandings totaling $6.549 billion.
The Treasury & Administration segment principally reflects asset
and liability management for interest rate sensitivity risk;
management of the securities portfolio; transfer pricing offset
on loans, deposits and other funds; and other corporate costs
such as Year 2000 expenses 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 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 the
corporation's management structure, information needs or
reporting systems evolve.
The provision for loan losses is assigned to each business
segment 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. Note C of the Notes to
Consolidated Financial Statements provides additional information
on accounting policies for the corporation's business segments
and on items reconciling segment results to the corporation's
consolidated results.
Financial results by business segment are discussed below.
Consumer. Net income for Consumer grew $23.631 million or 6.9
percent to $366.842 million. Revenue gains were broadly spread,
with taxable equivalent net interest income up $106.561 million
or 9.8 percent and fee income increasing $79.799 million or 15.4
percent. Growth in taxable equivalent net interest income
primarily reflected greater loan volume, with noninterest income
increasing largely due to higher levels of fees in mortgage,
deposit accounts and trust services, as well as to gains in debit
card income and insurance commissions. The provision for loan
losses declined $10.206 million or 22.9 percent, while
noninterest expense grew $157.706 million or 15.3 percent, driven
largely by higher compensation. Consumer's pretax profit
increased $38.860 million or 7.4 percent to $566.517 million.
Corporate. Corporate's net income totaled $365.741 million, an
increase of $111.634 million or 43.9 percent from $254.107
million in 1997. Taxable equivalent net interest income rose
$151.968 million or
29
<PAGE>
27.2 percent, fueled primarily by loan and lease growth.
Noninterest income, led by gains in consulting services,
derivatives income, deposit account fees and trust services fees,
expanded $97.581 million or 32.7 percent. The provision for loan
losses increased $289 thousand or 35 percent, while noninterest
expense was up $75.112 million or 16.1 percent, primarily
reflecting a higher staff expense base. The division's pretax
profit rose $174.148 million or 44.6 percent to $564.815 million
for 1998.
Card. The corporation's credit card business had net income of
$109.299 million, up $1.796 million or 1.7 percent from $107.503
million in 1997. Taxable equivalent net interest income rose
$51.595 million or 12.6 percent, driven by a higher external rate
earned on credit cards and modest growth in loan balances.
Noninterest income advanced $8.418 million or 5.1 percent,
primarily due to increases in cardholder income. The provision
for loan losses expanded $39.261 million or 18 percent, while
noninterest expense was up $17.238 million or 9 percent, partly
due to increased advertising and marketing costs. Pretax profit
for the Card segment rose $3.514 million or 2.1 percent to
$168.790 million for the year.
Treasury & Administration. Treasury & Administration's net income
rose to $32.288 million in 1998 from a loss of $112.015 million
in 1997. Improvement in 1998 was primarily the result of a
$202.739 million reduction in operating expenses resulting from
substantially lower merger integration costs, Year 2000 expense,
and other systems development and nonrecurring expenses that are
held within the unit. The $45.973 million reduction in net
interest margin was primarily attributable to changes in
noninterest earning assets held in the unit, such as goodwill,
changes to the securities portfolio and discretionary funding
which includes the optimization of the capital position. The
change in other income is primarily driven by corporate owned
life insurance income.
Business Segments Table 2
- --------------------------------------------------------------------------------
<TABLE>
Consumer Corporate Card
------------------- ---------------- -----------------
Operations Summary 1998 1997 1998 1997 1998 1997
-------- -------- ------ ------ ------- -------
(millions)
<S> <C> <C> <C> <C> <C> <C>
External net interest
margin ...................... $ 337 $ 303 $1,543 $1,340 $ 767 $ 723
Internal funding
(charge) credit ............. 855 782 (831) (780) (307) (314)
-------- -------- ------ ------ ------- -------
Net interest income* ......... 1,192 1,085 712 560 460 409
Total other income ........... 598 518 396 299 175 166
-------- -------- ------ ------ ------- -------
Total revenues ............... 1,790 1,603 1,108 859 635 575
Provision for loan losses..... 34 44 1 1 258 219
Total other expense .......... 1,189 1,031 542 467 208 191
-------- -------- ------ ------ ------- -------
Pretax profit ................ 567 528 565 391 169 165
Income taxes (benefit) ....... 200 185 199 137 60 57
-------- -------- ------ ------ ------- -------
Net income (loss) ............ $ 367 $ 343 $ 366 $ 254 $ 109 $ 108
======== ======== ====== ====== ======= =======
Percentage contribution
to total revenues** ......... 48.2% 50.0% 29.8% 26.7% 17.1% 17.9%
Percentage contribution
to net income ............... 42.0% 57.9% 41.8% 42.9% 12.5% 18.1%
Average Balances
(billions)
Total assets ................. $ 17 $ 15 $ 27 $ 23 $ 7 $ 6
<CAPTION>
Treasury &
Administration Eliminations Total Corporation
--------------------- ----------------- -------------------
Operations Summary 1998 1997 1998 1997 1998 1997
-------- ------- ------- ------- ------- -------
(millions)
<S> <C> <C> <C> <C> <C> <C>
External net interest
margin ...................... ($ 249) ($ 215) $ (47) $ (57) $2,351 $2,094
Internal funding
(charge) credit ............. 351 363 (68) (51) ---- ----
-------- ------- ------- ------- ------- -------
Net interest income* ......... 102 148 (115) (108) 2,351 2,094
Total other income ........... 80 24 ---- ---- 1,249 1,007
-------- ------- ------- ------- ------- -------
Total revenues ............... 182 172 (115) (108) 3,600 3,101
Provision for loan losses..... 6 1 ---- ---- 299 265
Total other expense .......... 126 328 (68) (50) 1,997 1,967
-------- ------- ------- ------- ------- -------
Pretax profit ................ 50 (157) (47) (58) 1,304 869
Income taxes (benefit) ....... 18 (45) (47) (58) 430 276
-------- ------- ------- ------- ------- -------
Net income (loss) ............ $ 32 ($ 112) $ ---- $ ---- $ 874 $ 593
======== ======= ======= ======= ======= =======
Percentage contribution
to total revenues** ......... 4.9% 5.4%
Percentage contribution
to net income ............... 3.7% (18.9%)
Average Balances
(billions)
Total assets ................. $ 13 $ 14 $ 64 $ 58
</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.
30
<PAGE>
Consolidated Financial Results
Net Interest
Income
Taxable equivalent net interest income for the corporation rose
$246.445 million or 11.5 percent in 1998 to $2.398 billion. Strong
loan growth and a wider interest rate spread drove the increase as
the corporation benefited from good business development, a
slightly higher average yield on total interest-earning assets and
a reduction in the average rate paid for funding sources. The net
yield on interest-earning assets (defined as taxable equivalent
net interest income as a percentage of average interest-earning
assets) expanded 10 basis points to 4.24 percent for the year.
Management expects taxable equivalent net interest income to
advance at a more modest pace in 1999, reflecting an outlook of
economic softness, good but more moderate loan growth and a stable
net yield on interest-earning assets.
NET INTEREST INCOME*
(MILLIONS)
(A BAR GRAPH APPEARS HERE. SEE THE TABLE BELOW FOR PLOT POINTS.)
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
INTEREST INCOME* 2845 3135 3898 4087 4320 4712
INTEREST EXPENSE 1129 1369 2011 2086 2169 2314
NET INTEREST INCOME* 1716 1766 1887 2001 2151 2398
*TAXABLE EQUIVALENT
Interest Income
Taxable equivalent interest income increased $391.840 million or
9.1 percent due to substantially higher loan volume. Average loans
expanded $4.685 billion or 11.8 percent for the year, fueled
predominately by the commercial portfolio, with the average rate
earned on loans unchanged from 1997. Loan growth is expected to
remain good in 1999 while the rate of increase is expected to
moderate, given management's outlook for slower overall economic
expansion. Management anticipates loan growth of around 6 percent
in 1999, with gains led by taxable commercial loans, commercial
mortgages, construction loans and indirect retail loans. Credit
cards are expected to remain flat with 1998 as new outstandings
replace runoff in the portfolio.
Commercial loans, including related real estate categories, rose
$4.097 billion or 18.6 percent with solid gains occurring in all
categories except tax-exempt loans. Taxable commercial loans
advanced $2.696 billion or 23.8 percent, and commercial mortgages
increased $746 million or 12.3 percent. Lease financing, which
primarily consists of leveraged leases and other structured
corporate transactions, grew $474 million or 49.6 percent.
Construction loans rose $394 million or 26.3 percent, while
foreign loans were higher by $311 million or 63.1 percent. The
decline in tax-exempt loans reflected both the reduced
availability of tax-exempt financing under current tax laws and
paydowns in employee stock ownership plan loans.
31
<PAGE>
<TABLE>
<CAPTION>
Taxable Equivalent Rate/Volume Variance Analysis* Table 3
- --------------------------------------------------------------------------------
Average Volume Average Rate
-------------------- --------------------
1998 1997 1998 1997
-------- ------- -------- ----
(Millions)
Loans:
<S> <C> <C> <C> <C>
Commercial ....................................... $14,023 $11,327 7.21 7.32
Tax-exempt ....................................... 1,219 1,743 9.24 8.93
-------- -------
Total commercial ................................. 15,242 13,070 7.37 7.54
Direct retail .................................... 1,143 1,194 9.39 8.99
Indirect retail .................................. 3,091 2,966 8.27 8.56
Credit card ...................................... 5,680 5,626 13.46 12.92
Other revolving credit ........................... 498 424 11.18 12.27
-------- -------
Total retail ..................................... 10,412 10,210 11.36 11.17
Construction ..................................... 1,893 1,499 9.00 9.40
Commercial mortgages ............................. 6,813 6,067 8.58 8.34
Residential mortgages ............................ 7,808 7,422 7.92 7.99
-------- -------
Total real estate ................................ 16,514 14,988 8.31 8.27
Lease financing .................................. 1,429 955 11.63 9.71
Foreign .......................................... 804 493 6.85 6.93
-------- -------
Total loans ...................................... 44,401 39,716 8.79 8.79
Securities:
Held-to-maturity:
U.S. Government and agency ....................... 381 30 6.10 6.12
Mortgage-backed securities ....................... 800 1,049 8.30 8.03
State and municipal securities ................... 194 221 10.92 11.87
Other ............................................ 101 23 6.67 6.94
-------- -------
Total securities held-to-maturity ................ 1,476 1,323 7.97 8.61
Available-for-sale:**
U.S. Government and agency ....................... 4,010 5,269 6.68 6.62
Mortgage-backed securities ....................... 4,424 3,174 6.65 6.91
Other ............................................ 672 1,027 7.04 6.54
------- -------
Total securities available-for-sale .............. 9,106 9,470 6.69 6.71
------- -------
Total securities ................................. 10,582 10,793 6.87 6.94
Interest-bearing bank balances ................... 157 89 8.26 5.89
Federal funds sold and securities purchased
under resale agreements .......................... 467 397 5.52 5.62
Trading account assets ........................... 955 960 4.76 5.38
-------- -------
Total interest-earning assets .................... $56,562 $51,955 8.33 8.32
======== =======
Interest Expense
Interest-bearing demand .......................... $ 4,984 $ 4,109 1.29 1.56
Savings and money market savings ................. 11,604 10,595 3.89 3.83
Savings certificates ............................. 9,943 10,365 5.46 5.62
Large denomination certificates .................. 3,051 2,929 5.42 5.61
-------- -------
Total interest-bearing deposits in
domestic offices ................................. 29,582 27,998 4.14 4.34
Interest-bearing deposits in foreign offices ..... 2,429 1,585 5.59 5.51
-------- -------
Total interest-bearing deposits .................. 32,011 29,583 4.25 4.41
Federal funds purchased and securities sold
under repurchase agreements ...................... 7,498 6,744 5.18 5.30
Commercial paper ................................. 1,277 781 5.02 5.06
Other short-term borrowed funds .................. 2,120 1,462 5.25 5.57
-------- -------
Total short-term borrowed funds .................. 10,895 8,987 5.18 5.32
Bank notes ....................................... 2,620 3,075 6.10 6.14
Other long-term debt ............................. 3,659 3,046 6.31 6.51
-------- -------
Total long-term debt ............................. 6,279 6,121 6.22 6.32
-------- -------
Total interest-bearing liabilities ............... $49,185 $44,691 4.71 4.85
======== ======= --------- -----
Interest rate spread 3.62 3.47
Net yield on interest-earning assets and ========= =====
net interest income .............................. 4.24 4.14
========= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Variance
Interest Attributable to
------------------------- --------------------
1998 1997 Variance Rate Volume
----------- ---------- -------------- ------ ------
Interest Income (Thousands)
<S> <C> <C> <C> <C>
Loans:
Commercial ....................................... $1,011,401 $ 829,406 $ 181,995 ($12,663) $ 194,658
Tax-exempt ....................................... 112,672 155,689 (43,017) 5,279 (48,296)
---------- ---------- -------------
Total commercial ................................. 1,124,073 985,095 138,978 (21,620) 160,598
Direct retail .................................... 107,405 107,326 79 4,688 (4,609)
Indirect retail .................................. 255,512 254,001 1,511 (8,941) 10,452
Credit card ...................................... 764,426 727,114 37,312 30,264 7,048
Other revolving credit ........................... 55,644 52,007 3,637 (4,884) 8,521
---------- ---------- -------------
Total retail ..................................... 1,182,987 1,140,448 42,539 19,752 22,787
Construction ..................................... 170,403 140,780 29,623 (6,093) 35,716
Commercial mortgages ............................. 584,266 505,876 78,390 14,783 63,607
Residential mortgages ............................ 618,118 592,907 25,211 (5,404) 30,615
---------- ---------- -------------
Total real estate ................................ 1,372,787 1,239,563 133,224 6,386 126,838
Lease financing .................................. 166,128 92,721 73,407 20,907 52,500
Foreign .......................................... 55,067 34,164 20,903 (379) 21,282
---------- ---------- -------------
Total loans ...................................... 3,901,042 3,491,991 409,051 (2,561) 411,612
Securities:
Held-to-maturity:
U.S. Government and agency ....................... 23,268 1,843 21,425 (6) 21,431
Mortgage-backed securities ....................... 66,416 84,191 (17,775) 2,785 (20,560)
State and municipal securities ................... 21,179 26,259 (5,080) (1,997) (3,083)
Other ............................................ 6,746 1,597 5,149 (63) 5,212
---------- ---------- -------------
Total securities held-to-maturity ................ 117,609 113,890 3,719 (8,878) 12,597
Available-for-sale:**
U.S. Government and agency ....................... 267,969 348,763 (80,794) 3,319 (84,113)
Mortgage-backed securities ....................... 294,020 219,293 74,727 (8,625) 83,352
Other ............................................ 47,256 67,139 (19,883) 4,762 (24,645)
---------- ---------- -------------
Total securities available-for-sale .............. 609,245 635,195 (25,950) (1,585) (24,365)
---------- ---------- -------------
Total securities ................................. 726,854 749,085 (22,231) (7,696) (14,535)
Interest-bearing bank balances ................... 12,987 5,230 7,757 2,663 5,094
Federal funds sold and securities purchased 3,865
under resale agreements .......................... 25,803 22,319 3,484 (381) (290)
Trading account assets ........................... 45,433 51,654 (6,221) (5,931)
---------- ---------- -------------
Total interest-earning assets .................... 4,712,119 4,320,279 391,840 8,064 383,776
Interest Expense
Interest-bearing demand .......................... 64,530 64,249 281 (12,110) 12,391
Savings and money market savings ................. 451,655 405,444 46,211 7,046 39,165
Savings certificates ............................. 542,477 582,145 (39,668) (16,389) (23,279)
Large denomination certificates .................. 165,384 164,391 993 (5,739) 6,732
---------- ---------- -------------
Total interest-bearing deposits in
domestic offices ................................. 1,224,046 1,216,229 7,817 (59,269) 67,086
Interest-bearing deposits in foreign offices ..... 135,659 87,320 48,339 1,237 47,102
---------- ---------- -------------
Total interest-bearing deposits .................. 1,359,705 1,303,549 56,156 (48,188) 104,344
Federal funds purchased and securities sold
under repurchase agreements ...................... 388,390 357,190 31,200 (8,015) 39,215
Commercial paper ................................. 64,088 39,566 24,522 (344) 24,866
Other short-term borrowed funds .................. 111,368 81,406 29,962 (4,859) 34,821
---------- ---------- -------------
Total short-term borrowed funds .................. 563,846 478,162 85,684 (13,377) 99,061
Bank notes ....................................... 159,896 188,710 (28,814) (1,008) (27,806)
Other long-term debt ............................. 230,766 198,397 32,369 (6,430) 38,799
---------- ---------- -------------
Total long-term debt ............................. 390,662 387,107 3,555 (6,274) 9,829
---------- ---------- -------------
Total interest-bearing liabilities ............... 2,314,213 2,168,818 145,395 (67,588) 212,983
---------- ---------- -------------
Interest rate spread
Net yield on interest-earning assets and
net interest income .............................. $2,397,906 $2,151,461 $ 246,445 52,100 194,345
========== ========== =============
</TABLE>
* Interest income and yields are presented on a fully taxable equivalent basis
using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense. Any variance
attributable jointly to volume and rate changes is allocated to volume and
rate in proportion to the relationship of the absolute dollar amount of the
change in each.
** Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $132 million in 1998 and $66 million in 1997.
32
<PAGE>
The corporation has foreign credit outstandings consisting of
loans and lease financing. Foreign loans at December 31, 1998
were $1.093 billion, representing 2.4 percent of total loans,
compared with $639 million or 1.4 percent of total loans at
year-end 1997. Because foreign loans are reported based on the
address of the borrower and not on the country where security for
the credit resides, foreign loans as reported do not necessarily
indicate the corporation's country risk exposure. The
corporation's country of risk profile at December 31, 1998 for
its $1.093 billion foreign loan portfolio was as follows: Western
Europe, $482 million or 44.1 percent of total foreign loans;
Latin America, $401 million or 36.7 percent, including $262
million in Brazil; the United States, $189 million or 17.3
percent; and all other areas, $21 million or 1.9 percent. Credits
extended in Brazil were predominately short-term in nature. There
were no extensions of credit in Russia at December 31, 1998 or
1997, and extensions of credit in Asia were not significant. The
corporation's foreign lease financing was predominately defeased
leasing at year-end 1998 and was all in countries in Western
Europe.
Selected Loan Maturities and Interest Sensitivity Table 4
- --------------------------------------------------------------------------------
December 31, 1998 (thousands)
<TABLE>
One Year One to Over
Total or Less Five Years Five Years
-------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Commercial, financial and other ................. $14,328,152 $13,126,907 $ 783,920 $ 417,325
Industrial revenue and other tax-exempt ......... 972,603 396,245 201,750 374,608
Construction and land development ............... 2,044,437 1,881,055 163,382 ----
Commercial mortgages ............................ 6,988,050 3,112,331 1,192,171 2,683,548
Loans to foreign borrowers ...................... 1,093,428 954,296 139,132 ----
----------- ----------- ---------- ----------
Selected loans, net ......................... $25,426,670 $19,470,834 $2,480,355 $3,475,481
=========== =========== ========== ==========
Loans with predetermined interest rates ......... $ 5,413,064 $ 1,469,523 $1,727,626 $2,215,915
Loans with floating interest rates .............. 20,013,606 18,001,311 752,729 1,259,566
----------- ----------- ---------- ----------
Total ...................................... $25,426,670 $19,470,834 $2,480,355 $3,475,481
=========== =========== ========== ==========
</TABLE>
Commercial real estate loans, based on regulatory definitions,
were $9.032 billion or 19.8 percent of total loans at December
31, 1998 versus $8.570 billion or 19.4 percent one year earlier.
Regulatory definitions for commercial real estate include loans
which have real estate as the collateral but not the primary
consideration in a credit risk evaluation.
There were no significant concentrations of loans in any one
industry at year-end 1998 or 1997.
Consumer loans, including residential mortgages, increased $588
million or 3.3 percent. Gains were driven largely by residential
mortgages, which rose $386 million or 5.2 percent, and by
indirect retail loans, which were higher by $125 million or 4.2
percent and primarily consists of automobile sales financing.
Growth in residential mortgages occurred in adjustable rate
mortgages as the corporation generally does not keep fixed-rate
mortgages in its loan portfolio. Credit card loans rose modestly
for the year, while other revolving credit expanded $74 million
or 17.5 percent. Included in average credit card outstandings for
1998 was $269 million of receivables purchased in the third
quarter. The corporation's managed credit card loans at December
31, 1998 were $6.549 billion, representing 14.2 percent of total
managed loans, versus $6.419 billion or 14.4 percent of total
managed loans one year earlier. Managed totals included $500
million of securitized credit cards at year-end 1998 and 1997.
Additional information on the corporation's managed credit card
portfolio appears on page 42.
Securities, the second largest category of interest-earning
assets, decreased $211 million or 2 percent, with reductions in
the available-for-sale portfolio partially offset by increases in
securities held-to-maturity. Additional incremental runoff in the
securities portfolio is expected in 1999 based on maturity
schedules
33
<PAGE>
Securities Table 5
- --------------------------------------------------------------------------------
December 31 (thousands)
<TABLE>
1998
---------------------------------------------------------------------
Amortized Unrealized Unrealized Fair Average
Cost Gain Loss Value Maturity
------------- ------------ ----------- ---------- -----------
(Yrs./Mos.)
<S> <C> <C> <C> <C> <C>
Held-to-Maturity
U.S. Treasury and other U.S.
Government agencies:
Within one year ................. $ 262,934 $ 2,443 $ ---- $ 265,377
One to five years ............... 255,129 4,219 3 259,345
Five to ten years ............... ---- ---- ---- ----
Over ten years .................. ---- ---- ---- ----
------------- ----------- ----------- ----------
Total ......................... 518,063 6,662 3 524,722 1/9
State and municipal:
Within one year ................. 12,735 152 ---- 12,887
One to five years ............... 58,864 5,750 ---- 64,614
Five to ten years ............... 71,232 9,699 ---- 80,931
Over ten years .................. 33,937 3,920 ---- 37,857
------------- ----------- ----------- ----------
Total ......................... 176,768 19,521 ---- 196,289 6/2
Mortgage-backed:
Within one year ................. 146 1 ---- 147
One to five years ............... 78,227 1,878 3 80,102
Five to ten years ............... 69,450 953 1 70,402
Over ten years .................. 462,505 28,837 1 491,341
------------- ----------- ----------- ----------
Total ......................... 610,328 31,669 5 641,992 15/0
Other:
Within one year ................. 40,670 184 2 40,852
One to five years ............... 37,178 472 ---- 37,650
Five to ten years ............... 600 21 ---- 621
Over ten years .................. ---- ---- ---- ----
------------- ----------- ----------- ----------
Total ......................... 78,448 677 2 79,123 1/2
------------- ----------- ----------- ----------
Total held-to-maturity ........ 1,383,607 58,529 10 1,442,126 8/1
Available-for-Sale
U.S. Treasury and other U.S.
Government agencies:
Within one year ................. 884,334 9,735 39 894,030
One to five years ............... 2,091,953 61,274 75 2,153,152
Five to ten years ............... 139,227 8,316 1,877 145,666
Over ten years .................. 8,149 4,570 ---- 12,719
------------- ----------- ----------- ----------
Total ......................... 3,123,663 83,895 1,991 3,205,567 2/7
State and municipal:
Within one year ................. 5,211 42 ---- 5,253
One to five years ............... 33,565 1,010 ---- 34,575
Five to ten years ............... 15,276 1,453 1 16,728
Over ten years .................. 6,912 694 1 7,605
------------- ----------- ----------- ----------
Total ......................... 60,964 3,199 2 64,161 5/4
Mortgage-backed:
Within one year ................. 14,606 44 1 14,649
One to five years ............... 280,390 4,287 98 284,579
Five to ten years ............... 796,036 12,680 66 808,650
Over ten years .................. 3,068,432 33,630 3,186 3,098,876
------------- ----------- ----------- ----------
Total ......................... 4,159,464 50,641 3,351 4,206,754 17/3
Other:
Within one year ................. 97 1 ---- 98
One to five years ............... 148,278 1,676 ---- 149,954
Five to ten years ............... 10,084 156 ---- 10,240
Over ten years .................. 174,983 417 1,983 173,417
------------- ----------- ----------- ----------
Total ......................... 333,442 2,250 1,983 333,709 12/4
------------- ----------- ----------- ----------
Total interest earning
available-for-sale ........... 7,677,533 139,985 7,327 7,810,191 10/11
Federal Reserve Bank stock and
other ........................... 171,632 1,825 ---- 173,457
------------- ----------- ----------- ----------
Total available-for-sale ...... 7,849,165 141,810 7,327 7,983,648
------------- ----------- ----------- ----------
Total portfolio ............... $9,232,772 $ 200,339 $ 7,337 $9,425,774
============= =========== =========== ==========
<CAPTION>
1998 1997 1996
----------- -------------------------- --------------------------
Taxable
Equivalent Amortized Fair Amortized Fair
Yield* Cost Value Cost Value
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Held-to-Maturity
U.S. Treasury and other U.S.
Government agencies:
Within one year ................. 5.82% $ 97,213 $ 97,229 $ ---- $ ----
One to five years ............... 6.10 105,700 106,314 ---- ----
Five to ten years ............... ---- ---- ---- ----
Over ten years .................. ---- ---- ---- ----
------------ ----------- ------------ -----------
Total ......................... 5.96 202,913 203,543 ---- ----
State and municipal:
Within one year ................. 11.13 16,033 16,207 9,128 9,212
One to five years ............... 13.28 59,950 64,287 24,822 27,490
Five to ten years ............... 13.03 94,835 107,903 74,129 85,625
Over ten years .................. 11.39 52,085 57,400 59,822 66,425
------------ ----------- ------------ -----------
Total ......................... 12.66 222,903 245,797 167,901 188,752
Mortgage-backed:
Within one year ................. 6.32 553 550 ---- ----
One to five years ............... 7.25 103,233 105,106 125,681 127,541
Five to ten years ............... 6.75 129,809 132,484 164,342 168,203
Over ten years .................. 8.04 728,566 768,940 814,332 854,940
------------ ----------- ------------ -----------
Total ......................... 7.79 962,161 1,007,080 1,104,355 1,150,684
Other:
Within one year ................. 6.46 37,793 38,069 5,399 5,442
One to five years ............... 6.32 83,219 83,614 29,111 30,350
Five to ten years ............... 7.15 350 361 37,711 40,193
Over ten years .................. ---- ---- 7,614 8,134
------------ ----------- ------------ -----------
Total ......................... 6.40 121,362 122,044 79,835 84,119
------------ ----------- ------------ -----------
Total held-to-maturity ........ 7.65 1,509,339 1,578,464 1,352,091 1,423,555
Available-for-Sale
U.S. Treasury and other U.S.
Government agencies:
Within one year ................. 6.26 1,428,265 1,436,174 2,118,932 2,122,993
One to five years ............... 6.39 2,966,942 3,010,078 3,000,028 3,038,951
Five to ten years ............... 3.83 98,262 99,626 5,149 5,500
Over ten years .................. 13.60 8,078 12,231 11,166 15,858
------------ ----------- ------------ -----------
Total ......................... 6.26 4,501,547 4,558,109 5,135,275 5,183,302
State and municipal:
Within one year ................. 8.05 10,033 10,091 15,649 15,855
One to five years ............... 7.65 36,592 37,433 35,119 35,841
Five to ten years ............... 9.32 17,015 17,592 29,038 29,571
Over ten years .................. 9.73 16,155 17,822 17,445 18,307
------------ ----------- ------------ -----------
Total ......................... 8.36 79,795 82,938 97,251 99,574
Mortgage-backed:
Within one year ................. 6.56 25,113 25,145 159,978 159,890
One to five years ............... 6.69 772,458 778,099 1,243,815 1,252,752
Five to ten years ............... 6.55 557,712 562,110 972,528 973,369
Over ten years .................. 6.57 2,188,428 2,215,829 1,010,796 1,021,108
------------ ----------- ------------ -----------
Total ......................... 6.57 3,543,711 3,581,183 3,387,117 3,407,119
Other:
Within one year ................. 6.01 52,435 52,676 166,407 166,905
One to five years ............... 6.66 350,400 352,950 801,346 803,543
Five to ten years ............... 6.73 6,524 6,917 ---- ----
Over ten years .................. 6.46 99,616 98,825 ---- ----
------------ ----------- ------------ -----------
Total ......................... 6.56 508,975 511,368 967,753 970,448
------------ ----------- ------------ -----------
Total interest earning
available-for-sale ........... 6.46 8,634,028 8,733,598 9,587,396 9,660,443
Federal Reserve Bank stock and
other ........................... 160,649 175,939 153,852 164,309
------------ ----------- ------------ -----------
Total available-for-sale ...... 8,794,677 8,909,537 9,741,248 9,824,752
------------ ----------- ------------ -----------
Total portfolio ............... $10,304,016 $10,488,001 $11,093,339 $11,248,307
============ =========== ============ ===========
</TABLE>
* Yields are presented on a fully taxable equivalent basis using the federal
income tax rate and state tax rates, as applicable. Yields on
available-for-sale securities are based on amortized cost.
34
<PAGE>
of the portfolio. At year-end 1998, securities available-for-sale
totaled $7.984 billion and securities held-to-maturity were
$1.384 billion. Marking the securities available-for-sale
portfolio at December 31, 1998 to fair value resulted in an
unrealized gain of $134.483 million, pretax, and $82.440 million,
net of tax. Marking the securities available-for-sale average
portfolio for the year to fair value resulted in an unrealized
gain of $131.761 million, pretax, and $81.025 million, net of
tax. Unrealized gains are included, net of tax, in shareholders'
equity.
Interest Expense
Interest expense for 1998 increased $145.395 million or 6.7
percent. The rise reflected higher levels of interest-bearing
liabilities to fund loan growth, with the impact on interest
expense moderated by a lower average rate paid. Total
interest-bearing liabilities expanded $4.494 billion or 10.1
percent, primarily led by deposits and short-term borrowed funds,
while the average rate paid declined 14 basis points to 4.71
percent.
The corporation utilizes a diverse funding base and believes
flexibility and ongoing innovation will be required by financial
institutions 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. Traditional funding sources are being broadened
through marketing of the corporation's Premiere and Business
Premiere accounts, both of which are high-yield money market
deposit products; the addition of PC Banking; and enhancements to
basic checking products, including the addition of the
corporation's Access Now account. Wholesale funding sources
include senior and subordinated debt, capital securities and a
global bank note program.
Interest-bearing deposits for the year increased $2.428 billion
or 8.2 percent. Savings and money market savings led the growth,
expanding $1.009 billion or 9.5 percent, with gains occurring
primarily in Premiere and Business Premiere accounts. Demand
deposits rose $875 million or 21.3 percent, while foreign
deposits were up $844 million or 53.2 percent. The rise in
interest-bearing deposits in foreign offices was due, in part, to
deposit-taking authorization received in late 1997 by the
corporation's London, England, office. Large denomination
certificates were higher by $122 million or 4.2 percent for the
year, while savings certificates decreased $422 million or 4.1
percent. Gross deposits in 1998 averaged $39.814 billion, up
$3.298 billion or 9 percent from $36.516 billion in 1997.
Collected deposits, net of float, averaged $37.551 billion for
the year, a rise of $3.033 billion or 8.8 percent from $34.518
billion in 1997.
Short-term borrowed funds expanded $1.908 billion or 21.2
percent. Federal funds purchased and securities sold under
repurchase agreements were higher by $754 million or 11.2
percent, and commercial paper increased $496 million or 63.5
percent. Other short-term borrowed funds, primarily consisting of
short-term bank notes, grew $658 million or 45 percent.
35
<PAGE>
Short-Term Borrowed Funds Table 6
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
1998 1997 1996
------------------- ------------------- ----------------------
Amount Rate Amount Rate Amount Rate
----------- ----- ----------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
At year-end:
Federal funds purchased and securities sold under
repurchase agreements .......................... $ 5,463,418 4.14% $ 8,322,716 5.48% $7,206,005 5.71%
Commercial paper ................................ 1,359,382 4.21 1,034,024 4.66 706,376 4.69
Other borrowed funds ............................ 1,912,262 5.16 752,874 5.39 1,039,221 5.46
------------ ------------ -----------
Total .......................................... $ 8,735,062 4.38 $10,109,614 5.39 $8,951,602 5.60
============ ============ ===========
Average for the year:
Federal funds purchased and securities sold under
repurchase agreements .......................... $ 7,498,280 5.18 $ 6,743,997 5.30 $7,136,064 5.37
Commercial paper* ............................... 1,276,623 5.02 781,345 5.06 595,806 4.88
Other borrowed funds ............................ 2,120,257 5.25 1,461,781 5.57 1,286,160 5.46
------------ ------------ -----------
Total .......................................... $10,895,160 5.18 $ 8,987,123 5.32 $9,018,030 5.35
============ ============ ===========
Maximum month-end balance:
Federal funds purchased and securities sold under
repurchase agreements .......................... $ 8,796,505 $ 8,322,716 $8,519,928
Commercial paper ................................ 1,487,187 1,034,024 706,376
Other borrowed funds ............................ 2,677,503 1,953,440 1,961,632
</TABLE>
* Average interest rate for each year includes effect of fees paid on back-up
lines of credit.
Long-term debt was modestly higher, rising $158 million or 2.6
percent for the year. Bank notes declined $455 million or 14.8
percent as management shifted bank note borrowings to other
long-term debt, which consists of senior and subordinated debt
and capital securities. During the second half of 1998, the
corporation issued a total of $1.300 billion of senior and
subordinated unsecured debt. In July, the corporation issued $350
million of 10-year subordinated fixed-rate notes. In September,
$250 million of two-year senior floating-rate notes and $300
million of three-year senior floating-rate notes were issued. In
December, the corporation issued $400 million of 10-year
subordinated fixed-rate notes. The senior notes are rated Aa3 by
Moody's and AA- by Standard & Poor's and the subordinated notes
are rated A1 by Moody's and A+ by Standard & Poor's. Capital
securities at December 31, 1998 totaled $996 million, reflecting
issuances in December 1996 and in January, April and June 1997.
The capital securities are rated aa3 by Moody's and A by Standard
& Poor's and qualify as part of Tier I capital under risk-based
capital guidelines.
In July 1998, Wachovia Bank increased the amount of its global
bank note program from $16 billion to $21.557 billion, which
included $3.557 billion of notes previously issued under the
program. The program consists of issuances with original
maturities beginning at 7 days. Bank notes with original
maturities of one year or less are included in other short-term
borrowed funds, and bank notes with original maturities greater
than one year are considered medium-term in nature and are
classified as bank notes under long-term debt. Short-term bank
notes outstanding at December 31, 1998 were $1.240 billion with
an average cost of 5.28 percent and an average maturity of 1.4
months. Medium-term bank notes were $2.856 billion and had an
average cost of 5.64 percent and an average maturity of 3.5
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.
36
<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 and foreign
exchange rates, no risk in commodity prices (since the corporation
does not directly hold commodities or trade in commodity
contracts) and immaterial risk in changing equity prices. Market
risks reside in both the trading and nontrading portfolios.
Trading portfolios represent assets, liabilities and off-balance
sheet instruments that 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 the equity account.
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
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
37
<PAGE>
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 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 year-end 1998, the combined VAR exposure, given the above
calculation parameters, was $161 thousand which represented .04
percent of the combined trading portfolio value of $393.434
million. The combined average VAR exposure for 1998 was $221
thousand which represented .03 percent of the combined average
trading portfolio value of $813.631 million. These VAR numbers
are for the combined U. S. Treasury and government agency,
municipal bond, residential mortgage-backed securities and money
market instrument 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 is also net income risk from changes in market rate
relationships known as basis risk. Funds Management is charged
with the responsibility of managing nontrading market risk. Funds
Management includes asset/liability management and the management
of discretionary securities and funding portfolios. The goal of
Funds Management 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 the discretionary
portfolios, and by utilizing off-balance sheet financial
instruments.
Funds Management 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 Funds Management
managers, the Treasurer and the Chief Financial Officer. Funds
Management personnel carry out day-to-day activity within
approved risk management guidelines and strategies. The
corporation uses a number of tools to measure 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.
38
<PAGE>
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 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 the impact of a 200 basis
point gradual rise in rates over the next 12 months would cause
approximately a .7 percent decrease in net income at December 31,
1998 compared with a 2 percent decrease at December 31, 1997. A
gradual decrease in rates over the next 12 months would cause
approximately a .01 percent decrease in net income as of December
31, 1998 compared with an increase of 1.5 percent as of December
31, 1997. 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 indeterminant 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 December 31, 1998, Wachovia's
change in net present value of the balance sheet for a 100 basis
point upward shock to the yield curve was a decline of 2.4
percent. For a decline in rates of 100 basis points, the change
was an increase of 1.1 percent.
Liquidity
Market Risk
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.
39
<PAGE>
Through its balance sheet, the corporation generates liquidity on
the asset side by maintaining significant amounts of securities
available-for-sale, which may be sold at any time, and by loans
which may be securitized or sold. Additionally, the corporation
generates cash through deposit growth, the issuance of bank notes,
the availability of unused lines of credit, and through other
forms of debt and equity instruments.
Through policy guidelines, the corporation limits net purchased
funds to 50 percent of long-term assets, which include net loans
and leases, securities with remaining maturities over one year
and net foreclosed real estate. Policy guidelines insure against
concentrations by maturity of noncore funding sources by limiting
the cumulative percentage of purchased funds that mature
overnight, within 30 days and within 90 days. Guidelines also
require the monitoring of significant concentrations of funds by
single sources and by type of borrowing category.
Nonperforming
Assets
Nonperforming assets at December 31, 1998 were $181.303 million or
.40 percent of loans and foreclosed property. The total was up
$51.808 million or 40 percent from year-end 1997, reflecting an
increase in nonaccrual loans related principally to three
multibank credits with an aggregate exposure of $47.552 million
for the corporation.
The largest category of total nonperforming assets is real estate
related. At December 31, 1998, real estate nonperforming assets
were $105.990 million or .64 percent of real estate loans and
foreclosed real estate versus $106.318 million or .64 percent at
year-end 1997. Included in real estate nonperforming assets were
real estate nonperforming loans of $85.225 million at December
31, 1998 compared with $84.872 million one year earlier.
Commercial real estate nonperforming assets were $47.571 million
or .53 percent of related loans and foreclosed real estate versus
$50.930 million or .59 percent at the end of 1997. Commercial
real estate nonperforming loans included in these totals were
$34.911 million at December 31, 1998 versus $45.335 million at
year-end 1997.
Nonperforming Assets and Contractually Past Due Loans Table 7
- --------------------------------------------------------------------------------
December 31 (thousands)
<TABLE>
1998 1997
--------- ---------
<S> <C> <C>
Nonperforming Assets
Cash-basis assets ................................. $ 157,118 $ 101,156
Restructured loans ................................ ---- ----
--------- ---------
Total nonperforming loans ..................... 157,118 101,156
Foreclosed property:
Foreclosed real estate ........................... 33,443 38,071
Less valuation allowance ......................... 12,678 16,625
Other foreclosed assets .......................... 3,420 6,893
--------- ---------
Total foreclosed property ..................... 24,185 28,339
--------- ---------
Total nonperforming assets .................... $ 181,303 $ 129,495
========= =========
Nonperforming loans to year-end loans ............. .34% .23%
Nonperforming assets to year-end loans and
foreclosed property .............................. .40 .29
Year-end allowance for loan losses times
nonperforming loans .............................. 3.49x 5.38x
Year-end allowance for loan losses times
nonperforming assets ............................. 3.02 4.21
Contractually Past Due Loans
(accruing loans past due 90 days or more) ......... $ 136,807 $ 114,343
========= =========
<CAPTION>
1996 1995 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Nonperforming Assets
Cash-basis assets ................................. $ 98,638 $ 102,310 $ 146,246 $ 202,231
Restructured loans ................................ ---- ---- ---- 686
--------- --------- --------- ---------
Total nonperforming loans ..................... 98,638 102,310 146,246 202,917
Foreclosed property:
Foreclosed real estate ........................... 35,472 39,877 53,746 101,253
Less valuation allowance ......................... 10,805 11,136 12,112 19,974
Other foreclosed assets .......................... 8,213 4,212 2,931 3,406
--------- --------- --------- ---------
Total foreclosed property ..................... 32,880 32,953 44,565 84,685
--------- --------- --------- ---------
Total nonperforming assets .................... $ 131,518 $ 135,263 $ 190,811 $ 287,602
========= ========= ========= =========
Nonperforming loans to year-end loans ............. .26% .29% .46% .73%
Nonperforming assets to year-end loans and
foreclosed property .............................. .35 .38 .60 1.03
Year-end allowance for loan losses times
nonperforming loans .............................. 5.26x 5.07x 3.53x 2.51x
Year-end allowance for loan losses times
nonperforming assets ............................. 3.95 3.84 2.70 1.77
Contractually Past Due Loans
(accruing loans past due 90 days or more) ......... $ 84,788 $ 69,953 $ 48,050 $ 51,239
========= ========= ========= =========
</TABLE>
40
<PAGE>
Provision and
Allowance for
Loan Losses
The provision for loan losses was $299.480 million, higher by
$34.531 million or 13 percent from $264.949 million in 1997.
Included in the provision for 1997 was a special charge of $10.845
million to conform the credit policies of acquired companies to
those of the corporation. Excluding this nonrecurring charge, the
provision in 1998 increased $45.376 million or 17.9 percent from
1997's adjusted level.
The provision reflects management's assessment of the adequacy of
the allowance for loan losses to absorb potential write-offs in
the loan portfolio due to credit deterioration or changes in risk
profile. The assessment primarily considers allowance for loan
loss levels relative to loan risk weightings assigned by
management. The risk weightings by loan type, including
homogenous and nonhomogenous loans, 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. The commercial
allocation of the allowance for loan losses has increased over
the prior year due to increased net loan losses during the last
half of the year and increased outstandings. 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.
Management bases its credit evaluations and reviews on an
analysis of a credit's cash flows and enforces an aggressive loan
loss policy of early recognition and charge-off of troubled
credits. Effective with the first quarter of 1998, management
began assessing Year 2000 compliance among borrowers as part of
its overall credit review process.
Net loan losses for the year totaled $298.824 million or .67
percent of average loans, increasing $34.660 million or 13.1
percent from net losses of $264.164 million or .67 percent of
loans in 1997. The rise in total net charge-offs was driven
primarily by credit cards, which included $4.949 million in
losses from the $269 million of receivables purchased in the
third quarter. Anticipated credit loss experience was factored
into the acquisition price of this portfolio. Net losses in
commercial loans also rose for the year, while net charge-offs in
other retail loans, which consists of direct and indirect retail
loans, declined and net recoveries in real estate loans widened.
Excluding credit cards, net loan losses were $41.108 million or
.11 percent of average loans, lower by $3.722 million or 8.3
percent from $44.830 million or .13 percent of loans in 1997. Net
loan losses are expected to increase at a slower rate in 1999
based on management's assessment of risk in the loan portfolio as
of the start of the year.
Credit card net charge-offs were $257.716 million or 4.54 percent
of average credit card receivables, up $38.382 million or 17.5
percent from $219.334 million or 3.90 percent of credit card
loans in 1997. Commercial net charge-offs rose $6.130 million to
$11.213 million or .07 percent of commercial loans, principally
due to losses associated with two large credits. Net losses in
other retail loans declined $4.080 million or 14.6 percent to
$23.884 million or .56 percent of related receivables, while net
recoveries in real estate loans increased $4.256 million to
$4.825 million or .03 percent of average outstandings.
41
<PAGE>
Selected data on the corporation's managed credit card portfolio,
which includes securitized loans, appears in the following table.
Managed Credit Card Data Table 8
-----------------------------------------------------------------
(thousands)
<TABLE>
<S> <C> <C> <C> <C>
1998 1997 1996 1995
----------- ----------- ----------- -----------
Average credit card outstandings .................. $ 6,181,109 $ 6,179,456 $ 5,573,626 $ 4,767,657
Net loan losses ................................... 276,705 240,388 183,082 114,014
Net loan losses to average loans .................. 4.48% 3.89% 3.28% 2.39%
Delinquencies (30 days or more) to year-end loans . 3.30 2.75 2.35 2.31
</TABLE>
At December 31, 1998, the allowance for loan losses totaled
$547.992 million, representing 1.20 percent of loans and 349
percent of nonperforming loans. The allowance for loan losses at
year-end 1997 was $544.723 million, representing 1.23 percent of
loans and 538 percent of nonperforming loans.
ALLOWANCE FOR LOAN LOSSES
(MILLIONS)
(A bar graph appears here. See the table below for plot points.)
1993 1994 1995 1996 1997 1998
YEAR-END LOAN
LOSS ALLOWANCE 509.80 516.10 518.80 519.30 544.70 548.00
X ALLOWANCE TIMES
NONPERFORMING LOANS 2.51X 3.53X 5.07X 5.26X 5.38X 3.49X
EARNINGS COVERAGE OF NET LOAN LOSSES*
(MILLIONS)
(A bar graph appears here. See the table below for plot points.)
1993 1994 1995 1996 1997 1998
EARNINGS BEFORE INCOME
TAXES AND PROVISION
FOR LOAN LOSSES 924.70 1003.50 1094.40 1289.50 1420.10 1668.10
X NUMBER OF TIMES
EARNINGS COVERED
NET LOAN LOSSES 6.43X 11.18X 8.56X 6.66X 5.38X 5.58X
LOAN LOSS EXPERIENCE
(MILLIONS)
(A bar graph appears here. See the table below for plot points.)
1993 1994 1995 1996 1997 1998
CREDIT CARD 62.00 69.70 109.70 162.90 219.30 257.70
COMMERCIAL 8.30 7.50 (2.70) 0.50 5.10 11.20
REAL ESTATE 63.30 (.20) (3.90) (8.60) (6.0) (4.80)
OTHER 10.10 12.80 24.70 38.70 40.40 34.70
% NET LOAN
LOSSES TO
AVERAGE LOANS .56% .30% .38% .53% .67% .67%
42
<PAGE>
Allowance for Loan Losses Table 9
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Summary of Transactions
Balance at beginning of year ...................... $544,723 $519,297 $518,808 $516,132 $509,798 $481,357
Additions from acquisitions ....................... 2,613 24,641 200 ---- ---- ----
Provision for loan losses ......................... 299,480 264,949 193,776 130,504 96,122 172,161
Deduct net loan losses:
Loans charged off:
Commercial ...................................... 17,880 9,254 6,375 6,364 14,319 15,047
Credit card ..................................... 286,520 246,008 184,387 125,301 83,597 75,325
Other revolving credit .......................... 10,802 10,564 8,834 5,966 4,933 5,259
Other retail .................................... 35,378 39,801 41,581 26,958 15,696 12,611
Real estate ..................................... 4,514 11,564 7,915 15,299 18,292 75,136
Lease financing ................................. 3,095 4,488 1,635 892 226 458
Foreign ......................................... ---- ---- ---- ---- ---- ----
-------- -------- -------- -------- -------- --------
Total .......................................... 358,189 321,679 250,727 180,780 137,063 183,836
Recoveries:
Commercial ...................................... 6,667 4,171 5,905 9,078 6,848 6,720
Credit card ..................................... 28,804 26,674 21,445 15,644 13,913 13,350
Other revolving credit .......................... 2,571 2,361 1,695 1,369 1,278 1,328
Other retail .................................... 11,494 11,837 11,524 7,472 6,505 6,545
Real estate ..................................... 9,339 12,133 16,488 19,239 18,495 11,877
Lease financing ................................. 490 339 183 142 204 264
Foreign ......................................... ---- ---- ---- 8 32 32
-------- -------- -------- -------- -------- --------
Total .......................................... 59,365 57,515 57,240 52,952 47,275 40,116
-------- -------- -------- -------- -------- --------
Net loan losses .................................. 298,824 264,164 193,487 127,828 89,788 143,720
-------- -------- -------- -------- -------- --------
Balance at end of year ............................ $547,992 $544,723 $519,297 $518,808 $516,132 $509,798
======== ======== ======== ======== ======== ========
Net Loan Losses (Recoveries)
by Category
Commercial ........................................ $ 11,213 $ 5,083 $ 470 $(2,714) $ 7,471 $ 8,327
Credit card ....................................... 257,716 219,334 162,942 109,657 69,684 61,975
Other revolving credit ............................ 8,231 8,203 7,139 4,597 3,655 3,931
Other retail ...................................... 23,884 27,964 30,057 19,486 9,191 6,066
Real estate ....................................... (4,825) (569) (8,573) (3,940) (203) 63,259
Lease financing ................................... 2,605 4,149 1,452 750 22 194
Foreign ........................................... ---- ---- ---- (8) (32) (32)
-------- -------- -------- ---------- -------- --------
Total .......................................... $298,824 $264,164 $193,487 $127,828 $ 89,788 $143,720
======== ======== ======== ========= ======== ========
Net loan losses -- excluding credit cards ......... $ 41,108 $ 44,830 $ 30,545 $18,171 $ 20,104 $ 81,745
Net Loan Losses (Recoveries) to Average
Loans by Category
Commercial ........................................ .07% .04% ----% (.02%) .07% .10%
Credit card ....................................... 4.54 3.90 3.29 2.41 1.74 2.07
Other revolving credit ............................ 1.65 1.93 1.71 1.15 .96 1.06
Other retail ...................................... .56 .67 .69 .47 .23 .17
Real estate ....................................... (.03) ---- (.06) (.03) ---- .64
Lease financing ................................... .18 .43 .22 .27 .01 .14
Foreign ........................................... ---- ---- ---- ---- ( .03) (.04)
Total loans ....................................... .67 .67 .53 .38 .30 .56
Total loans -- excluding credit cards ............. .11 .13 .10 .06 .08 .36
Year-end allowance to outstanding loans ........... 1.20 1.23 1.37 1.46 1.63 1.84
Earnings coverage of net loan losses* ............. 5.58x 5.38x 6.66x 8.56x 11.18x 6.43x
Allocation of Allowance for Loan
Losses**
Commercial ........................................ $129,520 $120,195 $117,883 $123,161 $135,725 $135,898
Credit card ....................................... 228,232 221,142 191,606 141,763 130,111 94,697
Other revolving credit ............................ 8,465 10,682 8,268 7,174 6,433 5,812
Other retail ...................................... 37,308 36,669 48,011 42,999 38,175 39,384
Real estate ....................................... 92,523 93,821 94,167 127,763 143,659 147,570
Lease financing ................................... 6,304 6,537 3,685 1,666 2,211 2,018
Foreign ........................................... 6,342 3,702 3,702 3,697 3,830 931
Unallocated ....................................... 39,298 51,975 51,975 70,585 55,988 83,488
-------- -------- -------- --------- -------- --------
Total ........................................... $547,992 $544,723 $519,297 $518,808 $516,132 $509,798
======== ======== ======== ========= ======== ========
</TABLE>
* Earnings before income taxes and provision for loan losses excluding
securities transactions and nonrecurring charges.
** The allocation of the allowance for loan losses above represents an
estimate based on historical loss experience, individual credits, economic
conditions and other judgmental factors. Since any allocation is judgmental
and involves consideration of many factors, the allocation may be more or
less than the charge-offs that may ultimately occur. The entire allowance
is available for charge-offs in any category of loans. See page 83 for
percentage of loan categories to total loans.
43
<PAGE>
Noninterest Income
Total other operating revenue, which excludes securities sales,
rose $222.351 million or 22.1 percent to $1.228 billion for the
year. Growth occurred in all categories, with gains strongest in
capital markets income, deposit account service charges, trust
services fees, mortgage fees and electronic banking. Total other
operating revenue included gains of $17.155 million in 1998 and
$21.096 million in 1997 from branch sales. Excluding branch sale
gains, total other operating revenue rose $226.292 million or 23
percent for the year. Management expects total other operating
revenue to increase approximately 10 percent in 1999 based on a
stable but slower economic growth outlook and on anticipated gains
largely in capital markets, mortgage activity, deposit account
services, technology-based banking and financial advisory areas.
Capital markets income expanded $80.561 million or 162.7 percent.
Growth was driven by gains primarily in consulting services,
private placement fees, foreign exchange trading and derivatives
income. The corporation sells its capital markets services across
its client base with a focus on middle market corporate
customers. Services offered include risk management, debt capital
and corporate financing, fixed income sales and trading, merchant
banking and financial advisory, trust and treasury services, and
global and specialty lending. In June 1998, Wachovia received
Tier I powers for its Section 20 capital markets subsidiary.
These powers enable the subsidiary to engage in underwriting and
dealing in municipal revenue bonds, commercial paper,
mortgage-related securities and consumer-related receivables, all
of investment grade rating. Tier II powers permitting further
expansion into corporate debt and equity securities without
investment grade limitation are expected to be effective in 1999.
Revenues from service charges on deposit accounts rose $28.749
million or 9.4 percent. Higher levels of overdraft charges,
commercial analysis fees and insufficient funds charges primarily
drove the increase.
Fees for trust services grew $24.400 million or 13.9 percent.
Increases occurred largely in Personal Financial Services and in
fees associated with the Wachovia Funds, the corporation's
proprietary family of mutual funds. In 1998, management completed
installation of a new trust system, designed to enhance and
better support the corporation's array of trust products and
services. At December 31, 1998, the corporation's trust assets
totaled $138.130 billion, including $42.025 billion under
discretionary management. This compared with total trust assets
of $129.079 billion, including $33.568 billion under
discretionary management at year-end 1997.
Mortgage fees rose $21.385 million or 90.8 percent, fueled by
greater origination activity, gains on sales of mortgage
servicing rights and higher gains on loans sold to the secondary
market.
Increased debit card and ATM usage pushed electronic banking
revenues up $9.617 million or 14.9 percent.
Credit card income advanced $8.893 million or 5.5 percent, with
growth primarily due to higher card sales in both consumer and
corporate business accounts. Active managed accounts averaged
2.296 million in 1998 versus 2.050 million in 1997.
Investment fee income grew $8.368 million or 23.1 percent. The
increase primarily reflected higher levels of fees from customer
mutual fund investments and from brokerage commissions. Included
in investment fee income are commission sales of the Wachovia
Funds by the corporation's branch-based Investment Counselors.
Assets of the Wachovia Funds totaled $6.423 billion at December
31, 1998 compared with $5.620 billion at year-end 1997.
44
<PAGE>
Noninterest Income Table 10
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Service charges on deposit
accounts .............................. $ 334,980 $ 306,231 $280,670
Fees for trust services ................ 199,949 175,549 154,621
Credit card income -- net of
interchange payments .................. 171,127 162,234 143,382
Electronic banking ..................... 74,257 64,640 56,226
Capital markets income ................. 130,083 49,522 44,212
Investment fees ........................ 44,619 36,251 30,820
Mortgage fees .......................... 44,929 23,544 21,371
Insurance premiums and
commissions ........................... 31,897 30,205 20,562
Bankers' acceptance and letter of
credit fees ........................... 39,025 34,526 28,243
Other service charges and fees ......... 39,766 38,750 38,590
Other income ........................... 117,487 84,316 56,035
----------- ----------- ---------
Total other operating
revenue ........................... 1,228,119 1,005,768 874,732
Gain on sale of mortgage servicing
portfolio ............................. ---- ---- ----
Gain on sale of subsidiary ............. ---- ---- ----
Securities gains (losses) .............. 20,442 1,454 4,588
----------- ----------- ---------
Total .............................. $1,248,561 $1,007,222 $879,320
=========== =========== =========
<CAPTION>
Five-Year
Compound
1995 1994 1993 Growth Rate
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Service charges on deposit
accounts .............................. $ 244,671 $ 231,646 $237,328 7.1%
Fees for trust services ................ 145,464 142,026 133,651 8.4
Credit card income -- net of
interchange payments .................. 127,153 126,886 104,922 10.3
Electronic banking ..................... 39,722 28,347 17,857 33.0
Capital markets income ................. 29,832 12,131 24,972 39.1
Investment fees ........................ 22,059 11,185 12,244 29.5
Mortgage fees .......................... 26,139 33,997 41,339 1.7
Insurance premiums and
commissions ........................... 17,455 17,018 16,566 14.0
Bankers' acceptance and letter of
credit fees ........................... 25,953 25,801 22,277 11.9
Other service charges and fees ......... 30,271 22,876 22,094 12.5
Other income ........................... 48,396 38,186 36,219 26.5
---------- ---------- ---------
Total other operating
revenue ........................... 757,115 690,099 669,469 12.9
Gain on sale of mortgage servicing
portfolio ............................. 79,025 ---- ----
Gain on sale of subsidiary ............. ---- ---- 8,030 (100.0)
Securities gains (losses) .............. (19,672) (21,972) 74,256 ( 22.7)
---------- ---------- ---------
Total .............................. $ 816,468 $ 668,127 $751,755 10.7
========== ========== =========
</TABLE>
Remaining combined categories of total other operating revenue
increased $44.319 million or 26.6 percent excluding gains from
branch sales. Insurance premiums and commissions were higher by
$1.692 million or 5.6 percent, and bankers' acceptance and letter
of credit fees grew $4.499 million or 13 percent. Other service
charges and fees expanded modestly, while other income rose
$37.112 million or 58.7 percent.
Including securities sales, total noninterest income was up
$241.339 million or 24 percent for the year. Securities sales
resulted in net gains of $20.442 million in 1998, including
sizable gains in the third and fourth quarters from the sale of
select equity investments. This compared with net securities
gains of $1.454 million in 1997, including losses of $4.639
million in the fourth quarter to restructure the
available-for-sale portfolio.
Noninterest
Expense
Total noninterest expense rose $29.611 million or 1.5 percent,
with growth for the year affected by non-recurring charges taken
both in 1998 and 1997. In 1998, the corporation incurred merger
expenses of $85.312 million, primarily for systems conversions and
signage changes related to its Virginia and Florida banking
acquisitions. Nonrecurring noninterest expense charges totaling
$287.532 million were taken in 1997 for merger-related charges and
an equipment impairment charge. Excluding the merger expenses and
special charge, noninterest expense on a core operating basis
totaled $1.911 billion in 1998 and grew $231.831 million or 13.8
percent from 1997's core expense level of $1.679 billion.
Integration expenses approximating $15 million are expected in
1999 in connection with the corporation's planned acquisition of
Interstate/Johnson Lane. Excluding merger charges, noninterest
expense in 1999 is expected to rise approximately 5 percent from
1998's core level of $1.911 billion. The estimated growth rate is
based on anticipated slower increases largely in salary costs.
Employee medical costs and amortization expense are expected to
drive most of the noninterest expense growth for 1999.
45
<PAGE>
Noninterest Expense Table 11
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Salaries ............................. $ 874,750 $ 742,106 $ 655,065
Employee benefits .................... 180,603 163,051 141,867
----------- ----------- -----------
Total personnel expense........... 1,055,353 905,157 796,932
Net occupancy expense ................ 138,636 116,654 114,001
Equipment expense .................... 156,203 142,227 132,775
Postage and delivery ................. 52,981 48,657 47,195
Outside data processing,
programming and software ............ 68,680 86,497 51,139
Stationery and supplies .............. 34,767 30,960 30,043
Advertising and sales promotion....... 70,222 72,046 68,639
Professional services ................ 56,066 54,113 41,223
Travel and business promotion ........ 29,254 25,215 21,096
Amortization of intangible assets..... 39,091 13,308 9,163
Foreclosed property
expense -- net of income ............ 571 1,875 1,930
Personal computer impairment
charge* ............................. ---- 67,202 ----
Merger-related charges* .............. 85,312 220,330 ----
Other expense ........................ 209,196 182,480 194,837
----------- ----------- -----------
Total ............................ $ 1,996,332 $ 1,966,721 $ 1,508,973
=========== =========== ===========
Overhead ratio** ..................... 55.1% 62.3% 52.5%
Overhead ratio without
nonrecurring charges ................ 52.7 53.2 52.5
<CAPTION>
Five-Year
Compound
1995 1994 1993 Growth Rate
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Salaries ............................. $ 604,041 $ 566,368 $ 545,869 9.9%
Employee benefits .................... 129,749 125,144 139,754 5.3
----------- ----------- -----------
Total personnel expense........... 733,790 691,512 685,623 9.0
Net occupancy expense ................ 109,543 102,131 101,225 6.5
Equipment expense .................... 127,268 124,321 119,340 5.5
Postage and delivery ................. 44,553 41,169 44,051 3.8
Outside data processing,
programming and software ............ 47,737 39,870 42,810 9.9
Stationery and supplies .............. 30,238 27,327 28,100 4.3
Advertising and sales promotion....... 57,957 42,576 43,972 9.8
Professional services ................ 41,152 23,326 19,025 24.1
Travel and business promotion ........ 20,267 16,743 15,977 12.9
Amortization of intangible assets..... 12,296 21,042 30,276 5.2
Foreclosed property
expense -- net of income ............ 2,420 7,508 22,929 (52.2)
Personal computer impairment
charge* ............................. ---- ---- ----
Merger-related charges* .............. ---- ---- ----
Other expense ........................ 214,408 205,726 200,930 .8
----------- ----------- -----------
Total ............................ $ 1,441,629 $ 1,343,251 $ 1,354,258 8.1
=========== =========== ===========
Overhead ratio** ..................... 54.5% 54.7% 56.8%
Overhead ratio without
nonrecurring charges ................ 54.5 54.7 56.8
</TABLE>
* Nonrecurring charges
** Noninterest expense as a percentage of taxable equivalent net interest
income and total other operating revenue.
Total personnel expense grew $150.196 million or 16.6 percent.
Salaries expense rose $132.644 million or 17.9 percent, primarily
due to expanded incentive pay for revenue-generating businesses
and to a higher wage base. Employee benefits expense increased
$17.552 million or 10.8 percent, with growth occurring largely in
medical costs, retirement plan expenses and payroll taxes.
Combined net occupancy and equipment expense was up $35.958
million or 13.9 percent. Net occupancy expense rose $21.982
million or 18.8 percent, primarily reflecting increased building
maintenance and depreciation costs for expanded physical
facilities. Higher depreciation for new equipment helped push
equipment expense up $13.976 million or 9.8 percent.
Remaining combined categories of noninterest expense rose $45.677
million or 8.9 percent excluding nonrecurring charges. Higher
levels of intangible assets from purchase acquisitions pushed
amortization expense of intangible assets up $25.783 million,
accounting for the majority of the rise. Partially offsetting the
expense growth was a reduction in outside data processing,
programming and software costs, largely due to lower Year 2000
expenses.
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 assess and address both
internal and external risks associated with the change in date
event. The project team is in the latter stages of executing a
Year 2000 readiness plan consisting of five phases: problem
awareness; identification of affected systems, functions and
facilities; conversion or replacement of identified areas to Year
2000 compliant standards; testing; and implementation.
46
<PAGE>
The corporation's readiness plan encompasses both information
technology systems and computer chip embedded functions, such as
those operating facilities including elevators, security systems
and building heating and cooling. In 1996, the corporation
completed its awareness and identification phases, extending and
completing the processes in 1997 and 1998 for recent merger
partners. As of December 31, 1998, virtually all of the
corporation's information technology systems had been converted.
While regulatory guidelines require conversion only of mission
critical systems, the corporation has worked to convert all
information technology systems. For computer chip embedded
functions, the corporation has replaced and tested noncompliant
functions essential to business operations.
In-house testing of information technology systems currently is
underway, with testing completed on approximately 81 percent of
all applications at year-end 1998. Management expects to complete
testing of all of its information systems by March 31, 1999.
Testing is done in both a 21st century and 20th century date
environment before systems are returned to production to ensure
data accuracy and consistency. All exceptions to testing results
are resolved before further testing is permitted. Management has
chosen to implement converted systems back into production as
systems are tested to permit greater flexibility in the event of
future system flaws or failures. The percentage of systems
implemented, therefore, closely approximates the percentage
tested.
The corporation also is working to assess and address Year 2000
readiness on the part of external entities, particularly critical
vendors and significant credit customers. Identification and
monitoring of external entities began in 1996 and includes
surveys with follow-up reviews and contacts. Substantially all of
the corporation's vendors have responded to management's surveys
regarding Year 2000 readiness, with approximately 73 percent
compliant as of December 31, 1998. The project team is continuing
to monitor the progress of remaining noncompliant vendors as well
as the status of large corporate borrowers identified as
potentially at risk. The corporation will conduct testing with
external entities in 1999 as they become Year 2000 ready, with
some limited testing having occurred in 1998.
Management estimates that total Year 2000 project costs will be
approximately $80 million, with $66 million having been spent
through December 31, 1998 including $28 million in 1998. The
total projected cost is up from $55 million estimated earlier due
to additional expenditures for internal testing. The
corporation's remaining Year 2000 project costs are not expected
to have a material impact on Wachovia's results of operations,
liquidity or capital resources.
The corporation faces a number of risks related to the year 2000
date change event including project management risks, legal risks
and financial risks. Project management risks refer primarily to
the failure to adequately assess Year 2000 planning and resource
needs, resulting in under- or over-allotment of resources
assigned to complete the project work, missed deadlines and
estimation errors. Legal risks include the failure to meet
contractual service agreements, leading to possible punitive
actions including those of a regulatory nature. Financial risks
concern the possibility of lost revenues, asset quality
deterioration or even business failure. The corporation conducted
a project management risk assessment in early 1997 and is in the
process of addressing its legal and financial risks.
Management of the date change event entails additional risks
separate from those of project management. Major risks associated
with the date change event include a 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.
47
<PAGE>
The corporation has identified 60 risks associated with the date
change event and is in the process of finalizing 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 pre-
implementation 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 has converted and is in the process of
testing 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 affect 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. Management has a risk
assessment committee that has been examining the risks associated
with the Euro conversion such as the adequacy of information
technology systems, currency risk and the competitive impact of
cross-border price transparency. Based on the findings of the risk
assessment committee, management does not expect the impact of the
Euro conversion to have a material adverse impact on the
corporation's financial condition or results of operations.
Income Taxes
Applicable income taxes in 1998 increased $153.298 million or 55.5
percent. 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 income taxes. The interest earned on certain state and
municipal debt instruments is exempt from federal income taxes
and, in some cases, state income 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.
48
<PAGE>
New Accounting
Standards
In December 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 127, "Deferral of
the Effective Date of Certain Provisions of FASB Statement No.
125, an amendment of FASB Statement No. 125" (FASB 127). FASB 127
delayed until 1998 certain provisions of FASB 125 that deal with
repurchase agreements, securities lending and other similar
transactions and pledged collateral. Adoption of FASB 127 was not
material.
In June 1997, Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FASB 130), was issued and
established standards for reporting and displaying comprehensive
income and its components. FASB 130 requires comprehensive income
and its components, as recognized under the accounting standards,
to be displayed in a financial statement with the same prominence
as other financial statements. The disclosure requirements of
FASB 130 have been included in the corporation's consolidated
statements of shareholders' equity.
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (FASB
131), also issued in June 1997, established new standards for
reporting information about operating segments in annual and
interim financial statements. The standard also requires
descriptive information about the way the operating segments are
determined, the products and services provided by the segments
and the nature of differences between reportable segment
measurements and those used for the consolidated enterprise. This
standard is effective for years beginning after December 15,
1997. The disclosure requirements are presented in Note C to the
Consolidated Financial Statements.
In March 1998, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1),
which provides guidance as to when it is or is not appropriate to
capitalize the cost of software developed or obtained for
internal use. The corporation adopted SOP 98-1 effective January
1, 1998; the effect was not material.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (FASB 133).
FASB 133 establishes new accounting and reporting requirements
for derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities.
The standard requires all derivatives to be measured at fair
value and recognized as either assets or liabilities in the
statement of condition. Under certain conditions, a derivative
may be specifically designated as a hedge. Accounting for the
changes in the fair value of a derivative depends on the intended
use of the derivative and the resulting designation. Adoption of
the standard is required for the corporation's December 31, 2000
financial statements with early adoption allowed as of the
beginning of any quarter after June 30, 1998. Management is in
the process of assessing the impact and period of adoption of the
standard. Adoption is not expected to result in a material
financial impact.
49
<PAGE>
-----------------------------------------------
Shareholders' Equity and Capital Ratios
-----------------------------------------------------------------
Shareholders' equity at December 31, 1998 totaled $5.338 billion,
rising $163.931 million or 3.2 percent from $5.174 billion at
year-end 1997. Included in shareholders' equity at December 31,
1998 was $82.440 million, net of tax, of unrealized gains on
securities available-for-sale compared with $71.098 million, net
of tax, of unrealized gains one year earlier. Wachovia's book
value at year-end 1998 was $26.30 per share, higher by 4.7
percent from $25.13 per share at the close of 1997. The
corporation's internal capital generation rate (defined as net
income less dividends as a percentage of average equity) was 9.5
percent for the year.
During 1998, the corporation repurchased a total of 6,417,200
shares of its common stock under two separate authorizations by
the Board of Directors. The shares were repurchased at an average
price of $82.22 per share, for a total cost of $527.623 million.
In 1997, the corporation repurchased 6,913,400 shares of its
common stock at an average price of $61.78 per share, for a total
cost of $427.111 million. On June 23, 1998, the Board of
Directors authorized the repurchase of up to 12 million shares of
the corporation's common stock effective through January 28,
2000. As of December 31, 1998, a total of 4,642,200 shares had
been repurchased under the June 23, 1998 authorization.
Management expects to complete the share repurchase authorization
in 1999. At its meeting on January 22, 1999, the corporation's
Board of Directors authorized the repurchase of shares to be
issued in connection with the pending purchase acquisition of
Interstate/Johnson Lane. The transaction is expected to close
during the second quarter of 1999 and result in goodwill of
approximately $140 million.
Intangible assets at December 31, 1998 totaled $687.535 million,
consisting of $542.615 million of goodwill, $93.888 million of
deposit base intangibles, $40.428 million of purchased credit
card premiums, $10.299 million of mortgage servicing rights and
$305 thousand of other intangibles. Intangible assets
Capital Components and Ratios Table 12
- --------------------------------------------------------------------------------
December 31 (thousands)
<TABLE>
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Tier I capital:
Common shareholders' equity ............................................. $ 5,338,232 $ 5,174,301 $ 4,608,401
Capital securities ...................................................... 996,368 995,993 300,000
Less ineligible intangible assets ....................................... 666,672 634,052 91,509
Unrealized (gains) losses on securities available-for-sale -- net of tax (82,440) (71,098) (51,686)
----------- ----------- -----------
Total Tier I capital .................................................. 5,585,488 5,465,144 4,765,206
Tier II capital:
Allowable allowance for loan losses ..................................... 547,992 544,723 519,297
Allowable long-term debt ................................................ 1,794,148 1,193,451 1,288,041
----------- ----------- -----------
Tier II capital additions ............................................. 2,342,140 1,738,174 1,807,338
----------- ----------- -----------
Total capital ......................................................... $ 7,927,628 $ 7,203,318 $ 6,572,544
=========== =========== ===========
Risk-adjusted assets ..................................................... $69,928,737 $64,844,037 $53,338,099
Quarterly average assets* ................................................ $64,454,538 $59,139,712 $55,897,010
Risk-based capital ratios:
Tier I capital .......................................................... 7.99% 8.43% 8.93%
Total capital ........................................................... 11.34 11.11 12.32
Tier I leverage ratio .................................................... 8.67 9.24 8.52
</TABLE>
* Excludes ineligible intangible assets and average unrealized gains (losses)
on securities available-for-sale, net of tax.
50
<PAGE>
one year earlier were $649.542 million, with $520.803 million of
goodwill, $113.248 million of deposit base intangibles, $13.780
million of mortgage servicing rights and $1.711 million of other
intangibles, primarily purchased credit card premiums. The
increase in intangible assets resulted from purchase acquisitions
consummated in 1998.
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 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 December 31, 1998, the corporation's Tier I to risk-adjusted
assets ratio was 7.99 percent and total capital to risk-adjusted
assets was 11.34 percent. The Tier I leverage ratio was 8.67
percent. Capital securities included in the capital ratios were
$996.368 million and $995.993 million at year-end 1998 and 1997,
respectively.
Dividends
Cash dividends paid in 1998 totaled $381.798 million, rising
$54.495 million or 16.6 percent from $327.303 million paid in
1997. The payout ratio of cash dividends paid to net income was
43.7 percent for the year.
On January 22, 1999, the corporation's Board of Directors
declared a first quarter 1999 dividend of $.49 per common share,
payable March 1, 1999 to shareholders of record on February 4.
The dividend is higher by 11.4 percent from $.44 per common share
paid in the same period of 1998. Additional dividend information
may be found on page 90.
YEAR-END SHAREHOLDERS' EQUITY PER SHARE
FIVE-YEAR COMPOUND GROWTH RATE = 7.9%
(A bar graph appears here. See the table below for plot points.)
1993 1994 1995 1996 1997 1998
17.98 18.79 22.08 22.90 25.13 26.30
51
<PAGE>
Financial Summary Table 13
- --------------------------------------------------------------------------------
<TABLE>
1998
--------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Summary of Operations
(thousands, except per share data)
Interest income ................................. $ 1,176,192 $ 1,171,466 $ 1,169,758 $ 1,147,829
Interest expense ................................ 566,443 582,030 587,054 578,686
------------- ----------- ----------- -----------
Net interest income ............................. 609,749 589,436 582,704 569,143
Provision for loan losses (1) ................... 84,104 72,809 68,441 74,126
------------- ----------- ----------- -----------
Net interest income after provision for loan
losses ......................................... 525,645 516,627 514,263 495,017
Other operating revenue ......................... 318,812 310,541 315,043 283,723
Securities gains (losses) (2) ................... 7,407 6,886 2,992 3,157
------------- ----------- ----------- -----------
Total other income .............................. 326,219 317,427 318,035 286,880
Personnel expense ............................... 269,941 263,282 262,406 259,724
Nonrecurring charges (3) ........................ 6,961 11,934 30,849 35,568
Other expense ................................... 215,784 217,187 223,739 198,957
------------- ----------- ----------- -----------
Total other expense ............................. 492,686 492,403 516,994 494,249
Income before income tax expense ................ 359,178 341,651 315,304 287,648
Income tax expense .............................. 117,612 114,284 105,388 92,327
------------- ----------- ----------- -----------
Net income ...................................... $ 241,566 $ 227,367 $ 209,916 $ 195,321
============= =========== =========== ===========
Net income per common share:
Basic .......................................... $ 1.19 $ 1.11 $ 1.02 $ .95
Diluted ........................................ $ 1.17 $ 1.09 $ 1.00 $ .93
Cash dividends paid per common share (4) ........ $ .49 $ .49 $ .44 $ .44
Cash dividends paid on common stock (5) ......... $ 99,452 $ 100,784 $ 90,973 $ 90,589
Cash dividend payout ratio (5) .................. 41.2% 44.3% 43.3% 46.4%
Average basic shares outstanding ................ 202,824 204,832 206,718 205,894
Average diluted shares outstanding .............. 206,991 208,837 210,662 210,158
Selected Average Balances
(millions)
Total assets .................................... $ 65,298 $ 63,429 $ 63,916 $ 63,133
Loans -- net of unearned income ................. 45,966 43,894 43,974 43,749
Securities ...................................... 9,952 10,664 11,102 10,623
Other interest-earning assets ................... 1,622 1,508 1,558 1,630
Total interest-earning assets ................... 57,540 56,066 56,634 56,002
Interest-bearing deposits ....................... 31,766 31,654 32,182 32,455
Short-term borrowed funds ....................... 11,135 10,858 10,947 10,635
Long-term debt .................................. 6,830 6,080 6,092 6,107
Total interest-bearing liabilities .............. 49,731 48,592 49,221 49,197
Noninterest-bearing deposits .................... 8,148 7,874 7,939 7,240
Total deposits .................................. 39,914 39,528 40,121 39,695
Shareholders' equity ............................ 5,178 5,173 5,211 5,109
Ratios (averages)
Annualized net loan losses to loans ............. .73% .66% .62% .68%
Annualized net yield on interest-earning
assets ......................................... 4.28 4.26 4.21 4.21
Shareholders' equity to:
Total assets ................................... 7.93 8.16 8.15 8.09
Net loans ...................................... 11.40 11.93 12.00 11.82
Annualized return on assets ..................... 1.48 1.43 1.31 1.24
Annualized return on shareholders' equity ....... 18.66 17.58 16.11 15.29
Operating Performance Excluding
Nonrecurring Items
(thousands, except per share data)
Net income ...................................... $ 246,160 $ 235,243 $ 230,276 $ 218,168
Net income per diluted share .................... $ 1.19 $ 1.13 $ 1.09 $ 1.04
Annualized return on assets ..................... 1.51% 1.48% 1.44% 1.38%
Annualized return on shareholders' equity ....... 19.02 18.19 17.68 17.08
Cash dividend payout ratio (5) .................. 40.4 42.8 39.5 41.5
<CAPTION>
1997
------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Summary of Operations
(thousands, except per share data)
Interest income ................................. $1,119,617 $ 1,072,921 $ 1,051,622 $ 1,018,225
Interest expense ................................ 564,145 549,277 539,423 515,973
------------ ----------- ----------- -----------
Net interest income ............................. 555,472 523,644 512,199 502,252
Provision for loan losses (1) ................... 76,915 62,756 63,047 62,231
------------ ----------- ----------- -----------
Net interest income after provision for loan
losses ......................................... 478,557 460,888 449,152 440,021
Other operating revenue ......................... 263,258 256,047 259,594 226,869
Securities gains (losses) (2) ................... (1,693) 1,091 498 1,558
------------ ----------- ----------- -----------
Total other income .............................. 261,565 257,138 260,092 228,427
Personnel expense ............................... 244,250 230,352 218,916 211,639
Nonrecurring charges (3) ........................ 287,532 ---- ---- ----
Other expense ................................... 200,636 194,949 201,485 176,962
------------ ----------- ----------- -----------
Total other expense ............................. 732,418 425,301 420,401 388,601
Income before income tax expense ................ 7,704 292,725 288,843 279,847
Income tax expense .............................. 4,100 93,803 92,038 86,372
------------ ----------- ----------- -----------
Net income ...................................... $ 3,604 $ 198,922 $ 196,805 $ 193,475
============ =========== =========== ===========
Net income per common share:
Basic .......................................... $ .02 $ 1.02 $ 1.00 $ .97
Diluted ........................................ $ .02 $ 1.00 $ .98 $ .95
Cash dividends paid per common share (4) ........ $ .44 $ .44 $ .40 $ .40
Cash dividends paid on common stock (5) ......... $ 87,045 $ 83,952 $ 78,001 $ 78,305
Cash dividend payout ratio (5) .................. 2,415.2% 42.2% 39.6% 40.5%
Average basic shares outstanding ................ 201,415 194,981 196,676 200,110
Average diluted shares outstanding .............. 205,934 198,555 199,819 203,307
Selected Average Balances
(millions)
Total assets .................................... $ 59,835 $ 57,183 $ 57,044 $ 56,333
Loans -- net of unearned income ................. 41,770 39,731 39,100 38,223
Securities ...................................... 10,126 10,649 11,102 11,310
Other interest-earning assets ................... 1,637 1,457 1,370 1,316
Total interest-earning assets ................... 53,533 51,837 51,572 50,849
Interest-bearing deposits ....................... 30,706 29,300 29,450 28,857
Short-term borrowed funds ....................... 9,444 9,172 8,917 8,403
Long-term debt .................................. 5,935 6,031 6,063 6,465
Total interest-bearing liabilities .............. 46,085 44,503 44,430 43,725
Noninterest-bearing deposits .................... 7,484 6,843 6,789 6,612
Total deposits .................................. 38,190 36,143 36,239 35,469
Shareholders' equity ............................ 4,884 4,391 4,376 4,479
Ratios (averages)
Annualized net loan losses to loans ............. .73% .63% .64% .65%
Annualized net yield on interest-earning
assets ......................................... 4.21 4.12 4.10 4.13
Shareholders' equity to:
Total assets ................................... 8.16 7.68 7.67 7.95
Net loans ...................................... 11.85 11.20 11.34 11.88
Annualized return on assets ..................... .02 1.39 1.38 1.37
Annualized return on shareholders' equity ....... .30 18.12 17.99 17.28
Operating Performance Excluding
Nonrecurring Items
(thousands, except per share data)
Net income ...................................... $ 210,727 $ 198,922 $ 196,805 $ 193,475
Net income per diluted share .................... $ 1.02 $ 1.00 $ .98 $ .95
Annualized return on assets ..................... 1.41% 1.39% 1.38% 1.37%
Annualized return on shareholders' equity ....... 17.26 18.12 17.99 17.28
Cash dividend payout ratio (5) .................. 41.3 42.2 39.6 40.5
</TABLE>
(1) Includes $10,845 in nonrecurring merger-related provision in the 1997
fourth quarter.
(2) Includes $4,639 of nonrecurring losses to restructure the
available-for-sale portfolio in the 1997 fourth quarter.
(3) Nonrecurring charges in the 1998 fourth, third, second and first quarters
include merger-related items of $6,961, $11,934, $30,849 and $35,568,
respectively; nonrecurring charges in the 1997 fourth quarter include
merger-related charges of $220,330 and a personal computer impairment
charge of $67,202.
(4) Cash dividends per common share are those of Wachovia Corporation prior to
the merger with Central Fidelity Banks, Inc.
(5) Includes amounts of pooled companies.
52
<PAGE>
-----------------------------
Fourth Quarter Analysis
-----------------------------------------------------------------
Net income for the fourth quarter of 1998 was $241.566 million or
$1.17 per diluted share compared with $3.604 million or $.02 per
diluted share a year earlier. Included in the results for both
quarters were nonrecurring charges, which totaled $6.961 million,
pretax, in the 1998 period for merger expenses and $303.016
million, pretax, in the 1997 period for merger and special
charges. The net impact of the non-recurring charges was $4.594
million, after-tax, or $.02 per diluted share for the fourth
quarter of 1998 and $207.123 million, after-tax, or $1.00 per
diluted share for the final three months of 1997. On a core
operating basis excluding merger and special charges, net income
for the fourth quarter of 1998 was $246.160 million or $1.19 per
diluted share versus $210.727 million or $1.02 per diluted share
a year earlier.
Revenue growth for the quarter was strong. Total revenues
advanced $107.785 million or 13 percent year over year to
$939.666 million on solid increases from both interest and
noninterest income sources.
Taxable equivalent net interest income expanded $52.231 million
or 9.2 percent. The rise was driven primarily by strong loan
demand, with a lower average rate paid for funding sources also
contributing to the increase. Average loans grew $4.196 billion
or 10 percent, led largely by taxable commercial loans,
commercial real estate loans and lease financing. The average
rate earned on loans decreased 19 basis points. Total
interest-bearing liabilities rose $3.646 billion or 7.9 percent,
while the average rate paid declined 34 basis points. Short-term
borrowed funds expanded $1.691 billion or 17.9 percent,
interest-bearing deposits increased $1.060 billion or 3.5 percent
and long-term debt rose $895 million or 15.1 percent.
QUARTERLY NET INCOME PER SHARE, 1998
(DILUTED)
(A bar graph appears here. See the table below for plot points.)
1ST Q 2ND Q 3RD Q 4TH Q
.93 1.00 1.09 1.17
QUARTERLY NET INCOME PER SHARE, 1997
(DILUTED)
(A bar graph appears here. See the table below for plot points.)
1ST Q 2ND Q 3RD Q 4TH Q
.95 .98 1.00 .02
53
<PAGE>
Taxable Equivalent Rate/Volume Variance Analysis -- Fourth Quarter* Table 14
- --------------------------------------------------------------------------------
<TABLE>
Average Volume Average Rate
- -------------------- --------------------
1998 1997 1998 1997
- -------- ---- -------- ----
(Millions)
<S> <C> <C> <C>
Loans:
Commercial ....................................... $15,045 $12,173 6.97 7.40
Tax-exempt ....................................... 1,033 1,616 9.72 8.85
-------- -------
Total commercial ................................. 16,078 13,789 7.14 7.57
Direct retail .................................... 1,112 1,235 8.86 9.07
Indirect retail .................................. 3,212 2,976 7.92 8.46
Credit card ...................................... 5,829 5,735 13.62 13.14
Other revolving credit ........................... 523 437 11.36 12.33
-------- -------
Total retail ..................................... 10,676 10,383 11.30 11.28
Construction ..................................... 1,971 1,689 8.78 9.30
Commercial mortgages ............................. 6,875 6,444 8.35 8.50
Residential mortgages ............................ 7,543 7,894 7.72 7.89
-------- -------
Total real estate ................................ 16,389 16,027 8.11 8.28
Lease financing .................................. 1,736 1,057 12.16 10.46
Foreign .......................................... 1,087 514 6.85 7.13
-------- -------
Total loans ...................................... 45,966 41,770 8.64 8.83
Securities:
Held-to-maturity:
U.S. Government and agency ....................... 526 119 6.08 6.12
Mortgage-backed securities ....................... 664 981 8.28 8.04
State and municipal securities ................... 181 218 11.50 11.63
Other ............................................ 83 85 6.53 6.62
-------- -------
Total securities held-to-maturity ................ 1,454 1,403 7.79 8.35
Available-for-sale:**
U.S. Government and agency ....................... 3,478 4,781 6.52 6.78
Mortgage-backed securities ....................... 4,425 3,141 6.44 6.94
Other ............................................ 595 801 6.82 6.53
-------- -------
Total securities available-for-sale .............. 8,498 8,723 6.50 6.81
-------- -------
Total securities ................................. 9,952 10,126 6.68 7.02
Interest-bearing bank balances ................... 163 116 7.73 6.56
Federal funds sold and securities purchased
under resale agreements .......................... 641 594 5.33 5.71
Trading account assets ........................... 818 927 3.48 5.55
-------- -------
Total interest-earning assets .................... $57,540 $53,533 8.19 8.39
======== =======
Interest Expense
Interest-bearing demand .......................... $ 4,639 $ 4,368 1.30 1.57
Savings and money market savings ................. 12,481 11,189 3.67 3.85
Savings certificates ............................. 9,128 10,676 5.35 5.61
Large denomination certificates .................. 3,387 2,816 5.31 5.75
-------- -------
Total interest-bearing deposits in
domestic offices ................................. 29,635 29,049 4.00 4.34
Interest-bearing deposits in foreign offices ..... 2,131 1,657 5.23 5.69
-------- -------
Total interest-bearing deposits .................. 31,766 30,706 4.09 4.41
Federal funds purchased and securities sold
under repurchase agreements ...................... 7,404 7,091 4.68 5.34
Commercial paper ................................. 1,439 887 4.62 5.10
Other short-term borrowed funds .................. 2,292 1,466 5.23 5.54
-------- -------
Total short-term borrowed funds .................. 11,135 9,444 4.78 5.35
Bank notes ....................................... 2,459 2,940 6.06 6.14
Other long-term debt ............................. 4,371 2,995 6.12 6.59
-------- -------
Total long-term debt ............................. 6,830 5,935 6.10 6.37
-------- -------
Total interest-bearing liabilities ............... $49,731 $46,085 4.52 4.86
======== ======= --------- -----
Interest rate spread 3.67 3.53
Net yield on interest-earning assets and ========= =====
net interest income .............................. 4.28 4.21
========= =====
<CAPTION>
Variance
Interest Attributable to
-------------------------- -------------------------
1998 1997 Variance Rate Volume
----------- ------------ -------------- ---------- ----------
Interest Income (Thousands)
<C> <C> <C> <C> <C> <C>
Loans:
Commercial ....................................... $ 264,170 $ 227,131 $ 37,039 ($ 14,037) $ 51,076
Tax-exempt ....................................... 25,293 36,043 (10,750) 3,258 (14,008)
----------- ----------- -------------
Total commercial ................................. 289,463 263,174 26,289 (15,568) 41,857
Direct retail .................................... 24,851 28,237 (3,386) (622) (2,764)
Indirect retail .................................. 64,128 63,469 659 (4,184) 4,843
Credit card ...................................... 200,086 189,903 10,183 7,028 3,155
Other revolving credit ........................... 14,980 13,573 1,407 (1,133) 2,540
----------- ----------- -------------
Total retail ..................................... 304,045 295,182 8,863 518 8,345
Construction ..................................... 43,617 39,604 4,013 (2,315) 6,328
Commercial mortgages ............................. 144,741 138,084 6,657 (2,444) 9,101
Residential mortgages ............................ 146,794 156,915 (10,121) (3,249) (6,872)
----------- ----------- -------------
Total real estate ................................ 335,152 334,603 549 (6,922) 7,471
Lease financing .................................. 53,221 27,860 25,361 5,145 20,216
Foreign .......................................... 18,782 9,236 9,546 (364) 9,910
----------- ----------- -------------
Total loans ...................................... 1,000,663 930,055 70,608 (21,118) 91,726
Securities:
Held-to-maturity:
U.S. Government and agency ....................... 8,056 1,843 6,213 (13) 6,226
Mortgage-backed securities ....................... 13,861 19,874 (6,013) 583 (6,596)
State and municipal securities ................... 5,237 6,390 (1,153) (74) (1,079)
Other ............................................ 1,364 1,407 (43) (19) (24)
----------- ----------- -------------
Total securities held-to-maturity ................ 28,518 29,514 (996) (2,039) 1,043
Available-for-sale:**
U.S. Government and agency ....................... 57,126 81,648 (24,522) (3,031) (21,491)
Mortgage-backed securities ....................... 71,798 54,939 16,859 (4,211) 21,070
Other ............................................ 10,238 13,182 (2,944) 573 (3,517)
----------- ----------- -------------
Total securities available-for-sale .............. 139,162 149,769 (10,607) (6,816) (3,791)
----------- ----------- -------------
Total securities ................................. 167,680 179,283 (11,603) (8,565) (3,038)
Interest-bearing bank balances ................... 3,166 1,920 1,246 383 863
Federal funds sold and securities purchased
under resale agreements .......................... 8,615 8,542 73 (584) 657
Trading account assets ........................... 7,173 12,968 (5,795) (4,401) (1,394)
----------- ----------- -------------
Total interest-earning assets .................... 1,187,297 1,132,768 54,529 (28,671) 83,200
Interest Expense
Interest-bearing demand .......................... 15,206 17,333 (2,127) (3,154) 1,027
Savings and money market savings ................. 115,367 108,682 6,685 (5,436) 12,121
Savings certificates ............................. 123,203 150,959 (27,756) (6,630) (21,126)
Large denomination certificates .................. 45,359 40,830 4,529 (3,283) 7,812
----------- ----------- -------------
Total interest-bearing deposits in
domestic offices ................................. 299,135 317,804 (18,669) (24,976) 6,307
Interest-bearing deposits in foreign offices ..... 28,112 23,778 4,334 (2,044) 6,378
----------- ----------- -------------
Total interest-bearing deposits .................. 327,247 341,582 (14,335) (25,851) 11,516
Federal funds purchased and securities sold
under repurchase agreements ...................... 87,291 95,440 (8,149) (12,219) 4,070
Commercial paper ................................. 16,746 11,411 5,335 (1,180) 6,515
Other short-term borrowed funds .................. 30,209 20,453 9,756 (1,193) 10,949
----------- ----------- -------------
Total short-term borrowed funds .................. 134,246 127,304 6,942 (14,339) 21,281
Bank notes ....................................... 37,576 45,501 (7,925) (581) (7,344)
Other long-term debt ............................. 67,374 49,758 17,616 (3,811) 21,427
----------- ----------- -------------
Total long-term debt ............................. 104,950 95,259 9,691 (4,202) 13,893
----------- ----------- -------------
Total interest-bearing liabilities ............... 566,443 564,145 2,298 (40,689) 42,987
----------- ----------- -------------
Interest rate spread
Net yield on interest-earning assets and
net interest income .............................. $ 620,854 $ 568,623 $ 52,231 9,117 43,114
=========== =========== =============
</TABLE>
* Interest income and yields are presented on a fully taxable equivalent
basis using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense. Any variance
attributable jointly to volume and rate changes is allocated to volume and
rate in proportion to the relationship of the absolute dollar amount of the
change in each.
** Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $177 million in 1998 and $99 million in 1997.
54
<PAGE>
Allowance for Loan Losses Table 15
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
1998
-----------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Summary of Transactions
Balance at beginning of period ............ $ 547,686 $547,572 $544,741 $544,723
Additions from acquisitions ............... ---- ---- 2,613 ----
Provision for loan losses ................. 84,104 72,809 68,441 74,126
Deduct net loan losses:
Loans charged off:
Commercial .............................. 7,365 4,601 3,252 2,662
Credit card ............................. 75,401 69,043 70,015 72,061
Other revolving credit .................. 3,050 2,736 2,927 2,089
Other retail ............................ 9,851 8,515 6,624 10,388
Real estate ............................. 2,407 264 634 1,209
Lease financing ......................... 701 782 726 886
Foreign ................................. ---- ---- ---- ----
----------- -------- -------- --------
Total ................................. 98,775 85,941 84,178 89,295
Recoveries:
Commercial .............................. 1,979 1,517 1,271 1,900
Credit card ............................. 7,073 7,522 7,270 6,939
Other revolving credit .................. 641 610 630 690
Other retail ............................ 3,167 2,242 3,070 3,015
Real estate ............................. 2,001 1,223 3,578 2,537
Lease financing ......................... 116 132 136 106
Foreign ................................. ---- ---- ---- ----
----------- -------- -------- --------
Total ................................. 14,977 13,246 15,955 15,187
----------- -------- -------- --------
Net loan losses .......................... 83,798 72,695 68,223 74,108
----------- -------- -------- --------
Balance at end of period .................. $ 547,992 $547,686 $547,572 $544,741
=========== ======== ======== ========
Net Loan Losses (Recoveries)
by Category
Commercial ................................ $ 5,386 $ 3,084 $ 1,981 $ 762
Credit card ............................... 68,328 61,521 62,745 65,122
Other revolving credit .................... 2,409 2,126 2,297 1,399
Other retail .............................. 6,684 6,273 3,554 7,373
Real estate ............................... 406 (959) (2,944) (1,328)
Lease financing ........................... 585 650 590 780
Foreign ................................... ---- ---- ---- ----
----------- -------- -------- --------
Total ................................. $ 83,798 $ 72,695 $ 68,223 $ 74,108
=========== ======== ======== ========
Net loan losses -- excluding credit
cards .................................... $ 15,470 $ 11,174 $ 5,478 $ 8,986
Annualized Net Loan Losses
(Recoveries) to Average
Loans by Category
Commercial ................................ .13% .08% .05% .02%
Credit card ............................... 4.69 4.40 4.52 4.54
Other revolving credit .................... 1.84 1.67 1.86 1.20
Other retail .............................. .62 .60 .34 .70
Real estate ............................... .01 (.02) (.07) (.03)
Lease financing ........................... .13 .16 .19 .29
Foreign ................................... ---- ---- ---- ----
Total loans ............................... .73 .66 .62 .68
Total loans -- excluding credit cards ..... .15 .12 .06 .09
Period-end allowance to outstanding
loans .................................... 1.20 1.20 1.23 1.22
<CAPTION>
<S> <C> <C> <C> <C>
1997
-------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- --------- -------- --------
<S> <C> <C> <C> <C>
Summary of Transactions
Balance at beginning of period ............ $ 519,356 $519,335 $519,312 $519,297
Additions from acquisitions ............... 24,641 ---- ---- ----
Provision for loan losses ................. 76,915 62,756 63,047 62,231
Deduct net loan losses:
Loans charged off:
Commercial .............................. 3,801 686 1,772 2,995
Credit card ............................. 68,796 61,277 59,935 56,000
Other revolving credit .................. 3,659 2,520 2,259 2,126
Other retail ............................ 9,032 8,777 10,027 11,965
Real estate ............................. 5,786 1,469 1,764 2,545
Lease financing ......................... 916 988 1,218 1,366
Foreign ................................. ---- ---- ---- ----
----------- --------- -------- --------
Total ................................. 91,990 75,717 76,975 76,997
Recoveries:
Commercial .............................. 1,184 988 1,289 710
Credit card ............................. 6,251 6,894 6,573 6,956
Other revolving credit .................. 588 575 591 607
Other retail ............................ 2,577 2,638 2,929 3,693
Real estate ............................. 5,125 1,787 2,465 2,756
Lease financing ......................... 76 100 104 59
Foreign ................................. ---- ---- ---- ----
----------- --------- -------- --------
Total ................................. 15,801 12,982 13,951 14,781
----------- --------- -------- --------
Net loan losses .......................... 76,189 62,735 63,024 62,216
----------- --------- -------- --------
Balance at end of period .................. $ 544,723 $519,356 $519,335 $519,312
=========== ========= ======== ========
Net Loan Losses (Recoveries)
by Category
Commercial ................................ $ 2,617 $ (302) $ 483 $ 2,285
Credit card ............................... 62,545 54,383 53,362 49,044
Other revolving credit .................... 3,071 1,945 1,668 1,519
Other retail .............................. 6,455 6,139 7,098 8,272
Real estate ............................... 661 (318) (701) (211)
Lease financing ........................... 840 888 1,114 1,307
Foreign ................................... ---- ---- ---- ----
----------- --------- -------- --------
Total ................................. $ 76,189 $62,735 $ 63,024 $ 62,216
=========== ========= ======== ========
Net loan losses -- excluding credit
cards .................................... $ 13,644 $ 8,352 $ 9,662 $ 13,172
Annualized Net Loan Losses
(Recoveries) to Average
Loans by Category
Commercial ................................ .08% (.01%) .01% .07%
Credit card ............................... 4.36 3.85 3.85 3.52
Other revolving credit .................... 2.81 1.87 1.59 1.44
Other retail .............................. .61 .61 .69 .78
Real estate ............................... .02 (.01) (.02) (.01)
Lease financing ........................... .32 .35 .50 .62
Foreign ................................... ---- ---- ---- ----
Total loans ............................... .73 .63 .64 .65
Total loans -- excluding credit cards ..... .15 .10 .12 .16
Period-end allowance to outstanding
loans .................................... 1.23 1.27 1.29 1.32
</TABLE>
55
<PAGE>
The provision for loan losses was $84.104 million, higher by
$7.189 million or 9.3 percent from the year earlier period, which
included $10.845 million in a special merger-related charge.
Excluding this special charge, the provision rose $18.034 million
or 27.3 percent on a recurring basis. Net loan losses totaled
$83.798 million or .73 percent of average loans, increasing $7.609
million or 10 percent from net charge-offs of $76.189 million or
.73 percent of loans a year earlier. The increase in net loan
losses reflected higher losses, primarily in credit cards and
commercial loans. Credit card net loan losses were $68.328 million
or 4.69 percent of related loans, up $5.783 million or 9.2 percent
from a year earlier. On a managed basis, including securitized
loans, credit card net charge-offs totaled $72.997 million or 4.61
percent of average receivables versus $67.735 million or 4.31
percent in the same period of 1997. Average managed credit card
outstandings were $6.329 billion for the fourth quarter of 1998
compared with $6.281 billion a year earlier. Excluding credit
cards, net loan losses were $15.470 million or .15 percent of
loans, an increase of $1.826 million or 13.4 percent from $13.644
million or .15 percent of loans in the same three months of 1997.
Total other operating revenue rose $55.554 million or 21.1
percent, with all categories expanding for the period. Capital
markets income led the growth, increasing $20.004 million or
124.7 percent on strong gains primarily in derivatives income,
consulting services and foreign exchange trading. Credit card
income advanced $7.812 million or 20.4 percent, and fees for
trust services rose $6.531 million or 13.8 percent. Service
charges on deposit accounts were higher by $5.990 million or 7.4
percent, and mortgage fees grew $5.963 million or 79.4 percent,
primarily on increased originations and larger gains on sales of
mortgage servicing rights. Including securities sales, total
noninterest income was up $64.654 million or 24.7 percent.
Noninterest expense increased $40.839 million or 9.2 percent
excluding merger and special charges. Total personnel expense
rose $25.691 million or 10.5 percent, primarily due to higher
incentive pay and growth in employee medical costs. Combined net
occupancy and equipment expense moved up $10.215 million or 15.2
percent, largely reflecting increased depreciation for new
buildings and equipment. Remaining combined categories of
noninterest expense rose $4.933 million or 3.7 percent excluding
nonrecurring charges. Year 2000 costs for the fourth quarter of
1998 were $6 million.
Noninterest Income Table 16
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
1998
----------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- ------- --------- --------
<S> <C> <C> <C> <C>
Service charges on deposit accounts ........ $ 86,967 $ 84,674 $ 82,465 $ 80,874
Fees for trust services .................... 53,909 51,185 48,802 46,053
Credit card income -- net of
interchange payments ...................... 46,194 43,312 43,077 38,544
Electronic banking ......................... 19,746 19,449 18,667 16,395
Capital markets income ..................... 36,044 37,625 40,304 16,110
Investment fees ............................ 11,051 10,712 11,665 11,191
Mortgage fees .............................. 13,472 12,251 11,502 7,704
Insurance premiums and commissions ......... 7,981 8,213 8,135 7,568
Bankers' acceptance and letter of credit
fees ...................................... 9,909 9,745 9,802 9,569
Other service charges and fees ............. 9,611 9,680 10,125 10,350
Other income ............................... 23,928 23,695 30,499 39,365
----------- -------- -------- --------
Total other operating revenue .......... 318,812 310,541 315,043 283,723
Securities gains (losses) .................. 7,407 6,886 2,992 3,157
----------- -------- -------- --------
Total .................................. $ 326,219 $317,427 $318,035 $286,880
=========== ======== ======== ========
<S> <C> <C> <C> <C>
1997
---------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
--------- -------- -------- --------
Service charges on deposit accounts ........ $ 80,977 $ 76,584 $ 74,576 $ 74,094
Fees for trust services .................... 47,378 43,653 43,668 40,850
Credit card income -- net of
interchange payments ...................... 38,382 43,182 43,814 36,856
Electronic banking ......................... 17,355 16,841 15,678 14,766
Capital markets income ..................... 16,040 14,994 11,176 7,312
Investment fees ............................ 9,541 9,721 8,533 8,456
Mortgage fees .............................. 7,509 5,711 5,154 5,170
Insurance premiums and commissions ......... 7,169 7,966 8,170 6,900
Bankers' acceptance and letter of credit
fees ...................................... 8,116 9,589 8,910 7,911
Other service charges and fees ............. 9,257 9,671 9,622 10,200
Other income ............................... 21,534 18,135 30,293 14,354
--------- -------- -------- --------
Total other operating revenue .......... 263,258 256,047 259,594 226,869
Securities gains (losses) .................. (1,693) 1,091 498 1,558
--------- -------- -------- --------
Total .................................. $261,565 $257,138 $260,092 $228,427
========= ======== ======== ========
</TABLE>
56
<PAGE>
Noninterest Expense Table 17
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
1998
---------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- -------- --------- ---------
<S> <C> <C> <C> <C>
Salaries ................................ $ 221,019 $221,242 $ 219,731 $ 212,758
Employee benefits ....................... 48,922 42,040 42,675 46,966
----------- -------- --------- ---------
Total personnel expense ............. 269,941 263,282 262,406 259,724
Net occupancy expense ................... 35,838 34,896 34,119 33,783
Equipment expense ....................... 41,683 38,545 41,288 34,687
Postage and delivery .................... 12,962 13,373 13,368 13,278
Outside data processing, programming
and software ........................... 21,203 18,496 16,244 12,737
Stationery and supplies ................. 9,339 10,689 7,233 7,506
Advertising and sales promotion ......... 12,782 17,147 22,555 17,738
Professional services ................... 15,311 14,929 14,522 11,304
Travel and business promotion ........... 7,521 7,656 7,638 6,439
Amortization of intangible assets ....... 10,908 9,840 9,226 9,117
Foreclosed property expense -- net of
income ................................. 517 (164) 88 130
Personal computer impairment charge*..... ---- ---- ---- ----
Merger-related charges* ................. 6,961 11,934 30,849 35,568
Other expense ........................... 47,720 51,780 57,458 52,238
----------- -------- --------- ---------
Total ............................... $ 492,686 $492,403 $ 516,994 $ 494,249
=========== ======== ========= =========
Overhead ratio .......................... 52.4% 54.0% 56.8% 57.2%
Overhead ratio without nonrecurring
charges ................................ 51.7 52.7 53.4 53.1
<CAPTION>
1997
----------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- --------- --------- --------
<S> <C> <C> <C> <C>
Salaries ................................ $ 200,859 $ 190,434 $ 178,987 $171,826
Employee benefits ....................... 43,391 39,918 39,929 39,813
----------- --------- --------- --------
Total personnel expense ............. 244,250 230,352 218,916 211,639
Net occupancy expense ................... 30,687 29,816 27,657 28,494
Equipment expense ....................... 36,619 36,283 35,792 33,533
Postage and delivery .................... 12,539 11,883 11,899 12,336
Outside data processing, programming
and software ........................... 22,952 21,980 26,988 14,577
Stationery and supplies ................. 7,637 8,415 7,676 7,232
Advertising and sales promotion ......... 15,768 20,355 20,349 15,574
Professional services ................... 16,348 14,102 14,385 9,278
Travel and business promotion ........... 7,433 6,120 6,154 5,508
Amortization of intangible assets ....... 6,433 2,347 2,264 2,264
Foreclosed property expense -- net of
income ................................. 492 487 951 (55)
Personal computer impairment charge*..... 67,202 ---- ---- ----
Merger-related charges* ................. 220,330 ---- ---- ----
Other expense ........................... 43,728 43,161 47,370 48,221
----------- --------- --------- --------
Total ............................... $ 732,418 $ 425,301 $ 420,401 $388,601
=========== ========= ========= ========
Overhead ratio .......................... 88.0% 53.6% 53.4% 52.2%
Overhead ratio without nonrecurring
charges ................................ 53.5 53.6 53.4 52.2
</TABLE>
* Nonrecurring charges
--------------------------
Results of Operations
-----------------------------------------------------------------
1997 vs. 1996
Business Segments
Consumer. The Consumer segment's net income rose $50.991 million
or 17.4 percent to $343.211 million. Taxable equivalent net
interest income expanded $72.592 million or 7.2 percent, primarily
driven by higher loan levels. Noninterest income advanced $79.712
million or 18.2 percent on gains largely in deposit account fees
and trust services fees. The provision for loan losses increased
$6.530 million or 17.2 percent, while noninterest expense was up
$72.450 million or 7.6 percent, primarily due to growth in staff
expense costs. The segment's pretax profit increased $73.324
million or 16.1 percent to $527.657 million.
Corporate. Net income for the Corporate division totaled $254.107
million, increasing $7.301 million or 3 percent from $246.806
million in 1996. Solid loan growth helped push taxable equivalent
net interest income higher by $39.723 million or 7.6 percent,
while noninterest income rose $26.600 million or 9.8 percent due
to increases largely in deposit account service fees, derivatives
income and trust services fees. The provision for loan losses was
up $130 thousand or 18.7 percent. Noninterest expense increased
$59.252 million or 14.5 percent, primarily driven by higher
personnel costs. Pretax profit edged up $6.941 million or 1.8
percent to $390.667 million.
Card. Net income for the Card segment was $107.503 million,
higher by $23.661 million or 28.2 percent from $83.842 million in
1996. Taxable equivalent net interest income increased $87.316
million or 27.1 percent on strong loan growth, and noninterest
income expanded $20.798 million or 14.3 percent, reflecting gains
largely in interchange income and overlimit fees. The provision
for loan losses was higher by $53.735 million or 32.6 percent,
while noninterest expense grew $19.458 million or 11.3 percent
primarily due to increased salary costs. Pretax profit increased
$34.921 million or 26.8 percent to $165.276 million.
57
<PAGE>
Treasury & Administration. Treasury & Administration's net income
declined to a loss of $112.015 million in 1997 from net income of
$134.391 million in 1996. The decline in 1997 was primarily the
result of a $309.340 million increase in operating expenses
resulting from merger-related integration costs, Year 2000
expense, and other systems development and nonrecurring expenses
that are held within the unit. The $46.209 million reduction in
net interest margin was primarily attributable to changes in
noninterest earning assets held in the unit, such as goodwill,
changes to the securities portfolio and discretionary funding
which includes the optimization of the capital position.
Consolidated Financial Results
Consolidated net income for 1997 totaled $592.806 million or
$2.94 per diluted share compared with $757.259 million or $3.65
per diluted share in 1996. Results for 1997 were impacted by
merger and special charges totaling $303.016 million, pretax, and
$207.123 million, after-tax. Excluding the nonrecurring charges,
the corporation's net income for 1997 was $799.929 million or
$3.96 per diluted share.
Taxable equivalent net interest income increased $150.683 million
or 7.5 percent, fueled by good loan demand and a higher average
rate earned on interest-earning assets. The net yield on
interest-earning assets improved 16 basis points to 4.14 percent.
Taxable equivalent interest income rose $233.730 million or 5.7
percent. Increased loan volume and a higher average yield both on
loans and on total interest-earning assets drove the gain.
Average loans expanded $2.977 billion or 8.1 percent, with the
average yield rising 20 basis points to 8.79 percent. Taxable
commercial loans, credit cards, residential mortgages and
commercial mortgages led the loan growth.
Interest expense was up $83.047 million or 4 percent, reflecting
higher levels of interest-bearing deposits and an increase in the
average rate paid on total interest-bearing liabilities.
Interest-bearing deposits rose $1.974 billion or 7.1 percent,
while short-term borrowed funds and long-term debt decreased. The
average rate paid on total interest-bearing liabilities moved up
4 basis points.
The following table summarizes the variances in taxable
equivalent interest income and interest expense due to changes in
rates and volumes between 1997 and 1996. Changes that are not due
solely to rate or volume are allocated in proportion to the
relationship of the absolute dollar amount of change in each.
58
<PAGE>
Taxable Equivalent Interest Income and Expense Variance Table 18
- --------------------------------------------------------------------------------
(thousands)
<TABLE>
1997 over 1996
-----------------------------------------
Attributable To
------------------------
Rate Volume Total
--------- ---------- ---------
<S> <C> <C> <C>
Increase (decrease) in interest income:
Loans -- including fees ................................................. $ 75,779 $ 260,356 $ 336,135
Securities:
Held-to-maturity:
State and municipal .................................................. (1,047) (6,241) (7,288)
Other ................................................................ (226) (8,652) (8,878)
Available-for-sale ..................................................... (2,481) (62,526) (65,007)
Interest-bearing bank balances .......................................... (6,861) (21,193) (28,054)
Federal funds sold and securities purchased under resale agreements ..... 713 6,195 6,908
Trading account assets .................................................. (2,201) 2,115 (86)
---------
Total interest-earning assets ........................................ 92,646 141,084 233,730
Increase (decrease) in interest expense:
Interest-bearing deposits in domestic offices ........................... 5,369 62,063 67,432
Interest-bearing deposits in foreign offices ............................ 2,475 29,903 32,378
Short-term borrowed funds ............................................... (2,425) (1,649) (4,074)
Long-term debt .......................................................... 22,601 (35,290) (12,689)
---------
Total interest-bearing liabilities ................................... 16,574 66,473 83,047
---------
Increase in net interest income .......................................... $ 150,683
=========
</TABLE>
Nonperforming assets at December 31, 1997 were $129.495 million or
.29 percent of loans and foreclosed property. The total was
modestly lower from year-end 1996 due to reduced valuations for
foreclosed real estate.
The provision for loan losses was $264.949 million, increasing
$71.173 million or 36.7 percent from $193.776 million in 1996.
Included in the provision for 1997 was a special charge of
$10.845 million to conform the credit policies of acquired
companies to those of the corporation. Net loan losses were
$264.164 million or .67 percent of average loans, a rise of
$70.677 million or 36.5 percent from net charge-offs of $193.487
million or .53 percent of loans in 1996. The increase in net loan
losses primarily reflected higher net charge-offs in credit cards
and lower net recoveries in real estate loans previously
charged-off. Credit card net loan losses totaled $219.334 million
or 3.90 percent of average outstandings, up $56.392 million or
34.6 percent from $162.942 million or 3.29 percent of loans a
year earlier. Excluding credit cards, net loan losses were
$44.830 million or .13 percent of loans versus $30.545 million or
.10 percent in 1996. At December 31, 1997, the allowance for loan
losses totaled $544.723 million, representing 1.23 percent of
loans and 538 percent of nonperforming loans compared with
$519.297 million, 1.37 percent and 526 percent, respectively, at
year-end 1996.
Total other operating revenue increased $131.036 million or 15
percent with gains occurring in all categories. Growth was led by
service charges on deposit accounts, fees for trust services,
credit card income, electronic banking, investment fees and
capital markets income. Total other operating revenue included
gains of $21.096 million in 1997 from branch sales versus a gain
of $12.496 million in 1996 from the sale of the corporation's
bond trustee business. Excluding these nonrecurring gains, total
other operating revenue rose $122.436 million or 14.2 percent for
the year.
Noninterest expense for 1997 was higher by $457.748 million or
30.3 percent and included $287.532 million in merger and special
charges taken in the fourth quarter. Excluding these nonrecurring
charges, noninterest expense on a core operating basis rose
$170.216 million or 11.3 percent. Growth was driven principally
by higher personnel costs and increased programming and
consulting expenses associated with Year 2000 systems
conversions. Total Year 2000 spending costs in 1997 were $38
million.
59
<PAGE>
Management's Responsibility for
Financial Reporting
The management of Wachovia Corporation is responsible for the preparation of
the financial statements, related financial data and other information in this
annual report. The financial statements are prepared in accordance with
generally accepted accounting principles and include amounts based on
management's estimates and judgment where appropriate. Financial information
appearing throughout this annual report is consistent with the financial
statements.
In meeting its responsibility both for the integrity and fairness of these
statements and information, management depends on the accounting system and
related internal controls that are designed to provide reasonable assurances
that transactions are authorized and recorded in accordance with established
procedures and that assets are safeguarded and proper and reliable records are
maintained.
The concept of reasonable assurance is based on the recognition that the cost
of internal controls should not exceed the related benefits. As an integral
part of internal controls, the Corporation maintains a professional staff of
internal auditors who monitor compliance with and assess the effectiveness of
internal controls and coordinate audit coverage with the independent auditors.
The Audit Committee of Wachovia's Board of Directors, composed solely of
outside directors, meets regularly with the Corporation's management, internal
auditors, independent auditors and regulatory examiners to review matters
relating to financial reporting, internal controls and the nature, extent and
results of the audit effort. The independent auditors, internal auditors and
banking regulators have direct access to the Audit Committee with or without
management present.
The financial statements have been audited by Ernst & Young LLP, independent
auditors, who render an independent professional opinion on management's
financial statements. Their appointment was recommended by the Audit Committee,
approved by the Board of Directors and ratified by the shareholders. Their
examination provides an objective assessment of the degree to which the
Corporation's management meets its responsibility for financial reporting.
Their opinion on the financial statements is based on auditing procedures which
include reviewing the internal controls and performing selected tests of
transactions and records as they deem appropriate. These auditing procedures
are designed to provide a reasonable level of assurance that the financial
statements are presented fairly in all material respects.
Report of Independent Auditors
The Board of Directors
Wachovia Corporation
We have audited the accompanying consolidated statements of condition of
Wachovia Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the consolidated financial statements of
Central Fidelity National Bank and subsidiaries for the year ended December 31,
1997 or the consolidated financial statements of Central Fidelity Banks, Inc.
and subsidiaries for the year ended December 31, 1996, which statements reflect
total assets constituting 16% in 1997, and total interest income constituting
20% in 1997 and 19% in 1996 of the related consolidated totals. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to data included for Central
Fidelity National Bank and subsidiaries and Central Fidelity Banks, Inc. and
subsidiaries, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Wachovia Corporation and
subsidiaries at December 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Winston-Salem, North Carolina
January 14, 1999
60
<PAGE>
- ---------------------------------------
Consolidated Statements of Condition
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
<TABLE>
December 31 December 31
1998 1997
<S> <C> <C>
Assets
Cash and due from banks .................................................................. $ 3,800,265 $ 4,221,818
Interest-bearing bank balances ........................................................... 109,983 133,191
Federal funds sold and securities purchased under resale agreements ...................... 675,470 1,589,234
Trading account assets ................................................................... 664,812 999,122
Securities available-for-sale ............................................................ 7,983,648 8,909,537
Securities held-to-maturity (fair value of $1,442,126 in 1998 and $1,578,464 in 1997)..... 1,383,607 1,509,339
Loans, net of unearned income ............................................................ 45,719,222 44,194,382
Less allowance for loan losses ........................................................... 547,992 544,723
----------- -----------
Net loans .............................................................................. 45,171,230 43,649,659
Premises and equipment ................................................................... 901,681 810,155
Due from customers on acceptances ........................................................ 348,955 628,398
Other assets ............................................................................. 3,083,191 2,946,616
----------- -----------
Total assets ........................................................................... $64,122,842 $65,397,069
=========== ===========
Liabilities
Deposits in domestic offices:
Demand .................................................................................. $ 8,768,271 $ 8,598,055
Interest-bearing demand ................................................................. 4,980,715 4,654,172
Savings and money market savings ........................................................ 12,641,766 11,679,432
Savings certificates .................................................................... 8,982,396 10,934,720
Large denomination certificates ......................................................... 3,344,553 2,284,068
----------- -----------
Total deposits in domestic offices ..................................................... 38,717,701 38,150,447
Interest-bearing deposits in foreign offices ............................................. 2,277,028 4,503,396
----------- -----------
Total deposits ......................................................................... 40,994,729 42,653,843
Federal funds purchased and securities sold under repurchase agreements .................. 5,463,418 8,322,716
Commercial paper ......................................................................... 1,359,382 1,034,024
Other short-term borrowed funds .......................................................... 1,912,262 752,874
Long-term debt ........................................................................... 7,596,727 5,934,133
Acceptances outstanding .................................................................. 348,955 628,398
Other liabilities ........................................................................ 1,109,137 896,780
----------- -----------
Total liabilities ...................................................................... 58,784,610 60,222,768
Off-balance sheet items, commitments and contingent liabilities -- Notes J, K and M
Shareholders' Equity
Preferred stock, par value $5 per share:
Authorized 50,000,000 shares; none outstanding .......................................... ---- ----
Common stock, par value $5 per share:
Authorized 1,000,000,000 shares in 1998 and 500,000,000 shares in 1997; issued and
outstanding 202,986,100 shares in 1998 and 205,926,632 shares in 1997 .................. 1,014,931 1,029,633
Capital surplus .......................................................................... 669,244 974,803
Retained earnings ........................................................................ 3,571,617 3,098,767
Accumulated other comprehensive income ................................................... 82,440 71,098
----------- -----------
Total shareholders' equity ............................................................. 5,338,232 5,174,301
----------- -----------
Total liabilities and shareholders' equity ............................................. $64,122,842 $65,397,069
=========== ===========
</TABLE>
See notes to consolidated financial statements
61
<PAGE>
- ------------------------------------
Consolidated Statements of Income
- --------------------------------------------------------------------------------
thousands, except per share Wachovia Corporation and Subsidiaries
<TABLE>
Year Ended December 31
1998 1997 1996
<S> <C> <C> <C>
Interest Income
Loans, including fees .................................................... $ 3,873,404 $ 3,455,296 $ 3,109,698
Securities available-for-sale ............................................ 597,557 625,139 684,134
Securities held-to-maturity:
State and municipal ..................................................... 15,044 16,452 21,039
Other investments ....................................................... 95,952 87,632 96,508
Interest-bearing bank balances ........................................... 12,988 5,230 33,284
Federal funds sold and securities purchased under resale agreements ...... 25,803 22,319 15,411
Trading account assets ................................................... 44,497 50,317 49,434
------------- ----------- -----------
Total interest income .................................................. 4,665,245 4,262,385 4,009,508
Interest Expense
Deposits:
Domestic offices ........................................................ 1,224,046 1,216,229 1,148,797
Foreign offices ......................................................... 135,659 87,320 54,942
------------- ----------- -----------
Total interest on deposits ............................................. 1,359,705 1,303,549 1,203,739
Short-term borrowed funds ................................................ 563,846 478,162 482,236
Long-term debt ........................................................... 390,662 387,107 399,796
------------- ----------- -----------
Total interest expense ................................................. 2,314,213 2,168,818 2,085,771
Net Interest Income ...................................................... 2,351,032 2,093,567 1,923,737
Provision for loan losses ................................................ 299,480 264,949 193,776
------------- ----------- -----------
Net interest income after provision for loan losses ...................... 2,051,552 1,828,618 1,729,961
Other Income
Service charges on deposit accounts ...................................... 334,980 306,231 280,670
Fees for trust services .................................................. 199,949 175,549 154,621
Credit card income ....................................................... 171,127 162,234 143,382
Capital markets income ................................................... 130,083 49,522 44,212
Electronic banking ....................................................... 74,257 64,640 56,226
Investment fees .......................................................... 44,619 36,251 30,820
Mortgage fees ............................................................ 44,929 23,544 21,371
Other operating income ................................................... 228,175 187,797 143,430
------------- ----------- -----------
Total other operating revenue .......................................... 1,228,119 1,005,768 874,732
Securities gains ......................................................... 20,442 1,454 4,588
------------- ----------- -----------
Total other income ..................................................... 1,248,561 1,007,222 879,320
Other Expense
Salaries ................................................................. 874,750 742,106 655,065
Employee benefits ........................................................ 180,603 163,051 141,867
------------- ----------- -----------
Total personnel expense ................................................ 1,055,353 905,157 796,932
Net occupancy expense .................................................... 138,636 116,654 114,001
Equipment expense ........................................................ 156,203 142,227 132,775
Personal computer impairment charge ...................................... ---- 67,202 ----
Merger-related charges ................................................... 85,312 220,330 ----
Other operating expense .................................................. 560,828 515,151 465,265
------------- ----------- -----------
Total other expense .................................................... 1,996,332 1,966,721 1,508,973
Income before income tax expense ......................................... 1,303,781 869,119 1,100,308
Income tax expense ....................................................... 429,611 276,313 343,049
------------- ----------- -----------
Net Income ............................................................... $ 874,170 $ 592,806 $ 757,259
============= =========== ===========
Net income per common share:
Basic ................................................................... $ 4.26 $ 2.99 $ 3.70
Diluted ................................................................. $ 4.18 $ 2.94 $ 3.65
Average shares outstanding:
Basic ................................................................... 205,058 198,290 204,889
Diluted ................................................................. 209,153 201,901 207,432
</TABLE>
See notes to consolidated financial statements
62
<PAGE>
- --------------------------------------------------
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
$ in thousands, except per share Wachovia Corporation and Subsidiaries
<TABLE>
Common Stock
Capital
Shares Amount Surplus
<S> <C> <C> <C>
Year Ended December 31, 1996
Balance at beginning of year ............................... 195,680,018 $ 978,400 $ 982,628
Comprehensive income:
Net income ................................................
Other comprehensive income:
Unrealized holding losses on securities available-for-sale
(net of deferred tax benefit of $45,624).................
Less reclassification adjustment for gains realized in net
income (net of tax expense of $1,522)....................
Comprehensive income ....................................
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.52 a share......................
Central Fidelity Banks, Inc. -- $.86 a share...............
Common stock issued pursuant to:
Stock option and employee benefit plans ................... 1,056,131 5,280 33,250
Dividend reinvestment plan ................................ 349,928 1,750 15,130
Conversion of debentures .................................. 312,594 1,563 4,444
Acquisition of bank ....................................... 208,207 1,041 9,003
Common stock acquired ...................................... (8,885,278) (44,426) (375,138)
Three-for-two common stock split by Central Fidelity
Banks, Inc. ............................................... 12,530,939 62,655 36,797
Miscellaneous .............................................. 535
-------------- ----------- ----------
Balance at end of year ..................................... 201,252,539 $ 1,006,263 $ 706,649
============== =========== ==========
Year Ended December 31, 1997
Balance at beginning of year ............................... 201,252,539 $ 1,006,263 $ 706,649
Comprehensive income:
Net income ................................................
Other comprehensive income:
Unrealized holding gains on securities available-for-sale
(net of deferred tax expense of $11,298).................
Less reclassification adjustment for gains realized in net
income (net of tax expense of $648)......................
Comprehensive income ....................................
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.68 a share......................
Central Fidelity Banks, Inc. -- $.94 a share...............
Common stock issued pursuant to:
Stock option and employee benefit plans ................... 1,547,645 7,737 55,689
Dividend reinvestment plan ................................ 298,553 1,493 18,030
Conversion of debentures .................................. 3,628 18 52
Acquisition of banks ...................................... 11,742,782 58,715 689,029
Common stock acquired ...................................... (8,918,515) (44,593) (500,343)
Miscellaneous .............................................. 5,697
-------------- ----------- ----------
Balance at end of year ..................................... 205,926,632 $ 1,029,633 $ 974,803
============== =========== ==========
Year Ended December 31, 1998
Balance at beginning of year ............................... 205,926,632 $ 1,029,633 $ 974,803
Comprehensive income:
Net income ................................................
Other comprehensive income:
Unrealized holding gains on securities available-for-sale
(net of deferred tax expense of $16,233).................
Less reclassification adjustment for gains realized in net
income (net of tax expense of $7,982)....................
Comprehensive income ....................................
Cash dividends declared -- $1.86 a share....................
Common stock issued pursuant to:
Stock option and employee benefit plans ................... 2,211,599 11,058 102,540
Dividend reinvestment plan ................................ 301,992 1,510 22,885
Acquisitions .............................................. 1,127,723 5,639 77,674
Common stock acquired ...................................... (6,581,846) (32,909) (508,093)
Miscellaneous .............................................. (565)
-------------- ----------- ----------
Balance at end of year ..................................... 202,986,100 $ 1,014,931 $ 669,244
============== =========== ==========
<CAPTION>
Accumulated
Other
Retained Comprehensive
Earnings Income Total
<S> <C> <C> <C>
Year Ended December 31, 1996
Balance at beginning of year ............................... $ 2,499,298 $ 139,978 $ 4,600,304
Comprehensive income:
Net income ................................................ 757,259 757,259
Other comprehensive income:
Unrealized holding losses on securities available-for-sale
(net of deferred tax benefit of $45,624)................. (85,226) (85,226)
Less reclassification adjustment for gains realized in net
income (net of tax expense of $1,522).................... (3,066) (3,066)
------------ ------------- -----------
Comprehensive income .................................... 757,259 (88,292) 668,967
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.52 a share...................... (254,458) (254,458)
Central Fidelity Banks, Inc. -- $.86 a share............... (51,282) (51,282)
Common stock issued pursuant to:
Stock option and employee benefit plans ................... 38,530
Dividend reinvestment plan ................................ 16,880
Conversion of debentures .................................. 6,007
Acquisition of bank ....................................... 10,044
Common stock acquired ...................................... (419,564)
Three-for-two common stock split by Central Fidelity
Banks, Inc. ............................................... (99,530) (78)
Miscellaneous .............................................. (7,484) (6,949)
------------ ------------- -----------
Balance at end of year ..................................... $ 2,843,803 $ 51,686 $ 4,608,401
=========== ============= ===========
Year Ended December 31, 1997
Balance at beginning of year ............................... $ 2,843,803 $ 51,686 $ 4,608,401
Comprehensive income:
Net income ................................................ 592,806 592,806
Other comprehensive income:
Unrealized holding gains on securities available-for-sale
(net of deferred tax expense of $11,298)................. 20,218 20,218
Less reclassification adjustment for gains realized in net
income (net of tax expense of $648)...................... (806) (806)
------------ ------------- -----------
Comprehensive income .................................... 592,806 19,412 612,218
Cash dividends declared by pooled companies:
Wachovia Corporation -- $1.68 a share...................... (273,301) (273,301)
Central Fidelity Banks, Inc. -- $.94 a share............... (54,002) (54,002)
Common stock issued pursuant to:
Stock option and employee benefit plans ................... 63,426
Dividend reinvestment plan ................................ 19,523
Conversion of debentures .................................. 70
Acquisition of banks ...................................... 747,744
Common stock acquired ...................................... (544,936)
Miscellaneous .............................................. (10,539) (4,842)
------------ ------------- -----------
Balance at end of year ..................................... $ 3,098,767 $ 71,098 $ 5,174,301
=========== ============= ===========
Year Ended December 31, 1998
Balance at beginning of year ............................... $ 3,098,767 $ 71,098 $ 5,174,301
Comprehensive income:
Net income ................................................ 874,170 874,170
Other comprehensive income:
Unrealized holding gains on securities available-for-sale
(net of deferred tax expense of $16,233)................. 23,802 23,802
Less reclassification adjustment for gains realized in net
income (net of tax expense of $7,982).................... (12,460) (12,460)
------------ ------------- -----------
Comprehensive income .................................... 874,170 11,342 885,512
Cash dividends declared -- $1.86 a share.................... (381,798) (381,798)
Common stock issued pursuant to:
Stock option and employee benefit plans ................... 113,598
Dividend reinvestment plan ................................ 24,395
Acquisitions .............................................. 83,313
Common stock acquired ...................................... (541,002)
Miscellaneous .............................................. (19,522) (20,087)
------------ ------------- -----------
Balance at end of year ..................................... $ 3,571,617 $ 82,440 $ 5,338,232
=========== ============= ===========
</TABLE>
See notes to consolidated financial statements
63
<PAGE>
- ----------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
thousands Wachovia Corporation and Subsidiaries
<TABLE>
Year Ended
December 31
1998
<S> <C>
Operating Activities
Net income ............................................................................ $ 874,170
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses ............................................................ 299,480
Depreciation and amortization ........................................................ 155,069
Deferred income taxes ................................................................ 266,451
Securities gains ..................................................................... (20,442)
Gain on sale of noninterest-earning assets ........................................... (7,421)
Increase (decrease) in accrued income taxes .......................................... 224,609
Decrease in accrued interest receivable .............................................. 40,246
(Decrease) increase in accrued interest payable ...................................... (26,107)
Net change in other accrued and deferred income and expense .......................... (60,053)
Net trading account activities ....................................................... 334,310
Net loans held for resale ............................................................ (184,571)
--------------
Net cash provided by operating activities ........................................... 1,895,741
Investing Activities
Net decrease in interest-bearing bank balances ........................................ 23,208
Net decrease (increase) in federal funds sold and securities purchased under resale
agreements ........................................................................... 947,064
Purchases of securities available-for-sale ............................................ (3,106,977)
Purchases of securities held-to-maturity .............................................. (394,956)
Sales of securities available-for-sale ................................................ 590,447
Calls, maturities and prepayments of securities available-for-sale .................... 3,564,575
Calls, maturities and prepayments of securities held-to-maturity ...................... 532,922
Net increase in loans made to customers ............................................... (1,514,208)
Capital expenditures .................................................................. (258,719)
Proceeds from sales of premises and equipment ......................................... 44,860
Net increase in other assets .......................................................... (347,349)
Business combinations ................................................................. 16,108
--------------
Net cash provided (used) by investing activities .................................... 96,975
Financing Activities
Net increase in demand, savings and money market accounts ............................. 1,301,117
Net (decrease) increase in certificates of deposit .................................... (3,192,149)
Net (decrease) increase in federal funds purchased and securities sold under
repurchase agreements ................................................................ (2,870,049)
Net increase in commercial paper ...................................................... 325,358
Net increase (decrease) in other short-term borrowings ................................ 1,159,388
Proceeds from issuance of bank notes .................................................. 939,592
Maturities of bank notes .............................................................. (1,023,617)
Proceeds from issuance of other long-term debt ........................................ 1,745,087
Payments on other long-term debt ...................................................... (5,155)
Common stock issued ................................................................... 80,375
Dividend payments ..................................................................... (381,798)
Common stock repurchased .............................................................. (531,122)
Other equity transactions ............................................................. ----
Net increase (decrease) in other liabilities .......................................... 38,704
--------------
Net cash (used) provided by financing activities .................................... (2,414,269)
(Decrease) Increase in Cash and Cash Equivalents ...................................... (421,553)
Cash and cash equivalents at beginning of year ........................................ 4,221,818
--------------
Cash and cash equivalents at end of year .............................................. $ 3,800,265
==============
Supplemental Disclosures
Interest paid ......................................................................... $ 2,340,320
Income taxes paid ..................................................................... 159,500
Year Ended December 31
1997 1996
<S> <C> <C>
Operating Activities
Net income ............................................................................ $ 592,806 $ 757,259
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses ............................................................ 264,949 193,776
Depreciation and amortization ........................................................ 165,692 117,731
Deferred income taxes ................................................................ 35,169 50,052
Securities gains ..................................................................... (1,454) (4,588)
Gain on sale of noninterest-earning assets ........................................... (4,775) (2,486)
Increase (decrease) in accrued income taxes .......................................... (6,416) 8,092
Decrease in accrued interest receivable .............................................. 9,173 34,917
(Decrease) increase in accrued interest payable ...................................... 36,764 (42,086)
Net change in other accrued and deferred income and expense .......................... 196,902 (7,300)
Net trading account activities ....................................................... 190,704 (74,401)
Net loans held for resale ............................................................ 144,849 524,191
-------------- --------------
Net cash provided by operating activities ........................................... 1,624,363 1,555,157
Investing Activities
Net decrease in interest-bearing bank balances ........................................ 393 448,408
Net decrease (increase) in federal funds sold and securities purchased under resale
agreements ........................................................................... (1,258,355) 30,398
Purchases of securities available-for-sale ............................................ (3,418,951) (1,358,041)
Purchases of securities held-to-maturity .............................................. (36,340) (45,679)
Sales of securities available-for-sale ................................................ 2,211,721 541,533
Calls, maturities and prepayments of securities available-for-sale .................... 2,341,747 1,912,940
Calls, maturities and prepayments of securities held-to-maturity ...................... 273,696 318,205
Net increase in loans made to customers ............................................... (4,639,373) (3,138,067)
Capital expenditures .................................................................. (162,286) (223,153)
Proceeds from sales of premises and equipment ......................................... 46,164 100,515
Net increase in other assets .......................................................... (476,129) (401,488)
Business combinations ................................................................. 133,081 2,814
-------------- --------------
Net cash provided (used) by investing activities .................................... (4,984,632) (1,811,615)
Financing Activities
Net increase in demand, savings and money market accounts ............................. 1,719,641 1,719,718
Net (decrease) increase in certificates of deposit .................................... 3,076,795 (781,971)
Net (decrease) increase in federal funds purchased and securities sold under
repurchase agreements ................................................................ 1,041,778 313,514
Net increase in commercial paper ...................................................... 327,648 203,881
Net increase (decrease) in other short-term borrowings ................................ (286,347) (769,057)
Proceeds from issuance of bank notes .................................................. 948,372 2,465,005
Maturities of bank notes .............................................................. (2,315,367) (2,498,492)
Proceeds from issuance of other long-term debt ........................................ 687,940 950,796
Payments on other long-term debt ...................................................... (418,982) (94,803)
Common stock issued ................................................................... 59,281 37,445
Dividend payments ..................................................................... (327,303) (304,733)
Common stock repurchased .............................................................. (532,682) (415,084)
Other equity transactions ............................................................. (154) (78)
Net increase (decrease) in other liabilities .......................................... (72,725) 71,406
-------------- --------------
Net cash (used) provided by financing activities .................................... 3,907,895 897,547
(Decrease) Increase in Cash and Cash Equivalents ...................................... 547,626 641,089
Cash and cash equivalents at beginning of year ........................................ 3,674,192 3,033,103
-------------- --------------
Cash and cash equivalents at end of year .............................................. $ 4,221,818 $ 3,674,192
============== ==============
Supplemental Disclosures
Interest paid ......................................................................... $ 2,132,054 $ 2,127,857
Income taxes paid ..................................................................... 249,715 273,422
</TABLE>
See notes to consolidated financial statements
64
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note A -- Accounting Policies
Nature of Operations -- The Corporation is a southeastern interstate bank
holding company maintaining dual headquarters in Atlanta, Georgia, and
Winston-Salem, North Carolina. The Corporation's principal banking subsidiary
is Wachovia Bank, N.A., which maintains operations in Florida, Georgia, North
Carolina, South Carolina and Virginia. Credit card services are provided
through The First National Bank of Atlanta. In addition to general commercial
banking, the Corporation and its subsidiaries are engaged in trust and
investment management, residential mortgage origination, leasing, state and
local government securities underwriting, foreign exchange, corporate finance
and other money market services.
The Corporation completed three business combinations during 1997 and three
during 1998. Disclosure of material business combination transactions is
included in Note B -- Business Combinations. In October 1998, Wachovia
announced a definitive agreement to acquire Interstate/Johnson Lane, a
financial services company offering securities brokerage for individuals and
institutional investors; market making and underwriting of securities; and
investment management. The transaction will be accounted for as a purchase
business combination and is expected to be completed during the first half of
1999. The transaction is valued at approximately $230 million and will result
in goodwill of approximately $140 million.
Principles of Consolidation -- The consolidated financial statements include
the accounts of Wachovia Corporation and its subsidiaries after elimination of
all material intercompany balances and transactions.
Business Combinations -- In business combinations accounted for as
poolings-of-interests, the financial position and results of operations and
cash flows of the respective companies are restated as though the companies
were combined for all historical periods.
In business combinations accounted for using the purchase method of accounting,
the net assets of the companies acquired are recorded at their fair values at
the date of acquisition. Goodwill is amortized on a straight-line basis over
the estimated periods benefited. Identifiable intangibles, including deposit
base intangibles, are amortized on an accelerated or straight-line basis over
the estimated periods benefited. The results of operations of the acquired
companies are included since the date of acquisition.
Use of Estimates -- The financial statements are prepared in accordance with
generally accepted accounting principles which require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Due From Banks -- The Corporation considers cash and due from banks,
all of which are maintained in financial institutions, as cash and cash
equivalents for purposes of the Consolidated Statements of Cash Flows.
Trading Instruments -- The Corporation maintains trading positions in both
derivative and nonderivative (or cash) financial instruments. Trading cash
instruments are held for distribution through retail sales or in anticipation of
market movements and are carried at fair value. Gains and losses, both realized
and unrealized, are included in capital markets income. Interest revenue arising
from cash financial instruments is included in interest income-trading account
assets. Trading cash instruments are comprised primarily of securities backed by
the U.S. Treasury and various federal agencies and state and local governmental
bodies.
Trading derivative financial instruments are customer oriented, and trading
positions are established as necessary to accommodate customers' requirements.
Gains and losses from securities trading derivatives and foreign exchange
activities are included in other income.
Securities Held-to-Maturity and Available-for-Sale -- Management determines the
appropriate classification of debt securities at the time of purchase. Debt
securities are classified as held-to-maturity when the Corporation has the
positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity or trading and marketable
equity securities are classified as available-for-sale and are stated at fair
value. Unrealized gains and losses, net of tax, on available-for-sale
securities are included in accumulated other comprehensive
income -- a separate component of shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from securities. The specific identification method is used to determine
realized gains and losses on sales of securities, which are reported as
securities gains and losses.
Risk Management Instruments -- Interest rate swaps and options (caps and
floors) are used as part of the Corporation's overall interest rate risk
management and are designated as hedges of interest-bearing assets,
liabilities, firm commitments and anticipated transactions. These derivatives
modify the interest rate characteristics of specified financial instruments.
Amounts receivable or payable under interest rate swap and option agreements
are recognized in net interest income. Derivative instruments not qualifying as
end-user positions are treated as trading positions and marked-to-market. To
qualify as a hedge, the swap or option must be designated and documented as a
hedge and be effective in reducing the market risk associated with the existing
asset, liability, firm commitment, or identified anticipated transaction which
is probable to occur. Effectiveness of the hedge is evaluated on an initial and
ongoing basis using statistical calculations of correlation. Gains and losses
on risk management derivatives that are terminated early are deferred and
amortized to net interest income over the remaining period originally covered
by the instrument. If the underlying designated item is no longer held, or if
an anticipated transaction is no longer likely to occur, any previously
unrecognized gain or loss on the derivative contract is recognized in earnings
and the contract is subsequently accounted for at fair value.
Loans and Allowance for Loan Losses -- Loans are carried at their principal
amount outstanding, except for loans held for resale which are carried at the
lower of cost or market. Interest on loans is accrued and recorded as interest
income based upon the principal amount outstanding. Except for revolving credit
loans, the recognition of interest income is discontinued when a loan becomes
90 days past due as to principal and interest or when, in management's
judgment, the interest will not
65
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note A -- Accounting Policies -- Concluded
be collectible in the normal course of business. When interest accruals are
discontinued, the balance of accrued interest is reversed. Management may elect
to continue the accrual of interest when the estimated net realizable value of
collateral is sufficient to cover the principal balance and accrued interest
and the loan is in the process of collection. Interest is accrued on revolving
credit loans until payments become 120 days delinquent, at which time the
outstanding principal balance and accrued unpaid interest is charged off.
The allowance is maintained at a level believed to be adequate by management to
absorb probable losses in the loan portfolio. Management's determination of the
adequacy of the allowance is based on an evaluation of the portfolio, past loan
loss experience, current domestic and international economic conditions, volume
and composition of the loan portfolio and other risks inherent in the
portfolio. The method used to determine the amount of loss inherent in the loan
portfolio and thereby assess the adequacy of the recorded balance of the
allowance for loan losses involves identifying portfolios of loans with similar
characteristics for which estimates of inherent future probable losses can be
made. The estimates are based on historical loss factors as adjusted for
current business and economic conditions. The loss factors are applied to the
respective portfolios in order to determine the overall allowance adequacy.
Premises and Equipment -- Premises, equipment and leasehold improvements are
stated at cost less accumulated depreciation and amortization. Depreciation is
computed on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight-line basis over the
shorter of the life of the leasehold asset or the lease term.
Impairment of Long-Lived Assets -- Impairment losses on long-lived assets to be
held and used are recognized whenever events or changes in circumstances result
in the carrying value of the assets exceeding the sum of the expected future
cash flows. The measurement of the impairment losses recognized is based on the
difference between the fair value and carrying value of the assets. Long-lived
assets to be disposed of are reported at the lower of carrying value or fair
value less cost to sell.
Income Taxes -- Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Each
subsidiary provides for income taxes based on its contribution to income taxes
(benefit) of the consolidated group. The Corporation and its subsidiaries file
a consolidated tax return.
Stock-Based Compensation -- The Corporation applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Corporation's stock at the date of grant over the
amount an employee must pay to acquire the stock. Compensation cost for stock
awards and appreciation rights is recorded based on the market price at the
date of grant and the end of the period, respectively. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FASB
123), encourages, but does not require, adoption of a fair value method of
accounting for employee stock-based compensation plans. The Corporation follows
the pro forma disclosure provisions of FASB 123.
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities -- In December 1996, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125, an amendment of
the FASB's Statement No. 125" (FASB 127). FASB 127 delayed until 1998 certain
provisions of FASB 125 that deal with repurchase agreements, securities lending
and other similar transactions and pledged collateral. Adoption of FASB 127 was
not material.
Reporting Comprehensive Income -- In June 1997, Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FASB 130), was
issued and establishes standards for reporting and displaying comprehensive
income and its components. FASB 130 requires comprehensive income and its
components, as recognized under accounting standards, to be displayed in a
financial statement with the same prominence as other financial statements. The
disclosure requirements of FASB 130 have been included in the Corporation's
Consolidated Statements of Shareholders' Equity.
Disclosures about Segments of an Enterprise and Related Information -- In June
1997, Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was issued and establishes
new standards for reporting information about operating segments in annual and
interim financial statements. The standard also requires descriptive
information about the way the operating segments are determined, the products
and services provided by the segments and the nature of differences between
reportable segment measurements and those used for the consolidated enterprise.
The disclosure requirements of FASB 131 have been included in Note C --
Business Segment Information.
Internal Use Software -- In March 1998, the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance
as to when it is or is not appropriate to capitalize the cost of software
developed or obtained for internal use. The effect of the adoption of SOP 98-1
was not material.
Derivative Instruments and Hedging Activity -- In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FASB
133). FASB 133 establishes new accounting and reporting requirements for
derivative instruments, including certain derivative instruments imbedded 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 fair value of
a derivative depends on the intended use of the derivative and the resulting
designation. Adoption of the standard is required for the Corporation's
December 31, 2000 financial statements with early adoption allowed as of the
beginning of any quarter after June 30, 1998. Management is in the process of
assessing the impact and period of adoption of the standard. Adoption is not
expected to result in a material financial impact.
Reclassification -- Certain 1997 and 1996 amounts have been reclassified to
conform to the 1998 presentation.
- --------------------------------------------------------------------------------
66
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note B -- Business Combinations
On December 15, 1997, the Corporation merged with Central Fidelity Banks, Inc.
(Central Fidelity), headquartered in Richmond, Virginia. The acquisition of
Central Fidelity resulted in the issuance of approximately 36.3 million shares.
The acquisition was accounted for as a pooling-of-interests and, accordingly,
all historical financial information for the Corporation has been restated to
include Central Fidelity historical information for all periods presented
herein. Intercompany transactions prior to the merger have been eliminated, and
certain reclassifications were made to the Central Fidelity financial
statements to conform to the Corporation's presentations. No material
adjustments were recorded to conform Central Fidelity's accounting policies.
During 1997, the Corporation recorded charges of $220,330 for direct and other
costs in connection with the merger, including restructuring activities to
consolidate the operations, business line locations and administrative
functions. These activities were completed during 1998. Included in systems and
operations conversion costs and business line and integration costs are
activities such as contract termination, write-down of unutilized assets and
other business and systems conversion costs.
Details of the merger-related costs follow.
<TABLE>
Dec. 31, Dec. 31,
1997 Utilized 1997 Utilized 1998
Provision in 1997 Balance in 1998 Balance
---------- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Severance and
personnel
related
costs ............. $ 114,079 $ ---- $114,079 $59,199 $54,880
Systems and
operations
conversion
costs ............. 66,953 51,530 15,423 15,356 67
Business line and
integration
expenses .......... 16,316 9,660 6,656 3,923 2,733
Deal costs
and other
expenses .......... 22,982 20,031 2,951 2,951 ----
---------- ------- -------- ------- -------
Total ............... $ 220,330 $81,221 $139,109 $81,429 $57,680
========== ======= ======== ======= =======
</TABLE>
In 1998, in connection with the Central Fidelity merger and purchase accounting
transactions discussed below, the Corporation incurred additional
merger-related expenses of $85,312 for systems conversion and integration of
business lines.
On October 31, 1997, the Corporation completed its merger with Jefferson
Bankshares, Inc. (Jefferson), headquartered in Charlottesville, Virginia. The
acquisition of Jefferson resulted in the issuance of approximately 8.7 million
shares of common stock valued at $554,337. The purchase price was allocated to
the net assets acquired, resulting in $337,452 of goodwill and $41,512 of
deposit base intangibles.
On November 11, 1997, the Corporation completed its merger with 1st United
Bancorp (1st United), headquartered in Boca Raton, Florida. The acquisition of
1st United resulted in the issuance of approximately 3.0 million shares of
common stock valued at $193,407. The purchase price was allocated to the net
assets acquired, resulting in $141,154 of goodwill and $22,718 of deposit base
intangibles.
During 1998, the Corporation merged with Ameribank Bancshares (Ameribank),
headquartered in Hollywood, Florida, with $280 million in assets; Hunt, DuPree,
Rhine and Associates Inc., a benefits consulting company; and Retirement Plan
Securities Inc., a registered investment advisor. The impact of these purchase
transactions was not material to the Corporation's financial position or
results of operations.
Goodwill and deposit base intangibles, arising from the purchase transactions
above, are being amortized over 25 and 7 years, respectively.
In 1997, merger-related expenses of $23,055 were accrued to reflect
management's best estimate of severance costs related to Jefferson and 1st
United employees and other expenses of premerger activities related to these
transactions. The fair value of Jefferson and 1st United assets and liabilities
acquired at the dates of acquisition was $3,426,567 and $2,678,823,
respectively. The pro forma results, giving effect to the purchase transactions
as though they occurred as of the beginning of the reporting periods, do not
vary significantly from actual results.
- --------------------------------------------------------------------------------
Note C -- Business Segment Information
The Corporation's reportable segments are strategic business units that provide
unique products and services to a variety of customer groups. Each segment has
its own management team as well as distinct marketing, production, technology
and distribution strategies. The Corporation's four reportable segments are
Consumer, Corporate, Card and Treasury & Administration. Consumer generates its
revenues primarily from individuals and small businesses by providing credit
and deposit services as well as insurance, investment and trust products.
Corporate earns its revenues primarily by providing financing, deposit, cash
management, investment and asset administration products to corporate
customers. Card derives revenues from the marketing, issuing and servicing of
credit card products to individuals and corporations. Treasury & Administration
is comprised of balance sheet management activities that include managing the
investment portfolio, discretionary funding, utilization of off-balance sheet
financial instruments, optimizing the Corporation's equity position and
corporate expenses such as merger-related charges, Year 2000 conversion costs
and other corporate costs.
67
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note C -- Business Segment Information -- Concluded
<TABLE>
Year Ended December 31, 1998 Consumer Corporate Card
- ---------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
External net interest margin ............. $ 336,495 $ 1,543,168 $ 767,469
Internal funding (charge) credit ......... 855,317 (831,502) (306,909)
----------- ----------- ----------
Net interest margin ...................... 1,191,812 711,666 460,560
Provision for loan loss .................. 34,328 1,114 257,799
Total other income ....................... 598,208 396,308 174,410
Total expenses ........................... 1,189,175 542,045 208,381
----------- ----------- ----------
Income before income tax expense ......... 566,517 564,815 168,790
Income tax expense ....................... 199,675 199,074 59,491
----------- ----------- ----------
Net income ............................... $ 366,842 $ 365,741 $ 109,299
=========== =========== ==========
Average total assets ..................... $16,955,302 $26,677,485 $6,697,455
=========== =========== ==========
<S> <C> <C> <C>
Treasury &
Year Ended December 31, 1998 Administration Eliminations Total
- ---------------------------- ----------- ----------- -----------
External net interest margin ............. $ (249,226) $(46,874) $ 2,351,032
Internal funding (charge) credit ......... 351,196 (68,102) ----
----------- ---------- -----------
Net interest margin ...................... 101,970 (114,976) 2,351,032
Provision for loan loss .................. 6,239 ---- 299,480
Total other income ....................... 79,635 ---- 1,248,561
Total expenses ........................... 124,833 (68,102) 1,996,332
----------- ---------- -----------
Income before income tax expense ......... 50,533 (46,874) 1,303,781
Income tax expense ....................... 18,245 (46,874) 429,611
----------- ---------- -----------
Net income ............................... $ 32,288 $ ---- $ 874,170
=========== ========== ===========
Average total assets ..................... $13,618,293 $ ---- $63,948,535
=========== ========== ===========
</TABLE>
<TABLE>
Year Ended December 31, 1997 Consumer Corporate Card
- ---------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
External net interest margin ............. $ 303,409 $ 1,340,043 $ 723,006
Internal funding (charge) credit ......... 781,842 (780,345) (314,041)
----------- ----------- ----------
Net interest margin ...................... 1,085,251 559,698 408,965
Provision for loan loss .................. 44,534 825 218,538
Total other income ....................... 518,409 298,727 165,992
Total expenses ........................... 1,031,469 466,933 191,143
----------- ----------- ----------
Income before income tax expense ......... 527,657 390,667 165,276
Income tax expense (benefit) ............. 184,446 136,560 57,773
----------- ----------- ----------
Net income (loss) ........................ $ 343,211 $ 254,107 $ 107,503
=========== =========== ==========
Average total assets ..................... $14,680,571 $23,208,642 $6,261,114
=========== =========== ==========
Treasury &
Year Ended December 31, 1997 Administration Eliminations Total
- ---------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
External net interest margin ............. $ (214,997) $(57,894) $ 2,093,567
Internal funding (charge) credit ......... 362,940 (50,396) ----
----------- -------- -----------
Net interest margin ...................... 147,943 (108,290) 2,093,567
Provision for loan loss .................. 1,052 ---- 264,949
Total other income ....................... 24,094 ---- 1,007,222
Total expenses ........................... 327,572 (50,396) 1,966,721
----------- -------- -----------
Income before income tax expense ......... (156,587) (57,894) 869,119
Income tax expense (benefit) ............. (44,572) (57,894) 276,313
----------- -------- -----------
Net income (loss) ........................ $ (112,015) $ ---- $ 592,806
=========== ======== ===========
Average total assets ..................... $13,456,748 $ ---- $57,607,075
=========== ======== ===========
</TABLE>
<TABLE>
Year Ended December 31, 1996 Consumer Corporate Card
- ---------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
External net interest margin ............. $ 229,332 $ 1,247,448 $ 592,489
Internal funding (charge) credit ......... 783,327 (727,473) (270,840)
----------- ----------- ----------
Net interest margin ...................... 1,012,659 519,975 321,649
Provision for loan loss .................. 38,004 695 164,803
Total other income ....................... 438,697 272,127 145,194
Total expenses ........................... 959,019 407,681 171,685
----------- ----------- ----------
Income before income tax expense ......... 454,333 383,726 130,355
Income tax expense ....................... 162,113 136,920 46,513
----------- ----------- ----------
Net income ............................... $ 292,220 $ 246,806 $ 83,842
=========== =========== ==========
Average total assets ..................... $13,481,908 $21,250,372 $5,095,709
=========== =========== ==========
<S> <C> <C> <C>
Treasury &
Year Ended December 31, 1996 Administration Eliminations Total
- ---------------------------- ----------- ----------- -----------
External net interest margin ............. $ (68,478) $(77,054) $ 1,923,737
Internal funding (charge) credit ......... 262,630 (47,644) ----
----------- -------- -----------
Net interest margin ...................... 194,152 (124,698) 1,923,737
Provision for loan loss .................. (9,726) ---- 193,776
Total other income ....................... 23,302 ---- 879,320
Total expenses ........................... 18,232 (47,644) 1,508,973
----------- -------- -----------
Income before income tax expense ......... 208,948 (77,054) 1,100,308
Income tax expense ....................... 74,557 (77,054) 343,049
----------- -------- -----------
Net income ............................... $ 134,391 $ ---- $ 757,259
=========== ======== ===========
Average total assets ..................... $15,756,214 $ ---- $55,584,203
=========== ======== ===========
</TABLE>
The Corporation's management accounting policies generally follow the policies
described in Note A, except for net interest income which is reported on a
fully taxable equivalent basis. The Corporation's funds transfer pricing system
utilizes a multiple pool method to simulate matched funding to compensate or
charge for funds provided or used with a corresponding offset in the Treasury &
Administration business segment. Provision for loan loss is assigned to each
segment based on the credit risk of each segment's loan portfolio. Operating
expense is recognized as incurred and charged on a fully absorbed basis.
Additionally, income tax expense is calculated based on the business segments
fully taxable equivalent income and the Corporation's effective tax rate.
Reconciling items between management accounting and the Corporation's
consolidated financial statements are limited to the taxable equivalent
adjustment and other income statement reclassifications shown as Eliminations.
The Corporation operates primarily in the United States; accordingly,
geographic distribution of revenue and long-lived assets in other countries is
not significant. Revenues from no individual customer exceeded 10% of
consolidated total revenues.
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note D -- Securities
The aggregate amortized cost, fair value and gross unrealized gains and losses
of securities as of December 31 were as follows:
<TABLE>
1998
---------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ---------------------------
<S> <C> <C> <C> <C>
Held-to-Maturity
- ------------------------------------------
U.S. Treasury and other agencies ......... $ 518,063 $ 6,662 $ 3 $ 524,722
State and municipal ...................... 176,768 19,521 ---- 196,289
Mortgage-backed .......................... 610,328 31,669 5 641,992
Other .................................... 78,448 677 2 79,123
------------- -------- ----------- ----------
$1,383,607 $ 58,529 $ 10 $1,442,126
============= ======== =========== ==========
Available-for-Sale
- -------------------------------------------
U.S. Treasury and other agencies ......... $3,123,663 $ 83,895 $ 1,991 $3,205,567
State and municipal ...................... 60,964 3,199 2 64,161
Mortgage-backed .......................... 4,159,464 50,641 3,351 4,206,754
Other .................................... 333,442 2,250 1,983 333,709
Equity ................................... 171,632 1,825 ---- 173,457
------------- -------- ----------- ----------
$7,849,165 $141,810 $ 7,327 $7,983,648
============= ======== =========== ==========
<CAPTION>
1997
-----------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
Held-to-Maturity
- -------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and other agencies ......... $ 202,913 $ 818 $ 188 $ 203,543
State and municipal ...................... 222,903 22,894 ---- 245,797
Mortgage-backed .......................... 962,161 45,106 187 1,007,080
Other .................................... 121,362 682 ---- 122,044
---------- -------- ---------- ----------
$1,509,339 $ 69,500 $ 375 $1,578,464
========== ======== ========== ==========
Available-for-Sale
- -------------------------------------------
U.S. Treasury and other agencies ......... $4,501,547 $ 57,579 $ 1,017 $4,558,109
State and municipal ...................... 79,795 3,150 7 82,938
Mortgage-backed .......................... 3,543,711 39,967 2,495 3,581,183
Other .................................... 508,975 3,255 862 511,368
Equity ................................... 160,649 15,443 153 175,939
---------- -------- ---------- ----------
$8,794,677 $119,394 $ 4,534 $8,909,537
========== ======== ========== ==========
</TABLE>
The amortized cost and estimated fair value of securities at December 31, 1998,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations.
<TABLE>
Amortized Fair
Cost Value
-------- ------
<S> <C> <C>
Held-to-Maturity
- ------------------------------------------------
Due in one year or less ........................ $ 316,485 $ 319,263
Due after one year through five years .......... 429,398 441,711
Due after five years through ten years ......... 141,282 151,954
Due after ten years ............................ 496,442 529,198
---------- ----------
Total ................................... 1,383,607 1,442,126
Available-for-Sale
- -------------------------------------------------
Due in one year or less ........................ 904,248 914,030
Due after one year through five years .......... 2,554,186 2,622,260
Due after five years through ten years ......... 960,623 981,284
Due after ten years ............................ 3,258,476 3,292,617
---------- ----------
Total ................................... 7,677,533 7,810,191
No contractual maturity ........................ 171,632 173,457
---------- ----------
Total ................................... 7,849,165 7,983,648
---------- ----------
Total securities ........................ $9,232,772 $9,425,774
========== ==========
</TABLE>
Proceeds, gross gains and losses realized from the sales of available-for-sale
securities for December 31 were as follows:
<TABLE>
1998 1997
-------- ----------
<S> <C> <C>
Proceeds ............. $590,447 $2,211,721
Gross gains .......... 20,553 6,576
Gross losses ......... 111 5,122
</TABLE>
Trading account assets are reported at fair value with net unrealized gains
(losses) of ($554), ($1,736) and $906 included in earnings during 1998, 1997
and 1996, respectively.
At December 31, 1998 and 1997, securities with a carrying value of $5,759,164
and $6,259,029, respectively, were pledged as collateral to secure public
deposits and for other purposes. There were no obligations of any one issuer
exceeding 10% of consolidated shareholders' equity at December 31, 1998. There
were no transfers or sales of held-to-maturity securities during 1998 or 1997.
- --------------------------------------------------------------------------------
69
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note E -- Loans and Allowance for Loan Losses
Loans at December 31 are summarized as follows:
<TABLE>
1998 1997
----------- ------------
<S> <C> <C>
Commercial:
Commercial, financial and other ......... $14,328,152 $ 13,528,344
Tax-exempt .............................. 972,603 1,607,159
Retail:
Direct .................................. 1,097,574 1,249,612
Indirect ................................ 3,239,532 3,028,288
Credit card ............................. 6,049,350 5,919,098
Other revolving credit .................. 536,887 459,563
Real estate:
Construction ............................ 2,044,437 1,779,522
Commercial mortgages .................... 6,988,050 6,790,446
Residential mortgages ................... 7,490,086 8,098,794
Lease financing -- net ..................... 1,879,123 1,094,169
Foreign .................................... 1,093,428 639,387
----------- ------------
Total loans -- net ...................... $45,719,222 $ 44,194,382
=========== ============
</TABLE>
Loans at December 31, 1998 and 1997 that had been placed on a cash basis were
$157,118 and $101,156, respectively. Interest income which would have been
recorded pursuant to the original terms of loans restructured to below market
rates was $16,906 and $11,390 on the preceding dates. Interest income recorded
on these loans was $9,608 and $4,606, respectively.
The Corporation follows Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan." A loan is defined as
impaired when, based on current information and events, it is probable that the
creditor will be unable to collect all amounts of principal and interest due
according to the contractual terms of the loan agreement. Impaired loans are
included as a portion of cash-basis assets. Impairment is measured by
discounting the expected future cash flows at the loan's effective interest
rate. For real estate loans, impairment is measured based on the estimated fair
value of the underlying collateral. If the present value of the expected future
cash flows, or the fair value of collateral in the case of a real estate loan,
is less than the loan's recorded balance, the deficiency is considered in
evaluating the overall adequacy of the allowance for loan losses. The following
table summarizes impaired loans and related allowance information at December
31.
<TABLE>
1998 1997
------- -------
<S> <C> <C>
Impaired loans with related allowance ............ $27,366 $15,711
Impaired loans with no related allowance ......... 29,249 32,207
------- -------
Total impaired loans ...................... $56,615 $47,918
======= =======
Allowance on impaired loans ...................... $ 7,110 $ 2,209
======= =======
</TABLE>
<TABLE>
Year Ended December 31
---------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Average impaired loans ............. $31,026 $47,862 $62,742
Interest income .................... 5,942 1,957 3,308
Cash-basis interest income ......... 2,600 614 1,014
</TABLE>
At December 31, 1998, the Corporation had no significant outstanding
commitments to lend additional funds to borrowers whose loans have been
restructured.
Changes in the allowance for loan losses for the three years ended December 31
were as follows:
<TABLE>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year ......... $544,723 $519,297 $518,808
Additions from acquisitions .......... 2,613 24,641 200
Provision for loan losses ............ 299,480 264,949 193,776
Recoveries on loans previously
charged off ........................ 59,365 57,515 57,240
Loans charged off .................... (358,189) (321,679) (250,727)
-------- -------- --------
Balance at end of year ............... $547,992 $544,723 $519,297
======== ======== ========
</TABLE>
Loans totaling $15,258, $17,413 and $16,236 were transferred to foreclosed real
estate during 1998, 1997 and 1996, respectively.
It is the policy of the Corporation to review each prospective credit in order
to determine an adequate level of security or collateral to obtain prior to
making the loan. The type of collateral will vary and ranges from liquid assets
to real estate. The Corporation's access to collateral, in the event of
borrower default, is assured through adherence to state lending laws and the
Corporation's lending standards and credit monitoring procedures. The
Corporation regularly monitors its credit concentrations on loan purpose,
industry and customer bases. At year-end, there were no material credit
concentrations within these categories.
The Corporation's subsidiaries have granted loans and extended letters of
credit to certain directors and executive officers of the Corporation and its
subsidiaries and to their associates. The aggregate amount of loans was
$207,462 and $257,271 at December 31, 1998 and 1997, respectively. During 1998,
$554,186 in new loans was made and repayments totaled $603,995. Outstanding
standby letters of credit to related parties totaled $13,536 and $1,922 at
December 31, 1998 and 1997, respectively. Related party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and
do not involve more than the normal risk of collectibility.
Loans held for sale at December 31 along with activity during the period are
summarized as follows:
<TABLE>
1998 1997
---------- -----------
<S> <C> <C>
Balance at beginning of year ......... $ 111,246 $ 254,281
Originations/purchases ............... 6,972,491 12,006,679
Sales/transfers ...................... (6,787,920) (12,149,714)
---------- -----------
Balance at end of year ............... $ 295,817 $ 111,246
========== ===========
</TABLE>
- --------------------------------------------------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note F -- Premises, Equipment and Leases
Premises and equipment at December 31 are summarized as follows:
<TABLE>
1998 1997
--------- ---------
<S> <C> <C>
Land ........................................ $ 130,439 $ 127,976
Premises .................................... 651,199 632,555
Equipment ................................... 904,139 778,652
Leasehold improvements ...................... 123,410 121,829
--------- ---------
1,809,187 1,661,012
Less accumulated depreciation and
amortization .............................. 907,506 850,857
--------- ---------
Total premises and equipment ......... $ 901,681 $ 810,155
========= =========
</TABLE>
The annual minimum rentals under the terms of the Corporation's noncancelable
operating leases as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 ........................................ $ 61,967
2000 ........................................ 55,041
2001 ........................................ 46,720
2002 ........................................ 34,587
2003 ........................................ 27,537
Thereafter .................................. 133,697
--------
Total minimum lease payments ......... $359,549
========
</TABLE>
The net rental expense for all operating leases amounted to $70,416 in 1998,
$63,701 in 1997 and $58,239 in 1996. Certain leases have various renewal
options and require increased rentals under cost of living escalation clauses.
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$114,742, $154,223 and $109,901, respectively.
During 1997, an impairment charge of $67,202, which approximated the carrying
value of certain personal computer hardware and software, was recorded as a
result of the Corporation's plan to implement a company-wide distributed
technology platform for improved employee communication capabilities. The plan
involved the write-down and disposal of these assets.
- --------------------------------------------------------------------------------
Note G -- Credit Arrangements, Short-Term Borrowed Funds and Certificates of
Deposit
At December 31, 1998 and 1997, lines of credit arrangements aggregating
$400,000 were available to the Corporation from unaffiliated banks. Commitment
fees were 8 basis points in 1998 and 1997; compensating balances are not
required. The unused portion of these banking arrangements principally serves
as commercial paper back-up lines. There were no borrowings outstanding under
credit arrangements during 1998 or 1997.
Federal funds purchased and securities sold under repurchase agreements
generally mature within one to four days from the transaction date. Securities
sold under repurchase agreements are delivered to either broker-dealers or to
custodian accounts for customers. The broker- dealers may have sold, loaned or
otherwise disposed of such securities to other parties in the normal course of
their operations, and have agreed to resell to the Corporation identical
securities at the maturity of the agreements. Other borrowed funds consists of
term federal funds purchased, treasury tax and loan deposits and short-term
bank notes and are generally repaid within seven to 120 days from the
transaction date. Information concerning short-term borrowed funds is included
in Table 6 of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The scheduled maturities of certificates of deposit subsequent to December 31,
1998 are $8,687,914 in 1999, $2,495,574 in 2000, $700,401 in 2001, $167,305 in
2002 and $275,755 thereafter. The remaining maturity of domestic office
certificates of deposit in denominations in excess of $100 is $1,339,796, three
months or less; $582,617, over three through six months; $805,504, over six
through twelve months; and $616,636, over twelve months.
- --------------------------------------------------------------------------------
71
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note H -- Long-Term Debt
Long-term debt at December 31 is summarized as follows:
<TABLE>
1998 1997
---------- ----------
<S> <C> <C>
Wachovia Corporation:
Senior debt:
Senior floating-rate notes due in 2000, net of discount of $218......................... $ 249,782 $ ----
Senior floating-rate notes due in 2001, net of discount of $416......................... 299,584 ----
6.625% senior notes due in 2006, net of discount of $725 and $793, respectively ........ 199,275 199,207
---------- ----------
Total senior debt ..................................................................... 748,641 199,207
Subordinated debt (qualifies for inclusion in the determination of total capital under
the Risk-Based Capital guidelines):
7.0% subordinated debt securities due in 1999, net of discount of $456 and $915, 299,544 299,085
respectively
8.15% subordinated notes due in 2002 ................................................... 150,000 150,000
6.375% subordinated debt securities due in 2003, net of discount of $968 and $1,163, 249,032 248,837
respectively
6.8% subordinated notes due in 2005, net of discount of $260 and $291, respectively .... 249,740 249,709
6.25% subordinated notes due in 2008, net of discount of $2,206......................... 347,793 ----
5.625% subordinated notes due in 2008, net of discount of $2,600........................ 397,400 ----
6.375% subordinated notes due in 2009, net of discount of $250 and $267, respectively .. 249,750 249,733
6.605% subordinated notes due in 2025 .................................................. 250,000 250,000
---------- ----------
Total subordinated debt ............................................................... 2,193,259 1,447,364
Other ................................................................................... 27,273 31,093
---------- ----------
Total Wachovia Corporation ............................................................ 2,969,173 1,677,664
Subsidiaries:
Bank notes, net of discount of $4,970 and $5,548, respectively (a) ...................... 2,856,230 2,939,952
Federal Home Loan Bank borrowings (b) ................................................... 762,950 307,186
Other ................................................................................... 12,006 13,338
---------- ----------
Total subsidiaries .................................................................... 3,631,186 3,260,476
Capital Trusts (qualifies for inclusion in Tier I capital under the Risk-Based Capital
guidelines):
Wachovia Capital Trust I -- 7.64% Capital Securities due in 2027 (c) .................... 300,000 300,000
Wachovia Capital Trust II -- Floating-Rate Capital Securities due in 2027, net of
discount of $2,813 and $3,161,
respectively (d) ....................................................................... 297,187 296,839
Wachovia Capital Trust V -- 7.965% Capital Securities due in 2027 (e) ................... 300,000 300,000
Central Fidelity Capital Trust I -- Floating-Rate Capital Securities due in 2027, net of
discount of $819 and $846,
respectively (f) ....................................................................... 99,181 99,154
---------- ----------
Total Capital Trusts .................................................................. 996,368 995,993
---------- ----------
Total long-term debt .................................................................. $7,596,727 $5,934,133
========== ==========
</TABLE>
(a) Wachovia Bank, N.A., has an ongoing bank note program under which the bank
may offer an aggregate principal amount of up to $21.6 billion. The notes
can be issued globally as fixed or floating rate and with maturities
beginning at seven days. Bank notes with original maturities of one year
or less are included in other short-term borrowed funds. Bank notes with
original maturities greater than one year are classified as long-term
debt. Interest rates on long-term notes ranged from 4.9% to 7.50% and 4.9%
to 7.75% with maturities ranging from 1999 to 2038 and 1998 to 2008 at
December 31, 1998 and 1997, respectively. The average rates were 5.64% and
6.12% with average maturities of 3.5 years and 2.9 years at December 31,
1998 and 1997, respectively.
(b) The Federal Home Loan Bank borrowings were issued as fixed- or
floating-rate with terms of 2 years to 5 years. Interest rates on the
borrowings ranged from 5.16% to 7.06% and 5.63% to 8.31% for December 31,
1998 and 1997 and with maturities ranging from 1999 to 2003 and 1998 to
2003 at December 31, 1998 and 1997, respectively. Borrowings from the
Federal Home Loan Bank are collateralized by qualifying securities and
loans.
(c) In December 1996, Wachovia Capital Trust I (WCT I), a wholly owned
subsidiary, issued $300,000 of 7.64% Capital Securities due in 2027. WCT I
invested the proceeds of the Capital Securities, together with $9,280 paid
by the Corporation for WCT I's Common Securities, in $309,280 of the
Corporation's 7.64% Junior Subordinated Deferrable Interest Debentures.
WCT I's sole asset is the Junior Subordinated Deferrable Interest
Debentures which mature in 2027. The Corporation has guaranteed all of WCT
I's obligations under the Capital Securities.
(d) In January 1997, Wachovia Capital Trust II (WCT II), a wholly owned
subsidiary, issued $300,000 Floating-Rate Capital Securities due in 2027.
WCT II invested the proceeds of the Capital Securities, together with
$9,280 paid by the Corporation for WCT II's Common Securities, in
$305,692, net of discount of $3,588, of the Corporation's Floating-Rate
Junior Subordinated Deferrable Interest Debentures. WCT II's sole asset is
the Junior Subordinated Deferrable Interest Debentures which mature in
2027. The Corporation has guaranteed all of WCT II's obligations under the
Capital Securities.
(e) In June 1997, Wachovia Capital Trust V (WCT V), a wholly owned subsidiary,
issued $300,000 of 7.965% Capital Securities due in 2027. WCT V invested
the proceeds of the Capital Securities, together with $9,280 paid by the
Corporation for WCT V's Common Securities, in $309,280 of the
Corporation's 7.965% Junior Subordinated Deferrable Interest Debentures.
WCT V's sole asset is the Junior Subordinated Deferrable Interest
Debentures which mature in 2027. The Corporation has guaranteed all of WCT
V's obligations under the Capital Securities.
(f) In April 1997, Central Fidelity Capital Trust I (CFCT I), a wholly owned
subsidiary, issued $100,000 Floating-Rate Capital Securities due in 2027.
CFCT I invested the proceeds of the Capital Securities, together with
$3,093 paid by the Corporation for CFCT I's Common Securities, in $103,093
of the Corporation's Floating-Rate Junior Subordinated Debt Securities.
CFCT I's sole asset is the Junior Subordinated Debt Securities which
mature in 2027. The Corporation has guaranteed all of CFCT I's obligations
under the Capital Securities.
The principal maturities of long-term debt subsequent to December 31, 1998 are
$1,199,546 in 1999, $893,122 in 2000, $1,232,375 in 2001, $504,417 in 2002,
$733,286 in 2003 and $3,033,982 thereafter.
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note I -- Capital Stock
At December 31, 1998, 28,125,864 common shares were reserved for the conversion
of notes and issuance for employee benefit plans and the dividend reinvestment
plan.
During 1998, the Corporation repurchased 6,417,200 shares under two separate
stock repurchase authorizations by the Board of Directors. Repurchased shares
will be used for various corporate purposes including the issuance of shares
for purchase business combinations, employee benefit plans and the dividend
reinvestment plan. In January 1999, the Board of Directors authorized the
repurchase of the Corporation's common stock to be issued in connection with
the pending purchase acquisition of Interstate/Johnson Lane.
The Corporation has one active stock option plan, the restated 1994 Wachovia
Corporation Stock Plan. Under this Plan, up to 2.5% of the Corporation's
outstanding common stock at year-end may be granted to selected key employees
and nonemployee directors in the form of incentive and nonqualified stock
options, stock appreciation rights (SARS), restricted stock awards and
restricted units. Since the inception, a total of 7,839,808 options, 1,023,800
awards and 125,000 SARS have been granted. The Corporation also has several
predecessor plans, the 1989 Plan and plans of merged entities which were
assumed with appropriate conversion shares under option and option price. These
plans continue to have options outstanding which may be exercised.
The Corporation's stock plans provide for the granting of options or awards for
the purchase or issuance of 14,895,546 shares at 100% of the fair market value
of the stock at the date of the grant. A committee of the Board of Directors
determines such times options and awards shall be granted and exercised and the
term of the exercise period (not to exceed 10 years). The plan awards officers
shares of restricted stock earned contingent upon both a performance
requirement and a five- year period. Additionally, newly elected nonemployee
directors are granted a one-time award of 1,000 shares of restricted stock to
be earned over a three-year period and nonemployee directors are awarded 250
shares of restricted stock annually which are earned over a one-year period.
The cost relating to performance-based stock compensation was $15,998, $9,131
and $4,522 during 1998, 1997 and 1996, respectively.
The following table reflects pro forma net income and earnings per share had
the Company elected to adopt the fair value approach of FASB 123.
<TABLE>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income:
As reported .......... $874,170 $592,806 $757,259
Pro forma ............ 866,883 585,442 751,226
Basic earnings per share:
As reported .......... $ 4.26 $ 2.99 $ 3.70
Pro forma ............ 4.23 2.95 3.67
</TABLE>
These pro forma amounts may not be representative of future years since only
awards and options granted after January 1, 1995 have been included in
accordance with FASB 123.
The weighted average fair values of options at their grant date during 1998,
1997 and 1996 were $16.46, $13.29 and $9.53, respectively. The estimated fair
value of each option granted is calculated using the Black-Scholes
option-pricing model. The following summarizes the weighted-average of the
assumptions used in the model.
<TABLE>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Risk-free interest rate ............... 5.73% 6.50% 5.67%
Expected years until exercise ......... 6.50 6.30 6.32
Expected stock volatility ............. 19% 22% 22%
Dividend yield ........................ 3.20% 3.31% 3.40%
</TABLE>
Activity in the option and award plans during 1998, 1997 and 1996 is summarized
as follows:
<TABLE>
Options and Awards
Outstanding
Available ------------------------- Option Price
for Grant Awards Options Per Share
--------------- ------- --------- -------------
<S> <C> <C> <C> <C>
Balance at December 31,
1995 ...................... 6,535,065 272,766 6,458,379 $ 12.50-36.88
Granted ................... (2,043,839) 242,107 1,801,732 24.85-47.13
Exercised ................. ---- (68,366) (1,015,339) 12.50-43.75
Forfeited ................. 65,296 (2,500) (85,616) 28.13-43.75
---------- ------- ----------
Total December 31,
1996 ...................... 4,556,522 444,007 7,159,156 15.42-47.13
Granted ................... (2,732,191) 243,517 2,488,674 43.56-76.69
Assumed (Jefferson
and 1st United) ......... ---- ---- 217,355 11.10-45.30
Excercised ................ ---- (26,000) (1,477,080) 15.42-45.30
Cancelled ................. (552,633) ---- ---- ----
Authorized ................ 3,794,392 ---- ---- ----
Forfeited ................. 82,075 (1,550) (92,444) 21.69-57.25
---------- ------- ----------
Total December 31,
1997 ...................... 5,148,165 659,974 8,295,661 11.10-76.69
Granted ................... (3,209,626) 364,426 2,845,200 75.00-87.38
Exercised ................. ---- (69,150) (2,159,068) 15.73-75.00
Authorized ................ 3,064,084 ---- ---- ----
Forfeited ................. 72,030 (1,000) (115,150) 33.88-86.50
---------- ------- ----------
Total December 31,
1998 ...................... 5,074,653 954,250 8,866,643 11.10-87.38
========== ======= ==========
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options.
<TABLE>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 11.10-30.00 1,130,755 2.67 $ 23.39 1,130,755 $ 23.39
30.01-50.00 3,268,421 6.12 37.64 1,997,227 36.18
50.01-70.00 1,637,513 8.09 57.30 309,474 57.30
70.01-87.38 2,829,954 9.14 76.48 137,338 83.37
---------- ---------
8,866,643 3,574,794
========== =========
</TABLE>
- --------------------------------------------------------------------------------
Note J -- Off-Balance Sheet Trading and Lending Activities
The Corporation maintains positions in a variety of financial instruments with
off-balance sheet risk to accommodate customers' financing objectives and
management of interest rate and foreign currency risk. The Corporation
maintains active trading positions in foreign exchange forward contracts and
manages credit risk through the establishment of offsetting sell positions, as
well as standard limit and monitoring procedures. The Corporation maintains a
trading portfolio of interest rate swap and option (caps and floors) contracts
and foreign exchange options consisting of generally matched, offsetting
contracts with customer and market counterparties.
73
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note J -- Off-Balance Sheet Trading and Lending Activities -- Continued
Off-balance sheet financial instruments involve, in varying degrees, exposure
to credit and interest rate risk in excess of the amount recognized in the
statements of financial condition. The Corporation follows the same credit
policies and careful underwriting practices in making commitments and
conditional obligations as it does for on-balance sheet instruments. In those
instances where collateral is necessary to support financial instrument credit
risk, the Corporation assures its ability to access borrower's collateral, in
the event of default, through strict adherence to corporate lending policy and
applicable state lending laws.
Derivative Financial Instruments Held or Issued for Trading Purposes -- The
amounts disclosed below represent the year-end notional and fair value of
derivative financial instruments held or issued for trading purposes and the
average fair value during the year. Notional principal amounts are often used
to express the volume of these transactions but do not represent the much
smaller amounts potentially subject to credit risk. The Corporation's credit
exposure to off-balance sheet derivative financial instruments is represented
by the fair value gain of the instrument if a counterparty fails to perform.
Options written do not expose the Corporation to credit risk, except to the
extent of the underlying risk in the debt instrument that the Corporation may
be obligated to acquire under certain written put options. The present value of
purchased caps and floors in a gain position represents the Corporation's
potential credit exposure.
<TABLE>
1998
---------------------------------------------------------
Notional Fair Value Fair Value Average
Value Gains (Losses) Fair Value
----------- ---------- -------------------------
<S> <C> <C> <C> <C>
U.S. dollar interest rate contracts as
intermediary:
Interest rate swaps-pay fixed .............. $6,101,212 $40,948 ($104,107) $(109)
Interest rate swaps-pay floating ........... 6,769,599 120,699 (30,715) 155
Interest rate caps and floors written ...... 2,551,837 2,374 ---- 44
Interest rate caps and floors purchased..... 2,606,271 ---- (2,372) (44)
Securities trading activities:
Commitments to purchase securities,
futures and forward contracts ............. 55,769 47 (128) 859
Commitments to sell securities, futures
and forward contracts ..................... 98,957 346 (16) (718)
Foreign exchange trading activities:
Commitments to purchase foreign
exchange .................................. 1,689,837 36,656 (1,185) 3,676
Commitments to sell foreign exchange ....... 1,336,800 5,542 (37,906) 2,383
Foreign exchange options written ........... 28,972 527 (497) 21
Foreign exchange options purchased ......... 28,972 ---- ---- 2
<CAPTION>
1997
--------------------------------------------------
Notional Fair Value Fair Value Average
Value Gains (Losses) Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. dollar interest rate contracts as
intermediary:
Interest rate swaps-pay fixed .............. $3,624,822 $8,423 ($32,930) $ (94)
Interest rate swaps-pay floating ........... 4,206,981 38,366 (7,876) 116
Interest rate caps and floors written ...... 1,886,230 1,729 ---- 21
Interest rate caps and floors purchased..... 1,867,736 ---- (1,722) (21)
Securities trading activities:
Commitments to purchase securities,
futures and forward contracts ............. 537,237 1,768 (163) (66)
Commitments to sell securities, futures
and forward contracts ..................... 584,187 357 (1,896) 222
Foreign exchange trading activities:
Commitments to purchase foreign
exchange .................................. 1,457,485 5,725 (28,525) 7,162
Commitments to sell foreign exchange ....... 1,460,270 30,816 (4,776) (4,696)
Foreign exchange options written ........... 12,737 179 (15) 62
Foreign exchange options purchased ......... 12,070 13 (165) (49)
</TABLE>
The Corporation controls the credit risk of these instruments through adherence
to credit approval policies, monetary limits and monitoring procedures.
Entering into interest rate swap agreements involves not only credit risk but
also interest rate and foreign currency risk associated with unmatched
positions. The Corporation controls the interest rate and foreign currency risk
inherent in the derivative trading portfolio by entering into offsetting
positions or by using other hedging techniques. Risks are further mitigated for
those instruments that trade on organized exchanges, as the exchanges provide
oversight and determine who may buy and sell such instruments.
Interest Rate Swaps -- These transactions generally involve the exchange of
fixed- and floating-rate payments without the exchange of the underlying
principal amounts. Payments made or received under swap contracts are accrued
based on contractual terms and are reported as other operating income. The
related accrued amounts receivable or payable to customers or counterparties
are included in other assets or liabilities. Revenues from the customer
portfolio represent a small profit margin on intermediated transactions. The
difference in the fair value of the offsetting contracts is not material.
At December 31, 1998, the weighted average maturity of pay-fixed swaps and
receive-fixed swaps held in the customer portfolio was 4.35 years. Under
pay-fixed swap agreements, the Corporation paid interest at a weighted average
fixed rate of 5.60% and received interest at a weighted average floating rate
of 5.37% (based on year-end rates). Under receive-fixed swap agreements, the
Corporation received interest at a weighted average fixed rate of 5.26% and
paid interest at a weighted average floating rate of 5.34% (based on year-end
rates).
Interest Rate Caps and Floors -- These instruments are written by the
Corporation to enable its customers to transfer, modify or reduce their
interest rate risk exposure. In a cap or floor contract, the purchaser pays a
premium at the initiation of the contract for the right to receive payments if
market interest rates are greater than the strike price of a cap or less than
the strike price of a floor. Payments made or received under cap or floor
contracts are accrued based on contractual terms and are reported as other
operating income.
74
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note J -- Off-Balance Sheet Trading and Lending Activities -- Concluded
Commitments to Purchase and Sell Securities, Futures and Forward Contracts --
These instruments are contracts for delayed delivery of securities or money
market instruments in which the seller agrees to deliver a specified instrument
at a specified price or yield at a specified date. Commitments to purchase and
sell securities, futures and forward contracts used in securities trading
operations are recognized currently at market value and are reported as trading
account profits (losses).
Net Options Written to Purchase and Sell Foreign Exchange -- Forward
commitments involve the purchase or sale of foreign currency amounts for
delivery at a specified future date. Payments on forward commitments are
exchanged on the delivery date based on the exchange rate in the contract.
Forward commitments to purchase and sell foreign exchange are recognized at
market value and are reported as other operating income.
Foreign Exchange Options -- These agreements represent rights to purchase or
sell foreign currency at a predetermined price at a future date. The purchaser
pays a premium at the initiation of the contract for the right to exchange a
specified amount at the contract's exchange rate at the maturity of the option.
Revenues from the derivative trading portfolio are shown below.
<TABLE>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest rate contracts ............. $19,406 $ 8,020 $ 3,071
Securities activities ............... (2,304) (3,035) 2,772
Foreign exchange activities ......... 20,054 11,283 10,292
------- ------- -------
Total .......................... $37,156 $16,268 $16,135
======= ======= =======
</TABLE>
Off-Balance Sheet Financial Instruments Issued for Lending
Activities -- The Corporation issues off-balance sheet financial instruments as
part of its commercial and consumer lending activities. The contract amounts of
these instruments represent potential credit risk at December 31 as shown
below.
<TABLE>
1998 1997
----------- -----------
<S> <C> <C>
Commercial and consumer lending
activities:
Unfunded commitments to extend
credit .......................... $53,178,254 $44,484,255
Standby letters of credit ......... 9,062,050 8,106,782
Commercial and similar letters of
credit .......................... 214,086 183,695
Participations in bankers'
acceptances ..................... 5,240 5,850
</TABLE>
Commitments to Extend Credit -- These are legally binding contracts to lend to
a customer, provided there is no contract violation. These commitments have
fixed termination dates and generally require payment of a fee. As most
commitments expire prior to being drawn, the amounts shown do not necessarily
represent the future cash requirements of the contracts. Credit worthiness is
evaluated and in some instances collateral is obtained to support the
borrowing. At December 31, 1998 and 1997, approximately 16% and 15%,
respectively, of unfunded commitments to extend credit were supported by
collateral. Of the total unfunded commitment amounts presented, approximately
23% in 1998 and 25% in 1997 were comprised of cancelable credit card
commitments, and approximately 10% in 1998 and 1997 were represented by real
estate commitments.
Standby, Commercial and Similar Letters of Credit -- These instruments are
conditional commitments issued by the Corporation guaranteeing the performance
of a customer to a third party. These guarantees are issued primarily to
support public and private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
credit to customers and is subject to the Corporation's underwriting process.
At December 31, 1998 and 1997, approximately 3% and 4%, respectively, of these
instruments were supported by collateral. There were no significant
concentrations of letters of credit to any one group of borrowers at either
year-end.
Participation in Bankers' Acceptances -- These instruments represent risk
participation in time drafts drawn by customers under a committed multibank
credit facility. These drafts have been accepted and remarketed by other
financial institutions. Under the terms of these arrangements, the Corporation
may be required to reimburse the accepting financial institution for the
Corporation's pro rata share of any payment default by the customer.
- --------------------------------------------------------------------------------
Note K -- Off-Balance Sheet Risk Management Activities The Corporation uses a
variety of off-balance sheet financial instruments as part of its overall
interest rate risk management process. The Corporation's principal objective of
asset/liability management activities is to provide maximum levels of net
interest income while maintaining acceptable levels of interest rate and
liquidity risk and facilitating the Corporation's funding needs. Accordingly,
the Corporation uses a combination of derivative financial instruments,
including interest rate swaps, futures and options with indices that correlate
to on-balance sheet instruments to modify the repricing characteristics of
interest-earning assets and interest-bearing liabilities.
75
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note K -- Off-Balance Sheet Risk Management Activities -- Concluded
The amounts disclosed below represent the year-end notional and fair value of
derivative financial instruments held for risk management purposes. The
Corporation's credit exposure to off-balance sheet derivative financial
instruments is represented by the fair value gain of the instrument if a
counterparty fails to perform. There were no deferred losses resulting from
terminated swap contracts at December 31, 1998 and 1997.
<TABLE>
1998
-------------------------------------
Notional Fair Value Fair Value
Value Gains (Losses)
---------- ---------- ----------
<S> <C> <C>
Convert floating-rate liabilities to fixed:
Swaps-pay fixed/receive floating ....................................... $ 665,592 $ 1,049 $(7,341)
Convert fixed-rate assets to floating:
Swaps-pay fixed/receive floating ....................................... 329,825 ---- (14,437)
Forward starting swaps-pay fixed/receive floating ...................... 200,000 ---- (257)
Convert fixed-rate liabilities to floating:
Swaps-receive fixed/pay floating ....................................... 2,100,000 134,960 (2,220)
Convert liabilities with quarterly rate resets to monthly:
Swaps-receive floating/pay floating .................................... 300,000 ---- (208)
Convert floating-rate assets to fixed:
Swaps-receive fixed/pay floating ....................................... 456,896 8,768 (87)
------------ -------- ---------
Total interest rate swaps and options ................................ 4,052,313 144,777 (24,550)
Financial futures contracts -- hedge of federal funds purchased ......... ---- ---- ----
Credit derivatives ...................................................... 1,500,000 387 ----
------------ -------- ---------
Total derivatives .................................................... $5,552,313 $145,164 ($ 24,550)
============ ======== =========
1997
-----------------------------------
Notional Fair Value Fair Value
Value Gains (Losses)
---------- ---------- ----------
<S> <C> <C> <C> <C>
Convert floating-rate liabilities to fixed:
Swaps-pay fixed/receive floating ....................................... $ 357,056 $ 287 $(2,366)
Convert fixed-rate assets to floating:
Swaps-pay fixed/receive floating ....................................... 358,299 ---- (8,689)
Forward starting swaps-pay fixed/receive floating ...................... 1,375,000 65,915 ----
Convert fixed-rate liabilities to floating:
Swaps-receive fixed/pay floating ....................................... 300,000 ---- (279)
Convert liabilities with quarterly rate resets to monthly:
Swaps-receive floating/pay floating .................................... 409,196 6,932 (75)
Convert floating-rate assets to fixed:
Swaps-receive fixed/pay floating ....................................... 125,000 878 ----
---------- ------- ---------
Total interest rate swaps and options ................................ 2,924,551 74,012 (11,409)
Financial futures contracts -- hedge of federal funds purchased ......... 1,000,000 ---- (46)
Credit derivatives ...................................................... ---- ---- ----
---------- ------- ---------
Total derivatives .................................................... $3,924,551 $74,012 ($ 11,455)
========== ======= =========
</TABLE>
- --------------------------------------------------------------------------------
Note L -- Income Taxes
The provision for income taxes is summarized below.
<TABLE>
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Current:
Federal ........................... $145,058 $233,618 $282,405
Foreign ........................... 686 594 542
State and local ................... 17,416 6,932 10,050
-------- -------- ---------
Total current ................ 163,160 241,144 292,997
Deferred:
Federal ........................... 251,902 23,453 51,383
State ............................. 14,549 11,716 (1,331)
-------- -------- ---------
Total deferred ............... 266,451 35,169 50,052
-------- -------- ---------
Total income tax expense ..... $429,611 $276,313 $343,049
======== ======== =========
</TABLE>
The reasons for the difference between consolidated income tax expense and the
amount computed by applying the statutory federal income tax rate of 35% to
income before taxes were as follows:
<TABLE>
1998 1997 1996
---------- -------- ----------
<S> <C> <C> <C>
Income before income taxes ...... $1,303,781 $869,119 $1,100,308
========== ======== ==========
Federal income taxes at
statutory rate ................ $ 456,324 $304,192 $ 385,108
State and local income taxes,
net of federal benefit ........ 20,778 12,121 5,648
Effect of tax-exempt securities
interest and other income ..... (51,499) (42,031) (38,457)
Other items ..................... 4,008 2,031 (9,250)
---------- -------- ----------
Total income tax
expense ................. $ 429,611 $276,313 $ 343,049
========== ======== ==========
</TABLE>
Significant components of the Corporation's deferred tax assets and
liabilities, which are included in other assets and other liabilities, at
December 31 are as follows:
<TABLE>
Deferred Tax Assets
----------------------
1998 1997
-------- --------
<S> <C> <C>
Allowance for loan losses ................ $200,546 $197,012
Employee compensation and retirement
benefits .............................. 76,702 72,602
Other .................................... 37,867 40,630
-------- --------
Gross deferred tax assets ......... $315,115 $310,244
======== ========
</TABLE>
<TABLE>
Deferred Tax Liabilities
-------------------------
1998 1997
--------- --------
<S> <C> <C>
Unrealized gains on securities available-
for-sale ....................................... $50,719 $ 42,468
Depreciation ...................................... 29,279 4,052
Lease financing ................................... 433,753 200,921
Accretion of discounts on securities .............. 19,928 18,326
Identifiable intangibles .......................... 17,459 22,898
Other ............................................. 34,372 19,922
--------- --------
Gross deferred tax liabilities ............. $585,510 $308,587
========= ========
Net deferred tax (liability) asset ......... ($270,395) $ 1,657
========= ========
</TABLE>
- --------------------------------------------------------------------------------
76
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note M -- Cash, Dividend, Loan Restrictions, Capital Ratios and Contingent
Liabilities
In the normal course of business, the Corporation and its subsidiaries enter
into agreements, or are subject to regulatory requirements, that result in
cash, debt and dividend restrictions. A summary of the most restrictive items
follows.
The Corporation's banking subsidiaries are required to maintain average reserve
balances with the Federal Reserve Bank. The average amount of those reserve
balances for the year ended December 31, 1998 was $219,344.
Under current Federal Reserve regulations, the banking subsidiaries also are
limited in the amount they may loan to their affiliates, including the
Corporation. Loans to a single affiliate may not exceed 10% and loans to all
affiliates may not exceed 20% of the bank's capital, surplus and undivided
profits plus the allowance for loan losses. Based on these limitations,
$762,653 was available for loans to the Corporation at December 31, 1998.
The approval of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the bank's
net profits, as defined, for that year combined with its retained net profits
for the preceding two calendar years. Under this formula, the banking
subsidiaries cannot distribute as dividends to the Corporation in 1999, without
the approval of the Comptroller of the Currency, more than $215,761 plus an
additional amount equal to the banks' retained net profits for 1999 up to the
date of any dividend declaration.
As a result of the above dividend and loan restrictions, approximately
$4,849,328 of consolidated net assets of the Corporation's banking subsidiaries
at December 31, 1998 was restricted from transfer to the Corporation in the
form of cash dividends, loans or advances.
The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Under the
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Failure to meet minimum capital requirements can initiate
certain mandatory, and possible discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Corporation's financial
statements.
The Corporation and its banking subsidiaries are required to maintain minimum
Tier I capital, total risk-based capital and Tier I leverage ratios of 4%, 8%
and 3%, respectively. The Corporation and its banking subsidiaries meet all
capital adequacy requirements to which they are subject.
At December 31, 1998, the most recent notification from the Comptroller of the
Currency categorized the Corporation's banking subsidiaries as well capitalized
under the regulatory framework for prompt corrective action. To be well
capitalized, the banking subsidiaries must maintain minimum Tier I capital,
total risk-based capital, and Tier I leverage ratios of 6%, 10% and 5%,
respectively. There are no conditions or events since that notification that
management believes have changed the banking subsidiaries' well capitalized
status.
The actual capital amounts and ratios for the Corporation at December 31, 1998
were as follows: Total risk-based capital of $7,927,628 representing an 11.34%
ratio and Tier I capital of $5,585,488 representing Tier I capital and leverage
ratios of 7.99% and 8.67%, respectively. Corresponding amounts and ratios for
the Corporation as of December 31, 1997 were $7,203,318 representing an 11.11%
ratio, $5,465,144 representing ratios of 8.43% and 9.24%, respectively. The
actual capital amounts and ratios for the Corporation's principal banking
subsidiary, Wachovia Bank, N.A., at December 31, 1998 were as follows: Total
risk-based capital of $7,749,905 representing an 11.34% ratio and Tier I
capital of $5,097,196 representing Tier I capital and leverage ratios of 7.46%
and 8.28%, respectively.
The Corporation, in the normal course of business, is subject to various
pending or threatened lawsuits in which claims for monetary damages are
asserted. Although it is not possible for the Corporation to predict the
outcome of these lawsuits or the range of any possible loss, management, after
consultation with legal counsel, does not anticipate that the ultimate
aggregate liability, if any, arising from these lawsuits will have a material
adverse effect on the Corporation's financial position.
- --------------------------------------------------------------------------------
Note N -- Pension and Other Postretirement Benefits The Corporation maintains
several defined benefit pension plans, the first of which covers substantially
all employees (the Qualified Plan). The Qualified Plan provides pension
benefits that are based upon the employee's length of credited service and
final average compensation as defined in the plan. The pension expense of the
Qualified Plan is determined using the projected unit credit method. The
Corporation's policy is to fund amounts allowable for federal income tax
purposes. The Corporation also sponsors separate unfunded nonqualified pension
plans that provide certain officers with defined pension benefits in excess of
limits imposed on qualified plans by federal tax law and for certain
compensation not covered in the qualified plans.
The Corporation and its subsidiaries provide certain health care benefits for
retired employees. Substantially all of the employees may become eligible for
these benefits if they reach retirement age while working for the Corporation
or its subsidiaries. The benefits are provided through self-insured plans
administered by insurance companies whose premiums are based on the claims paid
during the year.
The following table sets forth the changes in the projected benefit obligations
and the fair value of plan assets for the Corporation's defined benefit pension
plans and health care benefits provided for retired employees and the amounts
recognized in the Consolidated Statements of Condition at December 31.
77
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note N -- Pension and Other Postretirement Benefits -- Continued
<TABLE>
Pension Benefits
------------------------------------
1998 1997
------------ -----------
<S> <C> <C>
Change in benefit obligation:
Projected benefit obligation at beginning of year ......... $754,739 $585,846
Service cost .............................................. 31,933 24,660
Interest cost ............................................. 54,963 46,626
Actuarial gain (loss) ..................................... 34,414 84,630
Benefits paid ............................................. (31,928) (30,551)
Plan change ............................................... 14,480 13,643
Purchase business combinations ............................ ---- 29,885
------------ ---------
Projected benefit obligation at end of year ............... $858,601 $754,739
============ =========
Change in plan assets:
Fair value of plan assets at beginning of year ............ $742,203 $603,675
Actual return on plan assets .............................. 113,372 130,114
Employer contributions .................................... 3,663 11,292
Benefits paid ............................................. (31,928) (30,551)
Purchase business combinations ............................ ---- 27,673
------------ ---------
Fair value of plan assets at end of year .................. $827,310 $742,203
============ =========
Accrued benefit cost:
Funded status ............................................. $(31,291) $(12,536)
Unrecognized transition (asset) liability ................. (22,332) (24,028)
Unrecognized prior service cost ........................... 16,094 6,446
Unrecognized net loss (gains) ............................. 13,805 25,606
------------ ---------
Accrued benefit cost ...................................... $(23,724) $ (4,512)
============ =========
Weighted-average assumptions as of December 31:
Discount rate ............................................. 7.00% 7.25%
Expected return on plan assets ............................ 9.00% 8.00%
6% through 2001, 6% through 2001,
Rate of compensation increase ............................. 5% thereafter 5% thereafter
Assumed rate of increase in health care costs:
Retirees under age 65 .................................... ---- ----
Retirees over age 65 ..................................... ---- ----
Other Benefits
--------------------------
1998 1997
--------- ---------
<S> <C> <C>
Change in benefit obligation:
Projected benefit obligation at beginning of year ......... $85,652 $ 72,732
Service cost .............................................. 1,396 2,407
Interest cost ............................................. 5,573 5,718
Actuarial gain (loss) ..................................... (2,769) 9,059
Benefits paid ............................................. (6,046) (6,041)
Plan change ............................................... (7,747) ----
Purchase business combinations ............................ ---- 1,777
--------- -----------
Projected benefit obligation at end of year ............... $76,059 $ 85,652
========= ===========
Change in plan assets:
Fair value of plan assets at beginning of year ............ $12,170 $ 12,786
Actual return on plan assets .............................. 1,361 (616)
Employer contributions .................................... ---- ----
Benefits paid ............................................. ---- ----
Purchase business combinations ............................ ---- ----
--------- -----------
Fair value of plan assets at end of year .................. $13,531 $ 12,170
========= ===========
Accrued benefit cost:
Funded status ............................................. ($ 62,528) ($ 73,482)
Unrecognized transition (asset) liability ................. 55,716 59,695
Unrecognized prior service cost ........................... (6,612) 626
Unrecognized net loss (gains) ............................. (11,185) (8,167)
--------- ------------
Accrued benefit cost ...................................... ($ 24,609) ($ 21,328)
========= ============
Weighted-average assumptions as of December 31:
Discount rate ............................................. 7.00% 7.25%
Expected return on plan assets ............................ 7.00% 7.00%
Rate of compensation increase ............................. 6.00% 6.00%
Assumed rate of increase in health care costs:
Retirees under age 65 .................................... 8.00% 8.00-8.20%
Retirees over age 65 ..................................... 6.00% 6.00-8.20%
</TABLE>
The rate of increase in health care costs is assumed to remain constant for
each category of retirees. Included in plan assets at December 31, 1998 were
130,626 shares of Wachovia Corporation common stock with a market value of
$11,422.
<TABLE>
PensionBenefits Other Benefits
------------------------------------- ---------------------------------
1998 1997 1996 1998 1997 1996
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost ........................... $31,933 $24,660 $23,297 $1,396 $ 2,407 $1,955
Interest cost .......................... 54,963 46,626 41,391 5,573 5,718 5,245
Expected return on plan assets ......... (63,050) (50,821) (44,262) (852) (895) (770)
Amortization of unrecognized amounts:
Transition (asset) liability .......... (5,585) (5,297) (5,910) 3,980 3,980 3,979
Prior service cost .................... 537 (1,532) (1,617) (509) 57 57
Net actuarial loss (gain) ............. 2,132 1,360 1,679 (262) (484) (476)
-------- ------- ------- ------- -------- -------
Benefit cost ............................ $20,930 $14,996 $14,578 $9,326 $10,783 $9,990
======== ======= ======= ======= ======== =======
</TABLE>
The assumed health care cost trend rate has a significant effect on the amounts
reported. A one percentage point change in the assumed health care cost trend
rate would have the following effects:
<TABLE>
1 Percentage 1 Percentage
Point Point
Increase Decrease
------------ -------------
<S> <C> <C>
Effect on total of service and interest
cost components in 1999 ............. $ 186 $ 164
Effect on post retirement benefit
obligation as of December 31,
1998 ................................ $2,560 $2,263
</TABLE>
The Corporation also provides supplemental benefits to substantially all
employees through defined contribution plans designed to encourage participants
to save on a regular basis and to provide such participants with deferred
compensation and additional performance incentive. Total expense relating to
these plans, which represented the Corporation's matching and discretionary
contributions, was $23,473 in 1998, $25,969 in 1997 and $19,847 in 1996.
Employee participants may elect to contribute from 1% to 15% of base salary,
with the Corporation matching 50% of each participant's contribution up to a
maximum employer contribution of 3% of base salary. The plans provide
78
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note N -- Pension and Other Postretirement Benefits -- Concluded
for additional contributions of up to 3% of salary in accordance with a
preestablished formula based on certain earnings performance criteria and also
for special discretionary employer contributions of up to 4% of each eligible
employee's base salary as approved annually by the Board of Directors. Effective
January 1, 1999, the matching rate for the first 3% of base salary was raised to
100%.
- --------------------------------------------------------------------------------
Note O -- Selected Income Statement Information
The components of other operating income and expense for the three years ended
December 31 were as follows:
<TABLE>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Other operating income:
Insurance premiums and commissions ........................ $ 31,897 $ 30,205 $ 20,562
Bankers' acceptance and letter of credit fees ............. 39,025 34,526 28,243
Other service charges and fees ............................ 39,766 38,750 38,590
Other income .............................................. 117,487 84,316 56,035
-------- -------- --------
Total other operating income ............................ $228,175 $187,797 $143,430
======== ======== ========
Other operating expense:
Postage and delivery ...................................... $ 52,981 $ 48,657 $ 47,195
Outside data processing, programming and software ......... 68,680 86,497 51,139
Stationery and supplies ................................... 34,767 30,960 30,043
Advertising and sales promotion ........................... 70,222 72,046 68,639
Professional services ..................................... 56,066 54,113 41,223
Travel and business promotion ............................. 29,254 25,215 21,096
Amortization of intangible assets ......................... 39,091 13,308 9,163
Foreclosed property expense, net of income ................ 571 1,875 1,930
Other expense ............................................. 209,196 182,480 194,837
-------- -------- --------
Total other operating expense ........................... $560,828 $515,151 $465,265
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
Note P -- Earnings Per Share
<TABLE>
Year Ended December 31
----------------------------------------
1998 1997 1996
-------- ---- ----
<S> <C> <C> <C>
Basic (thousands, except per share)
Average common shares outstanding .............................. 205,058 198,290 204,889
======== ======= =======
Net income ..................................................... $874,170 $592,806 $757,259
======== ======== ========
Per share amount ............................................... $ 4.26 $ 2.99 $ 3.70
Diluted (thousands, except per share)
Average common shares outstanding .............................. 205,058 198,290 204,889
Dilutive common stock options at average market price .......... 3,778 3,394 2,322
Dilutive common stock awards at average market price ........... 300 210 126
Convertible long-term debt assumed converted ................... 17 7 95
-------- -------- --------
Average diluted shares outstanding ............................. 209,153 201,901 207,432
======== ======== ========
Net income ..................................................... $874,170 $592,806 $757,259
Add interest on convertible long-term debt, net of tax ......... 48 6 65
-------- -------- --------
Adjusted net income ............................................ $874,218 $592,812 $757,324
======== ======== ========
Per share amount ............................................... $ 4.18 $ 2.94 $ 3.65
</TABLE>
- --------------------------------------------------------------------------------
79
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note Q -- Fair Value of Financial Instruments
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments. In cases where
quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rates
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts. Also, the fair
value estimates presented are based on pertinent information available to
management as of December 31, 1998 and 1997. Such amounts have not been
comprehensively revalued for purposes of these financial statements since those
dates and therefore, current estimates of fair value may differ significantly
from the amounts presented.
Trading Account Assets -- Fair values are based on quoted market prices as
recognized in the statements of condition.
Securities -- Fair values are based on quoted market prices. If a quoted market
price is not available, fair value is estimated using market prices for similar
securities.
Loans -- For credit card, equity lines and other loans with short-term or
variable rate characteristics, the carrying value reduced by an estimate of
credit losses inherent in the portfolio is a reasonable estimate of fair value.
The fair value of all other loans is estimated by discounting their future cash
flows using interest rates currently being offered for loans with similar
terms, reduced by an estimate of credit losses inherent in the portfolio. The
discount rates used are commensurate with the interest rate and prepayment
risks involved for the various types of loans.
Deposits -- The fair values disclosed for demand deposits (e.g., interest- and
noninterest-bearing demand, savings and money market savings) are equal to the
amounts payable on demand at the reporting date (i.e., their carrying amounts).
Fair values for certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated monthly maturities.
Long-Term Debt -- Fair values are estimated using discounted cash flow
analyses, based on the Corporation's current incremental borrowing rates for
similar types of borrowing arrangements.
Many of the Corporation's assets and liabilities are short-term financial
instruments whose carrying amounts reported in the statements of condition
approximate fair value. These items include cash and due from banks,
interest-bearing bank balances, federal funds sold and securities purchased
under resale agreements, due from customers on acceptances, short-term borrowed
funds, acceptances outstanding, and the financial instruments included in other
assets and liabilities. The following summarizes estimated fair values of the
Corporation's remaining on-balance sheet financial instruments as of December
31.
<TABLE>
1998
-----------------------------
Carrying Estimated
Value Fair Value
------------ -------------
<S> <C> <C>
Financial assets:
Trading account assets ................ $ 664,812 $ 664,812
Securities ............................ 9,367,255 9,425,774
Loans, net of allowance for loan losses 45,171,230 45,465,075
Financial liabilities:
Deposits .............................. 40,994,729 41,156,155
Long-term debt ........................ 7,596,727 7,895,996
</TABLE>
<TABLE>
1997
-----------------------------
Carrying Estimated
Value Fair Value
---------- -------------
<S> <C> <C>
Financial assets:
Trading account assets ................ $ 999,122 $ 999,122
Securities ............................ 10,418,876 10,488,001
Loans, net of allowance for loan losses 43,649,659 43,944,373
Financial liabilities:
Deposits .............................. 42,653,843 42,757,011
Long-term debt ........................ 5,934,133 6,041,697
</TABLE>
Off-Balance Sheet Instruments -- Fair values are based on fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counterparties' credit standing for loan
commitments and letters of credit, and the estimated amount the Corporation
would receive or pay to terminate or replace the contract at current market
rates for the remainder of the off-balance sheet instruments. See Notes J and K
for additional information about off-balance sheet financial instruments.
The estimated fair values of the Corporation's off-balance sheet financial
instruments as of December 31 are summarized below. The amounts for commitments
and letters of credit are presented as negative in order to represent the
approximate cost the Corporation would incur to pay third parties to assume
these commitments. Interest rate contracts and other off-balance sheet
financial instruments represent the net fair value gain or loss of the
contracts.
<TABLE>
1998 1997
Estimated Estimated
Fair Value Fair Value
---------- -----------
<S> <C> <C>
Unfunded commitments to extend credit ......... ($ 76,894) ($ 44,682)
Letters of credit ............................. (66,434) (58,429)
Interest rate contracts issued for trading
purposes .................................... 26,827 5,990
Interest rate contracts held for purposes
other than trading .......................... 120,614 62,557
Other off-balance sheet financial instruments
issued or held for trading or lending
purposes .................................... 3,386 3,318
</TABLE>
This presentation excludes certain financial instruments and all nonfinancial
instruments. The disclosures exclude all nonfinancial instruments such as
customer relationships, deposit base intangibles and goodwill. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Corporation.
- --------------------------------------------------------------------------------
80
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Continued
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note R -- Wachovia Corporation (Parent Company Only) Information
The following is a condensed statement of financial condition of the parent
company at December 31.
<TABLE>
1998 1997
----------- ----------
<S> <C> <C>
Assets
- ------
Cash on demand deposit with bank
subsidiary ................................. $ 520 $ 6,968
Interest-bearing bank balances with bank
subsidiaries ............................... 1,041,471 856,503
Securities available-for-sale ................ 130,829 51,523
Demand loans to nonbank subsidiaries ......... 779,035 993,073
Notes receivable from subsidiaries ........... 2,521,540 1,506,529
Investments in:
Bank subsidiaries .......................... 5,827,743 5,260,189
Nonbank subsidiaries ....................... 293,923 224,157
Other assets ................................. 191,817 164,910
----------- ----------
Total assets .......................... $10,786,878 $9,063,852
=========== ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Parent company commercial paper .............. $ 1,359,382 $1,034,024
Subordinated notes payable to nonbank
subsidiaries ............................... 1,031,023 1,080,659
Long-term debt ............................... 2,969,173 1,677,664
Demand loans from bank subsidiary ............ 18,015 18,015
Other liabilities ............................ 71,053 79,189
Shareholders' equity ......................... 5,338,232 5,174,301
----------- ----------
Total liabilities and shareholders'
equity .............................. $10,786,878 $9,063,852
=========== ==========
</TABLE>
The principal maturities of the parent company's long-term debt subsequent to
December 31, 1998 are $303,353 in 1999, $249,782 in 2000, $325,179 in 2001,
$151,678 in 2002, $249,032 in 2003 and $2,721,172 thereafter.
The operating results of the parent company for the three years ended December
31 are shown below.
<TABLE>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income
- ------
Dividends from:
Bank subsidiaries .................. $562,000 $658,800 $561,800
Nonbank subsidiaries ............... ---- 11,060 800
Interest from subsidiaries ............ 222,956 184,476 104,823
Other interest income ................. 7,997 15,320 16,877
Other income .......................... 57,387 34,012 55,243
-------- -------- ---------
Total income ................... 850,340 903,668 739,543
Expense
- -------
Interest on short-term borrowed
funds .............................. 64,086 39,566 30,491
Interest on long-term debt ............ 197,944 169,192 105,075
Interest paid to subsidiaries ......... 1,746 22,354 15,488
Other expense ......................... 47,858 50,655 34,349
-------- -------- ---------
Total expense .................. 311,634 281,767 185,403
Income before income tax
benefit and equity in
undistributed net income
(excess dividends) of
subsidiaries ....................... 538,706 621,901 554,140
Income tax benefit .................... (14,259) (16,519) (7,055)
-------- -------- ---------
Income before equity in
undistributed net income
(excess dividends) of
subsidiaries ....................... 552,965 638,420 561,195
Equity in undistributed net
income (excess dividends) of
subsidiaries ....................... 321,205 (45,614) 196,064
-------- -------- ---------
Net income ..................... $874,170 $592,806 $757,259
======== ======== =========
</TABLE>
81
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements -- Concluded
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Note R -- Wachovia Corporation (Parent Company Only) Information -- Concluded
The cash flows for the parent company for the three years ended December 31
were as follows:
<TABLE>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Operating Activities
- --------------------
Net income ........................ $ 874,170 $592,806 $757,259
Other, net ........................ 52,802 23,830 (7,177)
Equity in excess dividends
(undistributed net
income) of subsidiaries ......... (321,205) 45,614 (196,064)
---------- -------- --------
Net cash provided by
operations ................... 605,767 662,250 554,018
Investing Activities
- --------------------
Net (increase) decrease in
interest-bearing bank
balances ........................ (184,968) 315,194 (406,418)
Purchases of securities
available-for-sale .............. (105,763) (17,097) (334,586)
Sale of securities available-
for-sale ........................ 38,257 349,052 30,485
Net decrease (increase) in
demand loans to nonbank
subsidiaries .................... 214,038 (559,130) (149,483)
Notes issued to subsidiaries ...... (1,015,908) (550,000) ----
Notes repaid by subsidiaries 908 ---- 585
Net (increase) decrease in
other assets .................... (22,318) (5,154) 26,771
Equity investment in
subsidiaries .................... (249,001) (45,956) (68,252)
---------- -------- --------
Net cash used by investing
activities ................... (1,324,755) (513,091) (900,898)
Financing Activities
- --------------------
Net (decrease) increase in
loans and notes from
subsidiaries .................... (50,474) 355,340 629,616
Net increase in commercial
paper ........................... 325,358 327,648 204,090
Proceeds from long-term
debt ............................ 1,288,859 ---- 196,106
Issuance of stock ................. 80,375 59,281 37,445
Dividend payments ................. (381,798) (327,303) (304,733)
Common stock repurchased (531,122) (537,855) (415,162)
Decrease in other liabilities ..... (18,658) (19,346) (462)
---------- -------- --------
Net cash provided (used)
by financing activities ...... 712,540 (142,235) 346,900
---------- -------- --------
(Decrease) increase in cash ....... (6,448) 6,924 20
Cash at beginning of year ......... 6,968 44 24
---------- -------- --------
Cash at end of year ............... $ 520 $ 6,968 $ 44
========== ======== ========
Noncash investing and
financing activities:
Common stock issued on
conversion of long term
debt ............................ $ ---- $ 70 $ 6,007
</TABLE>
82
<PAGE>
- --------------------------------------------------------------------------------
Year-End Information
- --------------------------------------------------------------------------------
Wachovia Corporation and Subsidiaries
<TABLE>
1998 1997
<S> <C> <C>
Condensed Balance Sheet (millions)
Cash and due from banks .............................. $ 3,800 $ 4,222
Interest-bearing bank balances ....................... 110 133
Federal funds sold and securities
purchased under resale agreements ................... 675 1,589
Trading account assets ............................... 665 999
Securities:
Available-for-sale .................................. 7,984 8,909
Held-to-maturity .................................... 1,384 1,509
Loans, net of unearned income ........................ 45,719 44,194
Less allowance for loan losses ....................... 548 544
-------- --------
Net loans .......................................... 45,171 43,650
Premises and equipment ............................... 902 810
Other assets ......................................... 3,432 3,576
-------- --------
Total assets ....................................... $ 64,123 $ 65,397
======== ========
Deposits in domestic offices ......................... $ 38,718 $ 38,151
Deposits in foreign offices .......................... 2,277 4,503
-------- --------
Total deposits ..................................... 40,995 42,654
Federal funds purchased and securities
sold under repurchase agreements .................... 5,463 8,323
Commercial paper ..................................... 1,359 1,034
Other short-term borrowed funds ...................... 1,912 753
Bank notes ........................................... 2,856 2,940
Other long-term debt ................................. 4,741 2,994
Other liabilities .................................... 1,459 1,525
Shareholders' equity ................................. 5,338 5,174
-------- --------
Total liabilities and shareholders' equity ......... $ 64,123 $ 65,397
======== ========
Loan Portfolio (millions)
Domestic borrowers:
Commercial .......................................... $ 14,328 $ 13,528
Tax-exempt .......................................... 973 1,607
Direct retail ....................................... 1,098 1,250
Indirect retail ..................................... 3,240 3,028
Credit card ......................................... 6,049 5,919
Other revolving credit .............................. 537 460
Construction ........................................ 2,044 1,780
Commercial mortgages ................................ 6,988 6,790
Residential mortgages ............................... 7,490 8,099
Lease financing, net ................................ 1,879 1,094
-------- --------
Total .............................................. 44,626 43,555
Foreign ............................................. 1,093 639
-------- --------
Total loans ........................................ $ 45,719 $ 44,194
======== ========
Loan Portfolio (percentages)
Commercial ........................................... 33.5 34.2
Credit card .......................................... 13.2 13.4
Other revolving credit ............................... 1.2 1.0
Other retail ......................................... 9.5 9.7
Real estate .......................................... 36.1 37.7
Lease financing ...................................... 4.1 2.5
Foreign .............................................. 2.4 1.5
--------- ---------
Total .............................................. 100.0 100.0
========= =========
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Condensed Balance Sheet (millions)
Cash and due from banks .............................. $ 3,674 $ 3,033 $ 2,953 $ 2,839
Interest-bearing bank balances ....................... 78 526 7 13
Federal funds sold and securities
purchased under resale agreements ................... 276 302 399 884
Trading account assets ............................... 1,190 1,115 891 791
Securities:
Available-for-sale .................................. 9,825 11,034 7,018 4,094
Held-to-maturity .................................... 1,352 1,620 4,185 7,879
Loans, net of unearned income ........................ 38,007 35,585 31,664 27,754
Less allowance for loan losses ....................... 519 519 516 510
-------- -------- -------- --------
Net loans .......................................... 37,488 35,066 31,148 27,244
Premises and equipment ............................... 794 781 690 650
Other assets ......................................... 2,552 2,315 1,951 1,794
-------- -------- -------- --------
Total assets ....................................... $ 57,229 $ 55,792 $ 49,242 $ 46,188
======== ======== ======== ========
Deposits in domestic offices ......................... $ 34,137 $ 33,594 $ 29,380 $ 29,201
Deposits in foreign offices .......................... 1,185 761 916 807
-------- -------- -------- --------
Total deposits ..................................... 35,322 34,355 30,296 30,008
Federal funds purchased and securities
sold under repurchase agreements .................... 7,206 6,892 6,939 6,198
Commercial paper ..................................... 707 535 432 606
Other short-term borrowed funds ...................... 1,039 1,776 1,044 1,101
Bank notes ........................................... 4,308 4,691 4,751 2,782
Other long-term debt ................................. 2,717 1,493 997 751
Other liabilities .................................... 1,322 1,449 873 998
Shareholders' equity ................................. 4,608 4,601 3,910 3,744
-------- -------- -------- --------
Total liabilities and shareholders' equity ......... $ 57,229 $ 55,792 $ 49,242 $ 46,188
======== ======== ======== ========
Loan Portfolio (millions)
Domestic borrowers:
Commercial .......................................... $ 10,341 $ 10,365 $ 8,915 $ 7,250
Tax-exempt .......................................... 2,016 2,328 1,907 2,055
Direct retail ....................................... 1,218 1,197 1,128 1,008
Indirect retail ..................................... 3,082 3,118 2,813 2,804
Credit card ......................................... 5,596 4,610 4,522 3,586
Other revolving credit .............................. 424 417 398 382
Construction ........................................ 1,247 1,008 829 747
Commercial mortgages ................................ 5,684 5,113 4,673 4,242
Residential mortgages ............................... 7,132 6,537 6,028 5,444
Lease financing, net ................................ 831 502 197 163
-------- -------- -------- --------
Total .............................................. 37,571 35,195 31,410 27,681
Foreign ............................................. 436 390 254 73
-------- -------- -------- --------
Total loans ........................................ $ 38,007 $ 35,585 $ 31,664 $ 27,754
======== ======== ======== ========
Loan Portfolio (percentages)
Commercial ........................................... 32.5 35.7 34.2 33.5
Credit card .......................................... 14.7 12.9 14.3 12.9
Other revolving credit ............................... 1.1 1.2 1.3 1.4
Other retail ......................................... 11.3 12.1 12.4 13.7
Real estate .......................................... 37.0 35.6 36.4 37.6
Lease financing ...................................... 2.2 1.4 .6 .6
Foreign .............................................. 1.2 1.1 .8 .3
--------- --------- --------- ---------
Total .............................................. 100.0 100.0 100.0 100.0
========= ========= ========= =========
</TABLE>
83
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Average Balances
- --------------------------------------------------------------------------------
thousands Wachovia Corporation and Subsidiaries
<TABLE>
1998 1997
Amount % Amount %
<S> <C> <C> <C> <C>
Assets
Loans -- net of unearned income:
Commercial ................................................................ $14,023,069 21.9 $11,326,589 19.7
Tax-exempt ................................................................ 1,218,909 1.9 1,743,227 3.0
------------ ----- ------------ -----
Total commercial ........................................................ 15,241,978 23.8 13,069,816 22.7
Direct retail ............................................................. 1,143,392 1.8 1,193,557 2.1
Indirect retail ........................................................... 3,090,938 4.8 2,966,521 5.1
Credit card ............................................................... 5,680,171 8.9 5,626,062 9.8
Other revolving credit .................................................... 497,681 .8 423,900 .7
------------ ----- ------------ -----
Total retail ............................................................ 10,412,182 16.3 10,210,040 17.7
Construction .............................................................. 1,892,817 3.0 1,498,438 2.6
Commercial mortgages ...................................................... 6,812,786 10.6 6,067,194 10.5
Residential mortgages ..................................................... 7,808,436 12.2 7,422,225 12.9
------------ ----- ------------ -----
Total real estate ....................................................... 16,514,039 25.8 14,987,857 26.0
Lease financing ........................................................... 1,428,872 2.2 955,055 1.7
Foreign ................................................................... 803,644 1.3 493,110 .9
------------ ----- ------------ -----
Total loans ............................................................. 44,400,715 69.4 39,715,878 69.0
Securities:
Held-to-maturity:
State and municipal ...................................................... 193,911 .3 221,196 .4
Other .................................................................... 1,282,160 2.0 1,101,603 1.8
------------ ----- ------------ -----
Total securities held-to-maturity ....................................... 1,476,071 2.3 1,322,799 2.2
Available-for-sale ........................................................ 9,106,015 14.2 9,470,064 16.4
------------ ----- ------------ -----
Total securities ........................................................ 10,582,086 16.5 10,792,863 18.6
Interest-bearing bank balances .............................................. 157,219 .3 88,801 .2
Federal funds sold and securities purchased under resale agreements ......... 467,079 .7 397,213 .7
Trading account assets ...................................................... 954,809 1.5 960,244 1.7
------------ ----- ------------ -----
Total interest-earning assets ........................................... 56,561,908 88.4 51,954,999 90.2
Cash and due from banks ..................................................... 3,210,746 5.1 2,904,160 5.0
Premises and equipment ...................................................... 856,737 1.3 803,362 1.4
Other assets (1) ............................................................ 3,854,897 6.0 2,465,276 4.3
Allowance for loan losses ................................................... (535,753) ( .8) (520,722) ( .9)
------------ ------ ------------ ------
Total assets ............................................................ $63,948,535 100.0 $57,607,075 100.0
============ ====== ============ ======
Liabilities and Shareholders' Equity
Interest-bearing deposits in domestic offices:
Demand .................................................................... $ 4,984,421 7.8 $ 4,108,606 7.1
Savings and money market savings .......................................... 11,603,522 18.2 10,594,764 18.4
Savings certificates ...................................................... 9,943,373 15.5 10,364,936 18.0
Large denomination certificates ........................................... 3,051,290 4.8 2,929,042 5.1
------------ ------ ------------ ------
Total interest-bearing deposits in domestic offices ..................... 29,582,606 46.3 27,997,348 48.6
Interest-bearing deposits in foreign offices ................................ 2,428,713 3.8 1,585,149 2.8
------------ ------ ------------ ------
Total interest-bearing deposits ......................................... 32,011,319 50.1 29,582,497 51.4
Federal funds purchased and securities sold under repurchase agreements ..... 7,498,279 11.7 6,743,997 11.7
Commercial paper ............................................................ 1,276,624 2.0 781,345 1.4
Other short-term borrowed funds ............................................. 2,120,256 3.3 1,461,781 2.5
------------ ------ ------------ ------
Total short-term borrowed funds ......................................... 10,895,159 17.0 8,987,123 15.6
Bank notes .................................................................. 2,619,824 4.1 3,075,331 5.3
Other long-term debt ........................................................ 3,658,983 5.7 3,046,492 5.3
------------ ------ ------------ ------
Total long-term debt .................................................... 6,278,807 9.8 6,121,823 10.6
------------ ------ ------------ ------
Total interest-bearing liabilities ...................................... 49,185,285 76.9 44,691,443 77.6
Other deposits:
Demand in domestic offices ................................................ 7,797,454 12.2 6,921,083 12.0
Demand in foreign offices ................................................. 309 .0 169 .0
Noninterest-bearing time in domestic offices .............................. 5,203 .0 13,192 .0
Other liabilities ........................................................... 1,792,333 2.8 1,447,863 2.5
Shareholders' equity ........................................................ 5,167,951 8.1 4,533,325 7.9
------------ ------ ------------ ------
Total liabilities and shareholders' equity .............................. $63,948,535 100.0 $57,607,075 100.0
============ ====== ============ ======
Total deposits .............................................................. $39,814,285 $36,516,941
</TABLE>
(1) Includes unrealized gains (losses) of $131,761 in 1998, $65,846 in 1997,
$93,556 in 1996, $34,248 in 1995 and ($12,405) in 1994 on securities
available-for-sale.
84
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
1996 1995
Amount % Amount %
Assets
Loans -- net of unearned income:
<S> <C> <C> <C> <C>
Commercial ................................................................ $10,480,829 18.9 $ 9,727,718 18.8
Tax-exempt ................................................................ 2,126,486 3.8 2,067,016 4.0
------------ ----- ------------- -----
Total commercial ........................................................ 12,607,315 22.7 11,794,734 22.8
Direct retail ............................................................. 1,194,349 2.1 1,177,466 2.3
Indirect retail ........................................................... 3,138,707 5.6 2,973,026 5.8
Credit card ............................................................... 4,948,626 8.9 4,551,448 8.8
Other revolving credit .................................................... 417,953 .8 398,693 .8
------------ ----- ------------- -----
Total retail ............................................................ 9,699,635 17.4 9,100,633 17.7
Construction .............................................................. 1,069,576 1.9 948,248 1.8
Commercial mortgages ...................................................... 5,452,795 9.8 4,902,241 9.5
Residential mortgages ..................................................... 6,796,978 12.2 6,182,282 12.0
------------ ----- ------------- -----
Total real estate ....................................................... 13,319,349 23.9 12,032,771 23.3
Lease financing ........................................................... 655,485 1.2 278,038 .5
Foreign ................................................................... 457,500 .8 304,277 .6
------------ ----- ------------- -----
Total loans ............................................................. 36,739,284 66.0 33,510,453 64.9
Securities:
Held-to-maturity:
State and municipal ...................................................... 273,529 .5 423,747 .8
Other .................................................................... 1,199,467 2.1 3,735,893 7.1
------------ ----- ------------- -----
Total securities held-to-maturity ....................................... 1,472,996 2.6 4,159,640 7.9
Available-for-sale ........................................................ 10,402,219 18.7 7,817,579 15.2
------------ ----- ------------- -----
Total securities ........................................................ 11,875,215 21.3 11,977,219 23.1
Interest-bearing bank balances .............................................. 420,838 .8 119,277 .2
Federal funds sold and securities purchased under resale agreements ......... 286,478 .5 221,359 .4
Trading account assets ...................................................... 921,764 1.7 916,140 1.8
------------ ----- ------------- -----
Total interest-earning assets ........................................... 50,243,579 90.3 46,744,448 90.4
Cash and due from banks ..................................................... 2,789,738 5.1 2,801,993 5.5
Premises and equipment ...................................................... 785,438 1.4 722,418 1.4
Other assets (1) ............................................................ 2,278,391 4.1 1,951,842 3.7
Allowance for loan losses ................................................... (512,943) ( .9) (517,430) ( 1.0)
------------ ------ ------------- ------
Total assets ............................................................ $55,584,203 100.0 $51,703,271 100.0
============ ====== ============= ======
Liabilities and Shareholders' Equity
Interest-bearing deposits in domestic offices:
Demand .................................................................... $ 3,993,079 7.2 $ 3,923,942 7.6
Savings and money market savings .......................................... 9,440,738 17.0 8,318,312 16.1
Savings certificates ...................................................... 10,521,925 18.9 10,435,857 20.3
Large denomination certificates ........................................... 2,612,410 4.7 2,173,624 4.2
------------ ------ ------------- ------
Total interest-bearing deposits in domestic offices ..................... 26,568,152 47.8 24,851,735 48.2
Interest-bearing deposits in foreign offices ................................ 1,040,585 1.9 749,511 1.4
------------ ------ ------------- ------
Total interest-bearing deposits ......................................... 27,608,737 49.7 25,601,246 49.6
Federal funds purchased and securities sold under repurchase agreements ..... 7,136,064 12.8 6,263,319 12.1
Commercial paper ............................................................ 595,806 1.1 535,210 1.0
Other short-term borrowed funds ............................................. 1,286,160 2.3 2,061,418 4.0
------------ ------ ------------- ------
Total short-term borrowed funds ......................................... 9,018,030 16.2 8,859,947 17.1
Bank notes .................................................................. 4,609,878 8.3 4,174,561 8.1
Other long-term debt ........................................................ 2,082,894 3.7 1,520,122 2.9
------------ ------ ------------- ------
Total long-term debt .................................................... 6,692,772 12.0 5,694,683 11.0
------------ ------ ------------- ------
Total interest-bearing liabilities ...................................... 43,319,539 77.9 40,155,876 77.7
Other deposits:
Demand in domestic offices ................................................ 6,476,977 11.7 6,214,100 12.0
Demand in foreign offices ................................................. 1,563 .0 6,823 .0
Noninterest-bearing time in domestic offices .............................. 12,362 .0 12,537 .0
Other liabilities ........................................................... 1,315,939 2.4 1,150,355 2.2
Shareholders' equity ........................................................ 4,457,823 8.0 4,163,580 8.1
------------ ------ ------------- ------
Total liabilities and shareholders' equity .............................. $55,584,203 100.0 $51,703,271 100.0
============ ====== ============= ======
Total deposits .............................................................. $34,099,639 $31,834,706
<CAPTION>
Five-Year
1994 1993 Compound
Amount % Amount % Growth Rate
Assets
Loans -- net of unearned income:
<S> <C> <C> <C> <C> <C>
Commercial .............................................................. $ 7,923,773 17.1 $ 6,691,358 15.8 15.9%
Tax-exempt .............................................................. 2,066,908 4.4 1,993,493 4.7 ( 9.4)
------------- ----- ------------- -----
Total commercial ...................................................... 9,990,681 21.5 8,684,851 20.5 11.9
Direct retail ........................................................... 1,087,952 2.3 955,942 2.2 3.6
Indirect retail ......................................................... 2,862,342 6.2 2,593,024 6.1 3.6
Credit card ............................................................. 4,014,135 8.6 2,993,593 7.1 13.7
Other revolving credit .................................................. 382,216 .8 370,403 .9 6.1
------------- ----- ------------- -----
Total retail .......................................................... 8,346,645 17.9 6,912,962 16.3 8.5
Construction ............................................................ 791,154 1.7 801,627 1.9 18.7
Commercial mortgages .................................................... 4,529,213 9.7 4,131,072 9.7 10.5
Residential mortgages ................................................... 5,587,543 12.0 5,028,473 11.9 9.2
------------- ----- ------------- -----
Total real estate ..................................................... 10,907,910 23.4 9,961,172 23.5 10.6
Lease financing ......................................................... 180,022 .4 140,887 .3 58.9
Foreign ................................................................. 108,028 .2 76,212 .2 60.2
------------- ----- ------------- -----
Total loans ........................................................... 29,533,286 63.4 25,776,084 60.8 11.5
Securities:
Held-to-maturity:
State and municipal .................................................... 599,206 1.3 826,228 1.9 (25.2)
Other .................................................................. 3,371,132 7.1 9,146,254 21.5 (32.5)
------------- ----- ------------- -----
Total securities held-to-maturity ..................................... 3,970,338 8.4 9,972,482 23.4 (31.8)
Available-for-sale ...................................................... 7,267,408 15.6 1,020,590 2.4 54.9
------------- ----- ------------- -----
Total securities ...................................................... 11,237,746 24.0 10,993,072 25.8 ( .8)
Interest-bearing bank balances ............................................ 31,941 .1 92,927 .2 11.1
Federal funds sold and securities purchased under resale agreements ....... 303,177 .7 564,358 1.3 ( 3.7)
Trading account assets .................................................... 689,417 1.5 721,892 1.7 5.8
------------- ----- ------------- -----
Total interest-earning assets ......................................... 41,795,567 89.7 38,148,333 89.8 8.2
Cash and due from banks ................................................... 2,688,765 5.9 2,640,520 6.2 4.0
Premises and equipment .................................................... 663,773 1.4 613,822 1.4 6.9
Other assets (1) .......................................................... 1,910,228 4.1 1,630,243 3.8 18.8
Allowance for loan losses ................................................. (516,702) ( 1.1) (503,697) ( 1.2) 1.2
------------- ------ ------------- ------
Total assets .......................................................... $46,541,631 100.0 $42,529,221 100.0 8.5
============= ====== ============= ======
Liabilities and Shareholders' Equity
Interest-bearing deposits in domestic offices:
Demand .................................................................. $ 4,047,307 8.7 $ 3,851,842 9.1 5.3
Savings and money market savings ........................................ 7,973,997 17.1 7,906,297 18.6 8.0
Savings certificates .................................................... 8,419,653 18.0 8,372,243 19.6 3.5
Large denomination certificates ......................................... 1,889,807 4.1 2,263,284 5.3 6.2
------------- ------ ------------- ------
Total interest-bearing deposits in domestic offices ................... 22,330,764 47.9 22,393,666 52.6 5.7
Interest-bearing deposits in foreign offices .............................. 516,157 1.1 466,571 1.1 39.1
------------- ------ ------------- ------
Total interest-bearing deposits ....................................... 22,846,921 49.0 22,860,237 53.7 7.0
Federal funds purchased and securities sold under repurchase agreements ... 6,146,656 13.2 5,015,727 11.8 8.4
Commercial paper .......................................................... 524,715 1.1 503,317 1.2 20.5
Other short-term borrowed funds ........................................... 697,743 1.5 981,020 2.3 16.7
------------- ------ ------------- ------
Total short-term borrowed funds ....................................... 7,369,114 15.8 6,500,064 15.3 10.9
Bank notes ................................................................ 3,629,703 7.8 1,535,750 3.6 11.3
Other long-term debt ...................................................... 1,524,081 3.3 994,090 2.3 29.8
------------- ------ ------------- ------
Total long-term debt .................................................. 5,153,784 11.1 2,529,840 5.9 19.9
------------- ------ ------------- ------
Total interest-bearing liabilities .................................... 35,369,819 75.9 31,890,141 74.9 9.1
Other deposits:
Demand in domestic offices .............................................. 6,215,419 13.4 6,117,579 14.4 5.0
Demand in foreign offices ............................................... 5,380 .0 5,516 .0 (43.8)
Noninterest-bearing time in domestic offices ............................ 70,997 .2 75,976 .2 (41.5)
Other liabilities ......................................................... 1,067,818 2.3 921,075 2.2 14.2
Shareholders' equity ...................................................... 3,812,198 8.2 3,518,934 8.3 8.0
------------- ------ ------------- ------
Total liabilities and shareholders' equity ............................ $46,541,631 100.0 $42,529,221 100.0 8.5
============= ====== ============= ======
Total deposits ............................................................ $29,138,717 $29,059,308 6.5
</TABLE>
85
<PAGE>
- --------------------------------------------------------------------------------
Net Interest Income -- Taxable Equivalent
- --------------------------------------------------------------------------------
thousands Wachovia Corporation and Subsidiaries
<TABLE>
1998 1997
Amount % Amount %
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees:
Commercial ................................................................. $ 1,011,401 21.5 $ 829,406 19.2
Tax-exempt ................................................................. 112,672 2.4 155,689 3.6
------------- ----- ------------- -----
Total commercial ........................................................ 1,124,073 23.9 985,095 22.8
Direct retail .............................................................. 107,405 2.3 107,326 2.5
Indirect retail ............................................................ 255,512 5.4 254,001 5.9
Credit card ................................................................ 764,426 16.2 727,114 16.8
Other revolving credit ..................................................... 55,644 1.2 52,007 1.2
------------- ----- ------------- -----
Total retail ............................................................ 1,182,987 25.1 1,140,448 26.4
Construction ............................................................... 170,403 3.6 140,780 3.3
Commercial mortgages ....................................................... 584,266 12.4 505,876 11.7
Residential mortgages ...................................................... 618,118 13.1 592,907 13.7
------------- ----- ------------- -----
Total real estate ....................................................... 1,372,787 29.1 1,239,563 28.7
Lease financing ............................................................ 166,128 3.5 92,721 2.1
Foreign .................................................................... 55,067 1.2 34,164 .8
------------- ----- ------------- -----
Total loans ............................................................. 3,901,042 82.8 3,491,991 80.8
Securities:
Held-to-maturity:
State and municipal ...................................................... 21,179 .5 26,259 .6
Other investments ........................................................ 96,430 2.0 87,631 2.0
------------- ----- ------------- -----
Total securities held-to-maturity ....................................... 117,609 2.5 113,890 2.6
Available-for-sale ......................................................... 609,245 12.9 635,195 14.7
------------- ----- ------------- -----
Total securities ........................................................ 726,854 15.4 749,085 17.3
Interest-bearing bank balances .............................................. 12,988 .3 5,230 .1
Federal funds sold and securities purchased under resale agreements ......... 25,803 .5 22,319 .5
Trading account assets ...................................................... 45,432 1.0 51,654 1.3
------------- ----- ------------- -----
Total interest income .................................................... 4,712,119 100.0 4,320,279 100.0
Interest Expense
Interest-bearing demand ..................................................... 64,530 1.4 64,249 1.5
Savings and money market savings ............................................ 451,655 9.6 405,444 9.4
Savings certificates ........................................................ 542,477 11.5 582,145 13.4
Large denomination certificates ............................................. 165,384 3.5 164,391 3.8
------------- ----- ------------- -----
Total interest-bearing deposits in domestic offices ..................... 1,224,046 26.0 1,216,229 28.1
Interest-bearing deposits in foreign offices ................................ 135,659 2.9 87,320 2.0
------------- ----- ------------- -----
Total interest-bearing deposits ......................................... 1,359,705 28.9 1,303,549 30.1
Federal funds purchased and securities sold under repurchase agreements ..... 388,390 8.2 357,190 8.3
Commercial paper ............................................................ 64,088 1.3 39,566 .9
Other short-term borrowed funds ............................................. 111,368 2.4 81,406 1.9
------------- ----- ------------- -----
Total short-term borrowed funds ......................................... 563,846 11.9 478,162 11.1
Bank notes .................................................................. 159,896 3.4 188,710 4.4
Other long-term debt ........................................................ 230,766 4.9 198,397 4.6
------------- ----- ------------- -----
Total long-term debt .................................................... 390,662 8.3 387,107 9.0
------------- ----- ------------- -----
Total interest expense .................................................. 2,314,213 49.1 2,168,818 50.2
------------- ----- ------------- -----
Net Interest Income ......................................................... $ 2,397,906 50.9 $ 2,151,461 49.8
============= ===== ============= =====
Percentage of interest-earning assets:
Interest income ............................................................ 8.33% 8.32%
Interest expense ........................................................... 4.09 4.18
------------- -------------
Net interest income ..................................................... 4.24% 4.14%
============= =============
Taxable equivalent adjustment included in interest income:
Loans ...................................................................... $ 27,638 $ 36,695
Securities ................................................................. 18,301 19,862
Trading account assets ..................................................... 935 1,337
------------- -------------
Total (2) ............................................................... $ 46,874 $ 57,894
============= =============
</TABLE>
(1) Percentages reflected above are based on total interest income.
(2) The taxable equivalent adjustment reflects the federal income tax rate of
35% and state tax rates, as applicable, reduced by the nondeductible portion
of interest expense.
86
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
1996 1995
Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Loans, including fees:
Commercial ................................................................. $ 747,463 18.3 $ 728,263 18.7
Tax-exempt ................................................................. 190,285 4.7 203,551 5.2
------------- ----- ------------- -----
Total commercial ........................................................ 937,748 23.0 931,814 23.9
Direct retail .............................................................. 106,634 2.6 103,522 2.7
Indirect retail ............................................................ 266,435 6.5 245,936 6.3
Credit card ................................................................ 595,208 14.6 566,391 14.5
Other revolving credit ..................................................... 51,026 1.2 50,544 1.3
------------- ----- ------------- -----
Total retail ............................................................ 1,019,303 24.9 966,393 24.8
Construction ............................................................... 99,470 2.4 93,152 2.4
Commercial mortgages ....................................................... 452,576 11.1 423,149 10.9
Residential mortgages ...................................................... 552,944 13.5 505,995 13.0
------------- ----- ------------- -----
Total real estate ....................................................... 1,104,990 27.0 1,022,296 26.3
Lease financing ............................................................ 61,717 1.5 24,173 .6
Foreign .................................................................... 32,098 .8 22,610 .6
------------- ----- ------------- -----
Total loans ............................................................. 3,155,856 77.2 2,967,286 76.2
Securities:
Held-to-maturity:
State and municipal ...................................................... 33,547 .8 50,192 1.3
Other investments ........................................................ 96,509 2.4 271,292 7.0
------------- ----- ------------- -----
Total securities held-to-maturity ....................................... 130,056 3.2 321,484 8.3
Available-for-sale ......................................................... 700,202 17.1 526,287 13.5
------------- ----- ------------- -----
Total securities ........................................................ 830,258 20.3 847,771 21.8
Interest-bearing bank balances .............................................. 33,284 .8 9,377 .2
Federal funds sold and securities purchased under resale agreements ......... 15,411 .4 13,279 .3
Trading account assets ...................................................... 51,740 1.3 60,416 1.5
------------- ----- ------------- -----
Total interest income .................................................... 4,086,549 100.0 3,898,129 100.0
Interest Expense
Interest-bearing demand ..................................................... 59,761 1.5 74,179 1.9
Savings and money market savings ............................................ 336,596 8.2 304,294 7.8
Savings certificates ........................................................ 598,869 14.6 596,122 15.2
Large denomination certificates ............................................. 153,571 3.8 126,708 3.3
------------- ----- ------------- -----
Total interest-bearing deposits in domestic offices ..................... 1,148,797 28.1 1,101,303 28.2
Interest-bearing deposits in foreign offices ................................ 54,942 1.3 41,876 1.1
------------- ----- ------------- -----
Total interest-bearing deposits ......................................... 1,203,739 29.4 1,143,179 29.3
Federal funds purchased and securities sold under repurchase agreements ..... 382,976 9.4 374,158 9.6
Commercial paper ............................................................ 29,054 .7 29,324 .8
Other short-term borrowed funds ............................................. 70,206 1.7 124,283 3.2
------------- ----- ------------- -----
Total short-term borrowed funds ......................................... 482,236 11.8 527,765 13.6
Bank notes .................................................................. 264,486 6.5 258,885 6.6
Other long-term debt ........................................................ 135,310 3.3 81,326 2.1
------------- ----- ------------- -----
Total long-term debt .................................................... 399,796 9.8 340,211 8.7
------------- ----- ------------- -----
Total interest expense .................................................. 2,085,771 51.0 2,011,155 51.6
------------- ----- ------------- -----
Net Interest Income ......................................................... $ 2,000,778 49.0 $ 1,886,974 48.4
============= ===== ============= =====
Percentage of interest-earning assets:
Interest income ............................................................ 8.13% 8.35%
Interest expense ........................................................... 4.15 4.31
------------- -------------
Net interest income ..................................................... 3.98% 4.04%
============= =============
Taxable equivalent adjustment included in interest income:
Loans ...................................................................... $ 46,158 $ 55,068
Securities ................................................................. 28,577 46,817
Trading account assets ..................................................... 2,306 4,594
------------- -------------
Total (2) ............................................................... $ 77,041 $ 106,479
============= =============
<CAPTION>
Five-Year
1994 1993 Compound
Amount % Amount % Growth Rate
Interest Income
Loans, including fees:
Commercial ................................................................ $ 486,566 15.6 $ 362,764 12.7 22.8%
Tax-exempt ................................................................ 186,360 5.9 181,785 6.4 ( 9.1)
------------- ----- ------------- -----
Total commercial ....................................................... 672,926 21.5 544,549 19.1 15.6
Direct retail ............................................................. 86,093 2.7 80,775 2.8 5.9
Indirect retail ........................................................... 223,830 7.1 220,751 7.8 3.0
Credit card ............................................................... 453,117 14.6 359,334 12.6 16.3
Other revolving credit .................................................... 44,904 1.4 42,392 1.5 5.6
------------- ----- ------------- -----
Total retail ........................................................... 807,944 25.8 703,252 24.7 11.0
Construction .............................................................. 70,261 2.2 58,712 2.1 23.8
Commercial mortgages ...................................................... 352,563 11.2 308,194 10.8 13.6
Residential mortgages ..................................................... 434,177 13.9 410,837 14.5 8.5
------------- ----- ------------- -----
Total real estate ...................................................... 857,001 27.3 777,743 27.4 12.0
Lease financing ........................................................... 14,090 .4 12,540 .4 67.7
Foreign ................................................................... 6,162 .2 3,318 .1 75.4
------------- ----- ------------- -----
Total loans ............................................................ 2,358,123 75.2 2,041,402 71.7 13.8
Securities:
Held-to-maturity:
State and municipal ..................................................... 75,069 2.4 97,057 3.4 (26.2)
Other investments ....................................................... 234,557 7.5 596,239 21.0 (30.5)
------------- ----- ------------- -----
Total securities held-to-maturity ...................................... 309,626 9.9 693,296 24.4 (29.9)
Available-for-sale ........................................................ 416,408 13.3 60,408 2.1 58.8
------------- ----- ------------- -----
Total securities ....................................................... 726,034 23.2 753,704 26.5 ( .7)
Interest-bearing bank balances ............................................. 1,322 .0 2,980 .1 34.2
Federal funds sold and securities purchased under resale agreements ........ 13,262 .4 18,675 .7 6.7
Trading account assets ..................................................... 36,407 1.2 28,481 1.0 9.8
------------- ----- ------------- -----
Total interest income ................................................... 3,135,148 100.0 2,845,242 100.0 10.6
Interest Expense
Interest-bearing demand .................................................... 70,890 2.3 76,099 2.7 ( 3.2)
Savings and money market savings ........................................... 221,317 7.1 209,608 7.4 16.6
Savings certificates ....................................................... 383,670 12.2 384,360 13.5 7.1
Large denomination certificates ............................................ 84,669 2.7 112,188 3.9 8.1
------------- ----- ------------- -----
Total interest-bearing deposits in domestic offices .................... 760,546 24.3 782,255 27.5 9.4
Interest-bearing deposits in foreign offices ............................... 22,318 .7 14,503 .5 56.4
------------- ----- ------------- -----
Total interest-bearing deposits ........................................ 782,864 25.0 796,758 28.0 11.3
Federal funds purchased and securities sold under repurchase agreements .... 268,155 8.6 159,265 5.7 19.5
Commercial paper ........................................................... 20,587 .7 15,103 .5 33.5
Other short-term borrowed funds ............................................ 29,559 .9 31,827 1.1 28.5
------------- ----- ------------- -----
Total short-term borrowed funds ........................................ 318,301 10.2 206,195 7.3 22.3
Bank notes ................................................................. 203,777 6.5 79,734 2.8 14.9
Other long-term debt ....................................................... 64,064 2.0 46,022 1.6 38.1
------------- ----- ------------- -----
Total long-term debt ................................................... 267,841 8.5 125,756 4.4 25.4
------------- ----- ------------- -----
Total interest expense ................................................. 1,369,006 43.7 1,128,709 39.7 15.4
------------- ----- ------------- -----
Net Interest Income ........................................................ $ 1,766,142 56.3 $ 1,716,533 60.3 6.9
============= ===== ============= =====
Percentage of interest-earning assets:
Interest income ........................................................... 7.50% 7.46%
Interest expense .......................................................... 3.28 2.96
------------- -------------
Net interest income .................................................... 4.22% 4.50%
============= =============
Taxable equivalent adjustment included in interest income:
Loans ..................................................................... $ 52,918 $ 53,899
Securities ................................................................ 52,268 52,426
Trading account assets .................................................... 2,871 2,235
------------- -------------
Total (2) .............................................................. $ 108,057 $ 108,560
============= =============
</TABLE>
87
<PAGE>
- --------------------------------------------------------------------------------
Statistical Summary
- --------------------------------------------------------------------------------
Wachovia Corporation and Subsidiaries
<TABLE>
1998 1997
<S> <C> <C>
Average Yields Earned (taxable equivalent)
Loans:
Commercial .................................................... 7.21% 7.32%
Tax-exempt .................................................... 9.24 8.93
Total commercial ............................................ 7.37 7.54
Direct retail ................................................. 9.39 8.99
Indirect retail ............................................... 8.27 8.56
Credit card ................................................... 13.46 12.92
Other revolving credit ........................................ 11.18 12.27
Total retail ................................................ 11.36 11.17
Construction .................................................. 9.00 9.40
Commercial mortgages .......................................... 8.58 8.34
Residential mortgages ......................................... 7.92 7.99
Total real estate ........................................... 8.31 8.27
Lease financing ............................................... 11.63 9.71
Foreign ....................................................... 6.85 6.93
Total loans ................................................. 8.79 8.79
Securities:
Held-to-maturity:
State and municipal ......................................... 10.92 11.87
Other ....................................................... 7.52 7.95
Total securities held-to-maturity .......................... 7.97 8.61
Available-for-sale ............................................ 6.69 6.71
Total securities ........................................... 6.87 6.94
Interest-bearing bank balances ................................. 8.26 5.89
Federal funds sold and securities purchased under resale
agreements .................................................... 5.52 5.62
Trading account assets ......................................... 4.76 5.38
Total interest-earning assets ............................... 8.33 8.32
Average Rates Paid
Interest-bearing demand ........................................ 1.29% 1.56%
Savings and money market savings ............................... 3.89 3.83
Savings certificates ........................................... 5.46 5.62
Large denomination certificates ................................ 5.42 5.61
Total interest-bearing deposits in domestic offices ......... 4.14 4.34
Interest-bearing deposits in foreign offices ................... 5.59 5.51
Total interest-bearing deposits ............................. 4.25 4.41
Federal funds purchased and securities sold under repurchase
agreements .................................................... 5.18 5.30
Commercial paper ............................................... 5.02 5.06
Other short-term borrowed funds ................................ 5.25 5.57
Total short-term borrowed funds ............................. 5.18 5.32
Bank notes ..................................................... 6.10 6.14
Other long-term debt ........................................... 6.31 6.51
Total long-term debt ........................................ 6.22 6.32
Total interest-bearing liabilities .......................... 4.71 4.85
Interest rate spread ........................................... 3.62 3.47
Net yield on interest-earning assets ........................... 4.24 4.14
Ratios (averages)
Shareholders' equity to:
Total assets .................................................. 8.08% 7.87%
Net loans ..................................................... 11.78 11.57
Deposits ...................................................... 12.98 12.41
Equity and long-term debt ..................................... 45.15 42.54
Return on assets ............................................... 1.37 1.03
Return on shareholders' equity ................................. 16.92 13.08
Return on deposits ............................................. 2.20 1.62
Dividends paid as a percentage of net income ................... 43.68 55.21
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Average Yields Earned (taxable equivalent)
Loans:
Commercial .................................................... 7.13% 7.49% 6.14% 5.42%
Tax-exempt .................................................... 8.95 9.85 9.02 9.12
Total commercial ............................................ 7.44 7.90 6.74 6.27
Direct retail ................................................. 8.93 8.79 7.91 8.45
Indirect retail ............................................... 8.49 8.27 7.82 8.51
Credit card ................................................... 12.03 12.44 11.29 12.00
Other revolving credit ........................................ 12.21 12.68 11.75 11.44
Total retail ................................................ 10.51 10.62 9.68 10.17
Construction .................................................. 9.30 9.82 8.88 7.32
Commercial mortgages .......................................... 8.30 8.63 7.78 7.46
Residential mortgages ......................................... 8.14 8.18 7.77 8.17
Total real estate ........................................... 8.30 8.50 7.86 7.81
Lease financing ............................................... 9.42 8.69 7.83 8.90
Foreign ....................................................... 7.02 7.43 5.70 4.35
Total loans ................................................. 8.59 8.85 7.98 7.92
Securities:
Held-to-maturity:
State and municipal ......................................... 12.26 11.84 12.53 11.75
Other ....................................................... 8.05 7.26 6.96 6.52
Total securities held-to-maturity .......................... 8.83 7.73 7.80 6.95
Available-for-sale ............................................ 6.73 6.73 5.73 5.92
Total securities ........................................... 6.99 7.08 6.46 6.86
Interest-bearing bank balances ................................. 7.91 7.86 4.14 3.21
Federal funds sold and securities purchased under resale
agreements .................................................... 5.38 6.00 4.37 3.31
Trading account assets ......................................... 5.61 6.59 5.28 3.95
Total interest-earning assets ............................... 8.13 8.34 7.50 7.46
Average Rates Paid
Interest-bearing demand ........................................ 1.50% 1.89% 1.75% 1.98%
Savings and money market savings ............................... 3.57 3.66 2.78 2.65
Savings certificates ........................................... 5.69 5.71 4.56 4.59
Large denomination certificates ................................ 5.88 5.83 4.48 4.96
Total interest-bearing deposits in domestic offices ......... 4.32 4.43 3.41 3.49
Interest-bearing deposits in foreign offices ................... 5.28 5.59 4.32 3.11
Total interest-bearing deposits ............................. 4.36 4.47 3.43 3.49
Federal funds purchased and securities sold under repurchase
agreements .................................................... 5.37 5.97 4.36 3.18
Commercial paper ............................................... 4.88 5.48 3.92 3.00
Other short-term borrowed funds ................................ 5.46 6.03 4.24 3.24
Total short-term borrowed funds ............................. 5.35 5.96 4.32 3.17
Bank notes ..................................................... 5.74 6.20 5.61 5.19
Other long-term debt ........................................... 6.50 5.35 4.20 4.63
Total long-term debt ........................................ 5.97 5.97 5.20 4.97
Total interest-bearing liabilities .......................... 4.81 5.01 3.87 3.54
Interest rate spread ........................................... 3.32 3.33 3.63 3.92
Net yield on interest-earning assets ........................... 3.98 4.04 4.23 4.50
Ratios (averages)
Shareholders' equity to:
Total assets .................................................. 8.02% 8.05% 8.19% 8.27%
Net loans ..................................................... 12.31 12.62 13.14 13.92
Deposits ...................................................... 13.07 13.08 13.08 12.11
Equity and long-term debt ..................................... 39.98 42.24 42.52 58.17
Return on assets ............................................... 1.36 1.37 1.34 1.40
Return on shareholders' equity ................................. 16.99 17.00 16.37 16.91
Return on deposits ............................................. 2.22 2.22 2.14 2.05
Dividends paid as a percentage of net income ................... 40.37 39.91 40.77 38.73
</TABLE>
88
<PAGE>
Historical Comparative Data
The following charts present six-year comparative data for Wachovia Corporation
and the median of the 25 largest U. S. bank holding companies based on assets
as of each year-end. The median is representative of the typical bank holding
company within the comparison group.
All historical data is as originally reported, not restated for pooling-
of-interests mergers or acquisitions. Wachovia's results were impacted by
nonrecurring charges taken in 1998 and the 1997 fourth quarter.
Results for 1998 and 1997 on an operating basis are footnoted in the relevant
charts below.
<TABLE>
<CAPTION>
RETURN ON ASSETS
(AVERAGE)
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
WACHOVIA 1.46 1.46 1.45 1.43 1.03 1.37
25 LARGEST U.S. BANKS(MEDIAN) 1.20 1.21 1.21 1.29 1.26 1.18
*Excluding nonrecurring items, the return was 1.39% In 1997 and 1.45% In 1998.
RETURN ON COMMON EQUITY
(AVERAGE)
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
WACHOVIA 17.13 17.41 17.67 17.62 13.08 15.86
25 LARGEST U.S. BANKS(MEDIAN) 16.94 16.10 16.77 17.02 18.53 16.92
*Excluding nonrecurring items, the return was 17.65% In 1997 and 17.99% In 1998.
COMMON EQUITY TO ASSETS
(AVERAGE)
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
WACHOVIA 8.64 8.36 8.22 8.09 7.87 8.08
25 LARGEST U.S. BANKS(MEDIAN) 6.57 6.86 7.00 7.47 7.36 7.61
NET INTERST INCOME* AS A PERCENTAGE
OF AVERAGE EARNING ASSETS
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
WACHOVIA 4.48 4.34 4.16 4.02 4.14 4.24
25 LARGEST U.S. BANKS(MEDIAN) 4.64 4.34 4.45 4.36 4.24 3.97
*Taxable equivalent
NONINTERST EXPENSE AS A PERCENTAGE
OF TOTAL ADJUSTED REVENUES*
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
WACHOVIA 57.05 54.15 54.23 52.21 62.29 55.06
25 LARGEST U.S. BANKS(MEDIAN) 62.54 61.88 61.72 60.91 60.88 64.20
* Excluding sales of securities transactions, mortgage servicing portfolio and
subsidiary.
** Excluding nonrecurring items, the ratio was 53.19% in 1997 and 52.70% in
1998.
NET LOAN LOSSES TO AVERAGE LOANS
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
WACHOVIA .31 .29 .37 .49 .67 .67
25 LARGEST U.S. BANKS(MEDIAN) .75 .39 .44 .53 .63 .49
NONPERFORMING ASSETS TO YEAR-END LOANS
AND FORECLOSED PROPERTY
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
WACHOVIA .67 .39 .24 .25 .29 .40
25 LARGEST U.S. BANKS(MEDIAN) 1.90 1.03 .80 .76 .62 .60
</TABLE>
89
<PAGE>
Stock Data
The following charts present high and low trading ranges for the corporation's
common stock, price to earnings ratios and data on cash dividends per share and
cash dividend payouts for the most recent six years. Stock price trading ranges
and price to earnings ratios for the most recent eight quarters also are
provided.
The Five-Year Total Return chart compares Wachovia, the S&P 500 Index and the
Keefe, Bruyette & Woods (KBW) 50 Total Return Index in stock price appreciation
and dividends, assuming quarterly reinvestment, from the base period December
31, 1993 through year-end 1998. The KBW 50 Index is a market capitalization
weighted measure of total return for 50 of the largest U. S. banking companies
including all money center and most regional banks.
Wachovia's common stock is listed on the New York Stock Exchange under the
trading symbol WB. The corporation is a member of the Standard & Poor's 500
Index of stocks and the S&P 500 Major Regional Banks Industry Group.
<TABLE>
<CAPTION>
COMMON STOCK PRICE RANGE* NYSE SYMBOL: WB
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
HIGH 40.50 35.38 48.25 60.25 83.94 96.81
LOW 31.88 30.13 32.00 39.63 53.50 72.75
* Prices represent those of Wachovia Corporation prior to merger with Central
Fidelity Banks, Inc.
CASH DIVIDENDS PER SHARE*
FIVE-YEAR COMPOUND GROWTH RATE=10.9%
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
1.11 1.23 1.38 1.52 1.68 1.86
* Dividends per share represent those paid by Wachovia Corporation prior to
merger with Central Fidelity Banks, Inc.
COMMON STOCK PRICE/EARNINGS RATIOS*
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
HIGH 14.4 11.3 13.8 15.8 28.6 23.2
LOW 11.3 9.7 9.1 10.4 18.2 17.4
* Amounts base on high and low common stock prices for each year and annual net
income per diluted share as originally reported by Wachovia Corporation.
CASH DIVIDEND PAYOUT*
(MILLIONS)
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
38.7% 40.8% 39.9% 40.4% 55.2% 43.7%
230.40 254.40 282.50 305.70 327.70 381.80
</TABLE>
* Dividends include amounts paid by pooled companies.
% Payout ratio (total dividends as a percentage of net income)
Common Stock Data -- Per Share Table 19
- --------------------------------------------------------------------------------
<TABLE>
1998 1997 1996 1995 1994 1993
------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Market value: *
End of year ..................... $ 87.44 $ 81.13 $ 56.50 $ 45.75 $ 32.25 $ 33.50
High ............................ 96.81 83.94 60.25 48.25 35.38 40.50
Low ............................. 72.75 53.50 39.63 32.00 30.13 31.88
Book value ** .................... 26.30 25.13 22.90 22.08 18.79 17.98
Dividend * ....................... 1.86 1.68 1.52 1.38 1.23 1.11
Price/earnings ratio *** ......... 20.9 x 27.6 x 14.8 x 13.1 x 10.3 x 11.9 x
</TABLE>
* Information for years before 1997 represents that of Wachovia Corporation
prior to merger with Central Fidelity Banks, Inc.
** Book value per share has been restated to reflect the merger with Central
Fidelity Banks, Inc., as a pooling-of-interests.
*** Price earnings ratio is based on end-of-year stock price and net income per
diluted share. Information for years before 1997 represents that of
Wachovia Corporation prior to merger with Central Fidelity Banks, Inc.
Excluding the after-tax impact of nonrecurring charges, the 1998 and 1997
price earnings ratios were 19.6x and 20.5x, respectively.
90
<PAGE>
QUARTERLY COMMON STOCK PRICE RANGE*
<TABLE>
<CAPTION>
1997 1998
1st Q 2nd Q 3rd Q 4th Q 1st Q 2nd Q 3rd Q 4th Q
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HIGH 64.63 66.88 72.38 83.94 85.75 90.19 90.94 96.81
LOW 54.50 53.50 58.19 71.06 72.75 77.38 72.88 80.88
* Prices represent those of Wachovia Corporation Prior to merger with Central
Fidelity Banks, Inc.
QUARTERLY COMMON STOCK PRICE/EARNINGS RATIOS*
1997 1998
1st Q 2nd Q 3rd Q 4th Q 1st Q 2nd Q 3rd Q 4th Q
----- ----- ----- ----- ----- ----- ----- -----
HIGH 16.4 16.7 17.8 27.4 28.6 30.3 29.9 23.2
LOW 13.9 13.3 14.3 23.2 24.3 26.0 24.0 19.3
</TABLE>
* Amounts based on high and low common staock prices for each period and net
income per diluted share for the 12 months ended on the last day of each
period as originally reported by Wachovia Corporation.
FIVE-YEAR TOTAL RETURN*
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
WACHOVIA 100.00 99.95 147.05 187.65 276.57 304.70
S&P 500 INDEX 100.00 101.32 139.39 171.40 228.58 293.91
KBW 50 INDEX 100.00 94.90 152.00 215.01 214.32 340.34
* Base period 12/31/93=100. Dividends reinvested. Data for the S&P 500 Index
and KBW 50 Index is weighted by market capitalization.
91
<PAGE>
1998 Form 10-K
United States Securities and Exchange Commission
Washington, DC 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number 1-9021
Wachovia Corporation
- --------------------------------------------------------------------------------
Incorporated in the State of North Carolina
IRS Employer Identification Number 56-1473727
Address and Telephone:
100 North Main Street, Winston-Salem, North Carolina, 27101,
(336) 770-5000
191 Peachtree Street NE, Atlanta, Georgia, 30303, (404) 332-5000
Securities registered pursuant to Section 12(b) of the Act: Common Stock --
$5.00 par value, which is registered on the New York Stock Exchange.
As of February 4, 1999, Wachovia Corporation had 203,240,721 shares of common
stock outstanding. The aggregate market value of Wachovia Corporation common
stock held by nonaffiliates on February 4, 1999 was approximately $17.241
billion and the number of shares held by nonaffiliates was 203,137,636.
Wachovia Corporation (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and (2) has been subject to such filing requirements for the past 90
days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Documents Incorporated by Reference
- --------------------------------------------------------------------------------
Portions of the Wachovia Corporation's Proxy Statement for its 1999 Annual
Shareholders' Meeting, which will be filed with the Commission by April 23,
1999 are incorporated by reference into Part III of this report. Portions of
the annual report to shareholders for the year ended December 31, 1998 are
incorporated by reference into Parts I and II as indicated in the table below.
Except for parts of the Wachovia Corporation Annual Report expressly
incorporated herein by reference, this Annual Report is not to be deemed filed
with the Securities and
Exchange Commission.
<TABLE>
Part I Page
<S> <C>
Item 1 Business:
Description of Business ................3, 26-59, 89-91, 95-96
Subsidiaries of Wachovia
Corporation ................................................93
Average Balance Sheets/
Interest/Rates ...............................84-85, 86-87, 88
Volume and Rate
Variance Analysis ......................................32, 59
Securities .............................................34, 69
Loans ..........................................33, 40, 70, 83
Allowance for Loan Losses
and Loan Loss Experience ............................41-43, 59
Deposits .................................35-36, 71, 84-85, 88
Return on Equity and Assets ............................26, 88
Short-Term Borrowed Funds ..................................36
Item 2 Properties .................................................93
Item 3 Legal Proceedings ..........................................77
Item 4 Submission of Matters to a Vote
of Security Holders ......................................None
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters .........................90-91
Part II -- CONTINUED PAGE
Item 6 Selected Financial Data ....................................26
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations ........................26-59, 95-96
Item 7A Quantitative and Qualitative
Disclosures About Market Risk ...........................37-39
Item 8 Financial Statements and
Supplementary Data ......................................60-82
Item 9 Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure .................................None
Part III
Item 10 Directors and Executive Officers
of the Registrant .............................Proxy Statement
Item 11 Executive Compensation ........................Proxy Statement
Item 12 Security Ownership of
Certain Beneficial Owners
and Management ................................Proxy Statement
Item 13 Certain Relationships and
Related Transactions ..........................Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K ....................................94
</TABLE>
92
<PAGE>
Subsidiaries of Wachovia Corporation
- --------------------------------------------------------------------------------
The following table sets forth the subsidiaries of Wachovia Corporation on
December 31, 1998. The financial statements of all subsidiaries are included in
the consolidated statements of Wachovia Corporation and subsidiaries.
<TABLE>
<CAPTION>
Organized under the
laws of:
<S> <C>
Wachovia Bank, N.A. the United States
Wachovia International Banking Corporation the United States*
Wachovia Leasing Corporation North Carolina
Wachovia Insurance Services, Inc. North Carolina
Greenville Agricultural Credit Corporation North Carolina
Wachovia Mortgage Company North Carolina
New Salem, Inc. North Carolina
Wachovia Auto Leasing Company Georgia
WMCS, Inc. Georgia
Wachovia Capital Associates, Inc. Georgia
Wachovia Insurance Services of South
Carolina, Inc. South Carolina
First National Properties, Inc. South Carolina
Mulberry Corporation Virginia
G.C. Leasing, Inc. Virginia
North Hart Run, Inc. Virginia
New Salem of Virginia, Inc. Virginia
S. Brooke, Corporation Virginia
Central Fidelity Properties, Inc. Virginia
Central Fidelity Services, Inc. Virginia
CFB Insurance Agency, Inc. Virginia
Jefferson Properties, Inc. Virginia
Southern Provident Life Insurance Company Arizona
Atlantic Savings Bank, FSB the United States
Atlantic Mortgage Corporation of South
Carolina, Inc. South Carolina
Wachovia Investments, Inc. North Carolina
Wachovia Corporate Services, Inc. North Carolina
Wachovia Operational Services Corporation North Carolina
Wachovia Trust Services, Inc. North Carolina
</TABLE>
<TABLE>
<CAPTION>
Organized under the
laws of:
<S> <C>
The First National Bank of Atlanta (Delaware) the United States
Wachovia Bank Card Services, Inc. Delaware
Financial Life Insurance Company of Georgia Georgia
The Wachovia Insurance Agency of Georgia,
Inc. Georgia
First Atlanta Lease Liquidating Corporation Georgia
Wachovia Corporation of Florida Florida
Wachovia Corporation of Alabama Alabama
Wachovia Corporation of Tennessee Tennessee
Wachovia Capital Markets, Inc. North Carolina
Wachovia Capital Investments, Inc. Georgia
Wachovia International Capital Corporation Georgia
WSH Holdings, Ltd. Cayman Islands,
British West Indies
Banco Wachovia Brazil
Wachovia International Servicos Limitada Brazil
Wachovia Capital Trust I Delaware
Wachovia Capital Trust II Delaware
Wachovia Capital Trust V Delaware
Central Fidelity Capital Trust I Delaware
Wachovia Community Development
Corporation North Carolina
First Atlanta Corporation Georgia
Hunt, DuPree, Rhine and Associates, Inc. South Carolina
Parchment Finance 1 Corporation Delaware
Retirement Plans Securities, Inc. South Carolina
* Organized under Chapter 25(a) of the Federal Reserve Act of the United
States
</TABLE>
Properties
- --------------------------------------------------------------------------------
The principal offices of the Corporation and Wachovia Bank, N.A., are located
at 100 North Main Street, Winston-Salem, North Carolina, where the company owns
and occupies approximately 545,000 square feet of office space. Offices are
also maintained at 191 Peachtree Street, N.E., Atlanta, Georgia, under a
382,000 square foot office space lease expiring in 2008.
The table on page 3 lists the number of banking offices. The Corporation's
banking subsidiaries own in fee 459 offices while the others are leased or are
located on leased land. The approximate lease terms range from one to fifty
years on these properties. In addition, the Corporation's banking subsidiaries
own in fee or lease a number of multistory office buildings which house
supporting services. Other subsidiaries of the Corporation maintain leased
office space in cities in which they conduct their respective operations.
93
<PAGE>
Exhibits, Financial Statement Schedules and Reports on Form 8-K
- --------------------------------------------------------------------------------
Exhibits -- The index of exhibits has been filed as separate pages of the 1998
Form 10-K. Copies of the exhibit list or of Exhibits are available via EDGAR 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.
Financial Statement Schedules -- Omitted due to inapplicability or because
required information is shown in the Financial Statements or the Notes thereto.
Financial Data Schedule (for SEC purposes only).
Reports on Form 8-K -- A Current Report on Form 8-K dated October 8,1998 was
filed with the Securities and Exchange Commission to report certain agreements
with third parties to underwrite the issuance of $250 million in Senior
Floating-Rate Notes due September 28, 2000 and $300 million in Senior
Floating-Rate Notes due October 9, 2001. A Current Report on Form 8-K dated
October 28, 1998 was filed with the Securities and Exchange Commission
announcing an Agreement and Plan of Merger by and between Wachovia Corporation
and Interstate/Johnson Lane, Inc.
Signatures
- --------------------------------------------------------------------------------
Pursuant to the requirements to Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on January 22, 1999.
WACHOVIA CORPORATION
ROBERT S. McCOY, JR.
- --------------------
Robert S. McCoy, Jr.
Senior Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on
January 22, 1999.
L. M. BAKER, JR.
- ----------------
L. M. Baker, Jr.
Chairman of the Board, President
and Chief Executive Officer
ROBERT S. McCOY, JR.
- --------------------
Robert S. McCoy, Jr.
Senior Executive Vice President
and Chief Financial Officer
DONALD K. TRUSLOW
- -----------------
Donald K. Truslow
Executive Vice President,
Comptroller and Treasurer
The Directors of Wachovia Corporation (listed below) have executed a power of
attorney appointing Kenneth W. McAllister, their attorney-in-fact, empowering
him to sign this report on their behalf:
James S. Balloun
James F. Betts
Peter C. Browning
John T. Casteen III
John L. Clendenin
Lawrence M. Gressette, Jr.
Thomas K. Hearn, Jr.
George W. Henderson, III
W. Hayne Hipp
Robert A. Ingram
George R. Lewis
Elizabeth Valk Long
John G. Medlin, Jr.
Lloyd U. Noland, III
Sherwood H. Smith, Jr.
John C. Whitaker, Jr.
KENNETH W. McALLISTER
- ---------------------
Kenneth W. McAllister
Attorney-in-Fact
94
<PAGE>
Supervision and Regulation
General
- --------------------------------------------------------------------------------
Wachovia Corporation is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, and is subject to the supervision of,
and regulation by, the Board of Governors of the Federal Reserve System (FRB).
State banking commissions also serve in a supervisory and regulatory capacity
with respect to bank holding company activities. The corporation is also a
savings and loan holding company registered under the Home Owners' Loan Act of
1933, as amended by the Financial Institutions Reform, Recovery and Enforcement
Act of 1989, and is subject to the supervision and examination of the Office of
Thrift Supervision (OTS). Wachovia Bank, N.A. (WBNA), and The First National
Bank of Atlanta (FNBA) are subject to supervision and examination by the Office
of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance
Corporation (FDIC) and Atlantic Savings Bank, F.S.B. (Atlantic) is subject to
supervision and examination by the OTS.
The corporation's nonbanking subsidiaries are subject to a variety of state and
federal laws. For example, the corporation's discount brokerage and investment
advisory subsidiary is subject to supervision and regulation by the Securities
and Exchange Commission, the National Association of Securities Dealers, Inc.,
state securities regulators and the various exchanges through which it conducts
business. The corporation's insurance subsidiaries are subject to the insurance
laws of the states in which they are active. All nonbanking subsidiaries are
supervised by the FRB.
The federal banking agencies have broad enforcement powers over depository
institutions, including the power to terminate deposit insurance, to impose
substantial fines and other civil and criminal penalties, and to appoint a
conservator or receiver if any of a number of conditions are met. The federal
banking agencies also have broad enforcement powers over bank holding
companies, including the power to impose substantial fines and other civil and
criminal penalties.
Almost every aspect of the operations and financial condition of the
corporation's banking subsidiaries is subject to extensive regulation and
supervision and to various requirements and restrictions under federal and
state law, including requirements governing capital adequacy, liquidity,
earnings, dividends, reserves against deposits, management practices,
branching, loans, investments and the provision of services. The activities and
operations of the corporation also are subject to extensive federal supervision
and regulation which, among other things, limit nonbanking activities, impose
minimum capital requirements, and require approval to acquire 5% or more of any
class of voting shares or substantially all of the assets of a bank or other
company. In addition to the impact of regulation, the corporation and its
subsidiaries may be significantly affected by legislation which can change
banking statutes in substantial and unexpected ways, and by the actions of the
FRB as it attempts to control the money supply and credit availability in order
to influence the economy.
There continue to be a number of legislative and regulatory proposals that
would have an impact on the operation of the corporation and its subsidiaries.
While the potential effects of legislation currently under consideration cannot
be measured with any degree of certainty, the corporation is unaware of any
pending legislative reforms or regulatory activities which would materially
affect its financial position or operating results in the foreseeable future.
Payment of Dividends and Other Restrictions
- --------------------------------------------------------------------------------
The corporation is a legal entity separate and distinct from its subsidiaries.
There are various legal and regulatory limitations on the extent to which the
corporation's subsidiaries, including its bank and savings and loan
subsidiaries, can finance or otherwise supply funds to the corporation.
The principal source of the corporation's cash revenues is dividends from its
subsidiaries and there are certain legal restrictions under federal and state
law on the payment of dividends by such subsidiaries. The amount of dividends
that may be paid by WBNA and FNBA without regulatory approval, is limited to
the lessor of (i) its net profits for the current year combined with its
retained net profits for the preceeding two calendar years or (ii) its
cumulative undivided profits. The relevant regulatory agencies also have
authority to prohibit a bank holding company, which would include the
corporation, or a national banking association from engaging in what, in the
opinion of such regulatory body, constitutes an unsafe or unsound practice in
conducting its business. The payment of dividends could, depending upon the
financial condition of the subsidiary, be deemed to constitute an unsafe or
unsound practice. Under applicable law, as a savings bank, Atlantic must give
the OTS 30 days prior notice of any proposed payment of dividends.
WBNA and FNBA and their respective subsidiaries are subject to limitations
under Section 23A of the Federal Reserve Act with respect to extensions of
credit to, investments in, and certain other transactions with, the corporation
and its other subsidiaries. Furthermore, loans and extensions of credit also
are subject to various collateral requirements.
Capital Adequacy
- --------------------------------------------------------------------------------
The federal bank regulatory agencies have adopted minimum risk-based and
leverage capital guidelines for United States banking organizations. The
minimum required risk-based capital ratio of qualifying total capital to
risk-weighted assets (including certain off-balance sheet items, such as
standby letters of credit) is 8%, of which 4% must consist of Tier I capital.
The minimum required leverage capital
95
<PAGE>
ratio (Tier I capital to average total assets) is 3% for banking organizations
that meet certain specified criteria, including that they have the highest
regulatory rating. A higher leverage ratio may apply under certain
circumstances. The corporation's capital ratios are discussed in greater detail
on pages 50 and 51.
Failure to meet capital guidelines can subject a banking organization to a
variety of enforcement remedies, including additional substantial restrictions
on its operations and activities, termination of deposit insurance by the FDIC,
and under certain conditions the appointment of a receiver or conservator.
Federal banking statutes establish five capital categories for depository
institutions ("well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized") and impose
significant restrictions on the operations of an institution that is not at
least adequately capitalized. Under certain circumstances, an institution may
be downgraded to a category lower than that warranted by its capital levels and
subjected to the supervisory restrictions applicable to institutions in the
lower capital category. A depository institution is generally prohibited from
making capital distributions (including paying dividends) or paying management
fees to a holding company if the institution would thereafter be under
capitalized. Adequately capitalized institutions may accept brokered deposits
only with a waiver from the FDIC, while undercapitalized institutions may not
accept, renew, or roll over brokered deposits.
An undercapitalized depository institution is also subject to restrictions in a
number of areas, including asset growth, acquisitions, branching, new lines of
business and borrowing from the Federal Reserve System. In addition, an
undercapitalized depository institution is required to submit a capital
restoration plan. A depository institution's holding company must guarantee the
capital plan up to an amount equal to the lesser of 5% of the depository
institution's assets at the time it becomes undercapitalized or the amount
needed to restore the capital of the institution to the levels required for the
institution to be classified as adequately capitalized at the time the
institution fails to comply with the plan and any such guarantee would be
entitled to a priority of payment in bankruptcy. A depository institution is
treated as if it is significantly undercapitalized if it fails to submit a
capital plan that (i) is based on realistic assumptions and (ii) is likely to
succeed in restoring the depository institution's capital.
Significantly undercapitalized depository institutions may be subject to a
number of additional significant requirements and restrictions, including
requirements to sell sufficient voting stock to become adequately capitalized,
to replace or improve management, to reduce total assets, to cease acceptance
of correspondent bank deposits, to restrict senior executive compensation and
to limit transactions with affiliates. Critically undercapitalized depository
institutions are further subject to restrictions on paying principal or
interest on subordinated debt, making investments, expanding, acquiring or
selling assets, extending credit for highly leveraged transactions, paying
excessive compensation, amending their charters or bylaws and making any
material changes in accounting methods. In general, a receiver or conservator
must be appointed for a depository institution within 90 days after the
institution is deemed to be critically undercapitalized.
Support of Subsidiary Banks
- --------------------------------------------------------------------------------
Under FRB policy, the corporation is expected to act as a source of financial
strength to, and to commit resources to support its banking subsidiaries. This
support may be required at times when, absent such FRB policy, the corporation
may not be inclined to provide it. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
A depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of a commonly controlled FDIC insured depository institution
or any assistance provided by the FDIC to any commonly controlled FDIC insured
depository institution "in danger of default." Default is defined generally as
the appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. Liability
for the losses of commonly controlled depository institutions can lead to the
failure of some or all depository institutions in a holding company structure,
if the remaining institutions are unable to pay the liability assessed by the
FDIC. Any obligation or liability owed by a subsidiary bank to its parent
company is subordinate to the subsidiary bank's cross-guarantee liability for
losses of commonly controlled depository institutions.
FDIC Insurance Assessments
- --------------------------------------------------------------------------------
WBNA and Atlantic are subject to FDIC deposit insurance assessments. The FDIC
has authority to raise or lower assessment rates on insured deposits in order
to achieve certain designated reserve ratios in the Bank Insurance Fund (BIF)
and the Savings Association Insurance Fund (SAIF) and to impose special
additional assessments. The FDIC applies a risk-based assessment system that
places each financial institution into one of nine risk categories, based on
capital levels and supervisory criteria and an evaluation of the bank's risk to
the BIF or SAIF, as applicable. The current FDIC premium schedule for the SAIF
and the BIF ranges from 0% to 0.27%.
96
<PAGE>
Directors and Officers
Directors of Wachovia Corporation and Wachovia Bank, N.A.
- --------------------------------------------------------------------------------
L.M. Baker, Jr.
Chairman, President and
Chief Executive Officer
James S. Balloun
Chairman, President and
Chief Executive Officer
National Service Industries, Inc.
James F. Betts
Consultant and
Former President
USLIFE Corporation
Peter C. Browning
President and
Chief Executive Officer
Sonoco Products Company
John T. Casteen III
President
University of Virginia
John L. Clendenin
Chairman Emeritus
BellSouth Corporation
Lawrence M. Gressette, Jr.
Chairman of the
Executive Committee
SCANA Corporation
Thomas K. Hearn, Jr.
President
Wake Forest University
George W. Henderson, III
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
Sherwood H. Smith, Jr.
Chairman of the Board
Carolina Power & Light Company
John C. Whitaker, Jr.
Chairman and
Chief Executive Officer
Inmar Enterprises, Inc.
Principal Corporate Officers of Wachovia Corporation
- --------------------------------------------------------------------------------
L.M. Baker, Jr.
Chairman, President and
Chief Executive Officer
Mickey W. Dry
Senior Executive Vice President
Chief Credit Officer
Walter E. Leonard, Jr.
Senior Executive Vice President
Operations/Technology
Kenneth W. McAllister
Senior Executive Vice President
General Counsel/Administrative Services
Robert S. McCoy, Jr.
Senior Executive Vice President
Chief Financial Officer
G. Joseph Prendergast
Senior Executive Vice President
General Banking
97
<PAGE>
Shareholder Information
Corporate Headquarters
Wachovia Corporation
100 North Main Street 191 Peachtree Street, NE
Winston-Salem, NC 27150 Atlanta, GA 30303
Corporate Mailing Addresses and
Telephone Numbers
Wachovia Corporation
P.O. Box 3099 P.O. Box 4148
Winston-Salem, NC 27150 Atlanta, GA 30302
336-770-5000 404-332-5000
Notice of Annual Meeting
The Annual Meeting of Shareholders of Wachovia Corporation will be held Friday,
April 23, 1999 at 10:30 a.m. EDT, in the Wachovia Park Building, 101 North
Cherry Street, Winston-Salem, North Carolina. All shareholders are invited to
attend.
Common Stock
Wachovia common stock trades on the New York Stock Exchange under the ticker
symbol WB.
Transfer Agent
Wachovia Bank, N.A.
Winston-Salem, NC
1-800-633-4236
Correspondence and transfer requests should be sent to the following:
Wachovia Shareholder Services
P.O. Box 8218
Boston, MA 02266-8218
Shareholder Account Assistance
Shareholders who wish to change the address or ownership of stock, report lost
certificates, eliminate duplicate mailings or for other account reregistration
procedures and assistance should contact the Transfer Agent at the address or
phone number above.
Dividend Services
Through the Dividend Reinvestment and Common Stock Purchase Plan record
shareholders can invest dividends as well as optional cash payments in
additional shares without payment of brokerage commissions or service charges.
Direct Deposit of Cash Dividends is a timesaving method of receiving
cash dividends through automatic deposit to an account at any financial
institution that participates in an Automated Clearing House.
Wachovia Shareholder Direct
Shareholders and other interested individuals can access timely corporate
information on Wachovia, such as earnings and dividend announcements, by
calling 1-888-4WB-NEWS (1-888-492-6397). The toll-free service is available
24-hours-a-day, 7-days-a-week.
Internet Address
The corporation's Internet address is:
www.wachovia.com
Investor Contact
Robert S. McCoy, Jr.
Chief Financial Officer
336-732-5926
James C. Mabry
Senior Vice President
Investor Relations
336-732-5788
Winston-Salem, NC 27150
Shareholder Relations Contact
H. Jo Barlow
Vice President
336-732-5787
Winston-Salem, NC 27150
Independent Auditors
Ernst & Young LLP
Credit Ratings
December 31, 1998
<TABLE>
<CAPTION>
Moody's Standard & Poor's
--------- ------------------
<S> <C> <C>
Wachovia Corporation
Senior debt Aa3 AA-
Subordinated debt A1 A+
Commercial paper P-1 A-1+
Wachovia Bank, N.A.
Long-term deposits Aa2 AA
Short-term deposits P-1 A-1+
</TABLE>
Wachovia Bank's global bank notes are rated the same as short- and long-term
deposits.
98
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8: Nos. 2-99538, 33-34386, 33-35357, 33-54094, 33-53325, 333-02239,
333-32255, 333-36889, 333-37339, 333-45099; Form S-3: Nos. 33-2232, 333-06319,
333-59165 and Form S-4: No. 333-68823) of Wachovia Corporation and in the
related prospectuses of our report dated January 14, 1999, with respect to the
consolidated financial statements of Wachovia Corporation incorporated by
reference in this Annual Report (Form 10-K) for the year ended December 31,
1998.
Ernst & Young LLP
Winston-Salem, North Carolina
March 26, 1999
EXHIBIT 23.2
Consent of Independent Auditors
The Board of Directors
Wachovia Corporation:
We consent to the incorporation by reference in the Registration Statements
(Form S-8: Nos. 2-99538, 33-34386, 33-35357, 33-54094, 33-53325, 333-02239,
333-32255, 333-36889, 333-37339, 333-45099; Form S-3: Nos. 33-2232, 333-06319,
333-59165 and Form S-4: No. 333-68823) of Wachovia Corporation of our report
dated January 20, 1998, relating to the consolidated balance sheet of Central
Fidelity National Bank and subsidiaries as of December 31, 1997, and the related
consolidated statements of income, cash flows and changes in shareholder's
equity for the year then ended, and of our report dated January 15, 1997,
relating to the consolidated statements of income, cash flows and changes in
shareholders' equity of Central Fidelity Banks, Inc. and subsidiaries for the
year ended December 31, 1996, which reports appear in the December 31, 1998
annual report on Form 10-K of Wachovia Corporation.
KPMG LLP
Richmond, Virginia
March 26, 1999
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that we, the undersigned directors of
Wachovia Corporation, and each of us, do hereby make, constitute and appoint
Kenneth W. McAllister and William M. Watson, Jr., and each of them (either of
whom may act without the consent or joinder of the other), our attorneys-in-fact
and agents with full power of substitution for us and in our name, place and
stead, in any and all capacities, to execute for us and in our behalf the Annual
Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1998
and any and all amendments to the foregoing Report and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as we might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents and/or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, we the undersigned have executed this Power of
Attorney this 22nd day of January 1999.
L. M. Baker, Jr. James S. Balloun
- -------------------------------- ------------------------------
L. M. Baker, Jr. James S. Balloun
James F. Betts Peter C. Browning
- -------------------------------- ------------------------------
James F. Betts Peter C. Browning
John T. Casteen III John L. Clendenin
- -------------------------------- ------------------------------
John T. Casteen III John L. Clendenin
Lawrence M. Gressette, Jr. Thomas K. Hearn, Jr.
- -------------------------------- ------------------------------
Lawrence M. Gressette, Jr. Thomas K. Hearn, Jr.
George W. Henderson, III W. Hayne Hipp
- -------------------------------- ------------------------------
George W. Henderson, III W. Hayne Hipp
Robert A. Ingram George R. Lewis
- -------------------------------- ------------------------------
Robert A. Ingram George R. Lewis
Lisa Valk Long John G. Medlin, Jr.
- -------------------------------- ------------------------------
Lisa Valk Long John G. Medlin, Jr.
Lloyd U. Noland, III Sherwood H. Smith, Jr.
- -------------------------------- ------------------------------
Lloyd U. Noland, III Sherwood H. Smith, Jr.
John C. Whitaker, Jr.
- --------------------------------
John C. Whitaker, Jr.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,800,265
<INT-BEARING-DEPOSITS> 109,983
<FED-FUNDS-SOLD> 675,470
<TRADING-ASSETS> 664,812
<INVESTMENTS-HELD-FOR-SALE> 7,983,648
<INVESTMENTS-CARRYING> 1,383,607
<INVESTMENTS-MARKET> 1,442,126
<LOANS> 45,719,222
<ALLOWANCE> 547,992
<TOTAL-ASSETS> 64,122,842
<DEPOSITS> 40,994,729
<SHORT-TERM> 8,735,062
<LIABILITIES-OTHER> 1,458,092
<LONG-TERM> 7,596,727
0
0
<COMMON> 1,014,931
<OTHER-SE> 4,323,301
<TOTAL-LIABILITIES-AND-EQUITY> 64,122,842
<INTEREST-LOAN> 3,873,404
<INTEREST-INVEST> 708,553
<INTEREST-OTHER> 83,288
<INTEREST-TOTAL> 4,665,245
<INTEREST-DEPOSIT> 1,359,705
<INTEREST-EXPENSE> 2,314,213
<INTEREST-INCOME-NET> 2,351,032
<LOAN-LOSSES> 299,480
<SECURITIES-GAINS> 20,442
<EXPENSE-OTHER> 1,996,332
<INCOME-PRETAX> 1,303,781
<INCOME-PRE-EXTRAORDINARY> 874,170
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 874,170
<EPS-PRIMARY> 4.26<F1>
<EPS-DILUTED> 4.18
<YIELD-ACTUAL> 4.24
<LOANS-NON> 157,118
<LOANS-PAST> 136,807
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 544,723
<CHARGE-OFFS> 358,189
<RECOVERIES> 59,365
<ALLOWANCE-CLOSE> 547,992
<ALLOWANCE-DOMESTIC> 502,352
<ALLOWANCE-FOREIGN> 6,342
<ALLOWANCE-UNALLOCATED> 39,298
<FN>
EPS-BASIC
</FN>
</TABLE>
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
Shareholder of Central Fidelity National Bank
and subsidiaries:
We have audited the consolidated balance sheet of Central Fidelity National Bank
and subsidiaries (the "Company") as of December 31, 1997, and the related
consolidated statements of income, cash flows and changes in shareholder's
equity for the year then ended (not presented separately herein). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Central Fidelity
National Bank and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG LLP
Richmond, Virginia
January 20, 1998
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Central Fidelity Banks, Inc.:
We have audited the consolidated statements of income, cash flows and changes in
shareholders' equity of Central Fidelity Banks, Inc. and subsidiaries (the
"Company") for the year ended December 31, 1996 (not presented separately
herein). These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Central Fidelity Banks, Inc. and subsidiaries for the year ended December 31,
1996 in conformity with generally accepted accounting principles.
KPMG LLP
Richmond, Virginia
January 15, 1997
