Wachovia Reports 1st Quarter Results; Announces Initiatives To Further Enhance Capital Base and Flexibility

CHARLOTTE, N.C., April 14 /PRNewswire-FirstCall/ -- Wachovia today announced a series of actions to further enhance its capital base and operational flexibility, and updated its credit reserve modeling to reflect greater emphasis on forecasted changes in customer behavior assuming continued house price depreciation. These actions include:

      -- Plans to raise capital through a public offering of common stock and
         perpetual convertible preferred stock;

      -- Lowering the quarterly common stock dividend, which preserves $2.0
         billion of capital annually, to build capital ratios and provide more
         operational flexibility. The board of directors declared a quarterly
         common stock dividend of $0.375 cents per common share, payable on
         June 16, 2008, to stockholders of record on May 30, 2008. This
         dividend level is consistent with Wachovia's capital needs and growth
         opportunities for each of its business segments, and with an
         anticipated 40 percent to 50 percent cash payout ratio over the
         intermediate horizon; and

      -- The update in the credit reserve modeling in response to the current
         and forecasted market environment and its effect on consumer
         behavior, particularly in stressed markets, resulting in a
         significant increase in the first quarter 2008 provision for credit
         losses. In addition, the scope of credit disclosures was increased to
         provide enhanced insight into the payment option consumer real estate
         portfolio.

In addition, Wachovia reported a first quarter 2008 net loss of $350 million before preferred dividends, or a net loss available to common stockholders of $393 million, (20 cents per common share). These results, which reflect higher credit costs and the continued disruption in the capital markets, compared with earnings of $2.30 billion, or $1.20 per share, in the first quarter of 2007.

While solid underlying performance was overshadowed by market disruption- related valuation losses of $2.0 billion, Wachovia generated total revenue of $7.9 billion on higher loans and deposits and strength in fiduciary and asset management fees, brokerage commissions and traditional banking fees, including the impact of the A.G. Edwards acquisition.

"I'm deeply disappointed with our first quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path. The precipitous decline in housing market conditions and unprecedented changes in consumer behavior prompted us to update our credit reserve modeling and rely less heavily on historical trends to forecast losses. As a result, we have substantially increased our reserves," said Ken Thompson, Wachovia's chief executive officer. "The most painful decision was to reduce the dividend because it adversely affects our shareholders. But we believe the long-term benefit to shareholder value outweighs the disadvantage of the dividend reduction as we fortify our balance sheet against continued instability in the housing and capital markets.

"It's important to note that in early 2007 in advance of the market dislocation, we took steps to bolster our liquidity and reduce market-related exposures in products originally intended for distribution," Thompson added. "We have generally been a provider of liquidity to the market during this period of market disruption, and we also continue to reduce our market-related exposures. The actions we announced today will further enhance and ensure our ongoing financial flexibility to invest and drive future earnings growth. With strengthened reserves and capital, and our strong deposit base, we believe we're well-positioned to continue to successfully weather this uniquely challenging period."

      Earnings Highlights
                                                           Three Months Ended

                                        March 31,    December 31,    March 31,
                                            2008            2007         2007
      (In millions, except per
       share data)                  Amount   EPS   Amount    EPS  Amount   EPS

      Earnings
      Net income (loss)             $(350)     -      193   0.10   2,302  1.20
      Discontinued operations, net
       of income taxes                  -      -     (142) (0.07)      -     -
      Dividends on preferred stock    (43)     -        -      -       -     -
      Net income (loss) available
       to common stockholders       $(393) (0.20)      51   0.03   2,302  1.20
      Discontinued operations, net
       of income taxes                  -      -      142   0.07       -     -
      Income (loss) from continuing
       operations                    (393) (0.20)     193   0.10   2,302  1.20
      Net merger-related and
       restructuring expenses         123   0.06      108   0.05       6     -
      Earnings (loss) excluding
       merger-related and
       restructuring expenses,
       and discontinued operations  $(270) (0.14)     301   0.15   2,308  1.20
      Financial ratios
      Return on average common
       stockholders' equity         (2.11)%          0.28          13.47
      Net interest margin (a)        2.92            2.88           3.06
      Fee and other income as % of
       total revenue (a)            39.15           36.99          45.15
      Overhead efficiency ratio (a) 68.91 %         78.00          55.88
      Capital adequacy (b)
      Tier 1 capital ratio            7.5 %           7.4            7.4
      Total capital ratio            12.1            11.8           11.4
      Leverage ratio                  6.2 %           6.1            6.1
      Asset quality
      Allowance for loan losses as
       % of nonaccrual and
       restructured loans              84 %            90            207
      Allowance for loan losses as
       % of loans, net               1.37            0.98           0.80
      Allowance for credit losses
       as % of loans, net (c)        1.41            1.02           0.84
      Net charge-offs as % of
       average loans, net            0.66            0.41           0.15
      Nonperforming assets as % of
       loans, net, foreclosed
       properties and loans held
       for sale                      1.70 %          1.14           0.42

      (a)  Tax-equivalent.
      (b)  The first quarter of 2008 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.

Results include after-tax net merger-related expenses of 6 cents per share in the first quarter of 2008; these expenses did not affect earnings per share in the first quarter of 2007. Excluding the merger-related expenses, results were a net loss available to common stockholders of $270 million, or 14 cents per share, in the first quarter of 2008. Results also include the impact of the A.G. Edwards, Inc., acquisition from October 1, 2007.

     Wachovia Corporation
                                                           Three Months Ended
                                          March 31,  December 31,    March 31,
     (In millions)                            2008          2007         2007

     Net interest income (Tax-equivalent)   $4,805         4,674        4,537
     Fee and other income                    3,091         2,744        3,734
     Total revenue (Tax-equivalent)          7,896         7,418        8,271
     Provision for credit losses             2,831         1,497          177
     Noninterest expense                     5,441         5,786        4,621
     Income (loss) from continuing
      operations before income taxes
      (benefits) (Tax-equivalent)             (531)           28        3,337
     Income taxes (benefits) (Tax-
      equivalent)                             (181)         (165)       1,035
     Net income (loss) available to
      common stockholders                     (393)           51        2,302
     Average loans, net                    465,936       449,805      415,261
     Average core deposits                $394,513       390,043      369,270

Other key trends in the first quarter of 2008 compared with the first quarter of 2007 included:

     -- Revenue of $7.9 billion on higher loan and deposit balances, while fee
        and other income declined due to net market disruption-related
        valuation losses of $2.0 billion and significantly reduced fee income
        related to the disruption in the capital markets. Otherwise, strong
        momentum continued in fiduciary and asset management fees and
        brokerage commissions reflecting the A.G. Edwards acquisition and
        organic growth. Results included $445 million in net gains related to
        adoption of new fair value accounting standards and a $225 million
        gain related to the Visa initial public offering.

     -- Net interest margin compression of 14 basis points year over year,
        although the margin rose 4 basis points from the fourth quarter of
        2007. Net interest income rose modestly, reflecting growth in average
        commercial loans, up 26 percent, and average consumer loans, up 4
        percent, as well as solid core deposit growth, up 7 percent. Average
        loan growth included the impact of $7.3 billion of transfers to the
        loan portfolio from held-for-sale as well as strength in commercial,
        commercial real estate and traditional conforming mortgage loans.
        Deposit growth was led by strength in IRAs and money market accounts.

     -- An 18 percent increase in noninterest expense largely reflecting the
        impact of A.G. Edwards, as well as growth in credit-related sundry
        expense.

     -- Provision for credit losses of $2.8 billion, which exceeded net
        charge-offs by $2.1 billion. The provision largely reflected more
        severe deterioration in the residential housing market, particularly
        in specific markets in California and Florida, as well as the result
        of the refinements made to the credit reserve model for the payment
        option product. These refinements incorporate multiple and more
        granular factors regarding unprecedented consumer behavior, housing
        price deterioration and increased foreclosures. Net charge-offs were
        $765 million, or an annualized 0.66 percent of average net loans.
        Total nonperforming assets including loans held for sale were $8.4
        billion, or 1.70 percent of loans, foreclosed properties and loans
        held for sale, largely reflecting increases in consumer real estate-
        related nonperforming assets due to the effects of the weakened
        housing industry.

Lines of Business

The following discussion covers the results for Wachovia's four core business segments and is on a segment earnings basis, which excludes net merger-related and restructuring expenses, other intangible amortization and discontinued operations. Segment earnings are the basis on which Wachovia manages and allocates capital to its business segments. In accordance with Wachovia's business segment methodology, provision expense in excess of charge-offs, which amounted to $2.1 billion in the first quarter of 2008, is not allocated to 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
                                            March 31, December 31,  March 31,
     (In millions)                              2008         2007       2007

     Net interest income (Tax-equivalent)     $3,455        3,402      3,398
     Fee and other income                        990          929        845
     Total revenue (Tax-equivalent)            4,500        4,389      4,290
     Provision for credit losses                 569          320        147
     Noninterest expense                       2,050        2,041      1,869
     Segment earnings                         $1,195        1,287      1,444
     Cash overhead efficiency ratio (Tax-
      equivalent)                              45.55 %      46.50      43.56
     Average loans, net                     $311,447      303,269    288,229
     Average core deposits                   297,680      296,568    284,046
     Economic capital, average               $12,695       11,179     10,662

General Bank

The General Bank includes retail, small business and commercial customers. The first quarter of 2008 compared with the first quarter of 2007 included:

     -- Earnings of $1.2 billion, down $249 million, driven by rapidly rising
        credit costs and related expenses, which overshadowed continued strong
        sales momentum reflected in total revenue of $4.5 billion, up 5
        percent.

     -- Average loan growth of 8 percent, with double digit growth in
        wholesale businesses and 4 percent growth in mortgage lending as a
        decline in prepayments offset lower volumes on the payment option
        mortgage product.

          - Significant efforts in the mortgage business included a
            restructuring of the operating model, extensive loss mitigation
            efforts and initiatives to increase the volume of marketable
            mortgages.

          - A home equity lending decline of 41 percent, reflecting
            implementation of tightened credit standards. Over 95 percent of
            our home equity loans are originated through our branch network
            and other direct channels.

          - A 26 percent increase in auto loan originations

     -- Average core deposit growth of 5 percent, largely reflecting strength
        in wholesale deposits, which were up 10 percent, and an increase of 4
        percent in retail deposits.

          - Growth in net new retail checking accounts slowed to a still
            strong increase of 174,000 in the first quarter of 2008 compared
            with an increase of 268,000 in the first quarter of 2007.

          - Net new checking accounts include 139,000 linked to the new
            Way2Save accounts, which launched in mid-January 2008.

     -- 17 percent growth in fee and other income, with strength in service
        charges, interchange income and mortgage banking fee income. Strong
        interchange income reflected an 18 percent increase in debit/credit
        card volume from the first quarter of 2007.

     -- Noninterest expense up 10 percent due to growth in credit-related
        sundry expense, as well as on continued strategic investment in de
        novo branch activity, Western expansion and buildup in credit card
        operations. During the first quarter of 2008, 23 de novo branches were
        opened and 58 branches were consolidated. As a result of performance
        initiatives, operating leverage continued to improve, which enabled
        the continued strategic investment.

     -- A $422 million increase in the provision for credit losses largely
        reflecting rapid deterioration in consumer real estate in certain
        housing markets and higher losses on auto loans.



     Wealth Management Highlights
                                                          Three Months Ended
                                            March 31, December 31,  March 31,
     (In millions)                              2008         2007       2007

     Net interest income (Tax-equivalent)       $181          183        181
     Fee and other income                        211          214        196
     Total revenue (Tax-equivalent)              397          400        380
     Provision for credit losses                   5            7          1
     Noninterest expense                         246          249        247
     Segment earnings                            $92           91         84
     Cash overhead efficiency ratio
      (Tax-equivalent)                         62.08 %      62.27      65.12
     Average loans, net                      $22,413       21,791     20,394
     Average core deposits                    17,397       16,773     17,267
     Economic capital, average                  $705          616        592

Wealth Management

Wealth Management includes private banking, personal trust, investment advisory services, charitable services, financial planning and insurance brokerage. The first quarter of 2008 compared with the first quarter of 2007 included:

     -- Earnings of $92 million on 4 percent revenue growth in challenging
        markets.

     -- Strong fiduciary and asset management fees as a pricing initiative
        implemented in the third quarter of 2007 and new sales offset declines
        in equity valuations. Insurance commissions declined largely due to a
        soft market for insurance premiums and nonstrategic insurance account
        dispositions.

     -- Relatively flat net interest income as solid loan growth offset
        deposit spread compression.

     -- A slight decline in expense driven by efficiency initiatives, which
        offset the impact of private banking and Western expansion investment.

     -- 5 percent growth in assets under management to $79.8 billion as asset
        gathering overcame market depreciation.



     Corporate and Investment Bank Highlights
                                                           Three Months Ended
                                             March 31, December 31,  March 31,
     (In millions)                               2008         2007       2007

     Net interest income (Tax-equivalent)      $1,032          988        716
     Fee and other income                        (159)        (555)     1,109
     Total revenue (Tax-equivalent)               823          383      1,782
     Provision for credit losses                  197          112          6
     Noninterest expense                          747          952        911
     Segment earnings (loss)                     $(77)        (431)       550
     Cash overhead efficiency ratio
      (Tax-equivalent)                          90.76 %     247.83      51.10
     Average loans, net                      $101,024       91,702     73,385
     Average core deposits                     33,623       36,200     34,227
     Economic capital, average                $13,242       11,293      8,329

Corporate and Investment Bank

The Corporate and Investment Bank includes corporate lending, investment banking, and treasury and international trade finance. First quarter 2008 results compared with the first quarter of 2007 included:

     -- A segment loss of $77 million driven by $1.6 billion in net valuation
        losses reflecting continued disruption in the capital markets and
        reduced origination volume in most market-related businesses.

     -- Market valuation losses, net of applicable hedges, of:

          - $339 million in subprime residential asset-backed collateralized
            debt obligations and other related exposures, compared with $818
            million in fourth quarter 2007, excluding discontinued operations;

          - $521 million in commercial mortgage structured products, compared
            with $600 million in fourth quarter 2007;

          - $251 million in consumer mortgage structured products, compared
            with $123 million in fourth quarter 2007;

          - $309 million in leveraged finance net of fees, compared with a net
            $93 million gain in fourth quarter 2007; and

          - $144 million in non-subprime collateralized debt obligations and
            other structured products, compared with a $59 million net gain in
            fourth quarter 2007.

     -- A 44 percent increase in net interest income, which reflected 38
        percent growth in average loans including the transfer into the loan
        portfolio at fair value of certain loans originally slated for
        disposition, as well as loan growth in the corporate lending and
        global financial institutions business.

     -- Principal investing revenue of $414 million, largely due to a net $486
        million of gains related to the adoption of new fair value accounting
        standards in January 2008, offset by mark-to-market losses in the
        direct investment portfolio.

     -- An 18 percent decline in noninterest expense primarily due to lower
        variable compensation and reduced headcount in investment banking.

     -- Provision of $197 million largely reflecting residential-related
        commercial real estate losses.



     Capital Management Highlights
                                                          Three Months Ended
                                           March 31,  December 31,  March 31,
     (In millions)                             2008          2007       2007

     Net interest income (Tax-equivalent)      $274           318        259
     Fee and other income                     2,191         2,211      1,477
     Total revenue (Tax-equivalent)           2,455         2,518      1,728
     Provision for credit losses                  -             -          -
     Noninterest expense                      1,855         1,938      1,237
     Segment earnings                          $381           368        312
     Cash overhead efficiency ratio
      (Tax-equivalent)                        75.54 %       76.96      71.59
     Average loans, net                      $2,562         2,295      1,554
     Average core deposits                   43,084        38,019     31,683
     Economic capital, average               $2,143         2,120      1,334

Capital Management

Capital Management includes retail brokerage services and asset management. The first quarter of 2008 compared with the first quarter of 2007 included:

     -- Earnings of $381 million on 42 percent revenue growth, which primarily
        reflected the A.G. Edwards acquisition. In addition, solid growth in
        retail brokerage managed account and other asset-based fees despite
        declining equity markets offset lower transactional revenue and equity
        syndicate distribution fees. The impact of FDIC sweep deposit growth
        of $11.0 billion partially offset spread compression in the declining
        interest rate environment.

     -- Record annuity sales of $2.7 billion, including $1.5 billion in the
        General Bank financial centers.

     -- 50 percent growth in noninterest expense largely due to the effect of
        A.G. Edwards, as well as higher legal expense and revenue-based
        commissions.

Total assets under management of $258.7 billion at March 31, 2008, decreased 6 percent from December 31, 2007, primarily due to declining market valuations.

Wachovia Corporation NYSE: WB is one of the nation's largest diversified financial services companies, with assets of $808.9 billion and market capitalization of $53.8 billion at March 31, 2008. Wachovia provides a broad range of retail banking and brokerage, asset and wealth management, and corporate and investment banking products and services to customers through 3,300 retail financial centers in 21 states from Connecticut to Florida and west to Texas and California, and nationwide retail brokerage, mortgage lending and auto finance businesses. Globally, clients are served in selected corporate and institutional sectors and through more than 40 international offices. Our retail brokerage operations under the Wachovia Securities brand name manage more than $1.1 trillion in client assets through 18,600 registered representatives in 1,500 offices nationwide. Online banking is available at wachovia.com; online brokerage products and services at wachoviasec.com; and investment products and services at evergreeninvestments.com.

Forward-Looking Statements

This news release contains various forward-looking statements. A discussion of various factors that could cause Wachovia Corporation's actual results to differ materially from those expressed in such forward-looking statements is included in Wachovia's filings with the Securities and Exchange Commission, including its Current Report on Form 8-K dated April 14, 2008.

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 2 and on page 11 under the captions "Earnings Excluding Merger-Related and Restructuring Expenses, and Discontinued Operations" and "Earnings Excluding Merger-Related and Restructuring Expenses, Other Intangible Amortization and Discontinued Operations", and which are reconciled to GAAP financial measures on pages 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, discontinued operations and the cumulative effect of a change in accounting principle permits evaluation and a comparison of results for on-going business operations, and it is on this basis that Wachovia's management internally assesses the company's performance. Those non-operating items are excluded from Wachovia's segment measures used internally to evaluate segment performance in accordance with GAAP because management does not consider them particularly relevant or useful in evaluating the operating performance of our business segments. In addition, because of the significant amount of deposit base intangible amortization, Wachovia believes the exclusion of this expense provides investors with consistent and meaningful comparisons to other financial services firms. Wachovia's management makes recommendations to its board of directors about dividend payments based on reported earnings excluding merger-related and restructuring expenses, other intangible amortization, discontinued operations and the cumulative effect of a change in accounting principle, and has communicated certain dividend payout ratio goals to investors on this basis. Management believes this payout ratio is useful to investors because it provides investors with a better understanding of and permits investors to monitor Wachovia's dividend payout policy. Wachovia also believes the presentation of net interest income on a tax-equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry standards. Wachovia operates one of the largest retail brokerage businesses in our industry, and we have presented an overhead efficiency ratio excluding these brokerage services, which management believes is useful to investors in comparing the performance of our banking business with other banking companies.

Although Wachovia believes the above non-GAAP financial measures enhance investors' understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP basis financial measures.

Earnings Conference Call and Supplemental Materials

Wachovia CEO Ken Thompson and CFO Tom Wurtz will review Wachovia's first quarter 2008 results in a conference call and audio web cast beginning at 8:00 a.m. Eastern Daylight Saving Time today. This review may include a discussion of certain non-GAAP financial measures. Supplemental materials relating to first 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.

Web cast Instructions: To gain access to the web cast, which will be "listen-only," go to Wachovia.com/investor and click on the link "Wachovia First Quarter Earnings Audio Web cast." In order to listen to the web cast, you will need to download either Real Player or Media Player.

Teleconference Instructions: The telephone number for the conference call is 888-357-9787 for U.S. callers or 706-679-7342 for international callers. You will be asked to tell the answering coordinator your name and the name of your firm. Mention the conference Access Code: WB Investor.

Replay: Monday, April 14, by 12:00 Noon EST and continuing through 5 p.m. EST Friday, July 11. Replay telephone number is 706-645-9291; access code: 43662109.

Wachovia may file a registration statement (including prospectus) with the SEC for the offering to which this communication relates. Investors should read the prospectus in that registration statement, the preliminary prospectus supplement and other documents that Wachovia has filed with the SEC for more complete information about Wachovia and this offering. Documents may be obtained for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, investors may call toll-free 1-800-326-5897 to request that the prospectus be mailed after filing.