EXHIBIT 19
[WACHOVIA LOGO APPEARS HERE]
Financial Supplement
And Form 10-Q
First Quarter 1999
Selected Period-End Data Table 1
- --------------------------------------------------------------------------------
March 31 March 31
1999 1998
-------- --------
Banking offices:
North Carolina ............................... 198 203
Virginia ..................................... 264 263
Georgia ...................................... 131 131
South Carolina ............................... 120 125
Florida ...................................... 40 34
------- -------
Total ..................................... 753 756
======= =======
Automated banking machines:
North Carolina ............................... 445 437
Virginia ..................................... 305 302
Georgia ...................................... 300 288
South Carolina ............................... 294 276
Florida ...................................... 37 6
------- -------
Total ..................................... 1,381 1,309
======= =======
Employees (full-time equivalent) .............. 20,704 21,512
Common stock shareholders of record ........... 53,363 55,111
Common shares outstanding (thousands) ......... 202,898 206,131
Common Stock Data -- Per Share Table 2
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1999 1998
---- ---------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- --------
Market value:
Period-end ............................................. $ 81.19 $ 87.44 $ 85.25 $ 84.50 $ 84.81
High ................................................... 91.00 96.81 90.94 90.19 85.75
Low .................................................... 79.00 80.88 72.88 77.38 72.75
Book value at period-end ................................ 26.77 26.30 25.79 26.02 25.40
Dividend ................................................ .49 .49 .49 .44 .44
Price/earnings ratio (1) ................................ 18.3x 20.9x 28.0x 28.6x 28.9x
Price/earnings ratio without nonrecurring items (1), (2) 17.7 19.6 19.9 20.4 21.0
(1) Based on the most recent four quarters of net income per diluted share and
end of period stock price.
(2) Excludes the after-tax impact of nonrecurring merger-related charges.
Forward-Looking Statements
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The Financial Supplement and Form 10-Q of Wachovia Corporation ("the
corporation") contains forward-looking statements as encouraged by the Private
Securities Litigation Reform Act of 1995. All forward-looking statements
involve risks and uncertainty and any number of factors could cause actual
results to differ materially from the anticipated results or other expectations
expressed in the corporation's forward-looking statements. Risks and
uncertainties that may affect future results include, but are not limited to,
changes in the economy, interest rate movements, timely development by Wachovia
of technology enhancements for its products and operating systems, the ability
of Wachovia and its customers and vendors to address effectively Year 2000
issues, the impact of competitive products, services and pricing, Congressional
legislation and similar matters. Management cautions readers not to place undue
reliance on forward-looking statements, which are subject to influence by the
named risk factors and unanticipated future events.
1
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Summary Table 3
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Twelve 1999
Months ----
Ended
March 31 First
1999 Quarter
----------- ---------
Summary of Operations
(thousands, except per share data)
Interest income ......................................... $4,647,802 $ 1,130,386
Interest expense ........................................ 2,257,837 522,310
----------- -----------
Net interest income ..................................... 2,389,965 608,076
Provision for loan losses ............................... 305,990 80,636
----------- -----------
Net interest income after provision for loan losses ..... 2,083,975 527,440
Other operating revenue ................................. 1,277,665 333,269
Securities gains ........................................ 17,519 234
----------- -----------
Total other income ...................................... 1,295,184 333,503
Personnel expense ....................................... 1,066,815 271,186
Nonrecurring merger-related charges ..................... 49,744 ----
Other expense ........................................... 877,722 221,012
----------- -----------
Total other expense ..................................... 1,994,281 492,198
Income before income taxes .............................. 1,384,878 368,745
Applicable income taxes ................................. 462,793 125,509
----------- -----------
Net income .............................................. $ 922,085 $ 243,236
=========== ===========
Net income per common share:
Basic .................................................. $ 4.52 $ 1.20
Diluted ................................................ $ 4.44 $ 1.18
Cash dividends paid per common share .................... $ 1.91 $ .49
Cash dividends paid on common stock ..................... $ 390,871 $ 99,662
Cash dividend payout ratio .............................. 42.39% 40.97%
Average basic shares outstanding ........................ 204,374 203,119
Average diluted shares outstanding ...................... 208,364 206,959
Selected Average Balances (millions)
Total assets ............................................ $ 64,263 $ 64,408
Loans -- net of unearned income ......................... 45,020 46,261
Securities .............................................. 10,238 9,221
Other interest-earning assets ........................... 1,502 1,313
Total interest-earning assets ........................... 56,760 56,795
Interest-bearing deposits ............................... 31,861 31,846
Short-term borrowed funds ............................... 10,564 9,292
Long-term debt .......................................... 6,653 7,627
Total interest-bearing liabilities ...................... 49,078 48,765
Noninterest-bearing deposits ............................ 8,006 8,062
Total deposits .......................................... 39,867 39,908
Shareholders' equity .................................... 5,219 5,314
Ratios (averages)
Annualized net loan losses to loans ..................... .68% .69%
Annualized net yield on interest-earning assets ......... 4.29 4.41
Shareholders' equity to:
Total assets ........................................... 8.12 8.25
Net loans .............................................. 11.73 11.62
Annualized return on assets ............................. 1.43 1.51
Annualized return on shareholders' equity ............... 17.67 18.31
Operating Performance Excluding
Nonrecurring Items
(thousands, except per share data)
Net income .............................................. $ 954,915 $ 243,236
Net income per diluted share ............................ $ 4.59 $ 1.18
Annualized return on assets ............................. 1.49% 1.51%
Annualized return on shareholders' equity ............... 18.30 18.31
Cash dividend payout ratio .............................. 40.93 40.97
1998
-------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------ ----------- ----------- -----------
Summary of Operations
(thousands, except per share data)
Interest income ......................................... $ 1,176,192 $ 1,171,466 $ 1,169,758 $ 1,147,829
Interest expense ........................................ 566,443 582,030 587,054 578,686
------------- ----------- ----------- -----------
Net interest income ..................................... 609,749 589,436 582,704 569,143
Provision for loan losses ............................... 84,104 72,809 68,441 74,126
------------- ----------- ----------- -----------
Net interest income after provision for loan losses ..... 525,645 516,627 514,263 495,017
Other operating revenue ................................. 318,812 310,541 315,043 283,723
Securities gains ........................................ 7,407 6,886 2,992 3,157
------------- ----------- ----------- -----------
Total other income ...................................... 326,219 317,427 318,035 286,880
Personnel expense ....................................... 269,941 263,282 262,406 259,724
Nonrecurring merger-related charges ..................... 6,961 11,934 30,849 35,568
Other expense ........................................... 215,784 217,187 223,739 198,957
------------- ----------- ----------- -----------
Total other expense ..................................... 492,686 492,403 516,994 494,249
Income before income taxes .............................. 359,178 341,651 315,304 287,648
Applicable income taxes ................................. 117,612 114,284 105,388 92,327
------------- ----------- ----------- -----------
Net income .............................................. $ 241,566 $ 227,367 $ 209,916 $ 195,321
============= =========== =========== ===========
Net income per common share:
Basic .................................................. $ 1.19 $ 1.11 $ 1.02 $ .95
Diluted ................................................ $ 1.17 $ 1.09 $ 1.00 $ .93
Cash dividends paid per common share .................... $ .49 $ .49 $ .44 $ .44
Cash dividends paid on common stock ..................... $ 99,452 $ 100,784 $ 90,973 $ 90,589
Cash dividend payout ratio .............................. 41.17% 44.33% 43.34% 46.38%
Average basic shares outstanding ........................ 202,824 204,832 206,718 205,894
Average diluted shares outstanding ...................... 206,991 208,837 210,662 210,158
Selected Average Balances (millions)
Total assets ............................................ $ 65,298 $ 63,429 $ 63,916 $ 63,133
Loans -- net of unearned income ......................... 45,966 43,894 43,974 43,749
Securities .............................................. 9,952 10,664 11,102 10,623
Other interest-earning assets ........................... 1,622 1,508 1,558 1,630
Total interest-earning assets ........................... 57,540 56,066 56,634 56,002
Interest-bearing deposits ............................... 31,766 31,654 32,182 32,455
Short-term borrowed funds ............................... 11,135 10,858 10,947 10,635
Long-term debt .......................................... 6,830 6,080 6,092 6,107
Total interest-bearing liabilities ...................... 49,731 48,592 49,221 49,197
Noninterest-bearing deposits ............................ 8,148 7,874 7,939 7,240
Total deposits .......................................... 39,914 39,528 40,121 39,695
Shareholders' equity .................................... 5,178 5,173 5,211 5,109
Ratios (averages)
Annualized net loan losses to loans ..................... .73% .66% .62% .68%
Annualized net yield on interest-earning assets ......... 4.28 4.26 4.21 4.21
Shareholders' equity to:
Total assets ........................................... 7.93 8.16 8.15 8.09
Net loans .............................................. 11.40 11.93 12.00 11.82
Annualized return on assets ............................. 1.48 1.43 1.31 1.24
Annualized return on shareholders' equity ............... 18.66 17.58 16.11 15.29
Operating Performance Excluding
Nonrecurring Items
(thousands, except per share data)
Net income .............................................. $ 246,160 $ 235,243 $ 230,276 $ 218,168
Net income per diluted share ............................ $ 1.19 $ 1.13 $ 1.09 $ 1.04
Annualized return on assets ............................. 1.51% 1.48% 1.44% 1.38%
Annualized return on shareholders' equity ............... 19.02 18.19 17.68 17.08
Cash dividend payout ratio .............................. 40.40 42.84 39.51 41.52
2
Results of Operations
Overview Wachovia Corporation ("Wachovia") is a major interstate bank
holding company with dual headquarters in Winston-Salem, North
Carolina, and Atlanta, Georgia. The corporation's principal
banking subsidiaries are Wachovia Bank, N.A., which operates in
Georgia, North Carolina, South Carolina, Virginia and Florida,
and The First National Bank of Atlanta, which provides credit
card services.
The economy expanded briskly in the first three months of 1999,
with gross domestic product increasing at an annualized rate of
4.5 percent from the fourth quarter of 1998, based on advance
estimates. Seasonally adjusted unemployment dropped to an
average of 4.3 percent for the quarter from 4.4 percent three
months earlier. Within Wachovia's primary operating states,
economic growth remained favorable, with seasonally adjusted
unemployment for the first quarter of 1999 averaging 4.2 percent
in Florida, 4.1 percent in Georgia, 3.1 percent in North
Carolina, 3.9 percent in South Carolina and 2.7 percent in
Virginia.
The corporation seeks to broaden its competitive position by
gaining access to new customers and by enhancing its products
and services through internal development and through selective
partnerships and acquisitions. On April 1, 1999, Wachovia
Corporation completed its acquisition of Interstate/
Johnson Lane Inc., a major regional investment advisor and
brokerage firm with offices primarily in North Carolina,
Georgia, South Carolina and Virginia. The acquisition was
accounted for as a purchase transaction.
Because Wachovia's growth strategy includes the use of
acquisitions, the corporation regularly evaluates opportunities
and conducts due diligence activities in connection with
possible acquisitions. As a result, 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 the corporation's
book value and net income per share may occur in connection with
any future transactions.
Wachovia's net income for the first quarter of 1999 was $243.236
million or $1.18 per diluted share compared with $195.321
million or $.93 per diluted share a year earlier. Results for
the 1998 period include after-tax merger expenses of $22.847
million or $.11 per diluted share related to the corporation's
Virginia and Florida bank acquisitions. Excluding the merger
expenses, operating net income for the first three months of
1998 was $218.168 million or $1.04 per diluted share.
Computation of Earnings Per Common Share Table 4
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(thousands, except per share)
Three Months Ended
March 31
-----------------------------
1999 1998
----------- ---------
Basic
Average common shares outstanding .......................... 203,119 205,894
=========== =======
Net income ................................................. $ 243,236 $ 195,321
=========== =========
Per share amount ........................................... $ 1.20 $ .95
Diluted
Average common shares outstanding .......................... 203,119 205,894
Dilutive common stock options at average market price ...... 3,417 3,987
Dilutive common stock awards at average market price ....... 397 272
Convertible long-term debt assumed converted ............... 26 5
----------- ---------
Average diluted shares outstanding ......................... 206,959 210,158
=========== =========
Net income ................................................. $ 243,236 $ 195,321
Add interest on convertible long-term debt, net of tax ..... 20 1
----------- ---------
Adjusted net income ........................................ $ 243,256 $ 195,322
=========== =========
Per share amount ........................................... $ 1.18 $ .93
3
The corporation's earnings results for the quarter reflected
solid gains in revenue and moderation in expense growth.
Total revenues expanded $86.880 million or 10 percent year
over year, led by a $49.546 million or 17.5 percent increase
in fee-based income, while noninterest expense rose $33.517
million or 7.3 percent, excluding merger-related charges
in 1998. Results for the first three months of 1999 included a
gain of $17.025 million from the sale of credit card receivables
in a securitization transaction versus a gain of $17.155 million
a year earlier from branch divestiture sales. The gain from the
credit card securitization in the first quarter of 1999 will be
mitigated throughout the year by a reduction in the margin from
higher funding costs compared with alternative wholesale funding
sources. Additionally, the first quarter of 1999 included
increased expenses for equipment, software and technology
investments.
Expanded discussion of the corporation's results of operations
and financial condition follows. Interest income is stated on a
taxable equivalent basis, which is adjusted for the tax-favored
status of earnings from certain loans and securities. References
to changes in assets and liabilities represent daily average
levels unless otherwise noted.
Business The corporation has four reportable business segments: Consumer,
Segments Corporate, Card, and Treasury & Administration.
The Consumer segment provides individuals and small businesses
with products and services ranging from traditional loans and
deposits, mortgages, trust services, brokerage and mutual fund
investments, including the corporation's proprietary Wachovia
Funds, to insurance, private banking and other financial
advisory services. Customers are served in the corporation's
primary operating states of Georgia, North Carolina, South
Carolina, Virginia and Florida through a wide variety of
delivery channels, including ATMs, traditional branches,
work-site banking facilities, in-store banking centers, PC
Access, Wachovia On-Call telephone banking and automated Phone
Access. Major initiatives for the division include PRO
(Profitable Relationship Optimization), which is the
corporation's strategy for profitable customer selling and
retention; Financial Integration, an affluent customer strategy
utilizing teams of financial advisors and specialists; and the
Market Network Model, used for determining the mix of local
retail delivery channels based on location needs and
opportunities.
Corporate offers credit, specialized finance, investment and
processing services. Customers range from businesses with annual
sales of $2 million and above to major multinational
corporations. The division is a leading provider of treasury
services and certain corporate and charitable trust products.
Significantly broadened capabilities have been added in capital
markets, including merchant banking and financial advisory
services, commercial real estate corporate finance, asset
securitization and equipment leasing. The Corporate Division
also is enhancing service and product offerings through its
global services area. Recent initiatives include conversion of
the corporation's London office to branch bank status, enabling
Wachovia to provide credit and deposit services for
European-based companies, and acquisition of a Sao Paulo,
Brazil, bank to facilitate trade capabilities for customers
conducting business in Latin America.
4
The Card division represents the corporation's credit card
business. The division generates revenues from interest on
unpaid card balances and from fees primarily on interchange,
cash advances, overlimit advances, late payments and servicing
securitized receivables. The division employs modeling
techniques and other credit evaluation measures to target
above-average credit risk customers who carry monthly balances
and seek low interest rates. Products offered include prime rate
plus and Prime Rate for Life(R) Visa and MasterCard credit
cards.
The Treasury & Administration segment principally reflects asset
and liability management for interest rate sensitivity risk;
management of the securities portfolio; internal compensation
for deposits and other funding sources, and charges for funds
loaned; and other corporate costs such as Year 2000 and
nonrecurring expenses.
Business segment results are reported on a management accounting
basis. Management accounting practices are internally driven,
reflecting evolving information needs specific to the
decision-making activities of a company's business managers, and
may differ by company due to wide discretion in application. As
a consequence, the corporation's business segment results are
not necessarily comparable with those of other financial
institutions with similar segments or with those of other
companies which compete directly in one or more of the
corporation's lines of business. In addition, business segment
results may be restated in the future as the corporation's
management structure, information needs, measurement
methodologies, and reporting systems evolve.
During 1999, certain changes to the management accounting
structure were implemented which have been reflected for all
periods presented. The primary change is the presentation of the
Card segment on a managed basis, with the funding impact and the
gain on the sale of the securitized portfolio reflected in
Treasury & Administration. Other changes have been implemented
with an immaterial impact.
The provision for loan losses for each business segment is
determined based on the credit risk of each segment's loan
portfolio. Overhead expense is allocated based on the proportion
of each segment's direct expenses to total direct expenses of
the combined segments. Income tax expense is calculated for each
business segment using a blended corporate-wide tax rate based
on taxable equivalent adjusted net income.
Financial results by business segment are discussed below.
Consumer. Net income for Consumer was lower by $5.296 million or
5.7 percent from the first quarter of 1998. Higher levels of
noninterest expense and provision for loan losses accounted for
the decrease, offsetting gains in both noninterest income and
taxable equivalent net interest income. For the quarter,
noninterest income rose $5.968 million or 4.2 percent,
reflecting gains largely in trust services, mortgage fees and
deposit account service charges, while taxable equivalent net
interest income edged up $1.658 million. The increase in
noninterest expense was driven primarily by equipment costs for
new computer systems, net occupancy costs for new facilities and
higher incentive compensation. Included in the 1998 results was
a gain of $17.155 million on branch divestitures.
5
Corporate. Corporate's net income grew $33.192 million or 44
percent year over year, fueled by strong gains in both taxable
equivalent net interest income and noninterest income. Taxable
equivalent net interest income increased $46.675 million or 28.7
percent, driven by loan and lease growth and improved pricing.
Noninterest income advanced $26.901 million or 31.2 percent, led
by capital markets and deposit account service charges. The
provision for loan losses increased $1.522 million, while
noninterest expense was up $18.611 million or 14 percent,
primarily due to higher staff incentive expense.
Card. Net income for the Card division expanded $6.667 million
or 28.5 percent from the same quarter in 1998. Taxable
equivalent net interest income rose $11.520 million or 9.5
percent and noninterest income gained $3.323 million or 9.9
percent, primarily due to increases in cardholder income. The
provision for loan losses was flat with a year earlier, while
noninterest expense increased $3.914 million or 7.9 percent,
partly driven by growth in active accounts.
Treasury & Administration. Treasury & Administration's net
income grew $13.351 million to $17.524 million in the first
quarter of 1999 over the comparable period a year earlier. The
net interest margin declined $22.254 million, reflecting
reductions of $1.611 billion in earning assets and $1.603
billion in interest-bearing liabilities, as well as changes in
the mix of internal funds sources and uses. Other income rose
$10.431 million or 43.8 percent, due in most part to the
bankcard securitization transaction completed in the first
quarter of 1999. Other expense declined $37.286 million or 76.4
percent period to period, reflecting significant reductions in
both business integration expenses and Year 2000 costs
attributable to this segment.
Business Segments Table 5
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(three months ended March 31)
Consumer Corporate Card
--------------------- --------------- ---------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ------ ----
Operations Summary
(millions)
External net interest margin ......... $ 75 $ 72 $ 410 $ 369 $ 209 $ 207
Internal funding (charge)
credit .............................. 213 214 (200) (207) (76) (85)
--------- --------- -------- -------- -------- --------
Net interest income* ................. 288 286 210 162 133 122
Total other income ................... 149 143 113 86 37 34
--------- --------- -------- -------- -------- --------
Total revenues ....................... 437 429 323 248 170 156
Provision for loan losses ............ 11 10 2 ---- 69 69
Total other expense .................. 290 278 151 133 54 50
--------- --------- -------- -------- -------- --------
Pretax profit ........................ 136 141 170 115 47 37
Income taxes (benefit) ............... 49 49 61 40 17 13
--------- --------- -------- -------- -------- --------
Net income ........................... $ 87 $ 92 $ 109 $ 75 $ 30 $ 24
========= ========= ======== ======== ======== ========
Percentage contribution to total
revenues** .......................... 45.19% 48.64% 33.40% 28.12% 17.58% 17.69%
Percentage contribution to net
income .............................. 35.80 47.18 44.86 38.46 12.35 12.31
Average Balances
(billions)
Total assets ......................... $ 17 $ 17 $ 28 $ 25 $ 8 $ 7
Treasury &
Administration Eliminations Total Corporation
-------------------- ----------------- -----------------
1999 1998 1999 1998 1999 1998
-------- ----- ----- ----- ---- ----
Operations Summary
(millions)
External net interest margin ......... $ (76) $ (67) $ (10) $ (12) $ 608 $ 569
Internal funding (charge)
credit .............................. 78 93 (15) (15) ---- ----
-------- ------ ------- ------- ------ ------
Net interest income* ................. 2 26 (25) (27) 608 569
Total other income ................... 35 23 ---- ---- 334 286
-------- ------ ------- ------ - ------ ------
Total revenues ....................... 37 49 (25) (27) 942 855
Provision for loan losses ............ (1) (5) ---- ---- 81 74
Total other expense .................. 12 48 (15) (15) 492 494
--------- ------- ------- ------- ------ ------
Pretax profit ........................ 26 6 (10) (12) 369 287
Income taxes (benefit) ............... 9 2 (10) (12) 126 92
--------- ------- ------- ------- ------ ------
Net income ........................... $ 17 $ 4 $---- $---- $ 243 $ 195
========= ======= ======= ======= ====== ======
Percentage contribution to total
revenues** .......................... 3.83% 5.56%
Percentage contribution to net
income .............................. 7.00 2.05
Average Balances
(billions)
Total assets ......................... $ 11 $ 14 $ 64 $ 63
* Net interest income is reported on a taxable equivalent basis by segment and
on a nontaxable equivalent basis for the corporation, reflecting segment
eliminations.
** Percentage contribution to total revenues is based on the proportion of each
segment's revenues to the combined revenues of all segments. Revenues for
the total corporation are presented based on nontaxable equivalent net
interest income and total other income, including securities transactions.
6
Consolidated Financial Results
Net Interest Taxable equivalent net interest income for the first quarter of
1999 increased $37.334 million or 6.4 percent from a year earlier
Income to $618.228 million. Higher loan volume and a wider interest rate
spread drove the growth as increased loan demand, lower funding
rates and a modest reduction in interest-bearing liabilities
offset a decline in the average yield on interest-earning
assets. Compared with the fourth quarter of 1998, taxable
equivalent net interest income decreased a moderate $2.626
million or less than 1 percent, reflecting the impact of
a reduction in earning assets, declining loan rates and
two fewer accrual days in the period. The effect of declining
loan rates was more than offset by a drop in the average cost
of funds. The net yield on interest-earning assets (defined
as taxable equivalent net interest income as a percentage
of average interest-earning assets) rose 20 basis points
year over year to 4.41 percent and was up 13 basis points
from the fourth quarter. For the full year of 1999,
management anticipates growth of approximately 5 percent
in taxable equivalent net interest income, excluding the
impact of the credit card securitization. The estimate is based
on expectations for steady loan demand and a continued favorable
interest rate spread.
Taxable equivalent interest income decreased $19.042 million or
1.6 percent year over year, the result of a 26 basis point drop
in the average rate earned on interest-earning assets. The
impact of a lower average earning asset yield was offset
partially by solid loan growth, with loans expanding $2.512
billion or 5.7 percent, driven by the commercial portfolio.
Taxable equivalent interest income was lower by $46.759 million
or 3.9 percent from the fourth quarter, reflecting a 9 basis
point decline in the average loan yield, modest to flat loan
growth off of a strong fourth quarter, reduction of the
securities portfolio and the impact of a shorter accrual period.
Commercial loans, including related real estate categories,
increased $2.822 billion or 11.1 percent from the year-earlier
quarter, with all categories except tax-exempt loans expanding.
Taxable commercial loans rose $1.252 billion or 9.2 percent,
lease financing was higher by $846 million or 77.3 percent and
foreign loans were up $724 million or 131.9 percent, reflecting
credits extended largely in the corporation's London office to
European-headquartered companies. The lease financing portfolio
primarily consists of leveraged leases and other commercial
leases. Commercial mortgages grew $282 million or 4.2 percent
and construction loans increased $242 million or 13.1 percent.
Tax-exempt loans continued to decrease due to paydowns in
employee stock ownership plan loans and the reduced availability
of tax-exempt financing under current tax laws.
7
Net Interest Income and Average Balances Table 6
- --------------------------------------------------------------------------------
Twelve 1999
Months ----
Ended
March 31 First
1999 Quarter
----------- ----------
Net Interest Income --
Taxable Equivalent (thousands)
Interest income:
Loans, including fees ........................... $3,923,771 $ 975,011
Securities ...................................... 693,078 151,879
Interest-bearing bank balances .................. 11,952 2,193
Federal funds sold and securities
purchased under resale agreements .............. 26,320 5,802
Trading account assets .......................... 37,956 5,653
----------- ------------
Total ........................................ 4,693,077 1,140,538
Interest expense:
Interest-bearing demand ......................... 60,504 12,725
Savings and money market savings ................ 454,069 113,547
Savings certificates ............................ 509,896 113,449
Large denomination certificates ................. 174,993 43,726
Interest-bearing deposits in foreign offices..... 123,369 23,920
Short-term borrowed funds ....................... 528,124 103,170
Long-term debt .................................. 406,882 111,773
----------- ------------
Total ........................................ 2,257,837 522,310
----------- ------------
Net interest income .............................. $2,435,240 $ 618,228
=========== ============
Annualized net yield on
interest-earning assets ......................... 4.29% 4.41%
Average Balances (millions)
Assets:
Loans -- net of unearned income ................. $ 45,020 $ 46,261
Securities ...................................... 10,238 9,221
Interest-bearing bank balances .................. 143 130
Federal funds sold and securities
purchased under resale agreements .............. 494 483
Trading account assets .......................... 865 700
----------- ------------
Total interest-earning assets ................ 56,760 56,795
Cash and due from banks ......................... 3,144 3,071
Premises and equipment .......................... 879 911
Other assets .................................... 3,884 4,047
Unrealized gains on securities available-
for-sale ....................................... 131 119
Allowance for loan losses ....................... (535) (535)
----------- ------------
Total assets ................................. $ 64,263 $ 64,408
=========== ============
Liabilities and shareholders' equity:
Interest-bearing demand ......................... $ 4,659 $ 4,665
Savings and money market savings ................ 12,234 12,889
Savings certificates ............................ 9,401 8,846
Large denomination certificates ................. 3,280 3,377
Interest-bearing deposits in foreign offices..... 2,287 2,069
Short-term borrowed funds ....................... 10,564 9,292
Long-term debt .................................. 6,653 7,627
----------- ------------
Total interest-bearing liabilities ........... 49,078 48,765
Demand deposits ................................. 8,006 8,062
Other liabilities ............................... 1,960 2,267
Shareholders' equity ............................ 5,219 5,314
----------- ------------
Total liabilities and shareholders'
equity ...................................... $ 64,263 $ 64,408
=========== ============
Total deposits ................................... $ 39,867 $ 39,908
1998
---------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
---------- ------------ ------------ ------------
Net Interest Income --
Taxable Equivalent (thousands)
Interest income:
Loans, including fees ........................... $ 1,000,663 $ 980,636 $ 967,461 $ 952,282
Securities ...................................... 167,680 181,853 191,666 185,655
Interest-bearing bank balances .................. 3,166 3,182 3,411 3,228
Federal funds sold and securities
purchased under resale agreements .............. 8,615 6,168 5,735 5,285
Trading account assets .......................... 7,173 11,817 13,313 13,130
------------- ------------ ------------ ------------
Total ........................................ 1,187,297 1,183,656 1,181,586 1,159,580
Interest expense:
Interest-bearing demand ......................... 15,206 15,526 17,047 16,751
Savings and money market savings ................ 115,367 115,077 110,078 111,133
Savings certificates ............................ 123,203 136,462 136,782 146,030
Large denomination certificates ................. 45,359 40,482 45,426 34,117
Interest-bearing deposits in foreign offices..... 28,112 34,005 37,332 36,210
Short-term borrowed funds ....................... 134,246 144,881 145,827 138,892
Long-term debt .................................. 104,950 95,597 94,562 95,553
------------- ------------ ------------ ------------
Total ........................................ 566,443 582,030 587,054 578,686
------------- ------------ ------------ ------------
Net interest income .............................. $ 620,854 $ 601,626 $ 594,532 $ 580,894
============= ============ ============ ============
Annualized net yield on
interest-earning assets ......................... 4.28% 4.26% 4.21% 4.21%
Average Balances (millions)
Assets:
Loans -- net of unearned income ................. $ 45,966 $ 43,894 $ 43,974 $ 43,749
Securities ...................................... 9,952 10,664 11,102 10,623
Interest-bearing bank balances .................. 163 138 139 189
Federal funds sold and securities
purchased under resale agreements .............. 641 440 411 374
Trading account assets .......................... 818 930 1,008 1,067
------------- ------------ ------------ ------------
Total interest-earning assets ................ 57,540 56,066 56,634 56,002
Cash and due from banks ......................... 3,271 3,068 3,166 3,340
Premises and equipment .......................... 888 874 845 819
Other assets .................................... 3,959 3,822 3,709 3,396
Unrealized gains on securities available-
for-sale ....................................... 177 133 96 114
Allowance for loan losses ....................... (537) (534) (534) (538)
------------- ------------ ------------ ------------
Total assets ................................. $ 65,298 $ 63,429 $ 63,916 $ 63,133
============= ============ ============ ============
Liabilities and shareholders' equity:
Interest-bearing demand ......................... $ 4,639 $ 4,646 $ 4,687 $ 5,984
Savings and money market savings ................ 12,481 11,873 11,700 10,334
Savings certificates ............................ 9,128 9,642 9,984 11,044
Large denomination certificates ................. 3,387 3,146 3,212 2,449
Interest-bearing deposits in foreign offices..... 2,131 2,347 2,599 2,644
Short-term borrowed funds ....................... 11,135 10,858 10,947 10,635
Long-term debt .................................. 6,830 6,080 6,092 6,107
------------- ------------ ------------ ------------
Total interest-bearing liabilities ........... 49,731 48,592 49,221 49,197
Demand deposits ................................. 8,148 7,874 7,939 7,240
Other liabilities ............................... 2,241 1,790 1,545 1,587
Shareholders' equity ............................ 5,178 5,173 5,211 5,109
------------- ------------ ------------ ------------
Total liabilities and shareholders'
equity ...................................... $ 65,298 $ 63,429 $ 63,916 $ 63,133
============= ============ ============ ============
Total deposits ................................... $ 39,914 $ 39,528 $ 40,121 $ 39,695
8
Foreign credit exposure consists of loans and lease financing.
Foreign loans were $1.347 billion or 2.9 percent of total
loans at March 31, 1999 versus $548 million or 1.2 percent
one year earlier and $1.093 billion or 2.4 percent at
year-end 1998. Because foreign loans are reported based
on the address of the borrower and not on the country where
security for the credit resides, foreign loans as reported
do not necessarily indicate the corporation's country risk
exposure. The corporation's country of risk profile for its
$1.347 billion of foreign loans outstanding as of March 31, 1999
has not materially changed from the previous quarter. There were
no extensions of credit in Russia at March 31, 1999 and
extensions of credit in Asia were not significant. Foreign lease
financing was $1.109 billion at the end of the first quarter of
1999, all in Western European countries.
Based on regulatory definitions, commercial real estate loans
were $9.164 billion or 19.8 percent of total loans at March 31,
1999 compared with $8.699 billion or 19.5 percent one year
earlier and $9.032 billion or 19.8 percent at December 31, 1998.
Regulatory definitions for commercial real estate loans include
loans that have real estate as the collateral but not the
primary consideration in a credit risk evaluation.
There were no significant concentrations of loans in any one
industry at March 31, 1999, one year earlier or at year-end
1998.
Consumer loans, including residential mortgages, decreased $310
million or less than 2 percent year over year on lower levels of
residential mortgages and direct retail loans. Because the
corporation's residential mortgage portfolio principally
consists of adjustable rate mortgages, some erosion in the
portfolio occurred as the yield curve continued to flatten and
borrowers increasingly migrated to fixed-rate financing.
Residential mortgages declined $640 million or 8 percent from
the same three months in 1998, while direct retail loans were
lower by $136 million or 11.2 percent. Partially offsetting
these decreases were gains in credit cards, other revolving
credit and indirect retail loans, which primarily consists of
automobile sales financing.
In March, the corporation securitized $896 million of credit
card receivables from its portfolio, principally to further
broaden funding sources and to remain active in the
securitization market. The transaction also provided some
regulatory capital relief for the assets securitized.
Previously, the corporation securitized $500 million of credit
card loans in late 1995. Securitization involves the transfer of
a pool of assets from the balance sheet to a master trust which
then issues and sells to investors certificates representing a
pro rata interest in the underlying assets. The transaction
reduces net interest income and the provision for loan losses
associated with the transferred receivables while increasing
credit card noninterest income in the form of gains on card
sales, servicing fees and other excess revenue earned on the
securitized loans. While securitizations are a beneficial source
of funding, they are a somewhat more expensive source than other
wholesale funding sources. At March 31, 1999, the corporation's
managed credit card portfolio, which includes securitized loans,
was $6.351 billion or 13.3 percent of total managed loans versus
$6.103 billion or 13.6 percent one year earlier and $6.549
billion or 14.2 percent at year-end 1998. Securitized credit
card loans were $1.396 billion at March 31, 1999 compared with
$500 million both one year earlier and at December 31, 1998.
Additional information on the corporation's securitized loans
appears on page 17.
9
Period-End Loans by Category Table 7
- --------------------------------------------------------------------------------
(thousands)
March 31 Dec. 31 Sept. 30 June 30 March 31
1999 1998 1998 1998 1998
----------- ----------- ----------- ----------- -----------
Commercial ..................... $15,639,116 $14,328,152 $15,040,796 $14,162,763 $14,519,889
Tax-exempt ..................... 871,271 972,603 1,024,855 1,285,639 1,379,660
----------- ----------- ----------- ----------- -----------
Total commercial ........... 16,510,387 15,300,755 16,065,651 15,448,402 15,899,549
Direct retail .................. 1,066,011 1,097,574 1,111,654 1,125,885 1,160,162
Indirect retail ................ 3,324,238 3,239,532 3,143,670 3,056,582 3,038,397
Credit card .................... 4,954,671 6,049,350 5,773,009 5,533,435 5,603,381
Other revolving credit ......... 552,908 536,887 517,047 503,758 485,093
----------- ----------- ----------- ----------- -----------
Total retail ............... 9,897,828 10,923,343 10,545,380 10,219,660 10,287,033
Construction ................... 2,087,886 2,044,437 1,865,675 1,835,906 1,873,528
Commercial mortgages ........... 7,076,217 6,988,050 6,826,459 6,796,424 6,824,990
Residential mortgages .......... 7,301,984 7,490,086 7,652,614 7,893,928 7,959,185
----------- ----------- ----------- ----------- -----------
Total real estate .......... 16,466,087 16,522,573 16,344,748 16,526,258 16,657,703
Lease financing ................ 2,172,158 1,879,123 1,688,053 1,420,875 1,105,555
Foreign ........................ 1,346,672 1,093,428 984,884 843,353 548,441
----------- ----------- ----------- ----------- -----------
Total loans ................ $46,393,132 $45,719,222 $45,628,716 $44,458,548 $44,498,281
=========== =========== =========== =========== ===========
Securities, the second largest category of interest-earning
assets, decreased $1.402 billion or 13.2 per cent year
over year and was lower by $731 million or 7.3 percent
from the fourth quarter of 1998. Declines from both periods
resulted from planned runoff principally in the available-
for-sale portfolio. The securities portfolio is expected
to remain largely constant with existing levels for the
rest of 1999. At March 31, 1999, securities available-for-sale
were $8.399 billion and securities held-to-maturity were $1.373
billion.
Securities Table 8
- --------------------------------------------------------------------------------
(thousands)
Securities available-for-sale at fair value:
U.S. Government and agency ..................... $3,477,714
Mortgage-backed securities ..................... 4,333,600
Other .......................................... 587,982
----------
Total securities available-for-sale ......... 8,399,296
Securities held-to-maturity:
U.S. Government and agency ..................... 606,014
Mortgage-backed securities ..................... 538,724
State and municipal ............................ 162,976
Other .......................................... 65,739
----------
Total securities held-to-maturity ........... 1,373,453
----------
Total securities ............................ $9,772,749
==========
Interest expense for the first quarter declined $56.376 million
or 9.7 percent from a year earlier and was down $44.133
million or 7.8 percent from the final three months of
1998. The decrease from both periods principally reflected
a reduction in the average borrowing rate paid, with
some moderation in the overall level of interest-bearing
liabilities. The average rate paid for funding sources declined
43 basis points from the same three months of 1998 to 4.34
percent and was lower by 18 basis points from the fourth
quarter. At the same time, average interest-bearing liabilities
decreased $432 million or less than 1 percent year over year and
were lower by $966 million or a modest 1.9 percent from the
fourth quarter as management reduced short-term borrowings.
The corporation utilizes a diverse funding base and believes
flexibility and ongoing innovation will be required by financial
institutions to attract future funding sources. As part of its
funding strategy, the corporation markets traditional funding
products while issuing a variety of wholesale funding
instruments. Broadened traditional funding sources include the
corporation's Premiere and Business Premiere accounts, both of
which are high-yield money market deposit products; the addition
of PC
10
Banking; and enhancements to basic checking products, including
the addition of the Wachovia Access Nowsm account. Wholesale
funding sources include senior and subordinated debt, a global
bank note program, capital securities and asset-backed
securitization.
Interest-bearing deposits decreased $609 million or a modest 1.9
percent from the first quarter of 1998, primarily due to lower
levels of savings certificates and demand accounts. The
reduction was offset in large part by growth in savings and
money market savings, reflecting gains in the corporation's
Premiere and Business Premiere accounts, and by higher levels of
large denomination certificates. For the quarter, savings
certificates declined $2.198 billion or 19.9 percent year over
year and interest-bearing demand deposits were lower by $1.319
billion or 22 percent. Savings and money market savings grew
$2.555 billion or 24.7 percent and management increased large
denomination certificate levels by $928 million or 37.9 percent.
Interest-bearing deposits were slightly higher from the fourth
quarter of 1998, with gains in savings and money market savings
moderated by runoff largely in savings certificates. Gross
deposits for the first three months of 1999 averaged $39.908
billion, up $213 million or less than 1 percent from $39.695
billion one year earlier. Collected deposits, net of float,
averaged $37.708 billion for the period, an increase of $285
million or less than 1 percent from $37.423 billion in the same
three months of 1998.
Short-term borrowed funds declined $1.343 billion or 12.6
percent from the year-earlier quarter. Federal funds purchased
and securities sold under repurchase agreements decreased $1.558
billion or 20.6 percent and other short-term borrowed funds,
primarily consisting of short-term bank notes, declined $159
million or 7.9 percent. Commercial paper expanded $374 million
or 35.8 percent. Compared with the fourth quarter of 1998,
short-term borrowed funds were lower by $1.843 billion or 16.6
percent with all categories decreasing.
Long-term debt rose $1.520 billion or 24.9 percent year over
year. Growth was driven by other long-term debt, which increased
$1.747 billion or 55.8 percent and consists of senior and
subordinated debt and capital securities. In March 1999, the
corporation issued $400 million of 10-year subordinated
fixed-rate notes following the issuance of a total of $1.300
billion of senior and subordinated unsecured notes in the second
half of 1998. The notes are part of a $2.500 billion debt shelf
offering registered with the Securities and Exchange Commission
in July 1998, with the senior notes rated Aa3 by Moody's and AA-
by Standard & Poor's and the subordinated notes rated A1 by
Moody's and A+ by Standard & Poor's. There were no new issuances
of capital securities, which totaled $996 million at March 31,
1999. The capital securities are rated aa3 by Moody's and A by
Standard & Poor's and qualify as Tier I capital under risk-based
capital guidelines. Long-term debt was higher by $797 million or
11.7 percent from the fourth quarter of 1998 with increases
occurring in both bank notes and other long-term debt.
Through its global bank note program, Wachovia Bank is
authorized to issue up to $21.557 billion of bank notes, with
the authorization including $3.557 billion of notes issued prior
to the program's expansion in July 1998. The global bank note
program consists of issuances with original maturities beginning
at seven days. Bank notes with original maturities of one year
or less are included in other short-term borrowed funds, and
bank notes with original maturities greater than one year are
considered medium-term in nature and are classified as bank
notes under long-term debt. Short-term bank notes outstanding as
of March 31, 1999 were $1.227 billion with an average cost of
4.91 percent and an average maturity of 4.0 months. Medium-term
bank notes were $2.648 billion on the same date, with an average
cost of 5.44 percent and an average maturity of 3.7 years.
Short-term issues under the global bank note program are rated
P-1 by Moody's and A-1+ by Standard & Poor's, while medium-term
issues are rated Aa2 by Moody's and AA by Standard & Poor's.
11
Taxable Equivalent Rate/Volume Variance Analysis -- First Quarter* Table 9
- --------------------------------------------------------------------------------
Average Volume Average Rate
- --------------------- -------------------
1999 1998 1999 1998
- ------- ------- ------- ----
(Millions) Interest Income
Loans:
$14,854 $13,602 6.96 7.22 Commercial .......................................
931 1,455 9.29 8.57 Tax-exempt .......................................
- -------- --------
15,785 15,057 7.10 7.35 Total commercial .............................
1,073 1,209 8.90 9.18 Direct retail ....................................
3,310 3,033 7.96 8.58 Indirect retail ..................................
5,851 5,743 13.26 13.43 Credit card ......................................
546 465 10.95 10.05 Other revolving credit ...........................
- -------- --------
10,780 10,450 11.08 11.38 Total retail .................................
2,093 1,851 8.56 9.16 Construction .....................................
7,053 6,771 8.07 8.83 Commercial mortgages .............................
7,336 7,976 7.83 8.15 Residential mortgages ............................
- -------- --------
16,482 16,598 8.03 8.54 Total real estate ............................
1,941 1,095 12.13 9.77 Lease financing ..................................
1,273 549 6.32 7.42 Foreign ..........................................
- -------- --------
46,261 43,749 8.55 8.83 Total loans ..................................
Securities:
Held-to-maturity:
570 160 6.22 6.33 U.S. Government and agency .....................
576 917 8.42 8.32 Mortgage-backed securities .....................
168 208 9.74 10.81 State and municipal securities .................
72 118 6.73 6.68 Other ..........................................
- -------- --------
1,386 1,403 7.59 8.32 Total securities held-to-maturity ............
Available-for-sale:**
3,173 4,464 6.42 6.84 U.S. Government and agency .....................
4,086 4,023 6.46 6.90 Mortgage-backed securities .....................
576 733 7.48 7.29 Other ..........................................
- -------- --------
7,835 9,220 6.52 6.90 Total securities available-for-sale ..........
- -------- --------
9,221 10,623 6.68 7.09 Total securities .............................
130 189 6.82 6.92 Interest-bearing bank balances ...................
Federal funds sold and securities purchased
483 374 4.87 5.74 under resale agreements ........................
700 1,067 3.28 4.99 Trading account assets ...........................
- -------- --------
$56,795 $56,002 8.14 8.40 Total interest-earning assets ................
======== ========
Interest Expense
$ 4,665 $ 5,984 1.11 1.14 Interest-bearing demand ..........................
12,889 10,334 3.57 4.36 Savings and money market savings .................
8,846 11,044 5.20 5.36 Savings certificates .............................
3,377 2,449 5.25 5.65 Large denomination certificates ..................
- -------- --------
Total interest-bearing deposits in
29,777 29,811 3.86 4.19 domestic offices ...........................
2,069 2,644 4.69 5.55 Interest-bearing deposits in foreign offices .....
- -------- --------
31,846 32,455 3.91 4.30 Total interest-bearing deposits .............
Federal funds purchased and securities sold
6,017 7,575 4.34 5.35 under repurchase agreements ....................
1,420 1,046 4.48 5.14 Commercial paper .................................
1,855 2,014 5.03 5.17 Other short-term borrowed funds ..................
- -------- --------
9,292 10,635 4.50 5.30 Total short-term borrowed funds ............
2,748 2,975 5.69 6.43 Bank notes .......................................
4,879 3,132 6.08 6.27 Other long-term debt .............................
- -------- --------
7,627 6,107 5.94 6.35 Total long-term debt .......................
- -------- --------
$48,765 $49,197 4.34 4.77 Total interest-bearing liabilities .........
======== ======== -------- -----
3.80 3.63 Interest rate spread
======== =====
Net yield on interest-earning assets and
4.41 4.21 net interest income ............................
======== =====
Variance
Interest Attributable to
-------------------------- ----------------------------
1999 1998 Variance Rate Volume
------------ ------------ ------------- ----------- -----------
Interest Income (Thousands)
Loans:
Commercial ....................................... $ 254,955 $ 242,308 $ 12,647 $ (9,068) $ 21,715
Tax-exempt ....................................... 21,328 30,764 (9,436) 2,389 (11,825)
------------ ------------ -------------
Total commercial ................................. 276,283 273,072 3,211 (9,721) 12,932
Direct retail .................................... 23,553 27,361 (3,808) (810) (2,998)
Indirect retail .................................. 64,982 64,190 792 (4,818) 5,610
Credit card ...................................... 191,334 190,228 1,106 (2,452) 3,558
Other revolving credit ........................... 14,747 11,527 3,220 1,086 2,134
------------ ------------ -------------
Total retail ..................................... 294,616 293,306 1,310 (7,822) 9,132
Construction ..................................... 44,189 41,809 2,380 (2,849) 5,229
Commercial mortgages ............................. 140,322 147,402 (7,080) (13,048) 5,968
Residential mortgages ............................ 141,677 160,275 (18,598) (6,076) (12,522)
------------ ------------ -------------
Total real estate ................................ 326,188 349,486 (23,298) (20,874) (2,424)
Lease financing .................................. 58,073 26,370 31,703 7,560 24,143
Foreign .......................................... 19,851 10,048 9,803 (1,676) 11,479
------------ ------------ -------------
Total loans ...................................... 975,011 952,282 22,729 (30,831) 53,560
Securities:
Held-to-maturity:
U.S. Government and agency ....................... 8,745 2,489 6,256 (42) 6,298
Mortgage-backed securities ....................... 11,965 18,815 (6,850) 238 (7,088)
State and municipal securities ................... 4,024 5,557 (1,533) (513) (1,020)
Other ............................................ 1,197 1,937 (740) 13 (753)
------------ ------------ -------------
Total securities held-to-maturity ................ 25,931 28,798 (2,867) (2,514) (353)
Available-for-sale:**
U.S. Government and agency ....................... 50,214 75,264 (25,050) (4,386) (20,664)
Mortgage-backed securities ....................... 65,104 68,414 (3,310) (4,356) 1,046
Other ............................................ 10,630 13,179 (2,549) 337 (2,886)
------------ ------------ -------------
Total securities available-for-sale .............. 125,948 156,857 (30,909) (8,287) (22,622)
------------ ------------ -------------
Total securities ................................. 151,879 185,655 (33,776) (10,240) (23,536)
Interest-bearing bank balances ................... 2,193 3,228 (1,035) (45) (990)
Federal funds sold and securities purchased
under resale agreements .......................... 5,802 5,285 517 (877) 1,394
Trading account assets ........................... 5,653 13,130 (7,477) (3,735) (3,742)
------------ ------------ -------------
Total interest-earning assets .................... 1,140,538 1,159,580 (19,042) (35,294) 16,252
Interest Expense
Interest-bearing demand .......................... 12,725 16,751 (4,026) (416) (3,610)
Savings and money market savings ................. 113,547 111,133 2,414 (22,190) 24,604
Savings certificates ............................. 113,449 146,030 (32,581) (4,282) (28,299)
Large denomination certificates .................. 43,726 34,117 9,609 (2,554) 12,163
------------ ------------ -------------
Total interest-bearing deposits in
domestic offices ................................. 283,447 308,031 (24,584) (24,229) (355)
Interest-bearing deposits in foreign offices ..... 23,920 36,210 (12,290) (5,125) (7,165)
------------ ------------ -------------
Total interest-bearing deposits .................. 307,367 344,241 (36,874) (30,505) (6,369)
Federal funds purchased and securities sold
under repurchase agreements ...................... 64,464 99,963 (35,499) (16,965) (18,534)
Commercial paper ................................. 15,681 13,274 2,407 (1,878) 4,285
Other short-term borrowed funds .................. 23,025 25,655 (2,630) (645) (1,985)
------------ ------------ -------------
Total short-term borrowed funds .................. 103,170 138,892 (35,722) (19,383) (16,339)
Bank notes ....................................... 38,587 47,142 (8,555) (5,134) (3,421)
Other long-term debt ............................. 73,186 48,411 24,775 (1,470) 26,245
------------ ------------ -------------
Total long-term debt ............................. 111,773 95,553 16,220 (6,371) 22,591
------------ ------------ -------------
Total interest-bearing liabilities ............... 522,310 578,686 (56,376) (51,331) (5,045)
------------ ------------ -------------
Interest rate spread
Net yield on interest-earning assets and
net interest income .............................. $ 618,228 $ 580,894 $ 37,334 29,023 8,311
============ ============ =============
* Interest income and yields are presented on a fully taxable equivalent basis
using the federal income tax rate and state tax rates, as applicable,
reduced by the nondeductible portion of interest expense. Any variance
attributable jointly to volume and rate changes is allocated to volume and
rate in proportion to the relationship of the absolute dollar amount of the
change in each.
** Volume amounts are reported at amortized cost; excludes pretax unrealized
gains of $119 million in 1999 and $114 million in 1998.
12
Market Risk Market risk is the risk of loss due to adverse changes in
instrument values or earnings fluctuation resulting from changes
and Asset/ in market factors. This includes, but may not be limited to,
changes in interest rates, foreign exchange rates, commodity
Liability prices and other market variables including equity price risk.
Wachovia has potential exposure to interest rates, no risk in
Management commodity prices (since the corporation does not directly hold
commodities or trade in commodity contracts) and immaterial risk
in foreign exchange and changing equity prices. Market risks
reside in both the trading and nontrading portfolios. Trading
portfolios represent assets, liabilities and off-balance sheet
instruments that are held for short periods of time and are
marked-to-market through the income statement. Nontrading
portfolios represent assets, liabilities and off-balance sheet
instruments that are not marked-to-market through the income
statement but are accounted for on an accrual basis or are
marked-to-market through equity.
The primary risk in both the trading and nontrading portfolios
is to changes in interest rates. Exposures to movements in
foreign exchange rates are predominantly in the trading
portfolio. All locations use the U.S. dollar as their functional
currency and, as a result, exposures to foreign exchange
translation risk are immaterial to consolidated net income.
Exposure to equity price movement is through holdings at the
parent company and private equity investments in the capital
markets line of business. The volatility of values in the equity
portfolios is immaterial to net income. Estimating the amount of
risk in either the trading or nontrading portfolios requires
assumptions about the future. The nature of the assumptions
causes all representations of risk to be estimates. These
estimates will be different from actual results for many
reasons, including but not limited to, changes in the growth of
the overall economy which will impact volume growth in the
company, changing credit spreads, market interest rates moving
in patterns other than the patterns chosen for analysis, changes
in customer preferences, changes in tactical and strategic plans
and initiatives, and changes in Federal Reserve policy. Stress
testing is performed on all market risk measurement analyses to
help understand the relative sensitivity of key assumptions and
thereby better understand the risk profile of the corporation.
Trading Trading market risk is the risk to net income from changes in
the fair value of assets and liabilities and off-balance sheet
Market Risk instruments that are marked-to-market through the income
statement. Trading portfolios are maintained to create value by
servicing customer needs for investment and risk management
products at competitive prices. The key trading portfolios by
purpose are U. S. Treasury and government agencies, municipal
bonds, residential mortgage-backed securities and money market
instruments. The corporation enters into derivatives contracts
and foreign currency exchange forward and option contracts to
service customer needs and does not take material trading
positions in either. The earnings risk due to changes in fair
value in the trading portfolios is limited by the short-term
holding periods of some of the portfolios, entering into
offsetting trades with market counterparties, establishing and
monitoring market risk limits by portfolio, and utilizing various
hedging techniques. Risk appetite, policies, practices and
procedures are established in the business units and approved by
the relevant risk committees and Board of Directors to ensure
that business objectives are met within a framework of prudent
and sound risk management.
A value-at-risk (VAR) methodology is used to gauge potential
losses in various trading portfolios due to changes in interest
rates. The VAR model is a statistical variance/covariance model
that calculates an estimate of exposure to interest rate
movements within a predetermined confidence level over a defined
forward-looking time period. The VAR estimate represents the
maximum expected loss in fair value of a trading portfolio over
a one day time horizon, given a 99 percent confidence level. In
other words, there is about a 1 percent chance, given historical
volatility of interest rates, that a loss greater
13
than the VAR estimate will occur by the end of the next day. The
VAR estimate takes into account several variables that affect
the value of the trading portfolio, including interest rates,
security prices and their volatilities, and statistical
correlations. The potential expected volatility of interest
rates is calculated using a one-year history of market
movements. These historical volatilities are exponentially
weighted to give more weight to recent market movements.
At March 31, 1999, the combined VAR exposure, given the above
calculation parameters, was $177 thousand which represented .04
percent of the combined trading portfolio value of $485.147
million. The combined average VAR exposure for the first quarter
of 1999 was $159 thousand which represented .04 percent of the
combined average trading portfolio value of $433.872 million.
These VAR numbers are for the combined U. S. Treasury and
government agency, municipal bond, residential mortgage-backed
securities and money market instrument portfolios.
Nontrading Nontrading market risk is the risk to net income from changes in
interest rates on asset, liability and off-balance sheet
Market Risk portfolios other than trading portfolios. The risk is driven by
potential mismatches resulting from timing differences in the
repricing of assets, liabilities and off-balance sheet
instruments, and potential exercise of explicit and embedded
options. There also is net income risk from changes in market
rate relationships known as basis risk. Funds Management is
charged with the responsibility of managing the nontrading market
risk. Funds Management includes asset/liability management and
the management of discretionary securities and funding
portfolios. The goal of Funds Management is to maintain high
quality and consistent growth in net income, while maintaining
acceptable levels of risk to changes in interest rates, and
acceptable levels of capital and liquidity. This goal is achieved
by influencing the maturity and repricing characteristics of the
various lending and deposit taking lines of business, by managing
discretionary portfolios, and by utilizing off-balance sheet
financial instruments.
Funds Management operates under the policies established by the
Finance Committee of the Board of Directors and the guidance of
the Management Finance Committee. Nontrading interest rate risk,
liquidity, capital positions and discretionary on- and
off-balance sheet activity are reviewed quarterly by the Finance
Committee of the Board of Directors. Interim oversight of the
function is provided through regular meetings of Funds
Management managers, the Treasurer and the Chief Financial
Officer. Funds Management personnel carry out day-to-day
activity within approved risk management guidelines and
strategies. The corporation uses a number of tools to measure
nontrading interest rate risk, including simulating net income,
monitoring the sensitivity of the net present value of the
balance sheet, and monitoring the difference or gap between
maturing or rate-sensitive assets and liabilities over various
time periods.
Management believes that nontrading interest rate risk is best
measured by simulation modeling which calculates expected net
income based on projected interest-earning assets,
interest-bearing liabilities, off-balance sheet financial
instruments, other income and other expense. The model
projections are based upon historical trends and management's
expectations of balance sheet growth patterns, spreads to market
rates, historical market rate relationships, prepayment
behavior, current and expected product offerings, sales
activity, and expected exercise of explicit and embedded
options. The Management Finance Committee regularly reviews the
assumptions used in the model.
The corporation monitors interest rate risk by measuring the
potential change in 12 months of net income under eight standard
interest rate scenarios. The scenarios are rolled forward by
quarter up to four quarters in the future to view income
sensitivity over any given 12-month period within the next 24
months. All of the scenarios are compared with a scenario where
current market rates are held
14
constant for the forecast period (i.e., the flat rate scenario).
The scenarios are immediate shocks of the yield curve up and
down 100 and 200 basis points and ramp scenarios for up and down
100 and 200 basis points occurring evenly across the next 12
months. Policy guidelines are approved by the Management Finance
Committee and the Finance Committee of the Board of Directors.
For simulation, which is a dynamic forward-looking analysis, the
guidelines are focused on the 200 basis point ramp scenarios
across 12 months. The policy guideline limit for net income
simulation is a negative impact to net income of 7.5 percent for
the up or down 200 basis point ramp scenarios when compared with
the flat rate scenario. Management has generally maintained a
risk position well within the policy guideline level. The model
indicated the impact of a 200 basis point gradual rise in rates
over the next 12 months would cause approximately a .90 percent
decrease in net income at March 31, 1999 versus a 1.58 percent
decrease one year earlier. A gradual decrease in rates over the
next 12 months would cause approximately a .54 percent increase
in net income as of March 31, 1999 compared with a .88 percent
increase at March 31, 1998. The corporation runs additional
scenarios beyond the standard shock and ramp scenarios including
yield curve steepening, flattening and inversion scenarios.
Various sensitivity analyses are performed on a regular basis to
segregate interest rate risk into separate components and
understand the risk attributable to prepayments, caps and
floors, and other options. Extensive assumptions testing is
performed to understand the degree of impact from changing key
assumptions such as the speed of prepayments, the interest rate
elasticity of core deposit rates and faster- or slower-growing
balance sheets.
The corporation also utilizes a present value methodology to
discern risk levels present in the balance sheet beyond the
24-month time horizon used in simulation analysis. The net
present value methodology is a point in time analysis of the
balance sheet not including new business volumes or management
initiatives. All cash flows from earning assets,
interest-bearing liabilities, noninterest-bearing deposits and
off-balance sheet instruments are discounted to a present value.
Assumptions are made to estimate the expected lives of
indeterminate maturity assets and liabilities such as line of
credit products and savings and checking accounts. Discount
rates used in the analysis are based upon forward rates implied
by the current yield curve with credit spreads added to discount
current new business back to par value. As in simulation
analysis, extensive assumptions testing is performed to
understand the degree of impact from changing key assumptions.
The policy guideline limit for present value of the balance
sheet is a negative change in value of 10 percent for up or down
shocks of 100 basis points to the beginning yield curve. As of
March 31, 1999, Wachovia's change in net present value of the
balance sheet for a 100 basis point upward shock to the yield
curve was a decrease of 3.99 percent. For a decline in rates of
100 basis points, the change was an increase of 2.84 percent.
Liquidity To ensure the corporation is positioned to meet immediate and
future cash demands, management relies on liquidity analysis,
Management 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
securities available-for-sale, 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.
15
Through policy guidelines, the corporation limits net purchased
funds to 50 percent of long-term assets, which include net loans
and leases, 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 Nonperforming assets were $170.456 million or .37 percent of
loans and foreclosed property at March 31, 1999. The total was
Assets higher by $22.733 million or 15.4 percent from the end of the
first quarter of 1998, reflecting an increase in cash-basis
assets, but down $10.847 million or 6 percent from December 31,
1998. The rise in cash-basis assets from a year earlier primarily
was attributable to 2 large credits.
Real estate nonperforming assets, the largest category of total
nonperforming assets, were $102.330 million or .62 percent of
real estate loans and foreclosed real estate compared with
$102.530 million or .61 percent and $105.990 million or .64
percent at the end of the first and fourth quarters of 1998,
respectively. Included in these totals were real estate
nonperforming loans of $81.635 million at March 31, 1999 versus
$81.766 million one year earlier and $85.225 million at December
31, 1998.
Commercial real estate nonperforming assets were $47.377 million
or .52 percent of related loans and foreclosed real estate
compared with $47.125 million or .54 percent at March 31, 1998
and $47.571 million or .53 percent at year-end 1998. Commercial
real estate nonperforming loans totaled $35.709 million versus
$40.981 million at the end of the first quarter of 1998 and
$34.911 million at December 31, 1998.
Nonperforming Assets and Contractually Past Due Loans Table 10
- --------------------------------------------------------------------------------
(thousands)
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
1999 1998 1998 1998 1998
---------- ---------- ---------- ---------- --------
Nonperforming assets:
Cash-basis assets ....................................... $144,763 $157,118 $144,654 $127,376 $121,734
Restructured loans ...................................... ---- ---- ---- ---- ----
---------- ---------- ---------- ---------- --------
Total nonperforming loans ............................ 144,763 157,118 144,654 127,376 121,734
Foreclosed property:
Foreclosed real estate ................................. 30,285 33,443 34,935 33,604 35,518
Less valuation allowance ............................... 9,590 12,678 12,867 13,457 14,754
Other foreclosed assets ................................ 4,998 3,420 4,957 4,705 5,225
---------- ---------- ---------- ---------- --------
Total foreclosed property ............................ 25,693 24,185 27,025 24,852 25,989
---------- ---------- ---------- ---------- --------
Total nonperforming assets ........................... $170,456 $181,303 $171,679 $152,228 $147,723
========== ========== ========== ========== ========
Nonperforming loans to period-end loans ................. .31% .34% .32% .29% .27%
Nonperforming assets to period-end loans and
foreclosed property .................................... .37 .40 .38 .34 .33
Period-end allowance for loan losses times
nonperforming loans .................................... 3.79x 3.49x 3.79x 4.30x 4.47x
Period-end allowance for loan losses times
nonperforming assets ................................... 3.22 3.02 3.19 3.60 3.69
Contractually past due loans -- accruing loans past due
90 days or more ......................................... $137,116 $136,807 $119,034 $112,720 $87,569
========== ========== ========== ========== ========
Provision and The provision for loan losses for the quarter was $80.636
million, higher by $6.510 million or 8.8 percent from $74.126
Allowance for million in the same period a year earlier, but lower by $3.468
million or 4.1 percent from the fourth quarter of 1998.
Loan Losses
The provision reflects management's assessment of the adequacy
of the allowance for loan losses to absorb losses inherent in
the loan portfolio due to credit deterioration or changes in
risk profile. The
16
assessment primarily considers allowance for loan loss levels
relative to risk weightings assigned by management to loan
types. The risk weightings are based on several factors, as
appropriate, including historical credit loss experience,
current economic conditions, the composition of the total loan
portfolio -- including industry concentrations -- and
assessments of individual credits within specific loan types.
Because these factors are dynamic in nature, risk weightings for
individual loans and loan types are subject to change and the
provision for loan losses can fluctuate.
Credit reviews are based primarily on analysis of borrowers'
cash flows, with asset values considered only as a secondary
source of repayment. Management's overall credit review process
also assesses Year 2000 compliance by borrowers.
Net loan losses for the period totaled $80.326 million or .69
percent of average loans, an increase of $6.218 million or 8.4
percent from $74.108 million or .68 percent of loans a year
earlier. The rise reflected higher charge-offs, primarily in
commercial loans and credit cards, and lower recoveries,
principally of real estate loans. Compared with the fourth
quarter of 1998, net loan losses decreased $3.472 million or 4.1
percent mostly due to a decline in commercial and credit card
charge-offs. Excluding credit cards, net loan losses were
$13.277 million or .13 percent of average loans versus $8.986
million or .09 percent a year earlier and $15.470 million or .15
percent in the fourth quarter of 1998.
Net loan losses in credit cards were $67.049 million or 4.58
percent of average credit card loans compared with $65.122
million or 4.54 percent in the first quarter of 1998, a rise of
$1.927 million or 3 percent. Commercial net loan losses
increased $3.144 million to $3.906 million or .10 percent of
average related receivables. Recoveries in real estate loans
declined, resulting in net losses of $639 thousand versus net
recoveries of $1.328 million in the same three months of 1998.
Selected data on the corporation's managed credit card
portfolio, which includes securitized loans, appears in the
following table.
Managed Credit Card Data Table 11
- --------------------------------------------------------------------------------
(thousands)
1999 1998
----------- -----------
First Fourth
Quarter Quarter
----------- -----------
Average credit card outstandings ................... $ 6,430,397 $ 6,328,905
Net loan losses .................................... 69,632 72,997
Annualized net loan losses to average loans ........ 4.33% 4.61%
Delinquencies (30 days or more) to period-end loans 3.02 3.30
(thousands)
Third Second First
Quarter Quarter Quarter
----------- ----------- -----------
Average credit card outstandings ................... $ 6,092,515 $ 6,056,770 $ 6,246,315
Net loan losses .................................... 66,324 67,978 69,409
Annualized net loan losses to average loans ........ 4.35% 4.49% 4.44%
Delinquencies (30 days or more) to period-end loans 3.11 2.69 2.68
The allowance for loan losses was $548.302 million at March 31,
1999, representing 1.18 percent of period-end loans and 379
percent of nonperforming loans. This compared with $544.741
million, representing 1.22 percent of loans and 447 percent of
nonperforming loans one year earlier, and $547.992 million,
representing 1.20 percent of loans and 349 percent of
nonperforming loans at December 31, 1998.
17
Allowance for Loan Losses Table 12
- --------------------------------------------------------------------------------
(thousands)
1999 1998
-------- ------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
-------- ------------------------------------------------
Summary of Transactions
Balance at beginning of period ............... $ 547,992 $ 547,686 $547,572 $544,741 $544,723
Additions from acquisitions .................. ---- ---- ---- 2,613 ----
Provision for loan losses .................... 80,636 84,104 72,809 68,441 74,126
Deduct net loan losses:
Loans charged off:
Commercial ................................. 5,862 7,365 4,601 3,252 2,662
Credit card ................................ 74,094 75,401 69,043 70,015 72,061
Other revolving credit ..................... 2,889 3,050 2,736 2,927 2,089
Other retail ............................... 8,910 9,851 8,515 6,624 10,388
Real estate ................................ 1,488 2,407 264 634 1,209
Lease financing ............................ 592 701 782 726 886
Foreign .................................... ---- ---- ---- ---- ----
--------- ----------- -------- -------- --------
Total .................................... 93,835 98,775 85,941 84,178 89,295
Recoveries:
Commercial ................................. 1,956 1,979 1,517 1,271 1,900
Credit card ................................ 7,045 7,073 7,522 7,270 6,939
Other revolving credit ..................... 707 641 610 630 690
Other retail ............................... 2,813 3,167 2,242 3,070 3,015
Real estate ................................ 849 2,001 1,223 3,578 2,537
Lease financing ............................ 139 116 132 136 106
Foreign .................................... ---- ---- ---- ---- ----
--------- ----------- -------- -------- --------
Total .................................... 13,509 14,977 13,246 15,955 15,187
--------- ----------- -------- -------- --------
Net loan losses ............................. 80,326 83,798 72,695 68,223 74,108
--------- ----------- -------- -------- --------
Balance at end of period ..................... $ 548,302 $ 547,992 $547,686 $547,572 $544,741
========= =========== ======== ======== ========
Net Loan Losses (Recoveries) by Category
Commercial ................................... $ 3,906 $ 5,386 $ 3,084 $ 1,981 $ 762
Credit card .................................. 67,049 68,328 61,521 62,745 65,122
Other revolving credit ....................... 2,182 2,409 2,126 2,297 1,399
Other retail ................................. 6,097 6,684 6,273 3,554 7,373
Real estate .................................. 639 406 (959) (2,944) (1,328)
Lease financing .............................. 453 585 650 590 780
Foreign ...................................... ---- ---- ---- ---- ----
--------- ----------- -------- -------- --------
Total .................................... $ 80,326 $ 83,798 $ 72,695 $ 68,223 $ 74,108
========= =========== ======== ======== ========
Net loan losses -- excluding credit cards .... $ 13,277 $ 15,470 $ 11,174 $ 5,478 $ 8,986
Annualized Net Loan Losses (Recoveries) to
Average Loans by Category
Commercial ................................... .10% .13% .08% .05% .02%
Credit card .................................. 4.58 4.69 4.40 4.52 4.54
Other revolving credit ....................... 1.60 1.84 1.67 1.86 1.20
Other retail ................................. .56 .62 .60 .34 .70
Real estate .................................. .02 .01 (.02) (.07) (.03)
Lease financing .............................. .09 .13 .16 .19 .29
Foreign ...................................... ---- ---- ---- ---- ----
Total loans .................................. .69 .73 .66 .62 .68
Total loans -- excluding credit cards ........ .13 .15 .12 .06 .09
Period-end allowance to outstanding loans .... 1.18 1.20 1.20 1.23 1.22
Noninterest Total other operating revenue, which excludes securities
transactions, grew $49.546 million or 17.5 percent year over year
Income to $333.269 million. All categories advanced except other income,
with growth led by credit card income, capital markets income,
deposit account service charges, mortgage fees and fees for trust
services. Total other operating revenue included gains in the
first three months of 1999 of $17.025 million from the sale of
credit card receivables in a securitization transaction and
$17.155 million in the year-earlier period from branch
divestitures. Adjusted for these gains, total other operating
revenue was up $49.676 million or 18.6 percent from the first
quarter of 1998 but was modestly lower from the fourth quarter,
reflecting seasonal decline in business activity. Total other
operating revenue for the full year of 1999 is expected to be up
10 percent to 12 percent,
18
excluding the benefit from the corporation's acquisition of
Interstate/Johnson Lane. Growth is expected to be driven largely
by capital markets, technology-based banking and financial
advisory areas.
Credit card income rose $22.757 million or 59 percent from the
first quarter of 1998. Gains on receivables sales of $17.025
million and higher interchange fees primarily accounted for the
increase. Adjusted for the securitization, credit card income
for the quarter was up $5.732 million or 14.9 percent from the
same period in 1998.
Capital markets income expanded $22.002 million or 136.6
percent, driven largely by growth in consulting services and
loan syndications. On April 1, the broker-dealer subsidiary of
Interstate/Johnson Lane Inc. was merged into Wachovia's Section
20 capital markets subsidiary to form Wachovia Securities Inc.
The expanded Section 20 subsidiary consists of a retail
brokerage division -- IJL Wachovia -- and an institutional
business division -- Wachovia Capital Markets -- with full Tier
I and Tier II powers to underwrite and deal in all types of
corporate debt and equities.
Revenues from deposit account service charges increased $6.081
million or 7.5 percent. Gains occurred primarily in overdraft
fees and in commercial analysis fees.
Mortgage fees rose $3.262 million or 42.3 percent, largely
fueled by higher mortgage originations and gains on sales of
servicing rights.
Fees for trust services grew $3.083 million or 6.7 percent.
Strong gains in trust and investment management largely drove
the increase, with management fees collected for the Wachovia
Funds -- the corporation's proprietary mutual funds -- also up
for the period.
Higher debit card interchange income and ATM usage pushed
electronic banking revenue up $2.060 million or 12.6 percent.
Investment fee income expanded $1.467 million or 13.1 percent.
Growth occurred primarily in brokerage commission income and in
fees from customer mutual fund investments, including the
Wachovia Funds. At March 31, 1999, assets for the Wachovia Funds
totaled $6.852 billion compared with $6.013 billion one year
earlier.
Noninterest Income Table 13
- --------------------------------------------------------------------------------
(thousands)
1999 1998
--------- ---------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
--------- --------- -------- -------- --------
Service charges on deposit accounts ................... $ 86,955 $ 86,967 $ 84,674 $ 82,465 $ 80,874
Fees for trust services ............................... 49,136 53,909 51,185 48,802 46,053
Credit card income -- net of interchange payments ..... 61,301 46,194 43,312 43,077 38,544
Capital markets income ................................ 38,112 36,044 37,625 40,304 16,110
Electronic banking .................................... 18,455 19,746 19,449 18,667 16,395
Investment fees ....................................... 12,658 11,051 10,712 11,665 11,191
Mortgage fees ......................................... 10,966 13,472 12,251 11,502 7,704
Insurance premiums and commissions .................... 8,977 7,981 8,213 8,135 7,568
Bankers' acceptance and letter of credit fees ......... 10,342 9,909 9,745 9,802 9,569
Other service charges and fees ........................ 11,253 9,611 9,680 10,125 10,350
Other income .......................................... 25,114 23,928 23,695 30,499 39,365
--------- --------- -------- -------- --------
Total other operating revenue ..................... 333,269 318,812 310,541 315,043 283,723
Securities gains ...................................... 234 7,407 6,886 2,992 3,157
--------- --------- -------- -------- --------
Total ............................................. $333,503 $326,219 $317,427 $318,035 $286,880
========= ========= ======== ======== ========
Remaining combined categories of total other operating revenue,
excluding branch divestiture sales in the first quarter of 1998,
increased $5.989 million or 12.1 percent. Insurance premiums and
commissions rose $1.409 million or 18.6 percent and bankers'
acceptance and letter of credit fees were up
19
$773 thousand or 8.1 percent. Other service charges and fees
were higher by $903 thousand or 8.7 percent and other income,
excluding branch divestiture gains, grew $2.904 million or 13.1
percent.
Including securities sales, total noninterest income rose
$46.623 million or 16.3 percent. Securities sales resulted in
net gains for the first three months of 1999 of $234 thousand
versus $3.157 million in the same period a year earlier.
Noninterest Total noninterest expense decreased modestly from the first
quarter of 1998, which included $35.568 million in merger-related
Expense charges. Excluding all merger integration expenses in 1998, total
noninterest expense for the first three months of 1999 increased
$33.517 million or 7.3 percent year over year and was up $6.473
million or 5.3 percent annualized from the fourth quarter.
Merger-related charges of between $15 million and $20 million
are expected to be taken primarily in the second and third
quarters of 1999 for integration activities associated with the
corporation's acquisition of Interstate/Johnson Lane Inc. on
April 1. For the full year of 1999, noninterest expense is
expected to rise 4 percent to 5 percent over 1998, excluding
merger-related charges in both years. The projected, slower rise
in noninterest expense from the previous year is based on
moderation expected largely in salary growth.
Noninterest Expense Table 14
- --------------------------------------------------------------------------------
(thousands)
1999 1998
-------- ----------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
-------- ----------- -------- --------- ---------
Salaries .............................................. $218,115 $ 221,019 $221,242 $ 219,731 $ 212,758
Employee benefits ..................................... 53,071 48,922 42,040 42,675 46,966
-------- ----------- -------- --------- ---------
Total personnel expense ........................... 271,186 269,941 263,282 262,406 259,724
Net occupancy expense ................................. 34,933 35,838 34,896 34,119 33,783
Equipment expense ..................................... 47,404 41,683 38,545 41,288 34,687
Postage and delivery .................................. 14,128 12,962 13,373 13,368 13,278
Outside data processing, programming and software ..... 25,110 21,203 18,496 16,244 12,737
Stationery and supplies ............................... 8,809 9,339 10,689 7,233 7,506
Advertising and sales promotion ....................... 11,837 12,782 17,147 22,555 17,738
Professional services ................................. 14,024 15,311 14,929 14,522 11,304
Travel and business promotion ......................... 5,951 7,521 7,656 7,638 6,439
Amortization of intangible assets ..................... 10,953 10,908 9,840 9,226 9,117
Foreclosed property expense -- net of income .......... (82) 517 (164) 88 130
Merger-related charges ................................ ---- 6,961 11,934 30,849 35,568
Other expense ......................................... 47,945 47,720 51,780 57,458 52,238
-------- ----------- -------- --------- ---------
Total ............................................. $492,198 $ 492,686 $492,403 $ 516,994 $ 494,249
======== =========== ======== ========= =========
Overhead ratio* ....................................... 51.7% 52.4% 54.0% 56.8% 57.2%
Overhead ratio without merger-related charges ......... 51.7 51.7 52.7 53.4 53.1
* Noninterest expense as a percentage of taxable equivalent net interest income
and total other operating revenue.
Total personnel expense for the period rose $11.462 million or
4.4 percent from a year earlier. Salaries expense grew $5.357
million or a moderate 2.5 percent, principally reflecting higher
incentive pay for revenue generating businesses. Employee
benefits expense was up $6.105 million or 13 percent, primarily
due to increases in medical and retirement plan benefits and in
employee taxes.
Combined net occupancy and equipment expense grew $13.867
million or 20.3 percent, principally driven by increased
depreciation and amortization of new equipment and technology
investments. Equipment expense rose $12.717 million or 36.7
percent, while net occupancy expense was up $1.150 million or
3.4 percent.
Remaining combined categories of noninterest expense increased
$8.188 million or 6.3 percent excluding merger-related expenses
in 1998. Outside data processing, programming and software
expense rose $12.373 million or 97.1 percent, reflecting, in
large part, higher software and technology expense. Professional
services expense was up $2.720 million or 24.1 percent, due to
consulting
20
fees for ongoing corporate strategies. Amortization of
intangible assets expense was higher by $1.836 million or 20.1
percent, reflecting increased intangible asset levels from
purchase acquisitions.
Year 2000 The change in date to the year 2000 from 1999 will cause data
recognition problems in computers, software and facility
operations dependent on computer chip devices due to programming
standards that historically limited data date fields to two
digits. In late 1995, the corporation initiated a formal
evaluation of Year 2000 issues, establishing in the early months
of 1996 a full-time project team to assess and address both
internal and external risks associated with the change in date
event. The project team is in the latter stages of completing a
Year 2000 readiness plan consisting of five phases: problem
awareness; identification of affected systems, functions and
facilities; conversion or replacement of identified areas to Year
2000 compliant standards; testing; and implementation.
The corporation's readiness plan encompasses both information
technology systems and computer chip embedded functions, such as
those operating facilities including elevators, security systems
and building heating and cooling. In 1996, the corporation
completed its awareness and identification phases, extending and
completing the processes in 1997 and 1998 for recent merger
partners. As of March 31, 1999, virtually all of the
corporation's information technology systems, including all of
those designated as mission critical, had been converted, tested
and implemented. While regulatory guidelines require conversion
only of mission critical systems, the corporation's approach has
been to address all of its information technology systems. For
computer chip embedded functions, the corporation has replaced
and tested noncompliant functions essential to business
operations.
In-house testing of internal and external mission critical
systems was 100 percent complete as of March 31, 1999. Testing
of Wachovia's entire application portfolio was 96 percent
complete as of the same date. Management expects to finish
testing of its remaining systems by April 30, 1999. Testing is
done in both a 21st century and 20th century date environment
before systems are returned to production to ensure data
accuracy and consistency. All exceptions to testing results are
resolved before further testing is permitted. Management has
chosen to implement converted systems back into production as
systems are tested to permit greater flexibility in the event of
future system flaws or failures. The percentage of systems
implemented, therefore, closely approximates the percentage
tested.
The corporation also is working to address Year 2000 readiness
on the part of external entities, particularly critical vendors
and significant credit customers. Identification and monitoring
of external entities began in 1996 and includes surveys with
follow-up reviews and contacts. Substantially all of the
corporation's vendors have responded to management's surveys
regarding Year 2000 readiness, with approximately 81 percent
indicating that they are compliant as of March 31, 1999. The
project team is continuing to monitor the progress of remaining
noncompliant vendors as well as the status of large corporate
borrowers identified as potentially at risk. The corporation
began external entity testing in 1998 and has continued this
testing in 1999. All external entity testing is on schedule to
be completed by June 30, 1999.
Management estimates that total Year 2000 project costs will be
approximately $80 million, with $72 million having been spent
through March 31, 1999 including $6 million in the first quarter
of 1999. The corporation's remaining Year 2000 project costs are
not expected to have a material impact on Wachovia's results of
operations, liquidity or capital resources.
The corporation faces a number of risks related to the year 2000
date change event, including project management risks, legal
risks and financial risks. Project management risks refer
primarily to the failure to adequately assess Year 2000 planning
and resource needs, resulting in under- or over-allotment
21
of resources assigned to complete the project work, missed
deadlines and estimation errors. Legal risks include the failure
to meet contractual service agreements, leading to possible
punitive actions including those of a regulatory nature.
Financial risks concern the possibility of lost revenues, asset
quality deterioration or even business failure. The corporation
conducted a project management risk assessment in early 1997 and
is in the process of addressing its legal and financial risks.
Management of the date change event entails additional risks
separate from those of project management. Major risks
associated with the date change event include a shutdown of
voice and data communication systems due to failure by switching
systems, satellites, or telephone companies; excessive cash
withdrawal activity; cash couriers delayed or not available; ATM
failures; problems with international accounts or offices,
including inaccurate or delayed information or inaccessibility
to account data; and government offices or facilities not
opening or operating.
The corporation has identified 60 risks associated with the date
change event and has completed development of formal contingency
plans for each major risk. Management views contingency planning
as part of an overall strategy for managing the date change
event and post-event risks and considers preimplementation
mitigating actions as critical components to successful
contingency planning. In the event of a voice and data
communication system shutdown, contingency plans include
deploying cellular and field phones to communicate between
established command posts. To reduce expected cash withdrawal
demands while simultaneously preparing for higher fund
withdrawal activity, the corporation is sponsoring public
awareness programs on appropriate cash reserve levels, applying
for increased borrowing limits from the Federal Reserve, and
broadening its regular liquidity management reviews. Standing
agreements with cash courier services are being reviewed to
identify and resolve potential courier service problems prior to
the date change event.
To minimize ATM failures, the corporation has upgraded its
entire network of ATMs, including their primary and backup
computer processors. Alternate cash access plans include using
existing communication channels to direct customers to working
ATMs in the event of localized ATM failures and extending branch
office hours where needed. To reduce potential problems in
international offices, the corporation has converted and tested
the information systems of its Sao Paulo, Brazil office and will
complete testing for its London, England office by April 30.
Separate contingency plans have been developed by each foreign
office to assist independent operations. In addition to its
contingency planning, management has mapped all information
systems to its core business processes as part of its
preimplementation mitigating action plan. This will enable the
corporation to identify affected business processes should data
information problems occur during the changeover to calendar
year 2000 and in the time period immediately following.
The corporation believes the actions it is taking should reduce
the risks posed by Year 2000 challenges to its own systems.
Management recognizes, however, that unforeseen circumstances
could arise both within its own systems and with the systems of
external entities and can give no assurances that, if such
circumstances arose, they would not adversely affect the
corporation's Year 2000 compliance efforts. Further, management
cannot determine the impact that any adverse effect might have
on the corporation's operations, financial position or cash
flows.
22
Euro
Conversion On January 1, 1999, eleven member countries of the European
Union established the Euro as their common legal currency and
established a fixed conversion rate between their current
sovereign currencies and the Euro. From January 1, 1999 through
the end of 2001, corporations and individuals may transact
business in either the Euro or the functional currency of each
member nation. Management has a risk assessment committee that
has been examining the risks associated with the Euro conversion
such as the adequacy of information technology systems, currency
risk and the competitive impact of cross-border price
transparency. During this interim period, the corporation is
operating parallel accounts in both the Euro and the respective
national currency in order to more effectively process
transactions. Management does not expect the impact of the Euro
conversion to have a material adverse impact on the corporation's
financial condition or results of operations.
Income Taxes Applicable income taxes for the first quarter of 1999 increased
$33.182 million or 35.9 percent from a year earlier. Income taxes
computed at the statutory rate are reduced primarily by the
assumed tax effect of interest income 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 certain state and municipal debt
instruments is exempt from federal taxes and in some cases state
taxes. The tax-exempt nature of these assets provides both an
attractive return for the corporation and substantial interest
savings for local governments and their constituents.
Income Taxes Table 15
- --------------------------------------------------------------------------------
(thousands)
Three Months Ended
March 31
------------------------
1999 1998
---------- ----------
Income before income taxes .................................... $ 368,745 $ 287,648
========== ==========
Federal income taxes at statutory rate ........................ $ 129,061 $ 100,677
State and local income taxes -- net of federal benefit ........ 8,052 (1,021)
Effect of tax-exempt securities interest and other income ..... (11,194) (12,382)
Other items ................................................... (410) 5,053
---------- ----------
Total tax expense ......................................... $ 125,509 $ 92,327
========== ==========
Current:
Federal ...................................................... $ 21,523 $ 68,763
Foreign ...................................................... 302 115
State and local .............................................. 6,614 3,729
---------- ----------
Total ..................................................... 28,439 72,607
Deferred:
Federal ...................................................... 91,297 25,021
State and local .............................................. 5,773 (5,301)
---------- ----------
Total ..................................................... 97,070 19,720
---------- ----------
Total tax expense ......................................... $ 125,509 $ 92,327
========== ==========
New Accounting Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (FASB
Standards 131), issued in June 1997, established new standards for
reporting information about operating segments in annual and
interim financial statements. The standard 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. FASB 131 was adopted for
presentation for the year ended December 31, 1998. Interim
reporting for 1999 includes restated information for comparable
periods in 1998.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (FASB 133).
23
FASB 133 establishes new accounting and reporting requirements
for derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities.
The standard requires all derivatives to be measured at fair
value and recognized as either assets or liabilities in the
statement of condition. Under certain conditions, a derivative
may be specifically designated as a hedge. Accounting for the
changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation.
Adoption of the standard is required for the corporation's
December 31, 2000 financial statements with early adoption
allowed as of the beginning of any quarter after June 30, 1998.
Management is in the process of assessing the impact and plans
to adopt the standard effective January 1, 2000. Adoption is not
expected to result in a material financial impact.
Financial Condition and Capital Ratios
Assets at March 31, 1999 totaled $65.319 billion, with $57.660
billion of interest-earning assets and $46.393 billion of loans.
Comparable amounts one year earlier were $65.125 billion of
assets, $57.464 billion of interest-earning assets and $44.498
billion of loans. At December 31, 1998, total assets were $64.123
billion, interest-earning assets were $56.537 billion and loans
were $45.719 billion.
Deposits at the end of the first quarter of 1999 were $40.288
billion, including $32.052 billion of interest-bearing deposits,
representing 79.6 percent of the total. Deposits one year
earlier were $39.857 billion with interest-bearing deposits of
$31.331 billion or 78.6 percent of the total, and at December
31, 1998, deposits were $40.995 billion, including $32.226
billion of interest-bearing deposits or 78.6 percent of the
total.
Shareholders' equity at March 31, 1999 was $5.432 billion, up
$195.239 million or 3.7 percent from $5.237 billion one year
earlier. Included in shareholders' equity at March 31, 1999 was
$60.642 million, net of tax, of unrealized gains on securities
available-for-sale compared with $63.849 million, net of tax,
one year earlier.
During the first quarter of 1999, the corporation repurchased a
total of 626,600 shares of its common stock at an average price
of $86.302 per share for a total cost of $54.077 million. The
shares were repurchased as part of the corporation's June 23,
1998 share repurchase authorization by the Board of Directors to
repurchase up to 12 million shares of the corporation's common
stock. The authorization is effective through January 28, 2000.
As of March 31, 1999, a total of 5,268,800 shares had been
repurchased under the June 23, 1998 authorization. Management
expects to complete the share repurchase authorization in 1999
consistent with market conditions and other opportunities to
deploy capital. The corporation also is authorized to repurchase
shares to offset those issued in connection with Wachovia's
purchase acquisition of Interstate/Johnson Lane.
At its April 23, 1999 meeting, the corporation's Board of
Directors declared a second quarter dividend of $.49 per share,
payable June 1 to shareholders of record as of May 6. The
dividend is higher by 11.4 percent from $.44 per share paid in
the same quarter of 1998. For the year to date, the dividend
will total $.98 per share, up 11.4 percent from $.88 per share
in 1998.
Intangible assets at March 31, 1999 totaled $676.528 million,
consisting of $537.198 million of goodwill, $90.464 million of
deposit base intangibles, $9.798 million of mortgage servicing
rights, $38.789 million of purchased credit card premiums and
$279 thousand of other intangibles. Intangible assets at the end
of the first quarter of 1998 were $619.334 million, with
$508.010 million of goodwill, $96.315 million of deposit base
intangibles, $13.530 million of mortgage servicing rights,
$1.174 million of purchased credit card premiums and $305
thousand of other intangibles.
24
The Interstate/Johnson Lane acquisition was accounted for as a
purchase transaction and resulted in goodwill of approximately
$140 million. The corporation issued approximately 2.6 million
shares of stock in connection with this transaction.
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 allowance for loan
losses and certain long-term debt) and measure capital adequacy
by applying both capital levels to a banking company's
risk-adjusted assets and off-balance sheet items. Regulatory
requirements presently specify that Tier I capital should
exclude the unrealized gain or loss, net of tax, on securities
available-for-sale. In addition to these capital ratios,
regulatory agencies have established a Tier I leverage ratio
which measures Tier I capital to average assets less ineligible
intangible assets.
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. It is the policy of the
corporation that it and its banking subsidiaries be well
capitalized at all times.
At March 31, 1999, the corporation's Tier I to risk-adjusted
assets ratio was 7.73 percent and total capital to risk-adjusted
assets was 11.44 percent. The Tier I leverage ratio was 8.97
percent. Capital securities included in the capital ratios were
$996.462 million and $996.087 million at March 31, 1999 and
1998, respectively.
Capital Components and Ratios Table 16
- --------------------------------------------------------------------------------
(thousands)
1999 1998
---- -------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
--------- ------------ -------- -------- --------
Tier I capital:
Common shareholders' equity ............. $ 5,431,939 $ 5,338,232 $ 5,229,191 $ 5,375,793 $ 5,236,700
Trust capital securities ................ 996,462 996,368 996,274 996,180 996,087
Less ineligible intangible assets ....... 657,717 666,672 665,408 669,448 604,325
Unrealized gains on securities
available-for-sale -- net of tax ....... (60,642) (82,440) (131,325) (74,990) (63,849)
----------- ------------- ----------- ----------- -----------
Total Tier I capital ................. 5,710,042 5,585,488 5,428,732 5,627,535 5,564,613
Tier II capital:
Allowable allowance for loan losses ..... 548,302 547,992 547,686 547,572 544,741
Allowable long-term debt ................ 2,191,701 1,794,148 1,486,537 1,138,711 1,193,533
----------- ------------- ----------- ----------- -----------
Tier II capital additions ............ 2,740,003 2,342,140 2,034,223 1,686,283 1,738,274
----------- ------------- ----------- ----------- -----------
Total capital ........................ $ 8,450,045 $ 7,927,628 $ 7,462,955 $ 7,313,818 $ 7,302,887
=========== ============= =========== =========== ===========
Risk-adjusted assets ..................... $73,871,880 $69,928,737 $72,924,472 $69,633,722 $67,897,994
Quarterly average assets* ................ $63,631,476 $64,454,538 $62,630,533 $63,184,419 $62,457,463
Risk-based capital ratios:
Tier I capital .......................... 7.73% 7.99% 7.44% 8.08% 8.20%
Total capital ........................... 11.44 11.34 10.23 10.50 10.76
Tier I leverage ratio .................... 8.97 8.67 8.67 8.91 8.91
* Excludes ineligible intangible assets and average unrealized gains (losses)
on securities available-for-sale, net of tax.
25
Consolidated Statements of Condition
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
March 31 December 31 March 31
1999 1998 1998
----------- ----------- -----------
Assets
Cash and due from banks ........................................................ $3,110,130 $ 3,800,265 $3,661,602
Interest-bearing bank balances ................................................. 160,529 109,983 154,415
Federal funds sold and securities purchased under resale agreements ............ 524,100 675,470 365,987
Trading account assets ......................................................... 809,416 664,812 1,198,056
Securities available-for-sale .................................................. 8,399,296 7,983,648 9,871,249
Securities held-to-maturity (fair value of $1,422,225, $1,442,126 and
$1,440,438, respectively)...................................................... 1,373,453 1,383,607 1,375,959
Loans, net of unearned income .................................................. 46,393,132 45,719,222 44,498,281
Less allowance for loan losses ................................................. 548,302 547,992 544,741
------------ ----------- ------------
Net loans .................................................................... 45,844,830 45,171,230 43,953,540
Premises and equipment ......................................................... 962,609 901,681 840,350
Due from customers on acceptances .............................................. 310,818 348,955 692,444
Other assets ................................................................... 3,824,307 3,083,191 3,011,113
------------ ----------- ------------
Total assets ................................................................. $65,319,488 $64,122,842 $65,124,715
============ =========== ============
Liabilities
Deposits in domestic offices:
Demand ........................................................................ $ 8,235,680 $ 8,768,271 $ 8,526,248
Interest-bearing demand ....................................................... 4,758,860 4,980,715 4,831,044
Savings and money market savings .............................................. 13,161,018 12,641,766 11,687,725
Savings certificates .......................................................... 8,764,668 8,982,396 10,093,897
Large denomination certificates ............................................... 3,602,130 3,344,553 2,854,234
------------ ----------- ------------
Total deposits in domestic offices ........................................... 38,522,356 38,717,701 37,993,148
Interest-bearing deposits in foreign offices ................................... 1,765,789 2,277,028 1,863,739
------------ ----------- ------------
Total deposits ............................................................... 40,288,145 40,994,729 39,856,887
Federal funds purchased and securities sold under repurchase agreements ........ 6,268,563 5,463,418 8,796,505
Commercial paper ............................................................... 1,433,130 1,359,382 1,217,459
Other short-term borrowed funds ................................................ 2,046,994 1,912,262 1,935,326
Long-term debt ................................................................. 7,970,451 7,596,727 6,456,366
Acceptances outstanding ........................................................ 310,818 348,955 692,444
Other liabilities .............................................................. 1,569,448 1,109,137 933,028
------------ ----------- ------------
Total liabilities ............................................................ 59,887,549 58,784,610 59,888,015
Shareholders' Equity
Preferred stock, par value $5 per share:
Authorized 50,000,000 shares; none outstanding ................................ ---- ---- ----
Common stock, par value $5 per share:
Authorized 1,000,000,000, 1,000,000,000 and 500,000,000 shares; issued and
outstanding 202,898,450, 202,986,100 and 206,131,388 shares, respectively .... 1,014,492 1,014,931 1,030,657
Capital surplus ................................................................ 675,686 669,244 941,071
Retained earnings .............................................................. 3,681,119 3,571,617 3,201,123
Accumulated other comprehensive income ......................................... 60,642 82,440 63,849
------------ ----------- ------------
Total shareholders' equity ................................................... 5,431,939 5,338,232 5,236,700
------------ ----------- ------------
Total liabilities and shareholders' equity ................................... $65,319,488 $64,122,842 $65,124,715
============ =========== ============
26
Consolidated Statements of Income
- --------------------------------------------------------------------------------
thousands, except per share Wachovia Corporation and Subsidiaries
Three Months Ended
March 31
------------------------------
1999 1998
------------ ----
Interest Income
Loans, including fees ................................................... $ 969,294 $ 945,437
Securities available-for-sale ........................................... 123,113 153,938
Securities held-to-maturity:
State and municipal .................................................... 2,683 3,936
Other investments ...................................................... 21,635 23,241
Interest-bearing bank balances .......................................... 2,193 3,228
Federal funds sold and securities purchased under resale agreements ..... 5,802 5,285
Trading account assets .................................................. 5,666 12,764
------------ -----------
Total interest income ................................................. 1,130,386 1,147,829
Interest Expense
Deposits:
Domestic offices ....................................................... 283,447 308,030
Foreign offices ........................................................ 23,920 36,210
------------ -----------
Total interest on deposits ............................................ 307,367 344,240
Short-term borrowed funds ............................................... 103,170 138,893
Long-term debt .......................................................... 111,773 95,553
------------ -----------
Total interest expense ................................................ 522,310 578,686
Net Interest Income ..................................................... 608,076 569,143
Provision for loan losses ............................................... 80,636 74,126
------------ -----------
Net interest income after provision for loan losses ..................... 527,440 495,017
Other Income
Service charges on deposit accounts ..................................... 86,955 80,874
Fees for trust services ................................................. 49,136 46,053
Credit card income ...................................................... 61,301 38,544
Capital markets income .................................................. 38,112 16,110
Electronic banking ...................................................... 18,455 16,395
Investment fees ......................................................... 12,658 11,191
Mortgage fees ........................................................... 10,966 7,704
Other operating income .................................................. 55,686 66,852
------------ -----------
Total other operating revenue ......................................... 333,269 283,723
Securities gains ........................................................ 234 3,157
------------ -----------
Total other income .................................................... 333,503 286,880
Other Expense
Salaries ................................................................ 218,115 212,758
Employee benefits ....................................................... 53,071 46,966
------------ -----------
Total personnel expense ............................................... 271,186 259,724
Net occupancy expense ................................................... 34,933 33,783
Equipment expense ....................................................... 47,404 34,687
Merger-related charges .................................................. ---- 35,568
Other operating expense ................................................. 138,675 130,487
------------ -----------
Total other expense ................................................... 492,198 494,249
Income before income taxes .............................................. 368,745 287,648
Income tax expense ...................................................... 125,509 92,327
------------ -----------
Net Income .............................................................. $ 243,236 $ 195,321
============ ===========
Net income per common share:
Basic .................................................................. $ 1.20 $ .95
Diluted ................................................................ $ 1.18 $ .93
Average shares outstanding:
Basic .................................................................. 203,119 205,894
Diluted ................................................................ 206,959 210,158
27
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
$ in thousands, except shares Wachovia Corporation and Subsidiaries
Common Stock
------------------------- Capital
Shares Amount Surplus
------------ ------- -------
Period Ended March 31, 1998
Balance at beginning of year ................. 205,926,632 $1,029,633 $ 974,803
Net income ...................................
Unrealized holding losses on securities
available-for-sale, net of tax and
reclassification adjustment .................
Comprehensive income .....................
Cash dividends declared on common
stock -- $.44 a share........................
Common stock issued pursuant to:
Stock option and employee benefit plans ..... 1,084,512 5,423 31,249
Dividend reinvestment plan .................. 77,565 388 5,741
Common stock acquired ........................ (957,321) (4,787) (70,220)
Miscellaneous ................................ (502)
---------
Balance at end of period ..................... 206,131,388 $1,030,657 $ 941,071
============= ========== =========
Period Ended March 31, 1999
Balance at beginning of year ................. 202,986,100 $1,014,931 $ 669,244
Net income ...................................
Unrealized holding losses on securities
available-for-sale, net of tax and
reclassification adjustment .................
Comprehensive income .....................
Cash dividends declared on common
stock -- $.49 a share........................
Common stock issued pursuant to:
Stock option and employee benefit plans ..... 513,245 2,566 55,418
Dividend reinvestment plan .................. 67,042 335 5,384
Common stock acquired ........................ (667,937) (3,340) (54,360)
Miscellaneous ................................
Balance at end of period ..................... 202,898,450 $1,014,492 $ 675,686
============= ========== =========
Accumulated
Other Total
Retained Comprehensive Shareholders'
Earnings Income Equity
-------- ------------- -------------
Period Ended March 31, 1998
Balance at beginning of year ................. $3,098,767 $ 71,098 $ 5,174,301
Net income ................................... 195,321 195,321
Unrealized holding losses on securities
available-for-sale, net of tax and
reclassification adjustment ................. (7,249) (7,249)
-------------
Comprehensive income ..................... 188,072
Cash dividends declared on common
stock -- $.44 a share........................ (90,589) (90,589)
Common stock issued pursuant to:
Stock option and employee benefit plans ..... 36,672
Dividend reinvestment plan .................. 6,129
Common stock acquired ........................ (75,007)
Miscellaneous ................................ (2,376) (2,878)
---------- -------------
Balance at end of period ..................... $3,201,123 $ 63,849 $ 5,236,700
========== ============= =============
Period Ended March 31, 1999
Balance at beginning of year ................. $3,571,617 $ 82,440 $ 5,338,232
Net income ................................... 243,236 243,236
Unrealized holding losses on securities
available-for-sale, net of tax and
reclassification adjustment ................. (21,798) (21,798)
-------------
Comprehensive income ..................... 221,438
Cash dividends declared on common
stock -- $.49 a share........................ (99,662) (99,662)
Common stock issued pursuant to:
Stock option and employee benefit plans ..... 57,984
Dividend reinvestment plan .................. 5,719
Common stock acquired ........................ (57,700)
Miscellaneous ................................ (34,072) (34,072)
---------- ------------- -------------
Balance at end of period ..................... $3,681,119 $ 60,642 $ 5,431,939
========== ============= =============
28
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
$ in thousands Wachovia Corporation and Subsidiaries
Three Months Ended
March 31
--------------------------------
1999 1998
---------- ----------
Operating Activities
Net income ............................................................................... $ 243,236 $ 195,321
Adjustments to reconcile net income to net cash provided by operations:
Provision for loan losses ............................................................... 80,636 74,126
Depreciation and amortization ........................................................... 57,210 34,125
Deferred income taxes ................................................................... 97,070 19,720
Securities gains ........................................................................ (234) (3,157)
Gain on sale of noninterest-earning assets .............................................. (8,698) (508)
Increase in accrued income taxes ........................................................ 125,435 59,442
Increase in accrued interest receivable ................................................. (13,285) (14,746)
Increase in accrued interest payable .................................................... 14,625 45,300
Net change in other accrued and deferred income and expense ............................. (74,733) (22,789)
Net trading account activities .......................................................... (493,725) (198,934)
Net loans held for resale ............................................................... 151,859 (158,512)
------------- -------------
Net cash provided by operating activities .............................................. 179,396 29,388
Investing Activities
Net increase in interest-bearing bank balances ........................................... (50,546) (21,224)
Net decrease in federal funds sold and securities purchased under resale agreements ...... 151,370 1,223,247
Purchases of securities available-for-sale ............................................... (1,306,003) (1,677,570)
Purchases of securities held-to-maturity ................................................. (35) ----
Sales of securities available-for-sale ................................................... 123,267 166
Calls, maturities and prepayments of securities available-for-sale ....................... 732,631 711,186
Calls, maturities and prepayments of securities held-to-maturity ......................... 8,716 134,927
Net increase in loans made to customers .................................................. (1,805,641) (222,157)
Credit card receivables securitized ...................................................... 895,954 ----
Capital expenditures ..................................................................... (110,317) (72,658)
Proceeds from sales of premises and equipment ............................................ 30,590 16,535
Net increase in other assets ............................................................. (90,061) (96,137)
------------- -------------
Net cash used by investing activities .................................................. (1,420,075) (3,685)
Financing Activities
Net (decrease) increase in demand, savings and money market accounts ..................... (235,194) 113,358
Net decrease in certificates of deposit .................................................. (471,390) (2,910,314)
Net increase in federal funds purchased and securities sold under repurchase agreements .. 805,145 473,789
Net increase in commercial paper ......................................................... 73,748 183,435
Net increase in other short-term borrowings .............................................. 134,732 1,182,452
Proceeds from issuance of bank notes ..................................................... 167,828 100,000
Maturities of bank notes ................................................................. (371,264) (29,867)
Proceeds from issuance of other long-term debt ........................................... 572,619 455,764
Payments on other long-term debt ......................................................... (490) (4,288)
Common stock issued ...................................................................... 19,919 29,733
Dividend payments ........................................................................ (99,662) (90,589)
Common stock repurchased ................................................................. (54,157) (69,066)
Net increase (decrease) in other liabilities ............................................. 8,710 (20,326)
------------- -------------
Net cash provided (used) by financing activities ....................................... 550,544 (585,919)
Decrease in Cash and Cash Equivalents .................................................... (690,135) (560,216)
Cash and cash equivalents at beginning of year ........................................... 3,800,265 4,221,818
------------- -------------
Cash and cash equivalents at end of period ............................................... $ 3,110,130 $ 3,661,602
============= =============
29
1999 Form 10-Q
- --------------------------------------------------------------------------------
United States Securities and Exchange Commission
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended March 31, 1999
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,
(336) 770-5000
191 Peachtree Street NE, Atlanta, Georgia, 30303, (404) 332-5000
Securities registered pursuant to Section 12(b) of the Act: Common Stock --
$5.00 par value, which is registered on the New York Stock Exchange.
As of March 31, 1999, Wachovia Corporation had 202,898,450 shares of common
stock outstanding.
Wachovia Corporation (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and (2) has been subject to such filing requirements for the past 90
days.
Documents Incorporated by Reference
- --------------------------------------------------------------------------------
Portions of the financial supplement for the quarter ended March 31, 1999 are
incorporated by reference into Parts I and II as indicated in the table below.
Except for parts of the Wachovia Corporation Financial Supplement expressly
incorporated herein by reference, this Financial Supplement is not to be deemed
filed with the Securities and Exchange Commission.
Part I Financial Information
Item 1 Financial Statements (unaudited) Page
Selected Period-End Data ............................... 1
Common Stock Data -- Per Share ......................... 1
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 .......... 2-25
Item 3 Quantitative and Qualitative
Disclosures About Market Risk .......................... 13-15
30
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
Exhibits -- The complete index to exhibits has been filed as separate pages of the first quarter 1999 Form
10-Q. Copies of the complete exhibit list or of exhibits are available in the Edgar database at the SEC Internet
address at www.sec.gov or are available upon request to: Corporate Reporting, Wachovia Corporation,
P.O. Box 3099, Winston-Salem, North Carolina, 27150. A copying fee will be charged for the exhibits. A list of
those exhibits filed herewith is included below.
10.7 Employment Agreement between Wachovia Corporation and Mickey W. Dry, dated as of January 24,
1997.
10.28 Executive Retirement Agreement between Wachovia Corporation and Mickey W. Dry, dated as of
October 25, 1996.
11 "Computation of Earnings per Common Share" is presented as Table 4 on page 3 of the first quarter
1999 financial supplement.
12 Statement setting forth computation of ratio of earnings to fixed charges.
19 "Unaudited Consolidated Financial Statements," listed in Part I, Item 1, do not include all
information and footnotes required under generally accepted accounting principles. However, in the
opinion of management, the profit and loss information presented in the interim financial statements
reflects all adjustments necessary to present fairly the results of operations for the periods presented.
Adjustments reflected in the first quarter of 1999 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).
Reports on Form 8-K -- A Current Report on Form 8-K dated January 14, 1999 was filed with the Securities
and Exchange Commission to announce earnings for the quarter ended December 31, 1998.
Signatures
- --------------------------------------------------------------------------------
WACHOVIA CORPORATION
May 13, 1999 ROBERT S. McCOY, JR. May 13, 1999 DONALD K. TRUSLOW
--------------------------------- ---------------------------------
Robert S. McCoy, Jr. Donald K. Truslow
Vice Chairman Senior Executive Vice President,
Senior Executive Vice President Treasurer/Comptroller
and Chief Financial Officer
31
Directors and Officers
Directors of Wachovia Corporation and Wachovia Bank, N.A.
- --------------------------------------------------------------------------------
L.M. Baker, Jr.
Chairman and
Chief Executive Officer
James S. Balloun
Chairman, President and
Chief Executive Officer
National Service Industries, Inc.
Peter C. Browning
President and
Chief Executive Officer
Sonoco Products Company
John T. Casteen III
President
University of Virginia
John L. Clendenin
Chairman Emeritus
BellSouth Corporation
Thomas K. Hearn, Jr.
President
Wake Forest University
George W. Henderson, III
Chairman and
Chief Executive Officer
Burlington Industries, Inc.
W. Hayne Hipp
Chairman, President and
Chief Executive Officer
The Liberty Corporation
Robert A. Ingram
Chief Executive Officer
Glaxo Wellcome plc
Chairman of the Board
Glaxo Wellcome Inc.
George R. Lewis
President and
Chief Executive Officer
Philip Morris Capital Corporation
Elizabeth Valk Long
Executive Vice President
Time Inc.
John G. Medlin, Jr.
Chairman Emeritus
Lloyd U. Noland, III
Chairman, President and
Chief Executive Officer
Noland 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 of Wachovia Corporation
- --------------------------------------------------------------------------------
L.M. Baker, Jr.
Chairman and
Chief Executive Officer
G. Joseph Prendergast
President and
Chief Operating Officer
Jean E. Davis
Senior Executive Vice President
Human Resources
Mickey W. Dry
Senior Executive Vice President
Chief Credit Officer
Stanhope A. Kelly
Senior Executive Vice President
General Banking
Walter E. Leonard, Jr.
Vice Chairman
Senior Executive Vice President
Operations/Technology
Kenneth W. McAllister
Senior Executive Vice President
General Counsel/Administrative Services
Robert S. McCoy, Jr.
Vice Chairman
Senior Executive Vice President
Chief Financial Officer
John C. McLean, Jr.
Senior Executive Vice President
Corporate Financial Services
Donald K. Truslow
Senior Executive Vice President
Treasurer/Comptroller
32