Lines of Business Highlights: General Bank, Capital Management, Wealth Management, Corporate and Investment Banking
*Periods prior to the Sept. 1, 2001, merger of First Union and the former Wachovia, which was accounted for as a purchase, have not been restated.
CHARLOTTE, N.C. – Wachovia Corp. (NYSE:WB) today reported third quarter 2002 net income available to common stockholders of $913 million, or 66 cents per share; operating earnings of $983 million, or 71 cents per share; and cash operating earnings of $1.1 billion, or 78 cents per share. Operating earnings exclude $67 million, or 5 cents per share, of after-tax net merger-related and restructuring charges. Cash operating earnings exclude deposit base intangible, goodwill and other intangible amortization as well as the net merger-related and restructuring charges. Results also include $13 million after-tax, or 1 cent per share after-tax, of expense related to stock options.
"In a difficult operating environment for revenue growth, we continued to be well served by our balanced business model, and we are delighted at how well our people are progressing with merger integration," said Ken Thompson, Wachovia president and CEO. "With 14 straight quarters of rising customer satisfaction levels, we believe we now lead the major bank competitors on service quality. This level of service has contributed greatly to growth in low-core deposits, where we are among the industry leaders in our markets. At the same time, we are well positioned to attract our customers' investment business when the financial markets ultimately recover. We've continued to invest in our businesses, including upgrading branch automation and making selected acquisitions to enhance our insurance and investment management offerings. We continue to actively reduce risk, control expenses and build capital. In short, this was another solid performance despite very difficult markets."
Third quarter 2002 results also reflected a significantly lower tax provision due primarily to the recognition of a tax benefit related to the company’s loss on its investment in The Money Store. This tax benefit was fully offset by credit and legal actions initiated in the quarter as part of the company’s ongoing efforts to reduce balance sheet risk.
Average loans in the third quarter of 2002 were $152 billion, down 2 percent from the previous quarter, reflecting loan sales, securitizations and transfers to loans held for sale of an average of $1.6 billion in the second and third quarters, as well as weak loan demand. Average core deposits increased 2 percent from the previous quarter to $167 billion, while average low-cost core deposits increased 4 percent to $119 billion.
Third quarter 2002 net charge-offs declined 40 percent from the previous quarter to $224 million, or 0.59 percent of average net loans. The provision exceeded net charge-offs by $211 million related to write-downs on commercial loans sold or transferred to the held for sale portfolio and the sale of consumer loans directly out of the loan portfolio. Total nonperforming assets including loans held for sale declined 2 percent to $2.0 billion in the third quarter of 2002.
Lines of Business
The General Bank includes retail, small business and commercial customers. General Bank revenue, which increased modestly from the second quarter of 2002, was driven by solid growth in core deposits, consumer loans and investment sales through the branch system, offset by higher expense related to variable compensation and increased legal expense. Average core deposits increased 2 percent from the second quarter of 2002, and the increase in average low-cost core deposits was particularly strong at 4 percent from the prior quarter. Average loans grew slightly from the second quarter of 2002, reflecting strength in consumer real estate-secured products, which offset declines due to mortgage refinancing.
The Capital Management Group (CMG) includes asset management and retail brokerage services. Weak equities markets dampened revenues, although CMG’s multi-distribution channels and tight expense controls helped stabilize these businesses. Traditional annuity sales of $1.5 billion (including bank annuity sales of $900 million) were comparable with similar strong sales production levels of the second quarter of 2002. Assets under management at Sept. 30, 2002, were $227 billion, down 1 percent from June 30, 2002. Included in assets under management are mutual fund assets of $107 billion, which had record quarterly gross fluctuating sales of $4.5 billion. The acquisition of certain assets of E-Risk Services, LLC, a leading agency provider of management liability insurance, closed Oct. 1, 2002. The acquisition of J.L Kaplan Associates, LLC, a privately held investment management firm with $3 billion in assets under management, is expected to close in the fourth quarter of 2002.
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Corporate and Investment Bank revenue declined due to the weak market conditions, which dampened activity in the advisory businesses and loan syndications and increased losses in trading results. The decline was partially offset by lower principal investing net losses and lower expense. The increased provision was driven by the transfer of loans, primarily related to the telecommunications sector, to loans held for sale. Average loans declined 3 percent due to weak overall loan demand.
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Wachovia Corporation (NYSE:WB), created through the Sept. 1, 2001, merger of First Union and Wachovia, had assets of $334 billion and stockholders' equity of $32 billion at Sept. 30, 2002. Wachovia is a leading provider of financial services to 20 million retail, brokerage and corporate customers throughout the East Coast and the nation. The company operates full-service banking offices under the First Union and Wachovia names in 11 East Coast states and Washington, D.C., and offers full-service brokerage with offices in 49 states and global services through more than 30 international offices. Online banking and brokerage products and services are available through wachovia.com and firstunion.com.
Earnings Conference Call and Supplemental Materials
Wachovia President and CEO Ken Thompson and CFO Bob Kelly will review Wachovia's third quarter results in a conference call and audio webcast beginning at 10 a.m. EDT today. Supplemental materials relating to third quarter results are available on the Internet at http://wachovia.firstunion.com, 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 http://wachovia.firstunion.com 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 1-877-546-1568 for U.S. callers or 415-228-4836 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: Kelly.
Replay: Wednesday, Oct. 16, at 1 p.m. through 5 p.m., Friday, Oct. 25. The replay telephone number is 402-220-3835.
This news release may contain 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 Oct. 16, 2002.
