FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-9021
Wachovia Corporation
North Carolina 56-1473727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Address and Telephone Number:
100 North Main Street 191 Peachtree Street NE
Winston-Salem, North Carolina 27101 Atlanta, Georgia 30303
(336) 770-5000 (404) 332-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
As of March 31, 2000, Wachovia Corporation had 202,456,311 shares of common
stock outstanding.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Page No.
---------
Consolidated Statements of Condition at March 31, 2000,
December 31, 1999 and March 31, 1999 .................................................. 3
Consolidated Statements of Income for the three months
ended March 31, 2000 and March 31, 1999 ............................................... 4
Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 2000 and March 31, 1999 .................................. 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and March 31, 1999 ............................................... 6
The unaudited consolidated financial statements referred to above do not
include all information and footnotes required under generally accepted
accounting principles. However, in the opinion of management, the interim
financial information includes all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the results of operations for the
periods presented. The results of operations shown in the interim statements
are not necessarily indicative of the results that may be expected for the
entire year.
2
Consolidated Statements of Condition
- --------------------------------------------------------------------------------
$ in thousands, except share data Wachovia Corporation and Subsidiaries
March 31 December 31 March 31
2000 1999 1999
----------- ----------- -----------
Assets
Cash and due from banks ......................................................... $ 3,167,792 $ 3,475,004 $3,110,130
Interest-bearing bank balances .................................................. 130,686 184,904 160,529
Federal funds sold and securities purchased under resale agreements ............. 417,023 761,962 524,100
Trading account assets .......................................................... 1,239,924 870,304 809,416
Securities available-for-sale ................................................... 7,109,858 7,095,790 8,399,296
Securities held-to-maturity (fair value of $1,120,825, $1,061,150 and $1,422,225
respectively) .................................................................. 1,114,184 1,048,724 1,373,453
Loans, net of unearned income ................................................... 51,125,316 49,621,225 46,393,132
Less allowance for loan losses .................................................. 595,655 554,810 548,302
------------- ------------ ------------
Net loans ..................................................................... 50,529,661 49,066,415 45,844,830
Premises and equipment .......................................................... 942,114 953,832 962,609
Due from customers on acceptances ............................................... 87,555 111,684 310,818
Other assets .................................................................... 4,078,691 3,783,918 3,824,307
------------- ------------ ------------
Total assets .................................................................. $68,817,488 $67,352,537 $65,319,488
============= ============ ============
Liabilities
Deposits in domestic offices:
Demand ......................................................................... $ 8,666,743 $ 8,730,673 $ 8,235,680
Interest-bearing demand ........................................................ 4,648,977 4,527,711 4,758,860
Savings and money market savings ............................................... 13,673,221 13,760,479 13,161,018
Savings certificates ........................................................... 9,237,751 8,701,074 8,764,668
Large denomination certificates ................................................ 3,900,896 3,154,754 3,602,130
------------- ------------ ------------
Total deposits in domestic offices ............................................ 40,127,588 38,874,691 38,522,356
Interest-bearing deposits in foreign offices .................................... 3,588,190 2,911,727 1,765,789
------------- ------------ ------------
Total deposits ................................................................ 43,715,778 41,786,418 40,288,145
Federal funds purchased and securities sold under repurchase agreements ......... 4,994,119 5,372,493 6,268,563
Commercial paper ................................................................ 1,593,952 1,658,988 1,433,130
Other short-term borrowed funds ................................................. 1,493,962 3,071,493 2,046,994
Long-term debt .................................................................. 8,738,387 7,814,263 7,970,451
Acceptances outstanding ......................................................... 87,555 111,684 310,818
Other liabilities ............................................................... 2,347,305 1,878,741 1,569,448
------------- ------------ ------------
Total liabilities ............................................................. 62,971,058 61,694,080 59,887,549
Shareholders' Equity
Preferred stock, par value $5 per share:
Authorized 50,000,000 shares; none outstanding ................................. ---- ---- ----
Common stock, par value $5 per share:
Authorized 1,000,000,000 shares; issued and outstanding 202,456,311,
201,812,295 and 202,898,450 shares, respectively .............................. 1,012,282 1,009,061 1,014,492
Capital surplus ................................................................. 682,068 598,149 675,686
Retained earnings ............................................................... 4,240,206 4,125,524 3,681,119
Accumulated other comprehensive (loss) income ................................... (88,126) (74,277) 60,642
------------- ------------ ------------
Total shareholders' equity .................................................... 5,846,430 5,658,457 5,431,939
------------- ------------ ------------
Total liabilities and shareholders' equity .................................... $68,817,488 $67,352,537 $65,319,488
============= ============ ============
3
Consolidated Statements of Income
- --------------------------------------------------------------------------------
$ in thousands, except per share Wachovia Corporation and Subsidiaries
Three Months Ended
March 31
-------------------------------
2000 1999
------------- --------------
Interest Income
Loans, including fees ................................................... $ 1,093,779 $ 969,294
Securities available-for-sale ........................................... 112,742 123,113
Securities held-to-maturity:
State and municipal .................................................... 3,640 2,683
Other investments ...................................................... 15,824 21,635
Interest-bearing bank balances .......................................... 1,523 2,193
Federal funds sold and securities purchased under resale agreements ..... 7,492 5,802
Trading account assets .................................................. 10,357 5,666
------------- -----------
Total interest income ................................................. 1,245,357 1,130,386
Interest Expense
Deposits:
Domestic offices ....................................................... 322,858 283,447
Foreign offices ........................................................ 51,922 23,920
------------- -----------
Total interest on deposits ............................................ 374,780 307,367
Short-term borrowed funds ............................................... 123,317 103,170
Long-term debt .......................................................... 127,764 111,773
------------- -----------
Total interest expense ................................................ 625,861 522,310
Net Interest Income ..................................................... 619,496 608,076
Provision for loan losses ............................................... 73,666 80,636
------------- -----------
Net interest income after provision for loan losses ..................... 545,830 527,440
Other Income
Service charges on deposit accounts ..................................... 100,811 86,955
Fees for trust services ................................................. 51,234 49,136
Credit card income ...................................................... 71,182 61,301
Investment fees ......................................................... 96,770 17,362
Capital markets income .................................................. 44,786 38,112
Electronic banking ...................................................... 23,396 18,455
Mortgage fees ........................................................... 5,001 10,966
Other operating income .................................................. 77,619 50,982
------------- -----------
Total other operating revenue ......................................... 470,799 333,269
Securities gains ........................................................ 167 234
------------- -----------
Total other income .................................................... 470,966 333,503
Other Expense
Salaries ................................................................ 287,629 218,115
Employee benefits ....................................................... 56,252 53,071
------------- -----------
Total personnel expense ............................................... 343,881 271,186
Net occupancy expense ................................................... 39,526 34,933
Equipment expense ....................................................... 49,195 46,842
Merger-related charges .................................................. 8,158 ----
Litigation settlement charge ............................................ 20,000 ----
Other operating expense ................................................. 177,218 139,237
------------- -----------
Total other expense ................................................... 637,978 492,198
Income before income taxes .............................................. 378,818 368,745
Income tax expense ...................................................... 134,111 125,509
------------- -----------
Net Income .............................................................. $ 244,707 $ 243,236
============= ===========
Net income per common share:
Basic .................................................................. $ 1.21 $ 1.20
Diluted ................................................................ $ 1.20 $ 1.18
Average shares outstanding:
Basic .................................................................. 202,464 203,119
Diluted ................................................................ 204,213 206,959
4
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
$ in thousands, except per share Wachovia Corporation and Subsidiaries
Common Stock
Capital
Shares Amount Surplus
------------ ------- -------
Period Ended March 31, 1999
Balance at beginning of year ......................... 202,986,100 $1,014,931 $ 669,244
Net income ...........................................
Unrealized holding losses on securities available-
for-sale, net of deferred tax benefit and
reclassification adjustment .........................
Comprehensive income .............................
Cash dividends declared on common
stock -- $.49 a share................................
Common stock issued pursuant to:
Stock option and employee benefit plans ............. 513,245 2,566 55,418
Dividend reinvestment plan .......................... 67,042 335 5,384
Common stock acquired ................................ (667,937) (3,340) (54,360)
Miscellaneous ........................................
------------- ---------- ---------
Balance at end of period ............................. 202,898,450 $1,014,492 $ 675,686
============= ========== =========
Period Ended March 31, 2000
Balance at beginning of year ......................... 201,812,295 $1,009,061 $ 598,149
Net income ...........................................
Unrealized holding losses on securities available-
for-sale, net of deferred tax benefit and
reclassification adjustment .........................
Comprehensive income .............................
Cash dividends declared on common
stock -- $.54 a share................................
Common stock issued pursuant to:
Stock option and employee benefit plans ............. 490,264 2,451 37,717
Dividend reinvestment plan .......................... 98,275 492 5,248
Acquisitions ........................................ 1,623,594 8,118 126,234
Common stock acquired ................................ (1,568,117) (7,840) (85,280)
Miscellaneous ........................................
------------- ---------- ---------
Balance at end of period ............................. 202,456,311 $1,012,282 $ 682,068
============= ========== =========
Accumulated
Other
Retained Comprehensive
Earnings Income (Loss) Total
-------- ---------------- -------
Period Ended March 31, 1999
Balance at beginning of year ......................... $3,571,617 $82,440 $5,338,232
Net income ........................................... 243,236 243,236
Unrealized holding losses on securities available-
for-sale, net of deferred tax benefit and
reclassification adjustment ......................... (21,798) (21,798)
----------
Comprehensive income ............................. 221,438
Cash dividends declared on common
stock -- $.49 a share................................ (99,662) (99,662)
Common stock issued pursuant to:
Stock option and employee benefit plans ............. 57,984
Dividend reinvestment plan .......................... 5,719
Common stock acquired ................................ (57,700)
Miscellaneous ........................................ (34,072) (34,072)
---------- --------- ----------
Balance at end of period ............................. $3,681,119 $60,642 $5,431,939
========== ========= ==========
Period Ended March 31, 2000
Balance at beginning of year ......................... $4,125,524 ($ 74,277) $5,658,457
Net income ........................................... 244,707 244,707
Unrealized holding losses on securities available-
for-sale, net of deferred tax benefit and
reclassification adjustment ......................... (13,849) (13,849)
----------
Comprehensive income ............................. 230,858
Cash dividends declared on common
stock -- $.54 a share................................ (110,094) (110,094)
Common stock issued pursuant to:
Stock option and employee benefit plans ............. 40,168
Dividend reinvestment plan .......................... 5,740
Acquisitions ........................................ 134,352
Common stock acquired ................................ (93,120)
Miscellaneous ........................................ (19,931) (19,931)
---------- --------- ----------
Balance at end of period ............................. $4,240,206 ($ 88,126) $5,846,430
========== ========= ==========
5
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Three Months Ended
March 31
--------------------------------
2000 1999
---------- ----------
Operating Activities
Net income ............................................................................... $ 244,707 $ 243,236
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses ............................................................... 73,666 80,636
Depreciation and amortization ........................................................... 70,496 57,210
Deferred income taxes ................................................................... 68,211 97,070
Securities gains ........................................................................ (167) (234)
Gain on sale of noninterest-earning assets .............................................. (430) (8,698)
Increase in accrued income taxes ........................................................ 56,616 125,435
Decrease (increase) in accrued interest receivable ...................................... 1,341 (13,285)
Increase in accrued interest payable .................................................... 11,005 14,625
Net change in other accrued and deferred income and expense ............................. 75,615 (74,733)
Net trading account activities .......................................................... (369,620) (493,725)
Net loans held for resale ............................................................... 15,232 151,859
------------- -------------
Net cash provided by operating activities .............................................. 246,672 179,396
Investing Activities
Net decrease (increase) in interest-bearing bank balances ................................ 69,422 (50,546)
Net decrease in federal funds sold and securities purchased under resale agreements ...... 357,429 151,370
Purchases of securities available-for-sale ............................................... (334,225) (1,306,003)
Purchases of securities held-to-maturity ................................................. (80,820) (35)
Sales of securities available-for-sale ................................................... 259,407 123,267
Calls, maturities and prepayments of securities available-for-sale ....................... 170,784 732,631
Calls, maturities and prepayments of securities held-to-maturity ......................... 43,343 8,716
Net increase in loans made to customers .................................................. (816,862) (1,805,641)
Credit card receivables securitized ...................................................... ---- 895,954
Capital expenditures ..................................................................... (25,973) (110,317)
Proceeds from sales of premises and equipment ............................................ 4,210 30,590
Net decrease (increase) in other assets .................................................. 53,969 (90,061)
Business combinations .................................................................... (768,230) ----
------------- -------------
Net cash used by investing activities .................................................. (1,067,546) (1,420,075)
Financing Activities
Net decrease in demand, savings and money market accounts ................................ (189,772) (235,194)
Net increase (decrease) in certificates of deposit ....................................... 1,765,035 (471,390)
Net (decrease) increase in federal funds purchased and securities sold under repurchase (381,374) 805,145
agreements
Net (decrease) increase in commercial paper .............................................. (65,036) 73,748
Net (decrease) increase in other short-term borrowings ................................... (1,577,531) 134,732
Proceeds from issuance of long-term debt ................................................. 1,342,869 740,447
Maturities and repayments of long-term debt .............................................. (420,290) (371,754)
Common stock issued ...................................................................... 15,615 19,919
Dividend payments ........................................................................ (110,094) (99,662)
Common stock repurchased ................................................................. (93,451) (54,157)
Net increase in other liabilities ........................................................ 227,691 8,710
------------- -------------
Net cash provided by financing activities .............................................. 513,662 550,544
Decrease in Cash and Cash Equivalents .................................................... (307,212) (690,135)
Cash and cash equivalents at beginning of year ........................................... 3,475,004 3,800,265
------------- -------------
Cash and cash equivalents at end of period ............................................... $ 3,167,792 $ 3,110,130
============= =============
6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Selected Period-End Data Table 1
- --------------------------------------------------------------------------------
March 31
----------------------
2000 1999
------- -------
Banking offices:
North Carolina ............................... 190 198
Virginia ..................................... 230 264
Georgia ...................................... 137 131
South Carolina ............................... 118 120
Florida ...................................... 38 40
-------- --------
Total ..................................... 713 753
======== ========
Automated banking machines:
North Carolina ............................... 448 445
Virginia ..................................... 282 305
Georgia ...................................... 305 300
South Carolina ............................... 283 294
Florida ...................................... 38 37
-------- --------
Total ..................................... 1,356 1,381
======== ========
Employees (full-time equivalent) .............. 21,647 20,704
Common stock shareholders of record ........... 51,911 53,363
Common shares outstanding (thousands) ......... 202,456 202,898
Common Stock Data -- Per Share Table 2
- --------------------------------------------------------------------------------
2000 1999
---- ---------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- --------- ------- ------- -------
Market value:
Period-end ............................................. $ 67.56 $ 68.00 $ 78.63 $ 85.56 $ 81.19
High ................................................... 68.94 88.88 85.25 92.31 91.00
Low .................................................... 53.63 65.44 75.31 80.56 79.00
Book value at period-end ................................ 28.88 28.04 27.76 26.83 26.77
Dividend ................................................ .54 .54 .54 .49 .49
Price/earnings ratio (1) ................................ 13.7 x 13.9 x 16.4 x 18.5 x 18.3 x
Price/earnings ratio without nonrecurring items (1), (2) 13.3 13.7 16.2 18.1 17.7
(1) Based on the most recent four quarters of net income per diluted share and
end of period stock price.
(2) Excludes the after-tax impact of nonrecurring charges.
Forward-Looking Statements
- --------------------------------------------------------------------------------
The Quarterly Report on Form 10-Q of Wachovia Corporation ("Wachovia") contains
forward-looking statements as encouraged by the Private Securities Litigation
Reform Act of 1995. All forward-looking statements involve risks and
uncertainty and any number of factors could cause actual results to differ
materially from the anticipated results or other expectations expressed in
forward-looking statements. Risks and uncertainties that may affect future
results include, but are not limited to, changes in the economy, interest rate
movements, timely development by Wachovia of technology enhancements for its
products and operating systems, the impact of competitive products, services
and pricing, Congressional legislation and similar matters. Management cautions
readers not to place undue reliance on forward-looking statements, which are
subject to influence by the named risk factors and unanticipated future events.
7
Financial Summary Table 3
- --------------------------------------------------------------------------------
Twelve Months 2000
Ended ----
March 31 2000 First Quarter
------------- -------------
Summary of Operations
(thousands, except per share data)
Interest income ......................................... $4,781,791 $ 1,245,357
Interest expense ........................................ 2,300,285 625,861
------------- -----------
Net interest income ..................................... 2,481,506 619,496
Provision for loan losses ............................... 291,135 73,666
------------- -----------
Net interest income after provision for loan losses ..... 2,190,371 545,830
Other operating revenue ................................. 1,747,653 470,799
Securities gains ........................................ 10,827 167
------------- -----------
Total other income ...................................... 1,758,480 470,966
Personnel expense ....................................... 1,292,981 343,881
Merger-related charges .................................. 27,467 8,158
Litigation settlement charge ............................ 20,000 20,000
Other expense ........................................... 1,055,957 265,939
------------- -----------
Total other expense ..................................... 2,396,405 637,978
Income before income tax expense ........................ 1,552,446 378,818
Income tax expense ...................................... 539,754 134,111
------------- -----------
Net income .............................................. $1,012,692 $ 244,707
============= ===========
Net income per common share:
Basic .................................................. $ 4.99 $ 1.21
Diluted ................................................ $ 4.92 $ 1.20
Cash dividends paid per common share .................... $ 2.11 $ .54
Cash dividends paid on common stock ..................... $ 428,879 $ 110,094
Cash dividend payout ratio .............................. 42.35% 44.99%
Average basic shares outstanding ........................ 202,634 202,464
Average diluted shares outstanding ...................... 205,512 204,213
Selected Average Balances (millions)
Total assets ............................................ $ 66,250 $ 67,755
Loans -- net of unearned income ......................... 48,287 50,550
Securities .............................................. 9,134 8,395
Other interest-earning assets ........................... 1,536 1,245
Total interest-earning assets ........................... 58,957 60,190
Interest-bearing deposits ............................... 33,077 34,873
Short-term borrowed funds ............................... 9,309 8,920
Long-term debt .......................................... 8,245 8,081
Total interest-bearing liabilities ...................... 50,631 51,874
Noninterest-bearing deposits ............................ 8,318 8,319
Total deposits .......................................... 41,395 43,192
Shareholders' equity .................................... 5,523 5,688
Ratios (averages)
Annualized net loan losses to loans ..................... .59% .58%
Annualized net yield on interest-earning assets ......... 4.28 4.20
Shareholders' equity to:
Total assets ........................................... 8.34 8.39
Net loans .............................................. 11.57 11.38
Annualized return on assets ............................. 1.53 1.44
Annualized return on shareholders' equity ............... 18.34 17.21
Operating Performance Excluding
Nonrecurring Items*
(thousands, except per share data)
Net income .............................................. $1,045,129 $ 264,510
Net income per diluted share ............................ $ 5.09 $ 1.30
Annualized return on assets ............................. 1.58% 1.56%
Annualized return on shareholders' equity ............... 18.92 18.60
Cash dividend payout ratio .............................. 41.04 41.62
1999
------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Summary of Operations
(thousands, except per share data)
Interest income ......................................... $ 1,224,486 $ 1,165,343 $ 1,146,605 $ 1,130,386
Interest expense ........................................ 596,583 548,238 529,603 522,310
------------- ----------- ----------- -----------
Net interest income ..................................... 627,903 617,105 617,002 608,076
Provision for loan losses ............................... 66,174 76,770 74,525 80,636
------------- ----------- ----------- -----------
Net interest income after provision for loan losses ..... 561,729 540,335 542,477 527,440
Other operating revenue ................................. 439,469 432,841 404,544 333,269
Securities gains ........................................ 60 147 10,453 234
------------- ----------- ----------- -----------
Total other income ...................................... 439,529 432,988 414,997 333,503
Personnel expense ....................................... 324,288 317,060 307,752 271,186
Merger-related charges .................................. 5,669 5,293 8,347 ----
Litigation settlement charge ............................ ---- ---- ---- ----
Other expense ........................................... 270,661 254,839 264,518 221,012
------------- ----------- ----------- -----------
Total other expense ..................................... 600,618 577,192 580,617 492,198
Income before income tax expense ........................ 400,640 396,131 376,857 368,745
Income tax expense ...................................... 137,704 138,632 129,307 125,509
------------- ----------- ----------- -----------
Net income .............................................. $ 262,936 $ 257,499 $ 247,550 $ 243,236
============= =========== =========== ===========
Net income per common share:
Basic .................................................. $ 1.30 $ 1.27 $ 1.21 $ 1.20
Diluted ................................................ $ 1.28 $ 1.25 $ 1.19 $ 1.18
Cash dividends paid per common share .................... $ .54 $ .54 $ .49 $ .49
Cash dividends paid on common stock ..................... $ 109,273 $ 109,220 $ 100,292 $ 99,662
Cash dividend payout ratio .............................. 41.56% 42.42% 40.51% 40.97%
Average basic shares outstanding ........................ 202,168 202,167 203,746 203,119
Average diluted shares outstanding ...................... 205,096 205,345 207,400 206,959
Selected Average Balances (millions)
Total assets ............................................ $ 66,982 $ 64,815 $ 65,454 $ 64,408
Loans -- net of unearned income ......................... 48,593 47,003 47,012 46,261
Securities .............................................. 9,016 9,461 9,664 9,221
Other interest-earning assets ........................... 1,844 1,464 1,588 1,313
Total interest-earning assets ........................... 59,453 57,928 58,264 56,795
Interest-bearing deposits ............................... 33,107 31,996 32,343 31,846
Short-term borrowed funds ............................... 9,836 8,848 9,629 9,292
Long-term debt .......................................... 8,327 8,571 7,998 7,627
Total interest-bearing liabilities ...................... 51,270 49,415 49,970 48,765
Noninterest-bearing deposits ............................ 8,326 8,368 8,261 8,062
Total deposits .......................................... 41,433 40,364 40,604 39,908
Shareholders' equity .................................... 5,555 5,391 5,459 5,314
Ratios (averages)
Annualized net loan losses to loans ..................... .54% .61% .63% .69%
Annualized net yield on interest-earning assets ......... 4.26 4.29 4.31 4.41
Shareholders' equity to:
Total assets ........................................... 8.29 8.32 8.34 8.25
Net loans .............................................. 11.56 11.60 11.75 11.62
Annualized return on assets ............................. 1.57 1.59 1.51 1.51
Annualized return on shareholders' equity ............... 18.93 19.11 18.14 18.31
Operating Performance Excluding
Nonrecurring Items*
(thousands, except per share data)
Net income .............................................. $ 266,620 $ 260,939 $ 253,060 $ 243,236
Net income per diluted share ............................ $ 1.30 $ 1.27 $ 1.22 $ 1.18
Annualized return on assets ............................. 1.59% 1.61% 1.55% 1.51%
Annualized return on shareholders' equity ............... 19.20 19.36 18.54 18.31
Cash dividend payout ratio .............................. 40.98 41.86 39.63 40.97
* Excludes the after-tax effects of merger-related and litigation settlement
charges.
8
Results of Operations
This Quarterly Report on Form 10-Q should be read in conjunction
with Wachovia's 1999 Annual Report on Form 10-K and will serve
to update previously reported information for current interim
period results.
Overview Reports from the twelve Federal Reserve Districts indicated
appreciable expansion of economic activ ity during the quarter,
continuing the longest period of such growth in U. S. history.
Retail sales expanded significantly over their year-earlier
levels, while gains in manufacturing output were widespread.
Gross domestic product rose 5.4 percent, based on preliminary
data. Economic expansion continued in spite of growing concerns
about higher levels of inflation, significant amounts of consumer
indebtedness and generally tight labor markets. These concerns
prompted the Federal Reserve to raise short-term interest rates
by 25 basis points, each on five occasions since July 1999. Based
on preliminary data, the nation's average unemployment rate fell
to 4.1 percent from 4.3 percent during first quarter 1999.
Economic conditions within Wachovia's five state operating area
remained generally strong, with unemployment averaging
approximately 3.4 percent.
Wachovia's strategy is to focus on prudently entering and
expanding businesses with strong potential for growth, and
deploying and redirecting resources as appropriate to provide
for the most attractive returns. This will continue to be
accomplished by enhancing products and services through internal
development, as well as by selective acquisitions and
partnerships. On February 1, Wachovia completed its purchase of
a majority of the credit card business of Partners First
Holdings LLC, adding 1.2 million customers and approximately $2
billion of managed receivables. The transaction resulted in
approximately $230 million of purchased credit card intangibles.
The acquisition of B C Bankshares, Inc., parent company of the
Bank of Canton also was completed in February, resulting in
goodwill of approximately $97 million. On March 3, Wachovia
announced an agreement to acquire Commerce National Corporation,
the parent company of the National Bank of Commerce, a community
bank with approximately $180 million in assets based in Winter
Park, Florida. This acquisition will give Wachovia a strong
presence in the growing and affluent market of Orange County,
near Orlando. The transaction is expected to close in the third
quarter of 2000 and will be accounted for as a purchase. These
first quarter transactions follow several purchase acquisitions
completed in 1999 that strengthened Wachovia's wealth advisory
and capital markets capabilities.
On March 13, Wachovia became a financial holding company under
the provisions of the recently enacted Gramm-Leach-Bliley Act
(the "Act"). This legislation enables bank holding companies and
foreign banks that meet applicable statutory requirements to
engage in a broader range of services and to compete more
efficiently in existing business lines. In general, the Act
authorizes financial holding companies to engage in securities,
insurance, and other activities that are financial in nature or
incidental to or complementary to a financial activity and that
do not pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally. These
expanded powers may include securities underwriting, dealing and
market making; acting as principal, agent or broker for the sale
of insurance products; providing management consulting services;
and organizing, sponsoring or managing mutual funds.
9
Computation of Earnings Per Common Share Table 4
- --------------------------------------------------------------------------------
(thousands, except per share)
Three Months Ended
March 31
-----------------------------
2000 1999
----------- ----
Basic
Average common shares outstanding ............................ 202,464 203,119
=========== =======
Net income ................................................... $ 244,707 $ 243,236
=========== =========
Per share amount ............................................. $ 1.21 $ 1.20
Diluted
Average common shares outstanding ............................ 202,464 203,119
Dilutive common stock options at average market price ........ 1,541 3,417
Dilutive common stock awards at average market price ......... 186 397
Convertible long-term debt assumed converted ................. 22 26
----------- ---------
Average diluted shares outstanding ........................... 204,213 206,959
=========== =========
Net income ................................................... $ 244,707 $ 243,236
Add interest on convertible long-term debt -- net of tax ..... 17 20
----------- ---------
Adjusted net income .......................................... $ 244,724 $ 243,256
=========== =========
Per share amount ............................................. $ 1.20 $ 1.18
Wachovia's operating net income for the first quarter of 2000
was $265 million or $1.30 per diluted share versus $243 million
or $1.18 per diluted share a year earlier. On a reported basis,
Wachovia's net income for the quarter was $245 million or $1.20
per diluted share versus $243 million or $1.18 per diluted share
a year earlier. Comparisons between the 2000 and 1999 quarters
are impacted by the results of acquisitions that are included in
reported results from their respective acquisition dates each
year. During the current quarter, Wachovia reached a settlement
with the U. S. Department of Labor on a lawsuit begun against
South Carolina National Bank in May 1991. The litigation stemmed
from the purchase of stock by an Employee Stock Ownership Plan
("ESOP") to fund retirement bene-fits. South Carolina National
Bank, which was acquired by Wachovia in December 1991, served as
trustee to the ESOP. The pretax charge against earnings for the
quarter amounted to $20 million net of insurance proceeds and
previously established accruals.
Expanded discussion of results of operations and financial
condition follows. Interest income is stated on a taxable
equivalent basis, which is adjusted for the tax-favored status
of earnings from certain loans and securities. References to
changes in assets and liabilities represent daily average levels
unless otherwise noted.
Business Wachovia has five reportable business segments: Asset and Wealth
Segments Management, Corporate, Credit Card, Consumer and Treasury &
Administration.
Business segment results are reported on a management accounting
basis. They reflect evolving information needs specific to a
company's business managers and may differ by company due to
wide discretion in application. As a result, Wachovia's business
segment results are not necessarily comparable with those of
other financial institutions with similar segments or with those
of other companies that compete directly in one or more of its
lines of business. In addition, business segment results may be
restated in the future as Wachovia's management structure,
information needs or reporting systems evolve.
The provision for loan losses is charged to each business
segment based on the credit risk of each segment's loan
portfolio. Operating expenses to support business unit revenues
are either charged directly as incurred or allocated from
support areas based on usage. In addition, general overhead
expense that cannot be specifically identified to a business
unit is allocated based on the proportion of each segment's
direct expenses to total direct expenses of the combined
segments. Income tax
10
expense is calculated for each business segment with a blended
tax rate. This rate is adjusted as applicable for the assumed
tax effect of tax-exempt income and nondeductible intangible
amortization expense.
Beginning January 2000, Wachovia adopted a marginal matched
maturity funds transfer pricing methodology for management
reporting. Formerly, Wachovia utilized a multiple pool method to
simulate matched funding. This change in management accounting
has been reflected for all periods. Given the complexity of the
balance sheet products and services offered to customers, the
marginal matched maturity method provides an improved method of
measuring the economics of these products and services in
reported business unit results. The new approach evaluates the
cash flows and repricing characteristics of all balance sheet
transactions at an instrument level by benchmarking pricing
decisions against Wachovia's wholesale cost of funds. This
approach removes most forms of interest rate risk, prepayment
risk and liquidity risk from the business units and isolates
them in Treasury & Administration for centralized evaluation and
management. Under marginal matched maturity funds transfer
pricing, business unit results represent the economic impact of
growth and pricing decisions.
Financial results by business segment are discussed below.
Business Segments Table 5
- --------------------------------------------------------------------------------
Wealth
Management Corporate Credit Card
--------------- ---------------- ----------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ----- ----
Operations Summary
(millions)
External net interest
margin ....................... $ 37 $ 22 $ 611 $ 505 $ 267 $ 211
Internal funding (charge)
credit ....................... 2 6 (370) (291) (113) (79)
------ ------ ------- ------- ------- ------
Net interest income* .......... 39 28 241 214 154 132
Total other income ............ 167 76 110 91 51 37
------ ------ ------- ------- ------- ------
Total revenues ................ 206 104 351 305 205 169
Provision for loan losses ..... 2 ---- 17 7 87 72
Total other expense ........... 161 80 172 140 65 52
------ ------ ------- ------- ------- ------
Pretax profit ................. 43 24 162 158 53 45
Income tax expense ............ 17 9 57 56 21 16
------ ------ ------- ------- ------- ------
Net income .................... $ 26 $ 15 $ 105 $ 102 $ 32 $ 29
====== ====== ======= ======= ======= ======
Percentage contribution to
total revenues** ............. 18.5% 10.8% 31.5% 31.5% 18.4% 17.5%
Percentage contribution to
net income ................... 10.6% 6.2% 42.9% 42.0% 13.1% 11.9%
Average Balances
(millions)
Total assets .................. $3,569 $2,682 $36,733 $33,457 $7,701 $6,354
Treasury & Total
Consumer Administration Eliminations Corporation
----------------- ------------------- ----------------- -----------------
2000 1999 2000 1999 2000 1999 2000 1999
------- ------ ------ ------- ------- ------- ------- -------
Operations Summary
(millions)
External net interest
margin ....................... $ (44) $ (36) $ (243) $ (84) $ (9) $ (10) $ 619 $ 608
Internal funding (charge)
credit ....................... 266 248 231 131 (16) (15) ---- ----
------- ------ ------ ------- ------- ------- ------- -------
Net interest income* .......... 222 212 (12) 47 (25) (25) 619 608
Total other income ............ 104 100 39 30 ---- ---- 471 334
------- ------ ------ ------- ------- ------- ------- -------
Total revenues ................ 326 312 27 77 (25) (25) 1,090 942
Provision for loan losses ..... 5 5 (38) (3) ---- ---- 73 81
Total other expense ........... 224 217 32 18 (16) (15) 638 492
------- ------ ------ ------- ------- ------- ------- -------
Pretax profit ................. 97 90 33 62 (9) (10) 379 369
Income tax expense ............ 35 33 13 22 (9) (10) 134 126
------- ------ ------ ------- ------- ------- ------- -------
Net income .................... $ 62 $ 57 $ 20 $ 40 $ ---- $ ---- $ 245 $ 243
======= ====== ====== ======= ======= ======= ======= =======
Percentage contribution to
total revenues** ............. 29.2% 32.3% 2.4% 8.0%
Percentage contribution to
net income ................... 25.3% 23.5% 8.2% 16.5%
Average Balances
(millions)
Total assets .................. $10,273 $9,591 $9,479 $12,324 $67,755 $64,408
* Net interest income is reported on a taxable equivalent basis by segment and
on a nontaxable equivalent basis for the corporation, reflecting segment
eliminations.
** Percentage contribution to total revenues is based on the proportion of each
segment's revenues to the combined revenues of all segments. Revenues for
the total corporation are presented based on nontaxable equivalent net
interest income and total other income, including securities transactions.
Asset and Asset and Wealth Management provides integrated financial
Wealth services to the affluent marketplace. During 1999, Wachovia made
Management three acquisitions that helped advance this strategy. In April,
Wachovia acquired Interstate/Johnson Lane Inc. ("IJL"), a
full-service brokerage firm with 61 offices throughout Virginia,
North Carolina, South Carolina and Georgia. In September,
Wachovia completed its acquisitions of OFFITBANK Holdings, Inc.
("OFFITBANK"), a New York-based wealth management company, and
Barry, Evans, Josephs & Snipes, Inc. ("BEJS"), a leading
Charlotte, North Carolina-based life insurance broker
specializing in wealth transfer and benefit plan programs. Also
in the third quarter of 1999, Wachovia sold its master trust and
institutional custody business in order to focus on other
business areas.
11
Products and Services. Asset and Wealth Management delivers
innovative tailored products and services through a variety of
channels. The Private Financial Advisors group provides a full
range of products and services to affluent customers, including
banking and credit services, tax planning and consulting, trust
services, portfolio management, estate planning, investment
counseling and insurance. OFFITBANK and BEJS provide wealth
management and specialized investment and insurance products for
the high-end of the affluent market.
Wachovia's brokerage business offers a wide variety of services
and investment products including the Wachovia Funds through
full-service brokers and branch-based investment consultants.
Customers making their own investment decisions can trade
through Wachovia Investments Direct using a broker, a touch-tone
service or the Internet.
Wachovia Asset Management provides investment strategies and
portfolio management for individuals and institutions, in
addition to managing the Wachovia Funds. Institutional Client
Services provides asset management, employee benefit services
and philanthropy management services to businesses, individuals
and foundations. Institutional Client Services also offers
retirement services for both plan sponsors and their
participants and charitable fund products that enable both
individuals and organizations to accomplish their donation
objectives. Executive Services is a nationally recognized leader
in providing retirement and wealth accumulation products for
high-net-worth individuals. It also provides change-of-control
and employee benefit protection services to client management
teams. At March 31, 2000, Wachovia had $54.8 billion in trust
assets under discretionary management, up $2.9 billion from the
amount reported at December 31, 1999. A small portion of these
assets are managed by other business segments.
Industry Dynamics and Strategy. Wachovia believes the current
marketplace is underserved with few national brands and
fragmented competition. Within Wachovia's five state geographic
footprint, households are growing much faster than the national
average, and over the next five years, the subset of affluent
households is expected to grow substantially. These factors
combine to create an attractive market opportunity. Market
volatility and the projected need for intergenerational wealth
transfer capabilities also will drive demand.
Asset and Wealth Management's market presence, brand names and
strategic focus, position it to take unique advantage of this
environment. The continued integration of the acquisitions has
allowed this business segment to increase its product offerings,
leverage existing services and expand distribution channels. In
addition, close coordination with Wachovia's Consumer and
Corporate business segments creates a continuous pipeline of
customers. When retail customers fit the affluent profile, they
are offered wealth management products that better serve their
changing needs. Corporate identifies potential customers for
asset management, retirement plans and executive or charitable
funds services.
Financial Results. Pretax profit increased 82 percent over the
same period last year. The acquisition of IJL, OFFITBANK and
BEJS accounted for a substantial portion of the increase. Profit
from Wachovia's existing business grew 31 percent with
particularly strong performances in loan growth and investment
fee income. Excluding the impact of the 1999 acquisitions, other
income rose 24 percent while other expense rose 8 percent.
Corporate Corporate strives to be the preferred provider of services to
targeted corporate clients through comprehensive relationship
management. To achieve this goal, it works to know its customers
better than
12
the competition; anticipate customer needs and provide
innovative solutions; align products, services and delivery
channels with customer needs; and serve customers through
insightful, trusted professionals.
Products and Services. Corporate provides a comprehensive array
of capital solutions, strategic consulting, and risk management
services to public and private companies of all sizes primarily
in the Southeast, but also on a national and global level.
Corporate is a leading provider of treasury consulting and cash
management solutions for companies of all sizes, and its
Treasury Services group consistently is cited for superior
quality of service, technology and operations performance.
Treasury Services is expanding its product and service
offerings and will soon offer business-to-business e-commerce
services. The acquisition of IJL strengthened Wachovia's
capabilities as a provider of capital and financial advisory
services by doubling the number of investment banking
professionals; adding equity research, sales and trading; and
expanding its fixed-income distribution capacity. The
acquisition of IJL also resulted in the formation of Wachovia
Securities, Inc. (WSI), a Section 20 securities subsidiary that
has full Tier I and Tier II powers to underwrite and deal in all
types of corporate debt and equities. WSI is a member of the
NYSE, regional exchanges and the NASD, publishes equity research
on an expanding list of approximately 150 companies, and makes a
market in more than 180 stocks.
Industry Dynamics and Strategy. In a highly competitive
environment, Corporate maintains a strong market position in the
Southeast and a top ten share in the U. S. large corporate
market. Client attitudes and behaviors, as well as rapid changes
in technology and communications continue to transform the
marketplace. To achieve continued success in this environment,
Corporate segments the market to best align its sales approach,
service model and product development priorities with customer
requirements, segment profitability and growth potential. As a
result, the traditional market-based segmentation is augmented
with needs-based segmentation where specialization is more
appropriate. Examples of Wachovia's segment specialization
include Commercial Real Estate, the Emerging Growth and
Technology Group, the Communications Group, Leveraged Finance,
Dealer Financial Services, Aircraft Finance, Government Contract
Finance and Financial Institutions.
Financial Results. Net interest margin increased $26 million or
12 percent compared with the first quarter of 1999, reflecting a
14 percent increase in average loans. The loan loss provision
increased $10 million related to several isolated problem
credits in the large corporate portfolio that were identified
early and are being managed appropriately. Other income grew by
21 percent, reflecting the inclusion of former IJL Capital
Markets business in the first quarter 2000 results. Noninterest
expense was up 23 percent, caused by the addition of former IJL
business units.
Credit Card Credit Card's mission is to be the preferred credit card issuer,
offering the best value on a combined rate and fee package while
providing excellent customer service. With over $8 billion in
managed receivables, Credit Card remains one of the larger
Visa/MasterCard issuers in the U. S.
Products and Services. The Credit Card business segment is a
full-service provider of consumer and business credit cards and
merchant acquirer services. Credit Card manages most components
of credit card processing in-house, with the exception of
servicing business card products and the Partners First
portfolio that are processed through outside vendors. Currently,
91 percent of Wachovia's credit card portfolio accrues interest
at a variable rate and 34 percent of the accounts are within
Wachovia's five state geographic footprint.
Industry Dynamics and Strategy. The credit card industry is in a
period of intense competition and consolidation. Leading
providers are leveraging technology to build scale and operating
efficiencies.
13
Credit Card's strategy focuses on serving above-average credit
quality customers who carry higher-than-average loan balances
while maintaining an efficient and cost-effective process.
Financial Results. Pretax profit rose 17 percent as a result of
higher revenue and improved loss ratios. Net interest margin
grew 16 percent, primarily due to the Partners First
acquisition, partially offset by tighter spreads in the rising
rate environment and a lower level of late fees. Average assets
grew 21 percent and the loan loss provision increased by 21
percent, primarily as a result of the acquisition. Excluding
this transaction, the loss ratio was 4.13 percent of average
loans. Noninterest income increased 38 percent due to the
acquisition, strong interchange income from increased purchase
volume, as well as higher overlimit fees. Total expense rose by
25 percent due to the acquisition and increased marketing
investment, offset by internal cost control initiatives.
Consumer Consumer develops customer relationships for the greatest
lifetime value, manages the cost of the sales and service
network and capitalizes on the digital economy. It targets
consumers, worksite groups and small businesses throughout the
Southeast, offering a broad array of competitively priced
products and services. Consumer's importance to the entire
Wachovia enterprise cannot be measured entirely by its profit
contribution because its customer base and the impact of its
branch network are fundamental to the success of all Wachovia
business segments.
Products and Services. Consumer provides the more traditional
retail banking services, including mortgage lending, deposit
products and consumer loans, as well as services for the small
business market. It also offers access to investment and
insurance products. Delivery channels include 713 traditional
and in-store branches and worksite centers, 1,356 ATMs and 33
kiosks, supported by four automated phone centers. Wachovia is
the ninth largest Visa check card issuer and has enjoyed the
growing consumer acceptance of this electronic capability.
Campus Card programs provide card-based banking access to more
than 120,000 students and faculty, and Wachovia At Work serves
employees of more than 3,000 companies.
The Internet is growing in importance as a delivery channel with
19 percent of Wachovia's demand deposit customers connected via
Internet banking, up from 14 percent at year-end and 6 percent
the prior year. Wachovia's Internet site, www.wachovia.com,
serves as a financial portal with full transaction capability
and relevant financial news.
Industry Dynamics and Strategy. Consumer serves more than 3.7
million consumers and approximately 200,000 small business
customers. A majority of Wachovia's deposits are in large,
high-growth metropolitan areas. Consumer's strategy is to assess
customer potential, identify their financial needs and achieve
alignment between their needs, service expectations and price.
Specific initiatives to implement this strategy include:
SELECTIVE GEOGRAPHIC EXPANSION. Wachovia continues to evaluate
merger and branching opportunities in high-growth areas. During
the first quarter of 2000, Wachovia completed the acquisition of
Bank of Canton in the suburban Atlanta area and announced an
agreement to acquire the National Bank of Commerce in Winter
Park, Florida. PROFITABLE RELATIONSHIP OPTIMIZATION (PRO).
Desktop technology connects to data warehouses that analyze
customer information and anticipate the next likely desired
service. This technology is combined with solution-selling
skills by 125 Personal Financial Advisors to serve more than
400,000 high-potential households. WACHOVIA AT WORK AND CAMPUS
BANKING PROGRAMS. These strategies involve deploying Wachovia
products and services through employers and universities to
provide access to employees and students. MARKET NETWORK
STRATEGY. Network optimization models provide an analytical
framework to reduce branch network expenses, while at the same
time maximizing customer points of presence.
14
The eBusiness Division provides corporate wide eBusiness
strategic planning, leadership and operational management.
Advances in technology are rapidly transforming the financial
services industry. Wachovia's eBusiness strategy is to develop a
personalized and seamlessly delivered customer experience when
using www.wachovia.com and to augment the site with relevant
financial data. During the first quarter, Wachovia announced an
alliance with a leading business-to-business e-commerce
solutions provider to deliver e-procurement solutions for
Wachovia and its customers.
Financial Results. Consumer's pretax profit increased 8 percent
from the prior year. Deposit and loan sales were up
significantly over the prior first quarter by 71 percent and 55
percent in dollar volume, respectively. Net interest margin was
5 percent higher, driven by higher interest rates and by the
addition of the Bank of Canton. Loans increased 7 percent over
the prior year to $9.462 billion from strong product offerings
such as the "Prime for Life" home equity line of credit and
improved execution of direct marketing for account acquisition
and activation. Other income increased 5 percent over the first
quarter of 1999. Deposit account fee revenue was up 9 percent as
a result of new pricing strategies. Electronic banking revenues
grew 24 percent, driven by strong ATM and debit card volumes.
The number of debit cards outstanding increased 11 percent, and
transaction volume was up 19 percent as consumers continue to
recognize the card's convenience. Mortgage fees decreased 47
percent to $6 million, on lower sales volumes and also a shift
in the mix to adjustable-rate mortgages from fixed-rate
mortgages. Total expenses increased 3 percent, primarily from
the acquisition of the Bank of Canton and eBusiness initiatives.
Treasury & The Treasury & Administration segment principally reflects asset
Administration and liability management for interest rate risk, management of
the securities portfolio, internal compensation for funding
sources and charges for funds used. It also includes other
corporate costs such as Year 2000 costs and nonrecurring
expenses.
Financial Results. Treasury & Administration's net income
declined $20 million to $21 million in the first quarter of 2000
from last year's comparable period. The net interest margin was
down $58 million, with $53 million of the reduction due to the
securitized credit card portfolios. Securities declined by $826
million, with the rate earned down 12 basis points. The loan
loss provision declined $34 million, with $30 million from the
securitized portfolios. Other income rose $8 million, with
processing revenue up $12 million and credit card income down $7
million, both due to the securitized portfolios. Other expense
increased $13 million from the litigation settlement charge of
$20 million and merger-related expenses of $8 million offset by
reduced Year 2000 conversion costs.
15
Taxable Equivalent Rate/Volume Analysis -- First Quarter* Table 6
- --------------------------------------------------------------------------------
Average Volume Average Rate
- --------------------- ------------------
2000 1999 2000 1999
- ------- -------- ------- -------
(Millions) INTEREST INCOME
Loans:
$17,215 $14,854 8.06 6.96 Commercial.........................
673 931 9.29 9.29 Tax-exempt.........................
- -------- --------
17,888 15,785 8.10 7.10 Total commerical..............
1,108 1,073 8.70 8.90 Direct retail......................
3,804 3,310 7.89 7.96 Indirect retail....................
4,886 5,851 13.40 13.26 Credit card........................
691 546 11.30 10.95 Other revolving credit.............
- -------- --------
10,489 10,780 10.77 11.08 Total retail..................
2,455 2,093 8.87 8.56 Construction.......................
7,994 7,053 8.31 8.07 Commercial mortgages...............
7,860 7,336 7.82 7.83 Residential mortgages..............
- -------- --------
18,309 16,482 8.18 8.03 Total real estate.............
2,605 1,941 9.56 12.13 Lease financing....................
1,259 1,273 7.36 6.32 Foreign............................
- -------- --------
50,550 46,261 8.74 8.55 Total loans...................
Securities:
Held-to-maturity:
436 570 6.69 6.22 U.S. Government and agency......
407 576 8.02 8.42 Mortgage-backed.................
208 168 9.50 9.74 State and municipal.............
43 72 6.30 6.73 Other...........................
- -------- --------
1,094 1,386 7.70 7.59 Total held-to-maturity........
Available-for-sale:**
2,884 3,173 6.18 6.42 U.S. Government and agency......
3,769 4,086 6.49 6.46 Mortgage-backed.................
648 576 6.69 7.48 Other...........................
- -------- --------
7,301 7,835 6.39 6.52 Total available-for-sale......
- -------- --------
8,395 9,221 6.56 6.68 Total securities..............
97 130 6.30 6.82 Interest-bearing bank balances.......
Federal funds sold and securities
525 483 5.73 4.87 purchased under resale agreements..
623 700 6.68 3.28 Trading acount assets................
- -------- --------
$60,190 $56,795 8.38 8.14 Total interest-earning assets.
======== ========
INTEREST EXPENSE
$ 4,755 $ 4,665 1.51 1.11 Interest-bearing demand..............
13,363 12,889 3.95 3.57 Savings and money market savings.....
8,966 8,846 5.28 5.20 Savings certificates.................
4,025 3,377 5.61 5.25 Large denomination certificates......
- -------- --------
Total interest-bearing
31,109 29,777 4.17 3.86 deposits in domestic offices.
Interest-bearing deposits ni foreign
3,764 2,069 5.55 4.69 offices...........................
- -------- --------
Total interest-bearing
34,873 31,846 4.32 3.91 deposits.....................
Federal funds purchased and
securities sold under repurchase
5,845 6,017 5.32 4.34 agreements........................
1,638 1,420 5.41 4.48 Commercial paper.....................
1,437 1,855 6.72 5.03 Other short-term borrowed funds......
- -------- --------
Total short-term borrowed
8,920 9,292 5.56 4.50 funds........................
2,071 2,748 6.19 5.69 Bank notes...........................
6,010 4,879 6.42 6.08 Other long-term debt.................
- -------- --------
8,081 7,627 6.36 5.94 Total long-term debt..........
- -------- --------
Total interest bearing
$51,874 $48,765 4.85 4.34 liabilities..................
======== ======== ------ -----
3.53 3.80 Interest rate spread
====== =====
Net yield on interest-earning assets
4.20 4.41 and net interest income...........
====== =====
VARIANCE
INTEREST ATTRIBUTABLE TO
-------------------------- ------------------------
2000 1999 VARIANCE RATE VOLUME
------------ ------------ -------------- ----------- -----------
INTEREST INCOME (Thousands)
Loans:
Commercial ............................... $ 344,896 $ 254,955 $ 89,941 $ 44,778 $ 45,163
Tax-exempt ............................... 15,559 21,328 (5,769) 8 (5,777)
------------ ------------ -------------
Total commercial ...................... 360,455 276,283 84,172 43,387 40,785
Direct retail ............................ 23,969 23,553 416 (468) 884
Indirect retail .......................... 74,626 64,982 9,644 (557) 10,201
Credit card .............................. 162,812 191,334 (28,522) 2,071 (30,593)
Other revolving credit ................... 19,412 14,747 4,665 502 4,163
------------ ------------ -------------
Total retail .......................... 280,819 294,616 (13,797) (7,098) (6,699)
Construction ............................. 54,156 44,189 9,967 1,704 8,263
Commercial mortgages ..................... 165,228 140,322 24,906 4,620 20,286
Residential mortgages .................... 152,780 141,677 11,103 (219) 11,322
------------ ------------ -------------
Total real estate ..................... 372,164 326,188 45,976 6,612 39,364
Lease financing .......................... 61,937 58,073 3,864 (13,715) 17,579
Foreign .................................. 23,049 19,851 3,198 3,408 (210)
------------ ------------ -------------
Total loans ........................... 1,098,424 975,011 123,413 24,062 99,351
Securities:
Held-to-maturity:
U.S. Government and agency ............. 7,247 8,745 (1,498) 638 (2,136)
Mortgage-backed ........................ 8,119 11,965 (3,846) (544) (3,302)
State and municipal .................... 4,919 4,024 895 (100) 995
Other .................................. 668 1,197 (529) (71) (458)
------------ ------------ -------------
Total held-to-maturity ................ 20,953 25,931 (4,978) 401 (5,379)
Available-for-sale:**
U.S. Government and agency ............. 44,347 50,214 (5,867) (1,678) (4,189)
Mortgage-backed ........................ 60,779 65,104 (4,325) 262 (4,587)
Other .................................. 10,783 10,630 153 (1,146) 1,299
------------ ------------ -------------
Total available-for-sale .............. 115,909 125,948 (10,039) (2,332) (7,707)
------------ ------------ -------------
Total securities ...................... 136,862 151,879 (15,017) (2,565) (12,452)
Interest-bearing bank balances ............. 1,523 2,193 (670) (155) (515)
Federal funds sold and securities
purchased under resale agreements ........ 7,492 5,802 1,690 1,133 557
Trading account assets ..................... 10,357 5,653 4,704 5,373 (669)
------------ ------------ -------------
Total interest-earning assets ......... 1,254,658 1,140,538 114,120 37,613 76,507
INTEREST EXPENSE
Interest-bearing demand .................... 17,846 12,725 5,121 4,864 257
Savings and money market savings ........... 131,131 113,547 17,584 13,013 4,571
Savings certificates ....................... 117,737 113,449 4,288 2,287 2,001
Large denomination certificates ............ 56,144 43,726 12,418 3,255 9,163
------------ ------------ -------------
Total interest-bearing deposits in
domestic offices .................... 322,858 283,447 39,411 25,416 13,995
Interest-bearing deposits in foreign
offices .................................. 51,922 23,920 28,002 5,112 22,890
------------ ------------ -------------
Total interest-bearing deposits ....... 374,780 307,367 67,413 35,257 32,156
Federal funds purchased and securities
sold under repurchase agreements ......... 77,295 64,464 12,831 14,649 (1,818)
Commercial paper ........................... 22,016 15,681 6,335 3,631 2,704
Other short-term borrowed funds ............ 24,006 23,025 981 6,786 (5,805)
------------ ------------ -------------
Total short-term borrowed funds........ 123,317 103,170 20,147 24,263 (4,116)
Bank notes ................................. 31,869 38,587 (6,718) 3,219 (9,937)
Other long-term debt ....................... 95,895 73,186 22,709 4,340 18,369
------------ ------------ -------------
Total long-term debt .................. 127,764 111,773 15,991 8,645 7,346
------------ ------------ -------------
Total interest-bearing liabilities .... 625,861 522,310 103,551 67,040 36,511
------------ ------------ -------------
Interest rate spread
Net yield on interest-earning assets and
net interest income ........................ $ 628,797 $ 618,228 $ 10,569 (28,293) 38,862
============ ============ =============
* Interest income and yields are presented on a fully taxable equivalent basis
using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense. Any variance
attributable jointly to volume and rate changes is allocated to the volume
and rate in proportion to the relationship of the absolute dollar amount of
the change in each.
** Volume amounts are reported at amortized cost; excludes pretax unrealized
losses of $149 million in 2000 and pretax unrealized gains of $119 million
in 1999.
16
Consolidated Financial Results
Net Interest Wachovia's taxable equivalent net interest income rose $11
Income million or 1.7 percent from the first quarter of 1999 to $629
million. The rising rate environment during the last half of
1999 and continuing into the first quarter of 2000 was
considerably different from that of a year ago. For the first
quarter of 2000, the average federal funds rate and Wachovia's
average prime lending rate were 5.68 percent and 8.69 percent,
respectively, compared with 4.73 percent and 7.75 percent,
respectively, for the first quarter of 1999. The increase in
both rates reflects five 25 basis point rate increases since
July 1999 by the Federal Reserve to slow the economy.
Wachovia's net yield on interest-earning assets was 4.20 percent
compared with 4.41 percent reported for the first quarter of
1999. Most of the year-over-year decline in the net yield on
interest-earning assets was caused by changes in
interest-earning asset mix, resulting from $1.4 billion of
credit card securitization transactions offset by solid growth
in the commercial loan portfolio. The funding cost associated
with acquisitions completed during 1999 and the first quarter of
2000 also contributed to the decline. The impact of the
securitization transactions and the business mix of the acquired
companies reduced net interest income and increased noninterest
income.
Managed Credit Card Data Table 7
- --------------------------------------------------------------------------------
(thousands)
2000
------------
First
Quarter
------------
Average credit card loans .............................. $ 7,771,010
Period-end loans ....................................... 8,256,409
Net loan losses ........................................ 87,040
Annualized net loan losses to average loans ............ 4.48%
Delinquencies (30 days or more) to period-end loans .... 3.72
1999
---------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
----------- ------------ ------------ ------------
Average credit card loans .............................. $6,397,350 $ 6,343,811 $ 6,327,848 $ 6,430,397
Period-end loans ....................................... 6,632,439 6,371,927 6,340,473 6,350,625
Net loan losses ........................................ 57,720 59,261 70,563 69,632
Annualized net loan losses to average loans ............ 3.61% 3.74% 4.46% 4.33%
Delinquencies (30 days or more) to period-end loans .... 3.22 3.35 2.79 3.02
The average yield on interest-earning assets increased 24 basis
points from the first quarter of 1999. The rise in rates
increased yields in almost all loan categories. The increase in
yields was tempered by the addition of the on-book Partners
First credit card portfolio that had a number of loans accruing
at low introductory rates. Yields also were subdued by the
successful implementation of a prime rate home equity product
that has a lower rate than the existing portfolio. Asset mix
contributed to the lower net yield on interest-earning assets as
credit card loans for the first quarter of 2000 represented 8
percent of total interest-earning assets compared with 10
percent for the first quarter of 1999. Securitization
transactions completed during 1999 and strong growth in the
commercial and real estate loan portfolios accounted for most of
the change in mix.
The average rate paid on interest-bearing liabilities increased
by 51 basis points from the first quarter of 1999. Core deposit
funding increased $684 million due to growth within Wachovia's
current geographic region and the acquisition of the Bank of
Canton that added approximately $169 million in core deposits.
The growth was somewhat offset by the sale of branches in the
third quarter of 1999. The remainder of the growth in
interest-earning assets was funded by wholesale sources.
For the remainder of the year, management expects the net yield
on interest-earning assets to remain near the 4.20 percent rate
reported for the first quarter. Net interest income is
anticipated to grow approximately 6 percent for the year given
management's expectation for loan growth of approximately 10
percent.
17
Net Interest Income and Average Balances Table 8
- --------------------------------------------------------------------------------
Twelve
Months 2000
Ended ------------
March 31, First
2000 Quarter
----------- ------------
Net Interest Income --
Taxable Equivalent (thousands)
Interest income:
Loans -- including fees ......................... $4,145,475 $ 1,098,424
Securities ...................................... 599,982 136,862
Interest-bearing bank balances .................. 6,720 1,523
Federal funds sold and securities
purchased under resale agreements .............. 32,386 7,492
Trading account assets .......................... 36,863 10,357
----------- -----------
Total ........................................ 4,821,426 1,254,658
Interest expense:
Interest-bearing demand ......................... 63,555 17,846
Savings and money market savings ................ 495,141 131,131
Savings certificates ............................ 451,871 117,737
Large denomination certificates ................. 184,957 56,144
Interest-bearing deposits in foreign offices..... 137,084 51,922
Short-term borrowed funds ....................... 477,308 123,317
Long-term debt .................................. 490,369 127,764
----------- -----------
Total ........................................ 2,300,285 625,861
----------- -----------
Net interest income .............................. $2,521,141 $ 628,797
=========== ===========
Annualized net yield on
interest-earning assets ......................... 4.28% 4.20%
Average Balances (millions)
Assets:
Loans -- net of unearned income ................. $ 48,287 $ 50,550
Securities ...................................... 9,134 8,395
Interest-bearing bank balances .................. 110 97
Federal funds sold and securities
purchased under resale agreements .............. 616 525
Trading account assets .......................... 810 623
----------- -----------
Total interest-earning assets ................ 58,957 60,190
Cash and due from banks ......................... 3,095 2,981
Premises and equipment .......................... 958 945
Other assets .................................... 3,837 4,355
Unrealized gains (losses) on securities
available-for-sale ............................. (48) (149)
Allowance for loan losses ....................... (549) (567)
----------- -----------
Total assets ................................. $ 66,250 $ 67,755
=========== ===========
Liabilities and shareholders' equity:
Interest-bearing demand ......................... $ 4,679 $ 4,755
Savings and money market savings ................ 13,456 13,363
Savings certificates ............................ 8,795 8,966
Large denomination certificates ................. 3,480 4,025
Interest-bearing deposits in foreign offices..... 2,667 3,764
Short-term borrowed funds ....................... 9,309 8,920
Long-term debt .................................. 8,245 8,081
----------- -----------
Total interest-bearing liabilities ........... 50,631 51,874
Demand deposits ................................. 8,318 8,319
Other liabilities ............................... 1,778 1,874
Shareholders' equity ............................ 5,523 5,688
----------- -----------
Total liabilities and shareholders'
equity ...................................... $ 66,250 $ 67,755
=========== ===========
Total deposits ................................... $ 41,395 $ 43,192
1999
------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------- ----------- ------------ ------------
Net Interest Income --
Taxable Equivalent (thousands)
Interest income:
Loans -- including fees ......................... $ 1,062,662 $ 1,004,538 $ 979,851 $ 975,011
Securities ...................................... 150,305 154,296 158,519 151,879
Interest-bearing bank balances .................. 2,175 1,631 1,391 2,193
Federal funds sold and securities
purchased under resale agreements .............. 9,403 7,062 8,429 5,802
Trading account assets .......................... 11,064 7,335 8,107 5,653
------------- ----------- ------------ ------------
Total ........................................ 1,235,609 1,174,862 1,156,297 1,140,538
Interest expense:
Interest-bearing demand ......................... 16,439 15,279 13,991 12,725
Savings and money market savings ................ 126,428 121,106 116,476 113,547
Savings certificates ............................ 112,639 110,569 110,926 113,449
Large denomination certificates ................. 45,867 39,954 42,992 43,726
Interest-bearing deposits in foreign offices..... 36,393 24,730 24,039 23,920
Short-term borrowed funds ....................... 129,354 112,336 112,301 103,170
Long-term debt .................................. 129,463 124,265 108,877 111,773
------------- ----------- ------------ ------------
Total ........................................ 596,583 548,239 529,602 522,310
------------- ----------- ------------ ------------
Net interest income .............................. $ 639,026 $ 626,623 $ 626,695 $ 618,228
============= =========== ============ ============
Annualized net yield on
interest-earning assets ......................... 4.26% 4.29% 4.31% 4.41%
Average Balances (millions)
Assets:
Loans -- net of unearned income ................. $ 48,593 $ 47,003 $ 47,012 $ 46,261
Securities ...................................... 9,016 9,461 9,664 9,221
Interest-bearing bank balances .................. 136 124 83 130
Federal funds sold and securities
purchased under resale agreements .............. 681 550 707 483
Trading account assets .......................... 1,027 790 798 700
------------- ----------- ------------ ------------
Total interest-earning assets ................ 59,453 57,928 58,264 56,795
Cash and due from banks ......................... 3,532 2,888 2,975 3,071
Premises and equipment .......................... 955 962 970 911
Other assets .................................... 3,653 3,632 3,713 4,047
Unrealized gains (losses) on securities
available-for-sale ............................. (65) (47) 68 119
Allowance for loan losses ....................... (546) (548) (536) (535)
------------- ----------- ------------ ------------
Total assets ................................. $ 66,982 $ 64,815 $ 65,454 $ 64,408
============= =========== ============ ============
Liabilities and shareholders' equity:
Interest-bearing demand ......................... $ 4,653 $ 4,617 $ 4,691 $ 4,665
Savings and money market savings ................ 13,470 13,566 13,424 12,889
Savings certificates ............................ 8,774 8,696 8,746 8,846
Large denomination certificates ................. 3,428 3,076 3,394 3,377
Interest-bearing deposits in foreign offices..... 2,782 2,041 2,088 2,069
Short-term borrowed funds ....................... 9,836 8,848 9,629 9,292
Long-term debt .................................. 8,327 8,571 7,998 7,627
------------- ----------- ------------ ------------
Total interest-bearing liabilities ........... 51,270 49,415 49,970 48,765
Demand deposits ................................. 8,326 8,368 8,261 8,062
Other liabilities ............................... 1,831 1,641 1,764 2,267
Shareholders' equity ............................ 5,555 5,391 5,459 5,314
------------- ----------- ------------ ------------
Total liabilities and shareholders'
equity ...................................... $ 66,982 $ 64,815 $ 65,454 $ 64,408
============= =========== ============ ============
Total deposits ................................... $ 41,433 $ 40,364 $ 40,604 $ 39,908
18
Related Wachovia continued to experience strong loan growth during 1999
Balance Sheet and through the first quarter of 2000. In comparison with the
Analysis first quarter of 1999, average loan volumes increased $4.289
billion. Adjusting for the effects of the securitization
transactions and acquisitions, average loan balances grew at
approximately 10 percent, primarily in the commercial and
commercial real estate categories. In comparison to the fourth
quarter of 1999, average loan volume grew $1.957 billion, of
which acquisitions accounted for approximately $460 million.
Excluding the acquisitions, annualized loan growth approximated
12 percent. Economic conditions in Wachovia's five state primary
lending area, as well as nationally, have been good and resulted
in strong demand for construction financing and commercial
mortgages despite recent Federal Reserve rate increases. For the
remainder of the year, management expects loan volume to grow at
a rate of approximately 10 percent annualized.
Period-End Loans by Category Table 9
- --------------------------------------------------------------------------------
(thousands)
March 31 Dec. 31 Sept. 30 June 30 March 31
2000 1999 1999 1999 1999
----------- ----------- ----------- ----------- -----------
Commercial ..................... $17,160,717 $17,042,740 $16,166,045 $16,852,028 $15,639,116
Tax-exempt ..................... 673,634 690,053 757,601 796,523 871,271
----------- ----------- ----------- ----------- -----------
Total commercial ........... 17,834,351 17,732,793 16,923,646 17,648,551 16,510,387
Direct retail .................. 1,160,287 1,063,619 1,053,909 1,082,526 1,066,011
Indirect retail ................ 3,856,229 3,740,683 3,616,862 3,458,466 3,324,238
Credit card .................... 4,860,455 4,736,485 4,475,973 4,944,519 4,954,671
Other revolving credit ......... 715,317 667,149 620,342 588,880 552,908
----------- ----------- ----------- ----------- -----------
Total retail ............... 10,592,288 10,207,936 9,767,086 10,074,391 9,897,828
Construction ................... 2,577,621 2,311,362 2,235,387 2,233,128 2,087,886
Commercial mortgages ........... 8,164,304 7,754,206 7,550,770 7,289,241 7,076,217
Residential mortgages .......... 7,994,283 7,756,983 7,498,541 7,385,728 7,301,984
----------- ----------- ----------- ----------- -----------
Total real estate .......... 18,736,208 17,822,551 17,284,698 16,908,097 16,466,087
Lease financing ................ 2,696,605 2,597,271 2,453,749 2,346,467 2,172,158
Foreign ........................ 1,265,864 1,260,674 1,195,842 1,450,580 1,346,672
----------- ----------- ----------- ----------- -----------
Total loans ................ $51,125,316 $49,621,225 $47,625,021 $48,428,086 $46,393,132
=========== =========== =========== =========== ===========
Average balances of securities for the first quarter of 2000
declined in comparison to both the first and fourth quarters of
1999. During 1999, Wachovia allowed portfolio attrition to fund
a portion of the loan growth. During the first quarter of 2000,
maturing securities were replaced to maintain the portfolio near
the level it was at the end of 1999.
Securities Table 10
- --------------------------------------------------------------------------------
March 31, 2000 (thousands)
Securities available-for-sale at fair value:
U.S. Government and agency ................ $2,799,546
Mortgage-backed ........................... 3,635,817
Other ..................................... 674,495
----------
Total available-for-sale ............... 7,109,858
Securities held-to-maturity:
U.S. Government and agency ................ 448,688
Mortgage-backed ........................... 413,631
State and municipal ....................... 210,816
Other ..................................... 41,049
----------
Total held-to-maturity ................. 1,114,184
----------
Total securities ....................... $8,224,042
==========
The increase in other assets from the first and fourth quarters
of 1999 is primarily the result of increased intangible assets
resulting from acquisitions.
Average core deposits grew approximately $684 million and $186
million from the first and fourth quarters of 1999,
respectively. The acquisition of the Bank of Canton accounted
for $169 million of
19
the increase from both 1999 periods. Most of the remaining
increase from a year ago occurred in Wachovia's Premiere money
market deposit products.
Wachovia utilizes a wide variety of wholesale funding sources
including large denomination certificates of deposit, foreign
deposits, repurchase agreements, federal funds, Federal Home
Loan Bank advances, Bank Notes and senior and subordinated debt
to fund the balance sheet. The mix of wholesale funding is
determined based on balance sheet management needs and available
pricing. Several large debt transactions affect comparability of
both period-end and average balances between reported periods.
During 1999, Wachovia issued $1 billion in senior and
subordinated debt. On March 31, 2000, Wachovia issued $300
million in subordinated debt that replaced $300 million in
subordinated debt that matured on December 15, 1999.
Liquidity Wachovia manages liquidity at both the parent and subsidiary
Management levels through active management of the balance sheet. Parent
company liquidity comes from short-term investments that can be
sold immediately, the ability to issue debt and equity
securities, and from dividends and interest income from
subsidiaries. At March 31, 2000, Wachovia Corporation had $971
million in interest-bearing balances with Wachovia Bank, N.A.
("Wachovia Bank"), and $1.6 billion available for issuance as
senior or subordinate debt securities under existing shelf
registrations filed with the Securities and Exchange Commission.
At April 1, 2000, $695 million was available from Wachovia Bank
to pay dividends to Wachovia Corporation without prior
regulatory approval. As a back-up liquidity facility for
commercial paper, Wachovia has $490 million in lines of credit
from unaffiliated banks. No borrowings have occurred under these
lines.
Wachovia Corporation's senior notes are rated Aa3 by Moody's and
AA- by Standard & Poor's, and its subordinated notes are rated
A1 by Moody's and A+ by Standard & Poor's. The subordinated debt
securities qualify for inclusion in Tier II capital under
risk-based capital guidelines. Capital securities, also
classified as part of other long-term debt, totaled $997 million
at March 31, 2000. The capital securities are rated aa3 by
Moody's and A by Standard & Poor's and qualify as Tier I capital
under risk-based capital guidelines.
Through its global bank note program, Wachovia Bank is
authorized to issue up to $21.557 billion of bank notes. The
global bank note program consists of issuances with original
maturities beginning at seven days. Bank notes with original
maturities of one year or less are included in other short-term
borrowed funds, and bank notes with original maturities greater
than one year are considered medium-term in nature and are
classified as long-term debt. Under the existing offering
circular, Wachovia Bank can have outstanding up to $10 billion
of notes at any one time with original maturities from 7 to 270
days. Wachovia Bank may issue up to an aggregate of $8 billion
of notes with maturities of more than 270 days. At March 31,
2000, Wachovia Bank had approximately $6.8 billion of the notes
with maturities of more than 270 days available under the
existing authorization. Short-term bank notes outstanding as of
March 31, 2000 were $210 million, with an average cost of 5.97
percent and an average maturity of less than 1 month.
Medium-term bank notes were $1.974 billion on the same date,
with an average cost of 6.15 percent and an average maturity of
5.2 years. Short-term issues under the global bank note program
are rated P-1 by Moody's and A-1+ by Standard & Poor's, while
medium-term issues are rated Aa2 by Moody's and AA by Standard &
Poor's.
20
Allowance for Loan Losses Table 11
- --------------------------------------------------------------------------------
(thousands)
2000 1999
---------- --------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
---------- ---------- ---------- --------- ----------
Summary of Transactions
Balance at beginning of period ............... $ 554,810 $ 553,894 $ 548,540 $548,302 $ 547,992
Additions from acquisitions .................. 40,504 ---- ---- 39 ----
Provision for loan losses .................... 73,666 66,174 76,770 74,525 80,636
Deduct net loan losses:
Loans charged off:
Commercial ................................. 11,280 17,805 15,509 7,592 5,862
Credit card ................................ 62,883 49,478 54,925 69,619 74,094
Other revolving credit ..................... 2,379 1,332 2,305 3,126 2,889
Other retail ............................... 9,875 8,905 8,561 7,888 8,910
Real estate ................................ 1,220 2,632 4,005 1,397 1,488
Lease financing ............................ 568 908 855 585 592
Foreign .................................... ---- ---- ---- ---- ----
--------- ----------- --------- -------- ---------
Total .................................... 88,205 81,060 86,160 90,207 93,835
Recoveries:
Commercial ................................. 621 2,400 1,018 1,667 1,956
Credit card ................................ 10,129 8,152 8,967 8,618 7,045
Other revolving credit ..................... 647 610 774 828 707
Other retail ............................... 2,566 2,886 2,674 2,718 2,813
Real estate ................................ 786 1,627 1,124 1,836 849
Lease financing ............................ 131 127 187 214 139
Foreign .................................... ---- ---- ---- ---- ----
--------- ----------- --------- -------- ---------
Total .................................... 14,880 15,802 14,744 15,881 13,509
--------- ----------- --------- -------- ---------
Net loan losses ............................. 73,325 65,258 71,416 74,326 80,326
--------- ----------- --------- -------- ---------
Balance at end of period ..................... $ 595,655 $ 554,810 $ 553,894 $548,540 $ 548,302
========= =========== ========= ======== =========
Net Loan Losses (Recoveries) by Category
Commercial ................................... $ 10,659 $ 15,405 $ 14,491 $ 5,925 $ 3,906
Credit card .................................. 52,754 41,326 45,958 61,001 67,049
Other revolving credit ....................... 1,732 722 1,531 2,298 2,182
Other retail ................................. 7,309 6,019 5,887 5,170 6,097
Real estate .................................. 434 1,005 2,881 (439) 639
Lease financing .............................. 437 781 668 371 453
Foreign ...................................... ---- ---- ---- ---- ----
--------- ----------- --------- -------- ---------
Total .................................... $ 73,325 $ 65,258 $ 71,416 $ 74,326 $ 80,326
========= =========== ========= ======== =========
Net loan losses -- excluding credit cards .... $ 20,571 $ 23,932 $ 25,458 $ 13,325 $ 13,277
Annualized Net Loan Losses (Recoveries) to
Average Loans by Category
Commercial ................................... .24% .35% .36% .14% .10%
Credit card .................................. 4.32 3.67 3.76 4.95 4.58
Other revolving credit ....................... 1.00 .45 1.02 1.61 1.60
Other retail ................................. .60 .51 .51 .47 .56
Real estate .................................. .01 .02 .07 (.01) .02
Lease financing .............................. .07 .13 .11 .07 .09
Foreign ...................................... ---- ---- ---- ---- ----
Total loans .................................. .58 .54 .61 .63 .69
Total loans -- excluding credit cards ........ .18 .22 .24 .13 .13
Period-end allowance to outstanding loans .... 1.17 1.12 1.16 1.13 1.18
Allowance for Wachovia's allowance for loan losses is maintained at a level
Loan Losses believed by management to be adequate to absorb probable losses
inherent in the loan portfolio as of the date of the financial
statements. At March 31, 2000, the allowance for loan losses was
$596 million or 1.17 percent of outstanding loans compared with
$555 million or 1.12 percent and $548 million or 1.18 percent at
December 31, 1999 and March 31, 1999, respectively. The allowance
for loan losses varied over the periods presented as a result of
changes in the portfolio's risk profile reflecting changes in
portfolio mix. The change in the ratio of allowance for loan
losses to loans for the periods presented was directly related to
changes in the credit card portfolio resulting from a
securitization transaction in September 1999 and the acquisition
of the Partners First credit card portfolio in February 2000.
21
The provision for loan losses charged to earnings was an amount
sufficient to maintain the allowance for loan losses at the
appropriate level as described previously. For the first quarter
of 2000, the provision for loan losses was $74 million compared
with $81 million for the same period of 1999. Many factors
influence the amount of provision expense recorded during a
given period, including changes in asset mix, asset quality and
growth in the overall portfolio. Since credit card loans carry
significantly higher historical loss rates than the rest of the
portfolio, changes in their proportion to the overall loan
portfolio has the greatest impact on the loan loss provision
during times of stable credit quality. For the first quarter of
2000, average credit card loans accounted for approximately 10
percent of the total loan portfolio and 72 percent of total net
charge-offs for the quarter compared with 13 percent and 83
percent, respectively, for the first quarter of 1999. Credit
card loss rates show improvement over the first quarter of 1999
due to lower levels of borrower bankruptcies and contractual
charge-offs, which occur when balances become more than 180 days
past due. For the rest of the loan portfolio, loss rates remain
favorable and consistent with recent historical trends.
Excluding credit cards, the annualized net charge-off rate for
the first quarter of 2000 was .18 percent compared with .13
percent a year ago.
Given an outlook for stable credit quality and loan growth of
approximately 10 percent for the year, management expects the
provision for loan losses for the year to be in the $325 million
and $340 million range.
Asset quality remained high and within an acceptable level at
March 31, 2000, although nonper-forming assets increased from
both March 31, 1999 and December 31, 1999. The net increase of
$22 million in nonperforming assets from December 31, 1999
primarily was attributable to one commercial credit of $45
million that was downgraded during the quarter. At March 31,
2000, Wachovia's nonperforming assets represent .48 percent of
total loans and foreclosed property compared with .45 percent
and .37 percent at December 31, 1999 and March 31, 1999,
respectively. At March 31, 2000 there were no significant
concentrations of loans in any one industry.
Nonperforming Assets and Contractually Past Due Loans Table 12
- --------------------------------------------------------------------------------
(thousands)
Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31
2000 1999 1999 1999 1999
---------- -------- --------- -------- ----------
Nonperforming assets:
Cash-basis assets ....................................... $226,176 $204,098 $214,594 $209,550 $144,763
Restructured loans ...................................... ---- ---- ---- ---- ----
---------- -------- --------- -------- ----------
Total nonperforming loans ............................ 226,176 204,098 214,594 209,550 144,763
Foreclosed property:
Foreclosed real estate ................................. 17,665 19,759 24,540 28,354 30,285
Less valuation allowance ............................... 4,077 5,941 7,456 8,162 9,590
Other foreclosed assets ................................ 6,343 5,874 6,602 5,045 4,998
---------- -------- --------- -------- ----------
Total foreclosed property ............................ 19,931 19,692 23,686 25,237 25,693
---------- -------- --------- -------- ----------
Total nonperforming assets ........................... $246,107 $223,790 $238,280 $234,787 $170,456
========== ======== ========= ======== ==========
Nonperforming loans to period-end loans ................. .44% .41% .45% .43% .31%
Nonperforming assets to period-end loans and
foreclosed property .................................... .48 .45 .50 .48 .37
Period-end allowance for loan losses times
nonperforming loans .................................... 2.63x 2.72x 2.58x 2.62x 3.79x
Period-end allowance for loan losses times
nonperforming assets ................................... 2.42 2.48 2.32 2.34 3.22
Contractually past due loans -- accruing loans past due
90 days or more ......................................... $126,318 $97,642 $106,755 $99,486 $137,116
========== ======== ========= ======== ==========
22
Noninterest Income Table 13
- --------------------------------------------------------------------------------
(thousands)
2000 1999
---------- ---------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
---------- --------- --------- --------- ---------
Service charges on deposit accounts ................... $100,811 $ 96,642 $ 94,595 $ 91,454 $ 86,955
Fees for trust services ............................... 51,234 52,283 60,066 54,907 49,136
Credit card income -- net of interchange payments ..... 71,182 65,046 70,786 58,110 61,301
Investment fees ....................................... 96,770 78,747 69,364 69,877 17,362
Capital markets income ................................ 44,786 48,965 41,914 41,780 38,112
Electronic banking .................................... 23,396 24,303 23,310 22,558 18,455
Mortgage fees ......................................... 5,001 5,006 7,378 9,863 10,966
Bankers' acceptance and letter of credit fees ......... 11,597 12,444 11,688 11,563 10,342
Other service charges and fees ........................ 29,181 26,720 19,494 18,153 15,526
Other income .......................................... 36,841 29,313 34,246 26,279 25,114
--------- --------- -------- -------- --------
Total other operating revenue ....................... 470,799 439,469 432,841 404,544 333,269
Securities gains ...................................... 167 60 147 10,453 234
--------- --------- -------- -------- --------
Total ............................................... $470,966 $439,529 $432,988 $414,997 $333,503
========= ========= ======== ======== ========
Noninterest Operating revenue, which excludes securities transactions, grew
Income $138 million or 41.3 percent year over year to $471 million. All
major categories advanced except for mortgage fees. Increases
were led by investment fees, service charges on deposit accounts,
credit card income and other service charges. The higher level of
income reflected continued business expansion, as well as the
impact of purchase transactions completed in both years. First
quarter 1999 operating revenue included a $17 million gain from
the sale of credit card receivables in a securitization
transaction. Excluding additions from the purchase and
securitization transactions, other operating revenue rose
approximately 13 percent for the quarter and is expected to grow
in the range of 12 to 14 percent for the year.
Investment fee income grew quarter to quarter by $79 million to
a level of $97 million, principally due to the acquisitions of
Interstate/Johnson Lane and OFFITBANK. Increases occurred in
annuity premiums, up $8 million, mutual fund commissions, up $14
million, portfolio management fees, up $20 million, and equity
and option commissions, up $36 million. Exclusive of the
acquisitions, investment fees grew at a rate estimated to be in
excess of 20 percent, primarily due to high transaction volume
during the first quarter of 2000.
Service charges on deposit accounts increased $14 million or
15.9 percent, with growth concentrated in commercial analysis
fees of $8 million and overdraft charges of $4 million.
Credit card income was higher by $10 million or 16.1 percent,
which included the $17 million gain on sale of loans in 1999.
Exclusive of the effects of the 1999 securitization transactions
and the Partners First portfolio acquisition, credit card income
increased approximately 17 percent from the first quarter of
1999, primarily due to increased pricing for overlimit charges
and other fees. Acquisition of the $2 billion managed
receivables portfolio from Partners First Holdings LLC on
February 1, 2000 added $11 million in credit card income to the
quarter.
Other service charges and fees rose $14 million or 87.9 percent
for the quarter. Most of the increase in this category was due
to servicing fees on securitized credit card portfolios, which
rose $12 million. Servicing fees related to the Partners First
portfolio amounted to $5 million for the quarter.
Electronic banking fees rose $5 million or 26.8 percent quarter
to quarter. The bulk of the increase was in debit card
interchange income, up $4 million or 52.4 percent, the result of
increased consumer acceptance of the service and higher levels
of consumer spending.
Capital markets income increased $7 million or 17.5 percent for
the quarter. Higher income on sales commissions, much of it
generated through the acquisition of Interstate/Johnson Lane,
primarily was responsible for the increase.
23
Mortgage fees declined $6 million or 54.4 percent for the
quarter, reflecting reduced sales of servicing rights on
fixed-rate mortgages due to lower origination volumes. Interest
rates continued to rise throughout the period, resulting in a
shift in consumer demand toward adjustable-rate mortgages, which
are generally held in the loan portfolio. Rising interest rates
also slowed refinancing activity, resulting in lower origination
fees.
Noninterest Expense Table 14
- --------------------------------------------------------------------------------
(thousands)
2000 1999
-------- -------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
-------- ---------- -------- --------- --------
Salaries .............................................. $287,629 $276,048 $266,488 $ 259,733 $218,115
Employee benefits ..................................... 56,252 48,240 50,572 48,019 53,071
-------- ---------- -------- --------- --------
Total personnel expense ............................. 343,881 324,288 317,060 307,752 271,186
Net occupancy expense ................................. 39,526 38,486 38,955 38,908 34,933
Equipment expense ..................................... 49,195 52,425 49,081 49,714 46,842
Postage and delivery .................................. 13,817 13,912 13,700 13,670 14,128
Outside data processing, programming and software ..... 26,874 27,370 26,385 25,561 23,457
Stationery and supplies ............................... 9,072 9,270 9,262 8,598 8,809
Advertising and sales promotion ....................... 16,649 21,090 16,086 17,173 12,119
Professional services ................................. 13,532 23,008 18,619 19,351 14,024
Travel and business promotion ......................... 9,572 10,106 9,138 8,749 5,951
Telecommunications .................................... 14,726 14,801 13,915 15,978 13,394
Amortization of intangible assets ..................... 20,797 14,540 13,156 12,230 10,953
Foreclosed property expense -- net of income .......... (2,722) (602) (470) 301 (82)
Merger-related charges* ............................... 8,158 5,669 5,293 8,347 ----
Litigation settlement charge .......................... 20,000 ---- ---- ---- ----
Other expense ......................................... 54,901 46,255 47,012 54,285 36,484
-------- ---------- -------- --------- --------
Total ............................................... $637,978 $600,618 $577,192 $ 580,617 $492,198
======== ========== ======== ========= ========
Overhead ratio ........................................ 58.0% 55.7% 54.5% 56.3% 51.7%
Overhead ratio without nonrecurring charges ........... 55.5 55.2 54.0 55.5 51.7
* Nonrecurring charges.
Noninterest Total noninterest expense rose $146 million or 29.6 percent for
Expense the quarter. Comparisons between 2000 and 1999 are impacted by
acquisitions, merger-related expenses and a one-time litigation
charge. Excluding the effects of these items, noninterest expense
rose approximately 4 percent for the quarter and is expected to
increase at a rate of approximately 6 percent for the year.
Expenses incurred during the quarter for the conclusion of the
Year 2000 project were minimal.
Total personnel expense increased $73 million or 26.8 percent.
Salaries expense rose $70 million or 31.9 percent, primarily due
to expanded incentive pay for revenue-generating businesses and
to a higher employee base from acquisitions. Exclusive of
acquisitions, total personnel expense increased approximately 5
percent quarter over quarter. Employee benefits expense
increased $3 million or 6 percent, primarily concentrated in
retirement plan expenses and payroll taxes.
Net occupancy expense rose $5 million or 13.1 percent, largely
reflecting increased operating premise lease costs up resulting
from the expansion of physical facilities. Equipment expense
increased $2 million or 5.0 percent, led by depreciation of
computers and peripheral equipment, up $3 million, and external
equipment maintenance, both reflecting continued growth in
technology investments.
Remaining combined categories of noninterest expense rose $38
million or 27.3 percent. The most significant quarter-to-quarter
increase occurred in amortization of intangible assets resulting
from acquisitions completed since March 31, 1999. Other
increases were largely in the areas of credit card solicitation
expense, software maintenance, amortization of externally
purchased software, franchise taxes, external bankcard
processing associated with the Partners First acquisition and
gains on the sale of foreclosed properties. Excluding the
addition of acquisitions, nonpersonnel costs increased by
approximately 4 percent quarter to quarter.
24
Income Taxes Table 15
- --------------------------------------------------------------------------------
(thousands)
Three Months Ended
March 31
----------------------
2000 1999
--------- ----------
Income before income taxes .................................... $ 378,818 $ 368,745
========== ==========
Federal income taxes at statutory rate ........................ $ 132,587 $ 129,061
State and local income taxes -- net of federal benefit ........ 8,695 8,052
Effect of tax-exempt securities interest and other income ..... (11,269) (11,194)
Other items ................................................... 4,098 (410)
---------- ----------
Total tax expense ......................................... $ 134,111 $ 125,509
========== ==========
Current:
Federal ...................................................... $ 55,215 $ 21,523
Foreign ...................................................... 336 302
State and local .............................................. 10,349 6,614
---------- ----------
Total ..................................................... 65,900 28,439
Deferred:
Federal ...................................................... 65,184 91,297
State and local .............................................. 3,027 5,773
---------- ----------
Total ..................................................... 68,211 97,070
---------- ----------
Total tax expense ......................................... $ 134,111 $ 125,509
========== ==========
Income Taxes Applicable income taxes for the first quarter of 2000 increased
$9 million or 6.9 percent from the prior year. Wachovia's
effective tax rate has risen as a result of a decrease in the
proportion of tax-exempt income to total income, as well as an
increase in nondeductible amortization associated with purchase
business combinations.
New Accounting In June 1998, the Financial Accounting Standards Board issued
Standards Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
(FASB 133). FASB 133 establishes new accounting and reporting
requirements for derivative instruments embedded in other
contracts and hedging activities. The standard requires all
derivatives to be measured at fair value and recognized as
either assets or liabilities in the statement of condition.
Under certain conditions, a derivative may be specifically
designated as a hedge. Accounting for the changes in the fair
value of a derivative depends on the intended use of the
derivative and the resulting designation. Adoption of the
standard is required for Wachovia's December 31, 2001 financial
statements with early adoption allowed as of the beginning of
any quarter after June 30, 1998. Management is in the process of
assessing the impact and plans to adopt the standard effective
January 1, 2001. Adoption is not expected to result in a
material financial impact.
Shareholders' Equity and Capital Ratios
Shareholders' equity at March 31, 2000 was $5.846 billion, up
$414 million or 7.6 percent from $5.432 billion one year
earlier. Included in shareholders' equity at the end of the
first quarter of 2000 was $88 million, net of tax, of unrealized
losses on securities available-for-sale compared with unrealized
gains of $61 million, net of tax, one year earlier.
Wachovia repurchased a total of 1,500,000 shares of its common
stock as authorized by the Board of Directors during the first
quarter of 2000 at an average price of $59 per share for a total
cost of $89 million. Included in the total were 573,594 shares
repurchased to offset shares issued for the acquisition of B C
Bankshares, Inc. and 500,000 shares repurchased to offset shares
issued for the acquisition of Commerce National Corporation.
Wachovia can repurchase up to 8 million shares of its common
stock under a January 28, 2000 authorization effective through
January 25, 2002. As of March 31, 2000, a total of 426,406
shares had been repurchased under the January 28, 2000
25
authorization. Management will continue to work within the
guidelines of its share repurchase authorization while assessing
the best deployment of Wachovia's capital.
At its April 28, 2000 meeting, the Board of Directors declared a
second quarter dividend of $.54 per share, payable June 1 to
shareholders of record as of May 11. The dividend is higher by
10.2 percent from $.49 per share paid in the same quarter of
1999.
Intangible assets at March 31, 2000 totaled $1.251 billion,
consisting of $913 million of goodwill, $76 million of deposit
base intangibles, $259 million of purchased credit card premiums
and $3 million of other intangibles. The combined acquisitions
of B C Bankshares, Inc. and the Partners First Holdings LLC
portfolio added approximately $97 million of goodwill and $230
million of purchased credit card premiums, respectively, based
on preliminary information. Intangible assets at the end of the
first quarter of 1999 were $677 million, with $537 million of
goodwill, $90 million of deposit base intangibles, $39 million
of purchased credit card premiums, $10 million of other
intangibles.
Regulatory agencies divide capital into Tier I (consisting of
shareholders' equity and certain cumulative preferred stock
instruments less ineligible intangible assets) and Tier II
(consisting of the allowable portion of the reserve for loan
losses and certain long-term debt) and measure capital adequacy
by applying both capital levels to a banking company's
risk-adjusted assets and off-balance sheet items. Regulatory
requirements presently specify that Tier I capital should
exclude the unrealized gain or loss, net of tax, on securities
available-for-sale. In addition to these capital ratios,
regulatory agencies have established a Tier I leverage ratio
which measures Tier I capital to average assets less ineligible
intangible assets.
Capital Components and Ratios Table 16
- --------------------------------------------------------------------------------
(thousands)
2000 1999
------------ ----------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------------ -------------- ------------ ------------ -----------
Tier I capital:
Common shareholders' equity ............... $ 5,846,430 $ 5,658,457 $ 5,628,083 $ 5,426,717 $ 5,431,939
Trust capital securities .................. 996,838 996,744 996,650 996,556 996,462
Less ineligible intangible assets ......... 1,040,021 931,257 944,304 772,696 657,717
Unrealized losses (gains) on securities
available-for-sale -- net of tax ......... 87,939 72,002 27,600 9,618 (60,642)
------------ -------------- ------------ ------------ -----------
Total Tier I capital ................... 5,891,186 5,795,946 5,708,029 5,660,195 5,710,042
Tier II capital:
Allowable allowance for loan losses ....... 595,655 554,810 553,894 548,540 548,302
Allowable long-term debt .................. 2,407,529 2,107,334 2,137,158 2,136,952 2,191,701
------------ -------------- ------------ ------------ -----------
Tier II capital additions .............. 3,003,184 2,662,144 2,691,052 2,685,492 2,740,003
------------ -------------- ------------ ------------ -----------
Total capital .......................... $ 8,894,370 $ 8,458,090 $ 8,399,081 $ 8,345,687 $ 8,450,045
============ ============== ============ ============ ===========
Risk-adjusted assets ....................... $ 79,228,699 $ 77,060,603 $ 73,870,211 $ 74,897,805 $73,871,880
Quarterly average assets * ................. $ 66,863,406 $ 66,113,697 $ 63,916,969 $ 64,611,973 $63,631,476
Risk-based capital ratios:
Tier I capital ............................ 7.44% 7.52% 7.73% 7.56% 7.73%
Total capital ............................. 11.23 10.98 11.37 11.14 11.44
Tier I leverage ratio ...................... 8.81 8.77 8.93 8.76 8.97
* Excludes ineligible intangible assets and average unrealized gains (losses)
on securities available-for-sale, net of tax.
Regulatory guidelines require a minimum of total capital to
risk-adjusted assets ratio of 8 percent with at least one-half
consisting of tangible common shareholders' equity and a minimum
Tier I leverage ratio of 3 percent. Banks that meet or exceed a
Tier I ratio of 6 percent, a total capital ratio of 10 percent
and a Tier I leverage ratio of 5 percent are considered well
capitalized by regulatory standards. It is Wachovia's policy
that it and its banking subsidiaries be well capitalized at all
times.
26
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Market risk is the risk of loss due to adverse changes in
and Asset/ instrument values or earnings fluctuation resulting from changes
Liability in market factors including changes in interest rates, foreign
Management exchange rates, commodity prices and other market variables such
as equity price risk. Wachovia primarily is exposed to interest
rate risk with immaterial risk exposure to changes in foreign
exchange rates and equity prices in the nontrading portfolios.
Trading Trading market risk is the risk to net income from changes in
Market Risk the fair value of assets and liabilities and off-balance sheet
instruments that are marked-to-market through the income
statement. The earnings risk due to changes in fair value in the
trading portfolios is limited by the short-term holding periods
of some of the portfolios, entering into offsetting trades with
market counterparties, establishing and monitoring market risk
limits by portfolio, and utilizing various hedging techniques.
Wachovia uses a value-at-risk (VaR) methodology to gauge
potential losses in various trading portfolios due to changes in
interest rates. The VaR estimate represents the maximum expected
loss in fair value of a trading portfolio over a one day time
horizon, given a 99 percent confidence level. In other words,
there is about a 1 percent chance, given historical volatility
of interest rates, that a loss greater than the VaR estimate
will occur by the end of the next day.
At March 31, 2000, the combined VaR exposure was $393 thousand
representing .06 percent of the combined trading portfolio value
of $690 million. The combined average VaR exposure for the first
quarter of 2000 was $394 thousand representing .07 percent of
the combined average trading portfolio value of $539 million.
These VaR numbers are for the combined U. S. Treasury and
government agency, municipal bond, residential mortgage-backed
securities and money market instrument trading portfolios.
Nontrading Nontrading market risk is the risk to net income from changes
Market Risk in interest rates on asset, liability and off-balance sheet
portfolios other than trading. The risk is driven by potential
mismatches resulting from timing differences in the repricing of
assets, liabilities and off-balance sheet instruments, and
potential exercise of explicit and embedded options. There also
is net income risk from changes in market rate relationships
known as basis risk.
Management believes that nontrading interest rate risk is best
measured by simulation modeling which calculates expected net
income based on projected interest-earning assets,
interest-bearing liabilities, off-balance sheet financial
instruments, other income and other expense. The model
projections are based upon historical trends and management's
expectations of balance sheet growth patterns, spreads to market
rates, historical market rate relationships, prepayment
behavior, current and expected product offerings, sales
activity, and expected exercise of explicit and embedded
options.
The policy guideline limit for net income simulation is a
negative impact to net income of 7.5 percent for the up or down
200 basis point ramp scenarios when compared with the flat rate
scenario. Management has generally maintained a risk position
well within the policy guideline level. The model indicated the
impact of a 200 basis point gradual rise in rates over the next
12 months would cause approximately a 1.34 percent increase in
net income at March 31, 2000 versus a .90 percent decrease one
year earlier. A gradual decrease in rates over the next 12
months would cause approximately a 1.37 percent decrease in net
income as of March 31, 2000 compared with a .54 percent increase
at March 31, 1999. Wachovia runs additional scenarios beyond the
standard shock and ramp scenarios, including yield curve
steepening, flattening and inversion scenarios. Various
sensitivity analyses are performed on a regular basis to
segregate interest rate risk into separate components and
understand
27
the risk attributable to prepayments, caps and floors, and other
options. Extensive assumptions testing is performed to
understand the degree of impact from changing key assumptions
such as the speed of prepayments, the interest rate elasticity
of core deposit rates and faster- or slower-growing balance
sheets.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Wachovia Bank, N.A., a wholly owned subsidiary of Wachovia
Corporation, has reached an agreement with the U. S. Department
of Labor to settle litigation stemming from a lawsuit begun
against South Carolina National Bank in May 1991. Wachovia
inherited the lawsuit as a result of the acquisition of South
Carolina National Bank in December 1991. The litigation stemmed
from the purchase of Charter Medical Corporation's then
privately held stock by its Employee Stock Ownership Plan to
fund retirement benefits. South Carolina National Bank served as
the trustee to the ESOP. The amount of the settlement was $30
million of which $20 million was charged to first quarter 2000
earnings, net of expected insurance proceeds and a previously
established reserve.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- The exhibits listed on the accompanying Exhibit
Index, immediately following the signature page are filed as
part of or incorporated by reference into this report.
(b) Reports on Form 8-K -- None.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
WACHOVIA CORPORATION
ROBERT S. MCCOY, JR. May 11, 2000
-----------------------------------------
By: Robert S. McCoy, Jr.
Vice Chairman
Chief Financial Officer
DONALD K. TRUSLOW May 11, 2000
-----------------------------------------
By: Donald K. Truslow
Senior Executive Vice President,
Treasurer/Comptroller
29
EXHIBIT INDEX
Exhibit
Number Description
- ---------- -------------------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 of
Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1998, File No. 1-9021).
3.2 Bylaws of the registrant as amended (incorporated by reference to Exhibit 3.2 of Form S-4 Registration Statement
of Wachovia Corporation dated December 14, 1998, File No. 333-68823).
4 Instruments defining the rights of security holders, including indentures -- Wachovia Corporation hereby agrees
to furnish to the Commission, upon request, a copy of any instruments defining the rights of security holders that
are not required to be filed.
4.1 Articles IV, VII, IX, X and XI of the registrant's Amended and Restated Articles of Incorporation (included in
Exhibit 3.1 hereto).
4.2 Article 1, Section 1.8, and Article 6 of the registrant's Bylaws (included in Exhibit 3.2 hereto).
4.3 Indenture dated as of May 15, 1986 between South Carolina National Corporation and Morgan Guaranty Trust
Company of New York, as Trustee, relating to $35,000,000 principal amount of 6 1/2% Convertible Subordinated
Debentures due in 2001 (incorporated by reference to Exhibit 28 of Form S-3 Registration Statement of South
Carolina National Corporation, File No. 33-7710).
4.4 First Supplemental Indenture dated as of November 26, 1991 by and among South Carolina National
Corporation, Wachovia Corporation and Morgan Guaranty Trust Company of New York, Trustee, amending the
Indenture described in Exhibit 4.3 hereto (incorporated by reference to Exhibit 4.10 of Report on Form 10-K of
Wachovia Corporation for the year ended December 31, 1991, File No. 1-9021).
4.5 Indenture dated as of March 15, 1991 between South Carolina National Corporation and Bankers Trust
Company, as Trustee, relating to certain unsecured subordinated securities (incorporated by reference to
Exhibit 4(a) of Form S-3 Registration Statement of South Carolina National Corporation, File No. 33-39754).
4.6 First Supplemental Indenture dated as of January 24, 1992 by and among South Carolina National Corporation,
Wachovia Corporation and Bankers Trust Company, as Trustee, amending the Indenture described in Exhibit 4.5
hereto (incorporated by reference to Exhibit 4.12 of Report on Form 10-K of Wachovia Corporation for the year
ended December 31, 1991, File No. 1-9021).
4.7 Indenture dated as of July 15, 1998 between Wachovia Corporation and The Chase Manhattan Bank, as Trustee,
relating to subordinated debt securities (incorporated by reference to Exhibit 4(b) of Form S-3 Registration
Statement of Wachovia Corporation, File No. 333-59165).
4.8 Indenture dated as of August 15, 1996 between Wachovia Corporation and The Chase Manhattan Bank, as
Trustee, relating to senior debt securities (incorporated by reference to Exhibit 4(a) of Post-Effective Amendment
No. 1 of Form S-3 Registration Statement of Wachovia Corporation, File No. 33-6280).
4.9 Indenture between Wachovia Corporation, Wachovia Capital Trust II and First National Bank of Chicago, as
Trustee, relating to Floating-Rate Junior Subordinated Deferrable Interest Debentures (Junior Subordinated
Debentures) (incorporated by reference to Exhibit 4(c) of Amendment No. 1 of Form S-3 Registration Statement
of Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365).
4.10 Amended and Restated Declaration of Trust of Wachovia Capital Trust II, relating to Preferred Securities
(incorporated by reference to Exhibit 4(b)(iv) of Amendment No. 1 of Form S-3 Registration Statement of
Wachovia Corporation and Wachovia Capital Trust II dated January 22, 1997, File No. 333-19365).
4.11 Preferred Securities Guarantee Agreement of Wachovia Corporation (incorporated by reference to Exhibit 4(g) of
Amendment No. 1 of Form S-3 Registration Statement of Wachovia Corporation and Wachovia Capital Trust II
dated January 22, 1997, File No. 333-19365).
4.12 Indenture between Central Fidelity Banks, Inc. and Chemical Bank, as Trustee, relating to $150,000,000
principal amount of subordinated debt securities (incorporated by reference to Exhibit 4.1 of Form 8-K of
Central Fidelity Banks, Inc., dated November 18, 1992, File No. 0-8829).
4.13 Indenture between Central Fidelity Banks, Inc., Central Fidelity Capital Trust I and The Bank of New York, as
Trustee, relating to $100,000,000 Floating-Rate Junior Subordinated Debentures (incorporated by reference to
Exhibit 4.1 of Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File
No. 333-28917).
4.14 Amended and Restated Declaration of Trust of Central Fidelity Capital Trust I (incorporated by reference to
Exhibit 4.4 of Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated April 23, 1997, File
No. 333-28917).
4.15 Form of New Guarantee Agreement for the benefit of the holders of the Trust Securities (incorporated by
reference to Exhibit 4.6 of Form S-3 Registration Statement of Central Fidelity Banks, Inc., dated as of April 23,
1997, File No. 333-28917).
10.1 Senior Management Incentive Plan of Wachovia Corporation as amended through January 1, 1999 (incorporated
by reference to Exhibit 10.4 of Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30,
1999, File No. 1-9021).
10.2 Wachovia Corporation Amended and Restated Executive Deferred Compensation Plan.
30
EXHIBIT INDEX (continued)
Exhibit
Number Description
- ----------- ----------------------------------------------------------------------------------------------------------------
10.3 Employment Agreement between Wachovia Corporation and L. M. Baker, Jr. dated as of November 29, 1999
(incorporated by reference to Exhibit 10.3 of Report on Form 10-K of Wachovia Corporation for the year ended
December 31, 1999, File No. 1-9021).
10.4 Employment Agreement between Wachovia Corporation and Robert S. McCoy, Jr. dated as of October 22, 1999
(incorporated by reference to Exhibit 10.4 of Report on Form 10-K of Wachovia Corporation for the year ended
December 31, 1999, File No. 1-9021).
10.5 Employment Agreement between Wachovia Corporation and G. Joseph Prendergast dated as of October 22, 1999
(incorporated by reference to Exhibit 10.5 of Report on Form 10-K of Wachovia Corporation for the year ended
December 31, 1999, File No. 1-9021).
10.6 Employment Agreement between Wachovia Corporation and Mickey W. Dry dated as of October 22, 1999
(incorporated by reference to Exhibit 10.6 of Report on Form 10-K of Wachovia Corporation for the year ended
December 31, 1999, File No. 1-9021).
10.7 Employment Agreement between Wachovia Corporation and Walter E. Leonard, Jr. dated as of October 22, 1999
(incorporated by reference to Exhibit 10.7 of Report on Form 10-K of Wachovia Corporation for the year ended
December 31, 1999, File No. 1-9021).
10.8 Form of Employment Agreement between Wachovia Corporation and Executive Officers (other than Messrs.
Baker, McCoy, Prendergast, Dry and Leonard) (incorporated by reference to Exhibit 10.8 of Report on Form 10-K
of Wachovia Corporation for the year ended December 31, 1999, File No. 1-9021.)
10.9 Employment Agreement between Wachovia Corporation and Morris W. Offit dated as of May 13, 1999
(incorporated by reference to Exhibit 10.1 of Form S-4 Registration Statement of Wachovia Corporation dated
June 25, 1999, File No. 1-9021).
10.10 Senior Executive Retirement Agreement between Wachovia Corporation and L. M. Baker, Jr. dated as of
November 29, 1999 (incorporated by reference to Exhibit 10.10 of Report on Form 10-K of Wachovia
Corporation for the year ended December 31, 1999, File No. 1-9021).
10.11 Senior Executive Retirement Agreement between Wachovia Corporation and Robert S. McCoy, Jr. dated as of
October 22, 1999 (incorporated by reference to Exhibit 10.11 of Report on Form 10-K of Wachovia Corporation
for the year ended December 31, 1999, File No. 1-9021).
10.12 Senior Executive Retirement Agreement between Wachovia Corporation and G. Joseph Prendergast dated as of
October 22, 1999 (incorporated by reference to Exhibit 10.12 of Report on Form 10-K of Wachovia Corporation
for the year ended December 31, 1999, File No. 1-9021).
10.13 Senior Executive Retirement Agreement between Wachovia Corporation and Mickey W. Dry dated as of
October 22, 1999 (incorporated by reference to Exhibit 10.13 of Report on Form 10-K of Wachovia Corporation
for the year ended December 31, 1999, File No. 1-9021).
10.14 Senior Executive Retirement Agreement between Wachovia Corporation and Walter E. Leonard, Jr. dated as of
October 22, 1999 (incorporated by reference to Exhibit 10.14 of Report on Form 10-K of Wachovia Corporation
for the year ended December 31, 1999, File No. 1-9021).
10.15 Form of Senior Executive Retirement Agreement between Wachovia Corporation and Executive Officers (other
than Messrs. Baker, McCoy, Prendergast, Dry and Leonard).
10.16 Senior Management and Director Stock Plan of Wachovia Corporation (incorporated by reference to Exhibit 10 of
Quarterly Report on Form 10-Q of First Wachovia Corporation for the quarter ended March 31, 1989, File
No. 1-9021).
10.17 1990 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.16
hereto (incorporated by reference to Exhibit 10.17 of Report on Form 10-K of First Wachovia Corporation for the
year ended December 31, 1989, File No. 1-9021).
10.18 1996 Declaration of Amendment to Senior Management and Director Stock Plan as described in Exhibit 10.16
hereto (incorporated by reference to Exhibit 10.24 of Report on Form 10-K of Wachovia Corporation for the year
ended December 31, 1996, File No. 1-9021).
10.19 Deferred Compensation Plan dated as of January 19, 1987, as amended (incorporated by reference to
Exhibit 10(c) of Report on Form 10-K of South Carolina National Corporation for the year ended December 31,
1986, File No. 0-7042).
10.20 Amendment to Deferred Compensation Plan described in Exhibit 10.19 hereto (incorporated by reference to
Exhibit 19(b) of Quarterly Report on Form 10-Q of South Carolina National Corporation for the quarter ended
September 30, 1987, File No. 0-7042).
10.21 Amendment to Deferred Compensation Plan described in Exhibit 10.19 hereto (incorporated by reference to
Exhibit 10(d) of Report on Form 10-K of South Carolina National Corporation for the year ended December 31,
1988, File No. 0-7042).
10.22 Amendment to Deferred Compensation Plan described in Exhibit 10.19 hereto (incorporated by reference to
Exhibit 10.35 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1993, File
No. 1-9021).
31
EXHIBIT INDEX (concluded)
Exhibit
Number Description
- ------------ --------------------------------------------------------------------------------------------------------------
10.23 Amended and Restated Wachovia Corporation Stock Plan (incorporated by reference to Exhibit 4.1 of Form S-8
Registration Statement File No. 033-53325).
10.24 Wachovia Corporation Director Deferred Stock Unit Plan (incorporated by reference to Exhibit 10.37 of Report
on Form 10-K of Wachovia Corporation for the year ended December 31, 1996, File No. 1-9021).
10.25 Wachovia Corporation Executive Insurance Plan (incorporated by reference to Exhibit 10.36 of Report on Form
10-K of Wachovia Corporation for the year ended December 31, 1995, File No. 1-9021).
10.26 Executive Long-Term Disability Income Plan (incorporated by reference to Exhibit 10.34 of Report on Form 10-K
of Wachovia Corporation for the year ended December 31, 1997, File No. 1-9021).
10.27 Deferred Compensation Plan for the Board of Directors of Wachovia Corporation (incorporated by reference to
Exhibit 10.19 of Report on Form 10-K of First Wachovia Corporation for the year ended December 31, 1990,
File No. 1-9021).
10.28 1996 Declaration of Amendment to Deferred Compensation Plan for the Board of Directors of Wachovia
Corporation described in Exhibit 10.27 hereto (incorporated by reference to Exhibit 10.26 of Report on
Form 10-K of Wachovia Corporation for the year ended December 31, 1996, File No. 1-9021).
10.29 Deferred Compensation Plan of Wachovia Bank of North Carolina, N.A. (incorporated by reference to Exhibit
10.1 of Report on Form 10-K of Wachovia Corporation for the year ended December 31,1992, File No. 1-9021).
10.30 1983 Amendment to Deferred Compensation Plan described in Exhibit 10.29 hereto (incorporated by reference
to Exhibit 10.2 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1992, File
No. 1-9021).
10.31 1986 Amendment to Deferred Compensation Plan described in Exhibit 10.29 hereto (incorporated by reference
to Exhibit 10.9 of Report on Form 10-K of First Wachovia Corporation for the year ended December 31, 1986,
File No. 1-9021).
10.32 Agreement between Wachovia Corporation and John G. Medlin, Jr. (incorporated by reference to Exhibit 10.13 of
Report on Form 10-Q of Wachovia Corporation for the quarter ended June 30, 1998, File No. 1-9021).
10.33 Executive Retirement Agreement between Wachovia Corporation and John G. Medlin, Jr. (incorporated by
reference to Exhibit 10.18 of Report on Form 10-K of First Wachovia Corporation for the year ended
December 31, 1987, File No. 1-9021).
10.34 Amendment to Executive Retirement Agreement described in Exhibit 10.33 hereto (incorporated by reference to
Exhibit 10.17 of Report on Form 10-K of Wachovia Corporation for the year ended December 31, 1991, File
No. 1-9021).
10.35 Amendment to Executive Retirement Agreement described in Exhibit 10.33 hereto (incorporated by reference to
Exhibit 10.3 of Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30,
1993, File No. 1-9021).
10.36 Amendment to Executive Retirement Agreement described in Exhibit 10.33 hereto (incorporated by reference to
Exhibit 10.4 of Quarterly Report on Form 10-Q of Wachovia Corporation for the quarter ended September 30,
1993, File No. 1-9021).
11 "Computation of Earnings Per Common Share" (included on page 9 herein).
12 Statement setting forth computation of ratio of earnings to fixed charges.
27 Financial Data Schedule (for SEC purposes only).
32