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

Exhibit (99)(a)

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Press Release October 22, 2008

WACHOVIA REPORTS 3RD QUARTER LOSS OF $4.8 BILLION EXCLUDING $18.7 BILLION OF NONCASH GOODWILL IMPAIRMENT AND $414 MILLION NET MERGER-RELATED EXPENSE; RESULTS REFLECT PRE-TAX $4.8 BILLION CREDIT RESERVE BUILD

WELLS FARGO MERGER ON TRACK FOR 4TH QUARTER 2008 CLOSE

BUSINESSES REMAIN WELL POSITIONED AND COMMITTED TO SERVING CUSTOMERS

 


THIRD QUARTER 2008 COMPARED WITH THIRD QUARTER 2007:

 

   

Net loss of $23.9 billion includes the following on a pre-tax basis: $18.8 billion of goodwill impairment; $4.8 billion credit reserve build to a 3.24 percent reserve-to-loan ratio; $2.5 billion of market disruption losses including $1.2 billion of securities impairments; $310 million principal investing loss

 

   

Results also reflect costs relating to previous announcements on the auction rate securities settlement, support of Evergreen money market fund exposure to Lehman Brothers and losses on government sponsored entity preferred stock, amounting to $1.1 billion

 

   

Traditional businesses remained focused on customer service and sales execution; customer satisfaction rating of 6.62 and customer loyalty at 51 percent remained at top of industry

 

   

Average core deposits up 4 percent on growth in retail CDs and retail brokerage deposits

 

   

Way2Save campaign hits milestone 1.1 million accounts and $439 million in new account balances

 

   

A.G. Edwards integration proceeding smoothly; integration over 50 percent complete

Earnings Highlights

 

     Three Months Ended

 
     September 30,
2008

    June 30,
2008

    September 30,
2007


 

(In millions, except per share data)


   Amount

    EPS

    Amount

    EPS

    Amount

    EPS

 

Earnings

                                      

Net income (loss)

   $ (23,698 )   (11.09 )   (8,915 )   (4.22 )   1,706     0.90  

Discontinued operations, net of income taxes

     —       —       —       —       (88 )   (0.05 )

Dividends on preferred stock

     (191 )   (0.09 )   (193 )   (0.09 )   —       —    
    


 

 

 

 

 

Net income (loss) available to common stockholders

   $ (23,889 )   (11.18 )   (9,108 )   (4.31 )   1,618     0.85  
    


 

 

 

 

 

Discontinued operations, net of income taxes

     —       —       —       —       88     0.05  

Net goodwill impairment

     18,715     8.76     6,056     2.87     —       —    

Net merger-related and restructuring expenses

     414     0.19     128     0.06     22     —    
    


 

 

 

 

 

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

   $ (4,760 )   (2.23 )   (2,924 )   (1.38 )   1,728     0.90  
    


 

 

 

 

 

Financial ratios

                                      

Return on average common stockholders’ equity

     (157.43 ) %         (50.47 )         9.19        

Net interest margin (a)

     2.94           2.58  (d)         2.92        

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

     12.70           42.15           39.02        

Overhead efficiency ratio (a)

     442.60  %         170.24           60.20        
    


       

       

     

Capital adequacy (b)

                                      

Tier 1 capital ratio

     7.4 %         8.0           7.1        

Total capital ratio

     12.2           12.7           10.8        

Leverage ratio

     5.7 %         6.6           6.1        
    


       

       

     

Asset quality

                                      

Allowance for loan losses as % of nonaccrual and restructured loans

     109 %         95           129        

Allowance for loan losses as % of loans, net

     3.18           2.20           0.78        

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

     3.24           2.24           0.82        

Net charge-offs as % of average loans, net

     1.57           1.10           0.19        

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

     3.05 %         2.41           0.66        

(a) Tax-equivalent.
(b) The third 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) 2Q08 includes the SILO charge of $975 million pre-tax; without that charge, the net interest margin would have been 3.15%.

 

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

 

CHARLOTTE, N.C. – Wachovia today reported a net loss in the third quarter of 2008 of $23.89 billion, representing a net loss per share of $11.18, including a provision for credit losses of $6.63 billion to cover $1.87 billion in net charge-offs and to build reserves by $4.76 billion.

Wachovia’s core businesses generated higher loans and average core deposits, as well as strength in traditional banking and insurance fees; however, market-related businesses and deposit trends reflected market turmoil. The General Bank grew revenue 8 percent over last year and maintained industry-leading customer satisfaction. The retail brokerage business increased in both the number and quality of financial advisors and generated solid cross-sales with other Wachovia businesses. Sales growth in the Wealth Management business offset declines in equity valuations. The Corporate and Investment Bank continued to execute on its transition to a more customer-centric model.

Robert K. Steel, CEO and president said, “In these unprecedented times, my colleagues have demonstrated that Wachovia always puts the interests of our customers and clients first. Although this has been a challenging quarter, Wachovia’s underlying businesses remain solid and our franchise exceptionally attractive. We look forward to the opportunities that lie ahead as we join forces with Wells Fargo.”

“Wachovia’s third quarter results were very much in line with our expectations,” said Wells Fargo’s President and CEO John Stumpf. “We’re more encouraged than ever by what we’ve seen in their franchise, and we’re pleased that Wachovia’s team continues to focus on serving customers.”

“We believe that it was prudent for Wachovia to put these losses behind them,” said Wells Fargo’s Chief Financial Officer Howard Atkins. “The asset write-downs, reserve build, and other items are consistent with our acquisition assumptions. The goodwill impairment will have no impact on tangible capital or our planned capital raise. Monday, Wachovia issued preferred stock to Wells Fargo as contemplated in our share exchange agreement, which represents 39.9 percent of Wachovia’s voting power, and we’re on track to complete the merger as planned in the fourth quarter.”

The third quarter 2008 net loss compared with earnings of $1.62 billion or 85 cents per share in the third quarter of 2007. Excluding goodwill impairment of $18.7 billion after tax, net merger-related and restructuring expense of $414 million, results in the third quarter of 2008 were a net loss of $4.76 billion, or a net loss per share of $2.23.

The pre-tax loss stemmed from:

 

   

The $18.8 billion in noncash goodwill impairment reflecting declining market valuations and the terms of the merger with Wells Fargo; the recognition of the impairment affected the retail and small business, commercial, wealth management and asset management subsegments. The goodwill impairment charge has no impact on Wachovia’s tangible capital levels or regulatory capital ratios, because goodwill is deducted when computing those ratios;

 

   

A $6.6 billion credit loss provision, including $3.4 billion to build reserves for the Pick-a-Pay mortgage portfolio and $1.4 billion to build other loan loss reserves;

 

   

$2.5 billion in market disruption-related losses, including $619 million in investment portfolio securities impairments;

 

   

$682 million valuation decline in principal investing;

 

   

$515 million in non-merger severance charges related to expense reductions announced in the second quarter of 2008;

 

   

$497 million of auction rate securities settlement costs ($398 million, net of minority interest); and

 

   

$397 million in losses related to planned securities sales, including $171 million from the sale of government sponsored entity preferred shares.

 

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WACHOVIA REPORTS 3RD QUARTER LOSS AMID TOUGH ENVIRONMENT/page 3

 

Wachovia Corporation

 

     Three Months Ended

(In millions)


   September 30,
2008


    June 30,
2008


    September 30,
2007


Net interest income (Tax-equivalent)

   $ 5,039     4,344     4,584

Fee and other income

     733     3,165     2,933

Total revenue (Tax-equivalent)

     5,772     7,509     7,517

Provision for credit losses

     6,629     5,567     408

Noninterest expense

     25,545     12,784     4,525

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

     (26,297 )   (10,824 )   2,395

Income taxes (benefits) (Tax-equivalent)

     (2,599 )   (1,909 )   689

Net income (loss) available to common stockholders

     (23,889 )   (9,108 )   1,618

Average loans, net

     478,485     476,734     429,801

Average core deposits

   $ 392,309     390,670     379,009

Key trends in the third quarter of 2008 compared with the third quarter of 2007 included:

 

   

A significant decline in fee and other income largely due to increased net market disruption-related valuation losses and lower principal investing results, which overshadowed strength in traditional banking. A 25 percent rise in fiduciary and asset management fees and 33 percent higher commissions resulted from the A.G. Edwards acquisition.

 

   

Net interest income of $5.0 billion, up 10 percent, with a net interest margin of 2.94 percent on increased average loans. Average commercial loans were up 20 percent and average consumer loans were up 6 percent. Average loan growth was driven by strength in commercial, commercial real estate and traditional mortgage, which more than offset the $6.8 billion average net decrease effect of sales/securitization and loan transfer activity. Average core deposit growth of 4 percent was led by retail CDs and money market accounts. Period end core deposits decreased 2 percent driven by a significant decline in higher cost commercial deposits reflecting significant market turmoil at the end of the third quarter of 2008.

 

   

An increase in noninterest expense largely reflecting the impact of A.G. Edwards, as well as growth in credit-related sundry expense and a planned $497 million ($398 million net of minority interest) in costs related to the settlement of auction rate securities.

 

   

Provision for credit losses of $6.6 billion, which included $4.8 billion to build reserves. The provision largely reflected the weakening economy and current and anticipated severe deterioration in the residential housing market, particularly in specific markets in California and Florida. Net charge-offs were $1.9 billion, or an annualized 1.57 percent of average net loans. Total nonperforming assets including loans held for sale were $15.0 billion, or 3.05 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.

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, provision in excess of net charge-offs 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 $18.8 billion and provision expense in excess of charge-offs and other credit losses, which amounted to $4.8 billion in the third quarter of 2008, are not allocated to business segments. Pages 15 and 16 include a reconciliation of segment results to Wachovia’s consolidated results of operations in accordance with GAAP.

 

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WACHOVIA REPORTS 3RD QUARTER LOSS AMID TOUGH ENVIRONMENT/page 4

 

General Bank

General Bank Highlights

 

     Three Months Ended

(In millions)


   September 30,
2008


    June 30,
2008


   September 30,
2007


Net interest income (Tax-equivalent)

   $ 3,763     3,697    3,466

Fee and other income

     1,003     1,000    935

Total revenue (Tax-equivalent)

     4,816     4,754    4,460

Provision for credit losses

     1,340     922    207

Noninterest expense

     2,127     2,061    1,898

Segment earnings

   $ 857     1,124    1,495

Cash overhead efficiency ratio (Tax-equivalent)

     44.16 %   43.35    42.54

Average loans, net

   $ 318,573     317,969    295,188

Average core deposits

     292,653     290,313    290,099

Economic capital, average

   $ 19,302     16,777    10,904

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

 

   

Earnings of $857 million, down $638 million, driven by rising credit costs and related expenses, primarily in the mortgage business, which overshadowed sales momentum elsewhere as reflected in total revenue of $4.8 billion, up 8 percent.

 

   

9 percent higher net interest income on deposit growth and improved loan spreads despite rising nonperforming assets.

 

   

Average loan growth of 8 percent, led by consumer real estate secured, commercial lending and auto. Growth in consumer real estate secured was driven by mortgage and home equity and included slower prepayments. Auto loan originations declined 24 percent.

 

   

Average core deposit growth of $2.6 billion.

 

   

Growth in net new retail checking accounts of 208,000 in the third quarter of 2008 compared with an increase of 263,000 in the third quarter of 2007.

 

   

442,000 new retail checking accounts were tied to the Way2Save campaign. This product, which launched in mid-January 2008, reached 1.1 million accounts in the third quarter and $439 million in deposits at September 30, 2008.

 

   

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

 

   

A 12 percent increase in noninterest expense due to growth in credit-related sundry expense, FDIC expense, as well as continued strategic investment in de novo branch activity and Western expansion. During the third quarter of 2008, 13 de novo branches were opened and seven branches were consolidated. As a result of performance initiatives, operating leverage continued to improve, which enabled continued strategic investment.

 

   

A $1.1 billion increase in the provision for credit losses to $1.3 billion, largely reflecting higher net charge-offs in the Pick-a-Pay portfolio and auto.

 

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WACHOVIA REPORTS 3RD QUARTER LOSS AMID TOUGH ENVIRONMENT/page 5

 

Wealth Management

Wealth Management Highlights

 

     Three Months Ended

(In millions)


   September 30,
2008


    June 30,
2008


   September 30,
2007


Net interest income (Tax-equivalent)

   $ 194     201    184

Fee and other income

     192     208    184

Total revenue (Tax-equivalent)

     388     412    372

Provision for credit losses

     8     5    6

Noninterest expense

     246     252    240

Segment earnings

   $ 84     98    80

Cash overhead efficiency ratio (Tax-equivalent)

     63.55 %   61.24    64.71

Average loans, net

   $ 22,765     22,557    20,996

Average core deposits

     14,690     17,609    17,180

Economic capital, average

   $ 729     720    609

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

 

   

5 percent earnings growth to $84 million on 4 percent revenue growth in challenging markets.

 

   

5 percent growth in net interest income on 8 percent loan growth and wider deposit spreads despite a 14 percent decline in average core deposits, which reflected the market turmoil.

 

   

4 percent growth in fiduciary and asset management fees as the benefits of a pricing initiative implemented in the third quarter of 2007 and sales growth overcame declines in equity valuations and in assets under management. Insurance commissions rose 5 percent compared with a weak 2007 third quarter.

 

   

A 3 percent increase in noninterest expense driven by investments in private banking and Western expansion, offset by efficiency initiatives.

 

   

A 13 percent decline in assets under management from year-end 2007 to $73.2 billion largely due to market depreciation as well as net outflows.

Corporate and Investment Bank

Corporate and Investment Bank Highlights

 

     Three Months Ended

(In millions)


   September 30,
2008


    June 30,
2008


   September 30,
2007


Net interest income (Tax-equivalent)

   $ 1,043     1,132    838

Fee and other income

     (416 )   656    176

Total revenue (Tax-equivalent)

     570     1,736    962

Provision for credit losses

     525     438    1

Noninterest expense

     1,154     963    626

Segment earnings (loss)

   $ (703 )   212    212

Cash overhead efficiency ratio (Tax-equivalent)

     202.09 %   55.50    65.12

Average loans, net

   $ 109,323     106,680    82,979

Average core deposits

     27,497     31,686    37,208

Economic capital, average

   $ 14,732     13,821    9,791

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

 

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WACHOVIA REPORTS 3RD QUARTER LOSS AMID TOUGH ENVIRONMENT/page 6

 

   

A loss of $703 million due to continued net valuation losses related to disruption in the capital markets, and increased provision for credit losses.

 

   

A 24 percent increase in net interest income, which reflected 32 percent growth in average loans including fourth quarter 2007 and first quarter 2008 transfer into the loan portfolio at fair value of certain loans originally slated for distribution, as well as loan growth in the commercial lending businesses.

 

   

A decline in fee and other income due to significantly lower principal investing results from lower valuations and a decrease in advisory and underwriting fees despite lower market disruption-related losses from the third quarter a year ago.

 

   

Market disruption-related losses of $940 million compared with $565 million in the second quarter of 2008 and $1.2 billion in the third quarter of 2007. Market disruption-related valuation losses, net of applicable hedges, were:

 

   

$235 million in subprime residential asset-backed collateralized debt obligations and other related exposures, compared with $238 million in the second quarter and $230 million in the third quarter of 2007;

 

   

$347 million in commercial mortgage structured products, compared with $209 million in the second quarter and $488 million in the third quarter of 2007;

 

   

$146 million in consumer mortgage structured products, compared with $68 million in the second quarter and $82 million in the third quarter of 2007;

 

   

$22 million gain in leveraged finance net of fees, compared with a net $102 million gain in the second quarter and a net $272 million loss in the third quarter of 2007; and

 

   

$234 million in non-subprime collateralized debt obligations and other structured products, compared with $152 million in the second quarter and $109 million in the third quarter of 2007.

 

   

A loss of $317 million in principal investing revenue, down from net gains of $361 million in the third quarter of 2007 due to lower valuations on both the direct and fund investment portfolios.

 

   

An 84 percent increase in noninterest expense primarily due to higher variable compensation and $65 million of auction rate securities settlement costs.

 

   

A provision of $525 million largely reflecting residential-related commercial real estate and other corporate lending losses.

 

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WACHOVIA REPORTS 3RD QUARTER LOSS AMID TOUGH ENVIRONMENT/page 7

 

Capital Management

Capital Management Highlights

 

     Three Months Ended

(In millions)


   September 30,
2008


    June 30,
2008


    September 30,
2007


Net interest income (Tax-equivalent)

   $ 388     308     268

Fee and other income

     968     1,995     1,444

Total revenue (Tax-equivalent)

     1,360     2,295     1,704

Provision for credit losses

     1     —       —  

Noninterest expense

     2,145     2,328     1,241

Segment earnings (loss)

   $ (499 )   (21 )   294

Cash overhead efficiency ratio (Tax-equivalent)

     157.72 %   101.39     72.82

Average loans, net

   $ 3,223     2,878     2,142

Average core deposits

     54,734     48,647     31,489

Economic capital, average

   $ 2,033     2,118     1,310

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

 

   

A loss of $499 million due to auction rate securities settlement costs and continued market disruption-related losses;

 

   

A 45 percent increase in net interest income driven by retail brokerage deposit growth of $23.3 billion primarily due to the A.G. Edwards acquisition, as well as organic growth since the acquisition, partially offset by spread compression;

 

   

A 33 percent decline in fee and other income driven by $931 million in market disruption-related losses compared with $118 million in the second quarter of 2008 and $40 million in the third quarter of 2007;

 

   

$737 million in valuation losses relating to the support of Evergreen money market funds, compared with $24 million in the second quarter of 2008 and $40 million in the third quarter of 2007;

 

   

$83 million in valuation losses relating to the liquidation of an Evergreen fund compared with $89 million in the second quarter of 2008;

 

   

$80 million in valuation losses relating to auction rate securities held on the balance sheet, compared with $5 million in the second quarter of 2008;

 

   

$31 million relating to other securities impairment.

 

   

73 percent growth in noninterest expense largely due to the effect of the auction rate securities settlement and the A.G. Edwards merger.

Total assets under management were $209.1 billion at September 30, 2008, down 24 percent from December 31, 2007, driven by net outflows of $40.6 billion as well as $25.0 billion in lower market valuations.

***

Wachovia Corporation (NYSE:WB) is one of the nation’s largest diversified financial services companies, with assets of $764.4 billion and market capitalization of $7.6 billion at September 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 $1.0 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 3RD 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 October 22, 2008.

Additional Information

The proposed merger between Wachovia and Wells Fargo (the Merger) will be submitted to Wachovia’s shareholders for their consideration. Wells Fargo will file a registration statement with the SEC, which will include a proxy statement/prospectus, and each of Wachovia and Wells Fargo may file other relevant documents concerning the proposed Merger. Shareholders and other investors are urged to read the registration statement and the proxy statement/prospectus when they become available, as well as any other relevant documents concerning the proposed Merger filed with the SEC (and any amendments or supplements to those documents), because they will contain important information. You will be able to obtain a free copy of the registration statement and the proxy statement/prospectus, as well as other filings containing information about Wachovia and Wells Fargo, at the SEC’s website (http://www.sec.gov) and at the companies’ respective websites, wachovia.com and wellsfargo.com. Copies of the proxy statement/prospectus and the SEC filings that will be incorporated by reference in the proxy statement/prospectus can also be obtained, free of charge, by directing a request to Wachovia Corporation, Investor Relations, One Wachovia Center, Charlotte, NC 28288-0206, (704) 383-0798; or to Wells Fargo & Company, Investor Relations, MAC A0101-025, 420 Montgomery Street, 2nd Floor, San Francisco, California 94104-1207, (415) 396-3668.

Wachovia and Wells Fargo and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Wachovia in connection with the proposed Merger. Information about the directors and executive officers of Wachovia is set forth in the proxy statement for Wachovia’s 2008 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 10, 2008. Information about the directors and executive officers of Wells Fargo is set forth in the proxy statement for Wells Fargo’s 2008 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 17, 2008. Additional information regarding the interests of those participants and other persons who may be deemed participants in the Merger may be obtained by reading the proxy statement/prospectus regarding the proposed Merger when it becomes available. You may obtain free copies of these documents as described in the preceding paragraph.

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 1 and on page 12 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 24 through 26. 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.

 

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WACHOVIA REPORTS 3RD QUARTER LOSS AMID TOUGH ENVIRONMENT/page 9

 

Recorded Message and Supplemental Materials

A recorded message reviewing Wachovia’s third quarter 2008 results is available today at 7:00 a.m. Eastern Daylight Saving Time through January 18, 2009, at 800-642-1687 for U.S. callers and 706-645-9291 for international callers. Conference ID: 69710892. The call is also available on the Internet at Wachovia.com/investor.

This review may include a discussion of certain non-GAAP financial measures. Supplemental materials relating to third 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 listening to the recorded message.

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 10

 

WACHOVIA CORPORATION AND SUBSIDIARIES

FINANCIAL TABLES

TABLE OF CONTENTS

 

     PAGE

Financial Highlights—Five Quarters Ended September 30, 2008

   11

Other Financial Data—Five Quarters Ended September 30, 2008

   12

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

   13

Consolidated Statements of Income—Nine Months Ended September 30, 2008 and 2007

   14

Business Segments—Three Months Ended September 30, 2008 and June 30, 2008

   15

Business Segments—Three Months Ended September 30, 2007

   16

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

   17

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

   18

Nonperforming Assets—Five Quarters Ended September 30, 2008

   19

Consolidated Balance Sheets—Five Quarters Ended September 30, 2008

   20

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

   21 - 22

Net Interest Income Summaries—Nine Months Ended September 30, 2008 and 2007

   23

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

   24 - 26


PAGE 11

 

WACHOVIA CORPORATION AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS

(Unaudited)

 

     2008

    2007

 

(Dollars in millions, except per share data)


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

EARNINGS SUMMARY

                                

Net interest income (GAAP)

   $ 4,991     4,290     4,752     4,630     4,551  

Tax-equivalent adjustment

     48     54     53     44     33  
    


 

 

 

 

Net interest income (Tax-equivalent)

     5,039     4,344     4,805     4,674     4,584  

Fee and other income

     733     3,165     2,777     2,744     2,933  
    


 

 

 

 

Total revenue (Tax-equivalent)

     5,772     7,509     7,582     7,418     7,517  

Provision for credit losses

     6,629     5,567     2,831     1,497     408  

Other noninterest expense

     5,966     6,376     5,097     5,488     4,397  

Merger-related and restructuring expenses

     697     251     241     187     36  

Goodwill impairment

     18,786     6,060     —       —       —    

Other intangible amortization

     96     97     103     111     92  
    


 

 

 

 

Total noninterest expense

     25,545     12,784     5,441     5,786     4,525  

Minority interest in income of consolidated subsidiaries

     (105 )   (18 )   155     107     189  
    


 

 

 

 

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

     (26,297 )   (10,824 )   (845 )   28     2,395  

Income taxes (benefits)

     (2,647 )   (1,963 )   (234 )   (209 )   656  

Tax-equivalent adjustment

     48     54     53     44     33  
    


 

 

 

 

Income (loss) from continuing operations

     (23,698 )   (8,915 )   (664 )   193     1,706  

Discontinued operations, net of income taxes

     —       —       —       (142 )   (88 )
    


 

 

 

 

Net income (loss)

     (23,698 )   (8,915 )   (664 )   51     1,618  

Dividends on preferred stock

     191     193     43     —       —    
    


 

 

 

 

Net income (loss) available to common stockholders

   $ (23,889 )   (9,108 )   (707 )   51     1,618  
    


 

 

 

 

Diluted earnings per common share (a)

   $ (11.18 )   (4.31 )   (0.36 )   0.03     0.85  

Return on average common stockholders’ equity

     (157.43 )%   (50.47 )   (3.81 )   0.28     9.19  

Return on average assets

     (11.91 )   (4.50 )   (0.34 )   0.03     0.88  

Overhead efficiency ratio

     442.60 %   170.24     71.76     78.00     60.20  

Operating leverage

   $ (14,498 )   (7,416 )   509     (1,359 )   (847 )
    


 

 

 

 

ASSET QUALITY

                                

Allowance for loan losses as % of loans, net

     3.18 %   2.20     1.37     0.98     0.78  

Allowance for loan losses as % of nonperforming assets

     102     90     78     84     115  

Allowance for credit losses as % of loans, net

     3.24     2.24     1.41     1.02     0.82  

Net charge-offs as % of average loans, net

     1.57     1.10     0.66     0.41     0.19  

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

     3.05 %   2.41     1.70     1.14     0.66  
    


 

 

 

 

CAPITAL ADEQUACY (b)

                                

Tier I capital ratio

     7.4 %   8.0     7.4     7.4     7.1  

Total capital ratio

     12.2     12.7     12.1     11.8     10.8  

Leverage ratio

     5.7 %   6.6     6.2     6.1     6.1  
    


 

 

 

 

OTHER DATA

                                

Average basic common shares (In millions)

     2,137     2,111     1,963     1,959     1,885  

Average diluted common shares (In millions)

     2,143     2,119     1,977     1,983     1,910  

Actual common shares (In millions) (c)

     2,161     2,159     1,992     1,980     1,901  

Dividends paid per common share

   $ 0.05     0.38     0.64     0.64     0.64  

Dividend payout ratio on common shares

     (0.45 )%   (8.70 )   (177.78 )   2133.33     75.29  

Book value per common share (c)

   $ 18.59     30.25     36.24     37.66     36.90  

Common stock price

     3.50     15.53     27.00     38.03     50.15  

Market capitalization (c)

   $ 7,563     33,527     53,782     75,302     95,326  

Common stock price to book value (c)

     19 %   51     75     101     136  

FTE employees

     117,227     119,952     120,378     121,890     109,724  

Total financial centers/brokerage offices

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

ATMs

     5,303     5,277     5,308     5,139     5,123  
    


 

 

 

 


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


PAGE 12

 

WACHOVIA CORPORATION AND SUBSIDIARIES

OTHER FINANCIAL DATA

(Unaudited)

 

     2008

    2007

 

(In millions)


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

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

                                

Return on average common stockholders’ equity

     (27.11 )%   (15.94 )   (3.14 )   1.62     9.81  

Return on average assets

     (2.27 )   (1.38 )   (0.28 )   0.16     0.94  

Overhead efficiency ratio

     105.01     86.21     68.58     75.48     59.73  

Overhead efficiency ratio excluding brokerage

     107.32 %   80.64     65.47     74.54     56.82  

Operating leverage

   $ (1,325 )   (1,347 )   563     (1,208 )   (843 )
    


 

 

 

 

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

                                

Dividend payout ratio on common shares

     (2.27 )%   (27.78 )   (246.15 )   355.56     68.09  

Return on average tangible common stockholders’ equity

     (59.94 )   (39.94 )   (7.07 )   5.05     23.88  

Return on average tangible assets

     (2.35 )   (1.42 )   (0.26 )   0.20     1.03  

Overhead efficiency ratio

     103.34     84.92     67.22     73.97     58.51  

Overhead efficiency ratio excluding brokerage

     104.82 %   78.84     63.59     72.43     55.32  

Operating leverage

   $ (1,326 )   (1,353 )   554     (1,187 )   (855 )
    


 

 

 

 

OTHER FINANCIAL DATA

                                

Net interest margin

     2.94 %   2.58     2.92     2.88     2.92  

Fee and other income as % of total revenue

     12.70     42.15     36.62     36.99     39.02  

Effective income tax rate (d)

     10.04     18.06     26.02     122.05     27.33  

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

     9.88 %   17.65     21.38     127.17     28.38  
    


 

 

 

 

AVERAGE BALANCE SHEET DATA

                                

Commercial loans, net

   $ 208,906     206,204     198,578     188,164     174,672  

Consumer loans, net

     269,579     270,530     267,358     261,641     255,129  

Loans, net

     478,485     476,734     465,936     449,805     429,801  

Earning assets

     685,944     675,089     659,033     650,140     628,773  

Total assets

     791,907     796,437     783,593     763,487     729,004  

Core deposits

     392,309     390,670     394,513     390,043     379,009  

Total deposits

     446,992     435,548     443,353     437,566     416,107  

Interest-bearing liabilities

     631,034     619,044     611,099     599,130     574,399  

Stockholders’ equity

   $ 70,195     81,740     78,747     73,986     69,857  
    


 

 

 

 

PERIOD-END BALANCE SHEET DATA

                                

Commercial loans, net

   $ 218,918     216,620     211,700     198,566     189,545  

Consumer loans, net

     263,455     271,578     268,782     263,388     259,661  

Loans, net

     482,373     488,198     480,482     461,954     449,206  

Goodwill and other intangible assets

                                

Goodwill

     18,353     36,993     43,068     43,122     38,848  

Deposit base

     492     531     573     619     670  

Customer relationships

     1,276     1,321     1,375     1,410     620  

Tradename

     90     90     90     90     90  

Total assets

     764,378     812,433     808,575     782,896     754,168  

Core deposits

     370,054     400,387     398,562     397,405     377,865  

Total deposits

     418,840     447,790     444,964     449,129     421,937  

Stockholders’ equity

   $ 50,003     75,127     77,992     76,872     70,140  
    


 

 

 

 


(a) These financial measures are calculated by excluding from GAAP net income (loss) presented on page 11, $414 million, $128 million, $123 million, $108 million and $22 million in the third, second and first quarters of 2008 and the fourth and third quarters of 2007, respectively, of after-tax net merger-related and restructuring expenses, $18.7 billion and $6.1 billion in the third and second quarters of 2008, respectively, 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 11 for the most directly comparable GAAP financial measure and pages 24 through 26 for a more detailed reconciliation.
(c) These financial measures are calculated by excluding from GAAP net income (loss) presented on page 11, $62 million, $66 million, $64 million, $64 million and $60 million in the third, second and first quarters of 2008 and the fourth and third 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 13

 

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     2008

    2007

 

(In millions, except per share data)


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

INTEREST INCOME

                                

Interest and fees on loans

   $ 6,972     6,187     7,577     7,980     7,937  

Interest and dividends on securities

     1,521     1,530     1,496     1,616     1,529  

Trading account interest

     415     522     571     557     566  

Other interest income

     492     407     535     757     799  
    


 

 

 

 

Total interest income

     9,400     8,646     10,179     10,910     10,831  
    


 

 

 

 

INTEREST EXPENSE

                                

Interest on deposits

     2,231     2,176     2,941     3,433     3,334  

Interest on short-term borrowings

     389     418     523     673     801  

Interest on long-term debt

     1,789     1,762     1,963     2,174     2,145  
    


 

 

 

 

Total interest expense

     4,409     4,356     5,427     6,280     6,280  
    


 

 

 

 

Net interest income

     4,991     4,290     4,752     4,630     4,551  

Provision for credit losses

     6,629     5,567     2,831     1,497     408  
    


 

 

 

 

Net interest income (loss) after provision for credit losses

     (1,638 )   (1,277 )   1,921     3,133     4,143  
    


 

 

 

 

FEE AND OTHER INCOME

                                

Service charges

     717     709     676     716     689  

Other banking fees

     525     518     498     497     471  

Commissions

     799     910     914     970     600  

Fiduciary and asset management fees

     1,291     1,355     1,439     1,436     1,029  

Advisory, underwriting and other investment banking fees

     243     280     261     249     393  

Trading account profits (losses)

     (701 )   (510 )   (308 )   (524 )   (301 )

Principal investing

     (310 )   136     446     41     372  

Securities gains (losses)

     (1,978 )   (808 )   (205 )   (320 )   (34 )

Other income

     147     575     (944 )   (321 )   (286 )
    


 

 

 

 

Total fee and other income

     733     3,165     2,777     2,744     2,933  
    


 

 

 

 

NONINTEREST EXPENSE

                                

Salaries and employee benefits

     3,489     3,435     3,260     3,468     2,628  

Occupancy

     381     377     379     375     325  

Equipment

     325     317     323     334     283  

Marketing

     68     95     97     80     74  

Communications and supplies

     173     184     186     191     176  

Professional and consulting fees

     242     218     196     271     194  

Goodwill impairment

     18,786     6,060     —       —       —    

Other intangible amortization

     96     97     103     111     92  

Merger-related and restructuring expenses

     697     251     241     187     36  

Sundry expense

     1,288     1,750     656     769     717  
    


 

 

 

 

Total noninterest expense

     25,545     12,784     5,441     5,786     4,525  
    


 

 

 

 

Minority interest in income of consolidated subsidiaries

     (105 )   (18 )   155     107     189  
    


 

 

 

 

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

     (26,345 )   (10,878 )   (898 )   (16 )   2,362  

Income taxes (benefits)

     (2,647 )   (1,963 )   (234 )   (209 )   656  
    


 

 

 

 

Income (loss) from continuing operations

     (23,698 )   (8,915 )   (664 )   193     1,706  

Discontinued operations, net of income taxes

     —       —       —       (142 )   (88 )
    


 

 

 

 

Net income (loss)

     (23,698 )   (8,915 )   (664 )   51     1,618  

Dividends on preferred stock

     191     193     43     —       —    
    


 

 

 

 

Net income (loss) available to common stockholders

   $ (23,889 )   (9,108 )   (707 )   51     1,618  
    


 

 

 

 

PER COMMON SHARE DATA (after preferred stock dividends)

                                

Basic earnings

                                

Income (loss) from continuing operations

   $ (11.18 )   (4.31 )   (0.36 )   0.10     0.91  

Net income (loss) available to common stockholders

     (11.18 )   (4.31 )   (0.36 )   0.03     0.86  

Diluted earnings (a)

                                

Income (loss) from continuing operations

     (11.18 )   (4.31 )   (0.36 )   0.10     0.90  

Net income (loss) available to common stockholders

     (11.18 )   (4.31 )   (0.36 )   0.03     0.85  

Cash dividends

   $ 0.05     0.38     0.64     0.64     0.64  

AVERAGE COMMON SHARES

                                

Basic

     2,137     2,111     1,963     1,959     1,885  

Diluted

     2,143     2,119     1,977     1,983     1,910  
    


 

 

 

 


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


PAGE 14

 

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Nine Months Ended
September 30,


 

(In millions, except per share data)


   2008

    2007

 

INTEREST INCOME

              

Interest and fees on loans

   $ 20,736     23,278  

Interest and dividends on securities

     4,547     4,481  

Trading account interest

     1,508     1,505  

Other interest income

     1,434     2,057  
    


 

Total interest income

     28,225     31,321  
    


 

INTEREST EXPENSE

              

Interest on deposits

     7,348     9,528  

Interest on short-term borrowings

     1,330     2,176  

Interest on long-term debt

     5,514     6,117  
    


 

Total interest expense

     14,192     17,821  
    


 

Net interest income

     14,033     13,500  

Provision for credit losses

     15,027     764  
    


 

Net interest income (loss) after provision for credit losses

     (994 )   12,736  
    


 

FEE AND OTHER INCOME

              

Service charges

     2,102     1,970  

Other banking fees

     1,541     1,336  

Commissions

     2,623     1,908  

Fiduciary and asset management fees

     4,085     2,997  

Advisory, underwriting and other investment banking fees

     784     1,254  

Trading account profits (losses)

     (1,519 )   22  

Principal investing

     272     718  

Securities gains (losses)

     (2,991 )   42  

Other income

     (222 )   660  
    


 

Total fee and other income

     6,675     10,907  
    


 

NONINTEREST EXPENSE

              

Salaries and employee benefits

     10,184     8,722  

Occupancy

     1,137     968  

Equipment

     965     899  

Marketing

     260     214  

Communications and supplies

     543     527  

Professional and consulting fees

     656     576  

Goodwill impairment

     24,846     —    

Other intangible amortization

     296     313  

Merger-related and restructuring expenses

     1,189     78  

Sundry expense

     3,694     1,739  
    


 

Total noninterest expense

     43,770     14,036  
    


 

Minority interest in income of consolidated subsidiaries

     32     464  
    


 

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

     (38,121 )   9,143  

Income taxes (benefits)

     (4,844 )   2,794  
    


 

Income (loss) from continuing operations

     (33,277 )   6,349  

Discontinued operations, net of income taxes

     —       (88 )
    


 

Net income (loss)

     (33,277 )   6,261  

Dividends on preferred stock

     427     —    
    


 

Net income (loss) available to common stockholders

   $ (33,704 )   6,261  
    


 

PER COMMON SHARE DATA (after preferred stock dividends)

              

Basic earnings

              

Income (loss) from continuing operations

   $ (16.28 )   3.36  

Net income (loss) available to common stockholders

     (16.28 )   3.31  

Diluted earnings (a)

              

Income (loss) from continuing operations

     (16.28 )   3.31  

Net income (loss) available to common stockholders

     (16.28 )   3.26  

Cash dividends

   $ 1.07     1.76  

AVERAGE COMMON SHARES

              

Basic

     2,070     1,890  

Diluted

     2,080     1,918  
    


 


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


PAGE 15

 

WACHOVIA CORPORATION AND SUBSIDIARIES

BUSINESS SEGMENTS

(Unaudited)

 

     Three Months Ended September 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)

   $ 3,763    194    1,043     388     (349 )   (48 )   4,991  

Fee and other income

     1,003    192    (416 )   968     (1,014 )   —       733  

Intersegment revenue

     50    2    (57 )   4     1     —       —    
    

  
  

 

 

 

 

Total revenue (a)

     4,816    388    570     1,360     (1,362 )   (48 )   5,724  

Provision for credit losses

     1,340    8    525     1     4,755     —       6,629  

Noninterest expense

     2,127    246    1,154     2,145     390     19,483     25,545  

Minority interest

     —      —      —       —       (71 )   (34 )   (105 )

Income taxes (benefits)

     482    50    (423 )   (287 )   (2,149 )   (320 )   (2,647 )

Tax-equivalent adjustment

     10    —      17     —       21     (48 )   —    
    

  
  

 

 

 

 

Net income (loss)

     857    84    (703 )   (499 )   (4,308 )   (19,129 )   (23,698 )

Dividends on preferred stock

     —      —      —       —       191     —       191  
    

  
  

 

 

 

 

Net income (loss) available to common stockholders

   $ 857    84    (703 )   (499 )   (4,499 )   (19,129 )   (23,889 )
    

  
  

 

 

 

 

     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)

   $ 3,697    201    1,132     308     (994 )   (54 )   4,290  

Fee and other income

     1,000    208    656     1,995     (694 )   —       3,165  

Intersegment revenue

     57    3    (52 )   (8 )   —       —       —    
    

  
  

 

 

 

 

Total revenue (a)

     4,754    412    1,736     2,295     (1,688 )   (54 )   7,455  

Provision for credit losses

     922    5    438     —       4,202     —       5,567  

Noninterest expense

     2,061    252    963     2,328     869     6,311     12,784  

Minority interest

     —      —      —       —       26     (44 )   (18 )

Income taxes (benefits)

     637    57    104     (13 )   (2,666 )   (82 )   (1,963 )

Tax-equivalent adjustment

     10    —      19     1     24     (54 )   —    
    

  
  

 

 

 

 

Net income (loss)

     1,124    98    212     (21 )   (4,143 )   (6,185 )   (8,915 )

Dividends on preferred stock

     —      —      —       —       193     —       193  
    

  
  

 

 

 

 

Net income (loss) available to common stockholders

   $ 1,124    98    212     (21 )   (4,336 )   (6,185 )   (9,108 )
    

  
  

 

 

 

 


PAGE 16

 

WACHOVIA CORPORATION AND SUBSIDIARIES

BUSINESS SEGMENTS

(Unaudited)

 

     Three Months Ended September 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)

   $ 3,466    184    838     268     (172 )   (33 )   4,551  

Fee and other income

     935    184    176     1,444     194     —       2,933  

Intersegment revenue

     59    4    (52 )   (8 )   (3 )   —       —    
    

  
  

 

 

 

 

Total revenue (a)

     4,460    372    962     1,704     19     (33 )   7,484  

Provision for credit losses

     207    6    1     —       194     —       408  

Noninterest expense

     1,898    240    626     1,241     484     36     4,525  

Minority interest

     —      —      —       —       189     —       189  

Income taxes (benefits)

     849    46    114     169     (508 )   (14 )   656  

Tax-equivalent adjustment

     11    —      9     —       13     (33 )   —    
    

  
  

 

 

 

 

Income (loss) from continuing operations

     1,495    80    212     294     (353 )   (22 )   1,706  

Discontinued operations, net of income taxes

     —      —      —       —       (88 )   —       (88 )
    

  
  

 

 

 

 

Net income (loss)

   $ 1,495    80    212     294     (441 )   (22 )   1,618  
    

  
  

 

 

 

 


(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 17

 

WACHOVIA CORPORATION AND SUBSIDIARIES

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

(Unaudited)

 

     2008

    2007

 

(In millions)


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

ON-BALANCE SHEET LOAN PORTFOLIO

                                

COMMERCIAL

                                

Commercial, financial and agricultural

   $ 128,411     122,628     119,193     112,509     109,269  

Real estate—construction and other

     17,824     18,629     18,597     18,543     18,167  

Real estate—mortgage

     27,970     27,191     26,370     23,846     21,514  

Lease financing

     23,725     24,605     23,637     23,913     23,966  

Foreign

     32,344     35,168     33,616     29,540     26,471  
    


 

 

 

 

Total commercial

     230,274     228,221     221,413     208,351     199,387  
    


 

 

 

 

CONSUMER

                                

Real estate secured

     224,842     230,520     230,197     227,719     225,355  

Student loans

     10,335     9,945     9,324     8,149     7,742  

Installment loans

     26,433     29,261     27,437     25,635     24,763  
    


 

 

 

 

Total consumer

     261,610     269,726     266,958     261,503     257,860  
    


 

 

 

 

Total loans

     491,884     497,947     488,371     469,854     457,247  

Unearned income

     (9,511 )   (9,749 )   (7,889 )   (7,900 )   (8,041 )
    


 

 

 

 

Loans, net (On-balance sheet)

   $ 482,373     488,198     480,482     461,954     449,206  
    


 

 

 

 

MANAGED PORTFOLIO (a) (b) 

                                

COMMERCIAL

                                

On-balance sheet loan portfolio

   $ 230,274     228,221     221,413     208,351     199,387  

Securitized loans—off-balance sheet

     100     105     120     131     142  

Loans held for sale

     1,290     2,224     3,342     9,414     13,905  
    


 

 

 

 

Total commercial

     231,664     230,550     224,875     217,896     213,434  
    


 

 

 

 

CONSUMER

                                

Real estate secured

                                

On-balance sheet loan portfolio

     224,842     230,520     230,197     227,719     225,355  

Securitized loans—off-balance sheet

     5,641     6,337     6,845     7,230     7,625  

Securitized loans included in securities

     13,081     14,918     11,683     10,755     5,963  

Loans held for sale

     2,491     3,415     5,960     4,816     3,583  
    


 

 

 

 

Total real estate secured

     246,055     255,190     254,685     250,520     242,526  
    


 

 

 

 

Student

                                

On-balance sheet loan portfolio

     10,335     9,945     9,324     8,149     7,742  

Securitized loans—off-balance sheet

     2,700     2,721     2,772     2,811     2,856  

Securitized loans included in securities

     52     52     52     52     52  

Loans held for sale

     1,280     —       —       —       1,968  
    


 

 

 

 

Total student

     14,367     12,718     12,148     11,012     12,618  
    


 

 

 

 

Installment

                                

On-balance sheet loan portfolio

     26,433     29,261     27,437     25,635     24,763  

Securitized loans—off-balance sheet

     1,410     1,630     1,968     2,263     2,572  

Securitized loans included in securities

     23     28     39     47     55  

Loans held for sale

     4,186     2,791     2,127     2,542     1,975  
    


 

 

 

 

Total installment

     32,052     33,710     31,571     30,487     29,365  
    


 

 

 

 

Total consumer

     292,474     301,618     298,404     292,019     284,509  
    


 

 

 

 

Total managed portfolio

   $ 524,138     532,168     523,279     509,915     497,943  
    


 

 

 

 

SERVICING PORTFOLIO (b) (c)

                                

Commercial

   $ 339,790     351,277     354,624     353,464     337,721  

Consumer

   $ 33,732     29,100     27,415     27,523     28,015  
    


 

 

 

 


(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 third quarter of 2008 have been reclassified to conform to the presentation in the third 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 18

 

WACHOVIA CORPORATION AND SUBSIDIARIES

ALLOWANCE FOR CREDIT LOSSES

(Unaudited)

 

     2008

    2007

 

(In millions)


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

ALLOWANCE FOR CREDIT LOSSES (a)

                                

Balance, beginning of period

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

Provision for credit losses

     6,570     5,504     2,834     1,467     381  

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

     17     51     7     6     3  

Provision for credit losses for unfunded lending commitments

     42     12     (10 )   24     24  

LOAN LOSSES

                                

Commercial, financial and agricultural

     (286 )   (254 )   (171 )   (67 )   (41 )

Commercial real estate—construction and mortgage

     (279 )   (216 )   (81 )   (117 )   (5 )
    


 

 

 

 

Total commercial

     (565 )   (470 )   (252 )   (184 )   (46 )
    


 

 

 

 

Real estate secured

     (1,087 )   (700 )   (351 )   (156 )   (59 )

Student loans

     (29 )   (3 )   (3 )   (4 )   (5 )

Installment and other loans (b)

     (299 )   (230 )   (242 )   (225 )   (168 )
    


 

 

 

 

Total consumer

     (1,415 )   (933 )   (596 )   (385 )   (232 )
    


 

 

 

 

Total loan losses

     (1,980 )   (1,403 )   (848 )   (569 )   (278 )
    


 

 

 

 

LOAN RECOVERIES

                                

Commercial, financial and agricultural

     16     15     14     22     9  

Commercial real estate—construction and mortgage

     2     —       1     —       3  
    


 

 

 

 

Total commercial

     18     15     15     22     12  
    


 

 

 

 

Real estate secured

     27     18     10     9     12  

Student loans

     1     1     1     2     3  

Installment and other loans (b)

     62     60     57     75     45  
    


 

 

 

 

Total consumer

     90     79     68     86     60  
    


 

 

 

 

Total loan recoveries

     108     94     83     108     72  
    


 

 

 

 

Net charge-offs

     (1,872 )   (1,309 )   (765 )   (461 )   (206 )
    


 

 

 

 

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

     (108 )   (69 )   (16 )   (10 )   (63 )
    


 

 

 

 

Balance, end of period

   $ 15,605     10,956     6,767     4,717     3,691  
    


 

 

 

 

ALLOWANCE FOR CREDIT LOSSES

                                

Allowance for loan losses

   $ 15,351     10,744     6,567     4,507     3,505  

Reserve for unfunded lending commitments

     254     212     200     210     186  
    


 

 

 

 

Total allowance for credit losses

   $ 15,605     10,956     6,767     4,717     3,691  
    


 

 

 

 

ALLOWANCE FOR LOAN LOSSES

                                

as % of loans, net

     3.18 %   2.20     1.37     0.98     0.78  

as % of nonaccrual and restructured loans (c)

     109     95     84     90     129  

as % of nonperforming assets (c)

     102     90     78     84     115  

ALLOWANCE FOR CREDIT LOSSES

                                

as % of loans, net

     3.24 %   2.24     1.41     1.02     0.82  
    


 

 

 

 

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

                                

Commercial, financial and agricultural

     0.66 %   0.60     0.41     0.12     0.10  

Commercial real estate—construction and mortgage

     2.41     1.89     0.73     1.12     0.02  
    


 

 

 

 

Total commercial

     1.05     0.88     0.48     0.34     0.08  
    


 

 

 

 

Real estate secured

     1.85     1.18     0.59     0.26     0.08  

Student loans

     1.03     0.07     0.08     0.10     0.14  

Installment and other loans (b)

     3.18     2.36     2.76     2.35     1.99  
    


 

 

 

 

Total consumer

     1.97     1.26     0.79     0.46     0.27  
    


 

 

 

 

Total as % of average loans, net

     1.57 %   1.10     0.66     0.41     0.19  
    


 

 

 

 

CONSUMER REAL ESTATE SECURED NET CHARGE-OFFS

                                

First lien

   $ (952 )   (592 )   (291 )   (122 )   (32 )

Second lien

     (108 )   (90 )   (50 )   (25 )   (15 )
    


 

 

 

 

Total consumer real estate secured net charge-offs

   $ (1,060 )   (682 )   (341 )   (147 )   (47 )
    


 

 

 

 


(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 19

 

WACHOVIA CORPORATION AND SUBSIDIARIES

NONPERFORMING ASSETS

(Unaudited)

 

     2008

   2007

(In millions)


   Third
Quarter


    Second
Quarter


   First
Quarter


   Fourth
Quarter


   Third
Quarter


NONPERFORMING ASSETS

                           

Nonaccrual loans

                           

Commercial

                           

Commercial, financial and agricultural

   $ 1,298     1,229    908    602    354

Commercial real estate—construction and mortgage

     2,836     2,203    1,750    1,059    289
    


 
  
  
  

Total commercial

     4,134     3,432    2,658    1,661    643
    


 
  
  
  

Consumer

                           

Real estate secured

                           

First lien

     9,197     7,430    5,015    3,234    1,986

Second lien

     110     147    75    58    41

Installment and other loans (a)

     35     40    40    42    45
    


 
  
  
  

Total consumer

     9,342     7,617    5,130    3,334    2,072
    


 
  
  
  

Total nonaccrual loans

     13,476     11,049    7,788    4,995    2,715

Troubled debt restructurings (b)

     646     248    48    —      —  

Foreclosed properties

     860     631    530    389    334
    


 
  
  
  

Total nonperforming assets

   $ 14,982     11,928    8,366    5,384    3,049
    


 
  
  
  

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

     3.10 %   2.44    1.74    1.16    0.68
    


 
  
  
  

Nonperforming assets included in loans held for sale

                           

Commercial

   $ 21     56    —      —      —  

Consumer

     5     7    5    62    50
    


 
  
  
  

Total nonaccrual loans

     26     63    5    62    50

Foreclosed properties

     —       —      —      —      9
    


 
  
  
  

Total nonperforming assets included in loans held for sale

     26     63    5    62    59
    


 
  
  
  

Nonperforming assets included in loans and in loans held for sale

   $ 15,008     11,991    8,371    5,446    3,108
    


 
  
  
  

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

     3.05 %   2.41    1.70    1.14    0.66
    


 
  
  
  

PAST DUE LOANS 90 DAYS AND OVER,

    AND NONACCRUAL LOANS (c)

                           

Accruing loans past due 90 days and over

   $ 1,119     1,101    866    708    590

Nonaccrual loans

     13,476     11,049    7,788    4,995    2,715
    


 
  
  
  

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

   $ 14,595     12,150    8,654    5,703    3,305
    


 
  
  
  

Commercial as % of loans, net

     1.96 %   1.69    1.31    0.89    0.38

Consumer as % of loans, net

     3.91 %   3.12    2.19    1.49    1.00
    


 
  
  
  

(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 20

 

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     2008

    2007

 

(In millions, except per share data)


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

ASSETS

                                

Cash and due from banks

   $ 22,233     15,127     14,703     15,124     12,681  

Interest-bearing bank balances

     2,287     10,289     3,236     3,057     4,449  

Federal funds sold and securities purchased under resale agreements

     9,900     21,923     10,644     15,449     11,995  
    


 

 

 

 

Total cash and cash equivalents

     34,420     47,339     28,583     33,630     29,125  
    


 

 

 

 

Trading account assets

     56,000     62,589     72,592     55,882     54,835  

Securities

     107,693     113,461     114,183     115,037     111,827  

Loans, net of unearned income

     482,373     488,198     480,482     461,954     449,206  

Allowance for loan losses

     (15,351 )   (10,744 )   (6,567 )   (4,507 )   (3,505 )
    


 

 

 

 

Loans, net

     467,022     477,454     473,915     457,447     445,701  
    


 

 

 

 

Loans held for sale

     9,247     8,430     11,429     16,772     21,431  

Premises and equipment

     7,031     6,667     6,733     6,605     6,002  

Due from customers on acceptances

     664     1,302     1,109     1,418     1,295  

Goodwill

     18,353     36,993     43,068     43,122     38,848  

Other intangible assets

     1,858     1,942     2,038     2,119     1,380  

Other assets

     62,090     56,256     54,925     50,864     43,724  
    


 

 

 

 

Total assets

   $ 764,378     812,433     808,575     782,896     754,168  
    


 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                

Deposits

                                

Noninterest-bearing deposits

     55,752     63,393     60,951     60,893     56,825  

Interest-bearing deposits

     363,088     384,397     384,013     388,236     365,112  
    


 

 

 

 

Total deposits

     418,840     447,790     444,964     449,129     421,937  

Short-term borrowings

     67,867     55,448     57,857     50,393     62,714  

Bank acceptances outstanding

     673     1,307     1,118     1,424     1,303  

Trading account liabilities

     18,388     26,305     28,887     21,585     17,771  

Other liabilities

     22,274     19,023     19,036     19,151     18,424  

Long-term debt

     183,350     184,401     175,653     161,007     158,584  
    


 

 

 

 

Total liabilities

     711,392     734,274     727,515     702,689     680,733  
    


 

 

 

 

Minority interest in net assets of consolidated subsidiaries

     2,983     3,032     3,068     3,335     3,295  
    


 

 

 

 

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 September 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 September 30, 2008

     2,300     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 September 30, 2008

     3,500     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 September 30, 2008

     4,025     4,025     —       —       —    

Common stock, $3.33-1/3 par value, authorized 3 billion shares, outstanding 2.137 billion shares at September 30, 2008

     7,124     7,121     6,551     6,534     6,283  

Paid-in capital

     59,883     59,797     56,367     56,149     51,938  

Retained earnings (accumulated deficit)

     (22,465 )   1,534     11,449     13,456     14,670  

Accumulated other comprehensive income, net

     (4,364 )   (3,150 )   (2,175 )   (1,567 )   (2,751 )
    


 

 

 

 

Total stockholders’ equity

     50,003     75,127     77,992     76,872     70,140  
    


 

 

 

 

Total liabilities and stockholders’ equity

   $ 764,378     812,433     808,575     782,896     754,168  
    


 

 

 

 


PAGE 21

 

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES

(Unaudited)

 

     THIRD QUARTER 2008

    SECOND 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

   $ 12,247      77    2.51  %   $ 4,980      39     3.11  %

Federal funds sold and securities purchased under resale agreements

     18,556      120    2.57       13,075      81     2.51  

Trading account assets

     36,715      431    4.70       43,575      541     4.97  

Securities

     120,481      1,598    5.30       116,504      1,603     5.51  

Loans

                                         

Commercial

                                         

Commercial, financial and agricultural

     122,576      1,525    4.95       120,693      1,493     4.98  

Real estate—construction and other

     18,438      189    4.09       18,849      204     4.35  

Real estate—mortgage

     27,577      347    5.00       26,730      338     5.08  

Lease financing (a)

     6,368      108    6.74       6,713      (857 )   (51.02 )

Foreign

     33,947      351    4.12       33,219      360     4.34  
    

  

        

  


     

Total commercial

     208,906      2,520    4.80       206,204      1,538     3.01  
    

  

        

  


     

Consumer

                                         

Real estate secured

     228,736      3,479    6.08       231,754      3,715     6.42  

Student loans

     10,880      106    3.87       9,887      108     4.41  

Installment loans

     29,963      710    9.43       28,889      686     9.55  
    

  

        

  


     

Total consumer

     269,579      4,295    6.36       270,530      4,509     6.68  
    

  

        

  


     

Total loans

     478,485      6,815    5.68       476,734      6,047     5.09  
    

  

        

  


     

Loans held for sale

     8,416      152    7.22       9,141      141     6.17  

Other earning assets

     11,044      133    4.78       11,080      136     4.94  
    

  

        

  


     

Total earning assets excluding derivatives

     685,944      9,326    5.43       675,089      8,588     5.10  

Risk management derivatives (b)

     —        122    0.07       —        112     0.07  
    

  

        

  


     

Total earning assets including derivatives

     685,944      9,448    5.50       675,089      8,700     5.17  
           

  

        


 

Cash and due from banks

     12,250                   11,472               

Other assets

     93,713                   109,876               
    

               

              

Total assets

   $ 791,907                 $ 796,437               
    

               

              

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                         

Interest-bearing deposits

                                         

Savings and NOW accounts

     79,077      124    0.63       86,317      137     0.64  

Money market accounts

     127,097      450    1.41       132,792      504     1.53  

Other consumer time

     128,595      1,187    3.67       113,579      1,145     4.05  

Foreign

     24,654      190    3.06       25,913      191     2.97  

Other time

     30,029      256    3.40       18,965      181     3.83  
    

  

        

  


     

Total interest-bearing deposits

     389,452      2,207    2.25       377,566      2,158     2.30  

Federal funds purchased and securities sold under repurchase

     agreements

     39,429      245    2.47       43,288      274     2.54  

Commercial paper

     4,421      17    1.46       5,186      20     1.61  

Securities sold short

     6,068      55    3.56       6,243      53     3.42  

Other short-term borrowings

     8,280      32    1.68       9,288      33     1.34  

Long-term debt

     183,384      1,810    3.94       177,473      1,737     3.93  
    

  

        

  


     

Total interest-bearing liabilities excluding derivatives

     631,034      4,366    2.76       619,044      4,275     2.77  

Risk management derivatives (b)

     —        43    0.02       —        81     0.06  
    

  

        

  


     

Total interest-bearing liabilities including derivatives

     631,034      4,409    2.78       619,044      4,356     2.83  
           

  

        


 

Noninterest-bearing deposits

     57,540                   57,982               

Other liabilities

     33,138                   37,671               

Stockholders’ equity

     70,195                   81,740               
    

               

              

Total liabilities and stockholders’ equity

   $ 791,907                 $ 796,437               
    

               

              

Interest income and rate earned—including derivatives

          $ 9,448    5.50 %          $ 8,700     5.17 %

Interest expense and equivalent rate paid—including derivatives

            4,409    2.56              4,356     2.59  
           

  

        


 

Net interest income and margin—including derivatives

          $ 5,039    2.94 %          $ 4,344     2.58 %
           

  

        


 


(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 22

 

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES

(Unaudited)

 

     FIRST QUARTER 2008

    FOURTH QUARTER 2007

    THIRD 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

   $ 4,253      51    4.85 %   $ 5,083      64    5.05 %   $ 6,459      93    5.68 %

Federal funds sold and securities purchased under resale agreements

     11,865      103    3.49       12,901      155    4.77       14,206      194    5.42  

Trading account assets

     44,655      589    5.28       37,694      569    6.04       38,737      575    5.93  

Securities

     110,401      1,545    5.60       115,436      1,625    5.62       111,424      1,522    5.46  

Loans

                                                            

Commercial

                                                            

Commercial, financial and agricultural

     115,377      1,671    5.82       111,500      1,908    6.79       106,263      1,927    7.19  

Real estate—construction and other

     18,634      251    5.42       18,435      318    6.85       17,795      344    7.66  

Real estate—mortgage

     25,291      374    5.95       22,973      426    7.36       20,883      406    7.71  

Lease financing (a)

     7,167      140    7.79       7,374      145    7.82       7,523      146    7.80  

Foreign

     32,109      389    4.86       27,882      380    5.42       22,208      308    5.53  
    

  

        

  

        

  

      

Total commercial

     198,578      2,825    5.72       188,164      3,177    6.70       174,672      3,131    7.12  
    

  

        

  

        

  

      

Consumer

                                                            

Real estate secured

     231,392      3,926    6.79