1997 FORM 10-Q
United States Securities and Exchange Commission
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997
Commission File Number 1-9021
WACHOVIA CORPORATION
Incorporated in the State of North Carolina
IRS Employer Identification Number 56-1473727
Address and Telephone:
100 North Main Street, Winston-Salem, North Carolina 27101, (910)
770-5000
191 Peachtree Street NE, Atlanta, Georgia 30303, (404) 332-5000
Securities registered pursuant to Section 12(b) of the Act: Common
Stock -- $5.00 par value, which is registered on the New York Stock
Exchange.
As of March 31, 1997, Wachovia Corporation had 161,558,786 shares
of common stock outstanding.
Wachovia Corporation (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the financial supplement for the quarter ended March
31, 1997 are incorporated by reference into Parts I and II as indicated
in the table below. Except for parts of the Wachovia Corporation
Financial Supplement expressly incorporated herein by reference, this
Financial Supplement is not to be deemed filed with the Securities and
Exchange Commission.
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS (UNAUDITED) PAGE
Selected Period-End Data.........................3
Common Stock Data -- Per Share...................3
Consolidated Statements of Condition............22
Consolidated Statements of Income...............23
Consolidated Statements of
Shareholders' Equity.........................24
Consolidated Statements of Cash Flows...........25
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................4-21
1997 FORM 10-Q-CONTINUED
PART II OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
a) 3.2 Bylaws of the Registrant as amended.
4 Instruments defining the rights of security holders,
including indentures.*
4.1 Indenture between Wachovia Corporation, Wachovia
Capital Trust II and First National Bank of Chicago,
as Trustee, relating to Floating Rate Junior
Subordinated Deferrable Interest Debentures (Junior
Subordinated Debentures). (Exhibit 4 (c) of Amendment
No. 1 to Form S-3 Registration Statement of Wachovia
Corporation and Wachovia Capital Trust II dated
January 22, 1997, File No. 333-19365.)
4.2 Amended and Restated Declaration of Trust of Wachovia
Capital Trust II, relating to Preferred Securities
(Exhibit 4 (b) (iv) of Amendment No. 1 to Form S-3
Registration Statement of Wachovia Corporation and
Wachovia Capital Trust II dated January 22, 1997, File
No. 333-19365).
4.3 Preferred Securities Guarantee Agreement of Wachovia
Corporation (Exhibit 4 (g) of Amendment No. 1 to Form
S-3 Registration Statement of Wachovia Corporation and
Wachovia Capital Trust II dated January 22, 1997, File
No. 333-19365).
10 Amended and Restated Employment Agreements with L.M.
Baker, Jr., G. Joseph Prendergast, Walter E. Leonard,
Jr., and Robert S. McCoy, Jr.
11 "Computation of Earnings per Common Share" is
presented as Table 3 on page 6 of the first quarter
1997 financial supplement.
12 Statement setting forth computation of ratio of
earnings to fixed charges.
19 "Unaudited Consolidated Financial Statements," listed
in Part I, Item 1 do not include all information and
footnotes required under generally accepted accounting
principles. However, in the opinion of management, the
profit and loss information presented in the interim
financial statements reflects all adjustments
necessary to present fairly the results of operations
for the periods presented. Adjustments reflected in
the first quarter of 1997 figures are of a normal,
recurring nature. The results of operations shown in
the interim statements are not necessarily indicative
of the results that may be expected for the entire
year.
27 Financial Data Schedule (for SEC purposes only).
b) Reports on Form 8-K: No reports on Form 8-K were filed
during the three months ended March 31, 1997.
*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.
SIGNATURES
Pursuant to the requirements to Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WACHOVIA CORPORATION
May 14, 1997 ROBERT S. McCOY, JR.
Robert S. McCoy, Jr.
Executive Vice President
and Chief Financial Officer
May 14, 1997 DONALD K. TRUSLOW
Donald K. Truslow
Comptroller
(WACHOVIA LOGO APPEARS HERE)
FINANCIAL SUPPLEMENT
AND FORM 10-Q
FIRST QUARTER 1997
WACHOVIA CORPORATION DIRECTORS AND OFFICERS
DIRECTORS
L. M. BAKER, JR.
President and
Chief Executive Officer
JOHN G. MEDLIN, JR.
Chairman of the Board
JOHN L. CLENDENIN
Chairman of the Board
BellSouth Corporation
LAWRENCE M. GRESSETTE, JR.
Chairman of the
Executive Committee
SCANA Corporation
THOMAS K. HEARN, JR.
President
Wake Forest University
GEORGE W. HENDERSON III
President and
Chief Executive Officer
Burlington Industries, Inc.
W. HAYNE HIPP
President and
Chief Executive Officer
The Liberty Corporation
ROBERT M. HOLDER, JR.
Chairman
RMH Group, LLC
ROBERT A. INGRAM
President and
Chief Executive Officer
Glaxo Wellcome Inc.
JAMES W. JOHNSTON
President and
Chief Executive Officer
Stonemarker Enterprises, Inc.
WYNDHAM ROBERTSON
Writer and Retired
Vice President, Communications
University of North Carolina
HERMAN J. RUSSELL
Chairman of the Board
H.J. Russell & Company
SHERWOOD H. SMITH, JR.
Chairman of the Board
Carolina Power & Light Company
JOHN C. WHITAKER, JR.
Chairman and
Chief Executive Officer
Inmar Enterprises, Inc.
PRINCIPAL CORPORATE OFFICERS
L. M. BAKER, JR.
President and
Chief Executive Officer
MICKEY W. DRY
Executive Vice President
Chief Credit Officer
HUGH M. DURDEN
Executive Vice President
Corporate Services
WALTER E. LEONARD, JR.
Executive Vice President
Operations/Technology
KENNETH W. MCALLISTER
Executive Vice President
General Counsel/Administrative
ROBERT S. MCCOY, JR.
Executive Vice President
Chief Financial Officer
G. JOSEPH PRENDERGAST
Executive Vice President
General Banking
RICHARD B. ROBERTS
Executive Vice President
Treasurer
SELECTED PERIOD-END DATA
March 31 March 31
1997 1996
Banking offices:
North Carolina..................................................................................... 219 219
Georgia............................................................................................ 123 123
South Carolina..................................................................................... 131 144
Total........................................................................................... 473 486
Automated banking machines:
North Carolina..................................................................................... 374 331
Georgia............................................................................................ 232 208
South Carolina..................................................................................... 224 190
Total........................................................................................... 830 729
Employees (full-time equivalent)..................................................................... 16,433 16,191
Common stock shareholders of record.................................................................. 32,402 27,833
Common shares outstanding (thousands)................................................................ 161,559 168,968
COMMON STOCK DATA -- PER SHARE
1997 1996
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
Market value:
Period-end............................................................ $54 1/2 $56 1/2 $49 1/2 $43 3/4 $44 3/4
High.................................................................. 64 5/8 60 1/4 49 7/8 46 1/4 48 3/8
Low................................................................... 54 1/2 48 3/4 39 5/8 40 7/8 41 1/4
Book value at period-end................................................ 22.75 22.96 22.57 22.18 22.07
Dividend................................................................ .40 .40 .40 .36 .36
Price/earnings ratio*................................................... 13.9 X 14.8 x 13.6 x 12.4 x 12.6 x
*Based on most recent twelve months net income per primary share and period-end
stock price
FINANCIAL INFORMATION
Analysts, investors and others seeking additional financial information about
Wachovia Corporation or its member companies should contact the following either
by phone or in writing.
Robert S. McCoy, Jr., Chief Financial Officer, (910) 732-5926
James C. Mabry, Investor Relations Manager, (910) 732-5788
Wachovia Corporation
P.O. Box 3099
Winston-Salem, NC 27150
Common Stock Listing -- New York Stock Exchange, ticker symbol - WB
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL SUMMARY TABLE 1
Twelve
Months
Ended 1997 1996
March 31 First Fourth Third Second
1997 Quarter Quarter Quarter Quarter
SUMMARY OF OPERATIONS
(thousands, except per share data)
Interest income -- taxable equivalent...... $3,332,121 $837,010 $842,365 $842,109 $810,637
Interest expense........................... 1,677,229 417,955 421,079 426,723 411,472
Net interest income -- taxable
equivalent............................... 1,654,892 419,055 421,286 415,386 399,165
Taxable equivalent adjustment.............. 65,126 14,086 16,246 16,880 17,914
Net interest income........................ 1,589,766 404,969 405,040 398,506 381,251
Provision for loan losses.................. 170,575 47,998 47,443 40,730 34,404
Net interest income after provision for
loan losses.............................. 1,419,191 356,971 357,597 357,776 346,847
Other operating revenue.................... 801,474 201,665 203,436 197,778 198,595
Investment securities gains (losses)....... 3,373 335 2,864 393 (219)
Total other income......................... 804,847 202,000 206,300 198,171 198,376
Personnel expense.......................... 667,011 174,104 167,236 165,509 160,162
Other expense.............................. 606,429 150,032 155,502 150,970 149,925
Total other expense........................ 1,273,440 324,136 322,738 316,479 310,087
Income before income taxes................. 950,598 234,835 241,159 239,468 235,136
Applicable income taxes*................... 292,829 71,753 70,431 74,872 75,773
Net income................................. $ 657,769 $163,082 $170,728 $164,596 $159,363
Net income per common share:
Primary.................................. $ 3.93 $ .99 $ 1.02 $ .98 $ .94
Fully diluted............................ $ 3.92 $ .99 $ 1.02 $ .97 $ .94
Cash dividends paid per common share....... $ 1.56 $ .40 $ .40 $ .40 $ .36
Cash dividends paid on common stock........ $ 258,777 $ 65,408 $ 66,016 $ 66,669 $ 60,684
Cash dividend payout ratio................. 39.3% 40.1% 38.7% 40.5% 38.1%
Average primary shares outstanding......... 167,600 165,432 167,118 167,966 169,861
Average fully diluted shares outstanding... 167,769 165,441 167,281 168,354 169,972
SELECTED AVERAGE BALANCES (millions)
Total assets............................... $ 45,614 $ 45,984 $ 45,737 $ 45,778 $ 44,956
Loans -- net of unearned income............ 30,810 31,481 31,101 30,660 30,004
Investment securities**.................... 8,495 8,327 8,251 8,734 8,668
Other interest-earning assets.............. 1,447 1,242 1,409 1,611 1,519
Total interest-earning assets.............. 40,752 41,050 40,761 41,005 40,191
Interest-bearing deposits.................. 21,111 22,034 21,211 20,873 20,335
Short-term borrowed funds.................. 7,858 7,444 7,668 8,099 8,216
Long-term debt............................. 6,176 5,910 6,206 6,454 6,129
Total interest-bearing liabilities......... 35,145 35,388 35,085 35,426 34,680
Noninterest-bearing deposits............... 5,489 5,518 5,604 5,408 5,426
Total deposits............................. 26,599 27,552 26,815 26,281 25,761
Shareholders' equity....................... 3,650 3,653 3,671 3,631 3,644
RATIOS (averages)
Annualized net loan losses to loans........ .55% .61% .61% .53% .46%
Annualized net yield on interest-earning
assets................................... 4.06 4.14 4.11 4.03 3.99
Shareholders' equity to:
Total assets............................. 8.00 7.94 8.03 7.93 8.11
Net loans................................ 12.00 11.75 11.96 12.00 12.31
Annualized return on assets................ 1.44 1.42 1.49 1.44 1.42
Annualized return on shareholders'
equity................................... 18.02 17.86 18.60 18.13 17.49
1996
First
Quarter
SUMMARY OF OPERATIONS
(thousands, except per share data)
Interest income -- taxable equivalent...... $802,120
Interest expense........................... 413,328
Net interest income -- taxable
equivalent............................... 388,792
Taxable equivalent adjustment.............. 18,877
Net interest income........................ 369,915
Provision for loan losses.................. 27,334
Net interest income after provision for
loan losses.............................. 342,581
Other operating revenue.................... 184,105
Investment securities gains (losses)....... 698
Total other income......................... 184,803
Personnel expense.......................... 161,618
Other expense.............................. 146,627
Total other expense........................ 308,245
Income before income taxes................. 219,139
Applicable income taxes*................... 69,269
Net income................................. $149,870
Net income per common share:
Primary.................................. $ .87
Fully diluted............................ $ .87
Cash dividends paid per common share....... $ .36
Cash dividends paid on common stock........ $ 61,089
Cash dividend payout ratio................. 40.8%
Average primary shares outstanding......... 171,467
Average fully diluted shares outstanding... 171,653
SELECTED AVERAGE BALANCES (millions)
Total assets............................... $ 44,435
Loans -- net of unearned income............ 29,218
Investment securities**.................... 8,795
Other interest-earning assets.............. 1,594
Total interest-earning assets.............. 39,607
Interest-bearing deposits.................. 20,666
Short-term borrowed funds.................. 8,055
Long-term debt............................. 5,487
Total interest-bearing liabilities......... 34,208
Noninterest-bearing deposits............... 5,372
Total deposits............................. 26,038
Shareholders' equity....................... 3,687
RATIOS (averages)
Annualized net loan losses to loans........ .37%
Annualized net yield on interest-earning
assets................................... 3.95
Shareholders' equity to:
Total assets............................. 8.30
Net loans................................ 12.80
Annualized return on assets................ 1.35
Annualized return on shareholders'
equity................................... 16.26
*Income taxes applicable to securities transactions were $1,378, $134, $1,181,
$149, ($86) and $278, respectively
**Reported at amortized cost; excludes pretax unrealized gains on securities
available-for-sale of $62, $60, $74, $40, $74 and $188, respectively
4
RESULTS OF OPERATIONS
OVERVIEW
Wachovia Corporation ("Wachovia") is a southeastern interstate
bank holding company with dual headquarters in Atlanta, Georgia,
and Winston-Salem, North Carolina. Principal banking subsidiaries
are Wachovia Bank of Georgia, N.A., Wachovia Bank of North
Carolina, N.A., and Wachovia Bank of South Carolina, N.A. The
First National Bank of Atlanta provides credit card services for
Wachovia's affiliated banks. Pending regulatory approval, the
corporation plans to merge its three principal banks under a
single charter with the surviving entity being Wachovia Bank, N.A.
Regulatory approval is expected on or after June 1, 1997.
During the first quarter of 1997, the economy continued to
expand, rising at a strong annualized rate of 5.6 percent from the
preceding three-month period. Concerns over the sustained pace of
economic growth led the Federal Reserve to lift short-term
interest rates one-quarter of a percent. Within Wachovia's three
primary operating states of Georgia, North Carolina and South
Carolina, economic conditions remained generally favorable.
Unemployment for the period averaged 4.7 percent in Georgia, 3.7
percent in North Carolina and 5.4 percent in South Carolina
compared with 5.3 percent for the U.S.
Wachovia's net income for the first quarter was $163.082
million or $.99 per fully diluted share versus $149.870 million or
$.87 per fully diluted share in the same three months of 1996. The
increase in earnings reflected good growth in both net interest
income and other operating revenue, with fewer shares outstanding
also contributing to the rise on a per share basis. Net income
represented annualized returns of 17.86 percent on shareholders'
equity and 1.42 percent on assets compared with 16.26 percent and
1.35 percent, respectively, a year earlier.
Expanded discussion of operating results and the corporation's
financial condition is presented in the following narrative with
accompanying tables. Interest income is stated on a taxable
equivalent basis which is adjusted for the tax-favored status of
earnings from certain loans and investments. References to changes
in assets and liabilities represent daily average levels unless
otherwise noted.
5
COMPONENTS OF EARNINGS PER PRIMARY SHARE TABLE 2
1997 1996
First First
Quarter Quarter Change
Interest income -- taxable equivalent.................................. $5.06 $4.68 $.38
Interest expense....................................................... 2.53 2.41 .12
Net interest income -- taxable equivalent.............................. 2.53 2.27 .26
Taxable equivalent adjustment.......................................... .08 .11 (.03)
Net interest income.................................................... 2.45 2.16 .29
Provision for loan losses.............................................. .29 .16 .13
Net interest income after provision
for loan losses...................................................... 2.16 2.00 .16
Other operating revenue................................................ 1.22 1.07 .15
Investment securities gains (losses)................................... -- -- --
Total other income..................................................... 1.22 1.07 .15
Personnel expense...................................................... 1.05 .94 .11
Other expense.......................................................... .91 .86 .05
Total other expense.................................................... 1.96 1.80 .16
Income before income taxes............................................. 1.42 1.27 .15
Applicable income taxes................................................ .43 .40 .03
Net income............................................................. $ .99 $ .87 $.12
COMPUTATION OF EARNINGS PER COMMON SHARE TABLE 3
(thousands, except per share)
Three Months Three Months
Ended Ended
March 31 March 31
1997 1996
PRIMARY
Average common shares outstanding.......................................... 163,026 169,710
Dilutive common stock options -- based on treasury
stock method using average market price.................................. 2,237 1,650
Dilutive common stock awards -- based on treasury
stock method using average market price.................................. 169 107
Average primary shares outstanding......................................... 165,432 171,467
Net income................................................................. $163,082 $149,870
Net income per common share -- primary..................................... $ .99 $ .87
FULLY DILUTED
Average common shares outstanding.......................................... 163,026 169,710
Dilutive common stock options -- based on treasury
stock method using higher of period-end
market price or average market price..................................... 2,237 1,650
Dilutive common stock awards -- based on treasury
stock method using higher of period-end
market price or average market price..................................... 169 107
Convertible notes assumed converted........................................ 9 186
Average fully diluted shares outstanding................................... 165,441 171,653
Net income................................................................. $163,082 $149,870
Add interest on convertible notes after taxes.............................. 2 23
Adjusted net income........................................................ $163,084 $149,893
Net income per common share -- fully diluted............................... $ .99 $ .87
6
NET INTEREST INCOME
Taxable equivalent net interest income for the first quarter
of 1997 rose $30.263 million or 7.8 percent from the same period a
year earlier. The increase reflected good loan growth, a higher
average earning yield and a more favorable funding mix, with time
deposits continuing to expand while short-term borrowings
moderated. Compared with the fourth quarter of 1996, taxable
equivalent net interest income decreased $2.231 million or less
than 1 percent largely due to the impact of two fewer accrual days
in the first quarter. The net yield on interest-earning assets
(taxable equivalent net interest income as a percentage of average
interest-earning assets) improved 19 basis points year over year
and was higher by 3 basis points from the preceding three months.
Taxable equivalent interest income was up $34.890 million or
4.3 percent from the year-earlier quarter. The rise was driven by
greater loan volume, including increases in the higher-yielding
consumer portfolio. Loans expanded $2.263 billion or 7.7 percent
with the average rate earned improving 16 basis points compared
with total interest-earning asset growth of $1.443 billion or 3.6
percent and an increase of 12 basis points in the average rate
earned. Taxable equivalent interest income was lower by $5.355
million or under 1 percent from the fourth quarter of 1996,
reflecting the shorter accrual period in the first three months of
the year. Growth of interest-earning assets, particularly loans,
remained good, however, with loans increasing $380 million or an
annualized 4.8 percent from the prior quarter and the average rate
earned on loans higher by 6 basis points.
Consumer loans, including residential mortgages, rose $1.193
billion or 10.1 percent year over year. Gains were paced primarily
by credit cards, up $837 million or 21.1 percent, and by
residential mortgages, which increased $431 million or 10.2
percent, reflecting growth in bank equity loans and adjustable
rate mortgages. Direct retail loans and other revolving credit
expanded modestly, while indirect retail loans, consisting
primarily of automobile sales financing, decreased $109 million or
4.2 percent. At March 31, 1997, managed credit card outstandings
totaled $5.428 billion compared with $4.593 billion one year
earlier and $5.444 billion at December 31, 1996. Managed credit
card outstandings at each period-end included $625 million of net
securitized loans.
Commercial loans, including related real estate categories,
were up $1.070 billion or 6.2 percent, led by continued strong
demand in the real estate portfolio. Commercial mortgages
increased $480 million or 12.1 percent. Construction loans grew
$344 million or 49.6 percent. Good gains also occurred in lease
financing and in regular commercial loans, while tax-exempt loans
declined due to the reduced availability of tax-exempt borrowing
and lending at acceptable yields. At March 31, 1997, commercial
real estate loans, based on regulatory definitions, were $5.550
billion or 17 percent of total loans versus $4.714 billion or 15.8
percent one year earlier and $5.329 billion or 17 percent at
fourth quarter-end 1996. Regulatory definitions for commercial
real estate loans include loans which have real estate as the
collateral but not the primary consideration in a credit risk
evaluation.
Period-end loans by category as of March 31, 1997 and the
preceding four quarters are presented in the following table.
March 31 Dec. 31 Sept. 30 June 30
$ THOUSANDS 1997 1996 1996 1996
Commercial................ $10,903,268 $ 9,661,757 $10,517,396 $10,280,931
Tax-exempt................ 1,752,655 1,936,785 1,998,718 2,047,475
Total commercial..... 12,655,923 11,598,542 12,516,114 12,328,406
Direct retail............. 752,091 782,478 772,947 767,154
Indirect retail........... 2,438,554 2,491,029 2,562,665 2,582,142
Credit card............... 4,802,836 4,819,197 4,377,293 4,180,440
Other revolving credit.... 355,699 359,594 355,254 358,636
Total retail......... 8,349,180 8,452,298 8,068,159 7,888,372
Construction.............. 1,075,005 979,649 874,928 808,866
Commercial mortgages...... 4,474,620 4,349,438 4,296,306 4,130,537
Residential mortgages..... 4,657,805 4,644,858 4,546,274 4,405,219
Total real estate.... 10,207,430 9,973,945 9,717,508 9,344,622
Lease financing........... 840,833 822,703 745,673 644,087
Foreign................... 516,890 435,704 501,349 467,154
Total loans.......... $32,570,256 $31,283,192 $31,548,803 $30,672,641
March 31
$ THOUSANDS 1996
Commercial................ $10,077,465
Tax-exempt................ 2,135,806
Total commercial..... 12,213,271
Direct retail............. 730,804
Indirect retail........... 2,612,568
Credit card............... 3,967,603
Other revolving credit.... 349,897
Total retail......... 7,660,872
Construction.............. 731,630
Commercial mortgages...... 3,982,332
Residential mortgages..... 4,256,396
Total real estate.... 8,970,358
Lease financing........... 583,403
Foreign................... 441,087
Total loans.......... $29,868,991
7
NET INTEREST INCOME AND AVERAGE BALANCES TABLE 4
Twelve
Months
Ended 1997 1996
March 31 First Fourth Third Second
1997 Quarter Quarter Quarter Quarter
NET INTEREST INCOME -- TAXABLE
EQUIVALENT (thousands)
Interest income:
Loans................................... $2,642,844 $674,907 $674,328 $661,220 $632,389
Investment securities................... 602,960 146,060 147,020 155,485 154,395
Interest-bearing bank balances.......... 24,448 360 5,501 9,329 9,258
Federal funds sold and securities
purchased under resale agreements..... 10,526 2,203 1,893 3,275 3,155
Trading account assets.................. 51,343 13,480 13,623 12,800 11,440
Total................................ 3,332,121 837,010 842,365 842,109 810,637
Interest expense:
Interest-bearing demand................. 45,929 11,432 12,044 11,537 10,916
Savings and money market savings........ 288,203 79,351 75,359 68,561 64,932
Savings certificates.................... 367,509 89,091 92,584 94,149 91,685
Large denomination certificates......... 130,992 34,889 29,470 33,770 32,863
Time deposits in foreign offices........ 59,198 17,357 17,132 13,676 11,033
Short-term borrowed funds............... 415,773 95,069 100,949 109,725 110,030
Long-term debt.......................... 369,625 90,766 93,541 95,305 90,013
Total................................ 1,677,229 417,955 421,079 426,723 411,472
Net interest income....................... $1,654,892 $419,055 $421,286 $415,386 $399,165
Annualized net yield on
interest-earning assets................. 4.06% 4.14% 4.11% 4.03% 3.99%
AVERAGE BALANCES (millions)
Assets:
Loans -- net of unearned income......... $ 30,810 $ 31,481 $ 31,101 $ 30,660 $ 30,004
Investment securities................... 8,495 8,327 8,251 8,734 8,668
Interest-bearing bank balances.......... 312 28 276 478 462
Federal funds sold and securities
purchased under resale agreements..... 194 164 138 240 232
Trading account assets.................. 941 1,050 995 893 825
Total interest-earning assets........ 40,752 41,050 40,761 41,005 40,191
Cash and due from banks................. 2,522 2,558 2,576 2,434 2,521
Premises and equipment.................. 639 639 632 642 643
Other assets............................ 2,041 2,079 2,095 2,059 1,931
Unrealized gains (losses) on securities
available-for-sale.................... 62 60 74 40 74
Allowance for loan losses............... (402) (402) (401) (402) (404)
Total assets......................... $ 45,614 $ 45,984 $ 45,737 $ 45,778 $ 44,956
Liabilities and shareholders' equity:
Interest-bearing demand................. $ 3,294 $ 3,297 $ 3,354 $ 3,253 $ 3,272
Savings and money market savings........ 7,924 8,394 8,072 7,733 7,505
Savings certificates.................... 6,506 6,426 6,510 6,598 6,487
Large denomination certificates......... 2,262 2,586 1,989 2,256 2,222
Time deposits in foreign offices........ 1,125 1,331 1,286 1,033 849
Short-term borrowed funds............... 7,858 7,444 7,668 8,099 8,216
Long-term debt.......................... 6,176 5,910 6,206 6,454 6,129
Total interest-bearing liabilities... 35,145 35,388 35,085 35,426 34,680
Demand deposits in domestic offices....... 5,484 5,515 5,599 5,402 5,419
Demand deposits in foreign offices........ 1 -- -- 1 2
Noninterest-bearing time deposits in
domestic offices........................ 4 3 5 5 5
Other liabilities......................... 1,330 1,425 1,377 1,313 1,206
Shareholders' equity...................... 3,650 3,653 3,671 3,631 3,644
Total liabilities and shareholders'
equity............................... $ 45,614 $ 45,984 $ 45,737 $ 45,778 $ 44,956
Total deposits............................ $ 26,600 $ 27,552 $ 26,815 $ 26,281 $ 25,761
1996
First
Quarter
NET INTEREST INCOME -- TAXABLE
EQUIVALENT (thousands)
Interest income:
Loans................................... $619,722
Investment securities................... 157,631
Interest-bearing bank balances.......... 9,018
Federal funds sold and securities
purchased under resale agreements..... 3,250
Trading account assets.................. 12,499
Total................................ 802,120
Interest expense:
Interest-bearing demand................. 12,669
Savings and money market savings........ 64,980
Savings certificates.................... 91,467
Large denomination certificates......... 39,634
Time deposits in foreign offices........ 13,101
Short-term borrowed funds............... 110,390
Long-term debt.......................... 81,087
Total................................ 413,328
Net interest income....................... $388,792
Annualized net yield on
interest-earning assets................. 3.95%
AVERAGE BALANCES (millions)
Assets:
Loans -- net of unearned income......... $ 29,218
Investment securities................... 8,795
Interest-bearing bank balances.......... 456
Federal funds sold and securities
purchased under resale agreements..... 241
Trading account assets.................. 897
Total interest-earning assets........ 39,607
Cash and due from banks................. 2,612
Premises and equipment.................. 633
Other assets............................ 1,802
Unrealized gains (losses) on securities
available-for-sale.................... 188
Allowance for loan losses............... (407)
Total assets......................... $ 44,435
Liabilities and shareholders' equity:
Interest-bearing demand................. $ 3,314
Savings and money market savings........ 7,285
Savings certificates.................... 6,401
Large denomination certificates......... 2,675
Time deposits in foreign offices........ 991
Short-term borrowed funds............... 8,055
Long-term debt.......................... 5,487
Total interest-bearing liabilities... 34,208
Demand deposits in domestic offices....... 5,365
Demand deposits in foreign offices........ 4
Noninterest-bearing time deposits in
domestic offices........................ 3
Other liabilities......................... 1,168
Shareholders' equity...................... 3,687
Total liabilities and shareholders'
equity............................... $ 44,435
Total deposits............................ $ 26,038
8
Reflecting continued good loan growth and ongoing balance
sheet management, investment securities decreased $468 million or
5.3 percent from the year-earlier quarter. Held-to-maturity
securities were lower by $236 million or 14.9 percent and
available-for-sale securities declined $232 million or 3.2
percent. Investment securities were up modestly from the fourth
quarter of 1996 with management increasing the portfolio in
anticipation of additional future runoff. At March 31, 1997,
securities available-for-sale totaled $7.144 billion and
securities held-to-maturity were $1.326 billion as shown below.
$ IN THOUSANDS
Securities available-for-sale at market value:
U.S. Government and agency......................................................................$5,291,719
Mortgage-backed securities...................................................................... 1,452,111
Other........................................................................................... 400,345
Total securities available-for-sale.......................................................... 7,144,175
Securities held-to-maturity:
Mortgage-backed securities...................................................................... 1,097,808
State and municipal............................................................................. 225,523
Other........................................................................................... 2,225
Total securities held-to-maturity............................................................ 1,325,556
Total investment securities..................................................................$8,469,731
Securities held-to-maturity had a market value of $1.378
billion at March 31, 1997, representing a $52 million appreciation
over book value. Securities available-for-sale marked to fair
market value had an unrealized gain of $12.536 million, pretax,
and $8.170 million, net of tax, on the same date. Average
securities available-for-sale for the first quarter of 1997 had an
unrealized gain of $60.643 million, pretax, and $37.350 million,
net of tax.
Interest expense for the quarter increased $4.627 million or
1.1 percent from a year earlier. The modest rise reflected higher
levels of interest-bearing liabilities moderated by a more
favorable mix of funding sources. Interest-bearing liabilities
increased $1.180 billion or 3.4 percent while the average rate
paid declined 7 basis points. Compared with the fourth quarter of
1996, interest expense was lower by $3.124 million or less than 1
percent due to two fewer accrual days, with interest-bearing
liabilities rising $303 million or an annualized 3.6 percent and
the average rate paid up 2 basis points.
To further broaden its funding base, the corporation is
issuing a variety of debt and equity instruments while continuing
innovative marketing for traditional funding sources. This
includes a global bank note program, the issuance of senior debt
and trust capital securities and greater reliance on money market
instruments, such as the corporation's Premiere account.
Management believes that continued flexibility and innovation will
be required by financial institutions to attract future funding
through deposit products and alternative sources.
Time deposits grew $1.368 billion or 6.6 percent year over
year and represented 62.3 percent of total interest-bearing
liabilities versus 60.4 percent in the year-earlier quarter and
60.5 percent in the fourth period of 1996. Gains were led
principally by savings and money market savings, which rose $1.109
billion or 15.2 percent, and by foreign time deposits, up $340
million or 34.3 percent. Growth in savings and money market
savings reflected continued good increases in the corporation's
Premiere account, a federally insured savings account offering
interest rates competitive with money market rates. Time deposits
were higher by $823 million or 3.9 percent from the preceding
quarter, with growth occurring primarily in large denomination
certificates and in savings and money market savings.
Short-term borrowings declined $611 million or 7.6 percent
from the year-earlier period and were lower by $224 million or 2.9
percent from the preceding three months. Decreases from both
periods reflected lower levels of federal funds purchased and
securities sold under repurchase agreements and of other
short-term borrowings, which consist mainly of short-term bank
notes.
Long-term debt rose $423 million or 7.7 percent year over
year, reflecting growth in other long-term debt as medium-term
bank note borrowings moderated. Compared with the fourth quarter
of 1996, long-term debt was lower by $296 million or 4.8 percent.
9
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS -- FIRST QUARTER* TABLE 5
Variance
Attributable
Average Volume Average Rate Interest to
1997 1996 1997 1996 1997 1996 Variance Rate
(Millions) INTEREST INCOME (Thousands)
Loans:
$ 9,866 $ 9,609 7.17 7.12 Commercial..................... $174,509 $170,217 $ 4,292 $ 885
1,779 2,149 8.96 8.95 Tax-exempt..................... 39,318 47,829 (8,511) 51
11,645 11,758 7.45 7.46 Total commercial............... 213,827 218,046 (4,219) (514)
763 734 9.39 9.36 Direct retail.................. 17,679 17,068 611 45
2,479 2,588 8.56 8.27 Indirect retail................ 52,354 53,193 (839) 1,643
4,795 3,958 12.59 11.57 Credit card.................... 148,865 113,856 35,009 10,240
358 353 12.17 12.37 Other revolving credit......... 10,730 10,857 (127) (226)
8,395 7,633 11.09 10.27 Total retail................... 229,628 194,974 34,654 15,319
1,037 693 9.23 9.19 Construction................... 23,575 15,848 7,727 67
4,443 3,963 8.19 8.30 Commercial mortgages........... 89,784 81,807 7,977 (1,160)
4,662 4,231 7.98 8.48 Residential mortgages.......... 91,749 89,204 2,545 (5,702)
10,142 8,887 8.20 8.46 Total real estate.............. 205,108 186,859 18,249 (6,131)
831 530 8.98 9.57 Lease financing................ 18,406 12,614 5,792 (829)
468 410 6.88 7.09 Foreign........................ 7,938 7,229 709 (229)
31,481 29,218 8.69 8.53 Total loans.................... 674,907 619,722 55,185 10,685
Investment securities:
Held-to-maturity:
-- -- -- -- U.S. Government and agency..... -- -- -- --
1,105 1,269 8.08 8.06 Mortgage-backed securities..... 22,012 25,442 (3,430) 59
236 308 11.22 11.15 State and municipal............ 6,529 8,538 (2,009) 51
2 2 12.98 9.89 Other.......................... 60 57 3 15
Total securities
1,343 1,579 8.64 8.67 held-to-maturity....... 28,601 34,037 (5,436) (122)
Available-for-sale:**
5,096 5,553 6.73 6.87 U.S. Government and agency..... 84,617 94,790 (10,173) (2,005)
1,493 1,499 7.20 7.07 Mortgage-backed securities..... 26,498 26,340 158 292
395 164 6.52 6.04 Other.......................... 6,344 2,464 3,880 206
Total securities
6,984 7,216 6.82 6.89 available-for-sale..... 117,459 123,594 (6,135) (1,461)
8,327 8,795 7.11 7.21 Total investment securities.... 146,060 157,631 (11,571) (2,372)
Interest-bearing bank
28 456 5.18 7.95 balances....................... 360 9,018 (8,658) (2,330)
Federal funds sold and
securities purchased under
164 241 5.43 5.43 resale agreements............ 2,203 3,250 (1,047) --
1,050 897 5.20 5.60 Trading account assets......... 13,480 12,499 981 (963)
Total interest-earning
$41,050 $39,607 8.27 8.15 assets......................... 837,010 802,120 34,890 9,987
INTEREST EXPENSE
$ 3,297 $ 3,314 1.41 1.54 Interest-bearing demand........ 11,432 12,669 (1,237) (1,166)
Savings and money market
8,394 7,285 3.67 3.59 savings........................ 79,351 64,980 14,371 4,362
6,426 6,401 5.62 5.75 Savings certificates........... 89,091 91,467 (2,376) (2,635)
Large denomination
2,586 2,675 5.47 5.96 certificates................... 34,889 39,634 (4,745) (3,373)
Total time deposits in
20,703 19,675 4.13 4.27 domestic offices....... 214,763 208,750 6,013 (3,329)
Time deposits in foreign
1,331 991 5.29 5.31 offices........................ 17,357 13,101 4,256 (51)
22,034 20,666 4.20 4.32 Total time deposits...... 232,120 221,851 10,269 (2,825)
Federal funds purchased and
securities sold under
5,841 5,960 5.18 5.55 repurchase agreements........ 74,553 82,301 (7,748) (5,943)
680 554 4.88 4.93 Commercial paper............... 8,183 6,790 1,393 (72)
Other short-term borrowed
923 1,541 5.41 5.56 funds.......................... 12,333 21,299 (8,966) (561)
Total short-term
7,444 8,055 5.18 5.51 borrowed funds......... 95,069 110,390 (15,321) (6,726)
3,558 4,155 6.03 5.73 Bank notes..................... 52,905 59,158 (6,253) 2,853
2,352 1,332 6.53 6.62 Other long-term debt........... 37,861 21,929 15,932 (305)
5,910 5,487 6.23 5.94 Total long-term debt..... 90,766 81,087 9,679 3,732
Total interest-bearing
$35,388 $34,208 4.74 4.86 liabilities............ 417,955 413,328 4,627 (6,996)
3.53 3.29 INTEREST RATE SPREAD
NET YIELD ON INTEREST-EARNING
ASSETS AND NET INTEREST
4.14 3.95 INCOME......................... $419,055 $388,792 $30,263 17,162
Variance
Attributable
to
Volume
INTEREST INCOME
Loans:
Commercial..................... $ 3,407
Tax-exempt..................... (8,562)
Total commercial............... (3,705)
Direct retail.................. 566
Indirect retail................ (2,482)
Credit card.................... 24,769
Other revolving credit......... 99
Total retail................... 19,335
Construction................... 7,660
Commercial mortgages........... 9,137
Residential mortgages.......... 8,247
Total real estate.............. 24,380
Lease financing................ 6,621
Foreign........................ 938
Total loans.................... 44,500
Investment securities:
Held-to-maturity:
U.S. Government and agency..... --
Mortgage-backed securities..... (3,489)
State and municipal............ (2,060)
Other.......................... (12)
Total securities
held-to-maturity....... (5,314)
Available-for-sale:**
U.S. Government and agency..... (8,168)
Mortgage-backed securities..... (134)
Other.......................... 3,674
Total securities
available-for-sale..... (4,674)
Total investment securities.... (9,199)
Interest-bearing bank
balances....................... (6,328)
Federal funds sold and
securities purchased under
resale agreements............ (1,047)
Trading account assets......... 1,944
Total interest-earning
assets......................... 24,903
INTEREST EXPENSE
Interest-bearing demand........ (71)
Savings and money market
savings........................ 10,009
Savings certificates........... 259
Large denomination
certificates................... (1,372)
Total time deposits in
domestic offices....... 9,342
Time deposits in foreign
offices........................ 4,307
Total time deposits...... 13,094
Federal funds purchased and
securities sold under
repurchase agreements........ (1,805)
Commercial paper............... 1,465
Other short-term borrowed
funds.......................... (8,405)
Total short-term
borrowed funds......... (8,595)
Bank notes..................... (9,106)
Other long-term debt........... 16,237
Total long-term debt..... 5,947
Total interest-bearing
liabilities............ 11,623
INTEREST RATE SPREAD
NET YIELD ON INTEREST-EARNING
ASSETS AND NET INTEREST
INCOME......................... 13,101
*Interest income and yields are presented on a fully taxable equivalent
basis using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense
**Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $60 million in 1997 and $188 million in 1996
10
Other long-term debt at March 31, 1997 included a total of
$600 million of 30-year trust capital securities issued in
December 1996 and January 1997 and $200 million of 10-year senior
debt fixed-rate notes issued in November 1996. The January 1997
issuance of trust capital securities was made by Wachovia Capital
Trust II (WCTII), a consolidated subsidiary, for $300 million of
floating rate capital securities due in 2027. WCTII invested the
proceeds of the capital securities, together with $9.280 million
paid by the corporation for WCTII's common securities, in $305.692
million, net of discount of $3.588 million, of the corporation's
floating rate junior subordinated deferrable interest debentures.
WCTII's sole asset is the junior subordinated deferrable interest
debentures which mature in 2027. The corporation has fully and
unconditionally guaranteed all of WCTII's obligations under the
capital securities. Additionally, the capital securities qualify
for inclusion in Tier I capital under the risk-based capital
guidelines. The trust capital securities are rated Aa3 by Moody's
and A+ by Standard & Poor's.
Medium-term bank notes are part of Wachovia Bank of North
Carolina's $16 billion global bank note program consisting of
short-term issues of 7 days to one year and medium-term issues of
greater than one year. Included in medium-term bank notes at March
31, 1997 were three issues placed in Europe in 1996: $500 million
of five-year floating rate notes issued in May; $100 million of
two-year fixed-rate notes issued in August; and $250 million of
12-year fixed-rate notes issued in October. All of the medium-term
bank notes are rated Aa2 by Moody's and AA+ by Standard & Poor's.
Gross deposits averaged $27.552 billion for the quarter, up
$1.514 billion or 5.8 percent from $26.038 billion a year earlier.
Collected deposits, net of float, averaged $25.675 billion, higher
by $1.477 billion or 6.1 percent from $24.198 billion in the same
three months of 1996.
ASSET AND LIABILITY MANAGEMENT, INTEREST RATE SENSITIVITY AND LIQUIDITY
MANAGEMENT
The corporation uses a number of tools to measure interest
rate risk, including simulating net interest income under various
rate scenarios, monitoring the change in present value of the
asset and liability portfolios under the same rate scenarios and
monitoring the difference or gap between rate sensitive assets and
liabilities over various time periods. Management believes that
rate risk is best measured by simulation modeling which calculates
expected net interest income based on projected interest-earning
assets, interest-bearing liabilities, off-balance sheet financial
instruments and interest rates.
The corporation monitors exposure to a gradual change in rates
of 200 basis points up or down over a rolling 12-month period and
an interest rate shock of an instantaneous change in rates of 200
basis points up or down over the same period. From time to time,
the model horizon is expanded to a 24-month period. The
corporation policy limit for the maximum negative impact on net
interest income from a gradual change in interest rates of 200
basis points over 12 months is 7.5 percent. Management generally
has maintained a risk position well within the policy guideline
level. As of March 31, 1997, the model indicated the impact of a
200 basis point gradual rise in rates over 12 months would
approximate a 1.5 percent decrease in net interest income, while a
200 basis point decline in rates over the same period would
approximate a 1.3 percent increase from an unchanged rate
environment.
In addition to on-balance sheet instruments such as
investment securities and purchased funds, the corporation uses
off-balance sheet derivative instruments to manage interest rate
risk, liquidity and net interest income. Off-balance sheet
instruments include interest rate swaps, futures and options with
indices that directly correlate to on-balance sheet instruments.
The corporation has used off-balance sheet financial instruments,
principally interest rate swaps, over a number of years and
believes their use on a sound basis enhances the effectiveness of
asset and liability and interest rate sensitivity management.
Off-balance sheet asset and liability derivative
transactions are based on referenced or notional amounts. At March
31, 1997, the corporation had $2.360 billion notional amount of
derivatives outstanding for asset and liability management
purposes. Credit risk of off-balance sheet derivative financial
instruments is equal to the fair value gain of the instrument if a
counterparty fails to perform.
11
The credit risk is normally a small percentage of the notional
amount and fluctuates as interest rates move up or down. The
corporation mitigates this risk by subjecting the transactions to
the same rigorous approval and monitoring process as is used for
on-balance sheet credit transactions, by dealing in the national
market with highly rated counterparties, by executing transactions
under International Swaps and Derivatives Association Master
Agreements and by using collateral instruments to reduce exposure
where appropriate. Collateral is delivered by either party when
the fair value of a particular transaction or group of
transactions with the same counterparty on a net basis exceeds an
acceptable threshold of exposure. The threshold level is
determined based on the strength of the individual counterparty.
The fair value of all asset and liability derivative positions
for which the corporation was exposed to counterparties totaled $6
million at March 31, 1997. The fair value of all asset and
liability derivative positions for which counterparties were
exposed to the corporation amounted to $27 million on the same
date. Fair value details and additional asset and liability
derivative information are included in the following tables.
Estimated Fair Value of Asset and Liability Management Derivatives
by Purpose
March 31, 1997 March 31, 1996
Notional Fair Value Fair Value Net Fair Value Notional Net Fair Value
$ IN MILLIONS Value Gains (Losses) Gains (Losses) Value Gains (Losses)
Convert floating rate liabilities to
fixed:
Swaps-pay fixed/receive floating.... $ 164 $ 2 $ (2) $-- $ 116 $ (3)
Convert fixed rate assets to floating:
Swaps-pay fixed/receive floating.... 368 -- (4) (4) 387 (5)
Forward starting swaps-pay
fixed/receive floating............ 18 -- (1) (1) 39 (3)
Convert fixed rate liabilities to
floating:
Swaps-receive fixed/pay floating.... 950 1 (19) (18) 300 (1)
Convert liabilities with quarterly
rate resets to monthly:
Swaps-receive floating/pay
floating.......................... 300 -- -- -- -- --
Convert floating rate assets to fixed:
Swaps-receive fixed/pay floating.... 310 -- (1) (1) 167 1
Index amortizing swaps-receive
fixed/pay floating................ 250 3 -- 3 325 11
Total derivatives............... $2,360 $ 6 ($27) ($21) $1,334 $--
12
Maturity Schedule of Asset and Liability Management Derivatives
March 31, 1997
Within Over Average
One Two Three Four Five Five Life
Year Years Years Years Years Years Total (Years)
$ IN MILLIONS
Interest rate swaps:
Pay fixed/receive floating:
Notional amount.......................... $307 $ 116 $ 39 $ 4 $ 2 $ 64 $ 532 1.73
Weighted average rates received.......... 4.39% 5.55% 5.60 % 5.90% 6.24% 5.55% 4.90%
Weighted average rates paid.............. 7.22 6.15 6.48 9.01 9.06 7.87 7.04
Receive fixed/pay floating:
Notional amount.......................... $125 $ 152 $251 $ 103 $ 102 $ 527 $1,260 10.81
Weighted average rates received.......... 7.05% 6.57% 7.08 % 6.48% 7.12% 5.69% 6.39%
Weighted average rates paid.............. 5.59 5.65 5.52 5.51 5.58 5.83 5.68
Receive floating/pay floating:
Notional amount.......................... -- -- -- -- $ 300 -- $ 300 4.18
Weighted average rates received.......... -- -- -- -- 5.52% -- 5.52%
Weighted average rates paid.............. -- -- -- -- 5.44 -- 5.44
Index amortizing swaps:*
Receive fixed/pay floating:
Notional amount.......................... $196 $ 27 $ 7 $ 20 -- -- $ 250 1.09
Weighted average rates received.......... 8.13% 8.56% 8.56 % 8.56% -- -- 8.22%
Weighted average rates paid.............. 5.56 5.56 5.56 5.56 -- -- 5.56
Total interest rate swaps:
Notional amount............................ $628 $ 295 $297 $ 127 $ 404 $ 591 $2,342 6.86
Weighted average rates received............ 6.10% 6.35% 6.91 % 6.78% 5.93% 5.68% 6.14%
Weighted average rates paid................ 6.37 5.84 5.65 5.64 5.50 6.05 5.94
Forward starting interest rate swaps:
Notional amount............................ -- -- -- -- -- $ 18 $ 18 7.05
Weighted average rates paid................ -- -- -- -- -- 8.04% 8.04%
Total derivatives (notional amount).... $628 $ 295 $297 $ 127 $ 404 $ 609 $2,360 6.86
*Maturity is based upon expected average lives rather than
contractual lives.
Asset and liability transactions are accounted for following
hedge accounting rules. Accordingly, gains and losses related to
the fair value of derivative contracts used for asset and
liability management purposes are not immediately recognized in
earnings. If the hedged or altered balance sheet amounts were
marked to market, the resulting unrealized balance sheet gains or
losses could be expected to approximately offset unrealized
derivatives gains and losses.
To ensure the corporation is positioned to meet immediate and
future cash demands, management relies on liquidity analysis,
knowledge of business trends over past economic cycles and
forecasts of future conditions. Liquidity is maintained through a
strong balance sheet and operating performance that assures market
acceptance as well as through policy guidelines which limit the
level, maturity and concentration of noncore funding sources.
Through its balance sheet, the corporation generates liquidity
on the asset side by maintaining significant amounts of
available-for-sale investment securities, which may be sold at any
time, and by loans which may be securitized or sold. Additionally,
the corporation generates cash through deposit growth, the
issuance of bank notes, the availability of unused lines of credit
and through other forms of debt and equity instruments.
Through policy guidelines, the corporation limits net
purchased funds to 50 percent of long-term assets, which include
net loans and leases, investment securities with remaining
maturities over one year and net foreclosed real estate. Policy
guidelines insure against concentrations by maturity of noncore
funding sources by limiting the cumulative percentage of purchased
funds that mature overnight, within 30 days and within 90 days.
Guidelines also require the monitoring of significant
concentrations of funds by single sources and by type of borrowing
category.
13
NONPERFORMING ASSETS
Nonperforming assets at March 31, 1997 were $73.431 million or
.23 percent of period-end loans and foreclosed property. The total
was down $4.121 million or 5.3 percent from one year earlier and
decreased $4.059 million or 5.2 percent from December 31, 1996.
Declines from both periods principally reflected lower levels of
foreclosed property.
Included in total nonperforming assets at March 31, 1997 were
real estate nonperforming assets of $55.966 million or .55 percent
of real estate loans and foreclosed real estate. This compared
with $63.937 million or .71 percent at first quarter-close 1996
and with $59.109 million or .59 percent at December 31, 1996. Real
estate nonperforming loans were $45.752 million at March 31, 1997,
$49.547 million one year earlier and $49.898 million at year-end
1996.
Commercial real estate nonperforming assets were $29.766
million or .54 percent of related loans and foreclosed real estate
versus $33.370 million or .71 percent at March 31, 1996 and
$30.556 million or .57 percent at December 31, 1996. Included in
these totals were commercial real estate nonperforming loans of
$26.525 million at March 31, 1997, $29.815 million one year
earlier and $27.080 million at year-end 1996.
NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 6
(thousands)
March 31 Dec. 31 Sept. 30 June 30
1997 1996 1996 1996
NONPERFORMING ASSETS
Cash-basis assets -- domestic borrowers....................... $57,934 * $60,066 $61,283 $55,219
Restructured loans -- domestic................................ -- ** -- -- --
Total nonperforming loans............................... 57,934 60,066 61,283 55,219
Foreclosed property:
Foreclosed real estate...................................... 12,189 11,326 12,852 15,162
Less valuation allowance.................................... 1,975 2,115 2,165 2,656
Other foreclosed assets..................................... 5,283 8,213 6,180 4,920
Total foreclosed property............................... 15,497 17,424 16,867 17,426
Total nonperforming assets.............................. $73,431 *** $77,490 $78,150 $72,645
Nonperforming loans to period-end loans....................... .18% .19% .19% .18%
Nonperforming assets to period-end loans
and foreclosed property..................................... .23 .25 .25 .24
Period-end allowance for loan losses
times nonperforming loans................................... 7.07 X 6.81x 6.68 x 7.41x
Period-end allowance for loan losses
times nonperforming assets.................................. 5.57 5.28 5.24 5.63
CONTRACTUALLY PAST DUE LOANS
(accruing loans past due 90 days or more)
Domestic borrowers............................................ $54,717 $58,842 $53,304 $63,317
March 31
1996
NONPERFORMING ASSETS
Cash-basis assets -- domestic borrowers....................... $57,867
Restructured loans -- domestic................................ --
Total nonperforming loans............................... 57,867
Foreclosed property:
Foreclosed real estate...................................... 17,209
Less valuation allowance.................................... 2,819
Other foreclosed assets..................................... 5,295
Total foreclosed property............................... 19,685
Total nonperforming assets.............................. $77,552
Nonperforming loans to period-end loans....................... .19%
Nonperforming assets to period-end loans
and foreclosed property..................................... .26
Period-end allowance for loan losses
times nonperforming loans................................... 7.07 x
Period-end allowance for loan losses
times nonperforming assets.................................. 5.27
CONTRACTUALLY PAST DUE LOANS
(accruing loans past due 90 days or more)
Domestic borrowers............................................ $57,415
*Includes $16,251 of loans which have been defined as impaired per Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (FASB 114)
**Excludes $197 of loans which have been renegotiated at market rates and
have been reclassified to performing status
***Net of cumulative corporate and commercial real estate charge-offs and
foreclosed real estate write-downs totaling $13,430; includes $2,865 of
nonperforming assets on which interest and principal are paid current
14
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses for the first quarter was
$47.998 million, slightly exceeding net loan losses and higher by
$20.664 million or 75.6 percent from $27.334 million in the same
period a year earlier. Compared with the fourth quarter of 1996,
the provision was up $555 thousand or 1.2 percent. The provision
reflects management's assessment of the adequacy of the allowance
for loan losses to absorb potential write-offs in the loan
portfolio due to a deterioration in credit conditions or change in
risk profile. Factors considered in this assessment include growth
and mix of the loan portfolio, current and anticipated economic
conditions, historical credit loss experience and changes in
borrowers' financial positions. The adequacy of the allowance also
is assessed by management based on the corporation's practice to
aggressively recognize problem credits and generally match
charge-offs through the provision.
Net loan losses were $47.983 million or .61 percent annualized
of average loans, an increase of $20.769 million or 76.3 percent
from the same three months in 1996. The rise reflected both higher
losses in consumer loans, principally credit cards, and lower but
more normalized recoveries of real estate loans previously charged
off. Net loan losses rose $566 thousand or 1.2 percent from the
preceding quarter, primarily due to reduced recoveries of
commercial loan charge-offs. Excluding credit cards, net loan
losses for the first quarter totaled $7.901 million or .12 percent
annualized of average loans versus net recoveries of $664 thousand
or .01 percent a year earlier and net loan losses of $7.759
million or .12 percent of loans in the fourth quarter of 1996.
Credit card net charge-offs were $40.082 million or 3.34
percent annualized of average credit card loans, up $12.204
million or 43.8 percent from $27.878 million or 2.82 percent of
average receivables in the year-earlier period. Other retail net
charge-offs, associated with direct and indirect retail loans,
rose $1.531 million or 34.5 percent to $5.974 million or .74
percent of related average receivables. Real estate loans had net
recoveries of $277 thousand or .01 percent of average real estate
loans, down $5.167 million or 94.9 percent from net recoveries of
$5.444 million or .25 percent of real estate loans in the same
three months of 1996.
Selected data on the corporation's managed credit card
portfolio, which includes securitized loans, is presented in the
following table.
Managed Credit and Data
1997 1996
First Fourth Third Second First
$ IN THOUSANDS Quarter Quarter Quarter Quarter Quarter
Average credit card outstandings............ $5,420,000 $5,167,000 $4,895,000 $4,670,000 $4,583,000
Net loan losses............................. 45,444 45,162 39,370 36,733 32,359
Annualized net loan losses to average
loans..................................... 3.35% 3.50% 3.22% 3.15% 2.82%
Delinquencies (30 days or more) to
period-end loans.......................... 2.27 2.14 2.26 2.01 2.29
At March 31, 1997, the allowance for loan losses was $409.312
million, representing 1.26 percent of period-end loans and 707
percent of nonperforming loans. Comparable amounts were $408.928
million, 1.37 percent and 707 percent, respectively, one year
earlier and $409.297 million, 1.31 percent and 681 percent,
respectively, at fourth quarter-close 1996.
15
ALLOWANCE FOR LOAN LOSSES TABLE 7
(thousands)
1997 1996
First Fourth Third Second
Quarter Quarter Quarter Quarter
SUMMARY OF TRANSACTIONS
Balance at beginning of period............................. $409,297 $409,271 $409,205 $408,928
Additions from acquisitions................................ -- -- -- 200
Provision for loan losses.................................. 47,998 47,443 40,730 34,404
Deduct net loan losses:
Loans charged off:
Commercial............................................. 268 451 2,748 324
Credit card............................................ 46,101 44,640 38,783 36,343
Other revolving credit................................. 1,637 2,834 1,790 1,346
Other retail........................................... 7,675 7,057 5,556 4,840
Real estate............................................ 1,455 814 191 1,371
Lease financing........................................ 1,366 675 348 235
Foreign................................................ -- -- -- --
Total................................................ 58,502 56,471 49,416 44,459
Recoveries:
Commercial............................................. 476 1,689 666 1,198
Credit card............................................ 6,019 4,982 4,579 4,599
Other revolving credit................................. 532 384 495 290
Other retail........................................... 1,701 1,336 1,379 1,138
Real estate............................................ 1,732 633 1,575 2,866
Lease financing........................................ 59 30 58 41
Foreign................................................ -- -- -- --
Total................................................ 10,519 9,054 8,752 10,132
Net loan losses.......................................... 47,983 47,417 40,664 34,327
Balance at end of period*.................................. $409,312 $409,297 $409,271 $409,205
NET LOAN LOSSES (RECOVERIES) BY CATEGORY
Commercial................................................. $ (208) $ (1,238) $ 2,082 $ (874)
Credit card................................................ 40,082 39,658 34,204 31,744
Other revolving credit..................................... 1,105 2,450 1,295 1,056
Other retail............................................... 5,974 5,721 4,177 3,702
Real estate................................................ (277) 181 (1,384) (1,495)
Lease financing............................................ 1,307 645 290 194
Foreign.................................................... -- -- -- --
Total................................................ $ 47,983 $ 47,417 $ 40,664 $ 34,327
Net loan losses -- excluding credit cards.................. $ 7,901 $ 7,759 $ 6,460 $ 2,583
ANNUALIZED NET LOAN LOSSES (RECOVERIES)
TO AVERAGE LOANS BY CATEGORY
Commercial................................................. (.01%) (.04%) .07% (.03%)
Credit card................................................ 3.34 3.49 3.20 3.14
Other revolving credit..................................... 1.24 2.76 1.46 1.19
Other retail............................................... .74 .69 .50 .44
Real estate................................................ (.01) .01 (.06) (.07)
Lease financing............................................ .63 .34 .17 .13
Foreign.................................................... -- -- -- --
Total loans................................................ .61 .61 .53 .46
Total loans -- excluding credit cards...................... .12 .12 .10 .04
Period-end allowance to outstanding loans.................. 1.26 1.31 1.30 1.33
1996
First
Quarter
SUMMARY OF TRANSACTIONS
Balance at beginning of period............................. $408,808
Additions from acquisitions................................ --
Provision for loan losses.................................. 27,334
Deduct net loan losses:
Loans charged off:
Commercial............................................. 65
Credit card............................................ 31,902
Other revolving credit................................. 1,092
Other retail........................................... 5,495
Real estate............................................ 134
Lease financing........................................ 377
Foreign................................................ --
Total................................................ 39,065
Recoveries:
Commercial............................................. 860
Credit card............................................ 4,024
Other revolving credit................................. 283
Other retail........................................... 1,052
Real estate............................................ 5,578
Lease financing........................................ 54
Foreign................................................ --
Total................................................ 11,851
Net loan losses.......................................... 27,214
Balance at end of period*.................................. $408,928
NET LOAN LOSSES (RECOVERIES) BY CATEGORY
Commercial................................................. $ (795)
Credit card................................................ 27,878
Other revolving credit..................................... 809
Other retail............................................... 4,443
Real estate................................................ (5,444)
Lease financing............................................ 323
Foreign.................................................... --
Total................................................ $ 27,214
Net loan losses -- excluding credit cards.................. $ (664)
ANNUALIZED NET LOAN LOSSES (RECOVERIES)
TO AVERAGE LOANS BY CATEGORY
Commercial................................................. (.03%)
Credit card................................................ 2.82
Other revolving credit..................................... .92
Other retail............................................... .54
Real estate................................................ (.25)
Lease financing............................................ .24
Foreign.................................................... --
Total loans................................................ .37
Total loans -- excluding credit cards...................... (.01)
Period-end allowance to outstanding loans.................. 1.37
*Includes the related allowance for credit losses for impaired loans as
defined in FASB 114, "Accounting by Creditors for Impairment of a Loan," of
$792, $1,960, $1,453, $791 and $883, respectively
16
NONINTEREST INCOME
Total other operating revenue for the quarter increased
$17.560 million or 9.5 percent from a year earlier. Gains were led
by deposit account service charge revenues, credit card fee
income, electronic banking and trust service fees. Compared with
the fourth quarter of 1996, total other operating revenue was
lower by $1.771 million or slightly less than 1 percent, primarily
due to reduced trading account profits and to softer growth in
capital markets fees which are classified as part of other income.
Deposit account service charge revenues rose $7.344 million or
13 percent year over year, reflecting growth largely in commercial
analysis fees, overdraft charges and insufficient fund charges.
Credit card fee income expanded $3.172 million or 9.8 percent
driven by higher interchange income and increased overlimit charge
activity.
Electronic banking revenues, consisting of fees from debit
card and ATM usage, were up $3.170 million or 33.9 percent. Growth
reflected higher levels of debit card interchange income as well
as the assessment of ATM foreign access fees. The access fees were
implemented in all three of the corporation's operating states
effective with the second quarter of 1996.
Trust service fees rose $2.009 million or 5.8 percent,
reflecting growth largely in personal trust services and in
advisory fees earned on the corporation's proprietary Biltmore
funds.
Trading account profits were higher by $828 thousand or 24
percent due principally to improved bond market conditions
compared with the year-earlier quarter. Trading account profits
consist of profit and losses on securities in the corporation's
trading account portfolio, income earned on foreign exchange
transactions and income from derivatives valuation.
Investment fee income increased $591 thousand or 5.8 percent.
Higher income occurred in mutual fund business, loan syndication
activity and brokerage commissions.
Mortgage fee income decreased $916 thousand or 20.8 percent.
The decline reflected lower mortgage loan production due to a
higher interest rate environment.
Remaining combined categories of total other operating revenue
rose $1.362 million or 4.1 percent. Insurance premiums and
commissions were up $1.844 million or 49.2 percent, and bankers'
acceptance and letter of credit fees increased $1.273 million or
21.6 percent. Other service charges and fees declined modestly,
and other income was lower by $1.667 million or 11.1 percent,
reflecting softer growth largely in capital markets fee income.
Including gains on investment securities sales, total
noninterest income for the first quarter increased $17.197 million
or 9.3 percent from a year earlier. Gains on investment securities
sales totaled $335 thousand in the first three months of 1997
compared with $698 thousand in the same period of 1996.
NONINTEREST INCOME TABLE 8
(thousands)
1997 1996
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
Service charges on deposit accounts....................... $ 63,942 $ 62,564 $ 62,278 $ 60,928 $ 56,598
Fees for trust services................................... 36,354 35,116 33,872 34,508 34,345
Credit card income -- net of interchange payments......... 35,694 35,679 37,089 33,848 32,522
Electronic banking........................................ 12,510 13,274 12,910 12,582 9,340
Investment fee income..................................... 10,820 11,262 10,145 10,842 10,229
Mortgage fee income....................................... 3,485 4,195 4,099 4,289 4,401
Trading account profits -- excluding interest............. 4,280 7,593 6,076 5,698 3,452
Insurance premiums and commissions........................ 5,592 4,584 4,666 4,032 3,748
Bankers' acceptance and letter of credit fees............. 7,171 6,656 6,684 6,109 5,898
Other service charges and fees............................ 8,502 7,641 8,373 7,985 8,590
Other income.............................................. 13,315 14,872 11,586 17,774 14,982
Total other operating revenue....................... 201,665 203,436 197,778 198,595 184,105
Investment securities gains (losses)...................... 335 2,864 393 (219) 698
Total............................................... $202,000 $206,300 $198,171 $198,376 $184,803
17
NONINTEREST EXPENSE
Total noninterest expense was up $15.891 million or 5.2
percent year over year. Growth was driven primarily by higher
personnel costs, largely salaries. Compared with the fourth
quarter of 1996, total noninterest expense grew $1.398 million or
under 1 percent, principally due to higher social security tax
payments in the first quarter. The corporation's overhead ratio
measuring noninterest expense as a percentage of total adjusted
revenues (taxable equivalent net interest income and total other
operating revenue) improved to 52.2 percent from 53.8 percent a
year earlier and compared with 51.7 percent in the preceding
quarter.
Total personnel expense grew $12.486 million or 7.7 percent.
Salaries expense rose $10.435 million or 7.9 percent, reflecting
increased employee headcount in growing business lines and in
salesforce personnel. At March 31, 1997, full-time equivalent
employees were 16,433 versus 16,191 one year earlier and 16,208 at
the end of the 1996 fourth quarter. Employee benefits expense was
up $2.051 million or 6.9 percent due to an increase in flexible
benefit costs and payroll taxes associated with a larger personnel
base.
Combined net occupancy and equipment expense was down a modest
$543 thousand or 1.1 percent. Net occupancy expense accounted for
substantially all the decrease as building maintenance and
renovation costs declined from the year-earlier quarter.
Remaining combined categories of noninterest expense rose
$3.948 million or 4.2 percent, due in large part to higher costs
for outside data processing, programming and software expense.
Included in this expense category are contract programming costs
for systems investments largely in support of corporate growth
initiatives.
The corporation anticipates spending between $40 million to
$50 million in 1997 for systems conversions related to making its
computer systems year 2000 compliant. The majority of this expense
will be incurred in the remaining three quarters of the year.
NONINTEREST EXPENSE TABLE 9
(thousands)
1997 1996
First Fourth Third Second
Quarter Quarter Quarter Quarter
Salaries................................................... $142,255 $141,342 $137,627 $132,438
Employee benefits.......................................... 31,849 25,894 27,882 27,724
Total personnel expense.............................. 174,104 167,236 165,509 160,162
Net occupancy expense...................................... 22,193 21,559 23,161 22,184
Equipment expense.......................................... 28,873 29,032 28,844 28,054
Postage and delivery....................................... 10,483 9,813 9,973 9,780
Outside data processing, programming and software.......... 12,890 11,477 11,339 11,179
Stationery and supplies.................................... 6,203 6,131 6,012 6,951
Advertising and sales promotion............................ 13,648 13,289 14,442 15,502
Professional services...................................... 8,554 9,662 8,173 10,743
Travel and business promotion.............................. 5,321 5,959 4,929 5,335
Regulatory agency fees and other bank services............. 2,988 2,576 3,781 1,320
Amortization of intangible assets.......................... 1,063 1,091 1,095 1,098
Foreclosed property expense................................ (235) 225 (370) 175
Other expense.............................................. 38,051 44,688 39,591 37,604
Total................................................ $324,136 $322,738 $316,479 $310,087
Overhead ratio............................................. 52.2% 51.7% 51.6% 51.9%
1996
First
Quarter
Salaries................................................... $131,820
Employee benefits.......................................... 29,798
Total personnel expense.............................. 161,618
Net occupancy expense...................................... 22,678
Equipment expense.......................................... 28,931
Postage and delivery....................................... 10,452
Outside data processing, programming and software.......... 10,704
Stationery and supplies.................................... 7,006
Advertising and sales promotion............................ 17,071
Professional services...................................... 9,707
Travel and business promotion.............................. 4,237
Regulatory agency fees and other bank services............. 1,053
Amortization of intangible assets.......................... 1,078
Foreclosed property expense................................ (126)
Other expense.............................................. 33,836
Total................................................ $308,245
Overhead ratio............................................. 53.8%
18
INCOME TAXES
Applicable income taxes for the quarter were up $2.484 million
or 3.6 percent. Income taxes computed at the statutory rate are
reduced primarily by the interest earned on state and municipal
loans and debt securities. Also, within certain limitations,
one-half of the interest income earned on qualifying employee
stock ownership plan loans is exempt from federal taxes. The
interest earned on state and municipal debt instruments is exempt
from federal taxes and, except for out-of-state issues, from
Georgia and North Carolina taxes as well. The tax-exempt nature of
these assets provides both an attractive return for the
corporation and substantial interest savings for local governments
and their constituents.
INCOME TAXES TABLE 10
(thousands)
Three Months Three Months
Ended Ended
March 31 March 31
1997 1996
Income before income taxes................................................. $234,835 $219,139
Federal income taxes at statutory rate..................................... $ 82,192 $ 76,699
State and local income taxes -- net of
federal benefit.......................................................... 3,709 2,890
Effect of tax-exempt securities
interest and other income................................................ (11,322) (10,392)
Other items................................................................ (2,826) 72
Total tax expense..................................................... $ 71,753 $ 69,269
Currently payable:
Federal.................................................................. $ 52,798 $ 50,178
Foreign.................................................................. 59 96
State and local.......................................................... 1,878 2,205
Total................................................................. 54,735 52,479
Deferred:
Federal.................................................................. 13,194 14,566
State and local.......................................................... 3,824 2,224
Total................................................................. 17,018 16,790
Total tax expense..................................................... $ 71,753 $ 69,269
19
NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (FASB 125), which provides new
accounting and reporting standards for sales, securitizations, and
servicing of receivables and other financial assets and
extinguishments of liabilities. FASB 125 is effective for
transactions occurring after December 31, 1996, except for the
provisions relating to repurchase agreements, securities lending
and other similar transactions and pledged collateral, which have
been delayed until after December 31, 1997 by FASB 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No.
125, an amendment of FASB Statement No. 125." Adoption of FASB 125
was not material; FASB 127 will be adopted as required in 1998 and
is not expected to be material.
In February 1997, Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (FASB 128), was issued and
establishes new standards for computing and presenting earnings
per share. FASB 128 is effective for the corporation's December
31, 1997 financial statements, including restatement of interim
periods; earlier application is not permitted. The effect of the
new standard will not be material.
FINANCIAL CONDITION AND CAPITAL RATIOS
Total assets at March 31, 1997 were $47.491 billion, including
$42.260 billion of interest-earning assets and $32.570 billion of
loans. Comparable amounts one year earlier were $45.425 billion of
assets, $40.527 billion of interest-earning assets and $29.869
billion of loans. At December 31, 1996, assets totaled $46.905
billion, interest-earning assets were $40.789 billion and loans
were $31.283 billion.
Deposits at the end of the first quarter of 1997 were $28.832
billion, including $22.340 billion of time deposits, representing
77.5 percent of the total. Deposits one year earlier were $25.909
billion with time deposits of $20.384 billion or 78.7 percent of
the total, and at December 31, 1996, deposits were $27.250
billion, including $21.135 billion of time deposits or 77.6
percent of the total.
Shareholders' equity at March 31, 1997 was $3.676 billion
compared with $3.729 billion one year earlier. The reduction in
shareholders' equity primarily reflected the impact of the
corporation's increased share repurchase activity. On January 24,
1997, the corporation was authorized by the board of directors to
repurchase up to 10 million additional shares of its common stock
replacing the most recent authorization approved on April 26, 1996
to repurchase up to 8 million shares. During the first quarter of
1997, the corporation repurchased a total of 2,665,100 shares of
its common stock at an average price of $60.273 per share for a
total cost of $160.634 million. This compared with a total of
1,955,700 shares that were repurchased in the same three months of
1996. Shareholders' equity at March 31, 1997 also included $8.170
million, net of tax, of unrealized gains on securities available-
for-sale marked to fair market value versus $57.338 million, net
of tax, one year earlier.
Intangible assets totaled $38.297 million at March 31, 1997,
consisting of $32.056 million in goodwill, $5.095 million in
deposit base intangibles, $401 thousand in purchased credit card
intangibles and $745 thousand in other intangibles. Comparable
amounts one year earlier were $38.015 million of total intangible
assets, with $29.099 million in goodwill, $6.559 million in
deposit base intangibles, $1.194 million in purchased credit card
intangibles and $1.163 million in other intangible assets.
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 market
appreciation or depreciation of securities available-for-sale
arising from marking the securities portfolio to market value. 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.
20
Regulatory guidelines require a minimum of total capital to
risk-adjusted assets ratio of 8 percent with at least one-half
consisting of tangible common shareholders' equity and a minimum
Tier I leverage ratio of 3 percent. Banks which meet or exceed a
Tier I ratio of 6 percent, a total capital ratio of 10 percent and
a Tier I leverage ratio of 5 percent are considered
well-capitalized by regulatory standards.
At March 31, 1997, the corporation's Tier I to risk-adjusted
assets ratio was 9.81 percent and total capital to risk-adjusted
assets was 13.40 percent. The Tier I leverage ratio was 9.22
percent. The capital ratios at first quarter-close 1997 included a
total of $600 million of trust capital securities issued in
December 1996 and January 1997. All of the corporation's banks are
well-capitalized.
CAPITAL COMPONENTS AND RATIOS TABLE 11
(thousands)
1997 1996
First Fourth Third Second
Quarter Quarter Quarter Quarter
Tier I capital:
Common shareholders' equity......................... $ 3,676,080 $ 3,761,832 $ 3,729,194 $ 3,699,612
Trust capital securities............................ 596,578 300,000 -- --
Less ineligible intangible assets................... 32,056 32,474 32,893 33,312
Unrealized gains on securities
available-for-sale, net of tax.................... (8,170) (42,462) (32,924) (24,066)
Total Tier I capital............................ 4,232,432 3,986,896 3,663,377 3,642,234
Tier II capital:
Allowable allowance for loan losses................. 409,312 409,297 409,271 409,205
Allowable long-term debt............................ 1,138,138 1,138,041 1,198,177 1,198,837
Tier II capital additions....................... 1,547,450 1,547,338 1,607,448 1,608,042
Total capital................................... $ 5,779,882 $ 5,534,234 $ 5,270,825 $ 5,250,276
Risk-adjusted assets.................................. $43,126,886 $42,669,628 $41,047,310 $40,249,143
Quarterly average assets.............................. $45,983,826 $45,737,397 $45,777,699 $44,956,032
Risk-based capital ratios:
Tier I capital...................................... 9.81% 9.34% 8.92% 9.05%
Total capital....................................... 13.40 12.97 12.84 13.04
Tier I leverage ratio*................................ 9.22 8.73 8.01 8.12
Shareholders' equity to total assets.................. 7.74 8.02 7.85 8.03
1996
First
Quarter
Tier I capital:
Common shareholders' equity......................... $ 3,729,349
Trust capital securities............................ --
Less ineligible intangible assets................... 29,099
Unrealized gains on securities
available-for-sale, net of tax.................... (57,338)
Total Tier I capital............................ 3,642,912
Tier II capital:
Allowable allowance for loan losses................. 408,928
Allowable long-term debt............................ 1,204,191
Tier II capital additions....................... 1,613,119
Total capital................................... $ 5,256,031
Risk-adjusted assets.................................. $38,803,497
Quarterly average assets.............................. $44,434,973
Risk-based capital ratios:
Tier I capital...................................... 9.39%
Total capital....................................... 13.55
Tier I leverage ratio*................................ 8.22
Shareholders' equity to total assets.................. 8.21
*Ratio excludes the average unrealized gains (losses) on securities
available-for-sale, net of tax, of $37,350, $45,135, $24,358, $44,957 and
$114,386, respectively
21
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
March 31 December 31 March 31
$ IN THOUSANDS 1997 1996 1996
ASSETS
Cash and due from banks..................................................... $ 3,001,027 $3,367,673 $ 2,661,486
Interest-bearing bank balances.............................................. 36,581 27,871 460,481
Federal funds sold and securities
purchased under resale agreements......................................... 126,055 179,426 398,560
Trading account assets...................................................... 1,056,922 1,185,688 856,077
Securities available-for-sale............................................... 7,144,175 6,760,486 7,407,370
Securities held-to-maturity (fair value of $1,377,812,
$1,423,555 and $1,615,807, respectively).................................. 1,325,556 1,352,091 1,535,660
Loans and net leases........................................................ 32,578,613 31,290,905 29,877,059
Less unearned income on loans............................................... 8,357 7,713 8,068
Total loans............................................................ 32,570,256 31,283,192 29,868,991
Less allowance for loan losses.............................................. 409,312 409,297 408,928
Net loans.............................................................. 32,160,944 30,873,895 29,460,063
Premises and equipment...................................................... 640,861 644,000 643,412
Due from customers on acceptances........................................... 631,242 957,109 707,239
Other assets................................................................ 1,367,786 1,556,276 1,294,767
Total assets........................................................... $47,491,149 $46,904,515 $45,425,115
LIABILITIES
Deposits in domestic offices:
Demand.................................................................... $ 6,491,504 $6,115,540 $ 5,522,490
Interest-bearing demand................................................... 3,350,544 3,462,952 3,352,894
Savings and money market savings.......................................... 8,611,879 8,337,329 7,451,042
Savings certificates...................................................... 6,421,058 6,436,437 6,418,985
Large denomination certificates........................................... 2,791,697 1,710,061 2,239,966
Noninterest-bearing time.................................................. 4,067 2,974 4,030
Total deposits in domestic offices..................................... 27,670,749 26,065,293 24,989,407
Deposits in foreign offices:
Demand.................................................................... -- -- 2,353
Time...................................................................... 1,160,977 1,184,829 916,803
Total deposits in foreign offices...................................... 1,160,977 1,184,829 919,156
Total deposits......................................................... 28,831,726 27,250,122 25,908,563
Federal funds purchased and securities
sold under repurchase agreements.......................................... 6,255,895 6,298,130 6,983,025
Commercial paper............................................................ 663,524 706,226 549,034
Other short-term borrowed funds............................................. 1,340,838 967,097 909,311
Long-term debt:
Bank notes................................................................ 3,065,344 4,307,802 4,823,147
Other long-term debt...................................................... 2,445,631 2,159,099 1,330,346
Total long-term debt................................................... 5,510,975 6,466,901 6,153,493
Acceptances outstanding..................................................... 631,242 957,109 707,239
Other liabilities........................................................... 580,869 497,098 485,101
Total liabilities...................................................... 43,815,069 43,142,683 41,695,766
SHAREHOLDERS' EQUITY
Preferred stock, par value $5 per share:
Authorized 50,000,000 shares; none outstanding............................ -- -- --
Common stock, par value $5 per share:
Issued 161,558,786, 163,844,198 and 168,968,164, respectively............. 807,794 819,221 844,841
Capital surplus............................................................. 301,854 424,873 656,050
Retained earnings........................................................... 2,558,262 2,475,276 2,171,120
Unrealized gains on securities available-for-sale, net of tax............... 8,170 42,462 57,338
Total shareholders' equity............................................. 3,676,080 3,761,832 3,729,349
Total liabilities and shareholders' equity............................. $47,491,149 $46,904,515 $45,425,115
22
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31
$ IN THOUSANDS, EXCEPT PER SHARE 1997 1996
INTEREST INCOME
Loans.............................................................................................. $665,577 $608,285
Securities available-for-sale:
Other investments................................................................................ 115,081 119,274
Securities held-to-maturity:
State and municipal.............................................................................. 4,496 5,883
Other investments................................................................................ 22,072 25,499
Interest-bearing bank balances..................................................................... 360 9,018
Federal funds sold and securities
purchased under resale agreements................................................................ 2,203 3,250
Trading account assets............................................................................. 13,135 12,034
Total interest income....................................................................... 822,924 783,243
INTEREST EXPENSE
Deposits:
Domestic offices................................................................................. 214,763 208,750
Foreign offices.................................................................................. 17,357 13,101
Total interest on deposits.................................................................. 232,120 221,851
Short-term borrowed funds.......................................................................... 95,069 110,390
Long-term debt..................................................................................... 90,766 81,087
Total interest expense...................................................................... 417,955 413,328
NET INTEREST INCOME................................................................................ 404,969 369,915
Provision for loan losses.......................................................................... 47,998 27,334
Net interest income after provision for loan losses................................................ 356,971 342,581
OTHER INCOME
Service charges on deposit accounts................................................................ 63,942 56,598
Fees for trust services............................................................................ 36,354 34,345
Credit card income................................................................................. 35,694 32,522
Electronic banking................................................................................. 12,510 9,340
Investment fee income.............................................................................. 10,820 10,229
Mortgage fee income................................................................................ 3,485 4,401
Trading account profits............................................................................ 4,280 3,452
Other operating income............................................................................. 34,580 33,218
Total other operating revenue............................................................... 201,665 184,105
Investment securities gains........................................................................ 335 698
Total other income.......................................................................... 202,000 184,803
OTHER EXPENSE
Salaries........................................................................................... 142,255 131,820
Employee benefits.................................................................................. 31,849 29,798
Total personnel expense..................................................................... 174,104 161,618
Net occupancy expense.............................................................................. 22,193 22,678
Equipment expense.................................................................................. 28,873 28,931
Other operating expense............................................................................ 98,966 95,018
Total other expense......................................................................... 324,136 308,245
Income before income taxes......................................................................... 234,835 219,139
Applicable income taxes............................................................................ 71,753 69,269
NET INCOME......................................................................................... $163,082 $149,870
Net income per common share:
Primary.......................................................................................... $ .99 $ .87
Fully diluted.................................................................................... $ .99 $ .87
Average shares outstanding:
Primary.......................................................................................... 165,432 171,467
Fully diluted.................................................................................... 165,441 171,653
23
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized
Securities
Common Stock Capital Retained Gains
$ IN THOUSANDS, EXCEPT PER SHARE Shares Amount Surplus Earnings (Losses)
PERIOD ENDED MARCH 31, 1996
Balance at beginning of year....................... 170,358,504 $851,793 $713,120 $2,092,731 $116,113
Net income......................................... 149,870
Cash dividends declared on common
stock -- $.36 a share............................ (61,089)
Common stock issued pursuant to:
Stock option and employee benefit plans.......... 320,441 1,602 17,091
Dividend reinvestment plan....................... 75,843 379 3,149
Conversion of debentures......................... 228,096 1,141 3,244
Common stock acquired.............................. (2,014,720) (10,074) (80,553)
Unrealized losses on securities
available-for-sale, net of tax................... (58,775)
Miscellaneous...................................... (1) (10,392)
Balance at end of period........................... 168,968,164 $844,841 $656,050 $2,171,120 $ 57,338
PERIOD ENDED MARCH 31, 1997
Balance at beginning of year....................... 163,844,198 $819,221 $424,873 $2,475,276 $ 42,462
Net income......................................... 163,082
Cash dividends declared on common
stock -- $.40 a share............................ (65,408)
Common stock issued pursuant to:
Stock option and employee benefit plans.......... 386,892 1,934 23,890
Dividend reinvestment plan....................... 58,328 292 3,231
Common stock acquired.............................. (2,730,632) (13,653) (150,818)
Unrealized losses on securities
available-for-sale, net of tax................... (34,292)
Miscellaneous...................................... 678 (14,688)
Balance at end of period........................... 161,558,786 $807,794 $301,854 $2,558,262 $ 8,170
24
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
$ IN THOUSANDS 1997 1996
OPERATING ACTIVITIES
Net income...................................................................................... $ 163,082 $ 149,870
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses..................................................................... 47,998 27,334
Depreciation and amortization................................................................. 21,847 22,263
Deferred income taxes......................................................................... 17,018 16,790
Investment securities gains................................................................... (335) (698)
Gain on sale of noninterest-earning assets.................................................... (28) (448)
Increase in accrued income taxes.............................................................. 54,179 59,271
Increase in accrued interest receivable....................................................... (9,853) (6,378)
Increase (decrease) in accrued interest payable............................................... 50,300 (1,984)
Net change in other accrued and deferred income and expense................................... (54,246) (41,544)
Net trading account activities................................................................ 128,766 258,849
Net change in loans held for resale........................................................... (297,120) 5,436
Net cash provided by operating activities................................................... 121,608 488,761
INVESTING ACTIVITIES
Net increase in interest-bearing bank balances.................................................. (8,710) (9,202)
Net decrease (increase) in federal funds sold and securities
purchased under resale agreements............................................................. 53,371 (254,455)
Purchases of securities available-for-sale...................................................... (850,111) (405,217)
Purchases of securities held-to-maturity........................................................ (35,152) (505)
Sales of securities available-for-sale.......................................................... 123,163 790
Calls, maturities and prepayments of securities available-for-sale.............................. 278,167 310,636
Calls, maturities and prepayments of securities held-to-maturity................................ 62,719 85,792
Net increase in loans made to customers......................................................... (1,039,839) (641,194)
Capital expenditures............................................................................ (23,154) (40,297)
Proceeds from sales of premises and equipment................................................... 865 5,257
Net decrease (increase) in other assets......................................................... 252,500 (65,629)
Net cash used by investing activities....................................................... (1,186,181) (1,014,024)
FINANCING ACTIVITIES
Net increase in demand, savings and money market accounts....................................... 539,199 3,683
Net increase (decrease) in certificates of deposit.............................................. 1,042,405 (463,877)
Net (decrease) increase in federal funds purchased and securities
sold under repurchase agreements.............................................................. (42,235) 1,132,485
Net (decrease) increase in commercial paper..................................................... (42,702) 46,898
Net increase (decrease) in other short-term borrowings.......................................... 373,741 (811,281)
Proceeds from issuance of bank notes............................................................ -- 1,349,236
Maturities of bank notes........................................................................ (1,241,283) (614,328)
Proceeds from issuance of other long-term debt.................................................. 293,252 --
Payments on other long-term debt................................................................ (122) (106)
Common stock issued............................................................................. 9,583 7,799
Dividend payments............................................................................... (65,408) (61,089)
Common stock repurchased........................................................................ (161,155) (88,319)
Net decrease in other liabilities............................................................... (7,348) (6,670)
Net cash provided by financing activities................................................... 697,927 494,431
DECREASE IN CASH AND CASH EQUIVALENTS........................................................... (366,646) (30,832)
Cash and cash equivalents at beginning of year.................................................. 3,367,673 2,692,318
Cash and cash equivalents at end of period...................................................... $3,001,027 $2,661,486
SUPPLEMENTAL DISCLOSURES
Unrealized losses on securities available-for-sale:
Decrease in securities available-for-sale..................................................... $ (56,778) $ (95,566)
Increase in deferred taxes.................................................................... 22,486 36,791
Decrease in shareholders' equity.............................................................. (34,292) (58,775)
25
(WACHOVIA LOGO APPEARS HERE)
Wachovia Corporation Bulk Rate
P.O. Box 3099 U.S. POSTAGE PAID
Winston-Salem, NC 27150 WACHOVIA
CORPORATION