Wachovia Historical Financial Press Releases

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

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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.

Lines of Business Highlights: General Bank, Wealth Management, Corporate and Investment Bank, Capital Management

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.

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.
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

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.
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

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.

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.

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.

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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Wachovia common stock trades on the New York Stock Exchange (NYSE) under the ticker symbol WB. Before the September 1, 2001, merger of First Union and the former Wachovia, the common stock traded on the NYSE as FTU.

Information on this site dated after September 1, 2001, is provided under the Wachovia name, while historical information dated before September 1, 2001, is provided under the First Union name. Please note that historical information may have become out of date and should not be considered current. Wachovia does not undertake any obligation to update the information as a result of new information or subsequent developments. In addition, any forward-looking information is subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Factors that could cause results to differ from expectations may be found in Wachovia's reports filed with the SEC.

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