1
____________________________________________________________________________________________________________________________________
1995 FORM 10-Q
United States Securities and Exchange Commission
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1995
Commission File Number 1-9021
WACHOVIA CORPORATION
Incorporated in the State of North Carolina
IRS Employer Identification Number 56-1473727
Address and Telephone:
301 North Main Street, Winston-Salem, North Carolina 27150,
(910) 770-5000
191 Peachtree Street NE, Atlanta, Georgia 30303, (404) 332-5000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock -- $5.00 par value, which is registered on the New York
Stock Exchange.
As of March 31, 1995, Wachovia Corporation had 171,207,470
shares of common stock outstanding.
Wachovia Corporation has (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the quarterly report to shareholders for the
quarter ended March 31, 1995 are incorporated by reference into Parts
I and II as indicated in the table below. Except for parts of the
Wachovia Corporation Quarterly Report expressly incorporated herein by
reference, this Quarterly Report is not to be deemed filed with the
Securities and Exchange Commission.
PART I PAGE
Item 1 FINANCIAL INFORMATION
Selected Period-End Data . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . 3
Common Stock Data-Per Share . . . . . . . . . . . . . . . 3
Consolidated Statements of Condition . . . . . . . . . . 22
Consolidated Statements of Income . . . . . . . . . . . . 23
Consolidated Statements of
Shareholders' Equity . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Cash Flows . . . . . . . . . . 25
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . 5-21
PART II
Item 6 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) Exhibit 11: "Computation of Earnings per Common Share," is
presented as Table 3 on page 7 of this report.
Exhibit 19: "Unaudited Consolidated Financial Statements,"
listed in Part I, Item 1 do not include all information and
footnotes required under generally accepted accounting
principles. However, in the opinion of management, the profit
and loss information presented in the interim financial
statements reflects all adjustments necessary to present
fairly the results of operations for the periods presented.
Adjustments reflected in the first quarter of 1995 figures
are of a normal, recurring nature. The results of operations
shown in the interim statements are not necessarily indicative
of the results that may be expected for the entire year.
Exhibit 27: Financial Data Schedule (for SEC purposes only)
b) Reports on Form 8-K: No reports on Form 8-K were filed during
the three months ended March 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WACHOVIA CORPORATION
May 15, 1995 ROBERT S. McCOY, JR. May 15, 1995 JOHN C. McLEAN, JR.
-------------------- -------------------
Robert S. McCoy, Jr. John C. McLean, Jr.
Executive Vice President Comptroller
and Chief Financial Officer
2
/1/ REPORT TO SHAREHOLDERS AND FORM 10-Q FOR THE PERIOD ENDING MARCH 31, 1995
WACHOVIA
____________________________________________________________________________________________________________________________________
Dear Wachovia Shareholder:
During the first quarter, the economy showed signs of slowing from the brisk
pace of 1994 while price inflation remained moderate. Banking benefitted from
continued good loan demand, but business competition remained intense. Wachovia
achieved strong and sound earnings in this environment while continuing to
assess and implement strategies for future growth.
Net income per fully diluted share was $.82, up 14.3 percent from $.72 a year
earlier. Net income was $142.2 million compared with $124.8 million and
represented excellent annualized returns of 17.5 percent on shareholders'
equity and 1.46 percent on assets.
Average interest-earning assets increased $2.863 billion or 9 percent with
loans accounting for substantially all the growth. Average loans were up
$3.209 billion or 13.9 percent, led by commercial loans, credit cards and
commercial mortgages. Average loans expanded $929 million or 3.7 percent from
the fourth quarter of 1994.
Average interest-bearing liabilities were higher by $2.906 billion or 11
percent. Funding growth primarily came from medium- and short-term bank notes
with deposits showing modest gains. In March, the corporation successfully
attracted over $1 billion in deposits in a one-day CD sale at selected branch
offices and through access to Wachovia On-Call, the 24-hour telephone sales and
service center.
Taxable equivalent net interest income rose $30.5 million or 8.9 percent,
pushed upward by increased loans outstanding, particularly in the commercial
area. The net yield on interest-earning assets was down 1 basis point both year
over year and from the fourth quarter of 1994 with the average rate paid
increasing more than the average rate earned. Both loan and deposit pricing
competition should continue throughout the remainder of the year, intensifying
downward pressure on the interest rate margin.
Other operating revenue was higher by $12.2 million or 8.4 percent. Gains were
achieved primarily in credit card income, deposit account service charges,
trading account profits and in other service charges and fees. Noninterest
expense was up $13 million or 4.8 percent with the corporation's overhead ratio
declining to 53.4 percent from 55.4 percent in the same period of 1994.
Wachovia's credit quality and capital ratios remained excellent. At March 31,
1995, nonperforming assets were $93 million or .35 percent of loans and
foreclosed property compared with $126 million or .53 percent a year earlier
and $101 million or .39 percent at year-end 1994. Net loan losses totaled $19.4
million or .30 percent annualized of average loans versus $17.1 million or .30
percent in the same three months a year earlier and $19.4 million or .31
percent in the final period of 1994. Excluding credit cards, net loan losses
were $1.2 million or .02 percent compared with $3.9 million or .08 percent in
the same period of 1994.
The provision for loan losses was $21.8 million for the quarter. At March 31,
1995, the allowance for loan losses totaled $409 million or 1.53 percent of
period-end loans and 569 percent of nonperforming loans. Shareholders' equity
was 8.47 percent of assets, while the Tier I and total capital ratios were 9.35
percent and 12.60 percent, respectively.
Pressures impacting our business are likely to intensify as the economic
expansion moderates and financial services competition broadens through
evolving technology. Wachovia continues to assess its business activities,
strategies and technologies to maintain its position among the industry's
leaders. Additional comments on Wachovia and the business environment can be
found in my Annual Shareholders' Meeting remarks beginning on page 26.
Your continued support and confidence are appreciated.
Sincerely,
L. M. Baker, Jr.
Chief Executive Officer
May 5, 1995
3
____________________________________________________________________________________________________________________________________
NEWS DEVELOPMENTS
- - At the corporation's Annual Shareholders' Meeting on April 28, seven
directors were elected and the appointment of Ernst & Young LLP as independent
auditors for 1995 was ratified. Crandall C. Bowles, Hayne Hipp, James W.
Johnston, Wyndham Robertson, Sherwood H. Smith, Jr. and Charles McKenzie
Taylor were elected for three-year terms expiring in 1998. In addition, Donald
R. Hughes was elected for a two-year term expiring in 1997. W. Duke Kimbrell
retired as a director of Wachovia Corporation after serving with distinction
since 1988 and since 1983 as a director of the subsidiary Wachovia Corporation
of North Carolina.
- - Also at the shareholders' meeting, the board of directors declared a second
quarter dividend of $.33 per share, payable June 1, 1995 to shareholders of
record on May 8. The dividend is higher by 10 percent from $.30 per share paid
in the same quarter of 1994. For the year to date, dividends will total $.66
per share, an increase of 10 percent from $.60 per share paid in the first six
months of 1994.
- - In March, Wachovia held a one-day sale on certificates of deposit at selected
branch offices throughout Georgia, North Carolina and South Carolina. The
one-day event also was conducted through Wachovia On-Call, the corporation's
24-hour telephone sales and service center. The sale was open only to residents
of Wachovia's three home states and attracted funds of over $1 billion with
approximately 86 percent representing new money.
- - In April, Wachovia announced it has signed a definitive agreement to sell its
$9 billion residential mortgage loan servicing portfolio to GE Capital Mortgage
Services, Inc. The transaction is expected to close by May 31 and involves only
Wachovia's servicing portfolio. Wachovia will continue to offer a full line of
mortgage loan products and services. The decision to sell the portfolio was
based on a strategic assessment of the servicing business' future, competitive
industry trends and the long-term need for investments in technology.
- - Wachovia began offering in early March a new business banking account
designed specifically for small to mid-size companies with annual revenues of
$10 million or less. The Wachovia Business Choice Account provides a standard
package of the most commonly used business products as well as several optional
products and services small businesses can select to fit their individual
banking needs.
- - Wachovia has forged strategic alliances with two highly regarded
international banking institutions helping to extend services worldwide for
Wachovia's corporate customers involved in global trade. An alliance with the
Hongkong Shanghai Banking Corporation allows Wachovia to electronically issue
import letters of credit to all Hongkong Shanghai Banking Corporation branches
in the Pacific Rim except Japan and Australia. In addition, through Bank Mendes
Gans of Amsterdam, Wachovia will provide multilateral netting services, giving
corporate treasurers a cash management tool for simplifying and organizing the
settlement of intercompany payments among international subsidiaries.
- - Wachovia will participate with Visa in a stored-value card pilot program
during the 1996 Summer Olympic Games in Atlanta. Integrated circuit cards,
also referred to as chip or smart cards, will be used to provide the stored
value functionality, which has a predetermined cash value embedded in the
microcomputer chip. These cards can be used in place of cash at participating
merchants and then discarded once their value is depleted. Wachovia's long-term
strategy for smart cards also includes the usage of this technology with
proprietary debit and credit cards to include reloadable capability for cards
with the stored value feature.
____________________________________________________________________________________________________________________________________
SELECTED PERIOD-END DATA
March 31 March 31
1995 1994
-------- --------
Banking offices:
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 219
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 128
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 156
--- ---
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492 503
=== ===
Automated banking machines:
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 260
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 180
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 168
--- ---
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662 608
=== ===
Employees (full-time equivalent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,577 15,492
Common stock shareholders of record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,643 28,239
Common shares outstanding (thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,207 171,416
2
4
____________________________________________________________________________________________________________________________________
FINANCIAL HIGHLIGHTS
Three Months Ended
March 31 Percent
1995 1994 Change
-------- -------- -------
EARNINGS AND DIVIDENDS
(thousands, except per share data)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $142,156 $124,799 13.9
Cash dividends paid on common stock . . . . . . . . . . . . . . . . 56,458 51,443 9.7
Payout ratio (total cash dividends / net income) . . . . . . . . . 39.7% 41.2%
Net income per common share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .83 $ .72 14.3
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . $ .82 $ .72 14.3
Cash dividends paid per common share . . . . . . . . . . . . . . . $ .33 $ .30 10.0
Average primary shares outstanding . . . . . . . . . . . . . . . . 172,205 172,739 (.3)
Average fully diluted shares outstanding . . . . . . . . . . . . . 172,760 173,378 (.4)
Annualized return on average assets . . . . . . . . . . . . . . . . 1.46% 1.40%
Annualized return on average shareholders' equity . . . . . . . . . 17.32 16.65
Including average unrealized gains (losses) on securities
available-for-sale, net of tax:*
Annualized return on average assets . . . . . . . . . . . . . . . 1.46 1.40
Annualized return on average shareholders' equity . . . . . . . . 17.48 16.53
BALANCE SHEET DATA AT PERIOD-END
(millions, except per share data)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,223 $ 36,350 10.7
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . 35,814 32,370 10.6
Loans -- net of unearned income . . . . . . . . . . . . . . . . . . 26,728 23,662 13.0
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,110 22,279 3.7
Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . 30,558 26,853 13.8
Shareholders' equity** . . . . . . . . . . . . . . . . . . . . . . 3,405 3,094 10.1
Shareholders' equity to total assets . . . . . . . . . . . . . . . 8.47% 8.51%
Risk-based capital ratios:
Tier I capital . . . . . . . . . . . . . . . . . . . . . . . . . 9.35 9.64
Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . 12.60 13.52
Per share:
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.89 $ 18.05 10.2
Common stock closing price (NYSE) . . . . . . . . . . . . . . . . 35.50 31.75 11.8
*Includes unrealized gains (losses) on securities available-for-sale, net of
tax, of ($30) million and $22 million for the first quarters of 1995 and
1994, respectively
**Includes unrealized gains (losses) on securities available-for-sale, net of
tax, of ($10) million and $4 million for the first quarters of 1995 and 1994,
respectively
____________________________________________________________________________________________________________________________________
COMMON STOCK DATA -- PER SHARE
1995 1994
------- -------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
Market value:
Period-end . . . . . . . . . . . . . . $ 35 1/2 $ 32 1/4 $ 32 1/4 $ 33 1/8 $ 31 3/4
High. . . . . . . . . . . . . . . . . . 36 1/2 34 1/2 35 1/4 35 3/8 35 1/8
Low . . . . . . . . . . . . . . . . . . 32 31 1/2 31 3/8 30 3/4 30 1/8
Book value at period-end . . . . . . . . 19.89 19.23 18.83 18.40 18.05
Dividend . . . . . . . . . . . . . . . . .33 .33 .30 .30 .30
Price/earnings ratio* . . . . . . . . . . 11.0x 10.3x 10.7x 11.3x 11.1x
*Based on most recent twelve months net income per primary share and period-end
stock price
3
5
INTENTIONALLY LEFT BLANK
4
6
____________________________________________________________________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
____________________________________________________________________________________________________________________________________
FINANCIAL SUMMARY TABLE 1
____________________________________________________________________________________________________________________________________
Twelve
Months 1995 1994
Ended ------- -----------------------------------------
March 31 First Fourth Third Second First
1995 Quarter Quarter Quarter Quarter Quarter
---------- ------- -------- -------- -------- --------
SUMMARY OF OPERATIONS
(thousands, except per share data)
Interest income -- taxable equivalent . . . . . . . . . $2,619,539 $715,414 $677,097 $632,359 $594,669 $558,329
Interest expense . . . . . . . . . . . . . . . . . . . 1,164,977 342,596 305,564 274,329 242,488 216,007
---------- -------- -------- -------- -------- --------
Net interest income -- taxable equivalent . . . . . . . 1,454,562 372,818 371,533 358,030 352,181 342,322
Taxable equivalent adjustment . . . . . . . . . . . . . 99,306 23,622 25,893 24,909 24,882 24,476
---------- -------- -------- -------- -------- --------
Net interest income . . . . . . . . . . . . . . . . . . 1,355,256 349,196 345,640 333,121 327,299 317,846
Provision for loan losses . . . . . . . . . . . . . . . 75,792 21,788 19,539 18,123 16,342 17,759
---------- -------- -------- -------- -------- --------
Net interest income after provision for loan losses . . 1,279,464 327,408 326,101 314,998 310,957 300,087
Other operating revenue . . . . . . . . . . . . . . . . 616,656 157,093 154,723 151,541 153,299 144,869
Investment securities gains (losses) . . . . . . . . . 2,619 (129) 2,094 433 221 572
---------- -------- -------- -------- -------- --------
Total other income . . . . . . . . . . . . . . . . . . 619,275 156,964 156,817 151,974 153,520 145,441
Personnel expense . . . . . . . . . . . . . . . . . . . 567,456 144,963 141,566 139,695 141,232 141,014
Other expense . . . . . . . . . . . . . . . . . . . . . 543,939 138,069 140,959 131,598 133,313 129,036
---------- -------- -------- -------- -------- --------
Total other expense . . . . . . . . . . . . . . . . . . 1,111,395 283,032 282,525 271,293 274,545 270,050
Income before income taxes . . . . . . . . . . . . . . 787,344 201,340 200,393 195,679 189,932 175,478
Applicable income taxes* . . . . . . . . . . . . . . . 230,929 59,184 58,267 57,687 55,791 50,679
---------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 556,415 $142,156 $142,126 $137,992 $134,141 $124,799
========== ======== ======== ======== ======== ========
Net income per common share:
Primary . . . . . . . . . . . . . . . . . . . . . . . $ 3.24 $ .83 $ .83 $ .80 $ .78 $ .72
Fully diluted . . . . . . . . . . . . . . . . . . . . $ 3.22 $ .82 $ .82 $ .80 $ .78 $ .72
Cash dividends paid per common share . . . . . . . . . $ 1.26 $ .33 $ .33 $ .30 $ .30 $ .30
Average primary shares outstanding . . . . . . . . . . 172,207 172,205 171,973 172,097 172,558 172,739
Average fully diluted shares outstanding . . . . . . . 172,802 172,760 172,552 172,701 173,197 173,378
SELECTED AVERAGE BALANCES (millions)
Total assets . . . . . . . . . . . . . . . . . . . . . $ 37,799 $ 38,902 $ 38,146 $ 37,409 $ 36,753 $ 35,778
Loans -- net of unearned income . . . . . . . . . . . . 25,004 26,219 25,290 24,553 23,969 23,010
Investment securities** . . . . . . . . . . . . . . . . 7,664 7,612 7,582 7,695 7,767 7,690
Other interest-earning assets . . . . . . . . . . . . . 832 815 877 809 829 1,083
Total interest-earning assets . . . . . . . . . . . . . 33,500 34,646 33,749 33,057 32,565 31,783
Interest-bearing deposits . . . . . . . . . . . . . . . 17,094 17,354 17,040 17,020 16,964 16,694
Short-term borrowed funds . . . . . . . . . . . . . . . 6,537 7,390 6,619 6,115 6,038 6,148
Long-term debt . . . . . . . . . . . . . . . . . . . . 4,597 4,674 4,795 4,637 4,281 3,670
Total interest-bearing liabilities . . . . . . . . . . 28,228 29,418 28,454 27,772 27,283 26,512
Noninterest-bearing deposits . . . . . . . . . . . . . 5,368 5,302 5,471 5,364 5,333 5,366
Total deposits . . . . . . . . . . . . . . . . . . . . 22,462 22,656 22,511 22,384 22,297 22,060
Shareholders' equity . . . . . . . . . . . . . . . . . 3,153 3,253 3,186 3,114 3,063 3,021
RATIOS (averages)
Annualized net loan losses to loans . . . . . . . . . . .29% .30% .31% .29% .26% .30%
Annualized net yield on interest-earning assets . . . . 4.34 4.36 4.37 4.30 4.34 4.37
Shareholders' equity to:
Total assets . . . . . . . . . . . . . . . . . . . . 8.34 8.36 8.35 8.32 8.33 8.44
Net loans . . . . . . . . . . . . . . . . . . . . . . 12.82 12.60 12.80 12.89 13.00 13.36
Annualized return on assets . . . . . . . . . . . . . . 1.47 1.46 1.49 1.48 1.46 1.40
Annualized return on shareholders' equity . . . . . . . 17.64 17.48 17.84 17.73 17.52 16.53
*Income taxes applicable to securities transactions were $1,035, ($67), $840, $173, $89 and $226, respectively
**Reported at amortized cost; excludes pretax unrealized gains (losses) on securities available-for-sale of ($33) for the
twelve months ended March 31, 1995, ($49) for the first quarter of 1995, ($44) for the fourth quarter of 1994, ($28) for
the third quarter of 1994, ($14) for the second quarter of 1994 and $37 for the first quarter of 1994
____________________________________________________________________________________________________________________________________
5
7
RESULTS OF OPERATIONS
OVERVIEW
Wachovia Corporation ("Wachovia") is a southeastern interstate
bank holding company with dual headquarters in Atlanta, Georgia, and
Winston-Salem, North Carolina. Principal banking subsidiaries are
Wachovia Bank of Georgia, N.A., Wachovia Bank of North Carolina, N.A.,
and Wachovia Bank of South Carolina, N.A. The First National Bank of
Atlanta provides credit card services for Wachovia's affiliated banks.
The economy slowed somewhat during the first quarter of 1995,
impeded by the lagging impact of successive interest rate increases
throughout 1994. Despite the slower-paced environment, business
conditions generally remained favorable. Seasonally adjusted
unemployment rates in Wachovia's three primary operating states of
Georgia, North Carolina and South Carolina averaged 4.4 percent, 4.1
percent and 5.1 percent, respectively, for the period versus 5.5
percent nationwide.
Wachovia's net income for the first quarter of 1995 totaled
$142.156 million or $.82 per fully diluted share compared with
$124.799 million or $.72 per fully diluted share in the same period of
1994. Annualized returns were 17.5 percent on shareholders' equity and
1.46 percent on assets versus 16.5 percent and 1.40 percent,
respectively, a year earlier. The equity and assets used in computing
returns include unrealized gains or losses, net of tax, on securities
available-for-sale.
Expanded discussion of operating results and the corporation's
financial condition is presented in the following narrative and
tables. Interest income is stated on a taxable equivalent basis which
is adjusted for the tax-favored status of earnings from certain loans
and investments. References to changes in assets and liabilities
represent daily average levels unless otherwise noted.
___________________________________________________________________________________________________________________________
COMPONENTS OF EARNINGS PER PRIMARY SHARE TABLE 2
___________________________________________________________________________________________________________________________
1995 1994
First First
Quarter Quarter Change
------- ------- ------
Interest income -- taxable equivalent . . . . . . . . . . $4.15 $3.23 $.92
Interest expense . . . . . . . . . . . . . . . . . . . . . 1.99 1.25 .74
----- ----- ----
Net interest income -- taxable equivalent . . . . . . . . 2.16 1.98 .18
Taxable equivalent adjustment . . . . . . . . . . . . . . .13 .14 (.01)
----- ----- ----
Net interest income . . . . . . . . . . . . . . . . . . . 2.03 1.84 .19
Provision for loan losses . . . . . . . . . . . . . . . . .13 .10 .03
----- ----- ----
Net interest income after provision
for loan losses . . . . . . . . . . . . . . . . . . . . 1.90 1.74 .16
Other operating revenue . . . . . . . . . . . . . . . . . .91 .84 .07
Investment securities gains (losses) . . . . . . . . . . . -- -- --
----- ----- ----
Total other income . . . . . . . . . . . . . . . . . . . . .91 .84 .07
Personnel expense . . . . . . . . . . . . . . . . . . . . .84 .82 .02
Other expense . . . . . . . . . . . . . . . . . . . . . . .80 .75 .05
----- ----- ----
Total other expense . . . . . . . . . . . . . . . . . . . 1.64 1.57 .07
Income before income taxes . . . . . . . . . . . . . . . . 1.17 1.01 .16
Applicable income taxes . . . . . . . . . . . . . . . . . .34 .29 .05
----- ----- ----
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ .83 $ .72 $.11
===== ===== ====
___________________________________________________________________________________________________________________________
6
8
___________________________________________________________________________________________________________________________
COMPUTATION OF EARNINGS PER COMMON SHARE TABLE 3
(thousands, except per share)
___________________________________________________________________________________________________________________________
Three Months Three Months
Ended Ended
March 31 March 31
1995 1994
------------ -----------
PRIMARY
Average common shares outstanding . . . . . . . . . . . . . . . . 171,071 171,448
Dilutive common stock options -- based on treasury
stock method using average market price . . . . . . . . . . . . 1,059 1,222
Dilutive common stock awards -- based on treasury
stock method using average market price . . . . . . . . . . . . 75 69
-------- --------
Average primary shares outstanding . . . . . . . . . . . . . . . . 172,205 172,739
======== ========
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $142,156 $124,799
======== ========
Net income per common share -- primary . . . . . . . . . . . . . . $ .83 $ .72
FULLY DILUTED
Average common shares outstanding . . . . . . . . . . . . . . . . 171,071 171,448
Dilutive common stock options -- based on treasury
stock method using higher of period-end
market price or average market price . . . . . . . . . . . . . . 1,139 1,222
Dilutive common stock awards -- based on treasury
stock method using higher of period-end
market price or average market price . . . . . . . . . . . . . . 83 69
Convertible notes assumed converted . . . . . . . . . . . . . . . 467 639
-------- --------
Average fully diluted shares outstanding . . . . . . . . . . . . . 172,760 173,378
======== ========
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $142,156 $124,799
Add interest on convertible notes after taxes . . . . . . . . . . 96 133
-------- --------
Adjusted net income . . . . . . . . . . . . . . . . . . . . . . . $142,252 $124,932
======== ========
Net income per common share -- fully diluted . . . . . . . . . . . $ .82 $ .72
___________________________________________________________________________________________________________________________
NET INTEREST INCOME
Taxable equivalent net interest income for the first quarter
of 1995 rose $30.496 million or 8.9 percent in comparison with the
same period a year earlier and was up $1.285 million or less than 1
percent from the final three months of 1994 with two fewer accrual
days being recorded in the first quarter. Gains reflected good loan
growth moderated by loan and deposit pricing pressures as the average
rate paid from both periods increased more than the average rate
earned. The net yield on interest-earning assets (net interest income
as a percentage of average interest-earning assets) decreased 1 basis
point both year over year and from the fourth quarter of 1994. The
corporation anticipates pricing pressures both on loans and deposits
to continue throughout the remainder of the year, adversely affecting
the interest rate margin.
Taxable equivalent interest income increased $157.085 million
or 28.1 percent from the same period in 1994. Average interest-earning
assets expanded $2.863 billion or 9 percent, while the average rate
earned rose 125 basis points. Compared with the preceding three
months, average interest-earning assets in the first quarter of 1995
were higher by $897 million or 2.7 percent, with the average rate
earned increasing 41 basis points.
Loan growth continued to remain strong, accounting for
substantially all the increase in interest-earning assets. Average
loans expanded $3.209 billion or 13.9 percent year over year and $929
million or 3.7 percent from the previous quarter.
Commercial loans, including related real estate categories,
were up $2.349 billion or 18.6 percent from the same three months a
year earlier. Gains were led by regular commercial loans, which rose
$2.022 billion or 30.3 percent, and by commercial mortgages, which
increased $301 million or 9.2 percent. Foreign loans, construction
loans and lease financing also were higher, while tax-exempt loans
declined. Based on regulatory definitions, commercial real estate
totaled $4.135 billion or 15.5 percent of the corporation's loan
portfolio at
7
9
____________________________________________________________________________________________________________________________________
NET INTEREST INCOME AND AVERAGE BALANCES TABLE 4
____________________________________________________________________________________________________________________________________
Twelve
Months 1995 1994
Ended -------- ----------------------------------------------
March 31 First Fourth Third Second First
1995 Quarter Quarter Quarter Quarter Quarter
---------- -------- -------- -------- -------- --------
NET INTEREST INCOME -- TAXABLE
EQUIVALENT (thousands)
Interest income:
Loans . . . . . . . . . . . . . . . . . . . . . . . $2,062,571 $571,334 $537,181 $495,361 $458,695 $422,388
Investment securities . . . . . . . . . . . . . . . 508,749 130,210 126,304 125,922 126,313 125,663
Interest-bearing bank balances . . . . . . . . . . 538 101 110 142 185 160
Federal funds sold and securities
purchased under resale agreements . . . . . . . . 5,773 1,202 1,382 1,347 1,842 3,111
Trading account assets . . . . . . . . . . . . . . 41,908 12,567 12,120 9,587 7,634 7,007
---------- -------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . 2,619,539 715,414 677,097 632,359 594,669 558,329
Interest expense:
Interest-bearing demand . . . . . . . . . . . . . . 56,220 14,367 14,443 13,954 13,456 13,235
Savings and money market savings . . . . . . . . . 180,755 50,578 47,438 44,811 37,928 34,284
Savings certificates . . . . . . . . . . . . . . . 248,465 74,870 63,416 57,023 53,156 53,465
Large denomination certificates . . . . . . . . . . 75,259 20,011 18,288 18,453 18,507 15,057
Time deposits in foreign offices . . . . . . . . . 26,545 7,507 7,898 7,042 4,098 3,280
Short-term borrowed funds . . . . . . . . . . . . . 329,336 108,389 88,115 71,495 61,337 51,625
Long-term debt . . . . . . . . . . . . . . . . . . 248,397 66,874 65,966 61,551 54,006 45,061
---------- -------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . 1,164,977 342,596 305,564 274,329 242,488 216,007
---------- -------- -------- -------- -------- --------
Net interest income . . . . . . . . . . . . . . . . . $1,454,562 $372,818 $371,533 $358,030 $352,181 $342,322
========== ======== ======== ======== ======== ========
Annualized net yield on
interest-earning assets . . . . . . . . . . . . . . 4.34% 4.36% 4.37% 4.30% 4.34% 4.37%
AVERAGE BALANCES (millions)
Assets:
Loans -- net of unearned income . . . . . . . . . . $ 25,004 $ 26,219 $ 25,290 $ 24,553 $ 23,969 $ 23,010
Investment securities . . . . . . . . . . . . . . . 7,664 7,612 7,582 7,695 7,767 7,690
Interest-bearing bank balances . . . . . . . . . . 10 6 7 11 18 17
Federal funds sold and securities
purchased under resale agreements . . . . . . . . 118 77 100 115 182 394
Trading account assets . . . . . . . . . . . . . . 704 732 770 683 629 672
---------- -------- -------- -------- -------- --------
Total interest-earning assets . . . . . . . . . 33,500 34,646 33,749 33,057 32,565 31,783
Cash and due from banks . . . . . . . . . . . . . . 2,435 2,502 2,544 2,350 2,346 2,387
Premises and equipment . . . . . . . . . . . . . . 529 546 536 523 510 502
Other assets . . . . . . . . . . . . . . . . . . . 1,774 1,662 1,767 1,912 1,754 1,476
Unrealized gains (losses) on securities
available-for-sale . . . . . . . . . . . . . . . (33) (49) (44) (28) (14) 37
Allowance for loan losses . . . . . . . . . . . . . (406) (405) (406) (405) (408) (407)
---------- -------- -------- -------- -------- --------
Total assets . . . . . . . . . . . . . . . . . $ 37,799 $ 38,902 $ 38,146 $ 37,409 $ 36,753 $ 35,778
========== ======== ======== ======== ======== ========
Liabilities and shareholders' equity:
Interest-bearing demand . . . . . . . . . . . . . . $ 3,360 $ 3,288 $ 3,364 $ 3,367 $ 3,420 $ 3,385
Savings and money market savings . . . . . . . . . 6,119 6,060 6,114 6,197 6,103 6,074
Savings certificates . . . . . . . . . . . . . . . 5,474 5,917 5,457 5,247 5,283 5,355
Large denomination certificates . . . . . . . . . . 1,583 1,502 1,493 1,599 1,736 1,463
Time deposits in foreign offices . . . . . . . . . 558 587 612 610 422 417
Short-term borrowed funds . . . . . . . . . . . . . 6,537 7,390 6,619 6,115 6,038 6,148
Long-term debt . . . . . . . . . . . . . . . . . . 4,597 4,674 4,795 4,637 4,281 3,670
---------- -------- -------- -------- -------- --------
Total interest-bearing liabilities . . . . . . 28,228 29,418 28,454 27,772 27,283 26,512
Demand deposits in domestic offices . . . . . . . . . 5,306 5,275 5,424 5,277 5,245 5,302
Demand deposits in foreign offices . . . . . . . . . 5 6 6 5 5 5
Noninterest-bearing time deposits in
domestic offices . . . . . . . . . . . . . . . . . 57 21 41 82 83 59
Other liabilities . . . . . . . . . . . . . . . . . . 1,050 929 1,035 1,159 1,074 879
Shareholders' equity . . . . . . . . . . . . . . . . 3,153 3,253 3,186 3,114 3,063 3,021
---------- -------- -------- -------- -------- --------
Total liabilities and shareholders' equity . . $ 37,799 $ 38,902 $ 38,146 $ 37,409 $ 36,753 $ 35,778
========== ======== ======== ======== ======== ========
Total deposits . . . . . . . . . . . . . . . . . . . $ 22,462 $ 22,656 $ 22,511 $ 22,384 $ 22,297 $ 22,060
____________________________________________________________________________________________________________________________________
8
10
March 31, 1995, and consisted of $3.621 billion in commercial
mortgages and $514 million in construction loans. Comparable amounts
at first quarter-close 1994 were $3.800 billion in commercial real
estate, representing 16.1 percent of total loans with $3.323 billion
in commercial mortgages and $477 million in construction loans. At
year-end 1994, commercial mortgages were $3.484 billion and
construction loans were $553 million, representing a combined 15.6
percent of total loans.
Retail loans, including residential mortgages, increased $860
million or 8.3 percent from the 1994 first quarter, led by credit
cards, which rose $792 million or 25.1 percent. Compared with the
fourth quarter of 1994, credit card loans in the first three months of
1995 were higher by $141 million or 3.7 percent. In February, Wachovia
added to its popular prime-based Visa and MasterCard pricing options
with the introduction of Prime For Life(SM) and the accompanying Prime
Rebate Plan(SM). The new option offers an interest rate always
maintained at prime and is designed for consumers who regularly carry
a balance of $1,000 or more. At March 31, 1995, managed credit card
outstandings totaled $4.081 billion, including $125 million of net
securitized loans, versus $3.298 billion a year earlier and $4.094
billion at year-end 1994.
Residential mortgages, direct retail loans and other revolving
credit also increased for the period. Indirect retail loans, primarily
consisting of automobile sales financing, were lower by $71 million or
2.9 percent reflecting softer demand due, in part, to the impact of
higher interest rates.
Investment securities decreased modestly year over year and
were up slightly from the fourth quarter of 1994 with holdings being
reduced primarily in available-for-sale mortgage backed securities. At
March 31, 1995, securities held-to-maturity totaled $4.525 billion and
securities available-for-sale were $3.760 billion as detailed in the
following.
$ in thousands
Securities available-for-sale at market value:
U.S. Government and agency . . . . . . . . . . . . . . . . . . . $2,613,853
Mortgage backed securities . . . . . . . . . . . . . . . . . . . 902,527
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,521
----------
Total securities available-for-sale . . . . . . . . . . . . . 3,759,901
Securities held-to-maturity:
U.S. Government and agency . . . . . . . . . . . . . . . . . . . 2,491,882
Mortgage backed securities . . . . . . . . . . . . . . . . . . . 1,525,430
State and municipal . . . . . . . . . . . . . . . . . . . . . . 492,843
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,532
----------
Total securities held-to-maturity . . . . . . . . . . . . . . 4,524,687
----------
Total investment securities . . . . . . . . . . . . . . . . . $8,284,588
==========
The market value of securities held-to-maturity was $4.559
billion at March 31, 1995, representing a $34 million appreciation
over book value. Securities available-for-sale marked to fair market
value under Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
(FASB 115), had an unrealized loss of $16.613 million, pretax, and
$10.111 million, net of tax, at March 31, 1995. For the first quarter
of 1995, average securities available-for-sale had an unrealized loss
of $48.771 million, pretax, and $29.681 million, net of tax.
Interest expense was higher by $126.589 million or 58.6
percent year over year. Average interest-bearing liabilities increased
$2.906 billion or 11 percent, while the average rate paid rose 142
basis points. Interest expense was up a more moderate $37.032 million
or 12.1 percent from the last three months of 1994, with average
interest-bearing liabilities increasing $964 million or 3.4 percent
and the average rate paid higher by 46 basis points.
Interest-bearing time deposits in the first quarter of 1995
grew $660 million or 4 percent from the same period a year earlier and
were higher by $314 million or 1.8 percent from the preceding quarter.
Savings
9
11
____________________________________________________________________________________________________________________________________
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS -- FIRST QUARTER* TABLE 5
____________________________________________________________________________________________________________________________________
Variance
Average Volume Average Rate Interest Attributable to
- --------------- ------------ ------------------- ------------------
1995 1994 1995 1994 1995 1994 Variance Rate Volume
- ------ ------- ----- ----- -------- -------- -------- ------- --------
(Millions) (Thousands)
INTEREST INCOME
Loans:
$ 8,692 $ 6,670 7.56 5.04 Commercial . . . . . . . . . $162,083 $ 82,962 $ 79,121 $ 49,230 $29,891
1,769 1,982 9.65 8.55 Tax-exempt . . . . . . . . . 42,077 41,783 294 5,048 (4,754)
- ------- ------- -------- -------- --------
10,461 8,652 7.91 5.85 Total commercial . . . . 204,160 124,745 79,415 49,908 29,507
733 714 8.90 8.09 Direct retail . . . . . . . . 16,075 14,258 1,817 1,440 377
2,353 2,424 7.98 7.75 Indirect retail . . . . . . . 46,307 46,326 (19) 1,356 (1,375)
3,953 3,161 12.29 10.89 Credit card . . . . . . . . . 119,797 84,865 34,932 11,834 23,098
340 331 12.53 11.17 Other revolving credit . . . 10,526 9,117 1,409 1,140 269
- ------- ------- -------- -------- --------
7,379 6,630 10.59 9.46 Total retail . . . . . . 192,705 154,566 38,139 19,634 18,505
532 501 9.66 8.03 Construction . . . . . . . . 12,671 9,913 2,758 2,107 651
3,552 3,251 8.63 7.17 Commercial mortgages . . . . 75,588 57,515 18,073 12,420 5,653
3,851 3,740 8.18 7.77 Residential mortgages . . . . 77,654 71,660 5,994 3,831 2,163
- ------- ------- -------- -------- --------
7,935 7,492 8.48 7.53 Total real estate . . . . 165,913 139,088 26,825 18,277 8,548
191 159 7.95 8.16 Lease financing . . . . . . . 3,741 3,205 536 (85) 621
253 77 7.72 4.11 Foreign . . . . . . . . . . . 4,815 784 4,031 1,125 2,906
- ------- ------- -------- -------- --------
26,219 23,010 8.84 7.44 Total loans . . . . . . . 571,334 422,388 148,946 85,341 63,605
Investment securities:
Held-to-maturity:
2,493 2,208 6.89 6.70 U.S. Government and agency. 42,337 36,488 5,849 1,027 4,822
Mortgage backed
1,250 1,159 8.02 7.58 securities . . . . . . . 24,724 21,662 3,062 1,315 1,747
506 631 12.20 12.64 State and municipal . . . . 15,208 19,663 (4,455) (662) (3,793)
14 14 6.04 6.09 Other . . . . . . . . . . . 215 210 5 (2) 7
- ------- ------- -------- -------- --------
Total securities
4,263 4,012 7.85 7.89 held-to-maturity . . . 82,484 78,023 4,461 (394) 4,855
Available-for-sale:**
2,321 2,358 5.98 5.66 U.S. Government and agency. 34,219 32,890 1,329 1,850 (521)
Mortgage backed
786 1,015 4.97 4.67 securities . . . . . . . 9,622 11,694 (2,072) 695 (2,767)
242 305 6.52 4.07 Other . . . . . . . . . . . 3,885 3,056 829 1,559 (730)
- ------- ------- -------- -------- --------
Total securities
3,349 3,678 5.78 5.25 available-for-sale . . 47,726 47,640 86 4,548 (4,462)
- ------- ------- -------- -------- --------
Total investment
7,612 7,690 6.94 6.63 securities . . . . . . 130,210 125,663 4,547 5,835 (1,288)
Interest-bearing bank
6 17 7.16 3.82 balances . . . . . . . . . . 101 160 (59) 87 (146)
Federal funds sold and
securities purchased
77 394 6.32 3.20 under resale agreements . . . 1,202 3,111 (1,909) 1,694 (3,603)
732 672 6.96 4.23 Trading account assets . . . . 12,567 7,007 5,560 4,878 682
- ------- ------- -------- -------- --------
Total interest-earning
$34,646 $31,783 8.37 7.12 assets . . . . . . . . 715,414 558,329 157,085 103,800 53,285
======= =======
INTEREST EXPENSE
$ 3,288 $ 3,385 1.77 1.59 Interest-bearing demand . . . . 14,367 13,235 1,132 1,522 (390)
Savings and money market
6,060 6,074 3.38 2.29 savings . . . . . . . . . . . 50,578 34,284 16,294 16,376 (82)
5,917 5,355 5.13 4.05 Savings certificates . . . . . 74,870 53,465 21,405 15,370 6,035
Large denomination
1,502 1,463 5.40 4.17 certificates . . . . . . . . 20,011 15,057 4,954 4,533 421
- ------- ------- -------- -------- --------
Total time deposits
16,767 16,277 3.87 2.89 in domestic offices . . 159,826 116,041 43,785 40,195 3,590
Time deposits in foreign
587 417 5.19 3.19 offices . . . . . . . . . . . 7,507 3,280 4,227 2,562 1,665
- ------- ------- -------- -------- --------
17,354 16,694 3.91 2.90 Total time deposits . . . 167,333 119,321 48,012 43,129 4,883
Federal funds purchased and
securities sold under
5,457 4,857 5.96 3.46 repurchase agreements . . . . 80,156 41,461 38,695 33,037 5,658
419 604 5.51 3.20 Commercial paper . . . . . . . 5,694 4,758 936 2,710 (1,774)
Other short-term borrowed
1,514 687 6.04 3.19 funds . . . . . . . . . . . . 22,539 5,406 17,133 7,283 9,850
- ------- ------- -------- -------- --------
Total short-term
7,390 6,148 5.95 3.41 borrowed funds . . . . 108,389 51,625 56,764 44,679 12,085
3,838 2,880 5.56 4.53 Bank notes . . . . . . . . . . 52,590 32,165 20,425 8,289 12,136
836 790 6.92 6.62 Other long-term debt . . . . . 14,284 12,896 1,388 603 785
- ------- ------- -------- -------- --------
4,674 3,670 5.80 4.98 Total long-term debt . . 66,874 45,061 21,813 8,210 13,603
- ------- ------- -------- -------- --------
Total interest-bearing
$29,418 $26,512 4.72 3.30 liabilities . . . . . . 342,596 216,007 126,589 100,845 25,744
======= ======= ----- ----- -------- -------- --------
3.65 3.82 Interest rate spread
===== =====
Net yield on interest-earning
assets and net interest
4.36 4.37 income . . . . . . . . . . . $372,818 $342,322 $ 30,496 (311) 30,807
===== ===== ======== ======== ========
____________________________________________________________________________________________________________________________________
*Interest income and yields are presented on a fully taxable equivalent basis
using the federal income tax rate and state tax rates, as applicable, reduced
by the nondeductible portion of interest expense
**Volume amounts are reported at amortized cost; excludes pretax unrealized
gains (losses) of ($49) million and $37 million in 1995 and 1994, respectively
10
12
certificates accounted for the majority of the increase from both
periods, rising $562 million or 10.5 percent and $460 million or 8.4
percent, respectively. In March, Wachovia held a one-day sale on
certificates of deposit offered to residents of Georgia, North
Carolina and South Carolina. The one-day sale attracted deposits of
over $1 billion which will be used to help fund additional loan
growth. Large denomination certificates and foreign interest-bearing
time deposits also were higher from the same period a year earlier,
while interest-bearing demand and savings and money market savings
were modestly lower.
Short-term borrowings expanded $1.242 billion or 20.2 percent
from the first quarter of 1994 and were up $771 million or 11.6
percent from the preceding three months. Increases from the
year-earlier quarter occurred in federal funds purchased and
securities sold under repurchase agreements as well as in other
short-term borrowings. Funding from commercial paper declined. Other
short-term borrowings include short-term bank notes which were issued
beginning in the fourth quarter of 1994. The notes have maturities
ranging from 30 days to one year and are part of Wachovia Bank of
North Carolina's ongoing bank note program, consisting of both short-
and medium-term notes. At March 31, 1995, short-term bank notes
outstanding were $1.187 billion with an average cost of 6.19 percent
and an average maturity of 2.8 months versus $456 million in
outstandings with an average cost of 6.13 percent and an average
maturity of 4.15 months at year-end 1994.
Long-term debt was higher by $1.004 billion or 27.4 percent
year over year but lower by $121 million or 2.5 percent from the
fourth quarter of 1994. The change from both periods occurred
primarily in medium-term bank notes. At March 31, 1995, medium-term
bank notes outstanding totaled $3.809 billion with an average cost of
5.47 percent and an average maturity of 1.59 years. This compared with
$3.263 billion in notes outstanding with an average cost of 4.47
percent and an average maturity of 2 years at first quarter-close 1994
and with $3.953 billion, 5.31 percent and 1.73 years, respectively, at
December 31, 1994.
Gross deposits for the first quarter of 1995 averaged $22.656
billion, higher by $596 million or 2.7 percent from $22.060 billion in
the same period of 1994. Collected deposits, net of float, averaged
$20.948 billion, up $466 million or 2.3 percent from $20.482 billion a
year earlier.
ASSET AND LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
The corporation uses a number of tools to measure interest
rate risk, including monitoring the difference or gap between rate
sensitive assets and liabilities over various time periods, monitoring
the change in present value of the asset and liability portfolios
under various rate scenarios and simulating net interest income under
the same rate scenarios. Management believes that rate risk is best
measured by simulation modeling which calculates expected net interest
income based on projected interest-earning assets, interest-bearing
liabilities, off-balance sheet financial instruments and interest
rates.
The corporation monitors exposure to a gradual change in rates
of 200 basis points up or down over a rolling 12-month period and an
interest rate shock of an instantaneous change in rates of 200 basis
points up or down over the same period. From time to time, the model
horizon is expanded to a 24-month period. The corporation policy limit
for the maximum negative impact on net interest income from a gradual
change in interest rates of 2 percentage points over 12 months is 7.5
percent. Management generally has maintained a risk position well
within the policy guideline level. As of March 31, 1995, the model
indicated the impact of a 2 percentage point gradual rise in rates
over 12 months would approximate a .75 percent increase in net
interest income, while a 2 percentage point decline in rates over the
same period would approximate a 2 percent decrease from an unchanged
rate environment.
In addition to on-balance sheet instruments such as investment
securities and purchased funds, the corporation uses off-balance sheet
derivative instruments to manage interest rate risk, liquidity and net
interest income. Off-balance sheet instruments include interest rate
swaps, futures and options with indices that directly correlate to
on-balance sheet instruments. The corporation has used off-balance
sheet financial
11
13
instruments, principally interest rate swaps, over a number of years
and believes their use on a sound basis enhances the effectiveness of
asset and liability and interest rate sensitivity management.
Off-balance sheet asset and liability derivative transactions
are based on referenced or notional amounts. At March 31, 1995, the
corporation had $916 million notional amount of derivatives
outstanding for asset and liability management purposes. Interest rate
swaps were $901 million or 98 percent of the total notional amount.
Credit risk of off-balance sheet derivative financial instruments is
equal to the fair value gain of the instrument if a counterparty fails
to perform. The credit risk is normally a small percentage of the
notional amount and fluctuates as interest rates move up or down. The
corporation mitigates this risk by subjecting the transactions to the
same rigorous approval and monitoring process as is used for
on-balance sheet credit transactions, by dealing in the national
market with highly rated counterparties, by executing all transactions
under International Swaps and Derivatives Association Master
Agreements and by using collateral instruments to reduce exposure.
Collateral is delivered by either party when the fair value of a
particular transaction or group of transactions with the same
counterparty on a net basis exceeds an acceptable threshold of
exposure. The threshold level is determined based on the strength of
the individual counterparty.
The fair value of all asset and liability derivative positions
for which the corporation was exposed to counterparties totaled $8
million at March 31, 1995. The fair value of all asset and liability
derivative positions for which counterparties were exposed to the
corporation amounted to $21 million on the same date. Details of the
net fair value loss of $13 million and additional asset and liability
derivative information are included in the accompanying tables.
Estimated Fair Value of Asset and Liability Management Derivatives by Purpose
-----------------------------------------------------------------------------
March 31, 1995 March 31, 1994
------------------------------------- -------------------------
Notional Fair Value Fair Value Notional Net Fair Value
$ in millions Value Gains (Losses) Value Gains (Losses)
-------- ---------- ---------- -------- --------------
Convert floating rate liabilities to fixed:
Swaps-pay fixed/receive floating . . . . . . . . . . . $181 $3 $(3) $ 370 ($10)
Caps purchased-pay fixed/receive floating . . . . . . 15 -- -- 15 --
Convert fixed rate assets to floating:
Swaps-pay fixed/receive floating . . . . . . . . . . . 17 -- -- -- --
Forward starting swaps-pay fixed/receive floating . . 58 -- (1) -- --
Convert fixed rate liabilities to floating:
Swaps-receive fixed/pay floating . . . . . . . . . . . 100 -- (13) 100 (10)
Convert floating rate assets to fixed:
Swaps-receive fixed/pay floating . . . . . . . . . . . 120 -- (2) 337 (9)
Index amortizing swaps-receive fixed/pay floating . . 425 5 (2) 100 (2)
Hedge spread between prime and fed funds:
Interest rate caps . . . . . . . . . . . . . . . . . . -- -- -- 400 1
---- --- ---- ------ ----
Total derivatives . . . . . . . . . . . . . . . . $916 $8 ($21) $1,322 ($30)
==== === ==== ====== ====
12
14
Maturity Schedule of Asset and Liability Management Derivatives
---------------------------------------------------------------
March 31, 1995
Within Over Average
One Two Three Four Five Five Life
Year Years Years Years Years Years Total (Years)
---- ----- ----- ----- ----- ----- ----- -------
$ in millions
Interest rate swaps:
Pay fixed/receive floating:
Notional amount . . . . . . . . . . . $ 73 $ 54 $ 12 $ 16 $ 19 $ 24 $ 198 2.46
Weighted average rates received . . . 6.29% 6.63% 7.00% 6.80% 6.93% 6.31% 6.53%
Weighted average rates paid . . . . . 8.33 8.57 6.00 6.87 6.71 7.53 7.89
Receive fixed/pay floating:
Notional amount . . . . . . . . . . . $ 58 $ 59 $ 1 $ 2 -- $ 100 $ 220 6.90
Weighted average rates received . . . 5.32% 5.45% 9.79% 10.69% -- 6.31% 5.86%
Weighted average rates paid . . . . . 6.58 6.60 9.00 9.00 -- 6.69 6.66
Index amoritzing swaps:*
Notional amount . . . . . . . . . . . . $ 8 $ 26 $ 122 $ 81 $ 69 $ 119 $ 425 3.88
Weighted average rates received . . . . 5.93% 7.10% 6.34% 8.27% 7.77% 8.08% 7.46%
Weighted average rates paid . . . . . . 6.25 6.25 6.27 6.32 6.29 6.35 6.31
Total interest rate swaps:
Notional amount . . . . . . . . . . . . $ 139 $ 139 $ 135 $ 99 $ 88 $ 243 $ 843 4.33
Weighted average rates received . . . . 5.87% 6.22% 6.41% 8.08% 7.59% 7.17% 6.83%
Weighted average rates paid . . . . . . 7.48 7.31 6.26 6.46 6.38 6.61 6.77
Forward starting interest rate swaps:
Notional amount . . . . . . . . . . . . -- -- -- -- -- $ 58 $ 58 9.02
Weighted average rates received . . . . -- -- -- -- -- 8.03% 8.03%
Interest rate caps (notional amount)** . . $ 15 -- -- -- -- -- $ 15 .63
Total derivatives (notional amount) . . $ 154 $ 139 $ 135 $ 99 $ 88 $ 301 $ 916 4.57
*Maturity is based upon expected average lives rather than contractual lives.
**Average rates are not meaningful.
Asset and liability transactions are accounted for following
hedge accounting rules. Accordingly, gains and losses related to the
fair value of derivative contracts used for asset and liability
management purposes are not immediately recognized in earnings. If
the hedged or altered balance sheet amounts were marked to market,
the resulting unrealized balance sheet gains or losses could be
expected to offset unrealized derivatives gains and losses.
NONPERFORMING ASSETS
Nonperforming assets were $92.723 million or .35 percent of
loans and foreclosed property at March 31, 1995. The total was down
$33.544 million or 26.6 percent from a year earlier and lower by
$7.794 million or 7.8 percent from year-end 1994. The decreases
primarily were due to improvement in borrowers' credit positions,
resulting in paydowns and the return of cash-basis assets to accrual
status, as well as to sales of foreclosed property.
Real estate nonperforming assets, the largest portion of total
nonperforming assets, were $64.120 million or .80 percent of real
estate loans and foreclosed real estate at March 31, 1995 versus
$95.077 million or 1.28 percent a year earlier and $68.353 million or
.87 percent at December 31, 1994. The totals included nonperforming
real estate loans of $46.755 million at March 31, 1995, $71.918
million one year earlier and $49.479 million at year-end 1994.
Commercial real estate nonperforming assets were $40.030
million or .97 percent of related loans and
13
15
foreclosed property compared with $72.374 million or 1.90 percent at
first quarter-close 1994 and $43.399 million or 1.07 percent at
December 31, 1994. Commercial real estate nonperforming loans included
in these amounts were $33.018 million at March 31, 1995, $58.354
million a year earlier and $35.885 million at the end of the 1994
fourth quarter.
____________________________________________________________________________________________________________________________________
NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 6
(thousands)
____________________________________________________________________________________________________________________________________
March 31 Dec. 31 Sept. 30 June 30 March 31
1995 1994 1994 1994 1994
-------- -------- -------- -------- --------
NONPERFORMING ASSETS
Cash-basis assets -- domestic borrowers . . . . . . . . . $71,848* $ 78,712 $ 89,184 $100,696 $100,126
Restructured loans -- domestic . . . . . . . . . . . . . --** -- -- -- --
------- -------- -------- -------- --------
Total nonperforming loans . . . . . . . . . . . . . 71,848 78,712 89,184 100,696 100,126
Foreclosed property:
Foreclosed real estate . . . . . . . . . . . . . . . . 20,669 22,900 22,309 26,347 30,136
Less valuation allowance . . . . . . . . . . . . . . . 3,304 4,026 5,025 5,778 6,977
Other foreclosed assets . . . . . . . . . . . . . . . . 3,510 2,931 3,043 3,264 2,982
------- -------- -------- -------- --------
Total foreclosed property . . . . . . . . . . . . . 20,875 21,805 20,327 23,833 26,141
------- -------- -------- -------- --------
Total nonperforming assets . . . . . . . . . . . . $92,723*** $100,517 $109,511 $124,529 $126,267
======= ======== ======== ======== ========
Nonperforming loans to period-end loans . . . . . . . . . .27% .30% .36% .41% .42%
Nonperforming assets to period-end loans and
foreclosed property . . . . . . . . . . . . . . . . . . .35 .39 .44 .51 .53
Period-end allowance for loan losses times
nonperforming loans . . . . . . . . . . . . . . . . . . 5.69x 5.16x 4.55x 4.03x 4.05x
Period-end allowance for loan losses times
nonperforming assets . . . . . . . . . . . . . . . . . 4.41 4.04 3.71 3.26 3.21
CONTRACTUALLY PAST DUE LOANS
(accruing loans past due 90 days or more)
Domestic borrowers . . . . . . . . . . . . . . . . . . . $48,998 $ 37,010 $ 43,708 $ 50,321 $ 42,744
======= ======== ======== ======== ========
*Includes $6,910 of loans which have been defined as impaired per Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (FASB 114)
**Excludes $10,261 of loans which have been renegotiated at market rates and have been reclassified to performing status
***Net of cumulative corporate and commercial real estate charge-offs and foreclosed real estate write-downs totaling $29,945;
includes $6,395 of nonperforming assets on which interest and principal are paid current
____________________________________________________________________________________________________________________________________
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $21.788 million for the
first quarter of 1995, exceeding net charge-offs by $2.368 million and
higher by $4.029 million or 22.7 percent from $17.759 million in the
same period a year earlier. Compared with the fourth quarter of 1994,
the provision was up $2.249 million or 11.5 percent.
The provision reflects management's assessment of the adequacy
of the allowance for loan losses to absorb potential write-offs in the
loan portfolio. Several factors are considered in this assessment,
including growth and composition of the loan portfolio, historical
credit loss experience, current and anticipated economic conditions
and changes in borrowers' financial positions. At March 31, 1995, the
allowance for loan losses was $408.500 million, representing 1.53
percent of period-end loans and 569 percent coverage of nonperforming
loans. Comparable amounts were $405.474 million, 1.71 percent and 405
percent, respectively, a year earlier and $406.132 million, 1.57
percent and 516 percent, respectively, at fourth quarter-close 1994.
Net loan losses for the first three months of 1995 totaled
$19.420 million or .30 percent annualized of average loans. This
compared with $17.083 million or .30 percent in the same period a year
earlier. The increase primarily reflected lower recoveries, with gross
charge-offs modestly higher from the same three months of 1994. Net
loan losses were up slightly from the fourth quarter of 1994 due to
reduced recoveries as gross charge-offs declined by $1.075 million or
3.9 percent.
Excluding credit cards, net charge-offs were $1.192 million or
.02 percent of average loans. This was lower by $2.734 million or 69.6
percent from a year earlier and down $1.464 million or 55.1 percent
from
14
16
the fourth quarter of 1994. Credit card net charge-offs totaled
$18.228 million or 1.84 percent annualized of average credit card
loans. This compares with $13.157 million or 1.67 percent in the same
three months of 1994 and $16.756 million or 1.76 percent for the 1994
fourth quarter. Commercial loans had net recoveries of $377 thousand
compared with net loan losses of $3.123 million a year earlier.
____________________________________________________________________________________________________________________________________
ALLOWANCE FOR LOAN LOSSES (thousands) TABLE 7
____________________________________________________________________________________________________________________________________
1995 1994
-------- -------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------
SUMMARY OF TRANSACTIONS
Balance at beginning of period . . . . . . . . . . $406,132 $406,005 $405,942 $405,474 $404,798
Provision for loan losses . . . . . . . . . . . . . 21,788 19,539 18,123 16,342 17,759
Deduct net loan losses:
Loans charged off:
Commercial . . . . . . . . . . . . . . . . . . 318 1,793 3,063 2,947 5,080
Credit card . . . . . . . . . . . . . . . . . . 21,431 19,682 17,310 16,808 15,928
Other revolving credit . . . . . . . . . . . . 805 1,000 908 902 905
Other retail . . . . . . . . . . . . . . . . . 3,412 3,216 2,504 2,605 3,084
Real estate . . . . . . . . . . . . . . . . . . 391 1,785 749 1,352 819
Lease financing . . . . . . . . . . . . . . . . 101 57 28 80 61
Foreign . . . . . . . . . . . . . . . . . . . . -- -- -- -- --
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . 26,458 27,533 24,562 24,694 25,877
Recoveries:
Commercial . . . . . . . . . . . . . . . . . . 695 1,382 915 1,423 1,957
Credit card . . . . . . . . . . . . . . . . . . 3,203 2,926 2,837 2,760 2,771
Other revolving credit . . . . . . . . . . . . 322 224 285 303 247
Other retail . . . . . . . . . . . . . . . . . 1,019 927 1,159 749 1,121
Real estate . . . . . . . . . . . . . . . . . . 1,761 2,624 1,273 3,506 2,612
Lease financing . . . . . . . . . . . . . . . . 30 31 25 70 78
Foreign . . . . . . . . . . . . . . . . . . . . 8 7 8 9 8
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . 7,038 8,121 6,502 8,820 8,794
-------- -------- -------- -------- --------
Net loan losses . . . . . . . . . . . . . . . . . 19,420 19,412 18,060 15,874 17,083
-------- -------- -------- -------- --------
Balance at end of period . . . . . . . . . . . . . $408,500* $406,132 $406,005 $405,942 $405,474
======== ======== ======== ======== ========
NET LOAN LOSSES (RECOVERIES) BY CATEGORY
Commercial . . . . . . . . . . . . . . . . . . . . $ (377) $ 411 $ 2,148 $ 1,524 $ 3,123
Credit card . . . . . . . . . . . . . . . . . . . . 18,228 16,756 14,473 14,048 13,157
Other revolving credit . . . . . . . . . . . . . . 483 776 623 599 658
Other retail . . . . . . . . . . . . . . . . . . . 2,393 2,289 1,345 1,856 1,963
Real estate . . . . . . . . . . . . . . . . . . . . (1,370) (839) (524) (2,154) (1,793)
Lease financing . . . . . . . . . . . . . . . . . . 71 26 3 10 (17)
Foreign . . . . . . . . . . . . . . . . . . . . . . (8) (7) (8) (9) (8)
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . $ 19,420 $ 19,412 $ 18,060 $ 15,874 $ 17,083
======== ======== ======== ======== ========
Net loan losses -- excluding credit cards . . . . . $ 1,192 $ 2,656 $ 3,587 $ 1,826 $ 3,926
ANNUALIZED NET LOAN LOSSES (RECOVERIES)
TO AVERAGE LOANS BY CATEGORY
Commercial . . . . . . . . . . . . . . . . . . . . (.01%) .02% .09% .07% .14%
Credit card . . . . . . . . . . . . . . . . . . . . 1.84 1.76 1.57 1.63 1.67
Other revolving credit . . . . . . . . . . . . . . .57 .92 .74 .72 .80
Other retail . . . . . . . . . . . . . . . . . . . .31 .29 .17 .23 .25
Real estate . . . . . . . . . . . . . . . . . . . . (.07) (.04) (.03) (.12) (.10)
Lease financing . . . . . . . . . . . . . . . . . . .15 .06 .01 .02 (.04)
Foreign . . . . . . . . . . . . . . . . . . . . . . (.01) (.01) (.04) (.04) (.04)
Total loans . . . . . . . . . . . . . . . . . . . . .30 .31 .29 .26 .30
Total loans -- excluding credit cards . . . . . . . .02 .05 .07 .04 .08
Period-end allowance to outstanding loans . . . . . 1.53 1.57 1.63 1.67 1.71
*Includes $2,070 which is the related allowance for credit losses for impaired loans as defined in FASB 114, "Accounting by
Creditors for Impairment of a Loan"
____________________________________________________________________________________________________________________________________
15
17
NONINTEREST INCOME
Total other operating revenue was up $12.224 million or 8.4
percent from the first quarter of 1994. Higher levels of credit card
income and deposit account service charges, stronger trading account
profits and increases in other service charges and fees primarily
accounted for the change. Total other operating revenue grew modestly
from the fourth quarter of 1994.
Credit card income rose $3.610 million or 14.2 percent year
over year, reflecting good gains in cardholder interchange income and
higher levels of both membership fees and net merchant discount fees.
Cardholder purchase volume totaled $789 million for the first quarter
of 1995 versus $663 million in the same period a year earlier.
Service charges on deposit accounts were up $731 thousand or
1.5 percent. Increased overdraft fees and charges for nonsufficient
funds primarily accounted for the rise. Commercial account analysis
fees largely remained unchanged for the period with increased service
levels being compensated by higher credit given for corporate deposit
balances due to rising interest rates.
A strong market in municipal and government securities helped
improve trading account profits. For the first three months of 1995,
trading account profits totaled $3.067 million compared with $1.507
million a year earlier, an increase of $1.560 million or 103.5
percent.
Trust service fees were down $800 thousand or 2.5 percent. The
decrease was due to lower personal financial service fees, reflecting
reduced fixed income asset valuations. Corporate trust fees, which
include corporate stock transfer and bond trustee as well as employee
benefits and charitable funds, were approximately flat for the period.
Mortgage fee income rose $421 thousand or 5.2 percent. The
increase reflected, in part, higher levels of servicing fees as well
as reduced mortgage pool fees and narrowed losses on loan sales.
Partially offsetting the increase was lower origination fees. In the
first quarter of 1995, loan originations totaled $206.886 million
compared with $462.656 million a year earlier. In April, the
corporation signed an agreement to sell its $9 billion mortgage
servicing portfolio to GE Capital Mortgage Services, Inc. The decision
to sell the portfolio was based on a strategic assessment of the
servicing business' future, competitive industry trends and the
long-term need for investments in technology.
Insurance premiums and commissions were up $627 thousand or
23.3 percent, while bankers' acceptance and letter of credit fees were
lower by $728 thousand or 11.6 percent.
16
18
Other service charges and fees grew $5.190 million or 38.1
percent. This category consists of several of the corporation's
alternative fee sources including mutual fund fees, brokerage
commissions, debit card interchange fees and net ATM fees.
Other income increased $1.613 million or 21.3 percent to
$9.177 million for the first quarter of 1995. At March 31, 1995,
Wachovia's customer portfolio of interest rate and currency
derivatives (excluding foreign exchange forwards and options) had a
notional amount of $3.952 billion and a fair value of $2.909 million
versus $2.223 billion and $2.787 million, respectively, one year
earlier.
Including gains and losses on investment securities, total
noninterest income was higher by $11.523 million or 7.9 percent.
Investment securities sales had a net loss of $129 thousand for the
first three months of 1995 compared with a net gain of $572 thousand
in the same period a year earlier.
____________________________________________________________________________________________________________________________________
NONINTEREST INCOME (thousands) TABLE 8
____________________________________________________________________________________________________________________________________
1995 1994
--------- -------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
Service charges on deposit accounts ............................. $ 48,881 $ 48,413 $ 48,940 $ 50,646 $ 48,150
Fees for trust services ......................................... 30,881 31,285 32,151 32,983 31,681
Credit card income -- net of interchange payments ............... 28,944 30,200 28,271 28,120 25,334
Mortgage fee income ............................................. 8,454 8,886 8,590 7,715 8,033
Trading account profits (losses) -- excluding interest .......... 3,067 (582) 1,576 598 1,507
Insurance premiums and commissions .............................. 3,313 3,189 2,425 3,379 2,686
Bankers' acceptance and letter of credit fees ................... 5,559 5,365 5,827 5,689 6,287
Other service charges and fees .................................. 18,817 15,530 14,571 13,156 13,627
Other income .................................................... 9,177 12,437 9,190 11,013 7,564
--------- --------- --------- --------- ---------
Total other operating revenue ............................. 157,093 154,723 151,541 153,299 144,869
Investment securities gains (losses) ............................ (129) 2,094 433 221 572
--------- --------- --------- --------- ---------
Total ..................................................... $ 156,964 $ 156,817 $ 151,974 $ 153,520 $ 145,441
========= ========= ========= ========= =========
____________________________________________________________________________________________________________________________________
17
19
NONINTEREST EXPENSE
Total noninterest expense increased $12.982 million or 4.8
percent year over year, reflecting continued good expense management.
The corporation's overhead ratio measuring noninterest expense as a
percentage of total adjusted revenues (taxable equivalent net interest
income and total other operating revenue) decreased to 53.4 percent
from 55.4 percent in the same period of 1994. Compared with the
preceding quarter, non-interest expense for the first three months of
1995 was higher by $507 thousand or less than 1 percent.
Total personnel expense rose $3.949 million or 2.8 percent.
Salaries expense was up $2.974 million or 2.6 percent, primarily
reflecting higher base salaries. Increased moving expenses, associated
with consolidations, also contributed to the rise. Employee benefits
expense was up $975 thousand or 3.8 percent, primarily due to
lower-than-trend-line medical benefit plan costs in 1994.
Net occupancy and equipment expense increased $2.513 million
or 5.5 percent. Higher building maintenance, renovation, operating
lease and depreciation helped push net occupancy expense up $762
thousand or 3.9 percent. Equipment expense rose $1.751 million or 6.6
percent, primarily due to increased depreciation and equipment
installation costs related to new technology projects.
Remaining combined categories of noninterest expense were
higher by $6.520 million or 7.8 percent of which $3.286 million was
due to lower year-over-year gains on sales of foreclosed property.
Foreclosed property expense had a net gain of $155 thousand versus a
net gain of $3.441 million in the same three months of 1994. Outside
data processing expense increased $1.412 million or 16.6 percent. Fees
for professional services rose $1.739 million or 44 percent,
reflecting expenses associated with the strategic assessment and other
related projects.
____________________________________________________________________________________________________________________________________
NONINTEREST EXPENSE (thousands) TABLE 9
____________________________________________________________________________________________________________________________________
1995 1994
--------- --------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- ---------
Salaries ............................................ $ 118,185 $ 117,904 $ 116,793 $ 114,882 $ 115,211
Employee benefits ................................... 26,778 23,662 22,902 26,350 25,803
--------- --------- --------- --------- ---------
Total personnel expense ....................... 144,963 141,566 139,695 141,232 141,014
Net occupancy expense ............................... 20,190 21,261 20,026 20,196 19,428
Equipment expense ................................... 28,263 27,197 26,789 26,010 26,512
Postage and delivery ................................ 9,592 8,650 8,645 8,816 9,052
Outside data processing, programming and software ... 9,897 10,773 7,834 8,119 8,485
Stationery and supplies ............................. 6,208 6,182 6,578 5,836 5,962
Advertising and sales promotion ..................... 9,412 6,949 8,019 9,316 9,783
Professional services ............................... 5,691 6,539 4,617 5,385 3,952
Travel and business promotion ....................... 4,059 4,650 3,757 4,343 3,504
FDIC insurance and regulatory examinations .......... 13,339 13,188 13,294 13,589 13,380
Check clearing and other bank services .............. 2,150 2,204 2,475 1,920 2,295
Amortization of intangible assets ................... 4,071 4,430 4,524 4,602 5,137
Foreclosed property expense ......................... (155) 9 (452) (404) (3,441)
Other expense ....................................... 25,352 28,927 25,492 25,585 24,987
--------- --------- --------- --------- ---------
Total ......................................... $ 283,032 $ 282,525 $ 271,293 $ 274,545 $ 270,050
========= ========= ========= ========= =========
Overhead ratio ...................................... 53.41% 53.69% 53.24% 54.31% 55.43%
____________________________________________________________________________________________________________________________________
18
20
INCOME TAXES
Applicable income taxes were higher by $8.505 million or 16.8
percent, largely reflecting growth in the corporation's income level.
Income taxes computed at the statutory rate are reduced primarily by
the interest earned on state and municipal debt securities and
industrial revenue obligations. Also, within certain limitations,
one-half of the interest income on qualifying employee stock ownership
plan loans is exempt from federal taxes. The interest earned on state
and municipal debt instruments is exempt from federal taxes and,
except for out-of-state issues, from Georgia and North Carolina taxes
as well, and results in substantial interest savings for local
governments and their constituents.
___________________________________________________________________________________________________________________________
INCOME TAXES (thousands) TABLE 10
___________________________________________________________________________________________________________________________
Three Months Three Months
Ended Ended
March 31 March 31
1995 1994
------------ ------------
Income before income taxes ................................................... $ 201,340 $ 175,478
========= =========
Federal income taxes at statutory rate ....................................... 70,469 61,417
State and local income taxes -- net of
federal benefit ............................................................ 398 1,221
Effect of tax-exempt securities
interest and other income .................................................. (10,849) (11,967)
Other items .................................................................. (834) 8
--------- ---------
Total tax expense ...................................................... $ 59,184 $ 50,679
========= =========
Currently payable:
Federal .................................................................... $ 62,517 $ 43,259
Foreign .................................................................... 67 34
State and local ............................................................ 1,935 2,413
--------- ---------
Total .................................................................. 64,519 45,706
Deferred:
Federal .................................................................... (4,012) 5,508
State and local ............................................................ (1,323) (535)
--------- ---------
Total .................................................................. (5,335) 4,973
--------- ---------
Total tax expense ...................................................... $ 59,184 $ 50,679
========= =========
___________________________________________________________________________________________________________________________
19
21
FINANCIAL CONDITION AND CAPITAL RATIOS
Assets at March 31, 1995 totaled $40.223 billion, including
$35.814 billion of interest-earning assets and $26.728 billion of
loans. Comparable amounts one year earlier were $36.350 billion,
$32.370 billion and $23.662 billion, respectively. At year-end 1994,
assets were $39.188 billion, including $34.712 billion of
interest-earning assets and $25.891 billion of loans.
Deposits constitute the primary source of funding for the
corporation. At March 31, 1995, deposits were $23.110 billion,
including $17.956 billion of time deposits, representing 77.7 percent
of the total. Deposits were $22.279 billion, including time deposits
of $16.914 billion or 75.9 percent of the total a year earlier and
were $23.069 billion, including $17.406 billion or 75.5 percent of the
total at December 31, 1994.
Shareholders' equity at the end of the 1995 first quarter was
$3.405 billion, higher by $311 million or 10.1 percent from $3.094
billion a year earlier and up $118 million or 3.6 percent from fourth
quarter-close 1994. The total at March 31, 1995 included $10.111
million, net of tax, of unrealized losses on securities
available-for-sale marked to fair market value under FASB 115.
The corporation was authorized by the board of directors on
July 22, 1994 to repurchase up to 5 million shares of its common
stock. The authorization replaced an earlier action in 1993 to
repurchase the same number of shares. Repurchased shares will be used
for various corporate purposes, including share issuance for the
corporation's employee stock plans and dividend reinvestment plan. In
the first quarter of 1995, the corporation repurchased 58,600 shares
at an average price of $32.925 per share for a total cost of $1.929
million. At March 31, 1995, a total of 4,265,900 shares remained
available for possible repurchase.
Intangible assets at March 31, 1995 were $74.614 million,
consisting of $31.903 million in mortgage servicing rights, $30.589
million in goodwill, $8.163 million in deposit base intangibles and
$3.959 million in other intangible assets, primarily purchased credit
card intangibles. Intangible assets a year earlier were $88.423
million, with $40.493 million in mortgage servicing rights, $32.095
million in goodwill, $10.127 million in deposit base intangibles and
$5.708 million in other intangible assets. At year-end 1994,
intangible assets totaled $78.408 million.
Regulatory agencies divide capital into Tier I (consisting of
shareholders' equity less ineligible intangible assets) and Tier II
(consisting of the allowable portion of the reserve for loan losses
and certain long-term debt) and measure capital adequacy by applying
both capital levels to a banking company's risk-adjusted assets and
off-balance sheet items. Regulatory requirements presently specify
that Tier I capital should exclude the market appreciation or
depreciation of securities available-for-sale arising from valuation
adjustments under FASB 115. 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 one-half consisting of
tangible common shareholders' equity and a minimum Tier I leverage
ratio of 3
20
22
percent. Banks which meet or exceed a Tier I ratio of 6 percent, a
total capital ratio of 10 percent and a Tier I leverage ratio of 5
percent are considered well capitalized by regulatory standards.
At March 31, 1995, Wachovia's Tier I to risk-adjusted assets
ratio was 9.35 percent with total capital 12.60 percent of
risk-adjusted assets. The corporation's Tier I leverage ratio was 8.70
percent.
____________________________________________________________________________________________________________________________________
CAPITAL COMPONENTS AND RATIOS (thousands) TABLE 11
____________________________________________________________________________________________________________________________________
1995 1994
------------ ------------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------ ------------
Tier I capital:
Common shareholders' equity ........... $ 3,404,983 $ 3,286,507 $ 3,214,881 $ 3,149,144 $ 3,093,593
Less ineligible intangible assets ..... 30,589 30,961 31,334 32,349 32,095
Unrealized (gains) losses on securities
available-for-sale -- net of tax ..... 10,111 37,635 21,510 15,140 (3,825)
------------ ------------ ------------ ------------ ------------
Total Tier I capital .............. 3,384,505 3,293,181 3,205,057 3,131,935 3,057,673
Tier II capital:
Allowable allowance for loan losses ... 408,500 406,132 406,005 405,942 396,449
Allowable long-term debt .............. 770,680 830,782 832,881 833,253 833,125
------------ ------------ ------------ ------------ ------------
Tier II capital additions ......... 1,179,180 1,236,914 1,238,886 1,239,195 1,229,574
------------ ------------ ------------ ------------ ------------
Total capital ..................... $ 4,563,685 $ 4,530,095 $ 4,443,943 $ 4,371,130 $ 4,287,247
============ ============ ============ ============ ============
Risk-adjusted assets .................... $ 36,207,967 $ 35,573,896 $ 34,100,248 $ 32,746,004 $ 31,706,868
Quarterly average assets ................ $ 38,901,940 $ 38,146,370 $ 37,676,339 $ 37,174,827 $ 35,778,460
Risk-based capital ratios:
Tier I capital ........................ 9.35% 9.26% 9.40% 9.56% 9.64%
Total capital ......................... 12.60 12.73 13.03 13.35 13.52
Tier I leverage ratio* .................. 8.70 8.63 8.51 8.43 8.56
Shareholders' equity to total assets .... 8.47 8.39 8.43 8.50 8.51
*Ratio excludes the average unrealized gains
(losses) on securities available-for-sale,
net of tax, of ($29,681) for 1995 and ($26,581),
($16,885), ($8,535) and $22,399, respectively,
for 1994
____________________________________________________________________________________________________________________________________
21
23
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
March 31 December 31 March 31
$ in thousands 1995 1994 1994
----------- ----------- -----------
ASSETS
Cash and due from banks ................................................ $ 2,419,234 $ 2,670,115 $ 2,220,126
Interest-bearing bank balances ......................................... 6,364 6,763 24,169
Federal funds sold and securities
purchased under resale agreements .................................... 24,341 201,606 284,447
Trading account assets ................................................. 770,457 889,958 577,362
Securities available-for-sale .......................................... 3,759,901 3,538,247 3,921,285
Securities held-to-maturity (market value of $4,558,931,
$4,114,644 and $4,033,333, respectively) ............................. 4,524,687 4,184,610 3,900,312
Loans and net leases ................................................... 26,735,997 25,898,774 23,670,041
Less unearned income on loans .......................................... 7,863 7,970 7,652
----------- ----------- -----------
Total loans ...................................................... 26,728,134 25,890,804 23,662,389
Less allowance for loan losses ......................................... 408,500 406,132 405,474
----------- ----------- -----------
Net loans ........................................................ 26,319,634 25,484,672 23,256,915
Premises and equipment ................................................. 556,428 543,548 507,770
Due from customers on acceptances ...................................... 646,265 416,591 609,149
Other assets ........................................................... 1,196,040 1,251,848 1,048,413
----------- ----------- -----------
Total assets ..................................................... $40,223,351 $39,187,958 $36,349,948
=========== =========== ===========
LIABILITIES
Deposits in domestic offices:
Demand ............................................................... $ 5,147,945 $ 5,657,579 $ 5,358,943
Interest-bearing demand .............................................. 3,259,075 3,524,857 3,453,505
Savings and money market savings ..................................... 6,192,203 6,065,966 6,295,721
Savings certificates ................................................. 6,500,958 5,464,532 5,037,319
Large denomination certificates ...................................... 1,545,074 1,416,318 1,465,016
Noninterest-bearing time ............................................. 19,895 24,121 72,164
----------- ----------- -----------
Total deposits in domestic offices ............................... 22,665,150 22,153,373 21,682,668
Deposits in foreign offices:
Demand ............................................................... 5,737 5,540 6,417
Time ................................................................. 438,704 910,345 590,166
----------- ----------- -----------
Total deposits in foreign offices ................................ 444,441 915,885 596,583
----------- ----------- -----------
Total deposits ................................................... 23,109,591 23,069,258 22,279,251
Federal funds purchased and securities
sold under repurchase agreements ..................................... 6,098,915 5,898,398 4,901,139
Commercial paper ....................................................... 404,791 406,706 499,426
Other short-term borrowed funds ........................................ 1,472,795 1,007,340 508,570
Long-term debt:
Bank notes ........................................................... 3,809,124 3,953,318 3,262,912
Other long-term debt ................................................. 836,526 837,146 839,669
----------- ----------- -----------
Total long-term debt ............................................. 4,645,650 4,790,464 4,102,581
Acceptances outstanding ................................................ 646,265 416,591 609,149
Other liabilities ...................................................... 440,361 312,694 356,239
----------- ----------- -----------
Total liabilities ................................................ 36,818,368 35,901,451 33,256,355
SHAREHOLDERS' EQUITY
Preferred stock, par value $5 per share:
Authorized 50,000,000 shares; none outstanding ....................... -- -- --
Common stock, par value $5 per share:
Issued 171,207,470, 170,933,749 and
171,416,491, respectively .......................................... 856,037 854,669 857,082
Capital surplus ........................................................ 748,955 741,946 759,389
Retained earnings ...................................................... 1,799,991 1,689,892 1,477,122
----------- ----------- -----------
Total shareholders' equity ....................................... 3,404,983 3,286,507 3,093,593
----------- ----------- -----------
Total liabilities and shareholders' equity ....................... $40,223,351 $39,187,958 $36,349,948
=========== =========== ===========
22
24
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31
$ in thousands, except per share 1995 1994
--------- ---------
INTEREST INCOME
Loans ....................................................................... $ 559,774 $ 410,452
Securities available-for-sale:
Other investments ......................................................... 44,602 44,812
Securities held-to-maturity:
State and municipal ....................................................... 10,206 13,024
Other investments ......................................................... 64,238 55,776
Interest-bearing bank balances .............................................. 101 160
Federal funds sold and securities
purchased under resale agreements ......................................... 1,202 3,111
Trading account assets ...................................................... 11,669 6,518
--------- ---------
Total interest income ................................................. 691,792 533,853
INTEREST EXPENSE
Deposits:
Domestic offices .......................................................... 159,826 116,041
Foreign offices ........................................................... 7,507 3,280
--------- ---------
Total interest on deposits ............................................ 167,333 119,321
Short-term borrowed funds ................................................... 108,389 51,625
Long-term debt .............................................................. 66,874 45,061
--------- ---------
Total interest expense ................................................ 342,596 216,007
NET INTEREST INCOME ......................................................... 349,196 317,846
Provision for loan losses ................................................... 21,788 17,759
--------- ---------
Net interest income after
provision for loan losses ................................................. 327,408 300,087
OTHER INCOME
Service charges on deposit accounts ......................................... 48,881 48,150
Fees for trust services ..................................................... 30,881 31,681
Credit card income .......................................................... 28,944 25,334
Mortgage fee income ......................................................... 8,454 8,033
Trading account profits ..................................................... 3,067 1,507
Other operating income ...................................................... 36,866 30,164
--------- ---------
Total other operating revenue ......................................... 157,093 144,869
Investment securities gains (losses) ........................................ (129) 572
--------- ---------
Total other income .................................................... 156,964 145,441
OTHER EXPENSE
Salaries .................................................................... 118,185 115,211
Employee benefits ........................................................... 26,778 25,803
--------- ---------
Total personnel expense ............................................... 144,963 141,014
Net occupancy expense ....................................................... 20,190 19,428
Equipment expense ........................................................... 28,263 26,512
Other operating expense ..................................................... 89,616 83,096
--------- ---------
Total other expense ................................................... 283,032 270,050
Income before income taxes .................................................. 201,340 175,478
Applicable income taxes ..................................................... 59,184 50,679
--------- ---------
NET INCOME .................................................................. $ 142,156 $ 124,799
========= =========
Net income per common share:
Primary ................................................................... $ .83 $ .72
Fully diluted ............................................................. $ .82 $ .72
Average shares outstanding:
Primary ................................................................... 172,205 172,739
Fully diluted ............................................................. 172,760 173,378
23
25
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
------------------------------- Capital Retained
$ in thousands, except per share Shares Amount Surplus Earnings
----------- ------------ ------------ ------------
PERIOD ENDED MARCH 31, 1994
Balance at beginning of year ........................ 171,375,772 $ 856,879 $ 761,573 $ 1,399,495
Net income .......................................... 124,799
Cash dividends declared on common
stock -- $.30 a share ............................. (51,443)
Common stock issued pursuant to:
Stock option and employee benefit plans ........... 374,715 1,873 7,622
Dividend reinvestment plan ........................ 88,357 442 2,368
Conversion of debentures .......................... 21,254 106 300
Common stock acquired ............................... (443,607) (2,218) (12,473)
Unrealized gains on securities
available-for-sale, net of tax .................... 3,825
Miscellaneous ....................................... (1) 446
----------- ------------ ------------ ------------
Balance at end of period ............................ 171,416,491 $ 857,082 $ 759,389 $ 1,477,122
=========== ============ ============ ============
PERIOD ENDED MARCH 31, 1995
Balance at beginning of year ........................ 170,933,749 $ 854,669 $ 741,946 $ 1,689,892
Net income .......................................... 142,156
Cash dividends declared on common
stock -- $.33 a share ............................. (56,458)
Common stock issued pursuant to:
Stock option and employee benefit plans ........... 253,308 1,266 6,844
Dividend reinvestment plan ........................ 95,767 479 2,792
Conversion of debentures .......................... 33,177 166 470
Common stock acquired ............................... (108,531) (543) (3,063)
Unrealized gains on securities
available-for-sale, net of tax .................... 27,524
Miscellaneous ....................................... (34) (3,123)
----------- ------------ ------------ ------------
Balance at end of period ............................ 171,207,470 $ 856,037 $ 748,955 $ 1,799,991
=========== ============ ============ ============
24
26
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
$ in thousands 1995 1994
----------- -----------
OPERATING ACTIVITIES
Net income ..................................................................................... $ 142,156 $ 124,799
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses .................................................................... 21,788 17,759
Depreciation and amortization ................................................................ 26,090 28,899
Deferred income taxes (benefit) .............................................................. (5,335) 4,973
Investment securities (gains) losses ......................................................... 129 (572)
Gain on sale of noninterest-earning assets ................................................... (802) (3,111)
Increase in accrued income taxes ............................................................. 63,777 40,504
Decrease in accrued interest receivable ...................................................... 2,775 24,293
Increase in accrued interest payable ......................................................... 56,141 26,940
Net change in other accrued and deferred income and expense .................................. (2,044) (47,128)
Net trading account activities ............................................................... 119,501 211,417
Net loans held for resale .................................................................... (1,193) 72,035
----------- -----------
Net cash provided by operating activities ................................................ 422,983 500,808
INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing bank balances ...................................... 399 (11,691)
Net decrease in federal funds sold and securities
purchased under resale agreements ............................................................ 177,265 406,659
Purchases of securities available-for-sale ..................................................... (630,963) (512,416)
Purchases of securities held-to-maturity ....................................................... (438,963) (2,004)
Sales of securities available-for-sale ......................................................... 274,577 23,648
Calls, maturities and prepayments of securities available-for-sale ............................. 178,172 303,596
Calls, maturities and prepayments of securities held-to-maturity ............................... 98,009 245,248
Net increase in loans made to customers ........................................................ (857,470) (777,875)
Capital expenditures ........................................................................... (33,445) (24,718)
Proceeds from sales of premises and equipment .................................................. 2,513 2,205
Net decrease in other assets ................................................................... 7,139 39,140
----------- -----------
Net cash used by investing activities .................................................... (1,222,767) (308,208)
FINANCING ACTIVITIES
Net decrease in demand, savings and money market accounts ...................................... (653,208) (712,713)
Net increase (decrease) in certificates of deposit ............................................. 693,541 (360,434)
Net increase in federal funds purchased and securities sold under repurchase agreements ........ 200,517 159,856
Net decrease in commercial paper ............................................................... (1,915) (89,752)
Net increase (decrease) in other short-term borrowings ......................................... 465,455 (582,553)
Proceeds from issuance of bank notes ........................................................... 100,000 1,042,193
Maturities of bank notes ....................................................................... (244,892) (150,000)
Proceeds from issuance of other long-term debt ................................................. -- 247,800
Payments on other long-term debt ............................................................... (112) (85)
Common stock issued ............................................................................ 6,162 11,702
Dividend payments .............................................................................. (56,458) (51,443)
Common stock repurchased ....................................................................... (2,188) (14,147)
Net increase (decrease) in other liabilities ................................................... 42,001 (2,426)
----------- -----------
Net cash provided (used) by financing activities ......................................... 548,903 (502,002)
DECREASE IN CASH AND CASH EQUIVALENTS .......................................................... (250,881) (309,402)
Cash and cash equivalents at beginning of year ................................................. 2,670,115 2,529,528
----------- -----------
Cash and cash equivalents at end of period ..................................................... $ 2,419,234 $ 2,220,126
=========== ===========
SUPPLEMENTAL DISCLOSURES
Unrealized appreciation in securities available-for-sale:
Increase in securities available-for-sale .................................................... $ 45,235 $ 6,291
Increase (decrease) in deferred taxes ........................................................ (17,711) 3,825
Increase in shareholders' equity ............................................................. 27,524 2,466
25
27
________________________________________________________________________________
ANNUAL SHAREHOLDERS' MEETING FRIDAY, APRIL 28, 1995
REMARKS BY L. M. BAKER, JR.
CHIEF EXECUTIVE OFFICER
Welcome to the Annual Shareholders' Meeting of Wachovia Corporation. It is a
pleasure to be in Charleston. This beautiful and historic city has played a
pivotal role in South Carolina's development and progress. Wachovia is proud to
be associated with its continuing success and to have a strong banking presence
here.
Details of Wachovia's financial performance for 1994 and for the first quarter
of 1995 were mailed earlier to shareholders. This morning Bob McCoy will
highlight briefly the recent financial performance. Then, I will comment on the
challenging environment facing the financial services business and update you
on steps the corporation is taking to position itself for the future.
These excellent results, shown in the accompanying slides, were not easily
achieved. We are operating in a highly complex and competitive business
environment. Each month of 1994 seemed to present a new challenge which often
tended to restrain rather than enhance our performance. I am very pleased with
the effort given by loyal Wachovians who worked hard and performed admirably in
face of uncertainty and change.
Although the 1995 first quarter performance was strong, the remainder of the
year is likely to continue testing financial service businesses. While we are
optimistic about Wachovia's prospects, the economy, which is now entering its
fifth year of expansion, probably will slow from the brisk pace of 1994.
Competitive pressures on loan and deposit pricing should temper the net
interest income we have experienced as a result of increased commercial and
consumer borrowings. The rate
________________________________________________________________________________
WACHOVIA CORPORATION SELECTED FINANCIAL INFORMATION
THREE MONTHS ENDED MARCH 31
($ millions, except per share)
%
1995 1994 CHANGE
------- ------- ------
Assets $40,223 $36,350 10.7
Market Capitalization
(April 13) 6,142 5,700 7.8
Loans 26,728 23,662 13.0
Net Interest Income (FTE) 373 342 8.9
Provision 22 18 22.7
Other Operating Revenue 157 145 8.4
Other Expense 283 270 4.8
Net Income 142 125 13.9
EPS Fully Diluted .82 .72 14.3
________________________________________________________________________________
________________________________________________________________________________
WACHOVIA CORPORATION SELECTED FINANCIAL INFORMATION
THREE MONTHS ENDED MARCH 31
FIVE-YEAR
AVERAGE
1995 1994 1994-1990
---- ---- ---------
Return on Assets 1.46% 1.40% 1.23%
Return on Common Equity 17.5 16.5 15.2
Common Equity/Assets
(average) 8.36 8.44 8.02
Nonperforming Assets/Loans
+ Foreclosed Property .35 .53 .99
Net Loan Losses/Loans .30 .30 .51
Net Loan Losses/Loans
Excluding Credit Cards .02 .08 .27
Loan Loss Reserve/
Nonperforming Loans 569 405 278
________________________________________________________________________________
________________________________________________________________________________
WACHOVIA CORPORATION SELECTED FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, 1994
25 LARGEST U.S. BANKS
------------------------
WACHOVIA
($ millions) WACHOVIA MEDIAN RANK
-------- ------- --------
Assets $39,188 $59,316 23
Net Income* 539 700 18
Return on Assets 1.46% 1.21% 3
Return on Common
Equity 17.41 16.10 8
Common Equity to
Assets 8.39 6.47 3
Nonperforming Assets/
Loans + Foreclosed
Property .39 1.03 1
Loan Loss Reserve/
Nonperforming Loans 516 267 5
Overhead Ratio 54.15 61.88 1
* Applicable to common shareholders
________________________________________________________________________________
________________________________________________________________________________
WACHOVIA CORPORATION SELECTED FINANCIAL INFORMATION
COMPOUND ANNUAL GROWTH RATES
5 YEARS 1 YEAR 1ST QTR
1994-1990 1994 1995
--------- ------ -------
Net Income Per Share (FD) 10.2% 10.9% 14.3%
Dividends Per Share 12.0 10.8 10.0
Total Return*
Wachovia 13.5 (.05) 11.2
S&P 500 8.7 1.3 9.7
KBW 50 Index 7.7 (5.1) 13.4
* Dividends reinvested quarterly
________________________________________________________________________________
26
28
of loan growth itself is likely to moderate. In this economy, the credit cycle
has not been repealed. Wachovia's credit card net charge-offs, while still well
below the industry average, have been rising during recent quarters. I believe
the industry will begin experiencing a higher level of loan losses reflecting a
combination of weaker credit standards and a slower-growing economy.
Looking ahead to the end of this decade, the financial services industry will
navigate through an unprecedented period of dramatic change. Wachovia must
embrace this change and make it work to our advantage in order to remain among
the ranks of leading companies whose performance warrants and should receive
superior market valuation.
The extraordinary performance of years past is comforting, but it will not
carry Wachovia into the future. The early years of this decade ushered in
profound shifts in the economy, customer expectations, and requirements for
leadership and high performance. Population shifts and technology are two
especially significant areas affecting us now.
The population of America is continuing to age. Over the next fifteen years,
the number of people in this country under age fifty will remain about the
same, while the total population over age fifty will double. This will tend to
increase the proportion of savers and investors to spenders and borrowers.
Advances in technology are especially dramatic. I suspect we still cannot
recognize the different and unique ways in which we will communicate with each
other in the future.
As the domestic economy in the remainder of the 1990s grows at a slower pace,
it will be more challenging to sustain Wachovia's high performance. Growth in
loans and deposits, two of the strongest contributors to banking performance,
will be less robust. We must continue to find ways to supplement this
traditional, and still attractive, spread income business. It will be
imperative to manage costs even more effectively, while remaining vigilant in
managing the quality of our loan portfolio and other areas of potential risk.
This shifting environment led a group of senior Wachovia executives to
undertake in 1994 a strategic assessment process. Throughout the spring and
summer, we took an unrestrained look at the company. The emphasis was on
finding opportunities for growth and ways to help Wachovia meet the future
expectations of shareholders, customers, and employees.
The assessment was shared with the board of directors in October and has been
communicated throughout the organization. The 1994 Annual Report provided a
comprehensive review of the resulting corporate strategy. I hope you have had
an opportunity to read it. In summary, the assessment identified five strategic
areas of emphasis.
- Managing key lines of businesses to achieve profitable growth and build
shareholder value
- Raising Wachovia's effectiveness in selling products and services
- Redirecting technology investment to support sales and service efforts
- Using mergers and acquisitions to complement business development
strategies
- Assessing and managing the prudent use of capital
These strategies are interrelated, and management teams are in place to
implement actions in all five areas. Significant progress is being made, and we
are enthusiastic about the opportunities for Wachovia in the months and years
ahead.
Earlier this month, Wachovia signed an agreement to sell the $9 billion
residential mortgage loan servicing portfolio to GE Capital Mortgage Services.
The transaction is expected to close by the end of May. It is the latest in a
series of strategic business mix actions which has included acquiring a major
credit card franchise through the 1985 merger with the First National Bank of
Atlanta, building a debit card capability through the 1991 merger with South
Carolina National and exiting the retail lockbox and student loan servicing
businesses in 1993.
In the sales arena, Wachovia opened 200 of its 492 branches throughout the
three-state markets one Saturday last month for a special one-day sale on
10-month and three-year CDs and also offered a new money market account. It was
a very successful sales event. More than $1 billion in CDs was attracted, about
86 percent of which was new money, and 76,600 accounts were opened, of which
28,000 represented entirely new customers. This one-day sale demonstrated the
power of Wachovia's franchise and was a valuable experiment in mass marketing
techniques. We will sell more services to these new customers.
Wachovia On-Call, reached by calling 1-800-WACHOVIA, is expected to handle in
excess of 3 million calls this year. The 24-hour, seven-day-a-week telephone
sales and service center opened in June, 1994. The center's bankers continue to
expand their menu of services, including originating loan and deposit accounts.
Wachovia On-Call's service capabilities also give branch personnel more time to
sell to customers directly.
There are now 129 investment counselors in our three home states. All are
Series 7 registered representatives able to sell a full range of investment
products. The new Wachovia Mortgage Origination System is enhancing our ability
to build market share in the residential mortgage market.
27
29
Our corporate banking products, deployed by 1,450 Wachovians, are comprehensive
and growing. Wachovia is a national leader in providing cash management and
Treasury services. An independent study in 1994 ranked Wachovia number one
nationally for the quality of cash management services. We rank 12th in the
nation in providing master trust employee benefit services. The Capital Markets
division has been expanded and offers a wide array of specialized corporate
finance, international banking, financial institutions and foreign exchange
services. Wachovia Connection, a PC-based gateway to bank information for
corporate treasurers, is selling well and additional features will be added
this year.
The introduction of the Prime For Life card, the nation's first guaranteed
prime rate option, will help Wachovia to continue successfully marketing its
Visa and MasterCard credit cards in and out of home markets. At the end of the
first quarter, managed receivables totaled $4.1 billion, up $784 million from a
year ago, with approximately 1.6 million of our 2.6 million credit card
accounts located outside the three home states.
Technology has long been one of Wachovia's most distinguishing capabilities.
For the past nine years, technology investment has focused on infrastructure
improvement designed to create common systems across the three states and
support back office consolidations. This work largely is complete and results
have been excellent.
Going forward, a greater proportion of technology investment will be directed
toward growth enhancing initiatives designed to build fee income, create
value-added products, facilitate marketing and sales efforts and provide
management with better performance measurement information. Many of these
activities are already in various stages of deployment, including an enhanced
trust system, image processing-based products and next generation branch
automation providing interactive personal computer systems to better serve
customers.
Other technology will develop more sophisticated systems for Wachovia's banking
card, strengthen automated teller machine capabilities, consolidate customer
information data bases, and expand Wachovia's brokerage capability. In the
years ahead, organizations lacking a strong commitment to technology will face
complications as serious as those brought on by troublesome loans. Technology
will remain among the highest priorities at Wachovia.
In addition to managing our portfolio of businesses, enhancing sales
capabilities, and redirecting technology spending, Wachovia will be alert for
strategic acquisitions or combinations which enhance product capabilities,
increase the scale of existing businesses, provide access to a larger base of
customers, and increase shareholder value. Wachovia will continue to carefully
evaluate acquisitions of other commercial banks, but we will not be guided by
size, and we are not attracted to transactions which dilute shareholder value.
Wachovia remains committed to the maintenance of a strong and impressive
capital position. Capital is a precious resource, and it is one of the
organization's most cherished strengths. As Wachovia moves ahead with corporate
strategies and planned investments, its internal capital generation rate may
exceed the needs of future business activities. A management team is looking at
our capital, assessing needs for the future, and studying ways to manage and
deploy capital in a prudent, competent manner to enhance shareholder value over
the long term.
The increased attention being placed on major ingredients of the strategic
assessment is not detracting from our intense focus on traditional Wachovia
strengths, such as exemplary risk and superior cost management. Risk management
at Wachovia goes well beyond sound credit administration and encompasses
operational, service delivery, and general market risk associated with all
aspects of our business. Also, while Wachovia's overhead ratio ranks among the
best in banking, we have under way several initiatives which will continue to
help improve the expense component of that ratio. We are dedicated to being
better than competitors in cost management.
During 1994 and early this year, the organization has been realigned to enhance
its ability to carry forward these important initiatives. The principal change
has been the formation of the Corporate Banking and General Banking divisions.
General Banking is responsible for carrying out a single strategic direction
for Wachovia's banks and coordination of all consumer market products,
including trust and investment services. Corporate Banking includes all credit
and noncredit corporate banking services in addition to corporate trust,
employee benefit, and charitable trust services. These changes will strengthen
Wachovia's sales efforts and help productivity improvement throughout the
organization.
Adapting to change is not new to Wachovia. Our history is replete with examples
of this fine organization moving forward while remaining faithful to its values
and principles. The years ahead will be filled with interesting challenges. At
the same time, the people of Wachovia approach the future with considerable
optimism bolstered by a proud history, strategic preparation, tactical
flexibility, enviable financial strength, modern technology, and good
leadership. We are well prepared to move quickly toward opportunity and to cope
with adversity in the times ahead. Finally, I want you to know that the people
of Wachovia have a passionate devotion to this company, an unwavering
commitment to excellence, and a dedication to building shareholder value.
Thank you very much.
28
30
____________________________________________________________________________________________________________________________________
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
Wachovia Corporation
301 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
910-770-5000 404-332-5000
COMMON STOCK
The common stock of the Corporation is traded on the New York Stock
Exchange with a ticker symbol of WB.
TRANSFER AGENT
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P. O. Box 3001
Winston-Salem, NC 27102
1-800-633-4236
SHAREHOLDER ACCOUNT ASSISTANCE
Shareholders who wish to change the name, address or ownership of
stock, report lost certificates, eliminate duplicate mailings of
financial material or for other account reregistration procedures and
assistance should contact the Transfer Agent at the address or phone
number above. Use of your shareholder account number and a daytime
phone number in all correspondence will be appreciated.
DIVIDEND SERVICES
DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN -- The plan
provides common stockholders of record a regular way of investing cash
dividends in additional shares at an average market price and/or
investing optional cash payments without payment of brokerage
commissions or service charges.
DIRECT DEPOSIT OF CASH DIVIDENDS -- Direct deposit is a safe, fast and
timesaving method of receiving cash dividends through automatic
deposit on the date of payment to a checking, savings or money market
account at any financial institution which participates in an
Automated Clearing House.
Information regarding these services can be obtained by contacting the
Transfer Agent at the address or phone number above or Wachovia
Shareholder Services at the address or phone number below.
WACHOVIA SHAREHOLDER SERVICES CONTACT
H. Jo Barlow Wachovia Corporation
Shareholder Services P. O. Box 3099
910-770-5787 Winston-Salem, NC 27150
FINANCIAL INFORMATION
Analysts, investors and others seeking financial information should
contact the following either by phone or in writing to the corporate
mailing address in Winston-Salem.
Robert S. McCoy, Jr. James C. Mabry
Chief Financial Officer Investor Relations
910-770-5926 910-770-5788
INDEPENDENT AUDITORS
Ernst & Young LLP, Winston-Salem, NC
29
31
____________________________________________________________________________________________________________________________________
MEMBER COMPANY DIRECTORS
WACHOVIA BANK OF GEORGIA, N.A.
D. GARY THOMPSON CARL BOLCH, JR. BRYAN D. LANGTON D. RAYMOND RIDDLE
President and Chairman of the Board and (Advisory Director) Chairman of the Board and
Chief Executive Officer Chief Executive Officer Chairman of the Board and Chief Executive Officer
Racetrac Petroleum, Inc. Chief Executive Officer National Service Industries, Inc.
G. JOSEPH PRENDERGAST Holiday Inn Worldwide
Chairman of the Board JAMES E. BOSTIC, JR. S. STEPHEN SELIG III
Senior Vice President BERNARD MARCUS Chairman of the Board
F. DUANE ACKERMAN Environmental, Government Affairs Chairman of the Board and and President
Vice Chairman and and Communications Chief Executive Officer Selig Enterprises, Inc.
Chief Operating Officer Georgia-Pacific Corporation The Home Depot, Inc.
BellSouth Corporation ALANA S. SHEPHERD
MICHAEL C. CARLOS DANIEL W. MCGLAUGHLIN Secretary of the Board
L. M. BAKER, JR. Chairman of the Board and President and Shepherd Spinal Center
President and Chief Executive Officer Chief Operating Officer
Chief Executive Officer National Distributing Co., Inc. Equifax Inc.
Wachovia Corporation
G. STEPHEN FELKER
Chairman of the Board and
Chief Executive Officer
Avondale Mills, Inc.
WACHOVIA BANK OF NORTH CAROLINA, N.A.
J. WALTER MCDOWELL WILLIAM CAVANAUGH, III ESTELL C. LEE ANDERSON D. WARLICK
President and President and Chairman of the Board President and
Chief Executive Officer Chief Operating Officer and President Chief Operating Officer
Carolina Power & Light Company The Lee Company Parkdale Mills, Inc.
L. M. BAKER, JR.
Chairman of the Board BERT COLLINS G. JOSEPH PRENDERGAST DAVID J. WHICHARD, II
President and Executive Vice President Chairman
THOMAS M. BELK, JR. Chief Executive Officer Wachovia Corporation The Daily Reflector
Senior Vice President North Carolina Mutual
Belk Stores Services, Inc. Life Insurance Company ROBERT L. TILLMAN JOHN C. WHITAKER, JR.
Chief Operating Officer Chairman of the Board and
H. C. BISSELL RICHARD L. DAUGHERTY Lowe's Companies, Inc. Chief Executive Officer
Chairman of the Board and North Carolina Senior Inmar Enterprises, Inc.
Chief Executive Officer State Executive, JOHN F. WARD
The Bissell Companies, Inc. Vice President Worldwide Senior Vice President
Manufacturing Sara Lee Corporation
FELTON J. CAPEL IBM PC Company Chief Executive Officer
Chairman of the Board IBM Corporation Hanes Group
and President (Retired/Consultant)
Century Associates of
North Carolina
SOUTH CAROLINA NATIONAL CORPORATION
WACHOVIA BANK OF SOUTH CAROLINA, N.A.
ANTHONY L. FURR W. T. CASSELS, JR. JAMES G. LINDLEY ROBERT S. SMALL, JR.
Chairman of the Board, Chairman of the Board Chairman Emeritus President
President and Southeastern Freight Lines, Inc. AVTEX Properties, Inc.
Chief Executive Officer JOE A. PADGETT
THOMAS C. COXE, III Retired Executive Vice J. GUY STEENROD
L. M. BAKER, JR. Executive Vice President President President
President and Sonoco Products Company Wachovia Bank of South Roche Carolina Inc.
Chief Executive Officer Carolina, N.A.
Wachovia Corporation FREDERICK B. DENT, JR. WILLIAM G. TAYLOR
President G. JOSEPH PRENDERGAST President
CHARLES J. BRADSHAW Mayfair Mills, Inc. Executive Vice President The Springs Company
President Wachovia Corporation
Bradshaw Investments, Inc. JAMES B. EDWARDS, D.M.D. BEATRICE R. THOMPSON, PH.D.
President W. M. SELF Coordinator of Psychological
FRANK W. BRUMLEY Medical University of South President and Services
President Carolina Chief Executive Officer Anderson School District Five
The Brumley Company Greenwood Mills, Inc.
30
32
____________________________________________________________________________________________________________________________________
WACHOVIA CORPORATION DIRECTORS AND OFFICERS
DIRECTORS
L. M. BAKER, JR. THOMAS K. HEARN, JR. JAMES W. JOHNSTON
President and President Chairman and
Chief Executive Officer Wake Forest University Chief Executive Officer
R.J. Reynolds Tobacco Company
JOHN G. MEDLIN, JR. W. HAYNE HIPP
Chairman of the Board President and WYNDHAM ROBERTSON
Chief Executive Officer Vice President, Communications
RUFUS C. BARKLEY, JR. The Liberty Corporation University of North Carolina
Chairman of the Board
Cameron & Barkley Company ROBERT M. HOLDER, JR. HERMAN J. RUSSELL
Chairman of the Board Chairman of the Board and
CRANDALL C. BOWLES Holder Corporation Chief Executive Officer
Executive Vice President H.J. Russell & Company
Springs Industries, Inc. DONALD R. HUGHES
Consultant and Retired SHERWOOD H. SMITH, JR.
JOHN L. CLENDENIN Vice Chairman of the Board Chairman of the Board and
Chairman of the Board Burlington Industries, Inc. Chief Executive Officer
and Chief Executive Officer Carolina Power & Light Company
BellSouth Corporation F. KENNETH IVERSON
Chairman and CHARLES MCKENZIE TAYLOR
LAWRENCE M. GRESSETTE, JR. Chief Executive Officer Chairman of the Board
Chairman of the Board, Nucor Corporation Taylor & Mathis, Inc.
President and
Chief Executive Officer
SCANA Corporation
PRINCIPAL CORPORATE OFFICERS
L. M. BAKER, JR. W. DOUG KING ROBERT S. MCCOY, JR.
President and Executive Vice President Executive Vice President
Chief Executive Officer Consumer Services Chief Financial Officer
MICKEY W. DRY WALTER E. LEONARD, JR. G. JOSEPH PRENDERGAST
Executive Vice President Executive Vice President Executive Vice President
Chief Credit Officer Operations/Technology General Banking
HUGH M. DURDEN KENNETH W. MCALLISTER RICHARD B. ROBERTS
Executive Vice President Executive Vice President Executive Vice President
Corporate Banking General Counsel/Administrative Treasurer
31
33
---------------------
WACHOVIA BULK RATE
- -------------------- U.S. POSTAGE PAID
WACHOVIA
CORPORATION
---------------------
Wachovia Corporation
P.O. Box 3099
Winston-Salem, NC 27150