EX-99.A 2 dex99a.htm THE EARNINGS RELEASE The Earnings Release
Table of Contents

Exhibit (99)(a)

LOGO

 

LOGO   Press Release October 19, 2007

WACHOVIA EARNS $1.69 BILLION, EPS OF 89 CENTS PER SHARE

Strength in core banking and brokerage businesses offset by impact of global fixed income market disruption

 


3rd QUARTER 2007 COMPARED WITH 3rd QUARTER 2006

 

 

Lower earnings reflecting disruption in the capital markets resulting in valuation losses of $1.3 billion before tax and reduced origination and distribution revenues in the Corporate and Investment Bank.

 

 

Revenue growth led by a 28 percent increase in net interest income, including Golden West, coupled with disciplined expense control partially offset lower fee income.

 

 

Average loans up 53 percent, driven by higher consumer real estate loans related to the Golden West acquisition, and strong organic growth in commercial, international and auto lending.

 

 

Average core deposits up 30 percent, including Golden West. Sales productivity solid in expanded markets.

 

 

Net charge-offs rose 3 basis points to an annualized 0.19 percent of average net loans. Increased provision for credit losses reflects modest deterioration in credit quality, a more uncertain credit environment and loan growth. Higher nonperforming assets largely related to Golden West consumer real estate NPAs and to higher commercial real estate NPAs largely related to downgrades of residential developers.

 

 

Customer loyalty scores at near record 53.1 percent; organic customer acquisition grew 14.8 percent annualized.

Earnings Highlights

 

     Three Months Ended

     September 30,
2007


  

June 30,

2007


   September 30,
2006


(In millions, except per share data)


   Amount

    EPS

   Amount

   EPS

   Amount

   EPS

Earnings

                                

Net income (GAAP)

   $ 1,690     0.89    2,341    1.22    1,877    1.17

Net merger-related and restructuring expenses

     22     0.01    20    0.01    25    0.02
    


 
  
  
  
  

Earnings excluding merger-related and restructuring expenses

   $ 1,712     0.90    2,361    1.23    1,902    1.19
    


 
  
  
  
  

Financial ratios

                                

Return on average common stockholders' equity

     9.60  %        13.54         14.85     

Net interest margin (a)

     2.92          2.94         3.03     

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

     37.59          48.38         49.20     

Overhead efficiency ratio (a)

     59.55  %        55.85         57.44     
    


      
       
    

Capital adequacy (b)

                                

Tier 1 capital ratio

     7.2  %        7.5         7.7     

Total capital ratio

     11.0          11.5         11.5     

Leverage ratio

     6.1  %        6.2         6.6     
    


      
       
    

Asset quality (c)

                                

Allowance for loan losses as % of nonaccrual and restructured loans

     135  %        182         520     

Allowance for loan losses as % of loans, net

     0.78          0.79         1.03     

Allowance for credit losses as

                                

% of loans, net (d)

     0.82          0.83         1.09     

Net charge-offs as % of average loans, net

     0.19          0.14         0.16     

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

     0.63 %        0.47         0.26     

 

(a) Tax-equivalent.
(b) The third quarter of 2007 is based on estimates.
(c) Asset quality ratios at September 30 and June 30, 2007, reflect the impact of Golden West.
(d) The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.

 

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WACHOVIA EARNS $1.69 BILLION, EPS OF 89 CENTS PER SHARE/page 2

 

CHARLOTTE, N.C. — Wachovia Corp. (NYSE:WB) today reported net income of $1.69 billion, or 89 cents per share, in the third quarter of 2007 compared with $1.88 billion, or $1.17 per share, in the third quarter of 2006.

After-tax net merger-related expenses amounted to 1 cent per common share in the third quarter of 2007 and 2 cents per common share in the third quarter of 2006. Excluding these expenses, earnings were $1.71 billion, or 90 cents per share, in the third quarter of 2007 and $1.90 billion, or $1.19 per share, in the third quarter of 2006.

“I’m very proud of our ability to provide capital, liquidity and advice to our customers and peers in the face of the disruption in the fixed income markets in the third quarter. These conditions clearly had a disappointing impact on the results of market-oriented businesses, but the strength in our core banking and brokerage businesses continued to serve us very well,” said Ken Thompson, Wachovia chairman and chief executive officer. “Our loan and deposit trends were solid, and our retail brokerage performance was strong – and poised for even more growth as our A.G. Edwards colleagues join our team. Additionally, the first of our World Savings branch and deposit conversions was completed successfully last weekend, and going forward, attention in our expanded platform returns fully to sales production. While the impact of the market disruption was significant, it’s worth noting that the majority of the lower market valuations in the third quarter largely arose from a repricing of risk in the marketplace and do not reflect deterioration in the underlying credit quality of the assets in our leveraged finance and commercial real estate securitization businesses. Looking ahead, we’re taking the appropriate steps to ensure that as markets remain unsettled, we focus intently on actively managing our exposures and controlling costs. Longer term, we believe the challenges of the third quarter will be an advantage to companies like Wachovia with strong capital and liquidity positions and a clear understanding of the needs of customers and investors.”

Results in the third quarter of 2007 included the full quarter impact of the October 1, 2006, acquisition of Golden West. Results do not include the impact of the acquisition of A.G. Edwards, Inc., a retail brokerage firm headquartered in St. Louis, Missouri, which closed on October 1 of this year.

Wachovia Corporation

 

     Three Months Ended

(In millions)


   September 30,
2007


   June 30,
2007


   September 30,
2006


Net interest income (Tax-equivalent)

   $ 4,584    4,487    3,578

Fee and other income

     2,761    4,206    3,465

Total revenue (Tax-equivalent)

     7,345    8,693    7,043

Provision for credit losses

     408    179    108

Noninterest expense

     4,374    4,856    4,045

Net income

     1,690    2,341    1,877

Average loans, net

     429,801    421,257    281,110

Average core deposits

   $ 379,009    378,496    291,227

In the third quarter of 2007 compared with the third quarter of 2006, Wachovia:

 

   

Grew revenue 4 percent on higher loans and deposits, driven by the addition of Golden West and organic growth, while fee and other income declined reflecting disruption in the capital markets in fixed income and other market-related fees, including net valuation losses of:

 

   

$1.3 billion in the Corporate and Investment Bank on structured products and leveraged finance warehouse loans and commitments; and

 

   

$40 million in Capital Management on asset-backed commercial paper investments.

 

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WACHOVIA EARNS $1.69 BILLION, EPS OF 89 CENTS PER SHARE/page 3

 

   

Increased net interest income 28 percent reflecting growth in average commercial loans, up 16 percent, and higher average consumer loans, including the impact of acquisitions.

 

   

Generated strong commercial loan growth led by strength in middle-market commercial, large corporate and international lending. Increased consumer loans were led by higher real estate loans primarily due to the addition of Golden West, as well as growth in auto lending.

 

   

Also generated 30 percent growth in average core deposits while average low-cost core deposits were up 7 percent.

 

   

Generated continued strong performance in retail brokerage managed account fees and solid retail brokerage transaction activity. Strong principal investing results and higher traditional banking fees also contributed to growth.

 

   

Held noninterest expense growth, including the effect of acquisitions, to 8 percent largely reflecting lower revenue-based compensation in light of the market disruption.

 

   

Recorded a provision for credit losses of $408 million reflecting modest deterioration in credit quality, a more uncertain credit environment and loan growth. Net charge-offs were $206 million, or an annualized 0.19 percent of average net loans. Total nonperforming assets including loans held for sale were $3.0 billion, or 0.63 percent of loans, foreclosed properties and loans held for sale.

Earnings in the third quarter of 2007 included a $249 million after-tax benefit related to correction of errors primarily in earlier periods in 2007. This related primarily to incorrect application of hedge accounting to certain variable rate demand deposits in the second quarter of 2007. Wachovia’s management believes that this impact is not material to current or prior period financial statements, and the Audit Committee of Wachovia’s Board of Directors, based on information reviewed by management with the Committee, concurred with management’s conclusion.

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, other intangible amortization and discontinued operations. Segment earnings are the basis on which Wachovia manages and allocates capital to its business segments. Pages 13 and 14 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)


   September 30,
2007


    June 30,
2007


   September 30,
2006


Net interest income (Tax-equivalent)

   $ 3,486     3,397    2,529

Fee and other income

     969     969    886

Total revenue (Tax-equivalent)

     4,500     4,407    3,451

Provision for credit losses

     214     160    120

Noninterest expense

     2,015     2,035    1,621

Segment earnings

   $ 1,443     1,405    1,086

Cash overhead efficiency ratio (Tax-equivalent)

     44.75 %   46.17    46.96

Average loans, net

   $ 297,295     294,369    162,501

Average core deposits

     290,693     290,970    208,705

Economic capital, average

   $ 11,556     11,502    7,121

General Bank

The General Bank includes retail, small business and commercial customers. The third quarter of 2007 compared with the third quarter of 2006 included:

 

   

Earnings of $1.4 billion on a 30 percent increase in revenue to $4.5 billion, driven by increased loans and deposits primarily reflecting the addition of Golden West, as well as strong organic growth. The business mix continued to shift, reflecting customer preference for fixed rate instead of variable rate loans and certificates of deposit over demand deposits.

 

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WACHOVIA EARNS $1.69 BILLION, EPS OF 89 CENTS PER SHARE/page 4

 

   

An increase in average loans of $134.8 billion including primarily consumer real estate loans from the Golden West acquisition. Organic growth was led by auto lending, middle market commercial and business banking loans.

 

   

Deposit growth led by consumer certificates of deposit, reflecting the addition of Golden West and organic growth. Net new retail checking accounts increased by 255,000 in the third quarter of 2007 compared with an increase of 139,000 in the year ago quarter. World Savings branches generated more than 20,000 of these new accounts. Year to date, net new retail checking accounts amounted to 832,000, compared with 554,000 in full year 2006.

 

   

9 percent higher fee and other income, with solid growth in service charges and interchange income offsetting lower mortgage banking fees.

 

   

A 221 basis point improvement to a 44.75 percent overhead efficiency ratio, which included the acquisition impact, de novo branch activity and other growth initiatives.

 

   

Increased provision as a result of higher auto, commercial and consumer real estate loan losses.

Wealth Management Highlights

 

     Three Months Ended

(In millions)


   September 30,
2007


    June 30,
2007


   September 30,
2006


Net interest income (Tax-equivalent)

   $ 183     181    176

Fee and other income

     185     202    197

Total revenue (Tax-equivalent)

     372     386    376

Provision for credit losses

     6     2    2

Noninterest expense

     252     255    249

Segment earnings

   $ 72     82    79

Cash overhead efficiency ratio (Tax-equivalent)

     67.87 %   65.89    66.34

Average loans, net

   $ 21,492     21,047    19,237

Average core deposits

     16,638     17,028    16,312

Economic capital, average

   $ 650     654    626

Wealth Management

Wealth Management includes private banking, personal trust, investment advisory services, charitable services, financial planning and insurance brokerage. The third quarter of 2007 compared with the third quarter of 2006 included:

 

   

Lower earnings of $72 million on flat revenue growth due to lower insurance commissions.

 

   

A 4 percent increase in net interest income on solid loan growth and modest deposit growth, partially offset by continued margin compression.

 

   

Record fiduciary and asset management fees, up 10 percent driven by client acceptance of the new investment platform introduced in 2006, new sales and higher market valuations, more than offset by a decline in insurance commissions largely related to an $11 million insurance commission receivables write-off and nonstrategic insurance account dispositions.

 

   

Relatively flat expenses due to efficiency initiatives.

 

   

14 percent growth in assets under management to $82.8 billion as a result of higher market valuations and new sales.

 

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WACHOVIA EARNS $1.69 BILLION, EPS OF 89 CENTS PER SHARE/page 5

 

Corporate and Investment Bank Highlights

 

     Three Months Ended

 

(In millions)


   September 30,
2007


    June 30,
2007


    September 30,
2006


 

Net interest income (Tax-equivalent)

   $ 837     773     709  

Fee and other income

     21     1,505     998  

Total revenue (Tax-equivalent)

     819     2,243     1,676  

Provision for credit losses

     1     (2 )   (4 )

Noninterest expense

     655     1,068     840  

Segment earnings

   $ 105     746     533  

Cash overhead efficiency ratio (Tax-equivalent)

     79.75 %   47.64     50.09  

Average loans, net

   $ 82,942     76,718     70,901  

Average core deposits

     37,040     36,520     31,576  

Economic capital, average

   $ 9,897     8,927     7,921  

Corporate and Investment Bank

The Corporate and Investment Bank includes corporate lending, investment banking, and treasury and international trade finance. Third quarter 2007 results compared with the third quarter of 2006 included:

 

   

Earnings of $105 million, down $428 million, driven by the $1.3 billion effect of the market disruption, partially offset by improved principal investing results and strong advisory and underwriting fees.

 

   

The market valuation losses, net of applicable hedges, in the Corporate and Investment Bank of:

 

   

$488 million on commercial mortgage structured products;

 

   

$103 million on consumer mortgage structured products;

 

   

$438 million in collateralized debt obligations, collateralized loan obligations and other structured credit products; and

 

   

$272 million in leveraged finance net of fees.

 

   

Improved principal investing results largely related to a $270 million unrealized gain related to the sale of a minority interest in a fund of direct investments and strong advisory and underwriting fees largely from structured products, merger and acquisition advisory services, and equities underwriting.

 

   

18 percent growth in net interest income, reflecting growth in loans and in structured product warehouse balances related to the market disruption.

 

   

Core deposit growth in global money market deposits and commercial mortgage servicing, and loan growth primarily in real estate financial services, international and asset-based lending.

 

   

Lower noninterest expense due to decreased revenue-based incentives.

 

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WACHOVIA EARNS $1.69 BILLION, EPS OF 89 CENTS PER SHARE/page 6

 

Capital Management Highlights

 

     Three Months Ended

(In millions)


   September 30,
2007


    June 30,
2007


   September 30,
2006


Net interest income (Tax-equivalent)

   $ 271     264    253

Fee and other income

     1,408     1,502    1,217

Total revenue (Tax-equivalent)

     1,671     1,755    1,462

Provision for credit losses

     —       —      —  

Noninterest expense

     1,238     1,296    1,097

Segment earnings

   $ 275     291    232

Cash overhead efficiency ratio (Tax-equivalent)

     74.08 %   73.85    74.98

Average loans, net

   $ 2,142     1,663    1,235

Average core deposits

     31,489     31,221    30,114

Economic capital, average

   $ 1,560     1,615    1,412

Capital Management

Capital Management includes retail brokerage services and asset management. The third quarter of 2007 compared with the third quarter of 2006 included:

 

   

Earnings of $275 million on revenue momentum driven by increased managed account fees and other asset-based fees, as well as solid retail brokerage transaction activity. Managed assets grew 22 percent to $157.7 billion.

 

   

16 percent growth in fee income, driven primarily by increased retail brokerage managed account fees and solid transaction activity, as well as the effect of acquisitions including European Credit Management Ltd. (ECM), a London-based fixed income investment management firm acquired on January 31, 2007. Growth was partially offset by a $40 million valuation loss related to the purchase of certain asset-backed commercial paper investments from Evergreen money market funds.

 

   

13 percent growth in noninterest expense primarily due to higher commissions and incentives and the acquisition impact, partially offset by merger efficiencies related to the 2006 acquisition of a 401(k) record-keeping business.

Total assets under management of $285.4 billion at September 30, 2007, were up from December 31, 2006, including $26.2 billion from the ECM acquisition, $7.2 billion in net inflows and approximately $7.6 billion in market appreciation, offset by a $34.5 billion change in investment discretion responsibility on previously co-managed, nonproprietary assets now solely managed by Wealth Management. Total brokerage client assets grew 6 percent from year-end 2006 to $807.2 billion.

***

Wachovia Corporation (NYSE:WB) is one of the nation’s largest diversified financial services companies, with assets of $754.2 billion and market capitalization of $95.3 billion at September 30, 2007. Wachovia provides a broad range of retail banking and brokerage, asset and wealth management, and corporate and investment banking products and services to 13 million household and business customers. Wachovia has 3,400 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 $800 billion in client assets through 11,400 registered representatives in 786 offices nationwide. The acquisition of A.G. Edwards, Inc., following the end of the third quarter, added approximately 740 offices, 6,300 financial consultants and $384 billion in brokerage client assets. 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 EARNS $1.69 BILLION, EPS OF 89 CENTS PER SHARE/page 7

 

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 19, 2007.

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 10 under the captions “Earnings Excluding Merger-Related and Restructuring Expenses, and Discontinued Operations” and “Earnings Excluding Merger-Related and Restructuring Expenses, Other Intangible Amortization and Discontinued Operations”, and which are reconciled to GAAP financial measures on pages 22 and 23. 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, discontinued operations and the cumulative effect of a change in accounting principle 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’s management makes recommendations to its board of directors about dividend payments based on reported earnings excluding merger-related and restructuring expenses, other intangible amortization, discontinued operations and the cumulative effect of a change in accounting principle, and has communicated certain dividend payout ratio goals to investors on this basis. Management believes this payout ratio is useful to investors because it provides investors with a better understanding of and permits investors to monitor Wachovia’s dividend payout policy. 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 Ken Thompson and CFO Tom Wurtz will review Wachovia’s third quarter 2007 results in a conference call and audio webcast beginning at 10 a.m. Eastern Time today. 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 conference call.

Webcast Instructions: To gain access to the webcast, which will be “listen-only,” go to Wachovia.com/investor and click on the link “Wachovia Third Quarter Earnings Audio Webcast.” In order to listen to the webcast, 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: Friday, October 19, at 2:30 p.m. and continuing through 5 p.m. Friday, January 11. Replay telephone number is 706-645-9291; access code: 12547240.

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 8

WACHOVIA CORPORATION AND SUBSIDIARIES

FINANCIAL TABLES

TABLE OF CONTENTS

 

     PAGE

Financial Highlights—Five Quarters Ended September 30, 2007

   9

Other Financial Data—Five Quarters Ended September 30, 2007

   10

Consolidated Statements of Income—Five Quarters Ended September 30, 2007

   11

Consolidated Statements of Income—Nine Months Ended September 30, 2007 and 2006

   12

Business Segments—Three Months Ended September 30, 2007 and June 30, 2007

   13

Business Segments—Three Months Ended September 30, 2006

   14

Loans—On-Balance Sheet, and Managed and Servicing Portfolios—Five Quarters Ended September 30, 2007

   15

Allowance for Credit Losses—Five Quarters Ended September 30, 2007

   16

Nonperforming Assets—Five Quarters Ended September 30, 2007

   17

Consolidated Balance Sheets—Five Quarters Ended September 30, 2007

   18

Net Interest Income Summaries—Five Quarters Ended September 30, 2007

   19 - 20

Net Interest Income Summaries—Nine Months Ended September 30, 2007 and 2006

   21

Reconciliation of Certain Non-GAAP Financial Measures—Five Quarters Ended September 30, 2007

   22 - 23


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PAGE 9

WACHOVIA CORPORATION AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS

(Unaudited)

 

     2007

    2006

(Dollars in millions, except per share data)                


   Third
Quarter


    Second
Quarter


   First
Quarter


    Fourth
Quarter


   Third
Quarter


EARNINGS SUMMARY

                            

Net interest income (GAAP)

   $ 4,551     4,449    4,500     4,577    3,541

Tax-equivalent adjustment

     33     38    37     35    37
    


 
  

 
  

Net interest income (Tax-equivalent)

     4,584     4,487    4,537     4,612    3,578

Fee and other income

     2,761     4,206    3,701     3,980    3,465
    


 
  

 
  

Total revenue (Tax-equivalent)

     7,345     8,693    8,238     8,592    7,043

Provision for credit losses

     408     179    177     206    108

Other noninterest expense

     4,246     4,721    4,460     4,741    3,915

Merger-related and restructuring expenses

     36     32    10     49    38

Other intangible amortization

     92     103    118     141    92
    


 
  

 
  

Total noninterest expense

     4,374     4,856    4,588     4,931    4,045

Minority interest in income of consolidated subsidiaries

     189     139    136     125    104
    


 
  

 
  

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

     2,374     3,519    3,337     3,330    2,786

Income taxes

     651     1,140    998     1,040    872

Tax-equivalent adjustment

     33     38    37     35    37
    


 
  

 
  

Income from continuing operations

     1,690     2,341    2,302     2,255    1,877

Discontinued operations, net of income taxes

     —       —      —       46    —  
    


 
  

 
  

Net income

   $ 1,690     2,341    2,302     2,301    1,877
    


 
  

 
  

Diluted earnings per common share

   $ 0.89     1.22    1.20     1.20    1.17

Return on average common stockholders’ equity

     9.60 %   13.54    13.47     13.09    14.85

Return on average assets

     0.92     1.33    1.35     1.31    1.34

Overhead efficiency ratio

     59.55 %   55.85    55.70     57.38    57.44

Operating leverage

   $ (868 )   189    (13 )   665    1
    


 
  

 
  

ASSET QUALITY

                            

Allowance for loan losses as % of loans, net

     0.78 %   0.79    0.80     0.80    1.03

Allowance for loan losses as % of nonperforming assets

     120     164    194     246    396

Allowance for credit losses as % of loans, net

     0.82     0.83    0.84     0.84    1.09

Net charge-offs as % of average loans, net

     0.19     0.14    0.15     0.14    0.16

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

     0.63 %   0.47    0.40     0.32    0.26
    


 
  

 
  

CAPITAL ADEQUACY (a)

                            

Tier I capital ratio

     7.2 %   7.5    7.4     7.4    7.7

Total capital ratio

     11.0     11.5    11.4     11.3    11.5

Leverage ratio

     6.1 %   6.2    6.1     6.0    6.6
    


 
  

 
  

OTHER DATA

                            

Average diluted common shares (In millions)

     1,910     1,919    1,925     1,922    1,600

Actual common shares (In millions)

     1,901     1,903    1,913     1,904    1,581

Dividends paid per common share

   $ 0.64     0.56    0.56     0.56    0.56

Dividend payout ratio on common shares

     71.91 %   45.90    46.67     46.67    47.86

Book value per common share

   $ 36.94     36.40    36.47     36.61    32.37

Common stock price

     50.15     51.25    55.05     56.95    55.80

Market capitalization

   $ 95,326     97,530    105,330     108,443    88,231

Common stock price to book value

     136 %   141    151     156    172

FTE employees

     109,724     110,493    110,369     109,460    97,060

Total financial centers/brokerage offices

     4,167     4,135    4,167     4,126    3,870

ATMs

     5,123     5,099    5,146     5,212    5,163
    


 
  

 
  

(a) The third quarter of 2007 is based on estimates.


Table of Contents

PAGE 10

WACHOVIA CORPORATION AND SUBSIDIARIES

OTHER FINANCIAL DATA

(Unaudited)

 

     2007

    2006

(In millions)            


   Third
Quarter


    Second
Quarter


   First
Quarter


    Fourth
Quarter


   Third
Quarter


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

                            

Return on average common stockholders’ equity

     9.72 %   13.66    13.50     12.98    15.02

Return on average assets

     0.93     1.34    1.35     1.30    1.36

Overhead efficiency ratio

     59.07     55.48    55.57     56.81    56.90

Overhead efficiency ratio excluding brokerage

     55.93 %   51.79    52.39     53.61    53.42

Operating leverage

   $ (864 )   210    (51 )   675    16
    


 
  

 
  

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

                            

Dividend payout ratio on common shares

     68.82 %   44.09    45.16     45.16    45.53

Return on average tangible common stockholders’ equity

     23.67     33.57    33.27     31.58    30.79

Return on average tangible assets

     1.02     1.47    1.49     1.43    1.47

Overhead efficiency ratio

     57.83     54.29    54.15     55.17    55.60

Overhead efficiency ratio excluding brokerage

     54.39 %   50.37    50.67     51.67    51.85

Operating leverage

   $ (876 )   197    (75 )   725    8
    


 
  

 
  

OTHER FINANCIAL DATA

                            

Net interest margin

     2.92 %   2.94    3.04     3.09    3.03

Fee and other income as % of total revenue

     37.59     48.38    44.93     46.32    49.20

Effective income tax rate (d)

     27.80     32.78    30.22     31.74    31.71

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

     28.80 %   33.51    30.99     32.46    32.61
    


 
  

 
  

AVERAGE BALANCE SHEET DATA

                            

Commercial loans, net

   $ 174,672     165,512    157,288     154,306    150,566

Consumer loans, net

     255,129     255,745    257,973     258,255    130,544

Loans, net

     429,801     421,257    415,261     412,561    281,110

Earning assets

     628,773     605,978    593,663     596,893    472,139

Total assets

     729,004     704,773    691,029     698,687    555,164

Core deposits

     379,009     378,496    369,270     362,427    291,227

Total deposits

     416,107     408,418    399,106     395,380    326,360

Interest-bearing liabilities

     574,399     547,669    535,778     536,958    414,563

Stockholders’ equity

   $ 69,857     69,317    69,320     69,725    50,143
    


 
  

 
  

PERIOD-END BALANCE SHEET DATA

                            

Commercial loans, net

   $ 189,545     175,369    167,039     162,098    159,424

Consumer loans, net

     259,661     253,751    254,624     258,060    131,335

Loans, net

     449,206     429,120    421,663     420,158    290,759

Goodwill and other intangible assets

                            

Goodwill

     38,848     38,766    38,838     38,379    23,535

Deposit base

     670     727    796     883    577

Customer relationships

     620     651    684     662    688

Tradename

     90     90    90     90    90

Total assets

     754,168     715,428    702,669     707,121    559,922

Core deposits

     377,865     378,188    377,358     371,771    291,667

Total deposits

     421,937     410,030    405,270     407,458    323,298

Stockholders’ equity

   $ 70,212     69,266    69,786     69,716    51,180
    


 
  

 
  

(a) These financial measures are calculated by excluding from GAAP net income presented on page 9, $22 million, $20 million, $6 million, $29 million and $25 million in the third, second and first quarters of 2007, and in the fourth and third quarters of 2006, respectively, of after-tax net merger-related and restructuring expenses, and $46 million after tax in the fourth quarter of 2006 related to discontinued operations.
(b) See page 9 for the most directly comparable GAAP financial measure and pages 22 and 23 for a more detailed reconciliation.
(c) These financial measures are calculated by excluding from GAAP net income presented on page 9, $60 million, $66 million, $76 million, $90 million and $59 million in the third, second and first quarters of 2007, and in the fourth and third quarters of 2006, respectively, of deposit base and other intangible amortization.
(d) The fourth quarter of 2006 includes taxes on discontinued operations.
(e) The tax-equivalent tax rate applies to fully tax-equivalized revenues.


Table of Contents

PAGE 11

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     2007

   2006

(In millions, except per share data)                    


   Third
Quarter


    Second
Quarter


   First
Quarter


   Fourth
Quarter


   Third
Quarter


INTEREST INCOME

                           

Interest and fees on loans

   $ 7,937     7,723    7,618    7,736    5,096

Interest and dividends on securities

     1,529     1,474    1,478    1,491    1,692

Trading account interest

     566     506    433    462    401

Other interest income

     799     647    611    681    595
    


 
  
  
  

Total interest income

     10,831     10,350    10,140    10,370    7,784
    


 
  
  
  

INTEREST EXPENSE

                           

Interest on deposits

     3,334     3,180    3,014    3,067    2,238

Interest on short-term borrowings

     801     706    669    781    860

Interest on long-term debt

     2,145     2,015    1,957    1,945    1,145
    


 
  
  
  

Total interest expense

     6,280     5,901    5,640    5,793    4,243
    


 
  
  
  

Net interest income

     4,551     4,449    4,500    4,577    3,541

Provision for credit losses

     408     179    177    206    108
    


 
  
  
  

Net interest income after provision for credit losses

     4,143     4,270    4,323    4,371    3,433
    


 
  
  
  

FEE AND OTHER INCOME

                           

Service charges

     689     667    614    646    638

Other banking fees

     437     504    416    452    427

Commissions

     600     649    659    633    562

Fiduciary and asset management fees

     993     981    920    856    823

Advisory, underwriting and other investment banking fees

     393     454    407    433    292

Trading account profits (losses)

     (437 )   195    128    29    123

Principal investing

     372     298    48    142    91

Securities gains (losses)

     (34 )   23    53    47    94

Other income

     (252 )   435    456    742    415
    


 
  
  
  

Total fee and other income

     2,761     4,206    3,701    3,980    3,465
    


 
  
  
  

NONINTEREST EXPENSE

                           

Salaries and employee benefits

     2,628     3,122    2,972    3,023    2,531

Occupancy

     325     331    312    323    284

Equipment

     283     309    307    314    291

Advertising

     62     70    61    47    54

Communications and supplies

     175     180    173    166    158

Professional and consulting fees

     196     209    177    239    200

Other intangible amortization

     92     103    118    141    92

Merger-related and restructuring expenses

     36     32    10    49    38

Sundry expense

     577     500    458    629    397
    


 
  
  
  

Total noninterest expense

     4,374     4,856    4,588    4,931    4,045
    


 
  
  
  

Minority interest in income of consolidated subsidiaries

     189     139    136    125    104
    


 
  
  
  

Income from continuing operations before income taxes

     2,341     3,481    3,300    3,295    2,749

Income taxes

     651     1,140    998    1,040    872
    


 
  
  
  

Income from continuing operations

     1,690     2,341    2,302    2,255    1,877

Discontinued operations, net of income taxes

     —       —      —      46    —  
    


 
  
  
  

Net income

   $ 1,690     2,341    2,302    2,301    1,877
    


 
  
  
  

PER COMMON SHARE DATA

                           

Basic earnings

                           

Income from continuing operations

   $ 0.90     1.24    1.22    1.20    1.19

Net income

     0.90     1.24    1.22    1.22    1.19

Diluted earnings

                           

Income from continuing operations

     0.89     1.22    1.20    1.18    1.17

Net income

     0.89     1.22    1.20    1.20    1.17

Cash dividends

   $ 0.64     0.56    0.56    0.56    0.56

AVERAGE COMMON SHARES

                           

Basic

     1,885     1,891    1,894    1,889    1,573

Diluted

     1,910     1,919    1,925    1,922    1,600
    


 
  
  
  


Table of Contents

PAGE 12

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Nine Months Ended
September 30,


(In millions, except per share data)                    


   2007

    2006

INTEREST INCOME

            

Interest and fees on loans

   $ 23,278     14,240

Interest and dividends on securities

     4,481     4,942

Trading account interest

     1,505     1,113

Other interest income

     2,057     1,600
    


 

Total interest income

     31,321     21,895
    


 

INTEREST EXPENSE

            

Interest on deposits

     9,528     6,052

Interest on short-term borrowings

     2,176     2,333

Interest on long-term debt

     6,117     2,838
    


 

Total interest expense

     17,821     11,223
    


 

Net interest income

     13,500     10,672

Provision for credit losses

     764     228
    


 

Net interest income after provision for credit losses

     12,736     10,444
    


 

FEE AND OTHER INCOME

            

Service charges

     1,970     1,834

Other banking fees

     1,357     1,304

Commissions

     1,908     1,773

Fiduciary and asset management fees

     2,894     2,392

Advisory, underwriting and other investment banking fees

     1,254     912

Trading account profits (losses)

     (114 )   506

Principal investing

     718     383

Securities gains

     42     71

Other income

     639     1,390
    


 

Total fee and other income

     10,668     10,565
    


 

NONINTEREST EXPENSE

            

Salaries and employee benefits

     8,722     7,880

Occupancy

     968     850

Equipment

     899     870

Advertising

     193     157

Communications and supplies

     528     487

Professional and consulting fees

     582     551

Other intangible amortization

     313     282

Merger-related and restructuring expenses

     78     130

Sundry expense

     1,535     1,338
    


 

Total noninterest expense

     13,818     12,545
    


 

Minority interest in income of consolidated subsidiaries

     464     289
    


 

Income before income taxes

     9,122     8,175

Income taxes

     2,789     2,685
    


 

Net income

   $ 6,333     5,490
    


 

PER COMMON SHARE DATA

            

Basic earnings

   $ 3.35     3.49

Diluted earnings

     3.30     3.43

Cash dividends

   $ 1.76     1.58

AVERAGE COMMON SHARES

            

Basic

     1,890     1,571

Diluted

     1,918     1,600
    


 


Table of Contents

PAGE 13

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)

   $ 3,486    183    837     271     (193 )   (33 )   4,551

Fee and other income

     969    185    21     1,408     178     —       2,761

Intersegment revenue

     45    4    (39 )   (8 )   (2 )   —       —  
    

  
  

 

 

 

 

Total revenue (a)

     4,500    372    819     1,671     (17 )   (33 )   7,312

Provision for credit losses

     214    6    1     —       187     —       408

Noninterest expense

     2,015    252    655     1,238     178     36     4,374

Minority interest

     —      —      —       —       189     —       189

Income taxes (benefits)

     817    42    49     158     (401 )   (14 )   651

Tax-equivalent adjustment

     11    —      9     —       13     (33 )   —  
    

  
  

 

 

 

 

Net income (loss)

   $ 1,443    72    105     275     (183 )   (22 )   1,690
    

  
  

 

 

 

 
     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)

   $ 3,397    181    773     264     (128 )   (38 )   4,449

Fee and other income

     969    202    1,505     1,502     28     —       4,206

Intersegment revenue

     41    3    (35 )   (11 )   2     —       —  
    

  
  

 

 

 

 

Total revenue (a)

     4,407    386    2,243     1,755     (98 )   (38 )   8,655

Provision for credit losses

     160    2    (2 )   —       19     —       179

Noninterest expense

     2,035    255    1,068     1,296     170     32     4,856

Minority interest

     —      —      —       —       139     —       139

Income taxes (benefits)

     797    47    420     168     (280 )   (12 )   1,140

Tax-equivalent adjustment

     10    —      11     —       17     (38 )   —  
    

  
  

 

 

 

 

Net income (loss)

   $ 1,405    82    746     291     (163 )   (20 )   2,341
    

  
  

 

 

 

 


Table of Contents

PAGE 14

WACHOVIA CORPORATION AND SUBSIDIARIES

BUSINESS SEGMENTS

(Unaudited)

 

     Three Months Ended September 30, 2006

(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)

   $ 2,529    176    709     253     (89 )   (37 )   3,541

Fee and other income

     886    197    998     1,217     167     —       3,465

Intersegment revenue

     36    3    (31 )   (8 )   —       —       —  
    

  
  

 

 

 

 

Total revenue (a)

     3,451    376    1,676     1,462     78     (37 )   7,006

Provision for credit losses

     120    2    (4 )   —       (10 )   —       108

Noninterest expense

     1,621    249    840     1,097     200     38     4,045

Minority interest

     —      —      —       —       104     —       104

Income taxes (benefits)

     614    46    298     133     (206 )   (13 )   872

Tax-equivalent adjustment

     10    —      9     —       18     (37 )   —  
    

  
  

 

 

 

 

Net income (loss)

   $ 1,086    79    533     232     (28 )   (25 )   1,877
    

  
  

 

 

 

 

(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.


Table of Contents

PAGE 15

WACHOVIA CORPORATION AND SUBSIDIARIES

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

(Unaudited)

 

     2007

    2006

 

(In millions)         


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

ON-BALANCE SHEET LOAN PORTFOLIO

COMMERCIAL

                                

Commercial, financial and agricultural

   $ 109,269     102,397     99,687     96,285     95,281  

Real estate—construction and other

     18,167     17,449     16,965     16,182     16,067  

Real estate—mortgage

     21,514     20,448     20,130     20,026     19,455  

Lease financing

     23,966     24,083     24,053     25,341     25,253  

Foreign

     26,471     20,959     16,240     13,464     12,677  
    


 

 

 

 

Total commercial

     199,387     185,336     177,075     171,298     168,733  
    


 

 

 

 

CONSUMER

                                

Real estate secured

     225,355     220,293     220,682     225,826     100,115  

Student loans

     7,742     6,757     8,479     7,768     9,175  

Installment loans

     24,763     25,017     23,665     22,660     21,454  
    


 

 

 

 

Total consumer

     257,860     252,067     252,826     256,254     130,744  
    


 

 

 

 

Total loans

     457,247     437,403     429,901     427,552     299,477  

Unearned income

     (8,041 )   (8,283 )   (8,238 )   (7,394 )   (8,718 )
    


 

 

 

 

Loans, net (On-balance sheet)

   $ 449,206     429,120     421,663     420,158     290,759  
    


 

 

 

 

MANAGED PORTFOLIO (a)

                                

COMMERCIAL

                                

On-balance sheet loan portfolio

   $ 199,387     185,336     177,075     171,298     168,733  

Securitized loans—off-balance sheet

     142     170     181     194     218  

Loans held for sale

     13,905     11,573     10,467     8,866     5,556  
    


 

 

 

 

Total commercial

     213,434     197,079     187,723     180,358     174,507  
    


 

 

 

 

CONSUMER

                                

Real estate secured

                                

On-balance sheet loan portfolio

     225,355     220,293     220,682     225,826     100,115  

Securitized loans—off-balance sheet

     7,625     8,112     6,595     5,611     6,151  

Securitized loans included in securities

     5,963     6,091     5,629     5,321     4,317  

Loans held for sale

     3,583     4,079     4,089     3,420     3,324  
    


 

 

 

 

Total real estate secured

     242,526     238,575     236,995     240,178     113,907  
    


 

 

 

 

Student

                                

On-balance sheet loan portfolio

     7,742     6,757     8,479     7,768     9,175  

Securitized loans—off-balance sheet

     2,856     2,905     3,045     3,128     3,218  

Securitized loans included in securities

     52     52     52     52     52  

Loans held for sale

     1,968     2,046     —       —       —    
    


 

 

 

 

Total student

     12,618     11,760     11,576     10,948     12,445  
    


 

 

 

 

Installment

                                

On-balance sheet loan portfolio

     24,763     25,017     23,665     22,660     21,454  

Securitized loans—off-balance sheet

     2,572     3,105     2,851     3,276     3,695  

Securitized loans included in securities

     55     116     126     137     169  

Loans held for sale

     1,975     35     476     282     159  
    


 

 

 

 

Total installment

     29,365     28,273     27,118     26,355     25,477  
    


 

 

 

 

Total consumer

     284,509     278,608     275,689     277,481     151,829  
    


 

 

 

 

Total managed portfolio

   $ 497,943     475,687     463,412     457,839     326,336  
    


 

 

 

 

SERVICING PORTFOLIO (b)

                                

Commercial

   $ 337,721     298,374     271,038     250,652     227,899  

Consumer

   $ 28,474     26,789     25,952     21,039     60,854  
    


 

 

 

 


(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) 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.


Table of Contents

PAGE 16

WACHOVIA CORPORATION AND SUBSIDIARIES

ALLOWANCE FOR CREDIT LOSSES

(Unaudited)

 

     2007

    2006

 

(In millions)        


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

ALLOWANCE FOR CREDIT LOSSES (a)

                                

Balance, beginning of period

   $ 3,552     3,533     3,514     3,163     3,186  

Provision for credit losses

     381     168     175     204     118  

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

     3     4     1     7     (4 )

Provision for credit losses for unfunded lending commitments

     24     7     1     (5 )   (6 )

LOAN LOSSES

                                

Commercial, financial and agricultural

     (41 )   (39 )   (34 )   (32 )   (25 )

Commercial real estate—construction and mortgage

     (5 )   (4 )   (6 )   (10 )   (2 )
    


 

 

 

 

Total commercial

     (46 )   (43 )   (40 )   (42 )   (27 )
    


 

 

 

 

Real estate secured

     (59 )   (40 )   (33 )   (29 )   (25 )

Student loans

     (5 )   (2 )   (3 )   (5 )   (5 )

Installment and other loans (b)

     (168 )   (138 )   (142 )   (135 )   (119 )
    


 

 

 

 

Total consumer

     (232 )   (180 )   (178 )   (169 )   (149 )
    


 

 

 

 

Total loan losses

     (278 )   (223 )   (218 )   (211 )   (176 )
    


 

 

 

 

LOAN RECOVERIES

                                

Commercial, financial and agricultural

     9     15     9     27     14  

Commercial real estate—construction and mortgage

     3     —       3     1     1  
    


 

 

 

 

Total commercial

     12     15     12     28     15  
    


 

 

 

 

Real estate secured

     12     11     6     7     9  

Student loans

     3     —       1     3     1  

Installment and other loans (b)

     45     47     44     33     35  
    


 

 

 

 

Total consumer

     60     58     51     43     45  
    


 

 

 

 

Total loan recoveries

     72     73     63     71     60  
    


 

 

 

 

Net charge-offs

     (206 )   (150 )   (155 )   (140 )   (116 )
    


 

 

 

 

Balance of acquired entities at purchase date

     —       —       —       303     —    

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

     (63 )   (10 )   (3 )   (18 )   (15 )
    


 

 

 

 

Balance, end of period

   $ 3,691     3,552     3,533     3,514     3,163  
    


 

 

 

 

ALLOWANCE FOR CREDIT LOSSES

                                

Allowance for loan losses

   $ 3,505     3,390     3,378     3,360     3,004  

Reserve for unfunded lending commitments

     186     162     155     154     159  
    


 

 

 

 

Total allowance for credit losses

   $ 3,691     3,552     3,533     3,514     3,163  
    


 

 

 

 

ALLOWANCE FOR LOAN LOSSES

                                

as % of loans, net

     0.78 %   0.79     0.80     0.80     1.03  

as % of nonaccrual and restructured loans (c) (d)

     135     182     213     272     520  

as % of nonperforming assets (c)

     120     164     194     246     396  

ALLOWANCE FOR CREDIT LOSSES

                                

as% of loans, net

     0.82 %   0.83     0.84     0.84     1.09  
    


 

 

 

 

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

                                

Commercial, financial and agricultural

     0.10 %   0.07     0.08     0.02     0.04  

Commercial real estate—construction and mortgage

     0.02     0.04     0.04     0.10     0.02  
    


 

 

 

 

Total commercial

     0.08     0.07     0.07     0.04     0.03  
    


 

 

 

 

Real estate secured

     0.08     0.05     0.05     0.04     0.06  

Student loans

     0.14     0.07     0.10     0.09     0.14  

Installment and other loans (b)

     1.99     1.47     1.67     1.79     1.58  
    


 

 

 

 

Total consumer

     0.27     0.19     0.20     0.19     0.32  
    


 

 

 

 

Total as % of average loans, net

     0.19 %   0.14     0.15     0.14     0.16  
    


 

 

 

 

CONSUMER REAL ESTATE SECURED NET CHARGE-OFFS

                                

First lien

   $ (32 )   (17 )   (15 )   (15 )   (10 )

Second lien

     (15 )   (12 )   (12 )   (7 )   (6 )
    


 

 

 

 

Total consumer real estate secured net charge-offs

   $ (47 )   (29 )   (27 )   (22 )   (16 )
    


 

 

 

 


(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) Restructured loans are not significant.
(e) Annualized.


Table of Contents

PAGE 17

WACHOVIA CORPORATION AND SUBSIDIARIES

NONPERFORMING ASSETS

(Unaudited)

 

     2007

   2006

(In millions)        


   Third
Quarter


    Second
Quarter


   First
Quarter


   Fourth
Quarter


   Third
Quarter


NONPERFORMING ASSETS

                           

Nonaccrual loans

                           

Commercial

                           

Commercial, financial and agricultural

   $ 354     318    303    226    275

Commercial real estate—construction and mortgage

     289     161    117    93    80
    


 
  
  
  

Total commercial

     643     479    420    319    355
    


 
  
  
  

Consumer

                           

Real estate secured

                           

First lien

     1,865     1,293    1,076    868    183

Second lien

     41     43    37    32    30

Installment and other loans (a)

     45     42    51    15    10
    


 
  
  
  

Total consumer

     1,951     1,378    1,164    915    223
    


 
  
  
  

Total nonaccrual loans

     2,594     1,857    1,584    1,234    578
    


 
  
  
  

Foreclosed properties (b)

     334     207    155    132    181
    


 
  
  
  

Total nonperforming assets

   $ 2,928     2,064    1,739    1,366    759
    


 
  
  
  

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

     0.65 %   0.48    0.41    0.32    0.26
    


 
  
  
  

Nonperforming assets included in loans held for sale

                           

Commercial

   $ —       —      1    1    9

Consumer

     59     42    25    15    14
    


 
  
  
  

Total nonperforming assets included in loans held for sale

     59     42    26    16    23
    


 
  
  
  

Nonperforming assets included in loans and in loans held for sale

   $ 2,987     2,106    1,765    1,382    782
    


 
  
  
  

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

     0.63 %   0.47    0.40    0.32    0.26
    


 
  
  
  

PAST DUE LOANS 90 DAYS AND OVER, AND NONACCRUAL LOANS

                           

Accruing loans past due 90 days and over

   $ 590     562    555    650    666

Nonaccrual loans

     2,594     1,857    1,584    1,234    578
    


 
  
  
  

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

   $ 3,184     2,419    2,139    1,884    1,244
    


 
  
  
  

Commercial as % of loans, net

     0.38 %   0.31    0.28    0.23    0.28

Consumer as % of loans, net

     0.95 %   0.74    0.66    0.59    0.61
    


 
  
  
  

(a) Principally auto loans; nonaccrual status does not apply to student loans.
(b) Restructured loans are not significant.
(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.


Table of Contents

PAGE 18

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     2007

    2006

 

(In millions, except per share data)                    


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

ASSETS

                                

Cash and due from banks

   $ 12,681     12,065     12,593     15,826     11,850  

Interest-bearing bank balances

     4,449     2,726     2,591     2,167     5,270  

Federal funds sold and securities purchased under resale agreements

     11,995     11,511     10,322     16,923     18,497  
    


 

 

 

 

Total cash and cash equivalents

     29,125     26,302     25,506     34,916     35,617  
    


 

 

 

 

Trading account assets

     53,969     49,969     47,875     45,529     43,904  

Securities

     111,827     106,184     106,841     108,619     106,553  

Loans, net of unearned income

     449,206     429,120     421,663     420,158     290,759  

Allowance for loan losses

     (3,505 )   (3,390 )   (3,378 )   (3,360 )   (3,004 )
    


 

 

 

 

Loans, net

     445,701     425,730     418,285     416,798     287,755  
    


 

 

 

 

Loans held for sale

     21,431     17,733     15,032     12,568     9,039  

Premises and equipment

     6,002     6,080     6,058     6,141     5,536  

Due from customers on acceptances

     1,295     831     992     855     1,200  

Goodwill

     38,848     38,766     38,838     38,379     23,535  

Other intangible assets

     1,380     1,468     1,570     1,635     1,355  

Other assets

     44,590     42,365     41,672     41,681     45,428  
    


 

 

 

 

Total assets

   $ 754,168     715,428     702,669     707,121     559,922  
    


 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                

Deposits

                                

Noninterest-bearing deposits

     56,825     62,112     63,399     66,572     63,880  

Interest-bearing deposits

     365,112     347,918     341,871     340,886     259,418  
    


 

 

 

 

Total deposits

     421,937     410,030     405,270     407,458     323,298  

Short-term borrowings

     62,714     52,715     47,144     49,157     58,749  

Bank acceptances outstanding

     1,303     840     1,004     863     1,213  

Trading account liabilities

     17,771     19,319     17,291     18,228     19,553  

Other liabilities

     18,352     18,080     16,741     20,004     16,513  

Long-term debt

     158,584     142,047     142,334     138,594     86,419  
    


 

 

 

 

Total liabilities

     680,661     643,031     629,784     634,304     505,745  
    


 

 

 

 

Minority interest in net assets of consolidated subsidiaries

     3,295     3,131     3,099     3,101     2,997  
    


 

 

 

 

STOCKHOLDERS’ EQUITY

                                

Dividend Equalization Preferred shares, no par value, 97 million shares issued and outstanding at September 30, 2007

     —       —       —       —       —    

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

     —       —       —       —       —    

Common stock, $3.33-1/3 par value; authorized 3 billion shares, outstanding 1.901 billion shares at September 30, 2007

     6,336     6,343     6,378     6,347     5,271  

Paid-in capital

     51,885     51,851     51,964     51,746     34,276  

Retained earnings

     14,742     14,335     13,378     13,723     12,696  

Accumulated other comprehensive income, net

     (2,751 )   (3,263 )   (1,934 )   (2,100 )   (1,063 )
    


 

 

 

 

Total stockholders’ equity

     70,212     69,266     69,786     69,716     51,180  
    


 

 

 

 

Total liabilities and stockholders’ equity

   $ 754,168     715,428     702,669     707,121     559,922  
    


 

 

 

 


Table of Contents

PAGE 19

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES

(Unaudited)

 

    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


 

ASSETS

                                   

Interest-bearing bank balances

  $ 6,459     93   5.68 %   $ 3,384     50   6.00 %

Federal funds sold and securities purchased under resale agreements

    14,206     194   5.42       12,110     158   5.25  

Trading account assets

    38,737     575   5.93       35,165     519   5.90  

Securities

    111,424     1,522   5.46       108,433     1,467   5.41  

Loans

                                   

Commercial

                                   

Commercial, financial and agricultural

    106,263     1,927   7.19       101,012     1,805   7.16  

Real estate—construction and other

    17,795     344   7.66       17,334     329   7.62  

Real estate—mortgage

    20,883     406   7.71       20,175     378   7.53  

Lease financing

    7,523     146   7.80       7,759     150   7.74  

Foreign

    22,208     308   5.53       19,232     265   5.51  
   

 

       

 

     

Total commercial

    174,672     3,131   7.12       165,512     2,927   7.09  
   

 

       

 

     

Consumer

                                   

Real estate secured

    223,356     4,070   7.28       222,096     4,042   7.28  

Student loans

    7,299     122   6.61       8,850     141   6.42  

Installment loans

    24,474     614   9.99       24,799     609   9.38  
   

 

       

 

     

Total consumer

    255,129     4,806   7.52       255,745     4,792   7.46  
   

 

       

 

     

Total loans

    429,801     7,937   7.36       421,257     7,719   7.31  
   

 

       

 

     

Loans held for sale

    20,209     363   7.14       17,644     285   6.47  

Other earning assets

    7,937     138   6.91       7,985     144   7.23  
   

 

       

 

     

Total earning assets excluding derivatives

    628,773     10,822   6.86       605,978     10,342   6.82  

Risk management derivatives (a)

    —       42   0.02       —       46   0.03  
   

 

       

 

     

Total earning assets including derivatives

    628,773     10,864   6.88       605,978     10,388   6.85  
         

 

       

 

Cash and due from banks

    11,134                 11,533            

Other assets

    89,097                 87,262            
   

             

           

Total assets

  $ 729,004               $ 704,773            
   

             

           

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                   

Interest-bearing deposits

                                   

Savings and NOW accounts

    81,851     357   1.73       83,977     367   1.75  

Money market accounts

    116,404     980   3.34       111,562     976   3.51  

Other consumer time

    122,474     1,507   4.88       120,684     1,455   4.84  

Foreign

    23,322     292   4.97       21,871     270   4.96  

Other time

    13,776     187   5.40       8,051     107   5.30  
   

 

       

 

     

Total interest-bearing deposits

    357,827     3,323   3.68       346,145     3,175   3.68  

Federal funds purchased and securities sold under repurchase

    agreements

    44,334     556   4.98       38,031     473   4.98  

Commercial paper

    5,799     65   4.42       5,143     60   4.67  

Securities sold short

    7,420     70   3.74       7,158     67   3.75  

Other short-term borrowings

    7,793     55   2.74       7,688     52   2.77  

Long-term debt

    151,226     2,067   5.44       143,504     1,923   5.37  
   

 

       

 

     

Total interest-bearing liabilities excluding derivatives

    574,399     6,136   4.24       547,669     5,750   4.21  

Risk management derivatives (a)

    —       144   0.10       —       151   0.11  
   

 

       

 

     

Total interest-bearing liabilities including derivatives

    574,399     6,280   4.34       547,669     5,901   4.32  
         

 

       

 

Noninterest-bearing deposits

    58,280                 62,273            

Other liabilities

    26,468                 25,514            

Stockholders’ equity

    69,857                 69,317            
   

             

           

Total liabilities and stockholders’ equity

  $ 729,004               $ 704,773            
   

             

           

Interest income and rate earned—including derivatives

        $ 10,864   6.88 %         $ 10,388   6.85 %

Interest expense and equivalent rate paid—including derivatives

          6,280   3.96             5,901   3.91  
         

 

       

 

Net interest income and margin—including derivatives

        $ 4,584   2.92 %         $ 4,487   2.94 %
         

 

       

 


(a) 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.


Table of Contents

PAGE 20

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES

(Unaudited)

 

FIRST QUARTER 2007

    FOURTH QUARTER 2006

    THIRD QUARTER 2006

 
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


 
                                                         
$ 1,523      30    7.80 %   $ 3,596      54    5.95 %   $ 2,671      34    5.07 %
  14,124      177    5.07       20,830      268    5.11       17,530      224    5.08  
  29,681      442    5.97       31,069      469    6.03       31,160      409    5.24  
  108,071      1,461    5.42       108,543      1,467    5.40       122,152      1,661    5.44  
                                                         
                                                         
  98,413      1,736    7.16       96,359      1,726    7.10       93,886      1,673    7.07  
  16,508      313    7.69       16,091      311    7.67       15,787      308    7.74  
  20,231      380    7.61       19,830      380    7.61       19,507      378    7.69  
  7,730      150    7.75       9,674      166    6.88       9,731      172    7.04  
  14,406      196    5.49       12,352      170    5.49       11,655      158    5.37  


  

        

  

        

  

      
  157,288      2,775    7.15       154,306      2,753    7.08       150,566      2,689    7.09  


  

        

  

        

  

      
                                                         
  225,909      4,148    7.36       226,870      4,240    7.47       99,669      1,670    6.69  
  8,524      136    6.47       8,886      145    6.49       9,605      161    6.65  
  23,540      566    9.42       22,499      546    9.62       21,270      517    9.66  


  

        

  

        

  

      
  257,973      4,850    7.52       258,255      4,931    7.63       130,544      2,348    7.17  


  

        

  

        

  

      
  415,261      7,625    7.38       412,561      7,684    7.42       281,110      5,037    7.13  


  

        

  

        

  

      
  16,748      255    6.16       11,928      200    6.70       12,130      214    6.99  
  8,255      139    6.82       8,366      149    7.05       5,386      113    8.35  


  

        

  

        

  

      
  593,663      10,129    6.86       596,893      10,291    6.87       472,139      7,692    6.49  
  —        48    0.03       —        114    0.08       —        129    0.11  


  

        

  

        

  

      
  593,663      10,177    6.89       596,893      10,405    6.95       472,139      7,821    6.60  
      

  

        

  

        

  

  12,260                   12,418                   11,973              
  85,106                   89,376                   71,052              


               

               

             
$ 691,029                 $ 698,687                 $ 555,164              


               

               

             
                                                         
                                                         
  84,247      373    1.80       82,924      398    1.90       75,534      355    1.86  
  107,785      917    3.45       104,620      913    3.46       99,788      862    3.43  
  116,262      1,369    4.77       111,858      1,310    4.65       52,352      548    4.15  
  20,802      249    4.85       20,245      241    4.73       20,599      244    4.70  
  9,034      119    5.36       12,708      166    5.17       14,534      191    5.23  


  

        

  

        

  

      
  338,130      3,027    3.63       332,355      3,028    3.61       262,807      2,200    3.32  
  35,142      430    4.97       43,732      537    4.87       51,314      629    4.86  
  4,920      57    4.72       5,043      60    4.72       5,190      63    4.77  
  8,709      83    3.86       9,934      94    3.75       8,951      82    3.61  
  6,898      44    2.54       6,530      38    2.38       5,575      30    2.14  
  141,979      1,880    5.35       139,364      1,873    5.35       80,726      1,095    5.41  


  

        

  

        

  

      
  535,778      5,521    4.17       536,958      5,630    4.16       414,563      4,099    3.93  
  —        119    0.09       —        163    0.13       —        144    0.14  


  

        

  

        

  

      
  535,778      5,640    4.26       536,958      5,793    4.29       414,563      4,243    4.07  
      

  

        

  

        

  

  60,976                   63,025                   63,553              
  24,955                   28,979                   26,905              
  69,320                   69,725                   50,143              


               

               

             
$ 691,029                 $ 698,687                 $ 555,164              


               

               

             
       $ 10,177    6.89 %          $ 10,405    6.95 %          $ 7,821    6.60 %
         5,640    3.85              5,793    3.86              4,243    3.57  
      

  

        

  

        

  

       $ 4,537    3.04 %          $ 4,612    3.09 %          $ 3,578    3.03 %
      

  

        

  

        

  


Table of Contents

PAGE 21

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES

(Unaudited)

 

     NINE MONTHS ENDED
September 30, 2007


    NINE MONTHS ENDED
September 30, 2006


 

(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

   $ 3,807      173    6.06 %   $ 2,523      90    4.77 %

Federal funds sold and securities purchased under resale agreements

     13,480      529    5.25       18,264      642    4.70  

Trading account assets

     34,561      1,536    5.93       29,232      1,146    5.23  

Securities

     109,322      4,450    5.43       121,415      4,886    5.37  

Loans

                                        

Commercial

                                        

Commercial, financial and agricultural

     101,925      5,468    7.17       90,666      4,639    6.84  

Real estate—construction and other

     17,217      986    7.66       14,978      828    7.39  

Real estate—mortgage

     20,432      1,164    7.62       19,928      1,097    7.36  

Lease financing

     7,670      446    7.76       9,891      518    6.98  

Foreign

     18,644      769    5.51       11,026      418    5.06  
    

  

        

  

      

Total commercial

     165,888      8,833    7.12       146,489      7,500    6.84  
    

  

        

  

      

Consumer

                                        

Real estate secured

     223,778      12,260    7.31       97,722      4,768    6.51  

Student loans

     8,220      399    6.49       10,342      488    6.31  

Installment loans

     24,274      1,789    9.60       17,839      1,241    9.30  
    

  

        

  

      

Total consumer

     256,272      14,448    7.50       125,903      6,497    6.89  
    

  

        

  

      

Total loans

     422,160      23,281    7.35       272,392      13,997    6.86  
    

  

        

  

      

Loans held for sale

     18,213      903    6.62       9,922      507    6.82  

Other earning assets

     8,057      421    6.98       5,660      330    7.79  
    

  

        

  

      

Total earning assets excluding derivatives

     609,600      31,293    6.84       459,408      21,598    6.28  

Risk management derivatives (a)

     —        136    0.03       —        417    0.12  
    

  

        

  

      

Total earning assets including derivatives

     609,600      31,429    6.87       459,408      22,015    6.40  
           

  

        

  

Cash and due from banks

     11,638                   12,260              

Other assets

     87,170                   68,781              
    

               

             

Total assets

   $ 708,408                 $ 540,449              
    

               

             

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                        

Interest-bearing deposits

                                        

Savings and NOW accounts

     83,350      1,097    1.76       77,937      991    1.70  

Money market accounts

     111,949      2,873    3.43