1997 Form 10-Q
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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 September 30, 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 September 30, 1997, Wachovia Corporation had 157,772,802 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
September 30, 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.
PAGE
-----
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS (UNAUDITED)
Selected Period-End Data...........................................3
Common Stock Data -- Per Share.....................................3
Consolidated Statements of Condition..............................26
Consolidated Statements of Income.................................27
Consolidated Statements of
Shareholders' Equity ............................................28
Consolidated Statements of Cash Flows.............................29
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................4-25
1997 Form 10-Q - continued
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PART II OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
a) 2.1 Agreement and Plan of Merger, dated as of August 6, 1997, by and between Wachovia Corporation and 1st
United Bancorp (included as Exhibit 2.1 to Wachovia Corporation's Form 13D dated August 15, 1997 and
incorporated by reference herein).
3.2 Bylaws of the Registrant as amended (Exhibit 3.2 to Form S-4 Registration Statement of Wachovia
Corporation dated October 1, 1997, File No. 333-36887).
4 Instruments defining the rights of security holders, including indentures.*
11 "Computation of Earnings per Common Share" is presented as Table 3 on page 6 of the third 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 third 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: A Current Report on Form 8-K dated August 6, 1997 was filed with the Securities
and Exchange Commission relating to the Agreement and Plan of Merger by and between Wachovia
Corporation and 1st United Bancorp. A Current Report on Form 8-K dated September 8, 1997 was filed
with the Securities and Exchange Commission to place on file the historical financial statements of Central
Fidelity Banks, Inc.
* 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
November 13, 1997 ROBERT S. McCOY, JR. November 13, 1997 DONALD K. TRUSLOW
---------------------------- -----------------
Robert S. McCoy, Jr. Donald K. Truslow
Executive Vice President Comptroller
and Chief Financial Officer
[WACHOVIA LOGO]
FINANCIAL SUPPLEMENT
AND FORM 10-Q
THIRD QUARTER 1997
WACHOVIA CORPORATION DIRECTORS AND OFFICERS
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DIRECTORS
L. M. BAKER, JR.
President and
Chief Executive Officer
JOHN G. MEDLIN, JR.
Chairman of the Board
JAMES S. BALLOUN
Chairman and
Chief Executive Officer
National Service Industries, Inc.
PETER C. BROWNING
President and
Chief Operating Officer
Sonoco Products Company
JOHN T. CASTEEN III
President
University of Virginia
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
Chief Executive
Glaxo Wellcome plc
Chairman, Chief Executive
Officer and President
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
Senior Executive Vice President
Chief Credit Officer
HUGH M. DURDEN
Executive Vice President
Corporate Services
WALTER E. LEONARD, JR.
Senior Executive Vice President
Operations/Technology
KENNETH W. MCALLISTER
Senior Executive Vice President
General Counsel/Administrative
ROBERT S. MCCOY, JR.
Senior Executive Vice President
Chief Financial Officer
G. JOSEPH PRENDERGAST
Senior Executive Vice President
General Banking
RICHARD B. ROBERTS
Executive Vice President
Treasurer
2
SELECTED PERIOD-END DATA
- --------------------------------------------------------------------------------
September 30 September 30
1997 1996
-------------- -------------
Banking offices:
North Carolina ........................... 202 220
Georgia .................................... 128 125
South Carolina ........................... 127 145
----- ------
Total .................................... 457 490
====== ======
Automated banking machines:
North Carolina ........................... 406 344
Georgia .................................... 260 221
South Carolina ........................... 264 203
------ ------
Total .................................... 930 768
======= =======
Employees (full-time equivalent) ............ 16,818 16,185
Common stock shareholders of record ......... 31,920 27,663
Common shares outstanding (thousands) ...... 157,773 165,213
COMMON STOCK DATA -- PER SHARE
- --------------------------------------------------------------------------------
1997 1996
------------------------------------------- ---------------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
------------ ------------- ------------ ------------ ------------
Market value:
Period-end .................. $ 72 $ 58 5/16 $ 54 1/2 $ 56 1/2 $ 49 1/2
High ........................ 72 3/8 66 7/8 64 5/8 60 1/4 49 7/8
Low ........................... 58 3/16 53 1/2 54 1/2 48 3/4 39 5/8
Book value at period-end ...... 23.31 23.07 22.75 22.96 22.57
Dividend ..................... .44 .40 .40 .40 .40
Price/earnings ratio* ......... 17.7 x 14.6 x 13.9 x 14.8 x 13.6 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
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- --------------------------------------------------------------------------------
FINANCIAL SUMMARY
TABLE 1
Twelve 1997
Months -----------------------------------------
Ended
September 30 Third Second First
1997 Quarter Quarter Quarter
------------- ------------- ------------- -------------
SUMMARY OF OPERATIONS
(thousands, except per share data)
Interest income ........................... $3,371,035 $ 869,891 $ 852,101 $ 822,924
Interest expense ........................... 1,724,048 446,655 438,359 417,955
----------- --------- --------- ---------
Net interest income ........................ 1,646,987 423,236 413,742 404,969
Provision for loan losses .................. 195,500 50,344 49,715 47,998
----------- --------- --------- ---------
Net interest income after provision for
loan losses .............................. 1,451,487 372,892 364,027 356,971
Other operating revenue ..................... 866,469 228,463 232,905 201,665
Investment securities gains ............... 3,946 421 326 335
----------- --------- --------- ---------
Total other income ........................ 870,415 228,884 233,231 202,000
Personnel expense ........................... 713,089 190,099 181,650 174,104
Other expense .............................. 644,612 166,034 173,044 150,032
----------- --------- --------- ---------
Total other expense ........................ 1,357,701 356,133 354,694 324,136
Income before income taxes .................. 964,201 245,643 242,564 234,835
Applicable income taxes* .................. 297,512 78,387 76,941 71,753
----------- --------- --------- ---------
Net income ................................. $ 666,689 $ 167,256 $ 165,623 $ 163,082
=========== ========= ========= =========
Net income per common share:
Primary .................................... $ 4.06 $ 1.04 $ 1.01 $ .99
Fully diluted .............................. $ 4.05 $ 1.03 $ 1.01 $ .99
Cash dividends paid per common share......... $ 1.64 $ .44 $ .40 $ .40
Cash dividends paid on common stock.......... $ 266,054 $ 70,238 $ 64,392 $ 65,408
Cash dividend payout ratio .................. 39.9% 42.0% 38.9% 40.1%
Average primary shares outstanding ......... 164,282 161,717 162,872 165,432
Average fully diluted shares outstanding..... 164,453 162,207 162,888 165,441
SELECTED AVERAGE BALANCES (millions)
Total assets .............................. $ 46,258 $ 46,690 $ 46,619 $ 45,984
Loans -- net of unearned income ............ 31,898 32,758 32,249 31,481
Investment securities** ..................... 8,151 7,837 8,193 8,327
Other interest-earning assets ............... 1,315 1,328 1,278 1,242
Total interest-earning assets ............... 41,364 41,923 41,720 41,050
Interest-bearing deposits .................. 22,121 22,604 22,641 22,034
Short-term borrowed funds .................. 7,763 7,991 7,943 7,444
Long-term debt .............................. 5,757 5,461 5,450 5,910
Total interest-bearing liabilities ......... 35,641 36,056 36,034 35,388
Noninterest-bearing deposits ............... 5,608 5,677 5,631 5,518
Total deposits .............................. 27,729 28,281 28,272 27,552
Shareholders' equity ........................ 3,631 3,606 3,593 3,653
RATIOS (averages)
Annualized net loan losses to loans ......... .61% .61% .62% .61%
Annualized net yield on
interest-earning assets .................. 4.12 4.12 4.11 4.14
Shareholders' equity to:
Total assets .............................. 7.85 7.72 7.71 7.94
Net loans ................................. 11.53 11.15 11.28 11.75
Annualized return on assets ............... 1.44 1.43 1.42 1.42
Annualized return on shareholders' equity.... 18.36 18.55 18.44 17.86
1996 Nine Months Ended
--------------------------- September 30
Fourth Third
Quarter Quarter 1997 1996
------------- ------------- --------------- ---------------
SUMMARY OF OPERATIONS
(thousands, except per share data)
Interest income ........................... $ 826,119 $ 825,229 $ 2,544,916 $ 2,401,195
Interest expense ........................... 421,079 426,723 1,302,969 1,251,523
--------- --------- ----------- -----------
Net interest income ........................ 405,040 398,506 1,241,947 1,149,672
Provision for loan losses .................. 47,443 40,730 148,057 102,468
--------- --------- ----------- -----------
Net interest income after provision for
loan losses .............................. 357,597 357,776 1,093,890 1,047,204
Other operating revenue ..................... 203,436 197,778 663,033 580,478
Investment securities gains ............... 2,864 393 1,082 872
--------- --------- ----------- -----------
Total other income ........................ 206,300 198,171 664,115 581,350
Personnel expense ........................... 167,236 165,509 545,853 487,289
Other expense .............................. 155,502 150,970 489,110 447,522
--------- --------- ----------- -----------
Total other expense ........................ 322,738 316,479 1,034,963 934,811
Income before income taxes .................. 241,159 239,468 723,042 693,743
Applicable income taxes* .................. 70,431 74,872 227,081 219,914
--------- --------- ----------- -----------
Net income ................................. $ 170,728 $ 164,596 $ 495,961 $ 473,829
========= ========= =========== ===========
Net income per common share:
Primary .................................... $ 1.02 $ .98 $ 3.04 $ 2.79
Fully diluted .............................. $ 1.02 $ .97 $ 3.03 $ 2.78
Cash dividends paid per common share......... $ .40 $ .40 $ 1.24 $ 1.12
Cash dividends paid on common stock.......... $ 66,016 $ 66,669 $ 200,038 $ 188,442
Cash dividend payout ratio .................. 38.7% 40.5% 40.3% 39.8%
Average primary shares outstanding ......... 167,118 167,966 163,327 169,758
Average fully diluted shares outstanding..... 167,281 168,354 163,876 170,251
SELECTED AVERAGE BALANCES (millions)
Total assets .............................. $ 45,737 $ 45,778 $ 46,434 $ 45,059
Loans -- net of unearned income ............ 31,101 30,660 32,167 29,963
Investment securities** ..................... 8,251 8,734 8,117 8,733
Other interest-earning assets ............... 1,409 1,611 1,284 1,574
Total interest-earning assets ............... 40,761 41,005 41,568 40,270
Interest-bearing deposits .................. 21,211 20,873 22,428 20,626
Short-term borrowed funds .................. 7,668 8,099 7,795 8,123
Long-term debt .............................. 6,206 6,454 5,606 6,025
Total interest-bearing liabilities ......... 35,085 35,426 35,829 34,774
Noninterest-bearing deposits ............... 5,604 5,408 5,609 5,402
Total deposits .............................. 26,815 26,281 28,038 26,028
Shareholders' equity ........................ 3,671 3,631 3,617 3,654
RATIOS (averages)
Annualized net loan losses to loans ......... .61% .53% .61% .45%
Annualized net yield on interest-earning
assets..................................... 4.11 4.03 4.12 3.99
Shareholders' equity to:
Total assets .............................. 8.03 7.93 7.79 8.11
Net loans ................................. 11.96 12.00 11.39 12.36
Annualized return on assets ............... 1.49 1.44 1.42 1.40
Annualized return on shareholders' equity.... 18.60 18.13 18.28 17.29
* Income taxes applicable to securities transactions were $1,603, $170, $118,
$134, $1,181, $149, $422 and $341, respectively
**Reported at amortized cost; excludes pretax unrealized gains on securities
available-for-sale of $60, $75, $27, $60, $74, $40, $54 and $100, 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. The corporation's principal
banking subsidiary is Wachovia Bank, N.A., which maintains
operations in Georgia, North Carolina and South Carolina. Credit
card services are provided through The First National Bank of
Atlanta. On October 31, 1997, Jefferson Bankshares, Inc. of
Charlottesville, Virginia was merged into Wachovia Corporation
following voter approval by shareholders of Jefferson Bankshares on
October 22. The merger was accounted for as a purchase transaction.
At September 30, 1997, Jefferson Bankshares had assets of $2.170
billion and equity of $220 million. The corporation currently has
pending separate merger agreements with Central Fidelity Banks,
Inc. of Richmond, Virginia, announced in June, and with 1st United
Bancorp of Boca Raton, Florida, announced in August. The merger
with 1st United Bancorp is expected to be accounted for as a
purchase transaction, while the merger with Central Fidelity is
anticipated to be accounted for as a pooling-of-interests
transaction. As of September 30, 1997, 1st United Bancorp had
assets of $736 million and equity of $72 million and Central
Fidelity had assets of $10.451 billion and equity of $840 million.
Both merger agreements are subject to approval by shareholders and
are expected to close in the fourth quarter of 1997.
Wachovia regularly evaluates acquisition opportunities and
conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some
cases, negotiations may take place and future acquisitions
involving cash, debt or equity securities may occur. Acquisitions
typically involve the payment of a premium over book values, and,
therefore, some dilution of Wachovia's book value and net income
per common share may occur in connection with any future
transactions.
The nation's economy continued to expand in the third quarter
of 1997, rising at an annualized rate of 3.5 percent compared with
3.3 percent growth in the second quarter. Within Wachovia's primary
operating states of Georgia, North Carolina and South Carolina,
economic conditions remained good, with seasonally adjusted
unemployment for the quarter averaging 4.4 percent, 3.8 percent and
4.6 percent, respectively, compared with 4.9 percent for the U.S.
Wachovia's net income for the third quarter of 1997 was
$167.256 million or $1.03 per fully diluted share compared with
$164.596 million or $.97 per fully diluted share a year earlier.
Year to date, net income totaled $495.961 million or $3.03 per
fully diluted share versus $473.829 million or $2.78 per fully
diluted share in the same period of 1996. Gains for the third
period and first nine months reflected good revenue growth offset
by aggressive spending for growth initiatives and Year 2000
conversion costs and by increased provisions for loan losses. Total
revenues, excluding securities transactions, rose $51.036 million
or 8.3 percent for the quarter and $161.061 million or 9 percent
year to date. Net income represented annualized returns of 18.55
percent on shareholders' equity and 1.43 percent on assets for the
quarter and 18.28 percent on equity and 1.42 percent on assets year
to date.
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
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Components of Earnings Per Primary Share TABLE 2
Three Months
Ended Nine Months Ended
September 30 September 30
1997 1996 Change 1997 1996 Change
-------- -------- --------- -------- --------- -------
Interest income .......................................... $5.37 $ 4.91 $.46 $15.58 $ 14.14 $1.44
Interest expense ....................................... 2.76 2.54 .22 7.98 7.37 .61
------ ------- ----- ------- -------- ------
Net interest income .................................... 2.61 2.37 .24 7.60 6.77 .83
Provision for loan losses .............................. .31 .24 .07 .91 .60 .31
------ ------- ----- ------- -------- ------
Net interest income after provision for loan losses ...... 2.30 2.13 .17 6.69 6.17 .52
Other operating revenue ................................. 1.41 1.18 .23 4.06 3.42 .64
Investment securities gains .............................. .01 .01 -- .01 .01 --
------ ------- ----- ------- -------- ------
Total other income ....................................... 1.42 1.19 .23 4.07 3.43 .64
Personnel expense ....................................... 1.18 .99 .19 3.34 2.87 .47
Other expense .......................................... 1.02 .90 .12 2.99 2.64 .35
------ ------- ----- ------- -------- ------
Total other expense .................................... 2.20 1.89 .31 6.33 5.51 .82
Income before income taxes .............................. 1.52 1.43 .09 4.43 4.09 .34
Applicable income taxes ................................. .48 .45 .03 1.39 1.30 .09
------ ------- ----- ------- -------- ------
Net income ............................................. $1.04 $ .98 $.06 $ 3.04 $ 2.79 $ .25
====== ======= ===== ======= ======== ======
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COMPUTATION OF EARNINGS PER COMMON SHARE TABLE 3
(thousands, except per share)
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
---------- ---------- ---------- ---------
PRIMARY
Average common shares outstanding .................. 159,101 166,262 160,891 168,083
Dilutive common stock options -- based on treasury
stock method using average market price ............ 2,395 1,579 2,251 1,564
Dilutive common stock awards -- based on treasury
stock method using average market price ............ 221 125 185 111
--------- --------- --------- ---------
Average primary shares outstanding .................. 161,717 167,966 163,327 169,758
========= ========= ========= =========
Net income .......................................... $167,256 $164,596 $495,961 $473,829
========= ========= ========= =========
Net income per common share -- primary ............ $ 1.04 $ .98 $ 3.04 $ 2.79
FULLY DILUTED
Average common shares outstanding .................. 159,101 166,262 160,891 168,083
Dilutive common stock options -- based on treasury
stock method using higher of period-end
market price or average market price ............... 2,838 1,881 2,715 1,906
Dilutive common stock awards -- based on treasury
stock method using higher of period-end
market price or average market price ............... 262 148 262 148
Convertible notes assumed converted ............... 6 63 8 114
--------- --------- --------- ---------
Average fully diluted shares outstanding ............ 162,207 168,354 163,876 170,251
========= ========= ========= =========
Net income .......................................... $167,256 $164,596 $495,961 $473,829
Add interest on convertible notes after taxes ...... 2 12 5 55
--------- --------- --------- ---------
Adjusted net income ................................. $167,258 $164,608 $495,966 $473,884
========= ========= ========= =========
Net income per common share -- fully diluted ...... $ 1.03 $ .97 $ 3.03 $ 2.78
6
NET INTEREST INCOME
Taxable equivalent net interest income for the third quarter
rose $20.351 million or 4.9 percent year over year and increased
$78.506 million or 6.5 percent for the first nine months of 1997.
Good loan demand and a higher net yield on interest-earning assets
accounted for the growth in both periods. Compared with the second
quarter of 1997, taxable equivalent net interest income was up
$8.680 million or 2 percent, reflecting greater loan volume and the
benefit of one additional accrual day in the period. The net yield
on interest-earning assets (taxable equivalent net interest income
as a percentage of average interest-earning assets) rose 9 basis
points for the quarter and 13 basis points year to date and was
higher by 1 basis point from the preceding three months.
Taxable equivalent interest income expanded $40.283 million or
4.8 percent for the third period and $129.952 million or 5.3
percent for the first nine months, the result of increased loans
and a higher average earning yield. Loans grew $2.098 billion or
6.8 percent for the three months and $2.204 billion or 7.4 percent
year to date with the average rate earned rising 23 basis points in
both periods. Total interest-earning assets by comparison advanced
a more moderate $918 million or 2.2 percent for the quarter and
$1.298 billion or 3.2 percent for the first nine months with the
average yield higher by 18 basis points and 17 basis points,
respectively. Taxable equivalent interest income was up $16.976
million or 2 percent from the second quarter, reflecting increased
loans, a higher average earning yield and the benefit of one
additional accrual day. Loans expanded $509 million or an
annualized 6.3 percent from the preceding three months with the
average yield up 4 basis points.
Commercial loans, including related real estate categories,
rose $1.471 billion or 8.1 percent for the quarter from a year
earlier and $1.302 billion or 7.3 percent for the first nine
months. Strong gains occurred in all categories except foreign
loans, which increased modestly, and in tax-exempt loans, which
declined due to paydowns in the ESOP portfolio and to the reduced
availability of tax-exempt borrowing and lending at acceptable
yields. Taxable commercial loans were up $621 million or 6.2
percent for the three months and $479 million or 4.9 percent year
to date. Commercial mortgages grew $433 million or 10.3 percent for
the quarter and $468 million or 11.5 percent for the first nine
months, while construction loans were higher by $414 million or
49.8 percent and $385 million or 50.7 percent, respectively. Lease
financing, which consists largely of corporate leases and other
structured tax-advantaged corporate transactions, increased $333
million or 49.1 percent for the third period and $303 million or
49.8 percent year to date. At September 30, 1997, commercial real
estate loans, based on regulatory definitions, were $5.929 billion
or 17.6 percent of total loans versus $5.171 billion or 16.4
percent one year earlier and $5.849 billion or 17.6 percent at June
30, 1997. 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.
Consumer loans, including residential mortgages, were higher by
$627 million or 5 percent for the quarter and $902 million or 7.4
percent year to date. Credit cards and residential mortgages
accounted for substantially all the growth in both periods,
offsetting softness in indirect retail loans which primarily
consists of automobile sales financing. Credit card loans grew $590
million or 13.8 percent for the three months and $719 million or
17.6 percent for the first nine months. Residential mortgages
increased $277 million or 6.1 percent for the quarter and $359
million or 8.2 percent year to date, reflecting growth in bank
equity loans and adjustable rate mortgages. At September 30, 1997,
managed credit card outstandings, which include securitized loans,
totaled $5.473 billion compared with $5.002 billion one year
earlier and $5.404 billion at June 30, 1997. Managed credit cards
at September 30, 1997 included $557 million of net securitized
loans versus $625 million one year earlier and $586 million at June
30, 1997.
7
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NET INTEREST INCOME AND AVERAGE BALANCES TABLE 4
Twelve
Months 1997
Ended
September 30 Third Second First
1997 Quarter Quarter Quarter
------------- ------------- ------------- -------------
NET INTEREST INCOME -- TAXABLE
EQUIVALENT (thousands)
Interest income:
Loans .................................... $2,782,100 $ 727,686 $ 705,179 $ 674,907
Investment securities ..................... 572,670 136,796 142,794 146,060
Interest-bearing bank balances ............ 6,926 620 445 360
Federal funds sold and securities
purchased under resale agreements.......... 13,434 5,337 4,001 2,203
Trading account assets ..................... 52,053 11,953 12,997 13,480
----------- --------- --------- ---------
Total .................................... 3,427,183 882,392 865,416 837,010
Interest expense:
Interest-bearing demand .................. 48,144 12,435 12,233 11,432
Savings and money market savings. ......... 326,598 87,407 84,481 79,351
Savings certificates ..................... 364,937 92,660 90,602 89,091
Large denomination certificates ............ 134,763 33,834 36,570 34,889
Time deposits in foreign offices ......... 80,674 23,824 22,361 17,357
Short-term borrowed funds .................. 411,205 109,298 105,889 95,069
Long-term debt ........................... 357,727 87,197 86,223 90,766
----------- --------- --------- ---------
Total .................................... 1,724,048 446,655 438,359 417,955
----------- --------- --------- ---------
Net interest income ........................ $1,703,135 $ 435,737 $ 427,057 $ 419,055
=========== ========= ========= =========
Annualized net yield on
interest-earning assets .................. 4.12% 4.12% 4.11% 4.14%
AVERAGE BALANCES (millions)
Assets:
Loans -- net of unearned income ............ $ 31,898 $ 32,758 $ 32,249 $ 31,481
Investment securities ..................... 8,151 7,837 8,193 8,327
Interest-bearing bank balances ............ 97 45 37 28
Federal funds sold and securities
purchased under resale agreements.......... 242 377 285 164
Trading account assets ..................... 976 906 956 1,050
----------- --------- --------- ---------
Total interest-earning assets ............ 41,364 41,923 41,720 41,050
Cash and due from banks .................. 2,561 2,535 2,576 2,558
Premises and equipment ..................... 634 634 633 639
Other assets .............................. 2,043 1,936 2,062 2,079
Unrealized gains on securities
available-for-sale ........................ 60 75 27 60
Allowance for loan losses .................. (404) (413) (399) (402)
----------- --------- --------- ---------
Total assets ........................... $ 46,258 $ 46,690 $ 46,619 $ 45,984
=========== ========= ========= =========
Liabilities and shareholders' equity:
Interest-bearing demand .................. $ 3,314 $ 3,282 $ 3,324 $ 3,297
Savings and money market savings ......... 8,478 8,814 8,632 8,394
Savings certificates ..................... 6,454 6,451 6,431 6,426
Large denomination certificates ............ 2,383 2,343 2,621 2,586
Time deposits in foreign offices ......... 1,492 1,714 1,633 1,331
Short-term borrowed funds .................. 7,763 7,991 7,943 7,444
Long-term debt ........................... 5,757 5,461 5,450 5,910
----------- --------- --------- ---------
Total interest-bearing liabilities ....... 35,641 36,056 36,034 35,388
Demand deposits in domestic offices ......... 5,604 5,672 5,626 5,515
Demand deposits in foreign offices ......... -- -- -- --
Noninterest-bearing time deposits in
domestic offices ........................... 4 5 5 3
Other liabilities ........................... 1,378 1,351 1,361 1,425
Shareholders' equity ........................ 3,631 3,606 3,593 3,653
----------- --------- --------- ---------
Total liabilities and
shareholders' equity .................. $ 46,258 $ 46,690 $ 46,619 $ 45,984
=========== ========= ========= =========
Total deposits .............................. $ 27,729 $ 28,281 $ 28,272 $ 27,552
Nine Months Ended
1996 September 30
Fourth Third
Quarter Quarter 1997 1996
------------- ------------- --------------- ---------------
NET INTEREST INCOME -- TAXABLE
EQUIVALENT (thousands)
Interest income:
Loans .................................... $ 674,328 $ 661,220 $ 2,107,772 $ 1,913,331
Investment securities ..................... 147,020 155,485 425,650 467,511
Interest-bearing bank balances ............ 5,501 9,329 1,425 27,605
Federal funds sold and securities purchased
under resale agreements................... 1,893 3,275 11,541 9,680
Trading account assets ..................... 13,623 12,800 38,430 36,739
--------- --------- ----------- -----------
Total .................................... 842,365 842,109 2,584,818 2,454,866
Interest expense:
Interest-bearing demand .................. 12,044 11,537 36,100 35,122
Savings and money market savings. ......... 75,359 68,561 251,239 198,473
Savings certificates ..................... 92,584 94,149 272,353 277,301
Large denomination certificates ............ 29,470 33,770 105,293 106,267
Time deposits in foreign offices ......... 17,132 13,676 63,542 37,810
Short-term borrowed funds .................. 100,949 109,725 310,256 330,145
Long-term debt ........................... 93,541 95,305 264,186 266,405
--------- --------- ----------- -----------
Total .................................... 421,079 426,723 1,302,969 1,251,523
--------- --------- ----------- -----------
Net interest income ........................ $ 421,286 $ 415,386 $ 1,281,849 $ 1,203,343
========= ========= =========== ===========
Annualized net yield on interest-earning
assets................... .................. 4.11% 4.03% 4.12% 3.99%
AVERAGE BALANCES (millions)
Assets:
Loans -- net of unearned income ............ $ 31,101 $ 30,660 $ 32,167 $ 29,963
Investment securities ..................... 8,251 8,734 8,117 8,733
Interest-bearing bank balances ............ 276 478 37 465
Federal funds sold and securities purchased
under resale agreements .................... 138 240 277 237
Trading account assets ..................... 995 893 970 872
--------- --------- ----------- -----------
Total interest-earning assets ............ 40,761 41,005 41,568 40,270
Cash and due from banks .................. 2,576 2,434 2,556 2,522
Premises and equipment ..................... 632 642 635 640
Other assets .............................. 2,095 2,059 2,026 1,931
Unrealized gains on securities
available-for-sale ........................ 74 40 54 100
Allowance for loan losses .................. (401) (402) (405) (404)
--------- --------- ----------- -----------
Total assets ........................... $ 45,737 $ 45,778 $ 46,434 $ 45,059
========= ========= =========== ===========
Liabilities and shareholders' equity:
Interest-bearing demand .................. $ 3,354 $ 3,253 $ 3,300 $ 3,279
Savings and money market savings ......... 8,072 7,733 8,615 7,508
Savings certificates ..................... 6,510 6,598 6,436 6,497
Large denomination certificates ............ 1,989 2,256 2,516 2,384
Time deposits in foreign offices ......... 1,286 1,033 1,561 958
Short-term borrowed funds .................. 7,668 8,099 7,795 8,123
Long-term debt ........................... 6,206 6,454 5,606 6,025
--------- --------- ----------- -----------
Total interest-bearing liabilities........ 35,085 35,426 35,829 34,774
Demand deposits in domestic offices ......... 5,599 5,402 5,605 5,396
Demand deposits in foreign offices ......... -- 1 -- 2
Noninterest-bearing time deposits in
domestic offices ........................... 5 5 4 4
Other liabilities ........................... 1,377 1,313 1,379 1,229
Shareholders' equity ........................ 3,671 3,631 3,617 3,654
--------- --------- ----------- -----------
Total liabilities and
shareholders' equity .................. $ 45,737 $ 45,778 $ 46,434 $ 45,059
========= ========= =========== ===========
Total deposits .............................. $ 26,815 $ 26,281 $ 28,037 $ 26,028
8
Loans outstanding as of September 30, 1997 and the preceding four quarters are
shown below.
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
1997 1997 1997 1996 1996
$ THOUSANDS ------------- ------------- ------------- ------------- ------------
Commercial ............ $11,394,503 $11,097,920 $10,903,268 $ 9,661,757 $10,517,396
Tax-exempt ............ 1,621,543 1,772,799 1,752,655 1,936,785 1,998,718
------------ ------------ ------------ ------------ ------------
Total commercial...... 13,016,046 12,870,719 12,655,923 11,598,542 12,516,114
Direct retail ......... 754,420 757,401 752,091 782,478 772,947
Indirect retail ......... 2,335,869 2,345,428 2,438,554 2,491,029 2,562,665
Credit card ............ 4,915,854 4,818,185 4,802,836 4,819,197 4,377,293
Other revolving credit 359,901 355,129 355,699 359,594 355,254
------------ ------------ ------------ ------------ ------------
Total retail ......... 8,366,044 8,276,143 8,349,180 8,452,298 8,068,159
Construction ............ 1,248,823 1,234,002 1,075,005 979,649 874,928
Commercial mortgages ... 4,679,722 4,614,698 4,474,620 4,349,438 4,296,306
Residential mortgages ... 4,908,138 4,759,201 4,657,805 4,644,858 4,546,274
------------ ------------ ------------ ------------ ------------
Total real estate ... 10,836,683 10,607,901 10,207,430 9,973,945 9,717,508
Lease financing* ...... 1,038,621 1,002,957 840,833 822,703 745,673
Foreign ............... 496,164 497,905 516,890 435,704 501,349
------------ ------------ ------------ ------------ ------------
Total loans ............ $33,753,558 $33,255,625 $32,570,256 $31,283,192 $31,548,803
============ ============ ============ ============ ============
*Primarily consists of corporate leases and other structured
tax-advantaged corporate transactions.
Investment securities, the second largest category of
interest-earning assets, declined $897 million or 10.3 percent for
the quarter and $616 million or 7.1 percent year to date. Decreases
reflected balance sheet management planning and the impact of
continued good loan growth. Available-for-sale securities were down
$708 million or 9.7 percent for the three months and $407 million
or 5.6 percent for the first nine months, while held-to-maturity
securities were lower by $189 million or 13.2 percent and $209
million or 13.9 percent, respectively. Investment securities
declined $356 million or 4.3 percent from the second quarter,
primarily due to runoff in the available-for-sale portfolio. At
September 30, 1997, securities available-for-sale totaled $5.809
billion and securities held-to-maturity were $1.218 billion as
presented in the following table.
$ in THOUSANDS
Securities available-for-sale at market value:
U.S. Government and agency .................. $4,357,709
Mortgage-backed securities .................. 1,357,446
Other ....................................... 93,559
-----------
Total securities available-for-sale ......... 5,808,714
Securities held-to-maturity:
Mortgage-backed securities .................. 1,006,599
State and municipal ........................... 208,349
Other ....................................... 2,850
-----------
Total securities held-to-maturity ............ 1,217,798
-----------
Total investment securities .................. $7,026,512
===========
The market value of the held-to-maturity securities portfolio
at September 30, 1997 was $1.286 billion, representing a $68
million appreciation over book value. Securities available-for-sale
marked to fair market value had an unrealized gain of $89.228
million, pretax, and $55.694 million, net of tax, at third-quarter
close. Average securities available-for-sale had an unrealized gain
of $75.084 million, pretax, and $46.855 million, net of tax, for
the third quarter and $54.462 million, pretax, and $33.849 million,
net of tax, for the first nine months of the year.
Interest expense rose $19.932 million or 4.7 percent for the
third quarter and $51.446 million or 4.1 percent year to date,
reflecting increased levels of interest-bearing liabilities to
support loan growth and a higher average rate paid. Interest-bearing
liabilities expanded $630 million or 1.8 percent for the three
months and $1.055 billion or 3 percent for the first nine months
with the average rate paid rising 12 basis points and 5 basis
points, respectively. Moderating the growth in interest expense
was a more favorable funding mix in both periods, as time deposits
increased while short-term borrowings and long-term debt declined.
Compared with the second quarter, interest expense was up $8.296
million or 1.9 percent, primarily due to the impact of an additional
accrual day in the period and a higher average rate paid.
9
The corporation is issuing a variety of debt instruments to
further broaden its funding base while continuing innovative
marketing for traditional funding sources. Broadened wholesale
funding sources include a global bank note program, the issuance of
senior debt and trust capital securities. Expansion of traditional
funding sources includes the marketing of the corporation's
Premiere account, which is a high-yield money market deposit
product, Business Premiere, PC Banking, and significant
enhancements to the corporation's basic checking products.
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 increased $1.731 billion or 8.3 percent for the
third period and $1.802 billion or 8.7 percent year to date. The
mix of time deposits to total interest-bearing liabilities rose to
62.7 percent for the quarter from 58.9 percent a year earlier and
to 62.6 percent for the first nine months compared with 59.3
percent in the same period of 1996. Substantially all the growth
for the quarter and first nine months occurred in savings and money
market savings, foreign time deposits and large denomination
certificates. Gains in savings and money market savings, which rose
$1.081 billion or 14 percent for the three months and $1.107
billion or 14.7 percent year to date, reflected continued good
growth in the corporation's Premiere account, a federally insured
savings account offering interest rates competitive with money
market rates. Compared with the preceding three months, time
deposits were down slightly in the third quarter, reflecting
runoffs primarily in large denomination certificates.
Short-term borrowings were lower by $108 million or 1.3 percent
for the three months and $328 million or 4 percent for the first
nine months. Federal funds purchased and securities sold under
repurchase agreements declined $813 million or 12.6 percent for the
quarter and $639 million or 10.2 percent year to date, offsetting
increases in both commercial paper and other short-term borrowings.
Commercial paper rose $215 million or 35.5 percent for the three
months and $174 million or 30.4 percent for the first nine months,
while other short-term borrowings, primarily consisting of
short-term bank notes, expanded $490 million or 46.7 percent and
$137 million or 10.9 percent, respectively. Short-term borrowings
were modestly higher from the second quarter, with increases
occurring both in federal funds purchased and securities sold under
repurchase agreements and in commercial paper borrowings.
10
- --------------------------------------------------------------------------------
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS -- THIRD QUARTER* TABLE 5
Average Volume Average Rate
- -------------------- ---------------
1997 1996 1997 1996
- ---------- --------- ------- -------
(Millions) INTEREST INCOME
Loans:
$ 10,595 $ 9,974 7.28 7.05 Commercial ........................
1,655 1,991 8.80 8.82 Tax-exempt ........................
--------- --------
12,250 11,965 7.48 7.35 Total commercial ..................
755 766 9.57 9.41 Direct retail .....................
2,334 2,563 8.33 8.45 Indirect retail .....................
4,860 4,270 13.05 12.30 Credit card ........................
354 354 12.24 12.15 Other revolving credit ............
--------- --------
8,303 7,953 11.37 10.77 Total retail ........................
1,245 831 8.92 8.99 Construction ........................
4,652 4,219 8.29 8.22 Commercial mortgages ...............
4,803 4,526 8.20 8.39 Residential mortgages ...............
--------- --------
10,700 9,576 8.33 8.37 Total real estate ..................
1,011 678 10.06 8.74 Lease financing .....................
494 488 6.88 7.04 Foreign ...........................
--------- --------
32,758 30,660 8.81 8.58 Total loans ........................
Investment securities:
Held-to-maturity:
-- -- -- -- U.S. Government and agency...........
1,033 1,178 8.01 8.02 Mortgage-backed securities .........
210 255 10.14 11.10 State and municipal ...............
3 2 8.87 7.89 Other ..............................
--------- --------
1,246 1,435 8.37 8.56 Total securities held-to-maturity....
Available-for-sale:**
5,005 5,344 6.54 6.73 U.S. Government and agency...........
1,379 1,584 7.12 7.05 Mortgage-backed securities .........
207 371 6.21 6.55 Other ..............................
--------- --------
6,591 7,299 6.65 6.79 Total securities available-for-sale...
--------- --------
7,837 8,734 6.93 7.08 Total investment securities..........
45 478 5.42 7.77 Interest-bearing bank balances ......
Federal funds sold and securities
377 240 5.61 5.44 purchased under resale agreements..
906 893 5.24 5.70 Trading account assets ............
--------- --------
$ 41,923 $41,005 8.35 8.17 Total interest-earning assets........
========= ========
INTEREST EXPENSE
$ 3,282 $ 3,253 1.50 1.41 Interest-bearing demand ............
8,814 7,733 3.93 3.53 Savings and money market savings.....
6,451 6,598 5.70 5.68 Savings certificates ...............
2,343 2,256 5.73 5.96 Large denomination certificates ...
--------- --------
Total time deposits in domestic
20,890 19,840 4.30 4.17 offices ............................
1,714 1,033 5.52 5.27 Time deposits in foreign offices ...
--------- --------
22,604 20,873 4.39 4.23 Total time deposits ...............
Federal funds purchased and securities
5,630 6,443 5.41 5.43 sold under repurchase agreements...
821 606 5.12 4.87 Commercial paper ..................
1,540 1,050 5.64 5.46 Other short-term borrowed funds......
--------- --------
7,991 8,099 5.43 5.39 Total short-term borrowed funds ....
2,895 4,827 6.18 5.73 Bank notes ........................
2,566 1,627 6.51 6.30 Other long-term debt ...............
--------- --------
5,461 6,454 6.33 5.87 Total long-term debt ...............
--------- --------
Total interest-bearing
$ 36,056 $35,426 4.91 4.79 liabilities .......................
========= ======== ------ ------
3.44 3.38 Interest rate spread
====== ======
Net yield on interest-earning assets
4.12 4.03 and net interest income ............
====== ======
Variance
Interest Attributable to
- --------------------- -------------------------
1997 1996 Variance Rate Volume
- -------- ------------ ----------- -------------- ---------
(Thousands)
$194,302 $176,809 $ 17,493 $ 5,937 $ 11,556
36,709 44,127 (7,418) (96) (7,322)
--------- --------- ----------
231,011 220,936 10,075 4,248 5,827
18,212 18,115 97 329 (232)
48,982 54,414 (5,432) (734) (4,698)
159,801 132,021 27,780 8,403 19,377
10,924 10,827 97 102 (5)
--------- --------- ----------
237,919 215,377 22,542 12,490 10,052
27,978 18,783 9,195 (144) 9,339
97,244 87,206 10,038 755 9,283
99,317 95,381 3,936 (2,070) 6,006
--------- --------- ----------
224,539 201,370 23,169 (928) 24,097
25,642 14,900 10,742 2,495 8,247
8,575 8,637 (62) (184) 122
--------- --------- ----------
727,686 661,220 66,466 18,449 48,017
-- -- -- -- --
20,845 23,728 (2,883) (28) (2,855)
5,369 7,113 (1,744) (567) (1,177)
64 40 24 5 19
--------- --------- ----------
26,278 30,881 (4,603) (653) (3,950)
82,520 90,408 (7,888) (2,397) (5,491)
24,756 28,088 (3,332) 276 (3,608)
3,242 6,108 (2,866) (296) (2,570)
--------- --------- ----------
110,518 124,604 (14,086) (2,429) (11,657)
--------- --------- ----------
136,796 155,485 (18,689) (3,145) (15,544)
620 9,329 (8,709) (2,151) (6,558)
5,337 3,275 2,062 105 1,957
11,953 12,800 (847) (1,020) 173
--------- --------- ----------
882,392 842,109 40,283 19,778 20,505
12,435 11,537 898 785 113
87,407 68,561 18,846 8,351 10,495
92,660 94,149 (1,489) 363 (1,852)
33,834 33,770 64 (1,261) 1,325
--------- --------- ----------
226,336 208,017 18,319 6,704 11,615
23,824 13,676 10,148 670 9,478
--------- --------- ----------
250,160 221,693 28,467 8,805 19,662
76,822 87,891 (11,069) (308) (10,761)
10,592 7,414 3,178 393 2,785
21,884 14,420 7,464 484 6,980
--------- --------- ----------
109,298 109,725 (427) 883 (1,310)
45,109 69,537 (24,428) 5,038 (29,466)
42,088 25,768 16,320 876 15,444
--------- --------- ----------
87,197 95,305 (8,108) 7,064 (15,172)
--------- --------- ----------
446,655 426,723 19,932 11,557 8,375
--------- --------- ----------
$435,737 $415,386 $ 20,351 10,061 10,290
======== ========= =========
* 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 $75 million in 1997 and $40 million in 1996
11
- --------------------------------------------------------------------------------
Taxable Equivalent Rate/Volume Variance Analysis -- Nine Months* Table 6
Average Volume Average Rate
- -------------------- ---------------
1997 1996 1997 1996
- ---------- --------- ------- -------
(Millions) INTEREST INCOME
Loans:
$ 10,319 $ 9,840 7.22 7.05 Commercial ........................
1,709 2,073 8.88 8.91 Tax-exempt ........................
--------- --------
12,028 11,913 7.46 7.37 Total commercial ..................
759 753 9.48 9.40 Direct retail .....................
2,394 2,578 8.45 8.29 Indirect retail .....................
4,811 4,092 12.89 11.88 Credit card ........................
356 354 12.19 12.22 Other revolving credit ............
--------- --------
8,320 7,777 11.27 10.46 Total retail ........................
1,144 759 9.07 9.20 Construction ........................
4,554 4,086 8.28 8.28 Commercial mortgages ...............
4,724 4,365 8.11 8.44 Residential mortgages ...............
--------- --------
10,422 9,210 8.29 8.43 Total real estate ..................
911 608 9.43 9.11 Lease financing .....................
486 455 6.86 7.04 Foreign ...........................
--------- --------
32,167 29,963 8.76 8.53 Total loans ........................
Investment securities:
Held-to-maturity:
-- -- -- -- U.S. Government and agency .........
1,071 1,221 8.03 8.07 Mortgage-backed securities .........
222 282 10.77 11.19 State and municipal ...............
3 2 10.77 8.37 Other ..............................
--------- --------
1,296 1,505 8.50 8.65 Total securities held-to-maturity....
Available-for-sale:**
5,056 5,438 6.63 6.80 U.S. Government and agency .........
1,432 1,570 7.14 7.05 Mortgage-backed securities .........
333 220 6.48 6.29 Other ..............................
--------- --------
Total securities
6,821 7,228 6.73 6.84 available-for-sale ..................
--------- --------
8,117 8,733 7.01 7.15 Total investment securities .........
37 465 5.15 7.92 Interest-bearing bank balances ......
Federal funds sold and
securities purchased under
277 237 5.58 5.45 resale agreements ..................
970 872 5.30 5.63 Trading account assets ............
--------- --------
$ 41,568 $40,270 8.31 8.14 Total interest-earning assets........
========= ========
INTEREST EXPENSE
$ 3,300 $ 3,279 1.46 1.43 Interest-bearing demand ............
8,615 7,508 3.90 3.53 Savings and money market savings.....
6,436 6,497 5.66 5.70 Savings certificates ...............
2,516 2,384 5.60 5.96 Large denomination certificates ...
--------- --------
Total time deposits in
20,867 19,668 4.26 4.19 domestic offices ..................
1,561 958 5.44 5.27 Time deposits in foreign offices ...
--------- --------
22,428 20,626 4.34 4.24 Total time deposits ...............
Federal funds purchased and
securities sold under
5,651 6,290 5.29 5.46 repurchase agreements ...............
746 572 5.05 4.89 Commercial paper ..................
1,398 1,261 5.58 5.52 Other short-term borrowed funds ....
--------- --------
7,795 8,123 5.32 5.43 Total short-term borrowed funds ....
3,121 4,594 6.13 5.73 Bank notes ........................
2,485 1,431 6.51 6.48 Other long-term debt ...............
--------- --------
5,606 6,025 6.30 5.91 Total long-term debt ...............
--------- --------
Total interest-bearing
$ 35,829 $34,774 4.86 4.81 liabilities ........................
========= ======== ------ ------
3.45 3.33 Interest rate spread
====== ======
Net yield on interest-earning assets
4.12 3.99 and net interest income ............
====== ======
Variance
Interest Attributable to
------------------------------ -------------------------
1997 1996 Variance Rate Volume
------------- ----------- ------------ ------------ ------------
(Thousands)
$ 557,545 $ 519,182 $ 38,363 $ 12,665 $ 25,698
113,502 138,237 (24,735) (603) (24,132)
----------- ----------- ----------
671,047 657,419 13,628 7,197 6,431
53,777 52,969 808 418 390
151,237 159,929 (8,692) 2,847 (11,539)
463,971 363,779 100,192 32,619 67,573
32,476 32,372 104 (95) 199
----------- ----------- ----------
701,461 609,049 92,412 48,305 44,107
77,633 52,286 25,347 (795) 26,142
281,932 253,379 28,553 (428) 28,981
286,467 275,709 10,758 (11,254) 22,012
----------- ----------- ----------
646,032 581,374 64,658 (10,602) 75,260
64,305 41,488 22,817 1,496 21,321
24,927 24,001 926 (670) 1,596
----------- ----------- ----------
2,107,772 1,913,331 194,441 50,963 143,478
-- -- -- -- --
64,317 73,725 (9,408) (440) (8,968)
17,903 23,630 (5,727) (881) (4,846)
191 139 52 42 10
----------- ----------- ----------
82,411 97,494 (15,083) (1,764) (13,319)
250,651 276,794 (26,143) (7,067) (19,076)
76,445 82,854 (6,409) 947 (7,356)
16,143 10,369 5,774 297 5,477
----------- ----------- ----------
343,239 370,017 (26,778) (6,227) (20,551)
----------- ----------- ----------
425,650 467,511 (41,861) (9,420) (32,441)
1,425 27,605 (26,180) (7,218) (18,962)
11,541 9,680 1,861 229 1,632
38,430 36,739 1,691 (2,281) 3,972
----------- ----------- ----------
2,584,818 2,454,866 129,952 49,881 80,071
36,100 35,122 978 751 227
251,239 198,473 52,766 21,743 31,023
272,353 277,301 (4,948) (2,410) (2,538)
105,293 106,267 (974) (6,695) 5,721
----------- ----------- ----------
664,985 617,163 47,822 9,701 38,121
63,542 37,810 25,732 1,221 24,511
----------- ----------- ----------
728,527 654,973 73,554 15,260 58,294
223,804 257,055 (33,251) (7,765) (25,486)
28,154 20,941 7,213 677 6,536
58,298 52,149 6,149 465 5,684
----------- ----------- ----------
310,256 330,145 (19,889) (6,708) (13,181)
143,209 196,953 (53,744) 13,045 (66,789)
120,977 69,452 51,525 215 51,310
----------- ----------- ----------
264,186 266,405 (2,219) 16,944 (19,163)
1,302,969 1,251,523 51,446 13,183 38,263
----------- ----------- ----------
$1,281,849 $1,203,343 $ 78,506 39,114 39,392
=========== =========== ==========
* 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 $54 million in 1997 and $100 million in 1996
12
Long-term debt declined $993 million or 15.4 percent for the
third quarter and $419 million or 7 percent year to date but was up
modestly from the second quarter. Decreases from year-earlier
periods occurred in medium-term bank notes, down $1.932 billion or
40 percent for the three months and $1.473 billion or 32.1 percent
for the first nine months. Partially offsetting these declines were
higher levels of other long-term debt. At September 30, 1997, other
long-term debt included $250 million of 30-year subordinated debt
with a 10-year put option issued in the fourth quarter of 1995;
$200 million of 10-year senior debt fixed-rate notes issued in
November 1996; and a total of $900 million of trust capital
securities issued in December 1996, January 1997 and June 1997. The
January issuance of trust capital securities was made by Wachovia
Capital Trust II (WCT II), a wholly owned subsidiary, for $300
million of floating rate capital securities due in 2027. WCT II
invested the proceeds of the capital securities, together with
$9.280 million paid by the corporation for WCT II'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. WCT II's sole asset is the junior subordinated
deferrable interest debentures which mature in 2027. The
corporation has fully and unconditionally guaranteed all of WCT
II's obligations under the capital securities. The June issuance
was for $300 million of fixed rate capital securities made by
Wachovia Capital Trust V, a consolidated subsidiary, and is due in
2027. All of the capital securities are rated Aa3 by Moody's and A+
by Standard & Poor's and qualify for inclusion in Tier I capital
under risk-based capital guidelines.
Wachovia Bank has an ongoing $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. At September 30, 1997,
short-term bank notes were $670 million and had an average cost of
5.58 percent and an average maturity of 1.2 months compared with
$266 million in outstandings with an average cost of 5.38 percent
and an average maturity of 8.9 months one year earlier. Medium-term
bank notes were $2.939 billion with an average cost of 6.06 percent
and an average maturity of 3.1 years versus $4.529 billion, 5.68
percent and 1.4 years, respectively, at the end of the third
quarter of 1996. Included in medium-term bank notes at September
30, 1997 was $500 million of five-year floating rate notes issued
in May 1996; $100 million of two-year fixed-rate notes issued in
August 1996; $250 million of 12-year fixed-rate notes issued in
October 1996; and $350 million of five-year floating rate notes
issued in May 1997. All of the medium-term bank notes were issued
in Europe and are rated Aa2 by Moody's and AA+ by Standard &
Poor's.
Gross deposits averaged $28.281 billion for the third period and
$28.037 billion for the first nine months, an increase of $2 billion
or 7.6 percent and $2.009 billion or 7.7 percent, respectively, from
year-earlier periods. Collected deposits, net of float, averaged
$26.419 billion for the quarter and $26.165 billion year to date, up
$1.956 billion or 8 percent and $1.959 billion or 8.1 percent,
respectively, from the same periods in 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 September 30,
1997,the model indicated the impact of a 200 basis point gradual
rise in rates
13
over 12 months would approximate a .2 percent decrease in net
interest income, while a 200 basis point decline in rates over the
same period would approximate a .1 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 September 30, 1997,
the corporation had $2.912 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. 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 $46
million at September 30, 1997. The fair value of all asset and
liability derivative positions for which counterparties were
exposed to the corporation amounted to $13 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
September 30, 1997
-----------------------------------------------------
Notional Fair Value Fair Value Net Fair Value
Value Gains (Losses) Gains (Losses)
---------- ------------ ------------ ----------------
$ in millions
Convert floating rate liabilities to fixed:
Swaps-pay fixed/receive floating ......... $ 359 $-- $(3) $(3)
Convert fixed rate assets to floating:
Swaps-pay fixed/receive floating ......... 351 -- (6) (6)
Forward starting swaps-pay
fixed/receive floating .................. 18 -- (1) (1)
Convert fixed rate liabilities to floating:
Swaps-receive fixed/pay floating ......... 1,350 38 (3) 35
Convert term liabilities with quarterly
rate resets to monthly:
Swaps-receive floating/pay floating ...... 300 -- -- --
Convert floating rate assets to fixed:
Swaps-receive fixed/pay floating ......... 409 6 -- 6
Index amortizing swaps-receive
fixed/pay floating ..................... 125 2 -- 2
------- ---- ------ -----
Total derivatives ..................... $2,912 $46 ($13) $ 33
======= ==== ======= =====
September 30, 1996
--------------------------
Notional Net Fair Value
Value Gains (Losses)
$ in millions ---------- ---------------
Convert floating rate liabilities to fixed:
Swaps-pay fixed/receive floating ......... $ 82 ($2)
Convert fixed rate assets to floating:
Swaps-pay fixed/receive floating ......... 370 (4)
Forward starting swaps-pay
fixed/receive floating .................. 39 (2)
Convert fixed rate liabilities to floating:
Swaps-receive fixed/pay floating ......... 400 (7)
Convert term liabilities with quarterly
rate resets to monthly:
Swaps-receive floating/pay floating ...... 300 --
Convert floating rate assets to fixed:
Swaps-receive fixed/pay floating ......... 311 2
Index amortizing swaps-receive
fixed/pay floating ..................... 250 5
------- ----
Total derivatives ..................... $1,752 ($8)
======= =====
14
Maturity Schedule of Asset and Liability Management Derivatives
September 30, 1997
Within
One Two Three
Year Years Years
---------- ---------- ----------
$ in millions
Interest rate swaps:
Pay fixed/receive floating:
Notional amount ..................... $ 291 $ 314 $ 34
Weighted average rates received ...... 4.58% 5.77% 5.83%
Weighted average rates paid ......... 7.24 6.07 6.59
Receive fixed/pay floating:
Notional amount ..................... $ 376 $ 201 $ 51
Weighted average rates received ...... 7.04% 6.83% 6.77%
Weighted average rates paid ......... 5.76 5.79 5.75
Receive floating/pay floating:
Notional amount ..................... -- -- --
Weighted average rates received ...... -- -- --
Weighted average rates paid ......... -- -- --
Index amortizing swaps:*
Receive fixed/pay floating:
Notional amount ..................... $ 125 -- --
Weighted average rates received ...... 8.56% -- --
Weighted average rates paid ......... 5.72 -- --
Total interest rate swaps:
Notional amount ..................... $ 792 $ 515 $ 85
Weighted average rates received ...... 6.38% 6.19% 6.39%
Weighted average rates paid ......... 6.29 5.97 6.09
Forward starting interest rate swaps:
Notional amount ..................... -- -- --
Weighted average rates paid ......... -- -- --
Total derivatives (notional amount) $ 792 $ 515 $ 85
Over Average
Four Five Five Life
Years Years Years Total (Years)
---------- ---------- ---------- ---------- --------
$ in millions
Interest rate swaps:
Pay fixed/receive floating:
Notional amount ..................... $ 6 $ 1 $ 64 $ 710 1.76
Weighted average rates received ...... 6.29% 5.75% 5.72% 5.29%
Weighted average rates paid ......... 9.29 6.19 7.88 6.77
Receive fixed/pay floating:
Notional amount ..................... $ 104 $ 100 $ 927 $1,759 11.98
Weighted average rates received ...... 6.52% 7.07% 7.37% 7.15%
Weighted average rates paid ......... 5.76 6.00 5.82 5.81
Receive floating/pay floating:
Notional amount ..................... $ 300 -- -- $ 300 3.68
Weighted average rates received ...... 5.69% -- -- 5.69%
Weighted average rates paid ......... 5.66 -- -- 5.66
Index amortizing swaps:*
Receive fixed/pay floating:
Notional amount ..................... -- -- -- $ 125 .42
Weighted average rates received ...... -- -- -- 8.56%
Weighted average rates paid ......... -- -- -- 5.72
Total interest rate swaps:
Notional amount ..................... $ 410 $ 101 $ 991 $2,894 8.11
Weighted average rates received ...... 5.91% 7.06% 7.27% 6.61%
Weighted average rates paid ......... 5.74 6.00 5.95 6.02
Forward starting interest rate swaps:
Notional amount ..................... -- -- $ 18 $ 18 8.36
Weighted average rates paid ......... -- -- 8.04% 8.04%
Total derivatives (notional amount) $ 410 $ 101 $1,009 $2,912 8.11
*Maturity is based upon expected average lives rather than
contractual lives.
15
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 recognized immediately 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.
NONPERFORMING ASSETS
Nonperforming assets at September 30, 1997 were $67.853 million
or .20 percent of period-end loans and foreclosed property. The
total was down $10.297 million or 13.2 percent from one year
earlier, reflecting lower levels of both nonperforming loans and
foreclosed property. Nonperforming assets decreased $978 thousand or
1.4 percent from June 30, 1997, due to reductions in foreclosed
property.
The largest category of nonperforming assets is real estate
related. Real estate nonperforming assets at September 30, 1997
were $52.617 million or .49 percent of real estate loans and
foreclosed real estate versus $61.689 million or .63 percent one
year earlier and $53.007 million or .50 percent at June 30, 1997.
Included in these totals were real estate nonperforming loans of
$44.003 million at September 30, 1997, $51.002 million one year
earlier and $43.009 million at the end of the second quarter.
Commercial real estate nonperforming assets were $28.199 million
or .48 percent of related loans and foreclosed real estate compared
with $34.932 million or .68 percent at September 30, 1996 and
$26.627 million or .46 percent at June 30, 1997. Commercial real
estate nonperforming loans were $24.943 million at September 30,
1997, $29.171 million one year earlier and $23.632 million at
second-quarter close.
16
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS TABLE 7
(thousands)
Sept. 30 June 30
1997 1997
---------------- ----------
NONPERFORMING ASSETS
Cash-basis assets -- domestic borrowers ........................... $ 55,563* $54,837
Restructured loans -- domestic .................................... --** --
----------- --------
Total nonperforming loans ....................................... 55,563 54,837
Foreclosed property:
Foreclosed real estate .......................................... 10,471 12,037
Less valuation allowance ....................................... 1,857 2,039
Other foreclosed assets .......................................... 3,676 3,996
----------- --------
Total foreclosed property ....................................... 12,290 13,994
----------- --------
Total nonperforming assets .................................... $ 67,853*** $68,831
=========== ========
Nonperforming loans to period-end loans ........................... .16% .16%
Nonperforming assets to period-end loans and foreclosed property... .20 .21
Period-end allowance for loan losses times nonperforming loans ... 7.37x 7.46x
Period-end allowance for loan losses times nonperforming assets ... 6.03 5.95
CONTRACTUALLY PAST DUE LOANS
(accruing loans past due 90 days or more)
Domestic borrowers ................................................ $ 56,436 $60,649
=========== ========
March 31 Dec. 31 Sept. 30
1997 1996 1996
----------- ---------- ----------
Nonperforming Assets
Cash-basis assets -- domestic borrowers ........................... $ 57,934 $60,066 $61,283
Restructured loans -- domestic .................................... -- -- --
-------- -------- --------
Total nonperforming loans ....................................... 57,934 60,066 61,283
Foreclosed property:
Foreclosed real estate .......................................... 12,189 11,326 12,852
Less valuation allowance ....................................... 1,975 2,115 2,165
Other foreclosed assets .......................................... 5,283 8,213 6,180
-------- -------- --------
Total foreclosed property ....................................... 15,497 17,424 16,867
-------- -------- --------
Total nonperforming assets .................................... $ 73,431 $77,490 $78,150
======== ======== ========
Nonperforming loans to period-end loans ........................... .18% .19% .19%
Nonperforming assets to period-end loans and foreclosed property .23 .25 .25
Period-end allowance for loan losses times nonperforming loans ... 7.07x 6.81x 6.68x
Period-end allowance for loan losses times nonperforming assets ... 5.57 5.28 5.24
Contractually Past Due Loans
(accruing loans past due 90 days or more)
Domestic borrowers ................................................ $ 54,717 $58,842 $53,304
======== ======== ========
*Includes $10,749 of loans which have been defined as impaired per FASB
Statement No. 114, Accounting for Impairment of a Loan
**Excludes $199 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 $12,632; includes $6,546 of
nonperforming assets on which interest and principal are paid current
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $50.344 million for the third
quarter and $148.057 million for the first nine months of 1997,
modestly exceeding net loan losses and up $9.614 million or 23.6
percent and $45.589 million or 44.5 percent, respectively, from
year-earlier periods. Compared with the second quarter, the
provision was higher by $629 thousand or 1.3 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.
Net loan losses for the quarter were $50.323 million or .61
percent annualized of average loans, a rise of $9.659 million or
23.8 percent from $40.664 million or .53 percent of average loans a
year earlier. For the first nine months, net loan losses totaled
$147.998 million or .61 percent annualized of average loans, an
increase of $45.793 million or 44.8 percent from $102.205 million
or .45 percent of loans in the same period of 1996. Net loan losses
were higher by $631 thousand or 1.3 percent from the second
quarter. The rise in net charge-offs both from year-earlier periods
and from the preceding three months principally reflected increased
losses in consumer loans, primarily credit cards, with lower
recoveries also a factor both year to date and linked quarter.
Excluding credit cards, net loan losses were $5.483 million or .08
percent of average loans for the three months and $19.689 million
or .10 percent for the first nine months versus $6.460 million or
.10 percent and $8.379 million or .04 percent in the same
respective periods of 1996 and $6.305 million or .09 percent in the
second quarter of 1997.
17
- --------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TABLE 8
(THOUSANDS)
1997
-----------------------------------------
Third Second First
Quarter Quarter Quarter
------------- ------------- -------------
SUMMARY OF TRANSACTIONS
Balance at beginning of period ............ $409,335 $409,312 $409,297
Additions from acquisitions ............... -- -- --
Provision for loan losses .................. 50,344 49,715 47,998
Deduct net loan losses:
Loans charged off:
Commercial .............................. 369 518 268
Credit card .............................. 50,791 49,117 46,101
Other revolving credit .................. 1,960 1,769 1,637
Other retail ........................... 5,430 6,430 7,675
Real estate .............................. 376 436 1,455
Lease financing ........................ 988 1,218 1,366
Foreign ................................. -- -- --
---------- ---------- ----------
Total ................................. 59,914 59,488 58,502
Recoveries:
Commercial .............................. 555 685 476
Credit card .............................. 5,951 5,730 6,019
Other revolving credit .................. 521 534 532
Other retail ........................... 1,371 1,544 1,701
Real estate .............................. 1,093 1,199 1,732
Lease financing ........................ 100 104 59
Foreign ................................. -- -- --
---------- ---------- ----------
Total ................................. 9,591 9,796 10,519
---------- ---------- ----------
Net loan losses ........................... 50,323 49,692 47,983
---------- ---------- ----------
Balance at end of period* .................. $409,356 $409,335 $409,312
========== ========== ==========
NET LOAN LOSSES (RECOVERIES) BY CATEGORY
Commercial ................................. $ (186) $ (167) $ (208)
Credit card .............................. 44,840 43,387 40,082
Other revolving credit ..................... 1,439 1,235 1,105
Other retail .............................. 4,059 4,886 5,974
Real estate .............................. (717) (763) (277)
Lease financing ........................... 888 1,114 1,307
Foreign .................................... -- -- --
---------- ---------- ----------
Total ................................. $ 50,323 $ 49,692 $ 47,983
========== ========== ==========
Net loan losses -- excluding credit cards... $ 5,483 $ 6,305 $ 7,901
ANNUALIZED NET LOAN LOSSES (RECOVERIES)
TO AVERAGE LOANS BY CATEGORY
Commercial ................................. (.01%) (.01%) (.01%)
Credit card .............................. 3.69 3.63 3.34
Other revolving credit ..................... 1.63 1.39 1.24
Other retail .............................. .53 .62 .74
Real estate .............................. (.03) (.03) (.01)
Lease financing ........................... .35 .50 .63
Foreign .................................... -- -- --
Total loans .............................. .61 .62 .61
Total loans -- excluding credit cards ...... .08 .09 .12
Period-end allowance to outstanding loans 1.21 1.23 1.26
1996 Nine Months Ended
------------------------ September 30
Fourth Third
Quarter Quarter 1997 1996
------------- ---------- ------------ ------------
SUMMARY OF TRANSACTIONS
Balance at beginning of period ............ $409,271 $409,205 $409,297 $408,808
Additions from acquisitions ............... -- -- -- 200
Provision for loan losses .................. 47,443 40,730 148,057 102,468
Deduct net loan losses:
Loans charged off:
Commercial .............................. 451 2,748 1,155 3,137
Credit card .............................. 44,640 38,783 146,009 107,028
Other revolving credit .................. 2,834 1,790 5,366 4,228
Other retail ........................... 7,057 5,556 19,535 15,891
Real estate .............................. 814 191 2,267 1,696
Lease financing ........................ 675 348 3,572 960
Foreign ................................. -- -- -- --
---------- -------- ---------- --------
Total ................................. 56,471 49,416 177,904 132,940
Recoveries:
Commercial .............................. 1,689 666 1,716 2,724
Credit card .............................. 4,982 4,579 17,700 13,202
Other revolving credit .................. 384 495 1,587 1,068
Other retail ........................... 1,336 1,379 4,616 3,569
Real estate .............................. 633 1,575 4,024 10,019
Lease financing ........................ 30 58 263 153
Foreign ................................. -- -- -- --
---------- -------- ---------- --------
Total ................................. 9,054 8,752 29,906 30,735
---------- -------- ---------- --------
Net loan losses ........................... 47,417 40,664 147,998 102,205
---------- -------- ---------- --------
Balance at end of period* .................. $409,297 $409,271 $409,356 $409,271
========== ======== ========== ========
NET LOAN LOSSES (RECOVERIES) BY CATEGORY
Commercial ................................. $ (1,238) $ 2,082 $ (561) $ 413
Credit card .............................. 39,658 34,204 128,309 93,826
Other revolving credit ..................... 2,450 1,295 3,779 3,160
Other retail .............................. 5,721 4,177 14,919 12,322
Real estate .............................. 181 (1,384) (1,757) (8,323)
Lease financing ........................... 645 290 3,309 807
Foreign .................................... -- -- -- --
---------- -------- ---------- --------
Total ................................. $ 47,417 $40,664 $147,998 $102,205
========== ======== ========== ========
NET LOAN LOSSES -- EXCLUDING CREDIT CARDS $ 7,759 $ 6,460 $ 19,689 $ 8,379
ANNUALIZED NET LOAN LOSSES (RECOVERIES)
TO AVERAGE LOANS BY CATEGORY
Commercial ................................. (.04%) .07% (.01%) --%
Credit card .............................. 3.49 3.20 3.56 3.06
Other revolving credit ..................... 2.76 1.46 1.41 1.19
Other retail .............................. .69 .50 .63 .49
Real estate .............................. .01 (.06) (.02) (.12)
Lease financing ........................... .34 .17 .48 .18
Foreign .................................... -- -- -- --
Total loans .............................. .61 .53 .61 .45
Total loans -- excluding credit cards ...... .12 .10 .10 .04
Period-end allowance to outstanding loans... 1.31 1.30 1.21 1.30
*Includes the related allowance for credit losses for impaired loans as defined
in FASB 114, "Accounting by Creditors for Impairment of a Loan," of $261, $790,
$792, $1,960, $1,453, $261 and $1,453, respectively
18
Credit card net charge-offs for the third period were $44.840
million or 3.69 percent annualized of average credit card loans, up
$10.636 million or 31.1 percent from $34.204 million or 3.20
percent of average receivables a year earlier. For the first nine
months, credit card net loan losses were $128.309 million or 3.56
percent of receivables, a rise of $34.483 million or 36.8 percent
from $93.826 million or 3.06 percent of loans in the same period of
1996. Net loan losses from lease financing increased $598 thousand
and $2.502 million for the three and nine months, respectively. Net
charge-offs for other retail loans, which consists of direct and
indirect retail loans, declined moderately for the quarter but
remained higher by $2.597 million or 21.1 percent year to date. Net
recoveries continued to be made in real estate loans but at a lower
rate. Real estate net recoveries totaled $717 thousand or .03
percent of average real estate loans for the quarter and $1.757
million or .02 percent for the first nine months compared with
$1.384 million or .06 percent and $8.323 million or .12 percent in
the same respective periods of 1996.
Selected data on the corporation's managed credit card
portfolio, which includes securitized loans, is presented in the
following table.
Managed Credit Card Data
- ------------------------
1997
-----------------------------------------------
Third Second First
Quarter Quarter Quarter
$ in thousands --------------- --------------- ---------------
Average credit card outstandings ..... $ 5,436,000 $ 5,382,000 $ 5,420,000
Net loan losses....................... 50,053 48,787 45,334
Annualized net loan losses to average
loans ............................... 3.68% 3.63% 3.35%
Delinquencies (30 days or more) to
period-end loans..................... 2.65 2.26 2.27
Managed Credit Card Data
------------------------
1996 Nine Months Ended
------------------------------- September 30
Fourth Third
Quarter Quarter 1997 1996
$ in thousands --------------- --------------- --------------- ---------------
Average credit card outstandings...... $ 5,167,000 $ 4,895,000 $ 5,413,000 $ 4,717,000
Net loan losses....................... 45,162 39,370 144,174 108,462
Annualized net loan losses to average
loans ............................... 3.50% 3.22% 3.55% 3.07%
Delinquencies (30 days or more) to
period-end loans ................... 2.14 2.26 2.65 2.26
At September 30, 1997, the allowance for loan losses was
$409.356 million, representing 1.21 percent of period-end loans and
737 percent of nonperforming loans. This compared with $409.271
million, 1.30 percent and 668 percent, respectively, one year
earlier and $409.335 million, 1.23 percent and 746 percent,
respectively, at June 30, 1997.
Noninterest Income
Total other operating revenue, which excludes investment
securities sales, increased $30.685 million or 15.5 percent for the
third quarter and $82.555 million or 14.2 percent year to date.
Good gains were achieved in both periods in all categories except
mortgage fee income and other service charges and fees. Included in
total other operating revenue for the first nine months of 1997
were gains of approximately $2.4 million in the third quarter and
$18.4 million in the second period from the sale of branch offices
identified in 1996 from the corporation's Market Network Strategy.
Total other operating revenue for the first nine months of 1996
included a gain of $9.575 million from the sale of Wachovia's bond
trustee business. Excluding gains from these branch and business
divestitures, total other operating revenue rose $28.248 million or
14.3 percent for the third quarter from a year earlier, $71.034
million or 12.4 percent for the first nine months and $11.780
million or 5.5 percent from the second quarter.
Trust service fees grew $4.961 million or 14.6 percent for the
third period and $11.334 million or 11 percent year to date.
Increased sales, greater market values for trust assets and higher
fee schedules accounted for the gains in both periods.
Credit card income rose $4.792 million or 12.9 percent for the
three months and $16.768 million or 16.2 percent for the first nine
months. Growth was driven by higher net revenues received from
cardholder income on securitized loans, increases in overlimit
charges and greater interchange income.
Investment fee income advanced $3.864 million or 38.1 percent
for the quarter and $4.700 million or 15.1 percent year to date.
Gains in both periods occurred largely in mutual fund income and in
brokerage commissions.
19
Higher levels of commercial analysis fees, overdraft charges
and insufficient funds charges helped push deposit account service
charge revenues up $3.453 million or 5.5 percent for the third
period and $13.491 million or 7.5 percent for the first nine
months.
Electronic banking revenues, consisting of fees from debit card
and ATM usage, rose $1.478 million or 11.4 percent for the quarter
and $5.250 million or 15.1 percent year to date. Gains were driven
by increases primarily in interchange income and service charges
from debit cards, and ATM foreign access fees.
Trading account profits expanded $1.375 million or 22.6 percent
and $2.674 million or 17.6 percent for the three and nine months,
respectively. Results for both periods reflected generally improved
bond market conditions despite market volatility in the third
quarter. Trading account profits consists of profit and losses on
securities in the corporation's trading account portfolio, income
earned on foreign exchange transactions and income from derivatives
valuation.
Mortgage fee income declined $385 thousand or 9.4 percent for
the third period and $1.292 million or 10.1 percent year to date.
Decreases reflected lower origination fees as loan production
volume remained below year-earlier periods.
Remaining combined categories of total other operating revenue
expanded $11.147 million or 35.6 percent for the quarter and
$29.630 million or 29.5 percent year to date. Insurance premiums
and commissions increased $1.583 million or 33.9 percent for the
three months and $5.993 million or 48.2 percent for the first nine
months, and bankers' acceptance and letter of credit fees grew
$2.204 million or 33 percent and $5.383 million or 28.8 percent,
respectively. Other service charges and fees declined modestly for
the quarter and year to date, while other income, which includes
gains from the sale of branch offices, rose $7.544 million or 65.1
percent for the third period and $18.354 million or 41.4 percent
for the first nine months.
Including investment securities sales, total noninterest income
increased $30.713 million or 15.5 percent for the quarter and
$82.765 million or 14.2 percent year to date. Investment securities
sales had net gains of $421 thousand for the three months and
$1.082 million for the first nine months of 1997 compared with $393
thousand and $872 thousand, respectively, in 1996.
- --------------------------------------------------------------------------------
NONINTEREST INCOME TABLE 9
(THOUSANDS)
1997
--------------------------------
Third Second First
Quarter Quarter Quarter
---------- ---------- ----------
Service charges on deposit accounts ............ $ 65,731 $ 63,622 $ 63,942
Fees for trust services ........................ 38,833 38,872 36,354
Credit card income -- net of interchange
payments .................................... 41,881 42,652 35,694
Electronic banking ........................... 14,388 13,184 12,510
Investment fee income ........................ 14,009 11,087 10,820
Mortgage fee income ........................... 3,714 4,298 3,485
Trading account profits -- excluding interest... 7,451 6,169 4,280
Insurance premiums and commissions ............ 6,249 6,598 5,592
Bankers' acceptance and letter of credit fees 8,888 8,015 7,171
Other service charges and fees ............... 8,189 8,157 8,502
Other income ................................. 19,130 30,251 13,315
--------- --------- ---------
Total other operating revenue ............... 228,463 232,905 201,665
Investment securities gains .................. 421 326 335
--------- --------- ---------
Total ....................................... $228,884 $233,231 $202,000
========= ========= =========
1996 Nine Months Ended
--------------------- September 30
Fourth Third
Quarter Quarter 1997 1996
---------- ---------- ---------- ---------
Service charges on deposit accounts ............ $ 62,564 $ 62,278 $193,295 $179,804
Fees for trust services ........................ 35,116 33,872 114,059 102,725
Credit card income -- net of interchange
payments .................................... 35,679 37,089 120,227 103,459
Electronic banking ........................... 13,274 12,910 40,082 34,832
Investment fee income ........................ 11,262 10,145 35,916 31,216
Mortgage fee income ........................... 4,195 4,099 11,497 12,789
Trading account profits -- excluding interest... 7,593 6,076 17,900 15,226
Insurance premiums and commissions ............ 4,584 4,666 18,439 12,446
Bankers' acceptance and letter of credit fees 6,656 6,684 24,074 18,691
Other service charges and fees ............... 7,641 8,373 24,848 24,948
Other income ................................. 14,872 11,586 62,696 44,342
--------- --------- --------- ---------
Total other operating revenue ............... 203,436 197,778 663,033 580,478
Investment securities gains .................. 2,864 393 1,082 872
--------- --------- --------- ---------
Total ....................................... $206,300 $198,171 $664,115 $581,350
========= ========= ========= =========
20
NONINTEREST EXPENSE
Total noninterest expense was up $39.654 million or 12.5
percent for the third quarter and $100.152 million or 10.7 percent
year to date. Increases reflected a higher salary base, project
costs for growth initiatives and Year 2000 systems conversions.
Management anticipates continued additional spending in the fourth
quarter of 1997 for growth initiatives and Year 2000 compliance
costs and believes these investments are necessary for future
revenue growth. Despite the increases in total noninterest expense,
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) remained
favorable among banking companies at 53.6 percent for the third
period and 53.2 percent year to date. Excluding costs associated
with Year 2000 computer conversions, total noninterest expense rose
$72.152 million or 7.7 percent for the first nine months.
Total personnel expense increased $24.590 million or 14.9
percent for the quarter and $58.564 million or 12 percent for the
first nine months. Salaries expense grew $20.491 million or 14.9
percent for the three months and $47.648 million or 11.9 percent
year to date as the corporation continued shifting its workforce
composition toward higher skilled and more revenue generating
personnel. Employee benefits expense was up $4.099 million or 14.7
percent for the quarter and $10.916 million or 12.8 percent year to
date, reflecting increases in flexible benefits costs and payroll
taxes from an expanded personnel base. At September 30, 1997,
full-time equivalent employees totaled 16,818 compared with 16,185
one year earlier.
Combined net occupancy and equipment expense rose $2.538
million or 4.9 percent for the three months and $3.666 million or
2.4 percent for the first nine months. Increases in both periods
occurred primarily in equipment expense, reflecting, in part,
higher depreciation and contract maintenance costs.
Remaining combined categories of noninterest expense grew
$12.526 million or 12.7 percent for the quarter and $37.922 million
or 12.9 percent year to date. Outside data processing, programming
and software expense rose $8.748 million or 77.1 percent for the
three months and $24.902 million or 75 percent for the first nine
months, largely driven by Year 2000 contract programming expenses.
Professional services expense increased $5.125 million or 62.7
percent for the third period and $6.924 million or 24.2 percent
year to date, primarily reflecting consulting services for Year
2000 compliance issues. Management estimates the total cost for
making the corporation's computer systems Year 2000 compliant to be
approximately $50 million, with $28 million spent year to date. The
balance is expected to be taken in the remaining quarter of 1997
and in the first three months of 1998. As part of its growth
strategy, the corporation launched its brand name advertising
campaign in April. Advertising expense increased $3.936 million or
27.3 percent for the quarter and was up $3.858 million or 8.2
percent year to date.
21
- --------------------------------------------------------------------------------
NONINTEREST EXPENSE TABLE 10
(thousands)
1997
---------------------------------------
Third Second First
Quarter Quarter Quarter
------------ ------------- ------------
Salaries .............................. $158,118 $ 149,160 $142,255
Employee benefits ..................... 31,981 32,490 31,849
-------- --------- --------
Total personnel expense ............ 190,099 181,650 174,104
Net occupancy expense .................. 23,434 21,126 22,193
Equipment expense ..................... 31,109 30,783 28,873
Postage and delivery .................. 9,912 9,993 10,483
Outside data processing, programming and
software .............................. 20,087 25,147 12,890
Stationery and supplies ............... 7,424 6,618 6,203
Advertising and sales promotion ......... 18,378 18,847 13,648
Professional services .................. 13,298 13,695 8,554
Travel and business promotion ......... 5,967 5,905 5,321
Regulatory agency fees and other bank
services .............................. 2,699 3,002 2,988
Amortization of intangible assets ...... 1,147 1,064 1,063
Foreclosed property expense ............ (243) 500 (235)
Other expense ........................... 32,822 36,364 38,051
-------- --------- --------
Total .............................. $356,133 $ 354,694 $324,136
======== ========= ========
Overhead ratio ........................ 53.6% 53.7% 52.2%
1996 Nine Months Ended
-------------------------- September 30
Fourth Third
Quarter Quarter 1997 1996
------------- ------------ --------------- ------------
Salaries .............................. $ 141,342 $137,627 $ 449,533 $401,885
Employee benefits ..................... 25,894 27,882 96,320 85,404
--------- -------- ----------- --------
Total personnel expense ............ 167,236 165,509 545,853 487,289
Net occupancy expense .................. 21,559 23,161 66,753 68,023
Equipment expense ..................... 29,032 28,844 90,765 85,829
Postage and delivery .................. 9,813 9,973 30,388 30,205
Outside data processing, programming and
software .............................. 11,477 11,339 58,124 33,222
Stationery and supplies ............... 6,131 6,012 20,245 19,969
Advertising and sales promotion ......... 13,289 14,442 50,873 47,015
Professional services .................. 9,662 8,173 35,547 28,623
Travel and business promotion ......... 5,959 4,929 17,193 14,501
Regulatory agency fees and other bank
services .............................. 2,576 3,781 8,689 6,154
Amortization of intangible assets ...... 1,091 1,095 3,274 3,271
Foreclosed property expense ............ 225 (370) 22 (321)
Other expense ........................... 44,688 39,591 107,237 111,031
--------- -------- ----------- --------
Total .............................. $ 322,738 $316,479 $ 1,034,963 $934,811
========= ======== =========== ========
Overhead ratio ........................ 51.7% 51.6% 53.2% 52.4%
INCOME TAXES
Applicable income taxes were higher by $3.515 million or 4.7
percent for the three months and $7.167 million or 3.3 percent for
the first nine months of 1997. 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 provide both an attractive return for the corporation
and substantial interest savings for local governments and their
constituents.
-------------------------------------------------------------------
INCOME TAXES TABLE 11
(thousands)
Three Months Ended
September 30
1997 1996
---------- ------------
Income before income taxes ................................. $245,643 $ 239,468
======== ==========
Federal income taxes at statutory rate ..................... $85,975 $ 83,814
State and local income taxes -- net of federal benefit ... 4,380 2,755
Effect of tax-exempt securities interest and other income (9,493) (10,187)
Other items ................................................ (2,475) (1,510)
-------- ----------
Total tax expense ....................................... $78,387 $ 74,872
======== ==========
Currently payable:
Federal ................................................... $41,765 $ 57,031
Foreign ................................................... 125 242
State and local .......................................... 1,437 2,461
-------- ----------
Total ................................................... 43,327 59,734
Deferred:
Federal ................................................... 29,760 13,363
State and local .......................................... 5,300 1,775
-------- ----------
Total ................................................... 35,060 15,138
-------- ----------
Total tax expense ....................................... $78,387 $ 74,872
======== ==========
Nine Months Ended
September 30
1997 1996
------------ ------------
Income before income taxes ................................. $ 723,042 $ 693,743
========== ==========
Federal income taxes at statutory rate ..................... 253,065 242,810
State and local income taxes -- net of federal benefit ... 12,781 9,010
Effect of tax-exempt securities interest and other income (31,863) (30,783)
Other items ................................................ (6,902) (1,123)
---------- ----------
Total tax expense ....................................... $ 227,081 $ 219,914
========== ==========
Currently payable:
Federal ................................................... $ 139,031 $ 170,436
Foreign ................................................... 290 506
State and local .......................................... 6,042 8,190
---------- ----------
Total ................................................... 145,363 179,132
Deferred:
Federal ................................................... 68,099 35,474
State and local .......................................... 13,619 5,308
---------- ----------
Total ................................................... 81,718 40,782
---------- ----------
Total tax expense ....................................... $ 227,081 $ 219,914
========== ==========
22
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.
In June 1997, Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income" (FASB 130), was issued and
establishes standards for reporting and displaying comprehensive
income and its components. FASB 130 requires comprehensive income and
its components, as recognized under the accounting standards, to be
displayed in a financial statement with the same prominence as other
financial statements. The corporation plans to adopt the standard, as
required, beginning in 1998; adoption is not expected to have a
material impact on the corporation.
Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" (FASB 131), also issued in June 1997, establishes new
standards for reporting information about operating segments in
annual and interim financial statements. The standard also requires
descriptive information about the way the operating segments are
determined, the products and services provided by the segments and
the nature of differences between reportable segment measurements
and those used for the consolidated enterprise. This standard is
effective for years beginning after December 15, 1997. Adoption in
interim financial statements is not required until the year after
initial adoption; however, comparative prior period information is
required. The corporation is evaluating the standard and plans
adoption as required in 1998; adoption is not expected to have a
significant financial impact on the corporation.
FINANCIAL CONDITION AND CAPITAL RATIOS
Assets at September 30, 1997 totaled $47.670 billion, including
$42.171 billion of interest-earning assets and $33.754 billion of
loans. Comparable amounts one year earlier were $47.483 billion of
assets, $42.036 billion of interest-earning assets and $31.549
billion of loans. At June 30, 1997, total assets were $48.512
billion, with $42.610 billion of interest-earning assets and
$33.256 billion of loans.
Deposits at the end of the third quarter were $29.091 billion,
including $22.869 billion of time deposits, representing 78.6
percent of the total. Deposits one year earlier were $27.436
billion, with time deposits of $20.928 billion or 76.3 percent of
the total, and at June 30, 1997, deposits were $28.938 billion,
including $21.942 billion of time deposits or 75.8 percent of the
total.
Shareholders' equity was $3.677 billion at September 30, 1997
versus $3.729 billion one year earlier. Included in the $3.677
billion of shareholders' equity was $55.694 million, net of tax, of
unrealized gains on securities available-for-sale marked to fair
value compared with $32.924 million one year earlier. The reduction
in equity at September 30, 1997 from a year earlier reflected the
impact of the corporation's share repurchase activity at higher
share prices. During the third quarter of 1997, the corporation
repurchased a total of 1,966,700 shares of its common stock under a
special authorization made by the board of directors to repurchase
up to 4 million shares in connection with Wachovia's announced
merger agreement with 1st United Bancorp. The average price of the
repurchased shares was $65.438 per share for a total cost of
$128.696 million compared with
23
1,830,000 shares repurchased in the same period of 1996 at an
average price of $46.769 per share for a cost of $85.588 million.
The corporation's January 24, 1997 share repurchase authorization
was rescinded by the board of directors effective with the
announcement on June 24, 1997 of the corporation's merger agreement
with Central Fidelity Banks. At its meeting on October 24, 1997,
the board of directors declared a fourth quarter dividend of $.44
per common share, payable December 1, 1997 to shareholders of
record as of November 6. The dividend is higher by 10 percent from
$.40 per share paid in the same three months of 1996. For the full
year, the dividend will total $1.68 per share, an increase of 10.5
percent from $1.52 paid in 1996.
Intangible assets at September 30, 1997 totaled $42.645 million,
consisting of $37.668 million in goodwill, $4.402 million in deposit
base intangibles, $39 thousand in purchased credit card intangibles
and $536 thousand in other intangibles. Comparable amounts one year
earlier were $40.451 million of total intangible assets, with
$32.893 million in goodwill, $5.814 million in deposit base
intangibles, $790 thousand in purchased credit card intangibles and
$954 thousand in other intangible assets. Goodwill increased from a
year earlier due to the corporation's purchase in June of
MACRO*WORLD Research Corporation, a leading Internet provider of
financial information, news and stock and mutual fund ratings.
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.
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 September 30, 1997, the corporation's Tier I to risk-adjusted
assets ratio was 9.24 percent and total capital to risk-adjusted
assets was 12.42 percent. The Tier I leverage ratio was 9.61
percent. The capital ratios at the end of the third quarter of 1997
included a total of $900 million of trust capital securities.
24
- --------------------------------------------------------------------------------
CAPITAL COMPONENTS AND RATIOS TABLE 12
(thousands)
1997
-----------------------------------------------
Third Second First
Quarter Quarter Quarter
--------------- --------------- ---------------
Tier I capital:
Common shareholders' equity ............... $ 3,676,967 $ 3,679,827 $ 3,676,080
Trust capital securities* ............... 896,752 896,665 596,578
Less ineligible intangible assets ......... 37,668 38,133 32,056
Unrealized gains on securities
available-for-sale, net of tax ......... (55,694) (35,715) (8,170)
----------- ----------- -----------
Total Tier I capital .................. 4,480,357 4,502,644 4,232,432
Tier II capital:
Allowable allowance for loan losses ...... 409,356 409,335 409,312
Allowable long-term debt .................. 1,133,165 1,133,093 1,138,138
----------- ----------- -----------
Tier II capital additions ............... 1,542,521 1,542,428 1,547,450
----------- ----------- -----------
Total capital ........................... $ 6,022,878 $ 6,045,072 $ 5,779,882
=========== =========== ===========
Risk-adjusted assets ..................... $48,495,654 $44,431,023 $43,126,886
Quarterly average assets .................. $46,689,960 $46,619,077 $45,983,826
Risk-based capital ratios:
Tier I capital ........................... 9.24% 10.13% 9.81%
Total capital ........................... 12.42 13.61 13.40
Tier I leverage ratio** .................. 9.61 9.67 9.22
Shareholders' equity to total assets ...... 7.71 7.59 7.74
1996
------------------------------
Fourth Third
Quarter Quarter
--------------- --------------
Tier I capital:
Common shareholders' equity ............... $ 3,761,832 $ 3,729,194
Trust capital securities* ............... 300,000 --
Less ineligible intangible assets ......... 32,474 32,893
Unrealized gains on securities
available-for-sale, net of tax ......... (42,462) (32,924)
----------- -----------
Total Tier I capital .................. 3,986,896 3,663,377
Tier II capital:
Allowable allowance for loan losses ...... 409,297 409,271
Allowable long-term debt .................. 1,138,041 1,198,177
----------- -----------
Tier II capital additions ............... 1,547,338 1,607,448
----------- -----------
Total capital ........................... $ 5,534,234 $ 5,270,825
=========== ===========
Risk-adjusted assets ..................... $42,669,628 $41,047,310
Quarterly average assets .................. $45,737,397 $45,777,699
Risk-based capital ratios:
Tier I capital ........................... 9.34% 8.92%
Total capital ........................... 12.97 12.84
Tier I leverage ratio** .................. 8.73 8.01
Shareholders' equity to total assets ...... 8.02 7.85
*Trust capital securities are reported in "Other long-term debt" in the
Consolidated Statements of Condition
**Ratio excludes the average unrealized gains on securities available-for-sale,
net of tax, of $46,855, $17,239, $37,350, $45,135 and $24,358, respectively
25
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
September 30 December 31 September 30
1997 1996 1996
$ in thousands ------------- ------------------------- -------------
ASSETS
Cash and due from banks ............................................. $ 3,209,780 $ 3,367,673 $ 3,011,456
Interest-bearing bank balances ....................................... 39,612 27,871 479,268
Federal funds sold and securities
purchased under resale agreements ................................. 300,726 179,426 306,725
Trading account assets ............................................. 1,050,840 1,185,688 1,120,972
Securities available-for-sale ....................................... 5,808,714 6,760,486 7,176,084
Securities held-to-maturity (fair value of $1,285,503,
$1,423,555 and $1,461,686, respectively) ........................... 1,217,798 1,352,091 1,403,972
Loans and net leases ................................................ 33,759,291 31,290,905 31,555,623
Less unearned income on loans ....................................... 5,733 7,713 6,820
------------ ------------ ------------
Total loans ...................................................... 33,753,558 31,283,192 31,548,803
Less allowance for loan losses ....................................... 409,356 409,297 409,271
------------ ------------ ------------
Net loans ......................................................... 33,344,202 30,873,895 31,139,532
Premises and equipment ............................................. 652,180 644,000 633,199
Due from customers on acceptances .................................... 640,141 957,109 899,094
Other assets ......................................................... 1,405,969 1,556,276 1,312,543
------------ ------------ ------------
Total assets ...................................................... $47,669,962 $46,904,515 $47,482,845
============ ============ ============
LIABILITIES
Deposits in domestic offices:
Demand ............................................................ $ 6,222,434 $ 6,115,540 $ 6,508,075
Interest-bearing demand ............................................. 3,338,857 3,462,952 3,311,682
Savings and money market savings .................................... 8,785,428 8,337,329 7,685,810
Savings certificates ................................................ 6,469,868 6,436,437 6,599,683
Large denomination certificates .................................... 2,504,976 1,710,061 2,264,559
Noninterest-bearing time .......................................... 5,254 2,974 5,169
------------ ------------ ------------
Total deposits in domestic offices .............................. 27,326,817 26,065,293 26,374,978
Deposits in foreign offices:
Demand ............................................................ -- -- 7
Time ............................................................... 1,764,261 1,184,829 1,061,199
------------ ------------ ------------
Total deposits in foreign offices ................................. 1,764,261 1,184,829 1,061,206
------------ ------------ ------------
Total deposits ................................................... 29,091,078 27,250,122 27,436,184
Federal funds purchased and securities
sold under repurchase agreements .................................... 6,144,033 6,298,130 7,532,212
Commercial paper ................................................... 835,478 706,226 603,851
Other short-term borrowed funds .................................... 1,226,757 967,097 645,218
Long-term debt:
Bank notes ......................................................... 2,939,476 4,307,802 4,529,212
Other long-term debt ................................................ 2,430,352 2,159,099 1,641,858
------------ ------------ ------------
Total long-term debt ............................................. 5,369,828 6,466,901 6,171,070
Acceptances outstanding ............................................. 640,141 957,109 899,094
Other liabilities ................................................... 685,680 497,098 466,022
------------ ------------ ------------
Total liabilities ................................................ 43,992,995 43,142,683 43,753,651
SHAREHOLDERS' EQUITY
Preferred stock, par value $5 per share:
Authorized 50,000,000 shares; none outstanding ..................... -- -- --
Common stock, par value $5 per share:
Issued 157,772,802, 163,844,198 and 165,213,326, respectively ...... 788,863 819,221 826,067
Capital surplus ...................................................... 72,742 424,873 500,613
Retained earnings ................................................... 2,759,668 2,475,276 2,369,590
Unrealized gains on securities available-for-sale, net of tax ...... 55,694 42,462 32,924
------------ ------------ ------------
Total shareholders' equity ....................................... 3,676,967 3,761,832 3,729,194
------------ ------------ ------------
Total liabilities and shareholders' equity ........................ $47,669,962 $46,904,515 $47,482,845
============ ============ ============
26
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
$ in thousands, except per share ---------- ---------- ------------ -----------
INTEREST INCOME
Loans ................................................ $719,442 $650,860 $2,081,427 $1,880,491
Securities available-for-sale:
Other investments ................................. 108,190 120,849 336,195 357,984
Securities held-to-maturity:
State and municipal ................................. 3,747 4,913 12,393 16,327
Other investments ................................. 20,909 23,769 64,508 73,865
Interest-bearing bank balances ..................... 619 9,329 1,424 27,605
Federal funds sold and securities
purchased under resale agreements .................. 5,337 3,275 11,541 9,680
Trading account assets .............................. 11,647 12,234 37,428 35,243
--------- --------- ----------- -----------
Total interest income ........................... 869,891 825,229 2,544,916 2,401,195
INTEREST EXPENSE
Deposits:
Domestic offices .................................... 226,336 208,017 664,985 617,163
Foreign offices .................................... 23,824 13,676 63,542 37,810
--------- --------- ----------- -----------
Total interest on deposits ..................... 250,160 221,693 728,527 654,973
Short-term borrowed funds ........................... 109,298 109,725 310,256 330,145
Long-term debt ....................................... 87,197 95,305 264,186 266,405
--------- --------- ----------- -----------
Total interest expense ........................... 446,655 426,723 1,302,969 1,251,523
NET INTEREST INCOME ................................. 423,236 398,506 1,241,947 1,149,672
Provision for loan losses ........................... 50,344 40,730 148,057 102,468
--------- --------- ----------- -----------
Net interest income after provision for loan losses 372,892 357,776 1,093,890 1,047,204
OTHER INCOME
Service charges on deposit accounts .................. 65,731 62,278 193,295 179,804
Fees for trust services .............................. 38,833 33,872 114,059 102,725
Credit card income ................................. 41,881 37,089 120,227 103,459
Electronic banking ................................. 14,388 12,910 40,082 34,832
Investment fee income .............................. 14,009 10,145 35,916 31,216
Mortgage fee income ................................. 3,714 4,099 11,497 12,789
Trading account profits .............................. 7,451 6,076 17,900 15,226
Other operating income .............................. 42,456 31,309 130,057 100,427
--------- --------- ----------- -----------
Total other operating revenue .................. 228,463 197,778 663,033 580,478
Investment securities gains ........................ 421 393 1,082 872
--------- --------- ----------- -----------
Total other income .............................. 228,884 198,171 664,115 581,350
OTHER EXPENSE
Salaries ............................................. 158,118 137,627 449,533 401,885
Employee benefits .................................... 31,981 27,882 96,320 85,404
--------- --------- ----------- -----------
Total personnel expense ........................ 190,099 165,509 545,853 487,289
Net occupancy expense .............................. 23,434 23,161 66,753 68,023
Equipment expense .................................... 31,109 28,844 90,765 85,829
Other operating expense .............................. 111,491 98,965 331,592 293,670
--------- --------- ----------- -----------
Total other expense .............................. 356,133 316,479 1,034,963 934,811
Income before income taxes ........................... 245,643 239,468 723,042 693,743
Applicable income taxes .............................. 78,387 74,872 227,081 219,914
--------- --------- ----------- -----------
NET INCOME .......................................... $167,256 $164,596 $ 495,961 $ 473,829
========= ========= =========== ===========
Net income per common share:
Primary ............................................. $ 1.04 $ .98 $ 3.04 $ 2.79
Fully diluted ....................................... $ 1.03 $ .97 $ 3.03 $ 2.78
Average shares outstanding:
Primary ............................................. 161,717 167,966 163,327 169,758
Fully diluted ....................................... 162,207 168,354 163,876 170,251
27
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized
Securities
Common Stock Capital Retained Gains
Shares Amount Surplus Earnings (Losses)
$ in thousands, except per share --------------- ------------ ------------- -------------- -----------
PERIOD ENDED SEPTEMBER 30, 1996
Balance at beginning of year .................. 170,358,504 $ 851,793 $ 713,120 $2,092,731 $116,113
Net income .................................... 473,829
Cash dividends declared on common
stock -- $1.12 a share ........................ (188,442)
Common stock issued pursuant to:
Stock option and employee benefit plans ...... 574,082 2,870 22,153
Dividend reinvestment plan .................. 240,824 1,204 9,631
Conversion of debentures ..................... 278,898 1,395 3,968
Acquisition of bank ........................... 208,207 1,041 9,003
Common stock acquired ........................ (6,447,189) (32,236) (257,260)
Unrealized losses on securities
available-for-sale, net of tax ............... (83,189)
Miscellaneous ................................. (2) (8,528)
------------- ---------- ----------- ---------- ----------
Balance at end of period ..................... 165,213,326 $ 826,067 $ 500,613 $2,369,590 $ 32,924
=========== ========= =========== ========== =========
PERIOD ENDED SEPTEMBER 30, 1997
Balance at beginning of year .................. 163,844,198 $ 819,221 $ 424,873 $2,475,276 $ 42,462
Net income .................................... 495,961
Cash dividends declared on common
stock -- $1.24 a share ........................ (200,038)
Common stock issued pursuant to:
Stock option and employee benefit plans ...... 702,168 3,511 31,419
Dividend reinvestment plan .................. 178,092 890 9,975
Conversion of debentures ..................... 3,628 18 52
Common stock acquired ........................ (6,955,284) (34,777) (394,254)
Unrealized gains on securities
available-for-sale, net of tax ............... 13,232
Miscellaneous ................................. 677 (11,531)
----------- --------- ----------- ---------- ---------
Balance at end of period ..................... 157,772,802 $ 788,863 $ 72,742 $2,759,668 $ 55,694
=========== ========= =========== ========== =========
28
WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
1997 1996
$ in thousands -------------- ---------------
OPERATING ACTIVITIES
Net income ............................................................ $ 495,961 $ 473,829
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses ............................................. 148,057 102,468
Depreciation and amortization ....................................... 71,440 68,371
Deferred income taxes ................................................ 81,718 40,782
Investment securities gains .......................................... (1,082) (872)
Gain on sale of noninterest-earning assets ........................... (2,078) (1,742)
(Decrease) increase in accrued income taxes ........................... (9,958) 19,540
Decrease in accrued interest receivable .............................. 2,293 13,148
Increase in accrued interest payable ................................. 70,452 7,841
Net change in other accrued and deferred income and expense ......... 90,840 (4,692)
Net trading account activities ....................................... 134,848 (6,046)
Net loans held for resale ............................................. 24,355 271,579
------------ ------------
Net cash provided by operating activities ........................ 1,106,846 984,206
INVESTING ACTIVITIES
Net increase in interest-bearing bank balances ........................ (11,741) (27,989)
Net increase in federal funds sold and securities
purchased under resale agreements .................................... (121,300) (158,120)
Purchases of securities available-for-sale ........................... (1,905,683) (986,499)
Purchases of securities held-to-maturity .............................. (35,858) (45,679)
Sales of securities available-for-sale ................................. 1,178,260 289,330
Calls, maturities and prepayments of securities available-for-sale ... 1,694,288 800,032
Calls, maturities and prepayments of securities held-to-maturity ...... 173,843 265,593
Net increase in loans made to customers .............................. (2,647,848) (2,645,861)
Capital expenditures ................................................... (99,651) (84,996)
Proceeds from sales of premises and equipment ........................ 6,882 18,264
Net decrease (increase) in other assets .............................. 149,548 (124,368)
Business combinations ................................................ (947) 2,814
------------ ------------
Net cash used by investing activities .............................. (1,620,207) (2,697,479)
FINANCING ACTIVITIES
Net increase in demand, savings and money market accounts ............ 433,178 1,176,186
Net increase (decrease) in certificates of deposit ..................... 1,407,778 (137,933)
Net (decrease) increase in federal funds purchased and securities
sold under repurchase agreements .................................... (154,097) 1,681,672
Net increase in commercial paper ....................................... 129,252 101,715
Net increase (decrease) in other short-term borrowings ............... 259,660 (1,075,374)
Proceeds from issuance of bank notes ................................. 948,372 2,167,053
Maturities of bank notes ............................................. (2,315,367) (1,726,242)
Proceeds from issuance of other long-term debt ........................ 589,972 311,410
Payments on other long-term debt ....................................... (325,166) (320)
Common stock issued ................................................... 22,614 19,722
Dividend payments ...................................................... (200,038) (188,442)
Common stock repurchased ............................................. (423,122) (286,332)
Net decrease in other liabilities .................................... (17,568) (10,704)
------------ ------------
Net cash provided by financing activities ........................ 355,468 2,032,411
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ..................... (157,893) 319,138
Cash and cash equivalents at beginning of year ........................ 3,367,673 2,692,318
------------ ------------
Cash and cash equivalents at end of period ........................... $ 3,209,780 $ 3,011,456
============ ============
SUPPLEMENTAL DISCLOSURES
Unrealized gains (losses) on securities available-for-sale:
Increase (decrease) in securities available-for-sale .................. $ 19,914 $ (136,735)
(Decrease) increase in deferred taxes ................................. (6,468) 53,546
Increase (decrease) in shareholders' equity ........................... 13,232 (83,189)
29
(WACHOVIA LOGO)
BULK RATE
U.S. POSTAGE PAID
WACHOVIA
Wachovia Corporation CORPORATION
P. O. Box 3099
Winston-Salem, NC 27150