Lines of Business Highlights: General Bank, Capital Management, Wealth Management, Corporate and Investment Banking
CHARLOTTE, N.C. - Wachovia Corp. (NYSE:WB) today reported record fourth quarter 2004 net income of $1.45 billion, or 95 cents per share, compared with $1.10 billion, or 83 cents per share, in the fourth quarter of 2003.
Excluding after-tax net merger-related expenses and other items of 4 cents per share in the fourth quarter of 2004 and 5 cents per share in the fourth quarter of 2003, fourth quarter 2004 earnings were $1.50 billion, or 99 cents per share, compared with $1.18 billion, or 88 cents per share, in the fourth quarter of 2003.
Full year 2004 net income available to common stockholders was a record $5.21 billion, up 22 percent from full year 2003, and earnings per share of a record $3.81 were up 20 percent from 2003. Excluding after-tax net merger-related expenses and other items of 14 cents per share in 2004 and 18 cents in 2003, earnings available to common stockholders were $5.42 billion, or $3.95 per share, compared with $4.51 billion, or $3.36 per share, in 2003.
“With three consecutive years of double-digit earnings growth, Wachovia begins 2005 with good momentum,” said Ken Thompson, Wachovia chairman and chief executive officer. “All of our four major businesses set earnings and revenue records in 2004. This performance reflects our entire team’s extraordinary efforts to work together in the best interests of our customers and shareholders. Performance highlights included strong balance sheet growth in the General Bank and Wealth Management, market share gains in the Corporate and Investment Bank, and sales force and efficiency improvements in Capital Management despite a challenging year in the retail brokerage industry.
“The year’s results show the strength of our diversified business model, and we are optimistic that our revenue strategies and expense initiatives will continue to build momentum and place us firmly on a growth path. We believe we are in a strong position for the future, with the integration of our nationwide retail brokerage business largely complete, and many opportunities ahead to deliver more products and services to customers now that SouthTrust and Wachovia have joined forces.”
In the fourth quarter of 2004 compared with the fourth quarter of 2003, revenue increased 11 percent and noninterest expense increased 2 percent. Provision expense increased $23 million to $109 million, largely due to additional loans from the SouthTrust merger. Net charge-offs declined $41 million to $115 million, or an annualized 0.23 percent of average net loans. Total nonperforming assets including loans held for sale increased 2 percent as a result of the SouthTrust merger to $1.26 billion, or 0.53 percent of loans, foreclosed properties and loans held for sale at December 31, 2004.
The 23 percent increase in average net loans included $24.2 billion from SouthTrust. There was strong growth in commercial, led by middle-market commercial and asset-based lending, and consumer loans, largely in consumer real estate-secured loans.
Average core deposits increased 34 percent. The increase included $216.8 billion in average low-cost core deposits, which were up 41 percent from the fourth quarter of 2003. SouthTrust added $14.1 billion in average low-cost core deposits, and $22.9 billion of the increase was associated with an FDIC-insured money market sweep product Wachovia introduced in the fourth quarter of 2003. Low-cost core deposits are those in demand deposit, interest checking, savings and money market accounts, and exclude CAP accounts and CDs.
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 and other intangible amortization. Segment earnings are the basis on which Wachovia manages and allocates capital to its business segments. Pages 20 and 21 include a reconciliation of segment results to Wachovia's consolidated results of operations in accordance with GAAP.
General Bank
The General Bank includes retail and small business, and commercial customers. The General Bank produced record quarterly segment earnings of $868 million, up 54 percent from the prior year's fourth quarter. In addition to the impact of two months of revenue related to SouthTrust, the 24 percent increase in total revenue from the fourth quarter a year ago was driven by outstanding core deposit growth and continued strength in middle-market commercial, commercial real estate and consumer real estate-secured lending. Fee and other income increased 32 percent from the fourth quarter a year ago. In addition to the impact from SouthTrust, there was strong growth in debit card transaction volume, service charges, mortgage banking income and noncustomer check cashing fees. Noninterest expense increased 10 percent from the fourth quarter a year ago primarily due to the impact of SouthTrust.
Average core deposits increased 21 percent from the prior year quarter, including 25 percent year over year growth in average low-cost core deposits. Average loans increased 27 percent year over year. This growth included $17.7 billion in average core deposits and $20.3 billion in average loans from SouthTrust.
While most loan categories grew, consumer mortgage loans declined 31 percent year over year reflecting the higher rate environment. Provision expense declined 26 percent from the fourth quarter of 2003, primarily reflecting risk reduction strategies implemented in prior years, as well as solid improvements in both commercial and consumer loan losses and a strengthening economy.
Capital Management
Capital Management includes asset management and retail brokerage services. Earnings increased 5 percent from the fourth quarter of 2003 despite a revenue decline of 3 percent, as noninterest expense was reduced by $50 million largely due to the benefit of the retail brokerage integration. Revenues declined on lower brokerage transactional revenues, which offset growth in net interest income and asset-based fee income. The addition of SouthTrust had an insignificant impact on this segment's fourth quarter 2004 results.
Net equity mutual fund sales continued to be positive, offset by outflows in money market funds, leading to a 3 percent decline in mutual fund assets to $106.4 billion from the fourth quarter of 2003. The decline largely reflected growth in the FDIC-insured sweep product to $29.9 billion at year-end 2004 compared with $11.8 billion at year-end 2003. Despite the decline in mutual fund assets, total assets under management at December 31, 2004, increased 4 percent from December 31, 2003, to $256.3 billion, including $4.7 billion from SouthTrust. Total assets under management and securities lending grew 21 percent from year-end 2003 to $297.2 billion, largely attributable to $42.7 billion from the January 1, 2004, acquisition of a securities lending firm.
Wealth Management
Wealth Management includes private banking, personal trust, investment advisory services, charitable services, financial planning and insurance brokerage. Record Wealth Management revenue rose 10 percent from the fourth quarter of 2003 and segment earnings were a record $54 million, up 32 percent. Net interest income grew 23 percent on average loan growth of 24 percent from both consumer and commercial lending. Average core deposits grew 15 percent year over year, primarily in money market balances. Fee and other income was flat. Record trust and investment management sales and improved equity market valuations offset a 5 percent decline in insurance commissions largely due to the sale of an insurance brokerage business. Noninterest expense increased 5 percent year over year primarily related to increased incentives on higher revenues, as well as the November 1, 2004, acquisition of Boston-based Tanager Financial Services. The addition of SouthTrust had an insignificant impact on this segment's fourth quarter 2004 results.
Corporate and Investment Bank
The Corporate and Investment Bank includes corporate lending, investment banking, global treasury and trade finance, and principal investing. Corporate and Investment Bank revenue grew 9 percent and segment earnings were up 26 percent from the fourth quarter of 2003, although results were down from the third quarter of 2004 largely due to lower principal investing gains. Net interest income rose due to higher trading assets and core deposit growth. Fee and other income increased on strong advisory and underwriting fees related to solid results in investment grade products, loan syndications, equity capital markets and structured products. Provision expense and capital usage declined year over year due to improved credit quality. Noninterest expense increased modestly due to increased personnel expense. Average core deposits grew 31 percent primarily from higher commercial mortgage servicing, trade finance and treasury services. The addition of SouthTrust had an insignificant impact on this segment's fourth quarter 2004 results.
Wachovia Corporation (NYSE:WB) is one of the largest providers of financial services to retail, brokerage and corporate customers, with retail operations from Connecticut to Florida and west to Texas, and retail brokerage operations nationwide. Wachovia had assets of $493.3 billion, market capitalization of $83.5 billion and stockholders' equity of $47.3 billion at December 31, 2004. Its four core businesses, the General Bank, Capital Management, Wealth Management, and the Corporate and Investment Bank, serve customers primarily in 15 states and Washington, D.C. Its full-service retail brokerage firm, Wachovia Securities, LLC, serves clients in 49 states and five Latin American countries. Global services are offered through 33 international offices. Online banking and brokerage products and services also are available through Wachovia.com.
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 January 19, 2005.
Explanation of Wachovia's Use of Certain Non-GAAP Financial Measures
In addition to results presented in accordance with GAAP, this news release includes certain non-GAAP financial measures, including those presented on page 2 and on page 9 under the captions “Earnings Excluding Merger-Related and Restructuring Expenses” and “Earnings Excluding Merger-Related and Restructuring Expenses, and Other Intangible Amortization”, and which are reconciled to GAAP financial measures on pages 20 and 21. 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, 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 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 Bob Kelly will review Wachovia's fourth quarter 2004 results and future outlook in a conference call and audio webcast beginning at 8 a.m. Eastern Time today. This review may include a discussion of certain non-GAAP financial measures. Supplemental materials relating to fourth 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 Fourth 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 1-888-357-9787 for U.S. callers or 1-706-679-7342 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: Wachovia.
Replay: Wednesday, January 19 at 11 a.m. Eastern Time through 5 p.m. Eastern Time on Friday, February 18. Replay telephone number is 1-706-645-9291; access code 2884033.
*** Investors seeking further information should contact the Investor Relations team: Alice Lehman at 704-374-4139, Ellen Taylor at 704-383-1381 or Jeff Richardson at 704-383-8250. Media seeking further information should contact the Corporate Media Relations team: Mary Eshet at 704-383-7777 or Christy Phillips at 704-383-8178.
