Wachovia 425 - Westcorp
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Filed by Wachovia Corporation pursuant to Rule 425 under the Securities Act of 1933, as amended, and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934, as amended

 

Subject Company:

 

Westcorp

Commission File No.: 001-09910

 

Date: October 17, 2005

 

This filing may contain certain forward-looking statements with respect to each of Wachovia Corporation (“Wachovia”), Westcorp, WFS Financial Inc (“WFS Financial”) and the combined companies following the proposed merger between Wachovia and Westcorp (the “Westcorp Merger”) and Wachovia’s acquisition, by merger, of the 16% interest in WFS Financial held by the public (the “WFS Financial Merger” and, together with the Westcorp Merger, the “Mergers”), as well as the goals, plans, objectives, intentions, expectations, financial condition, results of operations, future performance and business of Wachovia, including, without limitation, (i) statements relating to the benefits of the Mergers, including future financial and operating results, cost savings, enhanced revenues and the accretion to reported earnings that may be realized from the Mergers, (ii) statements regarding certain of Wachovia’s, Westcorp’s and/or WFS Financial’s goals and expectations with respect to earnings, earnings per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of credit quality trends, and (iii) statements preceded by, followed by or that include the words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, “projects”, “outlook” or similar expressions. These statements are based upon the current beliefs and expectations of Wachovia’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond Wachovia’s control).

 

The following factors, among others, could cause Wachovia’s financial performance to differ materially from that expressed in such forward-looking statements: (1) the risk that the businesses of Wachovia, Westcorp and WFS Financial in connection with the Mergers will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) expected revenue synergies and cost savings from the Mergers may not be fully realized or realized within the expected


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time frame; (3) revenues following the Mergers may be lower than expected; (4) deposit attrition, operating costs, customer loss and business disruption following the Mergers, including, without limitation, difficulties in maintaining relationships with employees, may be greater than expected; (5) the ability to obtain governmental approvals of the Mergers on the proposed terms and schedule; (6) the failure of Westcorp’s and WFS Financial’s shareholders to approve the Westcorp Merger and the WFS Financial Merger, respectively; (7) the strength of the United States economy in general and the strength of the local economies in which Wachovia, Westcorp and/or WFS Financial conducts operations may be different than expected resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on Wachovia’s, Westcorp’s and/or WFS Financial’s loan portfolio and allowance for loan losses; (8) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (9) potential or actual litigation; (10) inflation, interest rate, market and monetary fluctuations; and (11) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) and the impact of such conditions on Wachovia’s capital markets and capital management activities, including, without limitation, Wachovia’s mergers and acquisition advisory business, equity and debt underwriting activities, private equity investment activities, derivative securities activities, investment and wealth management advisory businesses, and brokerage activities. Additional factors that could cause Wachovia’s, Westcorp’s and WFS Financial’s results to differ materially from those described in the forward-looking statements can be found in Wachovia’s, Westcorp’s and WFS Financial’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. All subsequent written and oral forward-looking statements concerning Wachovia or the proposed Mergers or other matters and attributable to Wachovia or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. Wachovia, Westcorp and WFS Financial do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this filing.

 

The proposed Mergers will be submitted to Westcorp’s and WFS Financial’s shareholders for their consideration. Wachovia will file a registration statement, which will include a proxy statement/prospectus, Westcorp and WFS Financial will file a proxy statement, and each of Wachovia, Westcorp and WFS Financial may file other relevant documents concerning the proposed Mergers with the SEC. Shareholders are urged to read the registration statement and the proxy statement/prospectus regarding the proposed Mergers when they become available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. You will be able to obtain a free copy of the proxy statement/prospectus, as well as other filings containing information about Wachovia, Westcorp and WFS Financial, at the SEC’s website (http://www.sec.gov). You will also be able to obtain these documents, free of charge, at Wachovia’s website (http://www.wachovia.com) under the tab “Inside Wachovia - Investor Relations” and then under the heading “Financial Reports - SEC Filings”. Copies of the proxy statement/prospectus and the SEC filings that will be incorporated by reference in the proxy statement/prospectus can also be obtained, free of charge, by directing a request to


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Wachovia Corporation, Investor Relations, One Wachovia Center, 301 South College Street, Charlotte, NC 28288-0206, (704)-374-6782; or to Westcorp or WFS Financial, Attn: Investor Relations, 23 Pasteur, Irvine, CA 92618, (949)-727-1002.

 

Wachovia, Westcorp and WFS Financial and their respective directors and executive officers, may be deemed to be participants in the solicitation of proxies from the shareholders of Westcorp and/or WFS Financial in connection with the proposed Mergers. Information about the directors and executive officers of Wachovia is set forth in the proxy statement for Wachovia’s 2005 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 14, 2005. Information about the directors and executive officers of Westcorp is set forth in the proxy statement for Westcorp’s 2005 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 28, 2005, and information about the directors and executive officers of WFS Financial is set forth in the proxy statement for WFS Financial’s 2005 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 28, 2005. 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 proxy statement/prospectus regarding the proposed Mergers when it becomes available. You may obtain free copies of these documents as described in the preceding paragraph.

 

THE FOLLOWING IS A NEWS RELEASE ISSUED ON OCTOBER 17, 2005 BY WACHOVIA REGARDING WACHOVIA’S RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2005.


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LOGO   LOGO

 

Press Release October 17, 2005

 

WACHOVIA EARNS RECORD $1.06 PER SHARE IN 3rd QUARTER 2005, UP 10%

 

Strong revenue growth, expense discipline, solid credit quality and customer service excellence drive record net income of $1.67 billion


 

3rd QUARTER 2005 COMPARED WITH 3rd QUARTER 2004

 

    Record revenue up 19 percent, reflecting across-the-board core growth in fee income and the effect of acquisitions.

 

    Revenue grew at more than twice the pace of expenses.

 

    Merger savings and expense discipline drove improvement in the overhead efficiency ratio to 59.78 percent.

 

    Credit quality continued to be exceptional with annualized net charge-offs of 0.10 percent of average loans and total nonperforming assets at a record low 0.37 percent of loans, foreclosed properties and loans held for sale.

 

    Solid sales activity, good progress in merger integration, and continued leadership in customer satisfaction and loyalty generated record results.

 

Earnings Highlights

 

     Three Months Ended

(In millions, except per share data)    September 30,
2005


  

June 30,

2005


   September 30,
2004


     Amount

    EPS

   Amount

   EPS

   Amount

   EPS

Earnings

                                

Net income (GAAP)

   $ 1,665     1.06    1,650    1.04    1,263    0.96

Net merger-related expenses

     51     0.03    48    0.03    55    0.04
    


 
  
  
  
  

Earnings excluding net merger-related expenses

   $ 1,716     1.09    1,698    1.07    1,318    1.00
    


 
  
  
  
  

Financial ratios

                                

Return on average common stockholders’ equity

     13.95 %        14.04         15.12     

Net interest margin (a)

     3.20          3.23         3.36     

Fee and other income as % of total revenue (a)

     48.40          46.60         46.21     

Overhead efficiency ratio (a)

     59.78 %        59.29         65.20     
    


      
       
    

Capital adequacy (b)

                                

Tier 1 capital ratio

     7.40 %        7.85         8.34     

Total capital ratio

     10.75          11.25         11.22     

Leverage ratio

     5.98 %        6.10         6.21     
    


      
       
    

Asset quality

                                

Allowance for loan losses as % of nonaccrual and restructured loans

     347 %        332         291     

Allowance for loan losses as % of loans, net

     1.13          1.18         1.33     

Allowance for credit losses as % of loans, net (c)

     1.20          1.25         1.41     

Net charge-offs as % of average loans, net

     0.10          0.09         0.15     

Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale

     0.37 %        0.44         0.50     

(a) Tax-equivalent.
(b) The third quarter of 2005 is based on estimates.
(c) The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.

 

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WACHOVIA EARNS $1.06 PER SHARE IN 3rd QUARTER 2005, UP 10%/page 2

 

CHARLOTTE, N.C. — Wachovia Corp. (NYSE:WB) today reported record net income of $1.67 billion, or a record $1.06 per share, in the third quarter of 2005 compared with $1.26 billion, or 96 cents per share, in the third quarter of 2004.

 

Excluding after-tax net merger-related expenses of 3 cents per share in the third quarter of 2005 and 4 cents in the third quarter of 2004, third quarter 2005 earnings were $1.72 billion, or a record $1.09 per share, compared with $1.32 billion, or $1.00 per share, in the third quarter of 2004.

 

“Our record results reflect solid execution on our revenue strategies and merger integration savings, as well as improving efficiency,” said Ken Thompson, Wachovia chairman and chief executive officer. “With 10 percent earnings growth, our diversified business model and unwavering customer focus are clearly serving us well even as our industry faces pressure on profit margins and rising funding costs. We’re extremely proud of the way our employees have maintained their focus on our No. 1 priority: serving our customers – which is crucial as we complete the integration of the former SouthTrust branches this quarter. And we’ve all been inspired and heartened by our employees’ efforts to help their customers and their colleagues in the wake of the recent hurricanes – from making sure each employee was located and safe, to giving up vacation time to volunteer for relief work, to stepping up with cash donations. Their spirit and dedication give me great confidence in our ability to achieve Wachovia’s goals for continued strong growth.”

 

Wachovia Corporation

 

     Three Months Ended

(In millions)


   September 30,
2005


   June 30,
2005


   September 30,
2004


Total revenue (Tax-equivalent)

   $ 6,698    6,388    5,629

Provision for credit losses

     82    50    43

Noninterest expense

     4,004    3,788    3,671

Net income

     1,665    1,650    1,263

Average loans, net

     228,960    223,881    168,552

Average core deposits

   $ 280,748    275,338    232,989

 

In the third quarter of 2005 compared with the third quarter of 2004, Wachovia:

 

    Increased revenue 19 percent. Revenue growth reflected strong sales production as well as a larger balance sheet. These results include the impact of the acquisitions of SouthTrust Corporation on November 1, 2004, and the Palmer & Cay, Inc., insurance brokerage firm on May 6, 2005.

 

    Grew net interest income 14 percent, reflecting higher loans and deposits, largely related to SouthTrust. Middle-market lending led commercial loan growth while consumer loans were led by real estate-secured lending. The deposit mix continued to shift, with core deposit growth driven by certificates of deposit and money market deposits.

 

   

Generated 25 percent fee and other income growth, generally across the board, with improved service charges and banking fees, higher brokerage and insurance commissions, and solid investment banking fees. Trading

 

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WACHOVIA EARNS $1.06 PER SHARE IN 3rd QUARTER 2005, UP 10%/page 3

 

 

rebounded and principal investing results were strong, although down from a stronger third quarter a year ago. Securities gains were modest.

 

    Achieved merger and other expense efficiencies, limiting noninterest expense growth to 9 percent.

 

    Recorded a higher provision for credit losses of $82 million. Net charge-offs were $59 million, or an annualized 0.10 percent of average net loans. Total nonperforming assets including loans held for sale were $955 million, or 0.37 percent of loans, foreclosed properties and loans held for sale at September 30, 2005.

 

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 13 and 14 include a reconciliation of segment results to Wachovia’s consolidated results of operations in accordance with GAAP.

 

General Bank Highlights

 

     Three Months Ended

(In millions)


   September 30,
2005


    June 30,
2005


   September 30,
2004


Total revenue (Tax-equivalent)

   $ 3,250     3,145    2,629

Provision for credit losses

     77     68    74

Noninterest expense

     1,584     1,514    1,362

Segment earnings

   $ 1,006     989    760

Cash overhead efficiency ratio (Tax-equivalent)

     48.74 %   48.16    51.80

Average loans, net

   $ 163,801     161,774    124,687

Average core deposits

     208,718     205,814    170,188

Economic capital, average

   $ 7,019     6,981    5,123

 

General Bank

 

The General Bank includes retail, small business and commercial customers. Results include the impact of the fourth quarter 2004 acquisition of SouthTrust. The third quarter of 2005 compared with the third quarter of 2004 included:

 

    24 percent revenue growth driven by higher net interest income and fee and other income, largely due to SouthTrust. Growth also reflected increased debit card interchange fees, mortgage banking income and origination fees.

 

    Strength in low-cost core deposits and higher commercial and consumer loans drove the increase in net interest income. Net new retail checking accounts increased by 150,000 in the third quarter of 2005, compared with an increase of 126,000 in the prior year third quarter.

 

    26 percent growth in fee and other income generated by higher volume largely reflecting the addition of SouthTrust. In addition, strong debit card interchange income and retail service charges offset continued weakness in commercial service charges related to higher earnings credit rates on commercial customer balances.

 

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WACHOVIA EARNS $1.06 PER SHARE IN 3rd QUARTER 2005, UP 10%/page 4

 

    16 percent growth in noninterest expense due to SouthTrust. Merger efficiencies and expense management offset investment spending to drive a 306 basis point improvement in the overhead efficiency ratio to 48.74 percent.

 

Capital Management Highlights

 

     Three Months Ended

(In millions)


   September 30,
2005


    June 30,
2005


   September 30,
2004


Total revenue (Tax-equivalent)

   $ 1,360     1,333    1,266

Provision for credit losses

     —       —      —  

Noninterest expense

     1,111     1,089    1,094

Segment earnings

   $ 156     155    110

Cash overhead efficiency ratio (Tax-equivalent)

     81.86 %   81.57    86.39

Average loans, net

   $ 694     688    643

Average core deposits

     30,700     30,846    29,547

Economic capital, average

   $ 1,399     1,393    1,312

 

Capital Management

 

Capital Management includes retail brokerage services and asset management. The third quarter of 2005 compared with the third quarter of 2004 included:

 

    7 percent revenue growth on 32 percent growth in brokerage managed account assets to a record $99.7 billion, generating solid growth in recurring income, and improved retail brokerage transaction activity.

 

    Net interest income growth of 10 percent largely due to improved deposit pricing.

 

    Expense growth of 2 percent on higher brokerage commissions partially offset by efficiencies gained from the completed brokerage integration led to a 453 basis point improvement in the overhead efficiency ratio to 81.86 percent.

 

    Total assets under management of $256.5 billion at September 30, 2005, grew modestly from December 31, 2004. Equity assets reached a record $82.7 billion, led by positive equity mutual fund sales and improved equity markets. Total brokerage client assets grew 5 percent from year-end 2004 to a record $683.1 billion at September 30, 2005.

 

Wealth Management Highlights

 

     Three Months Ended

 

(In millions)


   September 30,
2005


    June 30,
2005


   September 30,
2004


 

Total revenue (Tax-equivalent)

   $ 339     327    274  

Provision for credit losses

     6     —      (1 )

Noninterest expense

     235     220    191  

Segment earnings

   $ 63     67    53  

Cash overhead efficiency ratio (Tax-equivalent)

     68.99 %   67.34    69.93  

Average loans, net

   $ 14,180     13,595    11,204  

Average core deposits

     13,224     13,198    12,171  

Economic capital, average

   $ 528     512    447  

 

Wealth Management

 

Wealth Management includes private banking, personal trust, investment advisory services, charitable services, financial planning and insurance brokerage. Results include

 

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WACHOVIA EARNS $1.06 PER SHARE IN 3rd QUARTER 2005, UP 10%/page 5

 

the impact of the May 6, 2005, acquisition of Palmer & Cay, Inc., an insurance brokerage firm. The third quarter of 2005 compared with the third quarter of 2004 included:

 

    Record revenue driven by 34 percent growth in fee and other income and a 14 percent increase in net interest income.

 

    Net interest income growth fueled by a 27 percent increase in average loans and a 9 percent increase in average core deposits.

 

    Fee and other income included the full quarter impact of the Palmer & Cay acquisition, as well as improved trust and investment management fees due to higher assets under administration in improving markets.

 

    Higher provision expense of $6 million. In addition, noninterest expense growth reflected the impact of the Palmer & Cay acquisition and higher incentives related to revenue growth.

 

Corporate and Investment Bank Highlights

 

     Three Months Ended

 

(In millions)


   September 30,
2005


    June 30,
2005


    September 30,
2004


 

Total revenue (Tax-equivalent)

   $ 1,515     1,272     1,340  

Provision for credit losses

     (3 )   (8 )   (15 )

Noninterest expense

     809     711     682  

Segment earnings

   $ 446     357     426  

Cash overhead efficiency ratio (Tax-equivalent)

     53.39 %   55.86     50.86  

Average loans, net

   $ 38,783     37,872     32,854  

Average core deposits

     24,797     22,495     18,597  

Economic capital, average

   $ 5,603     5,486     4,603  

 

Corporate and Investment Bank

 

The Corporate and Investment Bank includes corporate lending, investment banking, and treasury and international trade finance. Third quarter 2005 results compared with the third quarter of 2004 included:

 

    13 percent revenue growth reflecting a 29 percent increase in fee and other income offsetting a 6 percent decline in net interest income.

 

    Net interest income declined due primarily to a change in the mix of trading assets, which lowered the overall spread in the trading portfolio, and to runoff in a leasing portfolio, partially offset by the addition of SouthTrust.

 

    Fee income rose 29 percent with record results in advisory and underwriting, driven by strong merger and acquisition advisory activity, structured products and high yield originations. A recovery in trading profits from third quarter 2004 trading losses also drove the increase.

 

    A 19 percent increase in noninterest expense due primarily to higher variable compensation and increased strategic hiring in key positions resulted in a higher overhead efficiency ratio.

 

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WACHOVIA EARNS $1.06 PER SHARE IN 3rd QUARTER 2005, UP 10%/page 6

 

    Strong core deposit growth primarily from higher commercial mortgage servicing and international correspondent banking, and increased loans primarily reflecting higher large corporate loans and the addition of SouthTrust.

 

    Economic capital usage increased due to higher loan balances and an increased expense base.

 

***

 

Wachovia Corporation (NYSE:WB) is one of the largest providers of financial services to retail, brokerage and corporate customers, with banking operations from Connecticut to Florida and west to Texas, and retail brokerage operations nationwide. Wachovia had assets of $532.4 billion, market capitalization of $73.9 billion and stockholders’ equity of $46.8 billion at September 30, 2005. Its four core businesses, the General Bank, Capital Management, Wealth Management, and the Corporate and Investment Bank, serve 13 million household and business relationships primarily through 3,138 offices in 15 states and Washington, D.C. Its full-service retail brokerage firm, Wachovia Securities, LLC, also serves clients through 702 offices in 49 states and five Latin American countries. The Corporate and Investment Bank serves clients in selected industries nationwide. Global services are offered through 40 offices around the world. 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 October 17, 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 1 and on page 10 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 21 and 22. 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.

 

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WACHOVIA EARNS $1.06 PER SHARE IN 3rd QUARTER 2005, UP 10%/page 7

 

Additional Information

 

The proposed acquisition by Wachovia of Westcorp and WFS Financial Inc will be submitted to Westcorp’s and WFS Financial’s shareholders for their consideration. Wachovia will file a registration statement, which will include a proxy statement/prospectus, Westcorp and WFS Financial will file a proxy statement, and each of Wachovia, Westcorp and WFS Financial may file other relevant documents concerning the proposed mergers with the SEC. Shareholders are urged to read the registration statement and the proxy statement/prospectus regarding the proposed transaction when they become available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. Shareholders will be able to obtain a free copy of the proxy statement/prospectus, as well as other filings containing information about Wachovia, Westcorp and WFS Financial, at the SEC’s website (http://www.sec.gov). Shareholders will also be able to obtain these documents, free of charge, at Wachovia’s website (http://www.wachovia.com) under the tab “Inside Wachovia – Investor Relations” and then under the heading “Financial Reports – SEC Filings”. Copies of the proxy statement/prospectus and the SEC filings that will be incorporated by reference in the proxy statement/prospectus can also be obtained, free of charge, by directing a request to Wachovia Corporation, Investor Relations, One Wachovia Center, 301 South College Street, Charlotte, NC 28288-0206, (704)-374-6782; or to Westcorp or WFS Financial, Attn: Investor Relations, 23 Pasteur, Irvine, CA 92618, (949)-727-1002.

 

Wachovia, Westcorp and WFS Financial and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Westcorp and/or WFS Financial in connection with the proposed transaction. Information about the directors and executive officers of Wachovia is set forth in the proxy statement for Wachovia’s 2005 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 14, 2005. Information about the directors and executive officers of Westcorp is set forth in the proxy statement for Westcorp’s 2005 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 28, 2005, and information about the directors and executive officers of WFS Financial is set forth in the proxy statement for WFS Financial’s 2005 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 28, 2005. 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 proxy statement/prospectus regarding the proposed transaction when it becomes available. You may obtain free copies of these documents as described in the preceding paragraph.

 

Earnings Conference Call and Supplemental Materials

 

Wachovia CEO Ken Thompson and CFO Bob Kelly will review Wachovia’s third quarter 2005 results in a conference call and audio webcast beginning at 9 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 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: Monday, October 17, at 12:30 p.m. ET and continuing through 5 p.m. ET Friday, November 18. Replay telephone number is 1-706-645-9291; access code 9323539.

 

***

 

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.

 

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PAGE 8

 

WACHOVIA CORPORATION AND SUBSIDIARIES

FINANCIAL TABLES

 

TABLE OF CONTENTS

 

     PAGE

Financial Highlights—Five Quarters Ended September 30, 2005    9
Other Financial Data—Five Quarters Ended September 30, 2005    10
Consolidated Statements of Income—Five Quarters Ended September 30, 2005    11
Consolidated Statements of Income—Nine Months Ended September 30, 2005 and 2004    12
Business Segments—Three Months Ended September 30, 2005 and June 30, 2005    13
Business Segments—Three Months Ended September 30, 2004    14
Loans—On-Balance Sheet, and Managed and Servicing Portfolios—Five Quarters Ended September 30, 2005    15
Allowance for Loan Losses and Nonperforming Assets—Five Quarters Ended September 30, 2005    16
Consolidated Balance Sheets—Five Quarters Ended September 30, 2005    17
Net Interest Income Summaries—Five Quarters Ended September 30, 2005    18-19
Net Interest Income Summaries—Nine Months Ended September 30, 2005 and 2004    20
Reconciliation of Certain Non-GAAP Financial Measures—Five Quarters Ended September 30, 2005    21-22


Table of Contents

PAGE 9

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

FINANCIAL HIGHLIGHTS

(Unaudited)

 

     2005

   2004

 

(Dollars in millions, except per share data)


   Third
Quarter


    Second
Quarter


   First
Quarter


   Fourth
Quarter


   Third
Quarter


 

EARNINGS SUMMARY

                             

Net interest income (GAAP)

   $ 3,403     3,358    3,413    3,297    2,965  

Tax-equivalent adjustment

     53     53    61    60    63  
    


 
  
  
  

Net interest income (Tax-equivalent)

     3,456     3,411    3,474    3,357    3,028  

Fee and other income

     3,242     2,977    2,995    2,804    2,601  
    


 
  
  
  

Total revenue (Tax-equivalent)

     6,698     6,388    6,469    6,161    5,629  

Provision for credit losses

     82     50    36    109    43  

Other noninterest expense

     3,820     3,591    3,696    3,605    3,445  

Merger-related and restructuring expenses

     83     90    61    116    127  

Other intangible amortization

     101     107    115    113    99  
    


 
  
  
  

Total noninterest expense

     4,004     3,788    3,872    3,834    3,671  

Minority interest in income of consolidated subsidiaries

     104     71    64    54    28  
    


 
  
  
  

Income before income taxes (Tax-equivalent)

     2,508     2,479    2,497    2,164    1,887  

Tax-equivalent adjustment

     53     53    61    60    63  

Income taxes

     790     776    815    656    561  
    


 
  
  
  

Net income

   $ 1,665     1,650    1,621    1,448    1,263  
    


 
  
  
  

Diluted earnings per common share

   $ 1.06     1.04    1.01    0.95    0.96  

Return on average common stockholders’ equity

     13.95 %   14.04    13.92    13.50    15.12  

Return on average assets

     1.29     1.31    1.31    1.22    1.18  

Overhead efficiency ratio

     59.78 %   59.29    59.86    62.23    65.20  

Operating leverage

   $ 92     5    269    368    (55 )
    


 
  
  
  

ASSET QUALITY

                             

Allowance for loan losses as % of loans, net

     1.13 %   1.18    1.20    1.23    1.33  

Allowance for loan losses as % of nonperforming assets

     303     284    262    251    258  

Allowance for credit losses as % of loans, net

     1.20     1.25    1.27    1.30    1.41  

Net charge-offs as % of average loans, net

     0.10     0.09    0.08    0.23    0.15  

Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale

     0.37 %   0.44    0.50    0.53    0.50  
    


 
  
  
  

CAPITAL ADEQUACY (a)

                             

Tier I capital ratio

     7.40 %   7.85    7.91    8.01    8.34  

Total capital ratio

     10.75     11.25    11.40    11.11    11.22  

Leverage ratio

     5.98 %   6.10    5.99    6.38    6.21  
    


 
  
  
  

OTHER DATA

                             

Average diluted common shares (In millions)

     1,575     1,591    1,603    1,518    1,316  

Actual common shares (In millions)

     1,553     1,577    1,576    1,588    1,308  

Dividends paid per common share

   $ 0.51     0.46    0.46    0.46    0.40  

Dividend payout ratio on common shares

     48.11 %   44.23    45.54    48.42    41.67  

Book value per common share

   $ 30.10     30.37    29.48    29.79    25.92  

Common stock price

     47.59     49.60    50.91    52.60    46.95  

Market capitalization

   $ 73,930     78,236    80,256    83,537    61,395  

Common stock price to book value

     158 %   163    173    177    181  

FTE employees

     92,907     93,385    93,669    96,030    84,503  

Total financial centers/brokerage offices

     3,840     3,825    3,970    3,971    3,215  

ATMs

     5,119     5,089    5,234    5,321    4,395  
    


 
  
  
  


(a) The third quarter of 2005 is based on estimates.


Table of Contents

PAGE 10

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

OTHER FINANCIAL DATA

(Unaudited)

 

     2005

   2004

 

(In millions)


   Third
Quarter


    Second
Quarter


   First
Quarter


   Fourth
Quarter


   Third
Quarter


 

EARNINGS EXCLUDING MERGER-RELATED AND RESTRUCTURING EXPENSES (a) (b)

                             

Return on average common stockholders’ equity

     14.36 %   14.43    14.19    13.95    15.72  

Return on average assets

     1.33     1.35    1.34    1.26    1.24  

Overhead efficiency ratio

     58.55     57.87    58.92    60.34    62.96  

Overhead efficiency ratio excluding brokerage

     54.04 %   52.85    54.12    54.99    57.54  

Operating leverage

   $ 84     35    214    358    (30 )
    


 
  
  
  

EARNINGS EXCLUDING MERGER-RELATED AND RESTRUCTURING EXPENSES, AND OTHER INTANGIBLE AMORTIZATION (a) (b) (c)

                             

Dividend payout ratio on common shares

     45.13 %   41.44    42.59    44.23    38.10  

Return on average tangible common stockholders’ equity

     29.14     29.50    28.86    26.59    26.28  

Return on average tangible assets

     1.45     1.48    1.46    1.38    1.33  

Overhead efficiency ratio

     57.06     56.19    57.15    58.50    61.20  

Overhead efficiency ratio excluding brokerage

     52.27 %   50.85    52.01    52.77    55.42  

Operating leverage

   $ 77     27    215    373    (38 )
    


 
  
  
  

OTHER FINANCIAL DATA

                             

Net interest margin

     3.20 %   3.23    3.31    3.37    3.36  

Fee and other income as % of total revenue

     48.40     46.60    46.30    45.50    46.21  

Effective income tax rate

     32.21     32.02    33.42    31.20    30.71  

Tax rate (Tax-equivalent) (d)

     33.63 %   33.50    35.05    33.14    33.04  
    


 
  
  
  

AVERAGE BALANCE SHEET DATA

                             

Commercial loans, net

   $ 132,637     131,195    127,703    116,599    96,860  

Consumer loans, net

     96,323     92,686    93,472    79,928    71,692  

Loans, net

     228,960     223,881    221,175    196,527    168,552  

Earning assets

     431,346     422,534    421,047    397,490    359,909  

Total assets

     511,567     503,361    500,486    472,431    424,399  

Core deposits

     280,748     275,338    271,095    260,627    232,989  

Total deposits

     306,371     297,194    294,674    280,051    248,245  

Interest-bearing liabilities

     375,782     367,828    365,516    343,489    314,310  

Stockholders’ equity

   $ 47,328     47,114    47,231    42,644    33,246  
    


 
  
  
  

PERIOD-END BALANCE SHEET DATA

                             

Commercial loans, net

   $ 141,063     136,115    134,696    131,196    102,524  

Consumer loans, net

     98,670     94,172    92,570    92,644    71,980  

Loans, net

     239,733     230,287    227,266    223,840    174,504  

Goodwill and other intangible assets

                             

Goodwill

     21,857     21,861    21,635    21,526    11,481  

Deposit base

     779     861    951    1,048    484  

Customer relationships

     416     427    387    443    372  

Tradename

     90     90    90    90    90  

Total assets

     532,381     511,840    506,833    493,324    436,698  

Core deposits

     287,732     275,281    273,883    274,588    237,315  

Total deposits

     320,439     299,910    297,657    295,053    252,981  

Stockholders’ equity

   $ 46,757     47,904    46,467    47,317    33,897  
    


 
  
  
  


(a) These financial measures are calculated by excluding from GAAP computed net income presented on page 9, $51 million, $48 million, $31 million, $53 million and $55 million in the third, second and first quarters of 2005, and in the fourth and third quarters of 2004, respectively, of after-tax net merger-related and restructuring expenses.
(b) See page 9 for the most directly comparable GAAP financial measure and pages 21 and 22 for a more detailed reconciliation.
(c) These financial measures are calculated by excluding from GAAP computed net income presented on page 9, $63 million, $69 million, $72 million, $74 million and $62 million in the third, second and first quarters of 2005, and in the fourth and third quarters of 2004, respectively, of deposit base and other intangible amortization.
(d) The tax-equivalent tax rate applies to fully tax-equivalized revenues.


Table of Contents

PAGE 11

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     2005

    2004

 

(In millions, except per share data)


   Third
Quarter


   Second
Quarter


   First
Quarter


    Fourth
Quarter


    Third
Quarter


 

INTEREST INCOME

                              

Interest and fees on loans

   $ 3,588    3,362    3,174     2,814     2,393  

Interest and dividends on securities

     1,434    1,437    1,426     1,232     1,156  

Trading account interest

     403    354    378     388     325  

Other interest income

     635    549    475     535     427  
    

  
  

 

 

Total interest income

     6,060    5,702    5,453     4,969     4,301  
    

  
  

 

 

INTEREST EXPENSE

                              

Interest on deposits

     1,408    1,221    1,050     860     691  

Interest on short-term borrowings

     742    670    601     492     396  

Interest on long-term debt

     507    453    389     320     249  
    

  
  

 

 

Total interest expense

     2,657    2,344    2,040     1,672     1,336  
    

  
  

 

 

Net interest income

     3,403    3,358    3,413     3,297     2,965  

Provision for credit losses

     82    50    36     109     43  
    

  
  

 

 

Net interest income after provision for credit losses

     3,321    3,308    3,377     3,188     2,922  
    

  
  

 

 

FEE AND OTHER INCOME

                              

Service charges

     555    528    513     519     499  

Other banking fees

     385    355    351     343     313  

Commissions

     615    603    599     620     568  

Fiduciary and asset management fees

     732    728    714     700     668  

Advisory, underwriting and other investment banking fees

     294    257    233     271     237  

Trading account profits (losses)

     146    17    99     (16 )   (60 )

Principal investing

     166    41    59     7     201  

Securities gains (losses)

     29    136    (2 )   23     (71 )

Other income

     320    312    429     337     246  
    

  
  

 

 

Total fee and other income

     3,242    2,977    2,995     2,804     2,601  
    

  
  

 

 

NONINTEREST EXPENSE

                              

Salaries and employee benefits

     2,476    2,324    2,401     2,239     2,118  

Occupancy

     260    271    250     260     234  

Equipment

     276    269    265     272     268  

Advertising

     50    48    44     51     46  

Communications and supplies

     158    158    162     163     149  

Professional and consulting fees

     167    155    127     179     134  

Other intangible amortization

     101    107    115     113     99  

Merger-related and restructuring expenses

     83    90    61     116     127  

Sundry expense

     433    366    447     441     496  
    

  
  

 

 

Total noninterest expense

     4,004    3,788    3,872     3,834     3,671  
    

  
  

 

 

Minority interest in income of consolidated subsidiaries

     104    71    64     54     28  
    

  
  

 

 

Income before income taxes

     2,455    2,426    2,436     2,104     1,824  

Income taxes

     790    776    815     656     561  
    

  
  

 

 

Net income

   $ 1,665    1,650    1,621     1,448     1,263  
    

  
  

 

 

PER COMMON SHARE DATA

                              

Basic earnings

   $ 1.07    1.05    1.03     0.97     0.97  

Diluted earnings

     1.06    1.04    1.01     0.95     0.96  

Cash dividends

   $ 0.51    0.46    0.46     0.46     0.40  

AVERAGE COMMON SHARES

                              

Basic

     1,549    1,564    1,571     1,487     1,296  

Diluted

     1,575    1,591    1,603     1,518     1,316  
    

  
  

 

 


Table of Contents

PAGE 12

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Nine Months Ended
September 30,


 

(In millions, except per share data)


   2005

   2004

 

INTEREST INCOME

             

Interest and fees on loans

   $ 10,124    7,044  

Interest and dividends on securities

     4,297    3,407  

Trading account interest

     1,135    759  

Other interest income

     1,659    1,109  
    

  

Total interest income

     17,215    12,319  
    

  

INTEREST EXPENSE

             

Interest on deposits

     3,679    1,993  

Interest on short-term borrowings

     2,013    1,011  

Interest on long-term debt

     1,349    651  
    

  

Total interest expense

     7,041    3,655  
    

  

Net interest income

     10,174    8,664  

Provision for credit losses

     168    148  
    

  

Net interest income after provision for credit losses

     10,006    8,516  
    

  

FEE AND OTHER INCOME

             

Service charges

     1,596    1,459  

Other banking fees

     1,091    883  

Commissions

     1,817    1,981  

Fiduciary and asset management fees

     2,174    2,072  

Advisory, underwriting and other investment banking fees

     784    640  

Trading account profits

     262    51  

Principal investing

     266    254  

Securities gains (losses)

     163    (33 )

Other income

     1,061    668  
    

  

Total fee and other income

     9,214    7,975  
    

  

NONINTEREST EXPENSE

             

Salaries and employee benefits

     7,201    6,464  

Occupancy

     781    687  

Equipment

     810    780  

Advertising

     142    142  

Communications and supplies

     478    457  

Professional and consulting fees

     449    369  

Other intangible amortization

     323    318  

Merger-related and restructuring expenses

     234    328  

Sundry expense

     1,246    1,287  
    

  

Total noninterest expense

     11,664    10,832  
    

  

Minority interest in income of consolidated subsidiaries

     239    130  
    

  

Income before income taxes

     7,317    5,529  

Income taxes

     2,381    1,763  
    

  

Net income

   $ 4,936    3,766  
    

  

PER COMMON SHARE DATA

             

Basic earnings

   $ 3.16    2.90  

Diluted earnings

     3.10    2.85  

Cash dividends

   $ 1.43    1.20  

AVERAGE COMMON SHARES

             

Basic

     1,561    1,299  

Diluted

     1,590    1,321  
    

  


Table of Contents

PAGE 13

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

BUSINESS SEGMENTS

(Unaudited)

 

     Three Months Ended September 30, 2005

(In millions)


   General
Bank


   Capital
Management


    Wealth
Management


   Corporate
and
Investment
Bank


    Parent

    Net Merger-
Related and
Restructuring
Expenses (b)


    Total

CONSOLIDATED

                                        

Net interest income (a)

   $ 2,434    171     147    549     155     (53 )   3,403

Fee and other income

     760    1,201     191    1,011     79     —       3,242

Intersegment revenue

     56    (12 )   1    (45 )   —       —       —  
    

  

 
  

 

 

 

Total revenue (a)

     3,250    1,360     339    1,515     234     (53 )   6,645

Provision for credit losses

     77    —       6    (3 )   2     —       82

Noninterest expense

     1,584    1,111     235    809     182     83     4,004

Minority interest

     —      —       —      —       105     (1 )   104

Income taxes (benefits)

     573    92     35    242     (121 )   (31 )   790

Tax-equivalent adjustment

     10    1     —      21     21     (53 )   —  
    

  

 
  

 

 

 

Net income

   $ 1,006    156     63    446     45     (51 )   1,665
    

  

 
  

 

 

 

 

     Three Months Ended June 30, 2005

(In millions)


   General
Bank


   Capital
Management


    Wealth
Management


   Corporate
and
Investment
Bank


    Parent

    Net Merger-
Related and
Restructuring
Expenses (b)


    Total

CONSOLIDATED

                                        

Net interest income (a)

   $ 2,409    157     143    522     180     (53 )   3,358

Fee and other income

     687    1,188     183    789     130     —       2,977

Intersegment revenue

     49    (12 )   1    (39 )   1     —       —  
    

  

 
  

 

 

 

Total revenue (a)

     3,145    1,333     327    1,272     311     (53 )   6,335

Provision for credit losses

     68    —       —      (8 )   (10 )   —       50

Noninterest expense

     1,514    1,089     220    711     164     90     3,788

Minority interest

     —      —       —      —       85     (14 )   71

Income taxes (benefits)

     564    89     40    185     (74 )   (28 )   776

Tax-equivalent adjustment

     10    —       —      27     16     (53 )   —  
    

  

 
  

 

 

 

Net income

   $ 989    155     67    357     130     (48 )   1,650
    

  

 
  

 

 

 


Table of Contents

PAGE 14

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

BUSINESS SEGMENTS

(Unaudited)

 

     Three Months Ended September 30, 2004

(In millions)


   General
Bank


   Capital
Management


    Wealth
Management


    Corporate
and
Investment
Bank


    Parent

    Net Merger-
Related and
Restructuring
Expenses (b)


    Total

CONSOLIDATED

                                         

Net interest income (a)

   $ 1,985    155     129     587     172     (63 )   2,965

Fee and other income

     601    1,124     143     786     (53 )   —       2,601

Intersegment revenue

     43    (13 )   2     (33 )   1     —       —  
    

  

 

 

 

 

 

Total revenue (a)

     2,629    1,266     274     1,340     120     (63 )   5,566

Provision for credit losses

     74    —       (1 )   (15 )   (15 )   —       43

Noninterest expense

     1,362    1,094     191     682     215     127     3,671

Minority interest

     —      —       —       —       65     (37 )   28

Income taxes (benefits)

     423    62     31     217     (137 )   (35 )   561

Tax-equivalent adjustment

     10    —       —       30     23     (63 )   —  
    

  

 

 

 

 

 

Net income (loss)

   $ 760    110     53     426     (31 )   (55 )   1,263
    

  

 

 

 

 

 

(a) Tax-equivalent.
(b) The tax-equivalent amounts are eliminated herein in order for “Total” amounts to agree with amounts appearing in the Consolidated Statements of Income.


Table of Contents

PAGE 15

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

LOANS—ON-BALANCE SHEET, AND MANAGED AND SERVICING PORTFOLIOS

(Unaudited)

 

     2005

   2004

(In millions)


   Third
Quarter


   Second
Quarter


   First
Quarter


   Fourth
Quarter


   Third
Quarter


ON-BALANCE SHEET LOAN PORTFOLIO COMMERCIAL

                          

Commercial, financial and agricultural

   $ 83,241    80,528    78,669    75,095    59,271

Real estate—construction and other

     13,653    13,216    12,713    12,673    6,985

Real estate—mortgage

     19,864    19,724    20,707    20,742    14,771

Lease financing

     25,022    24,836    25,013    25,000    24,042

Foreign

     8,888    7,549    7,504    7,716    7,402
    

  
  
  
  

Total commercial

     150,668    145,853    144,606    141,226    112,471
    

  
  
  
  

CONSUMER

                          

Real estate secured

     80,128    76,213    74,631    74,161    54,965

Student loans

     11,458    10,828    10,795    10,468    10,207

Installment loans

     6,745    6,783    6,808    7,684    6,410
    

  
  
  
  

Total consumer

     98,331    93,824    92,234    92,313    71,582
    

  
  
  
  

Total loans

     248,999    239,677    236,840    233,539    184,053

Unearned income

     9,266    9,390    9,574    9,699    9,549
    

  
  
  
  

Loans, net (On-balance sheet)

   $ 239,733    230,287    227,266    223,840    174,504
    

  
  
  
  

MANAGED PORTFOLIO (a)

                          

COMMERCIAL

                          

On-balance sheet loan portfolio

   $ 150,668    145,853    144,606    141,226    112,471

Securitized loans—off-balance sheet

     1,263    1,293    1,402    1,734    1,823

Loans held for sale

     4,039    1,783    1,117    2,112    1,993
    

  
  
  
  

Total commercial

     155,970    148,929    147,125    145,072    116,287
    

  
  
  
  

CONSUMER

                          

Real estate secured

                          

On-balance sheet loan portfolio

     80,128    76,213    74,631    74,161    54,965

Securitized loans—off-balance sheet

     9,255    10,199    6,979    7,570    6,567

Securitized loans included in securities

     4,218    4,426    4,626    4,838    8,909

Loans held for sale

     12,660    11,923    11,925    10,452    15,602
    

  
  
  
  

Total real estate secured

     106,261    102,761    98,161    97,021    86,043
    

  
  
  
  

Student

                          

On-balance sheet loan portfolio

     11,458    10,828    10,795    10,468    10,207

Securitized loans—off-balance sheet

     341    382    423    463    554

Loans held for sale

     —      16    65    128    160
    

  
  
  
  

Total student

     11,799    11,226    11,283    11,059    10,921
    

  
  
  
  

Installment

                          

On-balance sheet loan portfolio

     6,745    6,783    6,808    7,684    6,410

Securitized loans—off-balance sheet

     2,228    2,662    1,930    2,184    2,489

Securitized loans included in securities

     146    163    155    195    195

Loans held for sale

     1,339    809    1,066    296    —  
    

  
  
  
  

Total installment

     10,458    10,417    9,959    10,359    9,094
    

  
  
  
  

Total consumer

     128,518    124,404    119,403    118,439    106,058
    

  
  
  
  

Total managed portfolio

   $ 284,488    273,333    266,528    263,511    222,345
    

  
  
  
  

SERVICING PORTFOLIO (b)

                          

Commercial

   $ 158,650    152,923    140,493    136,578    130,313

Consumer

   $ 57,391    53,261    46,552    40,053    31,549
    

  
  
  
  

(a) The managed portfolio includes the on-balance sheet loan portfolio, loans securitized for which the assets are classified in securities on-balance sheet, loans held for sale on-balance sheet and the off-balance sheet portfolio of securitized loans sold, where we service the loans.
(b) The servicing portfolio consists of third party commercial and consumer loans for which our sole function is that of servicing the loans for the third parties.


Table of Contents

PAGE 16

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS

(Unaudited)

 

     2005

    2004

 

(In millions)


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

ALLOWANCE FOR LOAN LOSSES (a)

                                

Balance, beginning of period

   $ 2,718     2,732     2,757     2,324     2,331  

Provision for credit losses

     74     48     33     95     63  

Provision for credit losses relating to loans transferred to loans held for sale or sold

     12     —       1     (6 )   (8 )

Balance of acquired entities at purchase date

     —       —       —       510     —    

Allowance relating to loans acquired, transferred to loans held for sale or sold

     (26 )   (11 )   (13 )   (51 )   3  

Net charge-offs

     (59 )   (51 )   (46 )   (115 )   (65 )
    


 

 

 

 

Balance, end of period

   $ 2,719     2,718     2,732     2,757     2,324  
    


 

 

 

 

as % of loans, net

     1.13 %   1.18     1.20     1.23     1.33  
    


 

 

 

 

as % of nonaccrual and restructured loans (b)

     347 %   332     300     289     291  
    


 

 

 

 

as % of nonperforming assets (b)

     303 %   284     262     251     258  
    


 

 

 

 

LOAN LOSSES

                                

Commercial, financial and agricultural

   $ 43     35     26     82     50  

Commercial real estate—construction and mortgage

     9     —       1     4     3  

Consumer

     71     75     67     74     70  
    


 

 

 

 

Total loan losses

     123     110     94     160     123  
    


 

 

 

 

LOAN RECOVERIES

                                

Commercial, financial and agricultural

     35     25     26     27     41  

Commercial real estate—construction and mortgage

     2     1     —       —       1  

Consumer

     27     33     22     18     16  
    


 

 

 

 

Total loan recoveries

     64     59     48     45     58  
    


 

 

 

 

Net charge-offs

   $ 59     51     46     115     65  
    


 

 

 

 

Commercial loans net charge-offs as % of average commercial loans, net (c)

     0.05 %   0.03     —       0.20     0.05  

Consumer loans net charge-offs as % of average consumer loans, net (c)

     0.18     0.18     0.19     0.28     0.30  

Total net charge-offs as % of average loans, net (c)

     0.10 %   0.09     0.08     0.23     0.15  
    


 

 

 

 

NONPERFORMING ASSETS

                                

Nonaccrual loans

                                

Commercial, financial and agricultural

   $ 445     497     527     585     534  

Commercial real estate—construction and mortgage

     120     88     131     127     42  

Consumer real estate secured

     209     221     239     230     211  

Installment loans

     10     13     13     13     11  
    


 

 

 

 

Total nonaccrual loans

     784     819     910     955     798  

Foreclosed properties (d)

     112     138     132     145     101  
    


 

 

 

 

Total nonperforming assets

   $ 896     957     1,042     1,100     899  
    


 

 

 

 

Nonperforming loans included in loans held for sale (e)

   $ 59     111     159     157     57  

Nonperforming assets included in loans and in loans held for sale

   $ 955     1,068     1,201     1,257     956  
    


 

 

 

 

as % of loans, net, and foreclosed properties (b)

     0.37 %   0.42     0.46     0.49     0.51  
    


 

 

 

 

as % of loans, net, foreclosed properties and loans held for sale (e)

     0.37 %   0.44     0.50     0.53     0.50  
    


 

 

 

 

Accruing loans past due 90 days

   $ 525     521     510     522     428  
    


 

 

 

 


(a) At September 30, 2005, the reserve for unfunded lending commitments was $154 million.
(b) These ratios do not include nonperforming loans included in loans held for sale.
(c) Annualized.
(d) Restructured loans are not significant.
(e) These ratios reflect nonperforming loans included in loans held for sale. Loans held for sale are recorded at the lower of cost or market value, and accordingly, the amounts shown and included in the ratios are net of the transferred allowance for loan losses and the lower of cost or market value adjustments.


Table of Contents

PAGE 17

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     2005

    2004

 

(In millions, except per share data)


   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

ASSETS

                                

Cash and due from banks

   $ 12,976     12,464     12,043     11,714     10,355  

Interest-bearing bank balances

     2,492     2,852     1,285     4,441     7,664  

Federal funds sold and securities purchased under resale agreements

     27,083     22,528     24,899     22,436     30,629  
    


 

 

 

 

Total cash and cash equivalents

     42,551     37,844     38,227     38,591     48,648  
    


 

 

 

 

Trading account assets

     49,646     46,519     47,149     45,932     45,129  

Securities

     117,195     117,906     116,731     110,597     102,157  

Loans, net of unearned income

     239,733     230,287     227,266     223,840     174,504  

Allowance for loan losses

     (2,719 )   (2,718 )   (2,732 )   (2,757 )   (2,324 )
    


 

 

 

 

Loans, net

     237,014     227,569     224,534     221,083     172,180  
    


 

 

 

 

Loans held for sale

     18,038     14,531     14,173     12,988     17,755  

Premises and equipment

     5,352     5,354     5,260     5,268     4,150  

Due from customers on acceptances

     882     826     826     718     563  

Goodwill

     21,857     21,861     21,635     21,526     11,481  

Other intangible assets

     1,285     1,378     1,428     1,581     946  

Other assets

     38,561     38,052     36,870     35,040     33,689  
    


 

 

 

 

Total assets

   $ 532,381     511,840     506,833     493,324     436,698  
    


 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                

Deposits

                                

Noninterest-bearing deposits

     68,402     63,079     61,626     64,197     52,524  

Interest-bearing deposits

     252,037     236,831     236,031     230,856     200,457  
    


 

 

 

 

Total deposits

     320,439     299,910     297,657     295,053     252,981  

Short-term borrowings

     78,184     75,726     73,401     63,406     67,589  

Bank acceptances outstanding

     932     859     866     755     570  

Trading account liabilities

     19,815     19,827     22,418     21,709     22,704  

Other liabilities

     16,504     15,750     15,281     15,507     14,838  

Long-term debt

     45,846     49,006     47,932     46,759     41,444  
    


 

 

 

 

Total liabilities

     481,720     461,078     457,555     443,189     400,126  
    


 

 

 

 

Minority interest in net assets of consolidated subsidiaries

     3,904     2,858     2,811     2,818     2,675  
    


 

 

 

 

STOCKHOLDERS’ EQUITY

                                

Dividend Equalization Preferred shares, no par value, 97 million shares issued and outstanding at September 30, 2005

     —       —       —       —       —    

Common stock, $3.33-1/3 par value; authorized 3 billion shares, outstanding 1.553 billion shares at September 30, 2005

     5,178     5,258     5,255     5,294     4,359  

Paid-in capital

     30,821     31,038     30,976     31,120     18,095  

Retained earnings

     11,086     11,079     10,319     10,178     10,449  

Accumulated other comprehensive income, net

     (328 )   529     (83 )   725     994  
    


 

 

 

 

Total stockholders’ equity

     46,757     47,904     46,467     47,317     33,897  
    


 

 

 

 

Total liabilities and stockholders’ equity

   $ 532,381     511,840     506,833     493,324     436,698  
    


 

 

 

 


Table of Contents

PAGE 18

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

NET INTEREST INCOME SUMMARIES

(Unaudited)

 

     THIRD QUARTER 2005

    SECOND QUARTER 2005

 

(In millions)


   Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


    Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


 

ASSETS

                                        

Interest-bearing bank balances

   $ 2,417      21    3.46 %   $ 2,649      20    3.07 %

Federal funds sold and securities purchased under resale agreements

     24,451      216    3.50       24,676      189    3.08  

Trading account assets

     33,720      423    5.01       31,879      377    4.73  

Securities

     114,902      1,461    5.08       115,006      1,469    5.11  

Loans

                                        

Commercial

                                        

Commercial, financial and agricultural

     81,488      1,184    5.77       80,213      1,084    5.42  

Real estate—construction and other

     13,322      201    5.96       12,885      177    5.53  

Real estate—mortgage

     19,684      302    6.09       20,204      288    5.71  

Lease financing

     9,979      178    7.15       10,252      183    7.11  

Foreign

     8,164      80    3.88       7,641      68    3.55  
    

  

        

  

      

Total commercial

     132,637      1,945    5.82       131,195      1,800    5.50  
    

  

        

  

      

Consumer

                                        

Real estate secured

     78,088      1,166    5.97       74,799      1,072    5.74  

Student loans

     11,267      144    5.07       10,995      129    4.72  

Installment loans

     6,968      124    7.04       6,892      115    6.75  
    

  

        

  

      

Total consumer

     96,323      1,434    5.94       92,686      1,316    5.69  
    

  

        

  

      

Total loans

     228,960      3,379    5.87       223,881      3,116    5.58  
    

  

        

  

      

Loans held for sale

     16,567      244    5.90       14,024      194    5.51  

Other earning assets

     10,329      138    5.27       10,419      125    4.84  
    

  

        

  

      

Total earning assets excluding derivatives

     431,346      5,882    5.43       422,534      5,490    5.20  

Risk management derivatives (a)

     —        231    0.21       —        265    0.26  
    

  

        

  

      

Total earning assets including derivatives

     431,346      6,113    5.64       422,534      5,755    5.46  
           

  

        

  

Cash and due from banks

     12,277                   12,389              

Other assets

     67,944                   68,438              
    

               

             

Total assets

   $ 511,567                 $ 503,361              
    

               

             

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                        

Interest-bearing deposits

                                        

Savings and NOW accounts

     78,961      220    1.10       80,113      194    0.97  

Money market accounts

     97,746      529    2.15       94,990      455    1.92  

Other consumer time

     41,063      325    3.13       38,064      273    2.87  

Foreign

     15,285      123    3.18       11,857      81    2.75  

Other time

     10,338      109    4.21       9,999      78    3.09  
    

  

        

  

      

Total interest-bearing deposits

     243,393      1,306    2.13       235,023      1,081    1.84  

Federal funds purchased and securities sold under repurchase agreements

     56,426      460    3.24       53,984      375    2.79  

Commercial paper

     12,664      108    3.39       13,365      97    2.91  

Securities sold short

     9,040      77    3.38       10,648      92    3.49  

Other short-term borrowings

     6,471      29    1.80       6,694      30    1.82  

Long-term debt

     47,788      536    4.48       48,114      528    4.39  
    

  

        

  

      

Total interest-bearing liabilities excluding derivatives

     375,782      2,516    2.66       367,828      2,203    2.40  

Risk management derivatives (a)

     —        141    0.15       —        141    0.16  
    

  

        

  

      

Total interest-bearing liabilities including derivatives

     375,782      2,657    2.81       367,828      2,344    2.56  
           

  

        

  

Noninterest-bearing deposits

     62,978                   62,171              

Other liabilities

     25,479                   26,248              

Stockholders’ equity

     47,328                   47,114              
    

               

             

Total liabilities and stockholders’ equity

   $ 511,567                 $ 503,361              
    

               

             

Interest income and rate earned—including derivatives

          $ 6,113    5.64 %          $ 5,755    5.46 %

Interest expense and equivalent rate paid—including derivatives

            2,657    2.44              2,344    2.23  
           

  

        

  

Net interest income and margin—including derivatives

          $ 3,456    3.20 %          $ 3,411    3.23 %
           

  

        

  


(a) The rates earned and the rates paid on risk management derivatives are based on off-balance sheet notional amounts. The fair value of these instruments is included in other assets and other liabilities.


Table of Contents

PAGE 19

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

NET INTEREST INCOME SUMMARIES

(Unaudited)

 

FIRST QUARTER 2005

    FOURTH QUARTER 2004

    THIRD QUARTER 2004

 
Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


    Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


    Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


 
                                                         
$ 2,484      16    2.62 %   $ 3,909      18    1.85 %   $ 3,153      12    1.52 %
  24,272      153    2.55       24,722      123    1.99       26,419      96    1.44  
  35,147      402    4.59       36,517      411    4.49       32,052      348    4.34  
  114,961      1,477    5.15       103,879      1,297    5.00       101,493      1,237    4.88  
                                                         
                                                         
  76,651      960    5.08       69,394      836    4.79       58,278      642    4.40  
  12,608      156    5.01       10,537      120    4.53       6,683      67    4.02  
  20,739      271    5.31       19,035      237    4.95       14,877      170    4.54  
  10,513      182    6.94       10,185      180    7.07       9,692      178    7.33  
  7,192      58    3.28       7,448      58    3.10       7,330      47    2.51  


  

        

  

        

  

      
  127,703      1,627    5.16       116,599      1,431    4.88       96,860      1,104    4.54  


  

        

  

        

  

      
                                                         
  74,658      1,037    5.57       62,083      853    5.49       54,288      732    5.38  
  11,003      120    4.41       10,560      107    4.04       10,145      97    3.80  
  7,811      122    6.31       7,285      111    6.12       7,259      107    5.86  


  

        

  

        

  

      
  93,472      1,279    5.49       79,928      1,071    5.35       71,692      936    5.21  


  

        

  

        

  

      
  221,175      2,906    5.30       196,527      2,502    5.08       168,552      2,040    4.83  


  

        

  

        

  

      
  12,869      166    5.19       21,405      261    4.89       17,119      186    4.34  
  10,139      115    4.58       10,531      104    3.89       11,121      96    3.43  


  

        

  

        

  

      
  421,047      5,235    5.00       397,490      4,716    4.74       359,909      4,015    4.45  
  —        279    0.27       —        313    0.31       —        349    0.39  


  

        

  

        

  

      
  421,047      5,514    5.27       397,490      5,029    5.05       359,909      4,364    4.84  
      

  

        

  

        

  

  12,661                   11,870                   11,159              
  66,778                   63,071                   53,331              


               

               

             
$ 500,486                 $ 472,431                 $ 424,399              


               

               

             
                                                         
  81,071      161    0.81       79,476      128    0.64       73,171      93    0.51  
  93,477      357    1.55       90,382      271    1.19       81,525      197    0.96  
  36,005      239    2.70       32,540      212    2.58       26,860      180    2.68  
  10,996      61    2.26       9,486      46    1.92       7,453      27    1.42  
  12,583      83    2.67       9,938      56    2.31       7,803      39    1.98  


  

        

  

        

  

      
  234,132      901    1.56       221,822      713    1.28       196,812      536    1.08  
  51,395      312    2.46       47,264      233    1.96       47,052      164    1.39  
  13,553      82    2.45       11,840      58    1.94       12,065      43    1.42  
  12,681      102    3.25       12,694      102    3.18       12,388      96    3.09  
  6,370      26    1.63       5,859      19    1.33       6,042      15    0.91  
  47,385      493    4.17       44,010      443    4.02       39,951      404    4.05  


  

        

  

        

  

      
  365,516      1,916    2.12       343,489      1,568    1.82       314,310      1,258    1.60  
  —        124    0.14       —        104    0.12       —        78    0.09  


  

        

  

        

  

      
  365,516      2,040    2.26       343,489      1,672    1.94       314,310      1,336    1.69  
      

  

        

  

        

  

  60,542                   58,229                   51,433              
  27,197                   28,069                   25,410              
  47,231                   42,644                   33,246              


               

               

             
$ 500,486                 $ 472,431                 $ 424,399              


               

               

             
       $ 5,514    5.27 %          $ 5,029    5.05 %          $ 4,364    4.84 %
         2,040    1.96              1,672    1.68              1,336    1.48  
      

  

        

  

        

  

       $ 3,474    3.31 %          $ 3,357    3.37 %          $ 3,028    3.36 %
      

  

        

  

        

  


Table of Contents

PAGE 20

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

NET INTEREST INCOME SUMMARIES

(Unaudited)

 

     NINE MONTHS ENDED 2005

    NINE MONTHS ENDED 2004

 

(In millions)


   Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


    Average
Balances


   Interest
Income/
Expense


   Average
Rates
Earned/
Paid


 

ASSETS

                                        

Interest-bearing bank balances

   $ 2,516      57    3.05 %   $ 3,467      33    1.27 %

Federal funds sold and securities purchased under resale agreements

     24,467      558    3.05       25,013      219    1.17  

Trading account assets

     33,577      1,202    4.78       26,402      828    4.18  

Securities

     114,956      4,407    5.11       99,980      3,654    4.87  

Loans

                                        

Commercial

                                        

Commercial, financial and agricultural

     79,469      3,228    5.43       56,805      1,817    4.28  

Real estate—construction and other

     12,941      534    5.51       6,339      176    3.71  

Real estate—mortgage

     20,205      861    5.70       15,048      488    4.33  

Lease financing

     10,246      543    7.07       7,890      541    9.14  

Foreign

     7,669      206    3.59       7,043      129    2.44  
    

  

        

  

      

Total commercial

     130,530      5,372    5.50       93,125      3,151    4.52  
    

  

        

  

      

Consumer

                                        

Real estate secured

     75,861      3,275    5.76       52,525      2,128    5.40  

Student loans

     11,089      393    4.74       9,666      265    3.66  

Installment loans

     7,221      361    6.69       8,493      363    5.70  
    

  

        

  

      

Total consumer

     94,171      4,029    5.71       70,684      2,756    5.20  
    

  

        

  

      

Total loans

     224,701      9,401    5.59       163,809      5,907    4.81  
    

  

        

  

      

Loans held for sale

     14,500      604    5.56       15,168      478    4.20  

Other earning assets

     10,296      378    4.90       11,241      262    3.12  
    

  

        

  

      

Total earning assets excluding derivatives

     425,013      16,607    5.22       345,080      11,381    4.40  

Risk management derivatives (a)

     —        775    0.24       —        1,128    0.44  
    

  

        

  

      

Total earning assets including derivatives

     425,013      17,382    5.46       345,080      12,509    4.84  
           

  

        

  

Cash and due from banks

     12,441                   11,123              

Other assets

     67,724                   55,231              
    

               

             

Total assets

   $ 505,178                 $ 411,434              
    

               

             

LIABILITIES AND STOCKHOLDERS’ EQUITY

                                        

Interest-bearing deposits

                                        

Savings and NOW accounts

     80,041      575    0.96       69,594      241    0.46  

Money market accounts

     95,420      1,341    1.88       75,881      523    0.92  

Other consumer time

     38,395      837    2.91       26,881      545    2.71  

Foreign

     12,728      265    2.78       7,412      69    1.25  

Other time

     10,966      270    3.29       7,751      107    1.83  
    

  

        

  

      

Total interest-bearing deposits

     237,550      3,288    1.85       187,519      1,485    1.06  

Federal funds purchased and securities sold under repurchase agreements

     53,954      1,147    2.84       47,340      404    1.14  

Commercial paper

     13,191      287    2.91       12,099      105    1.16  

Securities sold short

     10,776      271    3.37       10,464      216    2.76  

Other short-term borrowings

     6,511      85    1.75       6,165      36    0.76  

Long-term debt

     47,764      1,557    4.35       38,359      1,146    3.99  
    

  

        

  

      

Total interest-bearing liabilities excluding derivatives

     369,746      6,635    2.40       301,946      3,392    1.50  

Risk management derivatives (a)

     —        406    0.14       —        263    0.12  
    

  

        

  

      

Total interest-bearing liabilities including derivatives

     369,746      7,041    2.54       301,946      3,655    1.62  
           

  

        

  

Noninterest-bearing deposits

     61,906                   49,508              

Other liabilities

     26,301                   27,152              

Stockholders’ equity

     47,225                   32,828              
    

               

             

Total liabilities and stockholders’ equity

   $ 505,178                 $ 411,434              
    

               

             

Interest income and rate earned—including derivatives

          $ 17,382    5.46 %          $ 12,509    4.84 %

Interest expense and equivalent rate paid—including derivatives

            7,041    2.21              3,655    1.42  
           

  

        

  

Net interest income and margin—including derivatives

          $ 10,341    3.25 %          $ 8,854    3.42 %
           

  

        

  


(a) The rates earned and the rates paid on risk management derivatives are based on off-balance sheet notional amounts. The fair value of these instruments is included in other assets and other liabilities.


Table of Contents

PAGE 21

 

WACHOVIA CORPORATION AND SUBSIDIARIES

 

RECONCILIATION OF CERTAIN NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

          2005

    2004

 

(In millions, except per share data)


   *

   Third
Quarter


    Second
Quarter


    First
Quarter


    Fourth
Quarter


    Third
Quarter


 

NET INCOME

                                     

Net income (GAAP)

   A    $ 1,665     1,650     1,621     1,448     1,263  

After tax merger-related and restructuring expenses (GAAP)

          51     48     31     53     55  
    
  


 

 

 

 

Net income, excluding after tax merger-related and restructuring expenses

   B      1,716     1,698     1,652     1,501     1,318  

After tax other intangible amortization (GAAP)

          63     69     72     74     62  
    
  


 

 

 

 

Net income, excluding after tax merger-related and restructuring expenses, and other intangible amortization

   C    $ 1,779     1,767     1,724     1,575     1,380  
    
  


 

 

 

 

RETURN ON AVERAGE COMMON STOCKHOLDERS’ EQUITY

                                     

Average common stockholders’ equity (GAAP)

   D    $ 47,328     47,114     47,231     42,644     33,246  

Merger-related and restructuring expenses (GAAP)

          96     52     11     169     116  
    
  


 

 

 

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