WACHOVIA
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Form 10-Q/A
First Quarter 2001
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
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.
Explanatory Note
This Quarterly Report on Form 10-Q/A for the quarterly period ended March 31,
2001 is being filed solely to add a new note to the Consolidated Financial
Statements - Note 1 - Derivative Financial Instruments, in Part 1, Item 1.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Page No.
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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
Notes to Consolidated Financial Statements........................................................... 7
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
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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 $68,817,488
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3
Consolidated Statements of Income
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($ in thousands, except per share) wachovia corporation and subsidiaries
THREE MONTHS ENDED MARCH 31
---------------------------------
2001 2000
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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
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Total interest income .................................................. 1,350,196 1,245,357
INTEREST EXPENSE
Deposits:
Domestic offices ........................................................ 366,866 322,858
Foreign offices ......................................................... 46,986 51,922
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Total interest on deposits ............................................. 413,852 374,780
Short-term borrowed funds ................................................ 141,407 123,317
Long-term debt ........................................................... 165,096 127,764
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Total interest expense ................................................. 720,355 625,861
NET INTEREST INCOME 629,841 619,496
Provision for loan losses ................................................ 121,500 73,666
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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
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Total other operating revenue .......................................... 491,586 470,799
Securities gains ......................................................... 9,076 167
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Total other income ..................................................... 500,662 470,966
OTHER EXPENSE
Salaries ................................................................. 279,456 287,629
Employee benefits ........................................................ 55,217 56,252
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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
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Total other expense .................................................... 631,722 637,978
Income before income tax expense ......................................... 377,281 378,818
Income tax expense ....................................................... 135,189 134,111
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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
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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 ...........................................
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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 ...........................................
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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)
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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)
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Balance at end of period ................................ $ 1,141,959 $ 4,596,620 $ 74,602 $ 6,864,856
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5
Consolidated Statements of Cash Flows
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($ in thousands) wachovia corporation and subsidiaries
THREE MONTHS ENDED MARCH 31
---------------------------------
2001 2000
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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
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6
Notes to Consolidated Financial Statements
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wachovia corporation and subsidiaries
Note 1 -- Derivative Financial Instruments
On 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. Under FASB 133, all derivatives are
required to be recorded on the balance sheet at fair value. For a derivative
designated as a fair value hedge, the changes in the fair value of the
derivative and changes in fair value of the hedged item attributable to the risk
being hedged are recognized in the statement of income. For a derivative
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 statement of income when the hedged item affects
earnings. Ineffective portions of changes in the fair value of cash flow hedges
are recognized in the statement of income. The change in fair value of
derivatives not designated in a hedging relationship and derivatives that do not
qualify as hedges under FASB 133 are recorded in the statement of income.
Wachovia maintains derivative positions for both trading and risk management
purposes. Trading derivatives are customer oriented, and trading positions are
established as necessary to accommodate customers' requirements. Gains and
losses from trading derivatives are included in capital markets income and are
unaffected by the adoption 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.
In connection with the adoption of FASB 133 on January 1, 2001, Wachovia
recorded an $80 thousand gain in the statement of income and an after-tax gain
of $620 thousand in OCI.
As of March 31, 2001, Wachovia had fair value hedges with a notional amount of
$5.5 billion for the purpose of converting fixed rate funding to floating rate.
Wachovia also hedges a small amount of fixed rate loans. As of March 31, the
fair value of these fair value hedge derivatives was $222 million. Year to date
hedge ineffectiveness from fair value hedges totaling $174 thousand was
recognized in other income in the statement of income. The methodology used to
assess hedge effectiveness does not exclude any component of a derivatives fair
value. Wachovia does not maintain any fair value hedges that are classified as
hedges of a firm commitment.
As of March 31, 2001, Wachovia had cash flow hedges with a notional amount of
$1.1 billion. These derivatives are used to convert floating rate funding to
fixed rate and to hedge both commercial and mortgage loans. The fair value of
these cash flow hedges was $902 thousand and their effect on OCI was an
after-tax gain of $539 thousand. Year to date, there has been no hedge
ineffectiveness on these cash flow hedges, and accordingly, there was no impact
on the statement of income. The methodology used to assess hedge effectiveness
does not exclude any component of a derivatives fair value.
Over the next 12 months, Wachovia expects to reclassify approximately $470
thousand of net gains on cash flow hedges from OCI into earnings, primarily to
offset interest on floating rate instruments and proceeds from anticipated loan
sales. The net derivative amounts included in OCI as of March 31, 2001, are
expected to be reclassified into earnings through 2010. There are currently no
hedging positions where it is probable that the forecasted transaction will not
occur by the end of the originally specified time period or within an additional
two months.
Wachovia maintains two positions that, while used for risk management purposes,
are not designated as hedges under FASB 133. As such, these derivatives are
carried at fair value with unrealized gains recorded in the statement of income.
Both of the positions mature during the second quarter of 2001, and as such
should have a minimal future earnings impact. As of March 31, 2001, the notional
amount of these derivatives was $300 million and with a corresponding positive
fair value of $26 thousand.
7
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. June 26, 2001
------------------------
By: Robert S. McCoy, Jr.
Vice Chairman,
Chief Financial Officer
and Treasurer
/s/ David L. Gaines June 26, 2001
------------------------
By: David L. Gaines
Comptroller
8