EX-99.A 2 dex99a.htm THE EARNINGS NEWS RELEASE The Earnings News Release

Exhibit (99)(a)

LOGO

LOGO

Press Release July 22, 2008

WACHOVIA DETAILS 2ND QUARTER LOSS; OUTLINES INITIATIVES TO PRESERVE AND

GENERATE CAPITAL, PROTECT STRONG LIQUIDITY AND REDUCE RISK

Actions Include Quarterly Common Stock Dividend Reduction to 5 Cents per Share

$8.9 Billion Net Loss Includes $6.1 Billion Noncash Goodwill Impairment and $4.2

Billion Credit Reserve Build; Strength Apparent in Underlying Results

 


CHARLOTTE, N.C. – Consistent with previously announced expectations, Wachovia today reported a net loss in the second quarter of 2008 of $8.9 billion, or a net loss of $4.20 per share, including a $6.1 billion noncash goodwill impairment charge in commercial-related subsegments reflecting declining market valuations and asset values. The goodwill impairment charge has no impact on Wachovia’s tangible capital levels, regulatory capital ratios or on liquidity.

Wachovia added $5.6 billion to its loan loss reserve to cover net charge-offs and increase the reserve by $4.2 billion.

Excluding goodwill impairment and other notable items that drove the quarter’s loss, Wachovia generated solid underlying growth on $7.5 billion in revenue. Revenue was driven by higher loans and deposits and strength in traditional banking fees, while strong fiduciary and asset management fees and brokerage commissions largely reflected the A.G. Edwards acquisition.

“These bottom-line results are disappointing and unacceptable,” said Lanty L. Smith, Wachovia’s board chairman, who served as interim chief executive officer beginning June 1. “While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility. Our company is facing up to these issues, is addressing the challenges head-on and has redirected near-term strategic priorities.”

Two immediate actions were announced: First, reducing the quarterly common stock dividend to five cents per share, which will conserve approximately $700 million of capital per quarter. The dividend is payable on September 15, 2008, to shareholders of record on August 29, 2008. The second immediate action is exiting the General Bank wholesale mortgage origination channel. Earlier the company ceased offering the negative amortization option for the Pick-a-Pay mortgage product and committed to work with customers to refinance existing Pick-a-Pay mortgages into conventional mortgage products. Approximately 1,000 Wachovia mortgage origination personnel are being redeployed in the company’s efforts to assist customers to refinance and restructure Pick-a-Pay mortgages. The objective is to assist customers in avoiding foreclosures and meaningfully reduce the company’s risks in the mortgage area.

Robert K. Steel, CEO and president said, “In the short term, the entire organization is focused on protecting, preserving and generating capital; reinforcing Wachovia’s strong liquidity position; and reducing risk.” Steel, who was named to his new post on July 9, further commented that, even as the company focuses on and addresses its credit-related challenges, Wachovia’s underlying businesses are performing well: “Wachovia has an exceptionally attractive franchise, footprint and set of businesses. Revenue in our general banking business grew 8 percent over last year and we maintained industry-leading customer satisfaction. The securities brokerage business continues its excellent performance, with increases in both the number and quality of brokers and with industry-leading margins. Our corporate and investment bank has reduced its exposure to further market disruption charges. We had a record quarter in our Wealth Management business.”

Wachovia outlined additional initiatives that are under way, ranging from reducing expense growth and capital expenditures, reducing earning assets, repositioning the certificate of deposit book and generating further growth in low-cost core deposits and other deposits. Also, the company is taking actions to reduce the number of credit-only commercial borrowers and to sell selected noncore assets.

 

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WACHOVIA REPORTS 2ND QUARTER LOSS AMID TOUGH ENVIRONMENT/page 2

 

Steel summarized by saying: “Our balance sheet and liquidity position are strong, and we are committed to keeping them that way. The actions taken and initiatives under way are expected to generate or preserve more than $5 billion of capital. We ended the quarter with approximately $50 billion in regulatory capital and a tier 1 ratio of 8 percent, and we will be intensely focused on improving that level between now and the end of 2009.”

Steel said, “As we consider the company’s position, it is clearly prudent and necessary to further reduce our common dividend. While this is a difficult decision, it is the best course for our shareholders over the long term. I am confident of the commitment of the Wachovia team to manage successfully through this period as we continue to diligently serve our customers and communities. I am impressed by the work the Wachovia leadership group has undertaken, the clarity around the issues we face and the direction Wachovia is headed as we focus on being good stewards of the company.”

The second quarter 2008 net loss compared with earnings of $2.34 billion or $1.22 per share in the second quarter of 2007. Excluding goodwill impairment of $6.1 billion and net merger-related and restructuring expense of $128 million, results in the second quarter of 2008 were a net loss available to common stockholders of $2.67 billion, or a net loss of $1.27 per share. Results included the A.G. Edwards, Inc., acquisition from October 1, 2007.

Earnings Highlights

 

    Three Months Ended

    June 30,
2008

    March 31,
2008

    June 30,
2007

(In millions, except per share data)


  Amount

    EPS

    Amount

    EPS

    Amount

   EPS

Earnings

                                  

Net income (loss)

  $ (8,662 )   (4.11 )   (664 )   (0.34 )   2,341    1.22

Dividends on preferred stock

    (193 )   (0.09 )   (43 )   (0.02 )   —      —  
   


 

 

 

 
  

Net income (loss) available to common stockholders

  $ (8,855 )   (4.20 )   (707 )   (0.36 )   2,341    1.22

Net goodwill impairment

    6,056     2.87     —       —       —      —  

Net merger-related and restructuring expenses

    128     0.06     123     0.06     20    0.01
   


 

 

 

 
  

Earnings (loss) excluding goodwill impairment, and merger-related and restructuring expenses

  $ (2,671 )   (1.27 )   (584 )   (0.30 )   2,361    1.23
   


 

 

 

 
  

Financial ratios

                                  

Return on average common stockholders’ equity

    (49.07 ) %         (3.81 )         13.54     

Net interest margin (a)

    2.58  (d)         2.92           2.96     

Fee and other income as % of total revenue (a)

    42.15           36.62           48.58     

Overhead efficiency ratio (a)

    163.58  %         71.76           56.02     
   


       

       
    

Capital adequacy (b)

                                  

Tier 1 capital ratio

    8.0  %         7.4           7.5     

Total capital ratio

    12.7           12.1           11.5     

Leverage ratio

    6.6  %         6.2           6.2     
   


       

       
    

Asset quality

                                  

Allowance for loan losses as % of nonaccrual and restructured loans

    95  %         84           174     

Allowance for loan losses as % of loans, net

    2.20           1.37           0.79     

Allowance for credit losses as % of loans, net (c)

    2.24           1.41           0.83     

Net charge-offs as % of average loans, net

    1.10           0.66           0.14     

Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale

    2.41  %         1.70           0.49     

(a) Tax-equivalent.
(b) The second quarter of 2008 is based on estimates.
(c) The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.
(d) Includes the SILO charge of $975 million pre-tax; without that charge, the net interest margin would have been 3.15%.

The pre-tax loss stemmed from:

 

   

The $6.1 billion in noncash goodwill impairment reflecting declining market valuations and the resulting effect on commercial, corporate lending and investment banking subsegments. The goodwill impairment charge has no impact on Wachovia’s tangible capital levels or

 

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WACHOVIA REPORTS 2ND QUARTER LOSS AMID TOUGH ENVIRONMENT/page 3

 

regulatory capital ratios, because goodwill is deducted when computing those ratios.

 

   

A $5.6 billion loan loss provision, which increased reserves by $4.2 billion, including $3.3 billion for the payment option mortgage portfolio;

 

   

A $975 million noncash charge announced previously related to the tax treatment of certain leasing transactions widely referred to as “sale in, lease out” or SILO transactions;

 

   

$936 million in market disruption-related losses;

 

   

$590 million in legal reserves primarily related to previously disclosed matters; and

 

   

$391 million in losses related to planned discretionary securities sales.

Wachovia Corporation

 

     Three Months Ended

(In millions)


   June 30,
2008

    March 31,
2008

    June 30,
2007

Net interest income (Tax-equivalent)

   $ 4,344     4,805     4,487

Fee and other income

     3,165     2,777     4,240

Total revenue (Tax-equivalent)

     7,509     7,582     8,727

Provision for credit losses

     5,567     2,831     179

Noninterest expense

     12,284     5,441     4,890

Income (loss) from continuing operations before income taxes (benefits) (Tax-equivalent)

     (10,439 )   (845 )   3,519

Income taxes (benefits) (Tax-equivalent)

     (1,777 )   (181 )   1,178

Net income (loss) available to common stockholders

     (8,855 )   (707 )   2,341

Average loans, net

     476,734     465,936     421,257

Average core deposits

   $ 390,670     394,513     378,496

Other key trends in the second quarter of 2008 compared with the second quarter of 2007 included:

 

   

A decline in fee and other income due to net market disruption-related valuation losses, which overshadowed strength in traditional banking. Fiduciary and asset management fees and brokerage commissions reflected the A.G. Edwards acquisition.

 

   

A net interest margin of 2.58 percent, or 3.15 percent excluding the effect of the SILO charge. The SILO charge diminished net interest income, offset by growth in average commercial loans, up 25 percent, and average consumer loans, up 6 percent, as well as solid core deposit growth, up 3 percent. Average loan growth included the impact of the first quarter 2008 transfer of $6.9 billion of commercial and consumer loans to the loan portfolio from held-for-sale as well as strength in commercial, commercial real estate and traditional conforming mortgage loans. Deposit growth was led by strength in IRAs and money market accounts.

 

   

An increase in noninterest expense largely reflecting the impact of A.G. Edwards, as well as growth in credit-related sundry expense and legal reserves. A renewed expense reduction initiative is under way throughout the company.

 

   

Provision for credit losses of $5.6 billion, which included a reserve build of $4.2 billion. The provision largely reflected current and anticipated severe deterioration in the residential housing market, particularly in specific markets in California and Florida. Net charge-offs were $1.3 billion, or an annualized 1.10 percent of average net loans. Total nonperforming assets including loans held for sale were $12.0 billion, or 2.41 percent of loans, foreclosed properties and loans held for sale, largely reflecting increases in consumer real estate-related nonperforming assets due to the effects of the weakened housing industry.

 

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WACHOVIA REPORTS 2ND QUARTER LOSS AMID TOUGH ENVIRONMENT/page 4

 

Lines of Business

The following discussion covers the results for Wachovia’s four core business segments and is on a segment earnings basis, which excludes net merger-related and restructuring expenses, goodwill impairment charges, other intangible amortization, excess provision and discontinued operations. Segment earnings are the basis on which Wachovia manages and allocates capital to its business segments. In accordance with Wachovia’s business segment methodology, goodwill impairment of $6.1 billion and provision expense in excess of charge-offs and other credit losses, which amounted to $4.2 billion in the second quarter of 2008, are not allocated to business segments.

Pages 14 and 15 include a reconciliation of segment results to Wachovia’s consolidated results of operations in accordance with GAAP.

General Bank Highlights

 

     Three Months Ended

(In millions)


   June 30,
2008

    March 31,
2008

   June 30,
2007

Net interest income (Tax-equivalent)

   $ 3,671     3,445    3,372

Fee and other income

     1,000     980    935

Total revenue (Tax-equivalent)

     4,728     4,480    4,363

Provision for credit losses

     919     569    154

Noninterest expense

     2,050     2,038    1,922

Segment earnings

   $ 1,117     1,189    1,453

Cash overhead efficiency ratio (Tax-equivalent)

     43.35 %   45.50    44.05

Average loans, net

   $ 319,574     311,556    291,607

Average core deposits

     290,381     297,171    290,455

Economic capital, average

   $ 16,786     12,693    10,821

General Bank

The General Bank includes retail, small business and commercial customers. The second quarter of 2008 compared with the second quarter of 2007 included:

 

   

Earnings of $1.1 billion, down $336 million, driven by rising credit costs and related expenses, primarily in the mortgage business, which overshadowed continued strong sales momentum elsewhere as reflected in total revenue of $4.7 billion, up 8 percent.

 

   

Average loan growth of 10 percent, with double digit growth in wholesale and retail businesses. Mortgage lending through our largely branch-originated mortgage and home equity channels was up 6 percent, primarily reflecting a decline in prepayments, and home equity lending was up 5 percent. Auto loan originations rose 12 percent.

 

   

Relatively stable average core deposits.

 

   

Growth in net new retail checking accounts slowed, but still increased by 263,000 in the second quarter of 2008 compared with an increase of 314,000 in the second quarter of 2007.

 

   

305,000 new retail checking accounts were tied to the Way2Save campaign; this product launched in mid-January 2008.

 

   

7 percent growth in fee and other income, with strength in service charges, interchange income and mortgage banking fee income. Strong interchange income reflected a 14 percent increase in debit/credit card volume from the second quarter of 2007.

 

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WACHOVIA REPORTS 2ND QUARTER LOSS AMID TOUGH ENVIRONMENT/page 5

 

   

Noninterest expense up 7 percent due to growth in credit-related sundry expense and severance expense, as well as continued strategic investment in de novo branch activity and Western expansion. During the second quarter of 2008, 23 de novo branches were opened and 38 branches were consolidated. As a result of performance initiatives, operating leverage continued to improve, which enabled continued strategic investment.

 

   

A $765 million increase in the provision for credit losses to $919 million, largely reflecting higher net charge-offs in the Pick-a-Pay portfolio.

Wealth Management Highlights

 

     Three Months Ended

(In millions)


   June 30,
2008

    March 31,
2008

   June 30,
2007

Net interest income (Tax-equivalent)

   $ 202     182    182

Fee and other income

     207     211    202

Total revenue (Tax-equivalent)

     412     398    387

Provision for credit losses

     8     5    2

Noninterest expense

     253     246    244

Segment earnings

   $ 98     92    90

Cash overhead efficiency ratio (Tax-equivalent)

     61.05 %   61.98    62.80

Average loans, net

   $ 23,151     22,365    21,056

Average core deposits

     17,559     17,906    17,466

Economic capital, average

   $ 731     699    612

Wealth Management

Wealth Management includes private banking, personal trust, investment advisory services, charitable services, financial planning and insurance brokerage. The second quarter of 2008 compared with the second quarter of 2007 included:

 

   

9 percent earnings growth to $98 million on 6 percent revenue growth in challenging markets.

 

   

11 percent growth in net interest income on 10 percent loan growth and improved deposit spreads.

 

   

16 percent growth in fiduciary and asset management fees as a pricing initiative implemented in the third quarter of 2007 and other growth offset declines in equity valuations. Insurance commissions declined largely due to a soft market for insurance premiums and nonstrategic insurance account dispositions.

 

   

A 4 percent increase in noninterest expense driven by continued investment in private banking and Western expansion.

 

   

A 3 percent decline in assets under management to $77.3 billion largely due to market depreciation.

 

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WACHOVIA REPORTS 2ND QUARTER LOSS AMID TOUGH ENVIRONMENT/page 6

 

Corporate and Investment Bank Highlights

 

     Three Months Ended

 

(In millions)


   June 30,
2008

    March 31,
2008

    June 30,
2007

 

Net interest income (Tax-equivalent)

   $ 1,124     1,028     773  

Fee and other income

     657     (158 )   1,522  

Total revenue (Tax-equivalent)

     1,729     820     2,245  

Provision for credit losses

     438     197     (2 )

Noninterest expense

     960     747     1,020  

Segment earnings (loss)

   $ 209     (78 )   779  

Cash overhead efficiency ratio (Tax-equivalent)

     55.60 %   91.00     45.43  

Average loans, net

   $ 106,642     101,046     76,744  

Average core deposits

     31,682     33,623     36,713  

Economic capital, average

   $ 13,816     13,233     8,850  

Corporate and Investment Bank

The Corporate and Investment Bank includes corporate lending, investment banking, and treasury and international trade finance. Unless otherwise noted, second quarter 2008 results are compared with the second quarter of 2007. These results included:

 

   

Earnings of $209 million, down $570 million, due to continued net valuation losses related to disruption in the capital markets, and increased provision for credit losses.

 

   

Investment bank origination fees down 4 percent year over year, although these fees rose 16 percent from the first quarter of 2008.

 

   

Market share of 4.3 percent at June 30, 2008, up from 3.8 percent at June 30, 2007.

 

   

Market valuation losses of $565 million, including a recovery on certain losses on leveraged finance commitments, compared with market valuation losses of $1.6 billion in the first quarter of 2008. Market valuation losses, net of applicable hedges, were:

 

   

$238 million in subprime residential asset-backed collateralized debt obligations and other related exposures, compared with $339 million in first quarter 2008;

 

   

$209 million in commercial mortgage structured products, compared with $521 million in first quarter 2008;

 

   

$68 million in consumer mortgage structured products, compared with $251 million in first quarter 2008;

 

   

$102 million gain in leveraged finance net of fees, compared with a net $309 million loss in first quarter 2008; and

 

   

$152 million in non-subprime collateralized debt obligations and other structured products, compared with $144 million in first quarter 2008.

 

   

A 45 percent increase in net interest income, which reflected 39 percent growth in average loans including the first quarter 2008 transfer into the loan portfolio at fair value of certain loans originally slated for disposition, as well as loan growth in the corporate lending and global financial institutions businesses.

 

   

Principal investing revenue of $115 million, down from $300 million in the second quarter of 2007 on lower gains in the public and private direct investment portfolios.

 

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WACHOVIA REPORTS 2ND QUARTER LOSS AMID TOUGH ENVIRONMENT/page 7

 

   

A 6 percent decline in noninterest expense primarily due to lower variable compensation and reduced headcount in investment banking.

 

   

Provision of $438 million largely reflecting residential-related commercial real estate and other corporate lending losses.

Capital Management Highlights

 

     Three Months Ended

(In millions)


   June 30,
2008

    March 31,
2008

   June 30,
2007

Net interest income (Tax-equivalent)

   $ 308     281    260

Fee and other income

     1,995     2,191    1,536

Total revenue (Tax-equivalent)

     2,295     2,462    1,785

Provision for credit losses

     —       —      —  

Noninterest expense

     1,827     1,855    1,294

Segment earnings

   $ 297     386    312

Cash overhead efficiency ratio (Tax-equivalent)

     79.61 %   75.34    72.47

Average loans, net

   $ 2,881     2,562    1,663

Average core deposits

     48,647     43,084    31,221

Economic capital, average

   $ 2,105     2,144    1,348

Capital Management

Capital Management includes retail brokerage services and asset management. The second quarter of 2008 compared with the second quarter of 2007 included:

 

   

Earnings of $297 million on 29 percent revenue growth, with net market disruption-related losses of $118 million, including $89 million of securities impairments relating to the liquidation of an Evergreen fund.

 

   

An 18 percent increase in net interest income driven by retail brokerage deposit growth of $17.5 billion primarily due to the A.G. Edwards acquisition as well as solid growth since the acquisition, partially offset by spread compression.

 

   

Continued solid momentum in retail brokerage managed account fees and the impact of the A.G. Edwards acquisition.

 

   

41 percent growth in noninterest expense largely due to the effect of A.G. Edwards, as well as higher legal expense.

Total assets under management of $245.9 billion at June 30, 2008, decreased 10 percent from December 31, 2007, driven by net outflows of $17.6 billion as well as $11.2 billion in lower market valuations.

***

Wachovia Corporation (NYSE:WB) is one of the nation’s largest diversified financial services companies, with assets of $812.4 billion and market capitalization of $33.5 billion at June 30, 2008. Wachovia provides a broad range of retail banking and brokerage, asset and wealth management, and corporate and investment banking products and services to customers through 3,300 retail financial centers in 21 states from Connecticut to Florida and west to Texas and California, and nationwide retail brokerage, mortgage lending and auto finance businesses. Globally, clients are served in selected corporate and institutional sectors and through more than 40 international offices. Our retail brokerage operations under the Wachovia Securities brand name manage more than $1.1 trillion in client assets through 14,600 financial advisors in 1,500 offices nationwide. Online banking is available at wachovia.com; online brokerage products and services at wachoviasec.com; and investment products and services at evergreeninvestments.com.

 

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WACHOVIA REPORTS 2ND QUARTER LOSS AMID TOUGH ENVIRONMENT/page 8

 

Forward-Looking Statements

This news release contains various forward-looking statements. A discussion of various factors that could cause Wachovia Corporation’s actual results to differ materially from those expressed in such forward-looking statements is included in Wachovia’s filings with the Securities and Exchange Commission, including its Current Report on Form 8-K dated July 22, 2008.

Explanation of Wachovia’s Use of Certain Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this news release includes certain non-GAAP financial measures, including those presented on page 2 and on page 11 under the captions “Earnings Excluding Merger-Related and Restructuring Expenses, Goodwill Impairment and Discontinued Operations” and “Earnings Excluding Merger-Related and Restructuring Expenses, Goodwill Impairment, Other Intangible Amortization and Discontinued Operations”, and which are reconciled to GAAP financial measures on pages 23 through 25. In addition, in this news release certain designated net interest income amounts are presented on a tax-equivalent basis, including the calculation of the overhead efficiency ratio.

Wachovia believes these non-GAAP financial measures provide information useful to investors in understanding the underlying operational performance of the company, its business and performance trends and facilitates comparisons with the performance of others in the financial services industry. Specifically, Wachovia believes the exclusion of merger-related and restructuring expenses, goodwill impairment and discontinued operations permits evaluation and a comparison of results for on-going business operations, and it is on this basis that Wachovia’s management internally assesses the company’s performance. Those non-operating items are excluded from Wachovia’s segment measures used internally to evaluate segment performance in accordance with GAAP because management does not consider them particularly relevant or useful in evaluating the operating performance of our business segments. In addition, because of the significant amount of deposit base intangible amortization, Wachovia believes the exclusion of this expense provides investors with consistent and meaningful comparisons to other financial services firms. Wachovia also believes the presentation of net interest income on a tax-equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry standards. Wachovia operates one of the largest retail brokerage businesses in our industry, and we have presented an overhead efficiency ratio excluding these brokerage services, which management believes is useful to investors in comparing the performance of our banking business with other banking companies.

Although Wachovia believes the above non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP basis financial measures.

Earnings Conference Call and Supplemental Materials

Wachovia CEO Bob Steel and CFO Tom Wurtz will review Wachovia’s second quarter 2008 results in a conference call and audio web cast beginning at 10:00 a.m. Eastern Daylight Saving Time today. This review may include a discussion of certain non-GAAP financial measures. Supplemental materials relating to second quarter results, which also include a reconciliation of any non-GAAP measures to Wachovia’s reported financials, are available on the Internet at Wachovia.com/investor, and investors are encouraged to access these materials in advance of the conference call.

Web cast Instructions: To gain access to the web cast, which will be “listen-only,” go to Wachovia.com/investor and click on the link “Wachovia Second Quarter Earnings Audio Web cast.” In order to listen to the web cast, you will need to download either Real Player or Media Player.

Teleconference Instructions: The telephone number for the conference call is 888-357-9787 for U.S. callers or 706-679-7342 for international callers. You will be asked to tell the answering coordinator your name and the name of your firm. Mention the conference Access Code: WB Investor.

Replay: Tuesday, July 22, by 1:00 p.m. EDT and continuing through 5 p.m. EDT Friday, October 17. Replay telephone number is 706-645-9291; access code: 49418191.

Investors seeking further information should contact the Investor Relations team: Alice Lehman at 704-374-4139 or Ellen Taylor at 704-383-1381. Media seeking further information should contact the Corporate Media Relations team: Mary Eshet at 704-383-7777 or Christy Phillips-Brown at 704-383-8178.

 

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PAGE 9

 

WACHOVIA CORPORATION AND SUBSIDIARIES

FINANCIAL TABLES

TABLE OF CONTENTS

 

     PAGE

Financial Highlights—Five Quarters Ended June 30, 2008

   10

Other Financial Data—Five Quarters Ended June 30, 2008

   11

Consolidated Statements of Income—Five Quarters Ended June 30, 2008

   12

Consolidated Statements of Income—Six Months Ended June 30, 2008 and 2007

   13

Business Segments—Three Months Ended June 30, 2008 and March 31, 2008

   14

Business Segments—Three Months Ended June 30, 2007

   15

Loans—On-Balance Sheet, and Managed and Servicing Portfolios—Five Quarters Ended June 30, 2008

   16

Allowance for Credit Losses—Five Quarters Ended June 30, 2008

   17

Nonperforming Assets—Five Quarters Ended June 30, 2008

   18

Consolidated Balance Sheets—Five Quarters Ended June 30, 2008

   19

Net Interest Income Summaries—Five Quarters Ended June 30, 2008

   20 - 21

Net Interest Income Summaries—Six Months Ended June 30, 2008 and 2007

   22

Reconciliation of Certain Non-GAAP Financial Measures—Five Quarters Ended June 30, 2008

   23 - 25


PAGE 10

 

WACHOVIA CORPORATION AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS

(Unaudited)

 

     2008

    2007

(Dollars in millions, except per share data)


   Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


    Second
Quarter


EARNINGS SUMMARY

                              

Net interest income (GAAP)

   $ 4,290     4,752     4,630     4,551     4,449

Tax-equivalent adjustment

     54     53     44     33     38
    


 

 

 

 

Net interest income (Tax-equivalent)

     4,344     4,805     4,674     4,584     4,487

Fee and other income

     3,165     2,777     2,744     2,933     4,240
    


 

 

 

 

Total revenue (Tax-equivalent)

     7,509     7,582     7,418     7,517     8,727

Provision for credit losses

     5,567     2,831     1,497     408     179

Other noninterest expense

     5,876     5,097     5,488     4,397     4,755

Merger-related and restructuring expenses

     251     241     187     36     32

Goodwill impairment

     6,060     —       —       —       —  

Other intangible amortization

     97     103     111     92     103
    


 

 

 

 

Total noninterest expense

     12,284     5,441     5,786     4,525     4,890

Minority interest in income of consolidated subsidiaries

     97     155     107     189     139
    


 

 

 

 

Income (loss) from continuing operations before income taxes (benefits) (Tax-equivalent)

     (10,439 )   (845 )   28     2,395     3,519

Income taxes (benefits)

     (1,831 )   (234 )   (209 )   656     1,140

Tax-equivalent adjustment

     54     53     44     33     38
    


 

 

 

 

Income (loss) from continuing operations

     (8,662 )   (664 )   193     1,706     2,341

Discontinued operations, net of income taxes

     —       —       (142 )   (88 )   —  
    


 

 

 

 

Net income (loss)

     (8,662 )   (664 )   51     1,618     2,341

Dividends on preferred stock

     193     43     —       —       —  
    


 

 

 

 

Net income (loss) available to common stockholders

   $ (8,855 )   (707 )   51     1,618     2,341
    


 

 

 

 

Diluted earnings per common share (a)

   $ (4.20 )   (0.36 )   0.03     0.85     1.22

Return on average common stockholders’ equity

     (49.07 )%   (3.81 )   0.28     9.19     13.54

Return on average assets

     (4.37 )   (0.34 )   0.03     0.88     1.33

Overhead efficiency ratio

     163.58 %   71.76     78.00     60.20     56.02

Operating leverage

   $ (6,916 )   509     (1,359 )   (847 )   189
    


 

 

 

 

ASSET QUALITY

                              

Allowance for loan losses as % of loans, net

     2.20 %   1.37     0.98     0.78     0.79

Allowance for loan losses as % of nonperforming assets

     90     78     84     115     157

Allowance for credit losses as % of loans, net

     2.24     1.41     1.02     0.82     0.83

Net charge-offs as % of average loans, net

     1.10     0.66     0.41     0.19     0.14

Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale

     2.41 %   1.70     1.14     0.66     0.49
    


 

 

 

 

CAPITAL ADEQUACY (b)

                              

Tier I capital ratio

     8.0 %   7.4     7.4     7.1     7.5

Total capital ratio

     12.7     12.1     11.8     10.8     11.5

Leverage ratio

     6.6 %   6.2     6.1     6.1     6.2
    


 

 

 

 

OTHER DATA

                              

Average basic common shares (In millions)

     2,111     1,963     1,959     1,885     1,891

Average diluted common shares (In millions)

     2,119     1,977     1,983     1,910     1,919

Actual common shares (In millions) (c)

     2,159     1,992     1,980     1,901     1,903

Dividends paid per common share

   $ 0.38     0.64     0.64     0.64     0.56

Dividend payout ratio on common shares

     (8.93 ) %   (177.78 )   2133.33     75.29     45.90

Book value per common share (c)

   $ 30.37     36.24     37.66     36.90     36.40

Common stock price

     15.53     27.00     38.03     50.15     51.25

Market capitalization (c)

   $ 33,527     53,782     75,302     95,326     97,530

Common stock price to book value (c)

     51 %   75     101     136     141

FTE employees

     119,952     120,378     121,890     109,724     110,493

Total financial centers/brokerage offices

     4,820     4,850     4,894     4,167     4,135

ATMs

     5,277     5,308     5,139     5,123     5,099
    


 

 

 

 

(a) Calculated using average basic common shares in 2008.
(b) The second quarter of 2008 is based on estimates.
(c) Includes restricted stock for which the holder receives dividends and has full voting rights.


PAGE 11

 

WACHOVIA CORPORATION AND SUBSIDIARIES

OTHER FINANCIAL DATA

(Unaudited)

 

     2008

    2007

(In millions)


   Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


    Second
Quarter


EARNINGS EXCLUDING MERGER-RELATED AND
RESTRUCTURING EXPENSES, GOODWILL IMPAIRMENT
AND DISCONTINUED OPERATIONS (a) (b)

                              

Return on average common stockholders’ equity

     (14.56 )%   (3.14 )   1.62     9.81     13.66

Return on average assets

     (1.25 )   (0.28 )   0.16     0.94     1.34

Overhead efficiency ratio

     79.55     68.58     75.48     59.73     55.65

Overhead efficiency ratio excluding brokerage

     80.33 %   65.48     74.54     56.82     52.04

Operating leverage

   $ (847 )   563     (1,208 )   (843 )   210
    


 

 

 

 

EARNINGS EXCLUDING MERGER-RELATED AND
RESTRUCTURING EXPENSES, GOODWILL IMPAIRMENT,
OTHER INTANGIBLE AMORTIZATION AND
DISCONTINUED OPERATIONS (a) (b) (c)

                              

Dividend payout ratio on common shares

     (30.49 )%   (246.15 )   355.56     68.09     44.09

Return on average tangible common stockholders’ equity

     (36.42 )   (7.07 )   5.05     23.88     33.57

Return on average tangible assets

     (1.29 )   (0.26 )   0.20     1.03     1.47

Overhead efficiency ratio

     78.26     67.22     73.97     58.51     54.47

Overhead efficiency ratio excluding brokerage

     78.55 %   63.59     72.43     55.32     50.61

Operating leverage

   $ (853 )   554     (1,187 )   (855 )   197
    


 

 

 

 

OTHER FINANCIAL DATA

                              

Net interest margin

     2.58 %   2.92     2.88     2.92     2.96

Fee and other income as % of total revenue

     42.15     36.62     36.99     39.02     48.58

Effective income tax rate (d)

     17.46     26.02     122.05     27.33     32.78

Effective tax rate (Tax-equivalent) (d) (e)

     17.03 %   21.38     127.17     28.38     33.51
    


 

 

 

 

AVERAGE BALANCE SHEET DATA

                              

Commercial loans, net

   $ 206,204     198,578     188,164     174,672     165,512

Consumer loans, net

     270,530     267,358     261,641     255,129     255,745

Loans, net

     476,734     465,936     449,805     429,801     421,257

Earning assets

     675,089     659,033     650,140     628,773     605,978

Total assets

     796,437     783,593     763,487     729,004     704,773

Core deposits

     390,670     394,513     390,043     379,009     378,496

Total deposits

     435,548     443,353     437,566     416,107     408,418

Interest-bearing liabilities

     619,044     611,099     599,130     574,399     547,669

Stockholders’ equity

   $ 81,740     78,747     73,986     69,857     69,317
    


 

 

 

 

PERIOD-END BALANCE SHEET DATA

                              

Commercial loans, net

   $ 216,620     211,700     198,566     189,545     175,369

Consumer loans, net

     271,578     268,782     263,388     259,661     253,751

Loans, net

     488,198     480,482     461,954     449,206     429,120

Goodwill and other intangible assets

                              

Goodwill

     36,993     43,068     43,122     38,848     38,766

Deposit base

     531     573     619     670     727

Customer relationships

     1,321     1,375     1,410     620     651

Tradename

     90     90     90     90     90

Total assets

     812,433     808,575     782,896     754,168     715,428

Core deposits

     400,387     398,562     397,405     377,865     378,188

Total deposits

     447,790     444,964     449,129     421,937     410,030

Stockholders’ equity

   $ 75,379     77,992     76,872     70,140     69,266
    


 

 

 

 

(a) These financial measures are calculated by excluding from GAAP net income (loss) presented on page 10, $128 million, $123 million, $108 million, $22 million and $20 million in the second and first quarters of 2008 and the fourth, third and second quarters of 2007, respectively, of after-tax net merger-related and restructuring expenses, $6.1 billion in the second quarter of 2008 of after-tax goodwill impairment, and $142 million and $88 million after tax in the fourth and third quarters of 2007, respectively, of discontinued operations.
(b) See page 10 for the most directly comparable GAAP financial measure and pages 23 through 25 for a more detailed reconciliation.
(c) These financial measures are calculated by excluding from GAAP net income (loss) presented on page 10, $66 million, $64 million, $65 million, $59 million and $66 million in the second and first quarters of 2008 and the fourth, third and second quarters of 2007, respectively, of deposit base and other intangible amortization.
(d) The fourth and third quarters of 2007 include taxes on discontinued operations.
(e) The tax-equivalent tax rate applies to fully tax-equivalized revenues.


PAGE 12

 

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     2008

    2007

(In millions, except per share data)


   Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


    Second
Quarter


INTEREST INCOME

                              

Interest and fees on loans

   $ 6,187     7,577     7,980     7,937     7,723

Interest and dividends on securities

     1,530     1,496     1,616     1,529     1,474

Trading account interest

     522     571     557     566     506

Other interest income

     407     535     757     799     647
    


 

 

 

 

Total interest income

     8,646     10,179     10,910     10,831     10,350
    


 

 

 

 

INTEREST EXPENSE

                              

Interest on deposits

     2,176     2,941     3,433     3,334     3,180

Interest on short-term borrowings

     418     523     673     801     706

Interest on long-term debt

     1,762     1,963     2,174     2,145     2,015
    


 

 

 

 

Total interest expense

     4,356     5,427     6,280     6,280     5,901
    


 

 

 

 

Net interest income

     4,290     4,752     4,630     4,551     4,449

Provision for credit losses

     5,567     2,831     1,497     408     179
    


 

 

 

 

Net interest income after provision for credit losses

     (1,277 )   1,921     3,133     4,143     4,270
    


 

 

 

 

FEE AND OTHER INCOME

                              

Service charges

     709     676     716     689     667

Other banking fees

     518     498     497     471     449

Commissions

     910     914     970     600     649

Fiduciary and asset management fees

     1,355     1,439     1,436     1,029     1,015

Advisory, underwriting and other investment banking fees

     280     261     249     393     454

Trading account profits (losses)

     (510 )   (308 )   (524 )   (301 )   195

Principal investing

     136     446     41     372     298

Securities gains (losses)

     (808 )   (205 )   (320 )   (34 )   23

Other income

     575     (944 )   (321 )   (286 )   490
    


 

 

 

 

Total fee and other income

     3,165     2,777     2,744     2,933     4,240
    


 

 

 

 

NONINTEREST EXPENSE

                              

Salaries and employee benefits

     3,435     3,260     3,468     2,628     3,122

Occupancy

     377     379     375     325     331

Equipment

     317     323     334     283     309

Marketing

     95     97     80     74     78

Communications and supplies

     184     186     191     176     178

Professional and consulting fees

     218     196     271     194     205

Goodwill impairment

     6,060     —       —       —       —  

Other intangible amortization

     97     103     111     92     103

Merger-related and restructuring expenses

     251     241     187     36     32

Sundry expense

     1,250     656     769     717     532
    


 

 

 

 

Total noninterest expense

     12,284     5,441     5,786     4,525     4,890
    


 

 

 

 

Minority interest in income of consolidated subsidiaries

     97     155     107     189     139
    


 

 

 

 

Income (loss) from continuing operations before income taxes (benefits)

     (10,493 )   (898 )   (16 )   2,362     3,481

Income taxes (benefits)

     (1,831 )   (234 )   (209 )   656     1,140
    


 

 

 

 

Income (loss) from continuing operations

     (8,662 )   (664 )   193     1,706     2,341

Discontinued operations, net of income taxes

     —       —       (142 )   (88 )   —  
    


 

 

 

 

Net income (loss)

     (8,662 )   (664 )   51     1,618     2,341

Dividends on preferred stock

     193     43     —       —       —  
    


 

 

 

 

Net income (loss) available to common stockholders

   $ (8,855 )   (707 )   51     1,618     2,341
    


 

 

 

 

PER COMMON SHARE DATA (after preferred stock dividends)

                              

Basic earnings

                              

Income (loss) from continuing operations

   $ (4.20 )   (0.36 )   0.10     0.91     1.24

Net income (loss) available to common stockholders

     (4.20 )   (0.36 )   0.03     0.86     1.24

Diluted earnings (a)

                              

Income (loss) from continuing operations

     (4.20 )   (0.36 )   0.10     0.90     1.22

Net income (loss) available to common stockholders

     (4.20 )   (0.36 )   0.03     0.85     1.22

Cash dividends

   $ 0.38     0.64     0.64     0.64     0.56

AVERAGE COMMON SHARES

                              

Basic

     2,111     1,963     1,959     1,885     1,891

Diluted

     2,119     1,977     1,983     1,910     1,919
    


 

 

 

 

(a) Calculated using average basic common shares in 2008.


PAGE 13

 

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Six Months Ended
June 30,


(In millions, except per share data)


   2008

    2007

INTEREST INCOME

            

Interest and fees on loans

   $ 13,764     15,341

Interest and dividends on securities

     3,026     2,952

Trading account interest

     1,093     939

Other interest income

     942     1,258
    


 

Total interest income

     18,825     20,490
    


 

INTEREST EXPENSE

            

Interest on deposits

     5,117     6,194

Interest on short-term borrowings

     941     1,375

Interest on long-term debt

     3,725     3,972
    


 

Total interest expense

     9,783     11,541
    


 

Net interest income

     9,042     8,949

Provision for credit losses

     8,398     356
    


 

Net interest income after provision for credit losses

     644     8,593
    


 

FEE AND OTHER INCOME

            

Service charges

     1,385     1,281

Other banking fees

     1,016     865

Commissions

     1,824     1,308

Fiduciary and asset management fees

     2,794     1,968

Advisory, underwriting and other investment banking fees

     541     861

Trading account profits (losses)

     (818 )   323

Principal investing

     582     346

Securities gains (losses)

     (1,013 )   76

Other income

     (369 )   946
    


 

Total fee and other income

     5,942     7,974
    


 

NONINTEREST EXPENSE

            

Salaries and employee benefits

     6,695     6,094

Occupancy

     756     643

Equipment

     640     616

Marketing

     192     140

Communications and supplies

     370     351

Professional and consulting fees

     414     382

Goodwill impairment

     6,060     —  

Other intangible amortization

     200     221

Merger-related and restructuring expenses

     492     42

Sundry expense

     1,906     1,022
    


 

Total noninterest expense

     17,725     9,511
    


 

Minority interest in income of consolidated subsidiaries

     252     275
    


 

Income (loss) before income taxes

     (11,391 )   6,781

Income taxes (benefits)

     (2,065 )   2,138
    


 

Net income (loss)

     (9,326 )   4,643

Dividends on preferred stock

     236     —  
    


 

Net income (loss) available to common stockholders

   $ (9,562 )   4,643
    


 

PER COMMON SHARE DATA (after preferred stock dividends)

            

Basic earnings

            

Net income (loss) available to common stockholders

   $ (4.69 )   2.45

Diluted earnings (a)

            

Net income (loss) available to common stockholders

     (4.69 )   2.42

Cash dividends

   $ 1.02     1.12

AVERAGE COMMON SHARES

            

Basic

     2,037     1,892

Diluted

     2,048     1,922
    


 

(a) Calculated using average basic common shares in 2008.


PAGE 14

 

WACHOVIA CORPORATION AND SUBSIDIARIES

BUSINESS SEGMENTS

(Unaudited)

 

     Three Months Ended June 30, 2008

 

(In millions)


   General
Bank


   Wealth
Management


   Corporate
and
Investment
Bank


    Capital
Management


    Parent

    Goodwill
Impairment,
Net Merger-
Related and
Restructuring
Expenses (b)


    Total

 

CONSOLIDATED

                                          

Net interest income (a)

   $ 3,671    202    1,124     308     (961 )   (54 )   4,290  

Fee and other income

     1,000    207    657     1,995     (694 )   —       3,165  

Intersegment revenue

     57    3    (52 )   (8 )   —       —       —    
    

  
  

 

 

 

 

Total revenue (a)

     4,728    412    1,729     2,295     (1,655 )   (54 )   7,455  

Provision for credit losses

     919    8    438     —       4,202     —       5,567  

Noninterest expense

     2,050    253    960     1,827     883     6,311     12,284  

Minority interest

     —      —      —       —       141     (44 )   97  

Income taxes (benefits)

     632    53    103     170     (2,706 )   (83 )   (1,831 )

Tax-equivalent adjustment

     10    —      19     1     24     (54 )   —    
    

  
  

 

 

 

 

Net income (loss)

     1,117    98    209     297     (4,199 )   (6,184 )   (8,662 )

Dividends on preferred stock

     —      —      —       —       193     —       193  
    

  
  

 

 

 

 

Net income (loss) available to common stockholders

   $ 1,117    98    209     297     (4,392 )   (6,184 )   (8,855 )
    

  
  

 

 

 

 

     Three Months Ended March 31, 2008

 

(In millions)


   General
Bank


   Wealth
Management


   Corporate
and
Investment
Bank


    Capital
Management


    Parent

    Net Merger-
Related and
Restructuring
Expenses (b)


    Total

 

CONSOLIDATED

                                          

Net interest income (a)

   $ 3,445    182    1,028     281     (131 )   (53 )   4,752  

Fee and other income

     980    211    (158 )   2,191     (447 )   —       2,777  

Intersegment revenue

     55    5    (50 )   (10 )   —       —       —    
    

  
  

 

 

 

 

Total revenue (a)

     4,480    398    820     2,462     (578 )   (53 )   7,529  

Provision for credit losses

     569    5    197     —       2,060     —       2,831  

Noninterest expense

     2,038    246    747     1,855     314     241     5,441  

Minority interest

     —      —      —       —       198     (43 )   155  

Income taxes (benefits)

     673    55    (67 )   220     (1,083 )   (32 )   (234 )

Tax-equivalent adjustment

     11    —      21     1     20     (53 )   —    
    

  
  

 

 

 

 

Net income (loss)

     1,189    92    (78 )   386     (2,087 )   (166 )   (664 )

Dividends on preferred stock

     —      —      —       —       43     —       43  
    

  
  

 

 

 

 

Net income (loss) available to common stockholders

   $ 1,189    92    (78 )   386     (2,130 )   (166 )   (707 )
    

  
  

 

 

 

 


PAGE 15

 

WACHOVIA CORPORATION AND SUBSIDIARIES

BUSINESS SEGMENTS

(Unaudited)

 

     Three Months Ended June 30, 2007

(In millions)


   General
Bank


   Wealth
Management


   Corporate
and
Investment
Bank


    Capital
Management


    Parent

    Net Merger-
Related and
Restructuring
Expenses (b)


    Total

CONSOLIDATED

                                        

Net interest income (a)

   $ 3,372    182    773     260     (100 )   (38 )   4,449

Fee and other income

     935    202    1,522     1,536     45     —       4,240

Intersegment revenue

     56    3    (50 )   (11 )   2     —       —  
    

  
  

 

 

 

 

Total revenue (a)

     4,363    387    2,245     1,785     (53 )   (38 )   8,689

Provision for credit losses

     154    2    (2 )   —       25     —       179

Noninterest expense

     1,922    244    1,020     1,294     378     32     4,890

Minority interest

     —      —      —       —       139     —       139

Income taxes (benefits)

     824    51    437     179     (339 )   (12 )   1,140

Tax-equivalent adjustment

     10    —      11     —       17     (38 )   —  
    

  
  

 

 

 

 

Net income (loss)

   $ 1,453    90    779     312     (273 )   (20 )   2,341
    

  
  

 

 

 

 

(a) Tax-equivalent.
(b) The tax-equivalent amounts are eliminated herein in order for “Total” amounts to agree with amounts appearing in the Consolidated Statements of Income.


PAGE 16

 

WACHOVIA CORPORATION AND SUBSIDIARIES

LOANS—ON-BALANCE SHEET, AND MANAGED AND SERVICING PORTFOLIOS

(Unaudited)

 

     2008

    2007

 

(In millions)


   Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


    Second
Quarter


 

ON-BALANCE SHEET LOAN PORTFOLIO

                                

COMMERCIAL

                                

Commercial, financial and agricultural

   $ 122,628     119,193     112,509     109,269     102,397  

Real estate—construction and other

     18,629     18,597     18,543     18,167     17,449  

Real estate—mortgage

     27,191     26,370     23,846     21,514     20,448  

Lease financing

     24,605     23,637     23,913     23,966     24,083  

Foreign

     35,168     33,616     29,540     26,471     20,959  
    


 

 

 

 

Total commercial

     228,221     221,413     208,351     199,387     185,336  
    


 

 

 

 

CONSUMER

                                

Real estate secured

     230,520     230,197     227,719     225,355     220,293  

Student loans

     9,945     9,324     8,149     7,742     6,757  

Installment loans

     29,261     27,437     25,635     24,763     25,017  
    


 

 

 

 

Total consumer

     269,726     266,958     261,503     257,860     252,067  
    


 

 

 

 

Total loans

     497,947     488,371     469,854     457,247     437,403  

Unearned income

     (9,749 )   (7,889 )   (7,900 )   (8,041 )   (8,283 )
    


 

 

 

 

Loans, net (On-balance sheet)

   $ 488,198     480,482     461,954     449,206     429,120  
    


 

 

 

 

MANAGED PORTFOLIO (a) (b) 

                                

COMMERCIAL

                                

On-balance sheet loan portfolio

   $ 228,221     221,413     208,351     199,387     185,336  

Securitized loans—off-balance sheet

     105     120     131     142     170  

Loans held for sale

     2,224     3,342     9,414     13,905     11,573  
    


 

 

 

 

Total commercial

     230,550     224,875     217,896     213,434     197,079  
    


 

 

 

 

CONSUMER

                                

Real estate secured

                                

On-balance sheet loan portfolio

     230,520     230,197     227,719     225,355     220,293  

Securitized loans—off-balance sheet

     6,337     6,845     7,230     7,625     8,112  

Securitized loans included in securities

     14,918     11,683     10,755     5,963     6,091  

Loans held for sale

     3,415     5,960     4,816     3,583     4,079  
    


 

 

 

 

Total real estate secured

     255,190     254,685     250,520     242,526     238,575  
    


 

 

 

 

Student

                                

On-balance sheet loan portfolio

     9,945     9,324     8,149     7,742     6,757  

Securitized loans—off-balance sheet

     2,721     2,772     2,811     2,856     2,905  

Securitized loans included in securities

     52     52     52     52     52  

Loans held for sale

     —       —       —       1,968     2,046  
    


 

 

 

 

Total student

     12,718     12,148     11,012     12,618     11,760  
    


 

 

 

 

Installment

                                

On-balance sheet loan portfolio

     29,261     27,437     25,635     24,763     25,017  

Securitized loans—off-balance sheet

     1,630     1,968     2,263     2,572     3,105  

Securitized loans included in securities

     28     39     47     55     116  

Loans held for sale

     2,791     2,127     2,542     1,975     35  
    


 

 

 

 

Total installment

     33,710     31,571     30,487     29,365     28,273  
    


 

 

 

 

Total consumer

     301,618     298,404     292,019     284,509     278,608  
    


 

 

 

 

Total managed portfolio

   $ 532,168     523,279     509,915     497,943     475,687  
    


 

 

 

 

SERVICING PORTFOLIO (b) (c)

                                

Commercial

   $ 351,277     354,624     353,464     337,721     298,374  

Consumer

   $ 29,100     27,415     27,523     28,015     26,341  
    


 

 

 

 


(a) The managed portfolio includes the on-balance sheet loan portfolio, loans securitized for which the retained interests are classified in securities on-balance sheet, loans held for sale on-balance sheet and the off-balance sheet portfolio of securitized loans sold, where we service the loans.
(b) Certain amounts presented in periods prior to the second quarter of 2008 have been reclassified to conform to the presentation in the second quarter of 2008.
(c) The servicing portfolio consists of third party commercial and consumer loans for which our sole function is that of servicing the loans for the third parties.


PAGE 17

 

WACHOVIA CORPORATION AND SUBSIDIARIES

ALLOWANCE FOR CREDIT LOSSES

(Unaudited)

 

     2008

    2007

 

(In millions)


   Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


    Second
Quarter


 

ALLOWANCE FOR CREDIT LOSSES (a)

                                

Balance, beginning of period

   $ 6,767     4,717     3,691     3,552     3,533  

Provision for credit losses

     5,504     2,834     1,467     381     168  

Provision for credit losses relating to loans transferred to loans held for sale or sold

     51     7     6     3     4  

Provision for credit losses for unfunded lending commitments

     12     (10 )   24     24     7  

LOAN LOSSES

                                

Commercial, financial and agricultural

     (254 )   (171 )   (67 )   (41 )   (39 )

Commercial real estate—construction and mortgage

     (216 )   (81 )   (117 )   (5 )   (4 )
    


 

 

 

 

Total commercial

     (470 )   (252 )   (184 )   (46 )   (43 )
    


 

 

 

 

Real estate secured

     (700 )   (351 )   (156 )   (59 )   (40 )

Student loans

     (3 )   (3 )   (4 )   (5 )   (2 )

Installment and other loans (b)

     (230 )   (242 )   (225 )   (168 )   (138 )
    


 

 

 

 

Total consumer

     (933 )   (596 )   (385 )   (232 )   (180 )
    


 

 

 

 

Total loan losses

     (1,403 )   (848 )   (569 )   (278 )   (223 )
    


 

 

 

 

LOAN RECOVERIES

                                

Commercial, financial and agricultural

     15     14     22     9     15  

Commercial real estate—construction and mortgage

     —       1     —       3     —    
    


 

 

 

 

Total commercial

     15     15     22     12     15  
    


 

 

 

 

Real estate secured

     18     10     9     12     11  

Student loans

     1     1     2     3     —    

Installment and other loans (b)

     60     57     75     45     47  
    


 

 

 

 

Total consumer

     79     68     86     60     58  
    


 

 

 

 

Total loan recoveries

     94     83     108     72     73  
    


 

 

 

 

Net charge-offs

     (1,309 )   (765 )   (461 )   (206 )   (150 )
    


 

 

 

 

Allowance relating to loans acquired, transferred to loans held for sale or sold

     (69 )   (16 )   (10 )   (63 )   (10 )
    


 

 

 

 

Balance, end of period

   $ 10,956     6,767     4,717     3,691     3,552  
    


 

 

 

 

ALLOWANCE FOR CREDIT LOSSES

                                

Allowance for loan losses

   $ 10,744     6,567     4,507     3,505     3,390  

Reserve for unfunded lending commitments

     212     200     210     186     162  
    


 

 

 

 

Total allowance for credit losses

   $ 10,956     6,767     4,717     3,691     3,552  
    


 

 

 

 

ALLOWANCE FOR LOAN LOSSES

                                

as % of loans, net

     2.20 %   1.37     0.98     0.78     0.79  

as % of nonaccrual and restructured loans (c)

     95     84     90     129     174  

as % of nonperforming assets (c)

     90     78     84     115     157  

ALLOWANCE FOR CREDIT LOSSES

                                

as % of loans, net

     2.24 %   1.41     1.02     0.82     0.83  
    


 

 

 

 

NET CHARGE-OFFS AS % OF AVERAGE LOANS, NET (d)

                                

Commercial, financial and agricultural

     0.60 %   0.41     0.12     0.10     0.07  

Commercial real estate—construction and mortgage

     1.89     0.73     1.12     0.02     0.04  
    


 

 

 

 

Total commercial

     0.88     0.48     0.34     0.08     0.07  
    


 

 

 

 

Real estate secured

     1.18     0.59     0.26     0.08     0.05  

Student loans

     0.07     0.08     0.10     0.14     0.07  

Installment and other loans (b)

     2.36     2.76     2.35     1.99     1.47  
    


 

 

 

 

Total consumer

     1.26     0.79     0.46     0.27     0.19  
    


 

 

 

 

Total as % of average loans, net

     1.10 %   0.66     0.41     0.19     0.14  
    


 

 

 

 

CONSUMER REAL ESTATE SECURED NET CHARGE-OFFS

                                

First lien

   $ (592 )   (291 )   (122 )   (32 )   (17 )

Second lien

     (90 )   (50 )   (25 )   (15 )   (12 )
    


 

 

 

 

Total consumer real estate secured net charge-offs

   $ (682 )   (341 )   (147 )   (47 )   (29 )
    


 

 

 

 


(a) The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.
(b) Principally auto loans.
(c) These ratios do not include nonperforming assets included in loans held for sale.
(d) Annualized.


PAGE 18

 

WACHOVIA CORPORATION AND SUBSIDIARIES

NONPERFORMING ASSETS

(Unaudited)

 

     2008

   2007

(In millions)


   Second
Quarter


    First
Quarter


   Fourth
Quarter


   Third
Quarter


   Second
Quarter


NONPERFORMING ASSETS

                           

Nonaccrual loans

                           

Commercial

                           

Commercial, financial and agricultural

   $ 1,229     908    602    354    318

Commercial real estate - construction and mortgage

     2,203     1,750    1,059    289    161
    


 
  
  
  

Total commercial

     3,432     2,658    1,661    643    479
    


 
  
  
  

Consumer

                           

Real estate secured

                           

First lien

     7,430     5,015    3,234    1,986    1,380

Second lien

     147     75    58    41    44

Installment and other loans (a)

     40     40    42    45    42
    


 
  
  
  

Total consumer

     7,617     5,130    3,334    2,072    1,466
    


 
  
  
  

Total nonaccrual loans

     11,049     7,788    4,995    2,715    1,945

Troubled debt restructurings (b)

     248     48    —      —      —  

Foreclosed properties

     631     530    389    334    207
    


 
  
  
  

Total nonperforming assets

   $ 11,928     8,366    5,384    3,049    2,152
    


 
  
  
  

as % of loans, net, and foreclosed properties (c)

     2.44 %   1.74    1.16    0.68    0.50
    


 
  
  
  

Nonperforming assets included in loans held for sale

                           

Commercial

   $ 56     —      —      —      —  

Consumer

     7     5    62    50    37
    


 
  
  
  

Total nonaccrual loans

     63     5    62    50    37

Foreclosed properties

     —       —      —      9    5
    


 
  
  
  

Total nonperforming assets included in loans held for sale

     63     5    62    59    42
    


 
  
  
  

Nonperforming assets included in loans and in loans held for sale

   $ 11,991     8,371    5,446    3,108    2,194
    


 
  
  
  

as % of loans, net, foreclosed properties and loans held for sale (d)

     2.41 %   1.70    1.14    0.66    0.49
    


 
  
  
  

PAST DUE LOANS 90 DAYS AND OVER,

AND NONACCRUAL LOANS (c)

                           

Accruing loans past due 90 days and over

   $ 1,181     866    708    590    562

Nonaccrual loans

     11,049     7,788    4,995    2,715    1,945
    


 
  
  
  

Total past due loans 90 days and over, and nonaccrual loans

   $ 12,230     8,654    5,703    3,305    2,507
    


 
  
  
  

Commercial as % of loans, net

     1.73 %   1.31    0.89    0.38    0.31

Consumer as % of loans, net

     3.12 %   2.19    1.49    1.00    0.78
    


 
  
  
  

(a) Principally auto loans; nonaccrual status does not apply to student loans.
(b) Troubled debt restructurings were not significant prior to the first quarter of 2008.
(c) These ratios do not include nonperforming assets included in loans held for sale.
(d) These ratios reflect nonperforming loans included in loans held for sale. Loans held for sale are recorded at the lower of cost or market value, and accordingly, the amounts shown and included in the ratios are net of the transferred allowance for loan losses and the lower of cost or market value adjustments.


PAGE 19

 

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     2008

    2007

 

(In millions, except per share data)


   Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


    Second
Quarter


 

ASSETS

                                

Cash and due from banks

   $ 15,127     14,703     15,124     12,681     12,065  

Interest-bearing bank balances

     10,289     3,236     3,057     4,449     2,726  

Federal funds sold and securities purchased under resale agreements

     21,923     10,644     15,449     11,995     11,511  
    


 

 

 

 

Total cash and cash equivalents

     47,339     28,583     33,630     29,125     26,302  
    


 

 

 

 

Trading account assets

     62,589     72,592     55,882     54,835     51,540  

Securities

     113,461     114,183     115,037     111,827     106,184  

Loans, net of unearned income

     488,198     480,482     461,954     449,206     429,120  

Allowance for loan losses

     (10,744 )   (6,567 )   (4,507 )   (3,505 )   (3,390 )
    


 

 

 

 

Loans, net

     477,454     473,915     457,447     445,701     425,730  
    


 

 

 

 

Loans held for sale

     8,430     11,429     16,772     21,431     17,733  

Premises and equipment

     6,667     6,733     6,605     6,002     6,080  

Due from customers on acceptances

     1,302     1,109     1,418     1,295     831  

Goodwill

     36,993     43,068     43,122     38,848     38,766  

Other intangible assets

     1,942     2,038     2,119     1,380     1,468  

Other assets

     56,256     54,925     50,864     43,724     40,794  
    


 

 

 

 

Total assets

   $ 812,433     808,575     782,896     754,168     715,428  
    


 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                

Deposits

                                

Noninterest-bearing deposits

     63,393     60,951     60,893     56,825     62,112  

Interest-bearing deposits

     384,397     384,013     388,236     365,112     347,918  
    


 

 

 

 

Total deposits

     447,790     444,964     449,129     421,937     410,030  

Short-term borrowings

     55,448     57,857     50,393     62,714     52,715  

Bank acceptances outstanding

     1,307     1,118     1,424     1,303     840  

Trading account liabilities

     26,305     28,887     21,585     17,771     19,319  

Other liabilities

     18,656     19,036     19,151     18,424     18,080  

Long-term debt

     184,401     175,653     161,007     158,584     142,047  
    


 

 

 

 

Total liabilities

     733,907     727,515     702,689     680,733     643,031  
    


 

 

 

 

Minority interest in net assets of consolidated subsidiaries

     3,147     3,068     3,335     3,295     3,131  
    


 

 

 

 

STOCKHOLDERS’ EQUITY

                                

Preferred stock, Class A, 40 million shares, no par value; 10 million shares, no par value; none issued

     —       —       —       —       —    

Dividend Equalization Preferred shares, no par value, 97 million shares issued and outstanding at June 30, 2008

     —       —       —       —       —    

Non-Cumulative Perpetual Class A Preferred Stock, Series I, $100,000 liquidation preference per share, 25,010 shares authorized

     —       —       —       —       —    

Non-Cumulative Perpetual Class A Preferred Stock, Series J, $1,000 liquidation preference per share, 92 million depositary shares issued and outstanding at June 30, 2008

     2,300     2,300     2,300     —       —    

Non-Cumulative Perpetual Class A Preferred Stock, Series K, $1,000 liquidation preference per share, 3.5 million shares issued and outstanding at June 30, 2008

     3,500     3,500     —       —       —    

Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L, $1,000 liquidation preference per share, 4.025 million shares issued and outstanding at June 30, 2008

     4,025     —       —       —       —    

Common stock, $3.33-1/3 par value, authorized 3 billion shares, outstanding 2.136 billion shares at June 30, 2008

     7,121     6,551     6,534     6,283     6,289  

Paid-in capital

     59,797     56,367     56,149     51,938     51,905  

Retained earnings

     1,786     11,449     13,456     14,670     14,335  

Accumulated other comprehensive income, net

     (3,150 )   (2,175 )   (1,567 )   (2,751 )   (3,263 )
    


 

 

 

 

Total stockholders’ equity

     75,379     77,992     76,872     70,140     69,266  
    


 

 

 

 

Total liabilities and stockholders’ equity

   $ 812,433     808,575     782,896     754,168     715,428  
    


 

 

 

 


PAGE 20

 

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES

(Unaudited)

 

     SECOND QUARTER 2008

    FIRST QUARTER 2008

 

(In millions)


   Average
Balances


   Interest
Income/
Expense


    Average
Rates
Earned/
Paid


    Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


 

ASSETS

                                         

Interest-bearing bank balances

   $ 4,980      39     3.11 %   $ 4,253      51    4.85 %

Federal funds sold and securities purchased under resale agreements

     13,075      81     2.51       11,865      103    3.49  

Trading account assets

     43,575      541     4.97       44,655      589    5.28  

Securities

     116,504      1,603     5.51       110,401      1,545    5.60  

Loans

                                         

Commercial

                                         

Commercial, financial and agricultural

     120,693      1,493     4.98       115,377      1,671    5.82  

Real estate—construction and other

     18,849      204     4.35       18,634      251    5.42  

Real estate—mortgage

     26,730      338     5.08       25,291      374    5.95  

Lease financing (a)

     6,713      (857 )   (51.02 )     7,167      140    7.79  

Foreign

     33,219      360     4.34       32,109      389    4.86  
    

  


       

  

      

Total commercial

     206,204      1,538     3.01       198,578      2,825    5.72  
    

  


       

  

      

Consumer

                                         

Real estate secured

     231,754      3,715     6.42       231,392      3,926    6.79  

Student loans

     9,887      108     4.41       9,155      113    4.96  

Installment loans

     28,889      686     9.55       26,811      659    9.88  
    

  


       

  

      

Total consumer

     270,530      4,509     6.68       267,358      4,698    7.04  
    

  


       

  

      

Total loans

     476,734      6,047     5.09       465,936      7,523    6.48  
    

  


       

  

      

Loans held for sale

     9,141      141     6.17       11,592      223    7.71  

Other earning assets

     11,080      136     4.94       10,331      146    5.69  
    

  


       

  

      

Total earning assets excluding derivatives

     675,089      8,588     5.10       659,033      10,180    6.19  

Risk management derivatives (b)

     —        112     0.07       —        52    0.04  
    

  


       

  

      

Total earning assets including derivatives

     675,089      8,700     5.17       659,033      10,232    6.23  
           


 

        

  

Cash and due from banks

     11,472                    11,645              

Other assets

     109,876                    112,915              
    

                

             

Total assets

   $ 796,437                  $ 783,593              
    

                

             

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                         

Interest-bearing deposits

                                         

Savings and NOW accounts

     86,317      137     0.64       86,452      236    1.10  

Money market accounts

     132,792      504     1.53       128,074      747    2.34  

Other consumer time

     113,579      1,145     4.05       123,655      1,437    4.68  

Foreign

     25,913      191     2.97       26,197      231    3.55  

Other time

     18,965      181     3.83       22,643      265    4.71  
    

  


       

  

      

Total interest-bearing deposits

     377,566      2,158     2.30       387,021      2,916    3.03  

Federal funds purchased and securities sold under repurchase

     agreements

     43,288      274     2.54       35,956      308    3.45  

Commercial paper

     5,186      20     1.61       5,509      38    2.74  

Securities sold short

     6,243      53     3.42       6,919      62    3.63  

Other short-term borrowings

     9,288      33     1.34       10,154      45    1.77  

Long-term debt

     177,473      1,737     3.93       165,540      1,961    4.75  
    

  


       

  

      

Total interest-bearing liabilities excluding derivatives

     619,044      4,275     2.77       611,099      5,330    3.51  

Risk management derivatives (b)

     —        81     0.06       —        97    0.06  
    

  


       

  

      

Total interest-bearing liabilities including derivatives

     619,044      4,356     2.83       611,099      5,427    3.57  
           


 

        

  

Noninterest-bearing deposits

     57,982                    56,332              

Other liabilities

     37,671                    37,415              

Stockholders’ equity

     81,740                    78,747              
    

                

             

Total liabilities and stockholders’ equity

   $ 796,437                  $ 783,593              
    

                

             

Interest income and rate earned—including derivatives

          $ 8,700     5.17 %          $ 10,232    6.23 %

Interest expense and equivalent rate paid—including derivatives

            4,356     2.59              5,427    3.31  
           


 

        

  

Net interest income and margin—including derivatives

          $ 4,344     2.58 %          $ 4,805    2.92 %
           


 

        

  


(a) Includes the effect of the $975 million leverage lease recalculation in the second quarter of 2008.

 

(b) The rates earned and the rates paid on risk management derivatives are based on off-balance sheet notional amounts. The fair value of these instruments is included in other assets and other liabilities.


PAGE 21

 

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES

(Unaudited)

 

     FOURTH QUARTER 2007

    THIRD QUARTER 2007

    SECOND QUARTER 2007

 

(In millions)


   Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


    Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


    Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


 

ASSETS

                                                            

Interest-bearing bank balances

   $ 5,083      64    5.05 %   $ 6,459      93    5.68 %   $ 3,384      50    6.00 %

Federal funds sold and securities purchased under resale agreements

     12,901      155    4.77       14,206      194    5.42       12,110      158    5.25  

Trading account assets

     37,694      569    6.04       38,737      575    5.93       35,165      519    5.90  

Securities

     115,436      1,625    5.62       111,424      1,522    5.46       108,433      1,467    5.41  

Loans

                                                            

Commercial

                                                            

Commercial, financial and agricultural

     111,500      1,908    6.79       106,263      1,927    7.19       101,012      1,805    7.16  

Real estate—construction and other

     18,435      318    6.85       17,795      344    7.66       17,334      329    7.62  

Real estate—mortgage

     22,973      426    7.36       20,883      406    7.71       20,175      378    7.53  

Lease financing (a)

     7,374      145    7.82       7,523      146    7.80       7,759      150    7.74  

Foreign

     27,882      380    5.42       22,208      308    5.53       19,232      265    5.51  
    

  

        

  

        

  

      

Total commercial

     188,164      3,177    6.70       174,672      3,131    7.12       165,512      2,927    7.09  
    

  

        

  

        

  

      

Consumer

                                                            

Real estate secured

     227,893      4,042    7.08       223,356      4,070    7.28       222,096      4,042    7.28  

Student loans

     8,073      126    6.19       7,299      122    6.61       8,850      141    6.42  

Installment loans

     25,675      651    10.04       24,474      614    9.96       24,799      609    9.84  
    

  

        

  

        

  

      

Total consumer

     261,641      4,819    7.35       255,129      4,806    7.52       255,745      4,792    7.50  
    

  

        

  

        

  

      

Total loans

     449,805      7,996    7.08       429,801      7,937    7.35       421,257      7,719    7.34  
    

  

        

  

        

  

      

Loans held for sale

     18,998      360    7.53       20,209      363    7.14       17,644      285    6.47  

Other earning assets

     10,223      166    6.48       7,937      138    6.91       7,985      144    7.23  
    

  

        

  

        

  

      

Total earning assets excluding derivatives

     650,140      10,935    6.70       628,773      10,822    6.86       605,978      10,342    6.84  

Risk management derivatives (b)

     —        19    0.01       —        42    0.02       —        46    0.03  
    

  

        

  

        

  

      

Total earning assets including derivatives

     650,140      10,954    6.71       628,773      10,864    6.88       605,978      10,388    6.87  
           

  

        

  

        

  

Cash and due from banks

     12,028                   11,134                   11,533              

Other assets

     101,319                   89,097                   87,262              
    

               

               

             

Total assets

   $ 763,487                 $ 729,004                 $ 704,773              
    

               

               

             

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                                            

Interest-bearing deposits

                                                            

Savings and NOW accounts

     83,370      345    1.64       81,851      357    1.73       83,977      367    1.75  

Money market accounts

     121,717      949    3.09       116,404      980    3.34       111,562      976    3.51  

Other consumer time

     127,061      1,557    4.86