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July 15, 2004 Wachovia's 2nd Quarter 2004 GAAP Earnings Up 23% to 95 Cents Per Share Net income of $1.25 billion fueled by continued momentum in core businesses Supplemental Quarterly Earnings Report (PDF) 2nd QUARTER 2004 COMPARED WITH 2nd QUARTER 2003
Lines of Business Highlights: General Bank, Capital Management, Wealth Management, Corporate and Investment Banking [IMAGE: "Highlights"]CHARLOTTE, N.C. - Wachovia Corp. (NYSE:WB) today reported record second quarter 2004 net income available to common stockholders of $1.25 billion, or 95 cents per share, compared with $1.03 billion, or 77 cents per share, in the second quarter of 2003. Excluding after-tax net merger-related expenses and other items of 3 cents per share in the second quarter of 2004 and 4 cents per share in the second quarter of 2003, second quarter 2004 earnings were $1.30 billion, or 98 cents per share, compared with $1.09 billion, or 81 cents per share, in the second quarter of 2003. “Our record second quarter earnings continued to reflect the benefit of our balanced business model and we believe we remain positioned to outperform as we approach our fourth quarter merger with SouthTrust,” said Ken Thompson, Wachovia chairman and chief executive officer. “We continue to win new business from our customers as we provide industry leading sales and service. We had good loan growth, outstanding deposit growth and exceptional credit quality. Expense growth was disciplined, and we are on track to achieve all projected savings from our retail brokerage transaction. In our core businesses, both our General Bank and Wealth Management again had record quarters. Capital Management results were dampened by subdued retail brokerage investor activity, but equity mutual fund sales continued to be positive. We continued to gain market share in our Corporate and Investment Bank.” [IMAGE: "Wachovia Corporation"] Provision expense declined from the second quarter a year ago to $61 million in the second quarter this year, reflecting continued improvement in asset quality, particularly in the Corporate and Investment Bank. Second quarter 2004 net charge-offs declined 60 percent from the second quarter of 2003 to $68 million, or an annualized 0.17 percent of average net loans, reflecting a lower absolute level of charge-offs at a beneficial point in the credit cycle. Total nonperforming assets including loans held for sale declined 42 percent from the second quarter of 2003 to $1.0 billion in the second quarter of 2004. Noninterest expense increased 16 percent from the second quarter of 2003, largely due to the addition of the Prudential Financial retail brokerage business to Wachovia Securities Financial Holdings, LLC. Average loans in the second quarter of 2004 were $163.6 billion, a 4 percent increase from the second quarter of 2003. Consumer loan growth, largely from consumer real estate-secured and student loans, outpaced commercial loan growth. In commercial, growth in General Bank middle market and small business loans was offset by low corporate loan demand in the Corporate and Investment Bank. Average core deposits increased 25 percent from the second quarter of 2003 to $223.8 billion, while average low-cost core deposits increased 34 percent from the second quarter a year ago to $184.1 billion. The increase included an average $23.0 billion of core deposits associated with the FDIC-insured money market sweep product. Low-cost core deposits are those in demand deposit, interest checking, savings and money market accounts, and exclude CAP accounts and certificates of deposit. Lines of BusinessThe 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 upon 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. [IMAGE: "General Bank"]The General Bank includes retail and small business, and commercial customers. The General Bank produced record quarterly segment earnings of $751 million, up 16 percent from the prior year's second quarter. Revenue increased 5 percent from the second quarter a year ago, driven by outstanding core deposit and loan growth, primarily in commercial, small business, consumer real estate-secured and student loans. Fee and other income increased 5 percent from the second quarter a year ago on strong service charge growth, offset by declines in mortgage banking income. Non-mortgage-related fees rose 21 percent from the second quarter a year ago. Noninterest expense decreased modestly. Average core deposits increased 10 percent from the prior year quarter, including 20 percent year over year growth in average low-cost core deposits. Average loans increased 8 percent year over year, despite a decline in commercial real estate loan growth. However, compared with the first quarter of 2004, wholesale loans grew across-the-board, including a modest increase in commercial real estate. Provision expense declined 35 percent from the second quarter of 2003, primarily reflecting risk reduction strategies implemented in 2003, as well as solid improvements in both commercial and consumer loan losses. Retail sales momentum continued to be strong, with an increase of 148,000 in net new retail checking accounts in the second quarter of 2004, compared with an increase of 95,000 in the same quarter a year ago - a 56 percent improvement. [IMAGE: "Capital Management"]Capital Management includes asset management and retail brokerage services. The weak retail brokerage environment in the second quarter of 2004 dampened Capital Management's results, which included a net benefit of $17 million on the sale of two nonstrategic businesses. Year over year, earnings increased 44 percent and revenue increased 63 percent, while noninterest expense grew 68 percent from the second quarter of 2003, primarily related to the retail brokerage transaction, which closed on July 1, 2003. Sales momentum continued, with positive net sales of equity mutual funds. Deposit balances related to the FDIC-insured money market sweep product grew to $25.0 billion, compared with $11.8 billion at year-end 2003, contributing to net interest income growth. The asset shift to the FDIC product resulted in a 10 percent decline in mutual fund assets from the second quarter of 2003 to $104.2 billion. Despite the decline in mutual fund assets, total assets under management at June 30, 2004, increased 4 percent from June 30, 2003, to $247.6 billion. Total assets under management and securities lending grew 15 percent from year-end 2003 to $284.1 billion, largely attributable to $38.2 billion from the January 1, 2004, acquisition of a securities lending firm. Investment performance continued to be solid, with 68 percent of Wachovia's Evergreen Funds rated 4 or 5 stars by Morningstar, up from 52 percent at June 30, 2003, and 69 percent of Evergreen taxable fluctuating funds ranked in the top two three-year Lipper quartiles, up from 65 percent in the year ago quarter. [IMAGE: "Wealth Management"]Wealth Management includes private banking, personal trust, investment advisory services, charitable services, financial planning and insurance brokerage. Wealth Management revenue rose 13 percent from the second quarter of 2003 and segment earnings were a record $52 million. Net interest income grew 13 percent on average loan growth of 10 percent and average core deposit growth of 12 percent year over year. Fee and other income increased 11 percent from improved trust and investment management fees related to pricing and market improvements. Insurance brokerage commissions and commercial service charges exhibited solid growth. Noninterest expense increased 4 percent year over year largely due to higher incentives related to improved revenues. Provision expense declined due to improved credit quality and recoveries. The increase in average loans from the second quarter a year ago reflected growth in both consumer and commercial lending activity. Average core deposit increases were led by higher money market and demand deposit account balances. [IMAGE: "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 18 percent from the second quarter of 2003 and segment earnings were $431 million, up 56 percent year over year. The year over year revenue increase was fueled by strength in fixed income driven by strong real estate capital markets and asset-based securitization results as well as higher securities gains. Modest principal investing net gains compared favorably with net losses in the second quarter of 2003. Strength in asset-based loans and international correspondent banking loans was offset by a continued decline in corporate loan balances due to low demand and a strong loan syndication market. Provision expense and capital usage continued to decline due to improving credit quality and low loan outstandings compared with the second quarter a year ago. Noninterest expense rose 10 percent due to increased personnel and higher incentives related to improved revenues and earnings. Average core deposits grew 27 percent primarily from higher commercial mortgage servicing and trade finance. Wachovia Corporation (NYSE:WB) is one of the largest providers of financial services to retail, brokerage and corporate customers throughout the East Coast and the nation, with assets of $418.4 billion, market capitalization of $58.3 billion and stockholders' equity of $32.6 billion at June 30, 2004. Its four core businesses, the General Bank, Capital Management, Wealth Management, and the Corporate and Investment Bank, serve 12 million client relationships (including households and businesses), primarily in 11 East Coast states and Washington, D.C. Its full-service retail brokerage firm, Wachovia Securities, LLC, serves clients in 49 states. Global services are provided through 32 international offices. Online banking and brokerage products and services also are available through Wachovia.com. Forward-Looking Statements Explanation of Wachovia's Use of Certain Non-GAAP Financial Measures 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 that 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 that 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 (cash earnings), and has communicated certain cash dividend payout ratio goals to investors. Management believes the cash dividend 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. Additional Information Wachovia and SouthTrust, and their respective directors and executive officers, may be deemed to be participants in the solicitation of proxies from the shareholders of Wachovia and SouthTrust in connection with the merger. Information about the directors and executive officers of Wachovia and their ownership of Wachovia common stock is set forth in the proxy statement, dated March 15, 2004, for Wachovia's 2004 annual meeting of shareholders, as filed with the SEC on a Schedule 14A. Information about the directors and executive officers of SouthTrust and their ownership of SouthTrust common stock is set forth in the proxy statement, dated March 8, 2004, for SouthTrust's 2004 annual meeting of shareholders, as filed with the SEC on a Schedule 14A. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the definitive joint proxy statement/prospectus regarding the proposed transaction when it becomes available. Free copies of these documents may be obtained as described above. Earnings Conference Call and Supplemental Materials Webcast Instructions: To gain access to the webcast, which will be "listen-only," go to Wachovia.com/investor and click on the link "Wachovia Second 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: Thursday, July 15 at 1:00 p.m. Eastern Time through 11 p.m. Eastern Time on Friday, August 13. Replay telephone number is 1-706-645-9291; access code 8036256. ***Investors seeking further information should contact Wachovia Investor Relations: Alice Lehman at 704-374-4139, Ellen Taylor at 704-383-1381, or Jeff Richardson at 704-383-8250; or SouthTrust Investor Relations: Bill Prater at 205-254-5187. Media seeking further information should contact Wachovia Corporate Media Relations: Christy Phillips at 704-383-8178 or Mary Eshet at 704-383-7777; or SouthTrust Corporate Communications: David M. Oliver, 205-254-5523, or dial 254-5130 and ask to speak to a media relations representative. |
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