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January 15, 2004 Wachovia's 4th Quarter 2003 GAAP Earnings Up 26% to 83 Cents Per Share 2003 GAAP EARNINGS WERE RECORD $4.3 BILLION, UP 20% TO $3.18 PER SHARE Supplemental Quarterly Earnings Report (PDF) PERFORMANCE LEADS TO 14% DIVIDEND INCREASE TO 40 CENTS PER COMMON SHARE 4th QUARTER 2003 COMPARED WITH 4th QUARTER 2002
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 fourth quarter 2003 net income available to common stockholders of $1.1 billion, or 83 cents per share, compared with $891 million, or 66 cents per share, in the fourth quarter of 2002. Excluding after-tax net merger-related expenses and other items of 5 cents per share in 2003 and 6 cents per share in 2002, fourth quarter earnings were $1.2 billion, or 88 cents per share, in 2003 compared with $987 million, or 72 cents per share, in 2002. Full year 2003 net income available to common stockholders was $4.3 billion, up 20 percent from full year 2002, and earnings per share of $3.18 were up 22 percent from 2002. Excluding after-tax net merger-related expenses of 18 cents per share in both 2003 and 2002, earnings per share of $3.36 in 2003 increased 21 percent from 2002. "2003 was a year of milestones for our company, and our strong fourth quarter results cap a year marked by exceptional execution," said Ken Thompson, Wachovia chairman and chief executive officer. "We produced record earnings and record growth in each line of business in 2003. And we delivered a 32 percent total return to shareholders, on top of last year's industry-leading return of 20 percent. We're pleased to share the benefits of this performance with our stockholders through further dividend increases." A 14 percent increase in the common stock dividend and authorization for an additional 60 million share stock buyback program were announced separately by Wachovia. Thompson also noted that Wachovia gained market share and improved performance even while substantially completing its three-year integration of the September 2001 merger of First Union and the former Wachovia. "Our customer satisfaction scores, which already exceed our major bank peers, continued to improve, and customer acquisition and retention were at record levels," he said. "Average core deposits grew 14 percent and net new checking accounts were up more than fourfold in 2003." Thompson continued, "These achievements are a tribute to a disciplined and focused management team and the energy and dedication of our employees. We believe we are poised to continue to achieve our goal of generating consistent, annual double digit earnings growth." Earnings for this goal exclude merger-related and restructuring expenses. [IMAGE: "Wachovia Corporation"]Provision expense declined to $86 million reflecting continued improvement in asset quality, particularly in the Corporate and Investment Bank. Fourth quarter 2003 net charge-offs declined 22 percent from the fourth quarter of 2002 to $156 million, or an annualized 0.39 percent of average net loans. Total nonperforming assets including loans held for sale declined 34 percent from the fourth quarter of 2002 to $1.2 billion in the fourth quarter of 2003. Noninterest expense increased 24 percent from the fourth quarter of 2002, largely due to the addition of the Prudential Financial retail brokerage business to Wachovia Securities Financial Holdings, LLC. Average loans in the fourth quarter of 2003 were $160 billion, a 4 percent increase from the fourth quarter of 2002, reflecting higher residential mortgage, home equity and student loan balances, dampened by continued lower corporate loan demand. Average core deposits increased 14 percent from the fourth quarter of 2002 to $194 billion, while average low-cost core deposits increased 24 percent from the fourth quarter a year ago to $154 billion. 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, other intangible amortization and the cumulative effect of a change in accounting principle. Segment earnings are the basis upon which Wachovia manages and allocates capital to its business segments. Pages 11 and 12 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. General Bank revenue increased 3 percent from the fourth quarter a year ago, driven by strength in consumer real estate secured lending and outstanding core deposit growth. Fee income fell 11 percent from the fourth quarter a year ago due primarily to a decline in mortgage-related income as interest rates increased and refinancing activity declined. Mortgage revenue represents less than 4 percent of General Bank revenue and less than 2 percent of the total company revenue. Average core deposits increased 10 percent from the prior year, including 22 percent year over year growth in average low-cost core deposits. Average loans increased 9 percent year over year, reflecting 30 percent growth in small business lending, 25 percent growth in student lending, 20 percent growth in consumer real estate secured lending, and 8 percent growth in commercial, partially offset by a decline in commercial real estate, installment and other consumer loans. Excluding the 10 percent decline in commercial real estate loans, commercial loans would have been up 12 percent year over year. Provision expense was flat compared with the fourth quarter of 2002, but increased 19 percent from the third quarter of 2003 primarily reflecting increased costs due to a rise in net charge-offs and a bulk sale of commercial loans related to risk reduction strategies. The 5 percent increase in noninterest expense from the fourth quarter of 2002 reflected technology enhancements and increased benefits and marketing costs. Retail sales momentum continued to be strong, with nearly $950 million of annuity sales, a 12 percent increase in small business loan production, and an increase in net new retail checking accounts to 412,000 in 2003 from 90,000 a year ago. [IMAGE: "Capital Management"]Capital Management includes asset management and retail brokerage services. Capital Management revenue increased 80 percent and noninterest expense increased 90 percent from the fourth quarter of 2002, largely related to the addition of the Prudential Financial retail brokerage business to Wachovia Securities Financial Holdings, LLC. The combination of the two brokerage operations closed on July 1, 2003. Underlying performance also continued to strengthen, with positive net inflows to equity mutual funds and an increase in brokerage client assets to $603 billion, driven by the improved equity markets. In addition, average core deposits more than tripled due to strong customer response to an FDIC-insured sweep product. Assets under management at December 31, 2003, rose 7 percent from December 31, 2002, to $248 billion, despite a 3 percent decline in the same period for mutual fund assets to $109 billion. The decline includes the impact of the movement of $7 billion in Evergreen money market balances into the FDIC-insured sweep product. Investment performance continued to show solid improvement, with 65 percent of the Wachovia-advised Evergreen Funds rated 4 or 5 stars by Morningstar, up from 48 percent at year-end 2002; and 68 percent of Evergreen taxable fluctuating funds ranked in the top two three-year Lipper quartiles, up from 60 percent at year-end 2002. [IMAGE: "Wealth"]Wealth Management includes private banking, personal trust, investment advisory services, charitable services, financial planning and insurance brokerage. Wealth Management revenue rose 7 percent from the fourth quarter of 2002 due primarily to higher net interest income. Net interest income grew 13 percent on increased loans and core deposits. Fee and other income increased 2 percent as improved insurance commissions complemented steady trust and investment management fees. Noninterest expense increased 7 percent year over year largely due to higher personnel costs and legal settlement expense. Average loans grew 11 percent from the fourth quarter a year ago, reflecting increased consumer lending activity. Average core deposits rose 9 percent, led by higher money market and checking account balances. [IMAGE: "Corporate and Investment Banking"]The Corporate and Investment Bank includes corporate lending, investment banking, global treasury and trade finance, and principal investing. Corporate and Investment Bank revenue grew 26 percent from the fourth quarter of 2002, as strong results in fixed income products, driven by improved origination activity, increased trading profits and lower principal investing losses more than offset a decline in interest income from lower loan balances in corporate lending. Higher assets held for sale gains and improved merger and acquisition advisory activity also contributed to the revenue increase. Provision expense fell $126 million from the fourth quarter of 2002 due to improved credit quality driven by risk reduction strategies. Noninterest expense rose 21 percent due to increased incentives related to improved revenues and earnings, coupled with the write-off of a non-strategic facility lease. Average loans declined 19 percent due to weak overall demand and portfolio risk reduction strategies. Capital usage declined 21 percent due to improved credit quality and lower loan outstandings. Average core deposits grew 22 percent primarily from growth in commercial mortgage servicing and in 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 $401 billion, market capitalization of $61 billion and stockholders' equity of $32 billion at December 31, 2003. Its four core businesses, the General Bank, Capital Management, Wealth Management, and the Corporate and Investment Bank, serve 9 million households, including 900,000 businesses, primarily in 11 East Coast states and Washington, D.C. Its broker-dealer, Wachovia Securities, LLC, serves clients in 48 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. Also, 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. In addition, since Wachovia operates one of the largest retail brokerage businesses in our industry, 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 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:Thursday, January 15 at 1:30 p.m. EST through 5 p.m. EST on Friday, February 13. Replay telephone number is 1-706-645-9291; access code 4510227. 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 at 704-383-8178. |
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