WACHOVIA
- --------------------------------------------------------------------------------
Form 10-Q
First Quarter 2001
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 2001
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 of 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, 2001, Wachovia Corporation had 210,334,977 shares of common
stock outstanding.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Page No.
---------
Consolidated Statements of Condition at March 31, 2001, December 31, 2000 and March 31, 2000 ........ 3
Consolidated Statements of Income for the three months ended March 31, 2001 and March 31, 2000 ...... 4
Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2001 and
March 31, 2000 ..................................................................................... 5
Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and
March 31, 2000 ..................................................................................... 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 unaudited interim
consolidated financial statements include 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.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements regarding
Wachovia Corporation ("Wachovia"), including, without limitation, statements
relating to Wachovia's expectations with respect to revenue, credit losses,
levels of nonperforming assets, expenses, earnings and other measures of
financial performance. Words such as "may," "could," "would," "should,"
"believes," "expects," " anticipates," "estimates," " intends," "plans,"
"targets" or similar expressions are intended to identify forward-looking
statements. These forward-looking statements are not guarantees of future
performance and involve certain risks and uncertainties that are subject to
change based on various factors (many of which are beyond Wachovia's control).
The following factors, among others, could cause Wachovia's financial
performance to differ materially from the expectations expressed in such
forward-looking statements: (1) business increases, productivity gains and other
investments are lower than expected or do not occur as quickly as anticipated;
(2) competitive pressures among financial services companies increase
significantly; (3) the strength of the United States economy in general and/or
the strength of the local economies of the States in which Wachovia conducts
operations changes; (4) trade, monetary and fiscal policies and laws, including
interest rate policies of the Board of Governors of the Federal Reserve System,
change; (5) inflation, interest rates and/or market conditions fluctuate; (6)
conditions in the stock market, the public debt market and other capital markets
deteriorate; (7) Wachovia fails to develop competitive new products and services
and/or new and existing customers do not accept these products and services; (8)
financial services' laws and regulations change; (9) technology changes and
Wachovia fails to adapt to those changes; (10) consumer spending and saving
habits change; (11) unanticipated regulatory or judicial proceedings occur; and
(12) Wachovia is unsuccessful at managing the risks involved in the foregoing.
Additional information with respect to factors that may cause actual results to
differ materially from those contemplated by such forward-looking statements may
also be included in other reports that Wachovia files with the Securities and
Exchange Commission. Wachovia cautions that the foregoing list of factors is not
exclusive and not to place undue reliance on forward-looking statements.
Wachovia does not intend to update any forward-looking statement, whether
written or oral, relating to the matters discussed in this Quarterly Report on
Form 10-Q.
2
Consolidated Statements of Condition
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($ in thousands, except share data) wachovia corporation and subsidiaries
MARCH 31 DECEMBER 31 MARCH 31
2001 2000 2000
-------------- ------------- ---------------
ASSETS
Cash and due from banks .......................................................... $ 3,015,080 $ 3,727,441 $ 3,167,792
Interest-bearing bank balances ................................................... 238,433 173,529 130,686
Federal funds sold and securities purchased under resale agreements .............. 591,608 788,618 417,023
Trading account assets ........................................................... 883,539 960,838 1,239,924
Securities available-for-sale .................................................... 8,106,634 7,571,696 7,109,858
Securities held-to-maturity (fair value of $976,974, $1,052,535 and $1,120,825
respectively) ................................................................... 943,761 1,023,750 1,114,184
Loans, net of unearned income .................................................... 56,703,174 55,001,721 51,125,316
Less allowance for loan losses ................................................... 851,082 822,560 595,655
----------- ----------- -----------
Net loans ...................................................................... 55,852,092 54,179,161 50,529,661
Premises and equipment ........................................................... 957,376 911,304 942,114
Due from customers on acceptances ................................................ 79,377 82,008 87,555
Goodwill and other intangible assets ............................................. 1,505,876 1,256,227 1,248,797
Other assets ..................................................................... 3,432,252 3,357,080 2,829,894
----------- ----------- -----------
Total assets ................................................................... $75,606,028 $74,031,652 $68,817,488
=========== =========== ===========
LIABILITIES
Deposits in domestic offices:
Demand .......................................................................... $ 8,884,187 $ 9,180,330 $ 8,666,743
Interest-bearing demand ......................................................... 5,421,947 5,116,571 4,648,977
Savings and money market savings ................................................ 14,109,862 12,902,336 13,673,221
Savings certificates ............................................................ 10,132,049 9,534,778 9,237,751
Large denomination certificates ................................................. 3,728,790 3,673,219 3,900,896
----------- ----------- -----------
Total deposits in domestic offices ............................................. 42,276,835 40,407,234 40,127,588
Interest-bearing deposits in foreign offices ..................................... 3,340,556 4,004,948 3,588,190
----------- ----------- -----------
Total deposits ................................................................. 45,617,391 44,412,182 43,715,778
Federal funds purchased and securities sold under repurchase agreements .......... 6,156,225 6,753,164 4,994,119
Commercial paper ................................................................. 2,098,424 1,855,923 1,593,952
Other short-term borrowed funds .................................................. 1,261,748 1,253,058 1,493,962
Long-term debt ................................................................... 10,711,745 10,808,218 8,738,387
Acceptances outstanding .......................................................... 79,377 82,008 87,555
Other liabilities ................................................................ 2,816,262 2,582,560 2,347,305
----------- ----------- -----------
Total liabilities .............................................................. 68,741,172 67,747,113 62,971,058
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 210,334,977,
203,423,606 and 202,456,311 shares, respectively ............................... 1,051,675 1,017,118 1,012,282
Capital surplus .................................................................. 1,141,959 731,162 682,068
Retained earnings ................................................................ 4,596,620 4,505,947 4,240,206
Accumulated other comprehensive income (loss) .................................... 74,602 30,312 (88,126)
----------- ----------- -----------
Total shareholders' equity ..................................................... 6,864,856 6,284,539 5,846,430
----------- ----------- -----------
Total liabilities and shareholders' equity ..................................... $75,606,028 $74,031,652 $68,817,488
=========== =========== ===========
3
Consolidated Statements of Income
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($ in thousands, except per share) wachovia corporation and subsidiaries
THREE MONTHS ENDED MARCH 31
---------------------------------
2001 2000
--------------- ---------------
INTEREST INCOME
Loans, including fees .................................................... $ 1,189,380 $ 1,093,779
Securities available-for-sale ............................................ 125,722 112,742
Securities held-to-maturity:
State and municipal ..................................................... 3,788 3,640
Other investments ....................................................... 14,031 15,824
Interest-bearing bank balances ........................................... 1,969 1,523
Federal funds sold and securities purchased under resale agreements ...... 8,426 7,492
Trading account assets ................................................... 6,880 10,357
----------- -----------
Total interest income .................................................. 1,350,196 1,245,357
INTEREST EXPENSE
Deposits:
Domestic offices ........................................................ 366,866 322,858
Foreign offices ......................................................... 46,986 51,922
----------- -----------
Total interest on deposits ............................................. 413,852 374,780
Short-term borrowed funds ................................................ 141,407 123,317
Long-term debt ........................................................... 165,096 127,764
----------- -----------
Total interest expense ................................................. 720,355 625,861
NET INTEREST INCOME 629,841 619,496
Provision for loan losses ................................................ 121,500 73,666
----------- -----------
Net interest income after provision for loan losses ...................... 508,341 545,830
OTHER INCOME
Service charges on deposit accounts ...................................... 104,282 100,811
Fees for trust services .................................................. 57,090 51,234
Credit card income ....................................................... 53,774 71,182
Investment fees .......................................................... 75,864 96,770
Capital markets income ................................................... 48,166 44,786
Electronic banking ....................................................... 26,770 23,396
Mortgage fees ............................................................ 8,368 5,001
Other operating income ................................................... 117,272 77,619
----------- -----------
Total other operating revenue .......................................... 491,586 470,799
Securities gains ......................................................... 9,076 167
----------- -----------
Total other income ..................................................... 500,662 470,966
OTHER EXPENSE
Salaries ................................................................. 279,456 287,629
Employee benefits ........................................................ 55,217 56,252
----------- -----------
Total personnel expense ................................................ 334,673 343,881
Net occupancy expense .................................................... 41,087 39,526
Equipment expense ........................................................ 45,058 49,195
Merger-related charges ................................................... -- 8,158
Litigation settlement charge ............................................. -- 20,000
Restructuring charge ..................................................... 13,152 --
Other operating expense .................................................. 197,752 177,218
----------- -----------
Total other expense .................................................... 631,722 637,978
Income before income tax expense ......................................... 377,281 378,818
Income tax expense ....................................................... 135,189 134,111
----------- -----------
NET INCOME $ 242,092 $ 244,707
=========== ===========
Net income per common share:
Basic ................................................................... $ 1.17 $ 1.21
Diluted ................................................................. $ 1.17 $ 1.20
Average shares outstanding:
Basic ................................................................... 206,061 202,464
Diluted ................................................................. 207,569 204,213
4
Consolidated Statement of Shareholders' Equity
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($ in thousands, except per share) wachovia corporation and subsidiaries
COMMON STOCK
--------------------------------
SHARES AMOUNT
---------------- ---------------
PERIOD ENDED MARCH 31, 2000
Balance at beginning of year ............................ 201,812,295 $ 1,009,061
Net income .............................................
Other comprehensive income, net of tax:
Unrealized losses on securities available-for-sale,
net of reclassification adjustment ...................
Comprehensive income .................................
Cash dividends declared -- $.54 a share..................
Common stock issued pursuant to:
Stock option and employee benefit plans ................ 490,264 2,451
Dividend reinvestment plan ............................. 98,275 492
Acquisitions ........................................... 1,623,594 8,118
Common stock acquired ................................... (1,568,117) (7,840)
Miscellaneous ...........................................
------------ -----------
Balance at end of period ................................ 202,456,311 $ 1,012,282
=========== ===========
PERIOD ENDED MARCH 31, 2001
Balance at beginning of year ............................ 203,423,606 $ 1,017,118
Net income .............................................
Other comprehensive income, net of tax:
Unrealized gains on securities available-for-sale,
net of reclassification adjustment ...................
Minimum pension liability adjustment ..................
Unrealized gains on derivative financial
instruments qualfiying as cash flow hedges ...........
Comprehensive income .................................
Cash dividends declared -- $ .60 a share.................
Common stock issued pursuant to:
Stock option and employee benefit plans ................ 829,796 4,149
Dividend reinvestment plan ............................. 86,882 435
Acquisitions ........................................... 6,133,407 30,667
Note conversions ....................................... 2,073 10
Common stock acquired ................................... (140,787) (704)
Miscellaneous ...........................................
------------ -----------
Balance at end of period ................................ 210,334,977 $ 1,051,675
============ ===========
ACCUMULATED
OTHER
CAPITAL RETAINED COMPREHENSIVE
SURPLUS EARNINGS INCOME (LOSS) TOTAL
--------------- --------------- --------------- ---------------
PERIOD ENDED MARCH 31, 2000
Balance at beginning of year ............................ $ 598,149 $ 4,125,524 $ (74,277) $ 5,658,457
Net income ............................................. 244,707 244,707
Other comprehensive income, net of tax:
Unrealized losses on securities available-for-sale,
net of reclassification adjustment ................... (13,849) (13,849)
----------- ------------ -----------
Comprehensive income ................................. 244,707 (13,849) 230,858
Cash dividends declared -- $.54 a share.................. (110,094) (110,094)
Common stock issued pursuant to:
Stock option and employee benefit plans ................ 37,717 40,168
Dividend reinvestment plan ............................. 5,248 5,740
Acquisitions ........................................... 126,234 134,352
Common stock acquired ................................... (85,280) (93,120)
Miscellaneous ........................................... (19,931) (19,931)
----------- ------------ -----------
Balance at end of period ................................ $ 682,068 $ 4,240,206 $ (88,126) $ 5,846,430
=========== =========== ============ ===========
PERIOD ENDED MARCH 31, 2001
Balance at beginning of year ............................ $ 731,162 $ 4,505,947 $ 30,312 $ 6,284,539
Net income ............................................. 242,092 242,092
Other comprehensive income, net of tax:
Unrealized gains on securities available-for-sale,
net of reclassification adjustment ................... 58,958 58,958
Minimum pension liability adjustment .................. (15,207) (15,207)
Unrealized gains on derivative financial
instruments qualfiying as cash flow hedges ........... 539 539
----------- ------------ -----------
Comprehensive income ................................. 242,092 44,290 286,382
Cash dividends declared -- $ .60 a share................. (122,427) (122,427)
Common stock issued pursuant to:
Stock option and employee benefit plans ................ 54,966 59,115
Dividend reinvestment plan ............................. 5,038 5,473
Acquisitions ........................................... 359,407 390,074
Note conversions ....................................... 30 40
Common stock acquired ................................... (8,644) (9,348)
Miscellaneous ........................................... (28,992) (28,992)
----------- ----------- ------------ -----------
Balance at end of period ................................ $ 1,141,959 $ 4,596,620 $ 74,602 $ 6,864,856
=========== =========== ============ ===========
5
Consolidated Statements of Cash Flows
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($ in thousands) wachovia corporation and subsidiaries
THREE MONTHS ENDED MARCH 31
---------------------------------
2001 2000
--------------- ---------------
OPERATING ACTIVITIES
Net income ............................................................................... $ 242,092 $ 244,707
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses ............................................................... 121,500 73,666
Depreciation and amortization ........................................................... 68,303 70,496
Deferred income taxes ................................................................... 80,362 68,211
Securities gains ........................................................................ (9,076) (167)
Loss (gain) on sale of noninterest-earning assets ....................................... 827 (430)
Increase in accrued income taxes ........................................................ 49,340 56,616
Decrease in accrued interest receivable ................................................. 53,114 1,341
(Decrease) increase in accrued interest payable ......................................... (110,370) 11,005
Net change in other accrued and deferred income and expense ............................. (102,369) 75,615
Net trading account activities .......................................................... 77,299 (369,620)
Net loans held for resale ............................................................... (180,029) 15,232
------------ ------------
Net cash provided by operating activities .............................................. 290,993 246,672
INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing bank balances ................................ (64,904) 69,422
Net decrease in federal funds sold and securities purchased under resale agreements ...... 204,450 357,429
Purchases of securities available-for-sale ............................................... (916,763) (334,225)
Purchases of securities held-to-maturity ................................................. (14,154) (80,820)
Sales of securities available-for-sale ................................................... 677,371 259,407
Calls, maturities and prepayments of securities available-for-sale ....................... 562,871 170,784
Calls, maturities and prepayments of securities held-to-maturity ......................... 96,320 43,343
Net decrease (increase) in loans made to customers ....................................... 786,690 (816,862)
Credit card receivables securitized ...................................................... (372,082) --
Capital expenditures ..................................................................... (26,239) (25,973)
Proceeds from sales of premises and equipment ............................................ 3,340 4,210
Net decrease in other assets ............................................................. 214,098 53,969
Business combinations .................................................................... 88,180 (768,230)
------------ ------------
Net cash provided (used) by investing activities ....................................... 1,239,178 (1,067,546)
FINANCING ACTIVITIES
Net increase (decrease) in demand, savings and money market accounts ..................... 177,556 (189,772)
Net (decrease) increase in certificates of deposit ....................................... (1,077,080) 1,765,035
Net decrease in federal funds purchased and securities sold under repurchase agreements .. (783,117) (381,374)
Net increase (decrease) in commercial paper .............................................. 242,501 (65,036)
Net decrease in other short-term borrowings .............................................. (242,810) (1,577,531)
Proceeds from issuance of long-term debt ................................................. -- 1,342,869
Maturities and repayments of long-term debt .............................................. (648,814) (420,290)
Common stock issued ...................................................................... 29,291 15,615
Dividend payments ........................................................................ (122,427) (110,094)
Common stock repurchased ................................................................. (12,337) (93,451)
Net increase in other liabilities ........................................................ 194,705 227,691
------------ ------------
Net cash (used) provided by financing activities ....................................... (2,242,532) 513,662
DECREASE IN CASH AND CASH EQUIVALENTS .................................................... (712,361) (307,212)
Cash and cash equivalents at beginning of year ........................................... 3,727,441 3,475,004
------------ ------------
Cash and cash equivalents at end of period ............................................... $ 3,015,080 $ 3,167,792
============ ============
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Selected Period-End Data Table 1
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March 31
-----------------------
2001 2000
---------- ----------
Banking offices:
North Carolina ............................... 188 190
Virginia ..................................... 194 230
Georgia ...................................... 122 137
South Carolina ............................... 115 118
Florida ...................................... 135 38
---- ---
Total ....................................... 754 713
==== ===
Automated banking machines:
North Carolina ............................... 453 448
Virginia ..................................... 269 282
Georgia ...................................... 314 305
South Carolina ............................... 286 283
Florida ...................................... 143 38
---- ---
Total ....................................... 1,465 1,356
===== =====
Employees (full-time equivalent) .............. 21,069 21,647
Common stock shareholders of record ........... 53,620 51,911
Common shares outstanding (thousands) ......... 210,335 202,456
Common Stock Data -- Per Share Table 2
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2001 2000
------------ -----------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------------ ----------- ----------- ----------- -----------
Market value:
Period-end ...................................................... $ 60.25 $ 58.13 $ 56.69 $ 54.25 $ 67.56
High ............................................................ 69.36 58.56 60.38 75.25 68.94
Low ............................................................. 54.50 47.44 53.38 53.56 53.63
Book value at period-end ......................................... 32.64 30.89 29.93 29.20 28.88
Dividend ......................................................... .60 .60 .60 .54 .54
Price/earnings ratio (1) ......................................... 14.9x 14.3x 13.7x 12.3x 13.7x
Price/earnings ratio without nonrecurring items (1), (2) ......... 13.4 12.7 12.3 11.9 13.3
(1) Based on the most recent four quarters of net income per diluted share and
end of period stock price.
(2) Excludes the after-tax impact of nonrecurring merger-related charges.
7
Financial Summary Table 3
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Twelve 2001
Months ---------------
Ended
March 31 First
2001 Quarter
--------------- ---------------
Summary of Operations
(thousands, except per share data)
Interest income ......................................... $ 5,450,193 $ 1,350,196
Interest expense ........................................ 2,924,127 720,355
----------- -----------
Net interest income ..................................... 2,526,066 629,841
Provision for loan losses ............................... 636,284 121,500
----------- -----------
Net interest income after provision for loan losses ..... 1,889,782 508,341
Other operating revenue ................................. 1,952,476 491,586
Securities gains (losses) ............................... 8,492 9,076
----------- -----------
Total other income ...................................... 1,960,968 500,662
Personnel expense ....................................... 1,290,135 334,673
Merger-related charges .................................. 20,800 --
Litigation settlement charge ............................ -- --
Restructuring charge .................................... 120,639 13,152
Other expense ........................................... 1,145,183 283,897
----------- -----------
Total other expense ..................................... 2,576,757 631,722
Income before income tax expense ........................ 1,273,993 377,281
Income tax expense ...................................... 444,300 135,189
----------- -----------
Net income .............................................. $ 829,693 $ 242,092
=========== ===========
Net income per common share:
Basic .................................................. $ 4.06 $ 1.17
Diluted ................................................ $ 4.04 $ 1.17
Cash dividends paid per common share .................... $ 2.34 $ .60
Cash dividends paid on common stock ..................... $ 475,351 $ 122,427
Cash dividend payout ratio .............................. 57.29% 50.57%
Average basic shares outstanding ........................ 203,877 206,061
Average diluted shares outstanding ...................... 205,278 207,569
Selected Average Balances (millions)
Total assets ............................................ $ 71,195 $ 73,800
Loans -- net of unearned income ......................... 53,701 55,659
Securities .............................................. 8,511 8,987
Other interest-earning assets ........................... 1,256 1,224
Total interest-earning assets ........................... 63,468 65,870
Interest-bearing deposits ............................... 35,425 35,727
Short-term borrowed funds ............................... 9,302 10,196
Long-term debt .......................................... 9,798 10,721
Total interest-bearing liabilities ...................... 54,526 56,644
Noninterest-bearing deposits ............................ 8,385 8,264
Total deposits .......................................... 43,810 43,991
Shareholders' equity .................................... 6,072 6,439
Ratios (averages)
Annualized net loan losses to loans ..................... .76% .85%
Annualized net yield on interest-earning assets ......... 4.04 3.93
Annualized return on assets ............................. 1.17 1.31
Annualized return on shareholders' equity ............... 13.66 15.04
Operating Performance (1)
(thousands, except per share data)
Net income .............................................. $ 923,528 $ 252,541
Net income per diluted share ............................ $ 4.50 $ 1.22
Annualized return on assets ............................. 1.30% 1.37%
Annualized return on shareholders' equity ............... 15.21 15.69
Cash dividend payout ratio .............................. 51.47 48.48
Cash Basis Financial Information (1), (2)
(thousands, except per share data)
Net income .............................................. $ 1,001,921 $ 272,826
Net income per diluted share ............................ $ 4.87 $ 1.31
Annualized return on assets ............................. 1.41% 1.51%
Annualized return on shareholders' equity ............... 16.50 20.94
2000
-----------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------- ------------- --------------- ---------------
Summary of Operations
(thousands, except per share data)
Interest income ......................................... $1,404,393 $1,370,493 $ 1,325,111 $ 1,245,357
Interest expense ........................................ 778,287 739,756 685,729 625,861
---------- ---------- ----------- -----------
Net interest income ..................................... 626,106 630,737 639,382 619,496
Provision for loan losses ............................... 117,463 123,956 273,365 73,666
---------- ---------- ----------- -----------
Net interest income after provision for loan losses ..... 508,643 506,781 366,017 545,830
Other operating revenue ................................. 470,601 519,990 470,299 470,799
Securities gains (losses) ............................... (480) (163) 59 167
---------- ---------- ----------- -----------
Total other income ...................................... 470,121 519,827 470,358 470,966
Personnel expense ....................................... 294,228 325,743 335,491 343,881
Merger-related charges .................................. -- 11,928 8,872 8,158
Litigation settlement charge ............................ -- -- -- 20,000
Restructuring charge .................................... 19,543 87,944 -- --
Other expense ........................................... 291,276 283,082 286,928 265,939
---------- ---------- ----------- -----------
Total other expense ..................................... 605,047 708,697 631,291 637,978
Income before income tax expense ........................ 373,717 317,911 205,084 378,818
Income tax expense ...................................... 129,011 112,587 67,513 134,111
---------- ---------- ----------- -----------
Net income .............................................. $ 244,706 $ 205,324 $ 137,571 $ 244,707
========== ========== =========== ===========
Net income per common share:
Basic .................................................. $ 1.20 $ 1.01 $ .68 $ 1.21
Diluted ................................................ $ 1.20 $ 1.00 $ .67 $ 1.20
Cash dividends paid per common share .................... $ .60 $ .60 $ .54 $ .54
Cash dividends paid on common stock ..................... $ 121,429 $ 121,990 $ 109,505 $ 110,094
Cash dividend payout ratio .............................. 49.62% 59.41% 79.60% 44.99%
Average basic shares outstanding ........................ 203,407 203,347 202,728 202,464
Average diluted shares outstanding ...................... 204,393 204,621 204,572 204,213
Selected Average Balances (millions)
Total assets ............................................ $ 71,844 $ 69,709 $ 69,466 $ 67,755
Loans -- net of unearned income ......................... 54,279 52,758 52,133 50,550
Securities .............................................. 8,434 8,224 8,407 8,395
Other interest-earning assets ........................... 1,363 1,197 1,241 1,245
Total interest-earning assets ........................... 64,076 62,179 61,781 60,190
Interest-bearing deposits ............................... 35,518 34,800 35,663 34,873
Short-term borrowed funds ............................... 9,386 9,019 8,621 8,920
Long-term debt .......................................... 10,133 9,498 8,851 8,081
Total interest-bearing liabilities ...................... 55,037 53,317 53,135 51,874
Noninterest-bearing deposits ............................ 8,428 8,474 8,373 8,319
Total deposits .......................................... 43,946 43,274 44,036 43,192
Shareholders' equity .................................... 6,069 5,952 5,833 5,688
Ratios (averages)
Annualized net loan losses to loans ..................... .70% .94% .56% .58%
Annualized net yield on interest-earning assets ......... 3.94 4.09 4.22 4.20
Annualized return on assets ............................. 1.36 1.18 .79 1.44
Annualized return on shareholders' equity ............... 16.13 13.80 9.43 17.21
Operating Performance (1)
(thousands, except per share data)
Net income .............................................. $ 257,409 $ 270,241 $ 143,337 $ 264,510
Net income per diluted share ............................ $ 1.26 $ 1.32 $ .70 $ 1.30
Annualized return on assets ............................. 1.43% 1.55% .83% 1.56%
Annualized return on shareholders' equity ............... 16.96 18.16 9.83 18.60
Cash dividend payout ratio .............................. 47.17 45.14 76.40 41.62
Cash Basis Financial Information (1), (2)
(thousands, except per share data)
Net income .............................................. $ 276,647 $ 289,882 $ 162,566 $ 281,589
Net income per diluted share ............................ $ 1.35 $ 1.42 $ .79 $ 1.38
Annualized return on assets ............................. 1.57% 1.69% .95% 1.69%
Annualized return on shareholders' equity ............... 22.49 24.08 13.84 24.27
(1) Excludes the effects of nonrecurring merger-related, litigation settlement
and restructuring charges.
(2) Excludes the effects of purchase accounting related intangibles.
8
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q should be read in conjunction with Wachovia's
2000 Annual Report on Form 10-K, and will serve to update previously reported
information for current interim period results.
Overview
The U.S. economy continued to show signs of slowing through the first quarter of
2001 with gross domestic product rising 2.0 percent for the quarter, based on
preliminary data. Although consumer spending rose slightly in most of the
Federal Reserve's twelve districts, much of the increase resulted as retailers
offered deep discounts on unsold winter merchandise. Labor markets remained
tight with over half of the Federal Reserve districts, including the Atlanta
district, reporting some signs of easing. Based on preliminary data, the
nation's average unemployment rate rose to 4.3 percent from 4.0 percent in
December and March 2000. Within Wachovia's five-state operating area,
unemployment averaged 3.7 percent.
The Federal Open Markets Committee ("FOMC") reduced the federal funds target
rate 200 basis points since December 31, 2000 through four reductions of 50
basis points each occurring on January 3, January 31, March 20 and April 18.
Concurrent with each FOMC action, the Board of Governors of the Federal Reserve
also lowered the discount rate by 50 basis points. The Federal Reserve cited
restrained investment spending that resulted in excess productive capacity in
arriving at its decisions.
On April 16, 2001, Wachovia announced an agreement for a merger of equals with
First Union Corporation. Terms of the agreement call for common stockholders of
Wachovia to receive 2.0 shares of common stock of First Union in exchange for
each share of Wachovia common stock. The merger with First Union is expected to
close in the third quarter subject to regulatory and shareholder approval.
On April 9, 2001, Wachovia announced an agreement for Bank One Corporation to
acquire its consumer credit card business. The transaction is expected to result
in a pretax gain of approximately $1.4 billion upon consummation that is
expected to occur late in the second quarter. The companies also announced that
they had entered into a long-term agent bank relationship under which Wachovia
will offer its branded credit cards to retail customers with servicing provided
by First USA, Bank One Corporation's credit card subsidiary. Consummation is
subject to regulatory approval.
On March 1, Wachovia completed its acquisition of Republic Security Financial
Corporation, parent company of Republic Security Bank. The acquisition adds more
than 178,000 new customers and significantly expands Wachovia's presence in
Florida. Also during the first quarter, Wachovia announced a definitive
agreement to acquire Hamilton Dorsey Alston Company, an Atlanta-based insurance
broker that specializes in personal and commercial risk management and employee
benefits. The acquisition of Hamilton Dorsey Alston Company was completed May 1,
2001.
During the third quarter of 2000, Wachovia announced plans to realign resources
and eliminate 1,800 positions as part of a continuing performance improvement
project designed to lift pre-tax earnings. The performance project, which began
in 1999, seeks to improve earnings through revenue enhancement, productivity
gains, sharper capital deployment and expense management.
9
Computation of Earnings Per Share Table 4
- --------------------------------------------------------------------------------
(thousands, except per share)
Three Months Ended
March 31
-------------------------------
2001 2000
-------------- --------------
Basic
Average common shares outstanding .............................. 206,061 202,464
======= =======
Net income ..................................................... $ 242,092 $ 244,707
========== ==========
Per share amount ............................................... $ 1.17 $ 1.21
Diluted
Average common shares outstanding .............................. 206,061 202,464
Dilutive common stock options at average market price .......... 1,400 1,541
Dilutive common stock awards at average market price ........... 87 186
Convertible long term-debt assumed converted ................... 21 22
---------- ----------
Average diluted shares outstanding ............................. 207,569 204,213
========== ==========
Net income ..................................................... $ 242,092 $ 244,707
Add interest on convertible long-term debt, net of tax ......... 16 17
---------- ----------
Adjusted net income ............................................ $ 242,108 $ 244,724
========== ==========
Per share amount ............................................... $ 1.17 $ 1.20
Wachovia's operating net income for the first quarter of 2001 was $253 million
or $1.22 per diluted share versus $265 million or $1.30 per diluted share a year
earlier. On a reported basis, net income for the quarter was $242 million or
$1.17 per diluted share versus $245 million or $1.20 per diluted share a year
earlier. The economic environment of the first quarter of 2001 was considerably
different from a year ago. Equity trading activity remained weak in comparison
with the record levels in the first quarter of 2000 causing certain sources of
market sensitive revenue to decline from a year earlier levels. The provision
for loan losses remained above historical levels as loan charge-offs continued
to reflect the downturn in the credit cycle. Although higher than a year ago,
nonperforming assets decreased from the year-end level as charge-offs were taken
and positions in certain nonperforming relationships were sold. Operating
earnings exclude nonoperating charges such as restructuring, merger integration
and a litigation settlement charge recorded in the first quarter of 2000.
Comparisons between the 2001 and 2000 periods are also impacted by the results
of acquisitions that are included in reported results from their respective
acquisition dates each year.
Expanded discussion of results of operations and financial condition follows.
Interest income is stated on a taxable equivalent basis, which is adjusted for
the tax-favored status of earnings from certain loans and securities. References
to changes in assets and liabilities represent daily average levels unless
otherwise noted.
BUSINESS SEGMENTS
Wachovia has five reportable business segments: Asset and Wealth Management,
Corporate, Consumer, Credit Card 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,
10
information needs or reporting systems evolve. Minor changes in management
accounting were implemented during the year with prior periods restated to
reflect the changes.
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 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.
Wachovia uses a marginal matched maturity funds transfer pricing methodology for
management reporting that 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 balance
sheets of the business units and isolates them in Treasury & Administration for
centralized evaluation and management.
Financial results by business segment are discussed below.
Business Segments Table 5
- --------------------------------------------------------------------------------
(millions)
Asset and
Wealth
Management Corporate Consumer
------------------ ----------------- -----------------
2001 2000 2001 2000 2001 2000
------- ---- ----- ---- ----- ----
Operations Summary
External net interest
margin ...................... $ 42 $ 34 $ 653 $ 614 $ (34) $ (44)
Internal funding (charge)
credit ...................... (7) 3 (407) (370) 262 265
-------- ------ ------- ------- ------- -------
Net interest income* ......... 35 37 246 244 228 221
Total other income ........... 151 167 107 111 119 104
------- ------ ------- ------- ------- -------
Total revenue ................ 186 204 353 355 347 325
Provision for loan losses..... 2 -- 55 17 3 5
Other expense ................ 143 144 150 152 198 197
------- ------ ------- ------- ------- -------
Profit contribution .......... 41 60 148 186 146 123
Allocated expenses ........... 21 18 22 24 26 31
------- ------ ------- ------- ------- -------
Pretax income ................ 20 42 126 162 120 92
Income tax expense ........... 9 17 46 59 45 34
------- ------ ------- ------- ------- -------
Net income ................... $ 11 $ 25 $ 80 $ 103 $ 75 $ 58
======= ====== ======= ======= ======= =======
Percentage contribution
to total revenue** .......... 16.0% 18.2% 30.3% 31.6% 29.7% 28.9%
Percentage contribution
to net income ............... 4.5% 10.2% 33.1% 42.0% 31.0% 23.7%
Average Balances
Total assets ................. $4,486 $3,518 $39,339 $36,960 $12,608 $10,285
Treasury & Total
Credit Card Administration Eliminations Corporation
------------------ ------------------- ------------ -------------------
2001 2000 2001 2000 2001 2000 2001 2000
------- ---- -------- ---- ----- ---- ------- -------
Operations Summary
External net interest
margin ...................... $ 273 $ 267 $ (295) $ (243) $ (9) $ (9) $ 630 $ 619
Internal funding (charge)
credit ...................... (112) (114) 290 240 (26) (24) -- --
------- ------ -------- ------ ----- ------ -------- --------
Net interest income* ......... 161 153 (5) (3) (35) (33) 630 619
Total other income ........... 48 51 76 38 -- -- 501 471
------- ------ -------- ------ ----- ------ -------- --------
Total revenue ................ 209 204 71 35 (35) (33) 1,131 1,090
Provision for loan losses..... 105 87 (43) (36) -- -- 122 73
Other expense ................ 60 57 96 103 (15) (15) 632 638
------- ------ -------- ------ ----- ------ -------- --------
Profit contribution .......... 44 60 18 (32) (20) (18) 377 379
Allocated expenses ........... 10 8 (68) (72) (11) (9) -- --
------- ------ -------- ------ ----- ------- -------- --------
Pretax income ................ 34 52 86 40 (9) (9) 377 379
Income tax expense ........... 13 19 31 14 (9) (9) 135 134
------- ------ -------- ------ ------ ------- -------- --------
Net income ................... $ 21 $ 33 $ 55 $ 26 $ -- $ -- $ 242 $ 245
======= ====== ======== ====== ===== ====== ======== ========
Percentage contribution
to total revenue** .......... 17.9% 18.2% 6.1% 3.1%
Percentage contribution
to net income ............... 8.7% 13.5% 22.7% 10.6%
Average Balances
Total assets ................. $7,818 $7,701 $9,549 $9,291 $73,800 $67,755
* Net interest income is reported on a taxable equivalent basis by segment and
on a nontaxable equivalent basis for the Corporation. The difference is included
in the eliminations column.
** Percentage contribution to total revenue is based on the proportion of each
segment's revenue to the combined revenue of all segments.
11
Asset and Wealth Management
Asset and Wealth Management aspires to be the preferred provider of integrated
investment and wealth management services in the Southeast and selected national
markets. This is achieved through a combination of a strong base business and
recent strategic acquisitions. During the first quarter, Asset and Wealth
Management announced a definitive agreement to purchase Hamilton Dorsey Alston
Company, an Atlanta-based insurance broker specializing in personal and
commercial risk management and employee benefits. This acquisition closed May 1,
2001.
Products and Services. Asset and Wealth Management delivers innovative tailored
products and services through a variety of distribution 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 telephone 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, retirement services and philanthropy management services to
businesses, endowments, foundations, and other institutions. 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.
Industry Dynamics and Strategy. 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. Market volatility and the projected need for intergenerational
wealth transfer capabilities also will drive demand. These factors combine to
create an attractive market opportunity. Asset and Wealth Management's market
presence, brand names and strategic focus position it to take unique advantage
of this environment.
The competition in the wealth management business is increasing. Many financial
service providers pursue a product-based or silo approach to serving the
affluent. Asset and Wealth Management's strategy provides a "relationship
approach" such as the Private Financial Advisor model that coordinates and
manages a full range of investment management, estate planning, tax, brokerage,
insurance, debt-management and banking services through a trusted financial
advisor. This involves a comprehensive alignment of resources to achieve a team
approach to client service within the Asset and Wealth Management business and
across Wachovia's other business segments. The integration of recent
acquisitions has allowed this business segment to increase its product
offerings, leverage existing services and expand distribution channels. In
September 2000, Wachovia launched the Market Acceleration Project that expands
the penetration of the successful Private Financial Advisor model into new and
existing markets. The goal of the project is to increase profit by generating
more successful client leads and improving linkages to Wachovia's other lines of
business.
Financial Results. Asset and Wealth Management's profit contribution declined
$19 million or 33 percent to $41 million from the first quarter 2000. Net income
was also down from a year ago by $14 million. The weaker economic environment of
the first quarter of 2001 sharply contrasted with the heavy equity trading
volumes and high market values experienced during the first quarter of 2000.
Private Financial Advisors continued to show strong growth with a
12
34 percent increase in average loan volume and a 6 percent increase in average
deposit volume. Spread compression in both loans and deposits neutralized the
positive impact of the growth on net interest income. The increase in the loan
loss provision was consistent with the increase in loans outstanding. Other
income for the investment business was down $16 million from first quarter 2000
as equity trading volumes declined with investor confidence. Direct expenses
were down slightly from the first quarter of 2000. While variable expense tied
to the investment business declined, Asset and Wealth Management continued to
increase its strategic spending on the Market Acceleration Project and the
expansion of OFFITBANK offices so overall expenses did not decline in proportion
with the reduction in revenue.
Corporate
Corporate aspires to be the preferred provider of financial services to
commercial clients in the Southeast and to selected client segments nationally
and overseas. To achieve this goal, Corporate works to know its customers better
than 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 corporate
banking, investment banking, capital markets and industry-leading cash
management services through a variety of client-focused subsegments. Global
Corporate Finance serves the needs of domestic and multinational companies with
annual sales above $200 million. The group also serves selected industry sectors
including communications/technology and diversified financial services. The
group operates through offices in the Southeast, Boston, Chicago, London, New
York, Sao Paulo, and Hong Kong.
Regional Corporate Finance serves 2,200 Southeastern companies with sales of $25
million to $200 million. Business Banking serves 18,000 regional clients with
sales from $2 million to $25 million. A new Emerging Companies group targets
smaller growth companies. Real Estate Finance serves 4,000 commercial real
estate developers, investors and REITs, primarily in the Southeast. Dealer
Finance serves 2,500 automobile and other specialty finance customers throughout
the Southeast.
Capital Markets offers a variety of services including investment banking,
mergers and acquisitions, loan syndication finance, asset-backed finance,
commercial paper, corporate bonds, interest rate and foreign exchange risk
management, leasing, public equity research, sales and trading, private equity
investments, third-party research and option trading execution. Capital Markets
closely aligns its products and services to meet the needs of each targeted
client subsegment.
Corporate also provides industry-leading treasury consulting and cash management
solutions through its Treasury Services Group. This area has been consistently
cited for its superior quality of service, technology, and operations
performance. The Treasury Services Group achieved top honors in the
Phoenix-Hecht Quality Index 2000 and ranks high in other important industry
surveys. In addition to treasury consulting, the group provides an array of cash
management products and has become a leading provider of Internet-based and
wireless access.
Industry Dynamics and Strategy. While general demand for corporate services
remains solid, an emerging credit cycle poses risk of weakness in certain
domestic activities. Softening general economic conditions, rising bond default
rates, the significant increase in credit rating downgrades versus upgrades,
greater incidence of public company bankruptcies, and the velocity of borrower
deterioration all signal rising risk in the corporate lending environment.
Despite these challenging market conditions and a fiercely competitive industry
climate, Corporate maintains a strong market position in each of its client
segments.
Corporate's strategy to remain competitive is to build strong and long-lasting
relationships with targeted clients through deep knowledge of unmet needs
combined with superior execution. Dynamic and focused customer segmentation and
13
sales model development enhance customer service, productivity and performance.
Key to this strategy is a sharp focus on Capital Markets products and improved
investment banking expertise. In addition, Treasury Services is accelerating the
development of innovative new products, eBusiness applications and outsourcing
services.
Financial Results. Profit contribution decreased $38 million or 20 percent
compared with the first quarter of 2000, primarily as a result of a higher loan
loss provision. Over the same period, net income decreased $23 million. Net
interest income increased $2 million or 1 percent compared to the first quarter
of 2000 as average loans outstanding were up $2.5 billion or 7 percent with the
increase coming from Regional Corporate Financial Services and Dealer Financial
Services. Overall, loan spreads narrowed partly from increased carrying cost of
nonperforming loans. Falling interest rates also compressed deposit spreads. The
loan loss provision increased $38 million to $55 million, due to an increase in
risk levels, particularly in the large corporate portfolio. An amount paid to a
third party to assume Wachovia's risk under letters of credit on certain
nonperforming lending relationships caused the 3 percent decrease in other
income. This charge offset increases in service charges and letter of credit
fees. Other expense decreased $2 million or 1 percent due to a decline in staff
expenses related to Wachovia's strategic realignment effort that offset
increases in professional services and systems development that support new
products and revenue initiatives.
Consumer
Consumer aspires to be the preferred provider of financial services to consumers
and small businesses in Wachovia's regional markets. To achieve this goal,
Consumer develops customer relationships for the greatest lifetime value,
manages the cost of the sales and service network and pursues opportunities to
attract and serve customers through traditional and digital channels. It targets
consumers, worksite groups and small businesses throughout the Southeast,
offering a broad array of competitively priced products and services. Consumer
is also important to the entire Wachovia franchise because of the value provided
to Wachovia's other business segments by its branch network, brand identity and
customer base.
Products and Services. Consumer provides traditional retail banking services,
including mortgage lending, deposit products and consumer loans, to 4 million
customers. It also offers access to investment and insurance products to these
customer segments. Delivery channels include 754 traditional and in-store
branches and worksite centers, 1,465 ATMs and 28 kiosks, Wachovia on Call and
the Internet. Wachovia ranks among the top ten nationally in Visa(R) Check Card
sales volume, according to a study conducted by Visa(R). Campus Card programs
provide card-based banking access to students and faculty at nine university
campuses, and Wachovia At Work serves employees of more than 5,200 companies.
The Internet is growing in importance as a forum for financial services.
Approximately 540,000 of Wachovia's demand deposit customers are enrolled in
Internet banking, up from approximately 500,000 at year-end and 226,000 the
prior year. Wachovia's Internet site, wachovia.com, serves as a financial portal
with extensive account information and transaction capability supported by
relevant financial news.
Industry Dynamics and Strategy. Consumer operates in some of the country's most
attractive retail growth markets, including Florida, Georgia, South Carolina,
North Carolina and Virginia. The majority of Wachovia's deposits are in large,
high-growth metropolitan areas within this region. Consumer's strategy is to
assess customer relationship potential, identify financial needs and achieve
alignment between needs, service expectations and price, thereby delivering
optimal value to each customer. Specific initiatives to implement this strategy
include:
14
o Information-Based Relationship Managementsm. Wachovia has developed strong
proprietary data and analytical tools around its customers' buying behaviors
that are used to proactively identify customer needs for targeted product
development and sales activities. The Profitable Relationship Optimization
(PRO) desktop technology connects to data warehouses that analyze customer
information and anticipate the next likely desired service. Personal Financial
Advisors, small business and branch bankers are trained to use solution-based
selling skills supported by this technology to better serve more than 400,000
high-potential customers.
o 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.
o Market Network Strategy. Network optimization models provide an analytical
framework to optimize customer points of presence while reducing branch
network expenses. These models led to a number of branch openings, closings
and consolidations.
o Selective Geographic Expansion. Wachovia continues to evaluate expansion
opportunities in high-growth areas. During the first quarter of 2000, Wachovia
completed the acquisition of Bank of Canton in the Atlanta area. Wachovia
completed the acquisition of the National Bank of Commerce in suburban Orlando
in the second quarter of 2000. During the first quarter of 2001, Wachovia
completed the acquisition of Republic Security Financial Corporation, which
serves 178,000 customers, giving Wachovia the 11th largest deposit share in
Florida. Also during the first quarter of 2001, Wachovia completed a branch
swap transaction that allows entry into the Tennessee market.
eBusiness activities at Wachovia are enterprise-wide. Advances in technology are
rapidly transforming the financial services industry. The eBusiness Division
provides corporate-wide eBusiness strategic planning, leadership and operational
management for the entire corporation. Business units sponsor specific Internet
initiatives to meet the dynamic demands of their customer groups. This
collaborative structure maximizes the leverage from technology and research with
the necessary responsiveness to customer requirements and deliverables.
Wachovia's eBusiness strategy is to develop a personalized and seamlessly
delivered customer experience when using wachovia.com and Wachovia's other web
sites, macroworld.net, ijlwachovia.com and offitbank.com. eBusiness activities
create value by aligning customer acquisition, retention, cross-selling and cost
reduction throughout all customer segment and delivery channels.
Financial Results. Consumer's profit contribution increased $23 million or 19
percent from the same quarter last year. Net income increased $17 million or 29
percent over the same period. The acquisitions of Bank of Canton, National Bank
of Commerce and Republic Security Bank and the branch dispositions in the third
quarter of 2000 affect comparability between periods. Net interest income
increased $7 million or 3 percent primarily due to the acquisition of Republic
Security Bank as continued spread compression offset the positive effect of
increases in loan and deposit volumes. Other income increased $15 million or 15
percent led by deposit service charges, reflecting an increase in returned check
charges; mortgage fees, due to the lower rate environment; and electronic
banking fees, as debit cards continue to gain wider acceptance. Total expenses
were flat as decreases in advertising and equipment expense were offset by
increases in staff and amortization expenses attributed to acquisitions.
Credit Card
Credit Card's mission is to be the preferred credit card issuer, recognized for
value, fairness and long-term customer and employee relationships.
Products and Services. The Credit Card business segment is a full-service
provider of consumer credit cards and merchant acquirer services. Credit Card
manages most components of credit card processing in-house, with the exception
15
of servicing business card products and the Partners First portfolio that are
processed through outside vendors. Currently, 92 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. The significant marketing efforts
required to attract and retain customers provide an advantage to large-scale
operations. Although Credit Card remains a viable and profitable business, the
outlook for limited growth potential led Wachovia to consider possible strategic
alternatives. On February 6, 2001, Wachovia announced that it was investigating
strategic alternatives for the credit card business, including maintaining the
business, developing a joint venture or selling the business. On April 9, 2001,
Wachovia announced that it had reached an agreement for Bank One Corporation
("Bank One") to acquire its consumer credit card business. The transaction is
expected to close in the second quarter of 2001, subject to regulatory approval.
The consumer credit card transaction includes most of the operations included in
the Credit Card business segment as well as the securitized balances that are
reflected in the Treasury & Administration business segment. Wachovia also
announced that it had entered into a long-term agent bank relationship with Bank
One under which Wachovia will offer its branded credit cards to customers with
servicing provided by First USA, Bank One's credit card subsidiary.
Financial Results. Credit Card's first quarter 2001 profit contribution
decreased $16 million or 27 percent from the same period in 2000. Net income
decreased $12 million over the same period. Net interest income increased $8
million due to the acquisition of the Partners First portfolio, somewhat offset
by a decrease in late fees. The provision for loan losses increased $18 million
due, in part, to the acquisition of Partners First in February of 2000 and a
higher contractual charge-off rate. Loan losses in 2001 were 5.35 percent of
average loans outstanding compared with 4.48 percent in the first quarter of
2000. Lower cardholder spending caused other income to decline by $3 million.
Total expenses increased $3 million due primarily to inclusion of the Partners
First portfolio for the full quarter in 2001.
Treasury & Administration
The Treasury & Administration segment principally reflects asset and liability
management for interest rate risk, management of the securities portfolio,
internal compensation for funding sources and charges for funds used. Also
reflected is the financial statement impact of credit card securitization
transactions, since the Credit Card business segment is reported on a managed
basis. Securitization involves the transfer of a pool of assets from the balance
sheet to a master trust which then issues and sells to investors certificates
representing a pro rata interest in the underlying assets. The transaction
reduces interest income and the credit exposure associated with the transferred
receivables while increasing credit card noninterest income in the form of gains
on card sales, servicing fees and other excess revenue earned on the securitized
loans. Other unallocated corporate costs and certain nonrecurring expenses are
also included in Treasury & Administration.
Financial Results. Credit card securitization transactions and the securitized
portion of the acquired Partners First credit card portfolio affect
comparability with prior year results. In August 2000, Wachovia completed the
securitization of $750 million in credit card receivables. Also during the third
quarter of 2000, receivables included in the 1995-1 series securitization began
to return to the balance sheet upon maturity. During the first quarter of 2001,
receivables included in the Partners First 1998-2 series securitization began to
return to the balance sheet upon maturity. The first quarter of 2000 includes
only 2 months of Partners First average balances since the portfolio was
acquired on February 1, 2000. In comparing the first quarter of 2001 to the same
period of 2000, the securitization transactions
16
and the securitized portion of the acquired Partners First portfolio had the net
effect of reducing average loans outstanding by $565 million. The reduction in
average balances caused by securitization activity was more than offset by an
increase in the securities portfolio including approximately $240 million in
fair value appreciation.
Treasury & Administration's profit contribution increased $50 million from the
first quarter of 2000. Net income was up $29 million for the same period. Net
interest income declined $2 million and the provision for loan losses decreased
$7 million with the increase in securitized credit card receivables outstanding
being the primary cause for each. Included in 2001 other income is a $42 million
gain on Wachovia's equity investment in Star Systems, Inc. Wachovia recorded the
gain upon Star's acquisition by Concord/EFS, a publicly held company. The $38
million increase in other income is explained by the gain on the Star investment
and an increase of $9 million in gains realized from sales of securities offset
by a decrease in credit card fee income related to securitizations. Total
expenses, including allocated expenses, decreased $3 million, mostly due to a
$15 million decrease in nonrecurring expenses.
17
Taxable Equivalent Rate/Volume Analysis -- First Quarter Table 6
- --------------------------------------------------------------------------------
Average Volume Average Rate
- ---------------------- --------------------
2001 2000 2001 2000
- ----------- ---------- ---------- ---------
(millions) Interest Income
Loans:
$ 17,385 $17,215 8.09 8.06 Commercial ...........................
575 673 9.75 9.29 Tax-exempt ...........................
- --------- -------
17,960 17,888 8.15 8.10 Total commercial .....................
1,392 1,108 8.70 8.70 Direct retail ........................
4,380 3,804 8.39 7.89 Indirect retail ......................
4,426 4,886 13.77 13.40 Credit card ..........................
851 691 11.72 11.30 Other revolving credit ...............
- --------- -------
11,049 10,489 10.84 10.77 Total retail .........................
3,529 2,455 8.58 8.87 Construction .........................
9,244 7,994 8.30 8.31 Commercial mortgages .................
9,644 7,860 8.08 7.82 Residential mortgages ................
- --------- -------
22,417 18,309 8.25 8.18 Total real estate ....................
2,835 2,605 7.98 9.56 Lease financing ......................
1,398 1,259 7.50 7.36 Foreign ..............................
- --------- -------
55,659 50,550 8.70 8.74 Total loans ..........................
Securities:
1,021 1,094 7.62 7.70 Held-to-maturity .....................
7,966 7,301 6.55 6.39 Available-for-sale ...................
- --------- -------
8,987 8,395 6.67 6.56 Total securities .....................
1,224 1,245 5.73 6.25 Other earning assets .................
- --------- -------
65,870 60,190 8.37 8.38 Total interest-earning assets ........
2,889 2,981 Cash and due from banks ..............
5,872 5,151 Other assets .........................
(831) (567) Allowance for loan losses ............
- --------- -------
$ 73,800 $67,755 Total assets .........................
========= =======
Interest Expense
$ 5,051 $ 4,755 1.53 1.51 Interest-bearing demand ..............
13,433 13,363 4.34 3.95 Savings and money market savings......
9,744 8,966 5.92 5.28 Savings certificates .................
4,045 4,025 6.21 5.61 Large denomination certificates ......
- --------- -------
Total interest-bearing deposits
32,273 31,109 4.61 4.17 in domestic offices ..................
Interest-bearing deposits in foreign
3,454 3,764 5.52 5.55 offices ..............................
- --------- -------
35,727 34,873 4.70 4.32 Total interest-bearing deposits.......
10,196 8,920 5.62 5.56 Short-term borrowed funds ............
10,721 8,081 6.25 6.36 Long-term debt .......................
- --------- -------
Total interest-bearing
56,644 51,874 5.16 4.85 liabilities ..........................
----- -----
3.21 3.53 Interest rate spread .................
----- -----
8,264 8,319 Non interest-bearing deposits ........
2,453 1,874 Other liabilities ....................
6,439 5,688 Shareholders' equity .................
- --------- -------
Total liabilities and
$ 73,800 $67,755 shareholders' equity .................
========= =======
Net yield on interest-earning
3.93 4.20 assets and net interest income .......
===== =====
Variance
Interest Attributable to
-------------------------- -------------------------
2001 2000 Variance Rate Volume
------------ ------------- --------------- ------------ ------------
Interest Income (thousands)
Loans:
Commercial ........................... $ 346,945 $ 344,896 $ 2,049 $ 636 $ 1,413
Tax-exempt ........................... 13,837 15,559 (1,722) 715 (2,437)
---------- ----------- -------------
Total commercial ..................... 360,782 360,455 327 185 142
Direct retail ........................ 29,876 23,969 5,907 9 5,898
Indirect retail ...................... 90,567 74,626 15,941 4,670 11,271
Credit card .......................... 150,285 162,812 (12,527) 4,086 (16,613)
Other revolving credit ............... 24,587 19,412 5,175 722 4,453
---------- ----------- -------------
Total retail ......................... 295,315 280,819 14,496 1,601 12,895
Construction ......................... 74,671 54,156 20,515 (1,853) 22,368
Commercial mortgages ................. 189,112 165,228 23,884 (350) 24,234
Residential mortgages ................ 192,201 152,780 39,421 5,102 34,319
---------- ----------- -------------
Total real estate .................... 455,984 372,164 83,820 3,247 80,573
Lease financing ...................... 55,800 61,937 (6,137) (11,129) 4,992
Foreign .............................. 25,859 23,049 2,810 408 2,402
---------- ----------- -------------
Total loans .......................... 1,193,740 1,098,424 95,316 (5,679) 100,995
Securities:
Held-to-maturity ..................... 19,186 20,953 (1,767) (237) (1,530)
Available-for-sale ................... 128,650 115,909 12,741 2,805 9,936
---------- ----------- -------------
Total securities ..................... 147,836 136,862 10,974 2,178 8,796
Other earning assets ................. 17,283 19,372 (2,089) (1,725) (364)
---------- ----------- -------------
Total interest-earning assets ........ 1,358,859 1,254,658 104,201 (2,832) 107,033
Cash and due from banks ..............
Other assets .........................
Allowance for loan losses ............
Total assets .........................
Interest Expense
Interest-bearing demand .............. 19,009 17,846 1,163 175 988
Savings and money market savings...... 143,692 131,131 12,561 11,925 636
Savings certificates ................. 142,244 117,737 24,507 14,270 10,237
Large denomination certificates ...... 61,921 56,144 5,777 5,533 244
---------- ----------- -------------
Total interest-bearing deposits
in domestic offices .................. 366,866 322,858 44,008 32,402 11,606
Interest-bearing deposits in foreign
offices .............................. 46,986 51,922 (4,936) (314) (4,622)
---------- ----------- -------------
Total interest-bearing deposits....... 413,852 374,780 39,072 30,479 8,593
Short-term borrowed funds ............ 141,407 123,317 18,090 1,354 16,736
Long-term debt ....................... 165,096 127,764 37,332 (2,395) 39,727
---------- ----------- -------------
Total interest-bearing
liabilities .......................... 720,355 625,861 94,494 38,368 56,126
Interest rate spread .................
Non interest-bearing deposits ........
Other liabilities ....................
Shareholders' equity .................
Total liabilities and
shareholders' equity .................
Net yield on interest-earning
assets and net interest income ....... $ 638,504 $ 628,797 $ 9,707 (44,180) 53,887
========== =========== =============
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 variances in
proportion to the relationship of the absolute dollar amount of the change in
each.
Securities available-for-sale are reported at amortized cost. Pretax unrealized
gains of $91 million in 2001 and pretax unrealized losses of $149 million in
2000 are included in other assets for purposes of this presentation.
18
CONSOLIDATED FINANCIAL RESULTS
Net Interest Income
Wachovia's taxable equivalent net interest income rose $10 million or 1.5
percent from the first quarter of 2000 to $639 million. Signs that the U.S.
economy was slowing prompted the Federal Reserve to lower short-term interest
rates by 50 basis point each on three occasions during the first quarter. The
rate reductions followed six rate increases beginning in July of 1999 and ending
with a 50 basis point increase on May 16, 2000 when the economy appeared to be
growing at an unsustainable pace leading to the risk of inflation. Upon each
action by the Federal Reserve, Wachovia lowered or raised its prime lending rate
to keep pace with the changes in funding costs. For first quarter 2001,
Wachovia's average prime lending rate and the average federal funds rate were
8.62 percent and 5.59 percent, respectively, compared with 8.69 percent and 5.66
percent, respectively, a year ago.
Wachovia's net yield on interest-earning assets was 3.93 percent compared with
4.20 percent reported for the first quarter of 2000. Several factors contributed
to the lower net yield on interest earning assets including credit card
securitization transactions and other changes in earning asset mix, the carrying
cost of nonperforming loans and greater competition for funding sources. Loan
growth slowed from the strong pace achieved a year ago although it continued to
outpace growth in core deposits leading to greater use of wholesale sources to
fund loan demand. Although this contributed positively to net interest income,
it had a dilutive effect on the net yield on interest-earning assets.
Competition for deposits resulted in narrowing spreads on new certificates of
deposit.
The average yield on interest-earning assets decreased 1 basis point from the
first quarter of 2000 although yields were up in each individual interest
earning asset category with the exception of construction and commercial
mortgages, lease financing and other interest earning assets. The average yield
on direct retail loans was unchanged from a year ago. A shift in earning asset
mix kept the overall interest earning asset yield from reflecting the rise in
rates from a year ago, particularly in the loan portfolio. Growth in real estate
categories accounted for approximately 80 percent of overall loan growth from
the first quarter of 2000. In first quarter 2001, real estate loans comprised
approximately 40 percent of the loan portfolio compared with 36 percent a year
ago. Credit card securitization activity and portfolio attrition reduced the
balance of credit card loans leading to some suppression of the average yield in
the retail portfolio.
The average rate on interest-bearing liabilities increased by 31 basis points
from the first quarter of 2000, however, it was down 47 basis points from the
fourth quarter 2000. The rates paid on savings and money market savings accounts
and savings certificates are the principal drivers of the higher funding costs.
Wachovia's Premiere money market account is the main driver of higher rates
within the savings and money market savings category. Rates on the Premiere
product lagged market rates when they were rising and are lagging in the falling
rate environment. The decision to lag the market in rate reductions is part of a
successful strategy to attract and retain deposit balances, particularly with
high wealth customers. Compared with the fourth quarter of 2000, the average
rate on savings and money market savings deposits was down 30 basis points. Due
to various savings certificate promotions in the latter half of 2000, the
average rate on savings certificates did not fall as rapidly as market rates
over the last two quarters.
Related Balance Sheet Analysis
Loan growth slowed in the latter half of 2000 and continued at the slower pace
through the first quarter of 2001 due in part to some general softness in demand
brought on by slowing economic conditions and more caution and selectivity in
light of increasing risk. Comparing first quarter 2001 to first quarter 2000,
average loans increased $5.109 billion or 10.1 percent with approximately 80
percent of the increase in the real estate categories. Adjusting for
acquisitions and
19
securitization transactions, loan growth over the same period was approximately
8 percent. Compared with fourth quarter 2000, average loan growth was 10.2
percent or less than 4 percent when adjusted for the effect of securitization
activity and the acquisition of Republic Security Bank.
Period-End Loans by Category Table 7
- --------------------------------------------------------------------------------
(thousands)
March 31 Dec. 31 Sept. 30 June 30 March 31
2001 2000 2000 2000 2000
-------------- -------------- -------------- -------------- --------------
Commercial ..................... $16,897,378 $17,660,562 $18,005,046 $17,823,579 $17,160,717
Tax-exempt ..................... 548,246 605,165 657,441 668,953 673,634
----------- ----------- ----------- ----------- -----------
Total commercial ............. 17,445,624 18,265,727 18,662,487 18,492,532 17,834,351
Direct retail .................. 1,514,825 1,338,265 1,286,724 1,270,661 1,160,287
Indirect retail ................ 4,571,517 4,219,917 4,159,669 3,985,073 3,856,229
Credit card .................... 4,399,276 4,494,303 4,167,158 4,690,595 4,860,455
Other revolving credit ......... 861,828 834,555 787,515 761,049 715,317
----------- ----------- ----------- ----------- -----------
Total retail ................. 11,347,446 10,887,040 10,401,066 10,707,378 10,592,288
Construction ................... 3,746,881 3,370,031 3,206,898 2,960,285 2,577,621
Commercial mortgages ........... 9,576,763 9,025,271 8,893,611 8,423,985 8,164,304
Residential mortgages .......... 10,394,934 9,234,080 8,987,962 8,558,292 7,994,283
----------- ----------- ----------- ----------- -----------
Total real estate ............ 23,718,578 21,629,382 21,088,471 19,942,562 18,736,208
Lease financing ................ 2,805,779 2,839,386 2,777,382 2,701,108 2,696,605
Foreign ........................ 1,385,747 1,380,186 1,295,778 1,308,777 1,265,864
----------- ----------- ----------- ----------- -----------
Total loans .................. $56,703,174 $55,001,721 $54,225,184 $53,152,357 $51,125,316
=========== =========== =========== =========== ===========
Managed Credit Card Data Table 8
- --------------------------------------------------------------------------------
(thousands)
2001 2000
---------------- ---------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
---------------- --------------- --------------- --------------- ---------------
Average credit card loans ......................... $ 7,876,095 $ 7,969,019 $ 8,012,939 $ 8,135,853 $ 7,771,010
Period-end loans .................................. 7,673,148 8,140,257 7,981,510 8,085,573 8,256,409
Net loan losses ................................... 105,350 98,539 99,146 100,207 87,040
Annualized net loan losses to average loans ....... 5.35% 4.95% 4.95% 4.93% 4.48%
Delinquencies (30 days or more) to period-end
loans ............................................ 4.79 4.21 4.03 3.74 3.72
Average balances of securities for the first quarter of 2001 increased in
comparison to both the first and fourth quarters of 2000 partially due to the
inclusion of the Republic Security Bank portfolio and the purchase of mortgage
backed securities in anticipation of scheduled maturities. Over the past year,
Wachovia has maintained the securities portfolio at a fairly consistent level.
20
Securities Table 9
- --------------------------------------------------------------------------------
March 31, 2001 (thousands)
Securities available-for-sale at fair value:
U.S. Government and agency ................................. $2,508,986
Mortgage-backed ............................................ 4,902,593
Other ...................................................... 695,055
----------
Total available-for-sale ................................. 8,106,634
Securities held-to-maturity:
U.S. Government and agency ................................. 414,873
Mortgage-backed ............................................ 311,884
State and municipal ........................................ 211,542
Other ...................................................... 5,462
----------
Total held-to-maturity ................................... 943,761
----------
Total securities ......................................... $9,050,395
==========
The increase in average other assets from the first and fourth quarters of 2000
as presented on the Taxable Equivalent Rate/Volume Variance Analysis table is
primarily due to the change in the mark-to-market adjustment on securities
classified as available-for-sale. Securities available-for-sale had an
unrealized gain of $91 million in the first quarter of 2001 compared with
unrealized losses of $30 million and $149 million, respectively, in the fourth
and first quarters of 2000. An increase in intangible assets resulting from
acquisitions and the unrealized gains on derivative securities qualifying as
hedges accounted for most of the remaining increase.
Excluding the effects of acquisitions and branch sales in the third quarter of
2000, average interest-bearing core deposits (interest-bearing deposits
excluding large denomination certificates of deposit and foreign deposits)
increased approximately 3 percent from the first quarter of 2000. Compared with
the fourth quarter of 2000, interest-bearing core deposits increased at an
annualized rate of approximately 7 to 8 percent. Republic Security Bank added
approximately $520 million in interest-bearing core deposits.
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, trust preferred securities, bank
notes and senior and subordinated debt to fund the balance sheet. The mix and
characteristics of wholesale funding are determined based on interest rate risk
management, liquidity needs and available pricing. Subordinated debt and trust
preferred securities are used for capital management purposes since they qualify
for inclusion in Tier II and Tier I capital, respectively, for risk based
capital purposes. Several large debt transactions affect comparability of both
period-end and average balances between reported periods. On March 31, 2000,
Wachovia issued $300 million in subordinated debt that replaced $300 million in
subordinated debt that matured on December 15, 1999. On July 6, 2000, Wachovia
issued $550 million in senior debt securities followed by $300 million in
subordinated securities issued by Wachovia Bank on July 24, 2000. On October 4,
2000, Wachovia issued $300 million in fixed rate senior securities. During 2000
Wachovia increased its borrowings from the Federal Home Loan Bank ("FHLB")
significantly with borrowings with maturities between five and seven years.
Liquidity Management
Wachovia manages liquidity at both the parent and subsidiary 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, 2001, Wachovia Corporation had $2.362 billion in interest-bearing
balances with Wachovia Bank, and $750 million available for issuance as senior
or subordinate debt securities under existing shelf registrations filed with the
Securities and Exchange Commission. At April 1, 2001, $746 million was available
from Wachovia's bank subsidiaries to pay dividends to Wachovia Corporation
21
without prior regulatory approval. As a back-up liquidity facility for
commercial paper, Wachovia has $445 million in lines of credit from unaffiliated
banks. No borrowings have occurred under these lines.
Wachovia Corporation's senior notes are rated AA- by Fitch, A1 by Moody's and A+
by Standard & Poor's, and its subordinated notes are rated A+ by Fitch, A2 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, 2001. The capital securities are rated A+ by Fitch, a1 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
$17.6 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, 2001, Wachovia Bank had approximately $6.4 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, 2001 were $25
million, with an average cost of 6.22 percent and an average maturity of less
than one month. Medium-term bank notes were $1.899 billion on the same date,
with an average cost of 5.49 percent and an average maturity of 5.2 years.
Short-term issues under the global bank note program are rated F1+ by Fitch, P-1
by Moody's and A-1+ by Standard & Poor's, while medium-term issues are rated AA-
by Fitch, Aa3 by Moody's and AA- by Standard & Poor's.
Allowance for Loan Losses
Wachovia's allowance for loan losses is maintained at a level adequate to absorb
probable losses inherent in the loan portfolio as of the date of the financial
statements. At March 31, 2001, the allowance for loan losses was $851 million or
1.50 percent of outstanding loans compared with $823 million or 1.50 percent and
$596 million or 1.17 percent at December 31, 2000 and March 31, 2000,
respectively. The allowance for loan losses varied over the periods presented
due to changes in the portfolio's risk profile. Compared with a year ago, the
increase in the allowance at March 31, 2001 was due to a rise in the level of
nonperforming loans and downward migration on Wachovia's internal loan risk
grades. External factors such as lower corporate earnings growth, rising default
rates and an increase in the ratio of credit rating downgrades to upgrades
indicate rising risk in the corporate lending environment.
Nonperforming loans decreased $90 million from December 31, 2000, but were up
$184 million from March 31, 2000. The level has fallen from December 31, 2000,
primarily from the sale or charge-off of nonperforming loans. Looking forward,
management believes that the credit cycle has not peaked as evidenced in some
continued softening in reported corporate earnings, a general lowering of future
earnings expectations by public companies and continued announcements concerning
layoffs. The ultimate length and severity of the current credit cycle will
depend on the direction of the economy that showed signs of continued slowing
during the first quarter. For the most part, the effects of the slowing economy
have been limited to the large corporate portfolio, although the charge-off and
delinquency rates in the credit card portfolio were up during the first quarter
of 2001. Management continues to monitor the loan portfolio and is taking
appropriate action to proactively reduce credit exposure. Early in the first
quarter, Wachovia formed a workout group comprised of approximately 30 highly
experienced bankers that has been successful in trimming exposure to problem
loans.
22
Allowance for Loan Losses Table 10
- --------------------------------------------------------------------------------
(thousands)
2001 2000
------------- ------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------------- ------------- ------------ ------------- -------------
Summary of Transactions
Balance at beginning of period .................... $ 822,560 $ 799,461 $799,351 $ 595,655 $ 554,810
Additions from acquisitions ....................... 25,739 -- -- 3,289 40,504
Provision for loan losses ......................... 121,500 117,463 123,956 273,365 73,666
Deduct net loan losses:
Loans charged off:
Commercial ...................................... 41,689 35,871 70,573 14,991 11,280
Credit card ..................................... 69,020 59,970 57,099 62,469 62,883
Other revolving credit .......................... 2,979 2,627 2,819 2,219 2,379
Other retail .................................... 13,282 9,325 8,437 8,124 9,875
Real estate ..................................... 9,242 2,513 887 1,612 1,220
Lease financing ................................. 834 262 226 404 568
Foreign ......................................... -- -- -- -- --
--------- --------- -------- --------- ---------
Total ......................................... 137,046 110,568 140,041 89,819 88,205
Recoveries:
Commercial ...................................... 1,925 2,047 1,673 583 621
Credit card ..................................... 11,241 10,806 10,446 12,096 10,129
Other revolving credit .......................... 520 411 480 641 647
Other retail .................................... 2,937 2,072 2,441 3,018 2,566
Real estate ..................................... 1,625 794 1,033 402 786
Lease financing ................................. 81 74 122 121 131
Foreign ......................................... -- -- -- -- --
--------- --------- -------- --------- ---------
Total ......................................... 18,329 16,204 16,195 16,861 14,880
--------- --------- -------- --------- ---------
Net loan losses .................................. 118,717 94,364 123,846 72,958 73,325
--------- --------- -------- --------- ---------
Balance at end of period .......................... $ 851,082 $ 822,560 $799,461 $ 799,351 $ 595,655
========= ========= ======== ========= =========
Net Loan Losses (Recoveries) by Category
Commercial ........................................ $ 39,764 $ 33,824 $ 68,900 $ 14,408 $ 10,659
Credit card ....................................... 57,779 49,164 46,653 50,373 52,754
Other revolving credit ............................ 2,459 2,216 2,339 1,578 1,732
Other retail ...................................... 10,345 7,253 5,996 5,106 7,309
Real estate ....................................... 7,617 1,719 (146) 1,210 434
Lease financing ................................... 753 188 104 283 437
Foreign ........................................... -- -- -- -- --
--------- --------- -------- --------- ---------
Total ......................................... $ 118,717 $ 94,364 $123,846 $ 72,958 $ 73,325
========= ========= ======== ========= =========
Net loan losses -- excluding credit cards ......... $ 60,938 $ 45,200 $ 77,193 $ 22,585 $ 20,571
Annualized Net Loan Losses (Recoveries) to Average
Loans by Category
Commercial ........................................ .89% .75% 1.54% .32% .24%
Credit card ....................................... 5.22 4.58 4.40 4.25 4.32
Other revolving credit ............................ 1.16 1.10 1.21 .85 1.00
Other retail ...................................... .72 .53 .45 .40 .60
Real estate ....................................... .14 .03 -- .03 .01
Lease financing ................................... .11 .03 .02 .04 .07
Foreign ........................................... -- -- -- -- --
Total loans ....................................... .85 .70 .94 .56 .58
Total loans -- excluding credit cards ............. .48 .36 .64 .19 .18
Period-end allowance to outstanding loans ......... 1.50 1.50 1.47 1.50 1.17
23
Nonperforming Assets and Contractually Past Due Loans Table 11
- --------------------------------------------------------------------------------
March 31, 2001
Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31
2001 2000 2000 2000 2000
------------- ------------- ------------- ------------- -------------
Nonperforming Assets
Nonaccrual loans ................................... $ 410,064 $ 499,899 $ 444,880 $ 283,577 $ 226,176
Restructured loans ................................. -- -- -- -- --
--------- --------- --------- --------- ---------
Total nonperforming loans ........................ 410,064 499,899 444,880 283,577 226,176
Foreclosed property:
Foreclosed real estate ............................ 18,712 13,855 12,794 12,946 17,665
Less valuation allowance .......................... 1,960 2,210 2,429 2,867 4,077
Other foreclosed assets ........................... 10,148 9,733 6,501 5,060 6,343
--------- --------- --------- --------- ---------
Total foreclosed property ........................ 26,900 21,378 16,866 15,139 19,931
--------- --------- --------- --------- ---------
Total nonperforming assets ....................... $ 436,964 $ 521,277 $ 461,746 $ 298,716 $ 246,107
========= ========= ========= ========= =========
Nonperforming loans to period-end loans ............ .72% .91% .82% .53% .44%
Nonperforming assets to period-end loans and
foreclosed property ............................... .77 .95 .85 .56 .48
Period-end allowance for loan losses times
nonperforming loans ............................... 2.08x 1.65x 1.80x 2.82x 2.63x
Period-end allowance for loan losses times
nonperforming assets .............................. 1.95 1.58 1.73 2.68 2.42
Contractually Past Due Loans
(accruing loans past due 90 days or more) ......... $ 158,623 $ 155,008 $ 123,079 $ 127,218 $ 126,318
========= ========= ========= ========= =========
At March 31, 2001, Wachovia's nonperforming assets represented .77 percent of
total loans and foreclosed property compared with .95 percent and .48 percent at
December 31, 2000 and March 31, 2000, respectively.
The provision for loan losses charged to earnings was an amount sufficient to
position the allowance for loan losses at the appropriate level as described
above. For the first quarter the provision for loan losses was $122 million
compared with $74 million for the same period of 2000. The increase in the
provision is consistent with higher credit risk in the loan portfolio.
Looking forward, management remains watchful of credit quality issues and some
further increase in nonperforming loans could be experienced over the next few
quarters. It is difficult to predict the exact magnitude and timing as much of
the credit deterioration is driven by specific events that are not easily
predicted.
Noninterest Income
Other operating revenue, which excludes securities transactions, grew $21
million or 4.4 percent for the first quarter from a year earlier. Growth
occurred in most categories although a sharp drop in credit card income and
investment fees offset the growth in other line items. The first quarter of 2001
included a gain of $42 million on Wachovia's investment in Star Systems, Inc.
upon its merger with Concord/EFS, a publicly traded company. Adjusting for the
effects of acquisitions and securitization transactions, operating revenue grew
approximately 1 percent from first quarter 2000.
Service charges on deposit accounts grew $3 million or 3.4 percent from the
first quarter of 2000 with all of the increase coming from returned check
charges. The increase in returned check charges is primarily due to a higher
occurrence rate although increased fees and improvement in the collection rate
also contributed.
24
Noninterest Income Table 12
- --------------------------------------------------------------------------------
(thousands)
2001 2000
------------ -----------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------------ ----------- ----------- ----------- -----------
Service charges on deposit accounts ....................... $ 104,282 $106,655 $106,765 $104,380 $100,811
Fees for trust services ................................... 57,090 57,417 56,636 54,189 51,234
Credit card income -- net of interchange payments ......... 53,774 72,851 82,337 71,463 71,182
Investment fees ........................................... 75,864 76,521 80,065 81,439 96,770
Capital markets income .................................... 48,166 40,115 40,092 45,014 44,786
Electronic banking ........................................ 26,770 27,029 26,254 26,153 23,396
Mortgage fees ............................................. 8,368 7,082 7,373 5,921 5,001
Bankers' acceptance and letter of credit fees ............. 13,547 14,948 15,102 13,671 11,597
Other service charges and fees ............................ 37,671 38,606 34,038 30,361 29,181
Other income .............................................. 66,054 29,377 71,328 37,708 36,841
--------- -------- -------- -------- --------
Total other operating revenue ........................... 491,586 470,601 519,990 470,299 470,799
Securities gains (losses) ................................. 9,076 (480) (163) 59 167
--------- -------- -------- -------- --------
Total ................................................... $ 500,662 $470,121 $519,827 $470,358 $470,966
========= ======== ======== ======== ========
Trust fees were up $6 million or 11.4 percent despite softening market
conditions that eroded the value of assets under management. Due to the use of
tiered pricing structures, a reduction in the value of assets under management
does not proportionately reduce fee income derived from the value of managed
assets. Successful sales efforts, particularly with institutional customers,
offset the reduction in fees caused by declining asset values.
Credit card income was down $17 million or 24.5 percent from the first quarter
of 2000 as a result of a combination of factors. Lower purchase volume and
portfolio attrition led to lower interchange fees, membership fees and overlimit
fees. The decline in purchase volume and portfolio attrition also contributed to
the lower excess servicing fees received on securitized receivables that is the
most significant component of the decline in overall credit card fees. Also
contributing to the drop in excess servicing fees was the higher loss rate in
the off balance sheet portfolio. The acquisition of Partners First and
securitization activity affect comparisons between periods. Adjusting for those
transactions, credit card income is down approximately 29 percent from a year
ago.
Investment fees were down $21 million or 21.6 percent from the first quarter of
2000, however when compared with the fourth quarter of 2000, the decline is less
than 1 percent. The equity markets and trading activity reached record levels
during the first quarter of 2000 leading to a higher level of equity commissions
and mutual fund fees. Market conditions since the first quarter of 2000 have
been much less favorable, and as a result, equity commissions and mutual fund
fees were lower than a year ago.
Capital markets income was up $3 million or 7.5 percent from the first quarter
of 2000 despite some continued softness in market conditions. Fixed income
trading account profits and loan syndication fees were down from a year ago but
that decline was more than offset by increases in derivative income, consulting
fees and asset backed finance fees.
Electronic banking fees were up $3 million or 14.4 percent from a year ago on
higher debit card transaction volume resulting in increased interchange fees.
Mortgage fees were also up $3 million or 67.3 percent from the first quarter of
2000 due to increasing demand for fixed rate mortgages in the lower rate
environment. Wachovia originates and sells fixed rate mortgages and receives a
fee for the sale of the servicing rights.
Other service charges and fees increased $8 million or 29.1 percent from the
first quarter of 2000. Most of the increase was in insurance premiums and
commissions reflecting core business growth and the acquisition of DavisBaldwin
in the fourth quarter of 2000. Property and casualty commissions were up over $3
million reflecting the acquisition of
25
DavisBaldwin. Servicing fees received on securitized credit card receivables
were up from the first quarter of 2000 that included only two months of Partners
First.
Other income increased $29 million from the first quarter of 2000 due to
recognition of the gain on the investment in Star Systems, Inc. The gain was
partially offset by an amount paid to a third party to assume Wachovia's
liability under letters of credit relating to certain nonperforming loans that
were sold.
Noninterest Expense
Noninterest expense was down $6 million or less than 1 percent from the first
quarter of 2000. Excluding nonrecurring expenses, operating expense rose $9
million or 1.4 percent from a year ago. Operating expenses for the first quarter
of 2001 reflect management's expense control efforts and the added expense base
of acquired entities. Excluding the effect of acquisitions, operating expenses
were down approximately 2 percent. Nonrecurring expenses include restructuring
charges, merger-related expenses, and a litigation settlement charge. The
restructuring charge recorded in the first quarter of 2001 is explained in more
detail on page 27. The litigation settlement charge recorded in the first
quarter of 2000 resulted from an agreement reached with the U. S. Department of
Labor to settle litigation stemming from a lawsuit begun against South Carolina
National Bank (a predecessor of Wachovia Bank) in May 1991.
Noninterest Expense Table 13
- --------------------------------------------------------------------------------
(thousands)
2001 2000
-------------- ---------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
-------------- ------------- ------------ ------------ -----------
Salaries .................................................. $ 279,456 $ 241,206 $275,249 $282,610 $287,629
Employee benefits ......................................... 55,217 53,022 50,494 52,881 56,252
---------- --------- -------- -------- --------
Total personnel expense ................................. 334,673 294,228 325,743 335,491 343,881
Net occupancy expense ..................................... 41,087 39,911 40,229 40,684 39,526
Equipment expense ......................................... 45,058 47,684 45,274 45,908 49,195
Postage and delivery ...................................... 12,800 13,023 13,196 13,661 13,817
Outside data processing, programming and software ......... 31,246 31,429 27,419 25,918 26,874
Stationery and supplies ................................... 9,605 9,227 9,484 10,037 9,072
Advertising and sales promotion ........................... 12,268 16,644 16,752 16,938 16,649
Professional services ..................................... 17,592 26,495 21,245 18,639 13,532
Travel and business promotion ............................. 9,461 10,526 9,483 11,202 9,572
Telecommunications ........................................ 15,619 15,561 15,373 15,471 14,726
Amortization of intangible assets ......................... 25,038 23,864 24,330 23,906 20,797
Foreclosed property expense -- net of income .............. 985 109 (349) (220) (2,722)
Other expense ............................................. 63,138 56,803 60,646 64,784 54,901
---------- --------- -------- -------- --------
Total operating expense ................................. 618,570 585,504 608,825 622,419 609,820
Merger-related charges .................................... -- -- 11,928 8,872 8,158
Litigation settlement charge .............................. -- -- -- -- 20,000
Restructuring charge ...................................... 13,152 19,543 87,944 -- --
---------- --------- -------- -------- --------
Total ................................................... $ 631,722 $ 605,047 $708,697 $631,291 $637,978
========== ========= ======== ======== ========
Overhead ratio* ........................................... 55.9% 54.7% 61.1% 56.4% 58.0%
Operating overhead ratio .................................. 54.7 53.0 52.5 55.6 55.5
* Noninterest expense as a percentage of taxable equivalent net interest income
and total other operating revenue.
Total personnel expense was down $9 million or 2.7 percent from the first
quarter of 2000 reflecting the success of Wachovia's expense control initiatives
and lower incentive pay commensurate with lower revenue levels in market
sensitive businesses. The success of the initiatives becomes more evident when
adjusted for the personnel expenses added by acquisitions. Exclusive of
acquisitions, total personnel expense was down approximately 5 percent from a
year ago. At March 31, 2001, Wachovia had 21,069 full time equivalent employees,
including 890 added with the acquisition of Republic Security Bank, compared
with 21,647 a year earlier.
26
Equipment expense decreased $4 million or 8.4 percent from the first quarter of
2000 but is mostly level with the second, third and fourth quarters of 2000. The
reduction reflects management's expense control efforts, and lower depreciation
of personal computer and peripheral equipment, adjusted for lower staffing
levels.
Advertising and sales promotion expense was down $4 million or 26.3 percent from
the first quarter of 2000, primarily due to lower spending on credit card
solicitation during the first quarter of 2001.
Professional services expense was up $4 million or 30 percent from the first
quarter of 2000 although it was down from the second, third and fourth quarters
of 2000 primarily due to the timing of projects. First quarter 2000 was lower
than normal as several of the consulting projects planned during 2000 did not
begin until later in the year. Many of those projects were completed in the late
2000/early 2001 time period causing first quarter of 2001 to fall below the
level of the three preceding quarters but above first quarter 2000.
Amortization of intangible assets rose from prior year levels as a result of
intangibles associated with the acquisitions of Republic Security and Partners
First.
Other expense increased $8 million or 15 percent from the first quarter of 2000.
Acquisitions accounted for most of the increase with the largest component being
external processing fees paid to service the acquired Partners First credit card
portfolio. Aside from the impact of acquisitions, overall expenses in the
remaining categories were generally level with a year ago.
Restructuring Charge
On August 28, 2000, Wachovia announced the realignment of resources that called
for the elimination of 1,800 positions. In connection with the restructuring
plan, Wachovia incurred charges of $88 million and $19 million, respectively,
during the third and fourth quarters of 2000. The remaining charge of $13
million to complete the project was incurred during the first quarter of 2001.
The amounts expensed and paid during the first quarter are reported below.
Restructuring Charge Table 14
- --------------------------------------------------------------------------------
(thousands)
Utilized
Balance at Charge to During Balance at
Dec. 31, 2000 Earnings Quarter Mar. 31, 2001
--------------- ----------- ----------- --------------
Severance and personnel-related costs ......... $ 38,233 $ 5,226 $ 22,827 $ 20,632
Occupancy and other costs ..................... 1,384 7,926 9,240 70
-------- -------- -------- --------
Total ......................................... $ 39,617 $ 13,152 $ 32,067 $ 20,702
======== ======== ======== ========
Severance and personnel related costs include severance payments to terminated
employees as well as benefits including pension, medical and job transition
assistance. Occupancy and other costs represent asset impairment charges and
other facility exit costs associated with the project. Included in occupancy and
other costs are non-cash items of approximately $7 million.
Income Taxes
Applicable income taxes for the first quarter of 2001 increased $1 million or
less than 1 percent from the first quarter of 2000. Wachovia's effective tax
rate is slightly higher than 2000 due to an increase in nondeductible
amortization associated with purchase business combinations.
27
Income Taxes Table 15
- --------------------------------------------------------------------------------
(thousands)
THREE MONTHS ENDED MARCH 31
---------------------------
2001 2000
--------- ---------
Income before income tax expense .................................. $ 377,281 $ 378,818
========= ==========
Federal income taxes at statutory rate ............................ $ 132,048 $ 132,587
State and local income taxes -- net of federal benefit ............ 6,021 8,695
Effect of tax-exempt securities interest and other income ......... (11,576) (11,269)
Other items ....................................................... 8,696 4,098
--------- ----------
Total income tax expense ........................................ $ 135,189 $ 134,111
========= ==========
Current:
Federal .......................................................... $ 44,969 $ 55,215
Foreign .......................................................... 596 336
State and local .................................................. 9,262 10,349
--------- ----------
Total ........................................................... 54,827 65,900
Deferred:
Federal .......................................................... 78,638 65,184
State and local .................................................. 1,724 3,027
--------- ----------
Total ........................................................... 80,362 68,211
--------- ----------
Total income tax expense ........................................ $ 135,189 $ 134,111
========= ==========
New Accounting Standards
Effective January 1, 2001, Wachovia adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FASB 133), which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. All derivatives, whether designated
in hedging relationships or not, are required to be recorded on the balance
sheet at fair value. If the derivative is designated as a fair value hedge, the
changes in the fair value of the derivative and of the hedged item attributable
to the risk being hedged are recognized in earnings. If the derivative is
designated as a cash flow hedge, the effective portion of the changes in the
fair value of the derivative are recorded in other comprehensive income (OCI)
and are recognized in the income statement when the hedged item affects
earnings. Ineffective portions of changes in the fair value of cash flow hedges
are recognized in earnings. If the derivative is not designated as a hedging
instrument, the changes in fair value of the derivative are recorded in income.
Wachovia maintains derivative positions for both trading and risk management
purposes. Trading derivatives are customer oriented, are marked-to-market
through capital markets income and are unaffected by the application of FASB
133. Interest rate swaps and options are used as part of Wachovia's overall
interest rate risk management and are designated as hedges of interest-earning
assets and interest-bearing liabilities.
The adoption of FASB 133 on January 1, 2001, was immaterial to Wachovia's
financial position and results of operations and resulted in a pre-tax increase
to income of $83 thousand and a pre-tax increase to OCI of $1 million.
At March 31, 2001, Wachovia had fair value hedges with a notional amount of
$5.487 billion mostly for the purpose of converting fixed rate funding to
floating. Wachovia also hedges a small amount of fixed rate loans. At March 31,
the fair value of these fair value hedge derivatives was $222 million. Year to
date hedge ineffectiveness recognized in earnings from fair value hedges was a
loss of $174 thousand.
At March 31, 2001, Wachovia had cash flow hedges with a notional amount of
$1.058 billion mostly for the purpose of converting floating rate funding to
fixed and to hedge both commercial and mortgage loans. The fair value of these
cash
28
flow hedges was a positive $902 thousand and their effect on OCI was an increase
of $539 thousand, net of deferred taxes. Year to date, there has been no hedge
ineffectiveness recognized on these cash flow hedges.
Finally, Wachovia maintains two positions that while used for risk management
purposes, are not designated as hedges in accordance with FASB 133. As such,
these derivatives are marked to market through earnings. Both of the positions
mature during the second quarter of 2001 and as such should have a minimal
future earnings impact. At March 31, 2000, the notional for these derivatives
was $300 million with a positive fair value of $26 thousand.
In September 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" (FASB 140) which replaces
FASB Statement No. 125. FASB 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain additional disclosures regarding these activities. The
statement is effective for transfers and servicing of financial assets or
extinguishments of liabilities that occur after March 31, 2001. The statement
was effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. Management is in the process of assessing
the impact and plans to adopt the standard in accordance with the effective
dates. Adoption is not expected to result in a material financial impact.
SHAREHOLDERS' EQUITY AND CAPITAL RATIOS
Shareholders' equity at March 31, 2001 was $6.865 billion, up $1.019 billion or
17.4 percent from $5.846 billion one year earlier and up $580 million or 9.2
percent from December 31, 2000. Included in shareholders' equity at the end of
the first quarter of 2001 was $75 million, net of tax, of accumulated other
comprehensive income comprised of $89 million in unrealized gains on securities
available-for-sale, $15 million minimum pension liability and $539 thousand in
unrealized gains on derivatives qualifying as cash flow hedges. This compared
with accumulated other comprehensive losses of $88 million, net of tax, one year
earlier and accumulated other comprehensive income of $30 million at December
31, 2000 which were entirely comprised of unrealized losses and gains on
securities available-for-sale. The change in the value of securities available
for sale is primarily due to the decline in interest rates.
Wachovia has two share repurchase authorizations outstanding. Wachovia may
repurchase up to 8 million shares of its common stock under a January 28, 2000
authorization effective through January 25, 2002. Wachovia is also authorized to
repurchase shares to offset the 6 million shares issued to acquire Republic
Security Financial Corporation. As of March 31, 2001, a total of 792,530 shares
had been repurchased under the January 28, 2000 authorization. No shares were
repurchased during the first quarter of 2001. Management will continue to work
within the guidelines of its share repurchase authorizations while assessing the
best deployment of Wachovia's capital. Wachovia resumed repurchases in early May
and expects that fully diluted shares would return to a level comparable with
that at the end of 2000. Wachovia and its affiliates regularly purchase
securities for their own accounts. In this connection, since April 16, 2001
(the date on which the proposed merger of Wachovia and First Union Corporation
was announced), Wachovia and its affiliates have purchased approximately $18
million of First Union common stock in the open market. Wachovia and its
affiliates intend to continue to purchase First Union common stock from time to
time in the future consistent with applicable legal and regulatory requirements.
At its April 27, 2001 meeting, the Board of Directors declared a second quarter
dividend of $.60 per share, payable June 1 to shareholders of record as of May
10. The dividend is higher by 11 percent from $.54 per share paid in the same
quarter of 2000.
29
Intangible assets at March 31, 2001 totaled $1.506 billion, consisting of
$1.157 billion of goodwill, $113 million of deposit base intangibles, $222
million in purchased credit card premiums and $14 million of other intangibles.
The acquisition of Republic Security Financial Corporation added approximately
$260 million in intangibles based on preliminary information. Intangible assets
at the end of the first quarter of 2000 were $1.249 billion, with $913 million
of goodwill, $76 million of deposit base intangibles, $259 million in purchased
credit card premiums and $1 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)
2001 2000
--------------- ------------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
--------------- --------------- ---------------- ---------------- ----------------
Tier I capital:
Common shareholders' equity ................. $ 6,864,856 $ 6,284,539 $ 6,090,164 $ 5,936,044 $ 5,846,430
Trust capital securities .................... 997,213 997,119 997,025 996,932 996,838
Less ineligible intangible assets ........... 1,316,300 1,071,679 1,040,066 1,057,314 1,040,021
Unrealized (gains) losses on securities
available-for-sale -- net of tax ........... (74,602) (30,312) 29,780 77,233 87,939
----------- ----------- ------------ ------------ ------------
Total Tier I capital ..................... 6,471,167 6,179,667 6,076,903 5,952,895 5,891,186
Tier II capital:
Allowable allowance for loan losses ......... 851,082 822,560 799,461 799,351 595,655
Allowable long-term debt .................... 2,464,279 2,463,031 2,542,833 2,242,780 2,407,529
----------- ----------- ------------ ------------ ------------
Tier II capital additions ................ 3,315,361 3,285,591 3,342,294 3,042,131 3,003,184
----------- ----------- ------------ ------------ ------------
Total capital ............................ $ 9,786,528 $ 9,465,258 $ 9,419,197 $ 8,995,026 $ 8,894,370
=========== =========== ============ ============ ============
Risk-adjusted assets ......................... $82,948,338 $81,856,272 $ 81,073,761 $ 80,796,945 $ 79,228,699
Quarterly average assets* .................... $72,392,777 $70,803,380 $ 68,773,165 $ 68,559,502 $ 66,863,406
Risk-based capital ratios:
Tier I capital .............................. 7.80% 7.55% 7.50% 7.37% 7.44%
Total capital ............................... 11.80 11.56 11.62 11.13 11.23
Tier I leverage ratio ........................ 8.94 8.73 8.84 8.68 8.81
* Excludes ineligible intangible assets and average unrealized gains and 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.
30
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk and Asset/Liability Management
Market risk is the risk of loss due to adverse changes in instrument values or
earnings fluctuation resulting from changes in market factors including changes
in interest rates, foreign 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 Market Risk
Trading market risk is the risk to net income from changes in the fair value of
assets and liabilities and off-balance sheet instruments that are
marked-to-market through the income statement. 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, 2001, the combined VaR exposure was $53 thousand representing .02
percent of the combined trading portfolio value of $337 million. The combined
average VaR exposure for the first quarter of 2001 was $69 thousand representing
.02 percent of the combined average trading portfolio value of $393 million.
These VaR numbers are for the combined fixed income and equity trading
portfolios.
Nontrading Market Risk
Nontrading market risk is the risk to net income and equity capital from changes
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. In order to discern risk
levels preset in the balance sheet beyond the 24 month time horizon used in
simulation modeling, Wachovia utilizes a present value methodology commonly
referred to as Economic Value of Equity or EVE.
The policy guideline limit for net income (after-tax changes in net interest
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 .10
percent
31
increase in net income at March 31, 2001 versus a 1.34 percent increase one year
earlier. A gradual decrease in rates over the next 12 months would cause
approximately a .50 percent decrease in net income as of March 31, 2001 compared
with a 1.37 percent decrease at March 31, 2001. 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 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
On April 20, 2001, an individual shareholder of Wachovia, purporting to
represent a class of Wachovia shareholders, filed a complaint in the United
States District Court for the Middle District of North Carolina, naming
Wachovia, Leslie M. Baker, Jr., and Morris W. Offit as defendants. The plaintiff
alleges in the complaint that the defendants breached their fiduciary duties to
Wachovia's shareholders by entering into the merger agreement and related
agreements with First Union Corporation. The plaintiff seeks to enjoin the
merger with First Union and unspecified damages, including the fees of
plaintiff's attorneys. Two additional shareholders, each purporting to represent
a class of Wachovia shareholders, subsequently filed complaints in separate
actions in North Carolina state court making substantially similar allegations.
The first of such actions, filed in Forsyth County, North Carolina, names
Wachovia and each of its directors as defendants and the second of such actions,
filed in Guilford County, North Carolina, names Wachovia, each of its directors
and Robert S. McCoy, Jr., Vice Chairman and Chief Financial Officer of Wachovia,
as defendants.
Wachovia believes the above legal actions are without merit and intends to
defend them vigorously.
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.
A current report on Form 8-K dated January 17, 2001, was filed with the
Securities and Exchange Commission announcing Wachovia Corporation's earnings
for the quarter ended December 31, 2000.
32
A current report on Form 8-K dated February 6, 2001, was filed with the
Securities and Exchange Commission announcing that Wachovia was exploring
strategic alternatives for its consumer credit card business.
A current report on Form 8-K dated March 29, 2001, was filed with the
Securities and Exchange Commission announcing that Wachovia was hosting an
Investor Conference to discuss broad strategic goals at its headquarters in
Winston-Salem with a simultaneous webcast. Materials presented on March 28,
2001 at Wachovia's Investor Conference were included as an exhibit.
A current report on Form 8-K dated March 30, 2001, was filed with the
Securities and Exchange Commission publishing materials presented on March 29,
2001 at Wachovia's Investor Conference.
A current report on Form 8-K dated March 30, 2001, was filed with the
Securities and Exchange Commission providing a five-year earnings projection
and comments on earnings expectations for the first quarter and full year of
2001.
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
/s/ ROBERT S. MCCOY, JR. May 11, 2001
------------------------
By: Robert S. McCoy, Jr.
Vice Chairman,
Chief Financial Officer
and Treasurer
/s/ David L. Gaines May 11, 2001
------------------------
By: David L. Gaines
Comptroller
33
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).
4.16 Indenture dated as of June 30, 1997 by and between First Palm Beach
Bancorp, Inc. and The Bank of New York, as Trustee, relating to the
Company's 10.35% Senior Debentures due June 30, 2002 (incorporated by
reference to the Exhibits to Form S-4 Registration Statement filed by
First Palm Beach Bancorp, Inc. on September 11, 1997, Registration No.
333-35431).
34
EXHIBIT INDEX (continued)
Exhibit
Number Description
- -------- -----------
4.17 Supplemental Indenture dated as of October 29, 1998 by and among the
Company, First Palm Beach Bancorp, Inc. and The Bank of New York, as
Trustee, relating to the Company's 10.35% Senior Debentures due June
30, 2002 (incorporated by reference to Exhibits to Form 8-K filed on
November 2, 1998, File No. 000-14671).
4.18 Second Supplemental Indenture dated as of December 20, 2000 by and
between Republic Security Financial Corporation and The Bank of New
York as Trustee, relating to the Company's 10.35% Senior Debentures due
on June 30, 2002.
4.19 Third Supplemental Indenture dated as of March 1, 2001 by and between
Republic Security Financial Corporation, Wachovia Acquisition
Corporation 2001-01 and The Bank of New York as Trustee, relating to
the Company's 10.35% Senior Debentures due on June 30, 2002.
4.20 Form of 10.35% Senior Debenture Due June 30, 2002 (incorporated by
reference to Exhibit 4.2 of Report on Form 10-K of Republic Security
Financial Corporation for the year ended December 31, 1999, File No.
000-14671).
4.21 Form of Series B 10.35% Senior Debenture due June 30, 2002
(incorporated by reference to Exhibit 4.5 of Report on Form 10-K filed
by First Palm Beach Bancorp, Inc. for the fiscal year ended September
30, 1997, File No. 0-21942).
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 (incorporated by reference to Exhibit 10.2 of Report
on Form 10-Q for Wachovia Corporation for the quarter ended March 31,
2000, File No. 1-9021).
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 July 28, 2000. (incorporated by reference to Exhibit
10.4 of Report on Form 10-Q for Wachovia Corporation for the quarter
ended September 30, 2000, 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 Jean E. Davis
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, 2000, File No. 1-9021).
10.8 Form of Employment Agreement between Wachovia Corporation and Executive
Officers (other than Messrs. Baker, McCoy, Prendergast, Dry and Ms.
Davis) (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. 333-81627).
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 July 28, 2000. (incorporated by
reference to Exhibit 10.11 of Report on Form 10-Q for Wachovia
Corporation for the quarter ended September 30, 2000, 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
Jean E. Davis 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, 2000, File No. 1-9021).
35
EXHIBIT INDEX (continued)
Exhibit
Number Description
- ---------- -----------
10.15 Form of Senior Executive Retirement Agreement between Wachovia
Corporation and Executive Officers (other than Messrs. Baker, McCoy,
Prendergast, Dry and Ms. Davis) (incorporated by reference to Exhibit
10.15 of Report on Form 10-K of Wachovia Corporation for the year ended
December 31, 1999, File No. 1-9021).
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).
10.23 Amended and Restated Wachovia Corporation Stock Plan. (incorporated by
reference to Exhibit 10.23 of Report on Form 10-Q for Wachovia
Corporation for the quarter ended September 30, 2000, File No. 1-9021).
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 Split Dollar Life Insurance Agreement between Wachovia Corporation and
L. M. Baker, Jr. dated as of September 1, 2000. (incorporated by
reference to Exhibit 10.35 of Report on Form 10-Q for Wachovia
Corporation for the quarter ended September 30, 2000, File No. 1-9021).
10.28 Split Dollar Life Insurance Agreement between Wachovia Corporation and
Robert S McCoy Jr. dated as of September 1, 2000. (incorporated by
reference to Exhibit 10.36 of Report on Form 10-Q for Wachovia
Corporation for the quarter ended September 30, 2000, File No. 1-9021).
10.29 Split Dollar Life Insurance Agreement between Wachovia Corporation and
G. Joseph Prendergast dated as of September 1, 2000. (incorporated by
reference to Exhibit 10.37 of Report on Form 10-Q for Wachovia
Corporation for the quarter ended September 30, 2000, File No. 1-9021).
10.30 Split Dollar Life Insurance Agreement between Wachovia Corporation and
Mickey W Dry dated as of September 1, 2000. (incorporated by reference
to Exhibit 10.38 of Report on Form 10-Q for Wachovia Corporation for
the quarter ended September 30, 2000, File No. 1-9021).
10.31 Split Dollar Life Insurance Agreement between Wachovia Corporation and
Jean E. Davis dated as of September 20, 2000. (incorporated by
reference to Exhibit 10.31 of Report on Form 10-K for Wachovia
Corporation for the year ended December 31, 2000, File No. 1-9021).
10.32 Form of Callable Split Dollar Life Insurance Agreement between Wachovia
Corporation and Executive Officers (other than Messrs. Baker, McCoy,
Prendergast, Dry and Ms. Davis). (incorporated by reference to Exhibit
10.39 of Report on Form 10-Q for Wachovia Corporation for the quarter
ended September 30, 2000, File No. 1-9021).
10.33 Form of Non-Callable Split Dollar Life Insurance Agreement between
Wachovia Corporation and Executive Officers (other than Messrs. Baker,
McCoy, Prendergast, Dry and Ms. Davis). (incorporated by reference to
Exhibit 10.40 of Report on Form 10-Q for Wachovia Corporation for the
quarter ended September 30, 2000, File No. 1-9021).
11 "Computation of Earnings Per Common Share" (included on page 10
herein).
12 Statement setting forth computation of ratio of earnings to fixed
charges.
36
WACHOVIA -------------------
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U.S. POSTAGE PAID
Wachovia Corporation WINSTON-SALEM, N.C.
P.O. Box 3099 PERMIT NO. 112
Winston-Salem, NC 27150 -------------------
#00011-27