Wachovia Corp. CEO Robert King Steel bought 1000000 shares on 7-22-2008 at $16.09
Wachovia was incorporated under the laws of North Carolina in 1967 and is registered as a financial holding company and a bank holding company under the Bank Holding Company Act of 1956, as amended. The merger of the former Wachovia Corporation (â€śLegacy Wachoviaâ€ť) and First Union Corporation (â€śLegacy First Unionâ€ť) was effective September 1, 2001. Legacy First Union changed its name to â€śWachovia Corporationâ€ť on the date of the merger. As the surviving corporate entity in the merger, information contained in this Annual Report on Form 10-K, unless indicated otherwise, includes information about Legacy First Union only. Whenever we use the â€śWachoviaâ€ť name in this Annual Report on Form 10-K, we mean the new combined company and, before the merger, Legacy First Union, unless indicated otherwise.
We provide a wide range of commercial and retail banking and trust services through full-service banking offices in Alabama, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Kansas, Maryland, Mississippi, Nevada, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and Washington, D.C. Our primary banking affiliate, Wachovia Bank, National Association (â€śWBNAâ€ť), operates a substantial majority of these banking offices, except those in Delaware, which are operated by Wachovia Bank of Delaware, National Association, and except certain branch offices in Florida, New Jersey and Texas, which are operated by Wachovia Mortgage, FSB (formerly named World Savings Bank, FSB, â€śWachovia Mortgageâ€ť). We also provide various other financial services, including mortgage banking, investment banking, investment advisory, home equity lending, asset-based lending, leasing, insurance, international and securities brokerage services, through other subsidiaries. Our retail securities brokerage business is conducted through Wachovia Securities, LLC, and operates in 49 states.
Our principal executive offices are located at One Wachovia Center, 301 South College Street, Charlotte, North Carolina 28288-0013 (telephone number (704) 374-6565).
Since the 1985 Supreme Court decision allowing interstate banking expansion, we have concentrated our efforts on building a large, diversified financial services organization. Since November 1985, we have completed over 100 banking-related acquisitions.
Our business focus is on generating improved core earnings growth from our four key businesses, including Capital Management, the General Bank, Wealth Management, and the Corporate and Investment Bank. We will continue to evaluate our operations and organizational structures to ensure they are closely aligned with our goal of maximizing performance in our core business lines. When consistent with our overall business strategy, we may consider the disposition of certain assets, branches, subsidiaries or lines of business. We routinely explore acquisition opportunities, particularly in areas that would complement our core business lines, and frequently conduct due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations frequently take place and future acquisitions involving cash, debt or equity securities can be expected.
Additional information relating to our businesses and our subsidiaries is included in the information set forth on pages 23 through 29 and in Note 14 on pages 108 through 110 in the Annual Report and incorporated herein by reference. Information relating to Wachovia Corporation only is set forth in Note 23 on pages 135 through 137 in the Annual Report and incorporated herein by reference.
Wachoviaâ€™s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are accessible at no cost on our website, www.wachovia.com , as soon as reasonably practicable after those reports have been electronically filed or submitted to the SEC. These filings are also accessible on the SECâ€™s website, www.sec.gov . In addition, Wachovia makes available on www.wachovia.com (i) its Corporate Governance Guidelines, (ii) its Director Independence Standards, (iii) its Code of Conduct & Ethics, which applies to its directors and all employees, and (iv) the charters of the Audit, Management Resources & Compensation, and Corporate Governance & Nominating Committees of its Board of Directors. These materials also are available free of charge in print to stockholders who request them by writing to: Investor Relations, Wachovia Corporation, 301 South College Street, Charlotte, North Carolina 28288-0206. Wachovia also makes available through our website statements of beneficial ownership of Wachoviaâ€™s equity securities filed by our directors, officers and 10% or greater shareholders under Section 16 of the Securities Exchange Act of 1934. The information on our website is not incorporated by reference into this report.
Our subsidiaries face substantial competition in their operations from domestic and international banking and non-banking institutions, including savings and loan associations, credit unions, money market funds and other investment vehicles, mutual fund advisory companies, brokerage firms, insurance companies, hedge funds, private equity firms, leasing companies, credit card issuers, mortgage banking companies, investment banking companies, finance companies and other types of financial services providers, including Internet-only financial service providers.
REGULATION AND SUPERVISION
The following discussion sets forth some of the material elements of the regulatory framework applicable to financial holding companies and bank holding companies and their subsidiaries and provides some specific information relevant to us. The regulatory framework is intended primarily for the protection of depositors and the Bank Insurance Fund and not for the protection of security holders and creditors. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions.
The current regulatory environment for financial institutions includes substantial enforcement activity by the federal banking agencies, the U.S. Department of Justice, the Securities and Exchange Commission and other state and federal law enforcement agencies, reflecting an increase in activity over prior years. This environment entails significant potential increases in compliance requirements and associated costs.
Bank Holding Company Activities
As a financial holding company and a bank holding company, Wachovia is regulated under the Bank Holding Company Act of 1956, as well as other federal and state laws governing the banking business. The Board of Governors of the Federal Reserve System (the â€śFederal Reserve Boardâ€ť) is the primary regulator of Wachovia, and supervises our activities on a continual basis. Our subsidiaries are also subject to regulation and supervision by various regulatory authorities, including the Federal Reserve Board, the Comptroller of the Currency (the â€śComptrollerâ€ť), the Office of Thrift Supervision (the â€śOTSâ€ť) and the Federal Deposit Insurance Corporation (the â€śFDICâ€ť).
The Gramm-Leach-Bliley Financial Modernization Act of 1999, which amended the Bank Holding Company Act,
â€˘ allows bank holding companies that qualify as â€śfinancial holding companiesâ€ť to engage in a broad range of financial and related activities;
â€˘ allows insurers and other financial services companies to acquire banks;
â€˘ removes various restrictions that applied to bank holding company ownership of securities firms and mutual fund advisory companies; and
â€˘ establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations.
The Federal Reserve Board notified us that, effective March 13, 2000, we are authorized to operate as a financial holding company and therefore are eligible to engage in, or acquire companies engaged in, the broader range of activities that are permitted by the Modernization Act. These activities include those that are determined to be â€śfinancial in natureâ€ť, including insurance underwriting, securities underwriting and dealing, and making merchant banking investments in commercial and financial companies. If any of our banking subsidiaries ceases to be â€śwell capitalizedâ€ť or â€śwell managedâ€ť under applicable regulatory standards, the Federal Reserve Board may, among other things, place limitations on our ability to conduct these broader financial activities or, if the deficiencies persist, require us to divest the banking subsidiary. In addition, if any of our banking subsidiaries receives a rating of less than satisfactory under the Community Reinvestment Act of 1977 (â€śCRAâ€ť), we would be prohibited from engaging in any additional activities other than those permissible for bank holding companies that are not financial holding companies. Our banking subsidiaries currently meet these capital, management and CRA requirements.
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the â€śIBBEAâ€ť) authorized interstate acquisitions of banks and bank holding companies without geographic limitation. Under IBBEA a bank holding company cannot make an interstate acquisition of a bank if, as a result, it would control more than 10% of the total United States insured depository deposits and more than 30% or the applicable state law limit of deposits in that state.
As a bank holding company, we are required to obtain prior Federal Reserve Board approval before acquiring more than 5% of the voting shares, or substantially all of the assets, of a bank holding company, bank or savings association. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institutionâ€™s record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the CRA.
Wachovia is a legal entity separate and distinct from its banking and other subsidiaries. A major portion of our revenues results from amounts paid as dividends to us by our bank subsidiaries. The Comptrollerâ€™s prior approval is required if the total of all dividends declared by a national bank in any calendar year will exceed the sum of that bankâ€™s net profits for that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits national banks from paying dividends that would be greater than the bankâ€™s undivided profits after deducting statutory bad debt in excess of the bankâ€™s allowance for loan losses. In addition, our federal savings banks must file a notice with the OTS at least 30 days prior to paying a dividend to their parent company.
Under the foregoing dividend restrictions and certain restrictions applicable to certain of our non-banking subsidiaries, as of December 31, 2007, our subsidiaries, without obtaining affirmative governmental approvals, could pay aggregate dividends of $14.3 billion to us during 2008. This amount is not necessarily indicative of amounts that may be available in future periods. In 2007, our subsidiaries paid $2.9 billion in cash dividends to us.
In addition, we and our banking subsidiaries are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a bank or bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The appropriate federal regulatory authorities have indicated that paying dividends that deplete a bankâ€™s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.
Source of Strength
Under Federal Reserve Board policy, we are expected to act as a source of financial strength to each of our subsidiary banks and to commit resources to support each of those subsidiaries. This support may be required at times when, absent that Federal Reserve Board policy, we may not find ourselves able to provide it. Capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of a bank holding companyâ€™s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Federal law also authorizes the Comptroller to order an assessment of Wachovia if the capital of one of our national bank subsidiaries were to become impaired. If we failed to pay the assessment within three months, the Comptroller could order the sale of our stock in the national bank to cover the deficiency.
Federal banking regulators have adopted risk-based capital and leverage guidelines that require that our capital-to-assets ratios meet certain minimum standards. Under the risk-based capital requirements for bank holding companies, the minimum requirement for the ratio of capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) is 8%. At least half of the total capital (as defined below) is to be composed of common stockholdersâ€™ equity, retained earnings, qualifying perpetual preferred stock (in a limited amount in the case of cumulative preferred stock) and minority interests in the equity accounts of consolidated subsidiaries, less goodwill and certain intangibles (â€śtier 1 capitalâ€ť). The remainder of total capital may consist of mandatory convertible debt securities and a limited amount of subordinated debt, qualifying preferred stock and loan loss allowance (â€śtier 2 capitalâ€ť, and together with tier 1 capital, â€śtotal capitalâ€ť). At December 31, 2007, our tier 1 capital and total capital ratios were 7.35% and 11.82%, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These requirements provide for a minimum leverage ratio of tier 1 capital to adjusted average quarterly assets less certain amounts (â€śleverage ratioâ€ť) equal to 3% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies will generally be required to maintain a leverage ratio of at least 4%. Our leverage ratio at December 31, 2007, was 6.09%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the guidelines indicate that the Federal Reserve Board will continue to consider a â€śtangible tier 1 leverage ratioâ€ť (deducting all intangibles) in evaluating proposals for expansion or to engage in new activity. The Federal Reserve Board has not advised us of any specific minimum leverage ratio or tier 1 leverage ratio applicable to us.
Each of our subsidiary banks is subject to similar capital requirements adopted by the Comptroller, the OTS or other applicable regulatory agency. Neither the Comptroller, the OTS nor such other applicable regulatory agency has advised any of our subsidiary banks of any specific minimum leverage ratios applicable to it. The capital ratios of our bank subsidiaries are set forth in Table 19 on page 64 in the Annual Report and incorporated herein by reference.
The risk-based capital requirements identify concentrations of credit risk and certain risks arising from non-traditional activities, and the management of those risks, as important factors to consider in assessing an institutionâ€™s overall capital adequacy. Other factors taken into consideration by federal regulators include: interest rate exposure; liquidity, funding and market risk; the quality and level of earnings; the quality of loans and investments; the effectiveness of loan and investment policies; and managementâ€™s overall ability to monitor and control financial and operational risks, including the risks presented by concentrations of credit and non-traditional activities.
Effective April 1, 2002, Federal Reserve Board rules govern the regulatory capital treatment of merchant banking investments and certain other equity investments, including investments made by our principal investing group, in non-financial companies held by bank holding companies. The rules generally impose a capital charge that increases incrementally as the value of the banking organizationâ€™s equity investments increase. An 8% tier 1 capital deduction would apply on covered investments that in total represent up to 15% of an organizationâ€™s tier 1 capital. For covered investments that total more than 25% of the organizationâ€™s tier 1 capital, a capital deduction of 25% would be imposed. Equity investments made through small business investment companies in an amount up to 15% of the banking organizationâ€™s tier 1 capital are exempt from the new charges, but the full amount of the equity investments are still included when calculating the aggregate value of the banking organizationâ€™s non-financial equity investments.
Changes to the risk-based capital regime are frequently proposed or implemented. The minimum risk-based capital requirements adopted by the federal banking agencies follow the Capital Accord of the Basel Committee on Banking Supervision. Please see â€śRegulatory Mattersâ€ť in the Annual Report, incorporated herein by reference, for additional information on the Basel Committee.
WBNA and our other national bank subsidiaries are subject to the provisions of the National Bank Act, are under the supervision of, and subject to periodic examination by, the Comptroller, and are subject to the rules and regulations of the Comptroller, the Federal Reserve Board, and the FDIC. Wachovia Mortgage and our other federal savings bank subsidiaries are under the supervision of, and subject to periodic examination by, the OTS, and are subject to the rules and regulations of the OTS, the Federal Reserve Board, and the FDIC. WBNAâ€™s operations in other countries are also subject to various restrictions imposed by the laws of those countries. In addition, all of our banks have FDIC insurance and are subject to the Federal Deposit Insurance Act (the â€śFDIAâ€ť).
Prompt Corrective Action
The FDIA, among other things, requires the federal banking agencies to take â€śprompt corrective actionâ€ť in respect of depository institutions that do not meet minimum capital requirements. The FDIA establishes five tiers for FDIC-insured banks: (i) â€śwell capitalizedâ€ť if it has a total capital ratio of 10% or greater, a tier 1 capital ratio of 6% or greater and a leverage ratio of 5% or greater and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure; (ii) â€śadequately capitalizedâ€ť if it has a total capital ratio of 8% or greater, a tier 1 capital ratio of 4% or greater and a leverage ratio of 4% or greater (3% in certain circumstances) and is not â€śwell capitalizedâ€ť; (iii) â€śundercapitalizedâ€ť if it has a total capital ratio of less than 8%, a tier 1 capital ratio of less than 4% or a leverage ratio of less than 4% (3% in certain circumstances); (iv) â€śsignificantly undercapitalizedâ€ť if it has a total capital ratio of less than 6%, a tier 1 capital ratio of less than 3% or a leverage ratio of less than 3%; and (v) â€ścritically undercapitalizedâ€ť if its tangible equity is equal to or less than 2% of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. As of December 31, 2007, all of our deposit-taking subsidiary banks had capital levels that qualify them as being â€śwell capitalizedâ€ť under those regulations.
Undercapitalized depository institutions are subject to growth limitations, the requirement to submit a capital restoration plan, and a variety of other restrictions the severity of which are keyed to the bankâ€™s capital tier and other factors. Ultimately, critically undercapitalized institutions are subject to the appointment of a receiver or conservator.
Each of our banks can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC due to the default of any other of our banks, and for any assistance provided by the FDIC to any of our banks that is in danger of default and that is controlled by the same bank holding company. â€śDefaultâ€ť means generally the appointment of a conservator or receiver. â€śIn danger of defaultâ€ť means generally the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. An FDIC cross-guarantee claim against a bank is generally superior in right of payment to claims of the holding company and its affiliates against such depository institution.
If the FDIC is appointed the conservator or receiver of an insured depository institution, upon its insolvency or in certain other events, the FDIC has the power: (i) to transfer any of the depository institutionâ€™s assets and liabilities to a new obligor without the approval of the depository institutionâ€™s creditors; (ii) to enforce the terms of the depository institutionâ€™s contracts pursuant to their terms; or (iii) to repudiate or disaffirm any contract or lease to which the depository institution is a party, the performance of which is determined by the FDIC to be burdensome and the disaffirmance or repudiation of which is determined by the FDIC to promote the orderly administration of the depository institution.
The FDIC assessment rate on our subsidiary bank deposits currently is zero, but may change in the future. The FDIC may increase or decrease the assessment rate schedule on a semiannual basis. An increase in the BIF assessment rate could have a material adverse effect on our earnings, depending on the amount of the increase. The FDIC is authorized to terminate a depository bankâ€™s deposit insurance upon a finding by the FDIC that the bankâ€™s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the bankâ€™s regulatory agency. The termination of deposit insurance for one or more of our subsidiary depository banks could have a material adverse effect on our earnings, depending on the collective size of the particular institutions involved. In addition, if the ratio of insured deposits to money in the BIF drops below specified levels, the FDIC would be required to impose premiums on all banks insured by the BIF.
There are also various legal restrictions on the extent to which Wachovia and our non-bank subsidiaries can transfer funds to, or borrow or otherwise obtain credit from, our banking subsidiaries. In general, these restrictions require that any such extensions of credit must be secured by designated amounts of specified collateral and are limited, as to any one of us or those non-bank subsidiaries, to 10% of the lending bankâ€™s capital stock and surplus, and as to us and all non-bank subsidiaries in the aggregate, to 20% of such lending bankâ€™s capital stock and surplus. A bankâ€™s transactions with its non-bank affiliates are also generally required to be on armâ€™s length terms.
Under federal law, deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the â€śliquidation or other resolutionâ€ť of such an institution by any receiver. As a result, whether or not the FDIC ever sought to repudiate any obligations held by public noteholders of any subsidiary of Wachovia that is an insured depository institution, the public noteholders would be treated differently from, and could receive, if anything, substantially less than, the depositors of the depository institution.
Our bank and certain nonbank subsidiaries are subject to direct supervision and regulation by various other federal, state and foreign authorities (many of which will be considered â€śfunctional regulatorsâ€ť under the Modernization Act). We also conduct securities underwriting, dealing and brokerage activities primarily through Wachovia Securities, LLC and Wachovia Capital Markets, LLC, which are principally regulated by the SEC and the Financial Industry Regulatory Authority (â€śFINRAâ€ť). The operations of our mutual funds also are subject to regulation by the SEC. Our insurance subsidiaries are subject to regulation by applicable state insurance regulatory agencies. The types of activities in which the foreign branches of WBNA and our international subsidiaries may engage are subject to various restrictions imposed by the Federal Reserve Board. Those foreign branches and international subsidiaries also are subject to the laws and regulatory authorities of the countries in which they operate.
The Wachovia entities that are broker-dealers registered with the SEC are subject to, among other things, net capital rules designed to measure the general financial condition and liquidity of a broker-dealer. Under these rules, these entities are required to maintain the minimum net capital deemed necessary to meet broker-dealersâ€™ continuing commitments to customers and others and required to keep a substantial portion of their assets in relatively liquid form. Broker-dealers are also subject to other regulations covering their business operations, including sales and trading practices, public offerings, publication of research reports, use and safekeeping of client funds and securities, capital structure, record-keeping and the conduct of directors, officers and employees. Broker-dealers are also subject to regulation by state securities regulators in applicable states. Violations of the regulations governing the actions of a broker-dealer can result in the revocation of broker-dealer licenses, the imposition of censures or fines, the issuance of cease and desist orders and the suspension or expulsion from the securities business of a firm, its officers or its employees.
Wachovia entities engaging in our investment management activities are registered as investment advisers with the SEC, and in certain states, some employees are registered as investment adviser representatives. Recent legislative and regulatory scrutiny in the mutual fund industry has increased. This scrutiny has resulted in the adoption of new rules and a number of legislative and regulatory proposals, including SEC rules designed to strengthen existing prohibitions relating to late trading and enhance required disclosure and supervision of market timing policies and pricing and mutual fund sales practices.
Our subsidiaries acting as consumer lenders also are subject to regulation under various federal laws, including the Truth-in-Lending, the Equal Credit Opportunity, the Fair Credit Reporting, the Fair Debt Collection Practice and the Electronic Funds Transfer Acts, as well as various state laws. These statutes impose requirements on the making, enforcement and collection of consumer loans and on the types of disclosures that need to be made in connection with such loans.
International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001
The USA Patriot Act of 2001 contains the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (the â€śIMLAFAâ€ť). The IMLAFA substantially broadens existing anti-money laundering legislation and the extraterritorial jurisdiction of the United States, imposes new compliance and due diligence obligations, creates new crimes and penalties, compels the production of documents located both inside and outside the United States, including those of foreign institutions that have a correspondent relationship in the United States, and clarifies the safe harbor from civil liability to customers. The U.S. Treasury Department has issued a number of regulations implementing the USA Patriot Act that apply certain of its requirements to financial institutions such as our banking and broker-dealer subsidiaries. The regulations impose new obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing. The increased obligations of financial institutions, including Wachovia, to identify their customers, watch for and report suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and share information with other financial institutions, requires the implementation and maintenance of internal procedures, practices and controls which have increased, and may continue to increase, our costs and may subject us to liability.
Pursuant to the IMLAFA, Wachovia established anti-money laundering compliance and due diligence programs which include, among other things, the designation of a compliance officer, employee training programs, and an independent audit function to review and test the program.
As noted above, enforcement and compliance-related activity by government agencies has increased. Money laundering and anti-terrorism compliance are among the areas receiving a high level of focus in the present environment.
Under the Modernization Act, federal banking regulators adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to nonaffiliated third parties. The privacy provisions of the Modernization Act affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors.
Changes to the laws and regulations (including changes in interpretation or enforcement) in the states and countries where we and our subsidiaries do business can affect the operating environment of bank holding companies and their subsidiaries in substantial and unpredictable ways. From time to time, various legislative and regulatory proposals are introduced. These proposals, if codified, may change banking statutes and regulations and our operating environment in substantial and unpredictable ways. If codified, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions and other financial institutions. We cannot accurately predict whether those changes in laws and regulations will occur, and, if those changes occur, the ultimate effect they would have upon our financial condition or results of operations. It is likely, however, that the current high level of enforcement and compliance-related activities of federal and state authorities will continue and potentially increase.
JOHN D. BAKER, II (59). President and Chief Executive Officer, Patriot Transportation Holding, Inc., Jacksonville, Florida, a motor carrier and flatbed transportation hauler and real estate management company, since February 2008. Previously, President and Chief Executive Officer, Florida Rock Industries, Inc., Jacksonville, Florida, a heavy building materials company, prior to November 2007. Director, Patriot Transportation Holding, Inc. and Vulcan Materials Company. A director since 2001.
PETER C. BROWNING (66). Lead Director of Nucor Corporation, Charlotte, North Carolina, a steel products manufacturing company, since May 2006. Previously, Non-Executive Chairman of Nucor Corporation, prior to May 2006 and Dean, McColl Graduate School of Business, Queens University of Charlotte, from March 2002 to May 2005. Also, Chief Executive Officer of Sonoco Products Company, from 1998 to 2000, and Chief Executive Officer of National Gypsum Company, from 1990 to 1993. Director, Acuity Brands Inc., EnPro Industries, Inc., Loweâ€™s Companies, Inc., Nucor Corporation and The Phoenix Companies, Inc. A director since 2001.
JOHN T. CASTEEN, III (64). President of the University of Virginia, Charlottesville, Virginia. A director since 2001.
JERRY GITT (65). Retired, Palm Desert, California. Previously, First Vice President of Equity Research, Merrill, Lynch & Company, prior to 2000. A director since 2006.
WILLIAM H. GOODWIN, JR . (67). Chairman and President, CCA Industries, Inc., Richmond, Virginia, a diversified holding company. Also, Chairman, Chief Executive Officer and Chief Operating Officer of The Riverstone Group, LLC, Richmond, Virginia, a diversified holding company. A director since 1993.
MARYELLEN C. HERRINGER (64). Attorney-at-law, Piedmont, California. Also, Non-Executive Chair of ABM Industries Incorporated, San Francisco, California, a facilities services company, since March 2006. Previously, Executive Vice President, General Counsel and Secretary, APL Limited, Oakland, California, an intermodal shipping and rail transportation company, until 1997. Director, ABM Industries Incorporated, Pacific Gas & Electric Company and PG & E Corporation. A director since 2006.
ROBERT A. INGRAM (65). Vice Chairman Pharmaceuticals, of GlaxoSmithKline, Research Triangle Park, North Carolina, a pharmaceutical research and development company, since January 2003. Also, Chairman of the Board, OSI Pharmaceuticals, Inc., Melville, New York, a biotechnology company, since January 2003, and Lead Director, Valeant Pharmaceuticals International, Aliso Viejo, California, a specialty pharmaceutical company focused on neurology, dermatology and infectious disease, since February 2008. Previously, Chief Operating Officer and President, Pharmaceutical Operations, of GlaxoSmithKline plc, from December 2000 to January 2003 and Chairman of the Board, Valeant Pharmaceuticals International, from August 2007 to February 2008. Director, Allergan, Inc., Edwards Lifesciences Corporation, Loweâ€™s Companies, Inc., OSI Pharmaceuticals, Inc. and Valeant Pharmaceuticals International. A director since 2001.
DONALD M. JAMES (59). Chairman and Chief Executive Officer, Vulcan Materials Company, Birmingham, Alabama, a construction materials company. Director, The Southern Company and Vulcan Materials Company. A director since 2004.
MACKEY J. MCDONALD (61). Chairman, VF Corporation, Greensboro, North Carolina, an apparel manufacturer. Previously, Chief Executive Officer prior to January 2008 and President prior to March 2006, VF Corporation. Director, VF Corporation. A director since 1997.
JOSEPH NEUBAUER (66). Chairman and Chief Executive Officer, ARAMARK Holdings Corporation, Philadelphia, Pennsylvania, a service management company, since January 2007. Previously, Chairman and Chief Executive Officer, ARAMARK Corporation, from September 2004 to January 2007, Executive Chairman of the Board, from January 2004 to September 2004, and Chairman and Chief Executive Officer of ARAMARK Corporation, prior to January 2004. Director, ARAMARK Corporation, Macyâ€™s, Inc. and Verizon Communications, Inc. A director since 1996.
TIMOTHY D. PROCTOR (58). General Counsel, Diageo plc, London, England, a premium spirits, beer and wine company, since January 2000. A director since 2006.
ERNEST S. RADY (70). Principal shareholder, manager and consultant to a group of companies engaged in real estate management and development, property and casualty insurance and investment management through American Assets, Inc. (President and founder) and Insurance Company of the West (Chairman), Irvine, California. Previously, Chairman of Dealer Finance business and California banking business, Wachovia Corporation, from March 2006 to March 2007 and Chairman and Chief Executive Officer, Westcorp, and Chairman, WFS Financial Inc, Irvine, California, commercial banking and automobile finance companies, prior to March 2006. A director since 2006.
VAN L. RICHEY (58). President and Chief Executive Officer, American Cast Iron Pipe Company, Birmingham, Alabama, a manufacturer of products for the waterworks, capital goods and energy industries. A director since 2004.
RUTH G. SHAW (60). Retired, Charlotte, North Carolina. Also, Executive Advisor to the Chairman and Chief Executive Officer, Duke Energy Corporation, Charlotte, North Carolina, one of the largest electric power companies in the United States, since October 2006. Previously, Group Executive Public Policy and President, Duke Nuclear, from April 2006 to October 2006, President (from March 2003 to April 2006) and Chief Executive Officer (from October 2004 to April 2006), Duke Power Company, and Executive Vice President and Chief Administrative Officer, Duke Energy Corporation, prior to March 2003. Director, The Dow Chemical Company and DTE Energy Company. A director since 1990.
LANTY L. SMITH (65). Chairman and Chief Executive Officer, Tippet Capital, LLC, Raleigh, North Carolina, an investment and merchant banking firm, since 2007. Also, Chairman, Precision Fabrics Group, Inc., Greensboro, North Carolina, a manufacturer of high technology specification textile products. Previously, Chairman, Soles Brower Smith & Co., Greensboro, North Carolina, an investment and merchant banking firm, prior to 2007. A director since 1987.
G. KENNEDY THOMPSON (57). Chairman (since February 2003), President and Chief Executive Officer, Wachovia Corporation. Director, Hewlett-Packard Company and Wachovia Preferred Funding Corp. A director since 1999.
DONA DAVIS YOUNG (54). Chairman (since April 2003), President and Chief Executive Officer (since January 2003) of The Phoenix Companies, Inc., Hartford, Connecticut, a provider of a broad array of life insurance, annuity and investment products and services, and its subsidiary Phoenix Life Insurance Company. Previously, Chief Operating Officer (February 2001 to January 2003) of The Phoenix Companies, Inc., and President (since February 2000) and Chief Operating Officer (since February 2001) of Phoenix Life Insurance Company. Director, Foot Locker, Inc. and The Phoenix Companies, Inc. A director since 2001.
Alice Lehman - Director of Wachovia Investor Relations
Thank you, operator and thanks to everyone out there for joining our call this morning. We hope you have received our earnings release by now as well as the slides we will be using in today's presentation and our supplemental quarterly earnings report. If you haven't, all of these documents are available on our Investor Relations website at wachovia.com/investor.
In this call we will review the first 28 pages of the slide presentation package. In addition to this teleconference, this call is available through a listen-only live audio webcast. Replays of the teleconference will be available by about one o'clock today and will continue through 5 PM, Friday, October 17. The replay phone number is 706-645-9291, the access code is 49418191.
Our CEO, Bob Steel, will kick things off. He will be followed by CFO, Tom Wurtz, and our Chief Risk Officer, Don Truslow. Also with us are, our Chairman, Lanty Smith and other members of our executive management team, all of whom are here to answer your questions as well. We will be happy to take your questions at the end. Of course, before we begin I have a few reminders.
First, any forward-looking statements made during this call are subject to risk and uncertainties. Factors that could cause Wachovia's results to differ materially from any forward-looking statements are set forth in Wachovia's public reports filed with the SEC, including Wachovia's current report on Form 8-K filed today. Second, some of the discussion about our company's performance today will include references to non-GAAP financial measures. Information that reconciles those measures to GAAP measures can be found in our filings with the SEC and in the news release and the supplemental material located at wachovia.com/investor. And finally, when you do ask questions, please give your name and your firm's name.
Now, let me turn this over to Bob Steel.
Robert K. Steel - Chief Executive Officer and President
Thank you Alice, and thank all of you for joining. This is an important call for Wachovia and we appreciate your attention. As Alice said, the call this morning will really be in three parts. After some introductory comments by me, Tom Wurtz will talk about the facts and the financials, then Don Truslow will talk about some challenges in our credit area and what we think are very realistic assumptions for dealing with this and our strategy. And then lastly, I'll return to make some concluding comments about capital and liquidity. And thank you for your attention. As Alice said too, we have business leaders with us here in the room today. So should your questions be best answered by one of them, we will introduce them and they can speak more specifically to the issues.
Now let me began by introductory comments and reference you should you be looking at the deck to page 1. Basically, the facts are outlined on this first page. There were GAAP losses of $8.9 billion, including a $4.2 billion credit reserve billed that we have previously announced, as well as the goodwill impairment we'd also [inaudible] for you earlier which totaled $6.1 billion. Excluding the goodwill impairment, we had an operating loss of about $2.7 billion, consistent with what we had announced previously on July 9.
And excluding about $9 billion of what we are calling "Notable items", we generated $4 billion in pre-tax pre-provision results. This is a very important fact to us at Wachovia. The core franchises of our company are strong and in some cases getting stronger and our goal is to make them the strongest. But let me stop, our reported results today are clearly a disappointing performance for which we take responsibility. We are serious about getting on top of these issues quickly and we believe we have a good grasp of the challenges facing the economy, the industry and Wachovia.
Today, we're going to discuss decisive steps that we believe we're taking to generate, protect, and preserve capital through first, a reduction in the quarterly dividend to $0.05 per common share and with the dividend reduction, and the other organic levers we have to rebuild capital, we estimate that we'll preserve or free up more than $5 billion of capital. And we look forward to discussing all of these different issues with you today.
In addition to freeing up capital, we are also doing our best to remove significant credit risk by exiting the General Bank's wholesale mortgage origination channel immediately. Previously announced, we had ceased originating the negative am [ph] Pick-A-Pay mortgages, and we are working with our borrowers to assist them in avoiding foreclosures.
We'll go over this in more detail in the following presentation. So now, let me turn this over to CFO Tom Wurtz for the details on the second quarter and then he will be followed as I said by Chief Risk Officer, Don Truslow to provide a deep dive on the characteristics of the portfolio, the reserve build, and particularly our view regarding stress portfolios because we are committed to increase transparency with regard to all issues of credit risk. And then I will return to cover the capital actions announced today in more detail, and then look forward to your questions.
Our bottom line thoughts on this performance is their earnings engine remains intact, core businesses are strong and positioned attractively, we have done our very best to be more cautious and develop a realistic approach regarding our credit reserves in light of the severe decline in housing markets. And also our other portfolios are performing better than the industry. Clearly, challenges remain as the economy grows.
We feel Wachovia is on exceptional strong footing, and let me turn it over to Tom.
Tom Wurtz - Senior Executive Vice President and Chief Financial Officer
Thanks, Bob and good morning to everyone. I'd ask you to turn to page two and you can see the headline is the GAAP loss of $8.9 billion, and that corresponds to an operating loss of about $2.7 billion in the quarter. And just a reminder, all of you are well aware that the goodwill impairment is $6.1 billion is non-cash and capital neutral. One of the highlights for the quarter would be strong net interest income growth, you have seen a lot of that across the industry.
We had expected it to be up strongly and absent the impact of a $975 million SILO charge that we've previously disclosed, net interest income was up 11% on a linked quarter basis. That was driven both by balance sheet growth and a nice improvement in the margin up 23 basis points before the impact of the SILO charge.
Earning assets and low-cost core deposits were up about 2%, fees up 14%, you will hear more about the strength in the underlying businesses, but we had good performance in service charges, the banking fees, advisory and underwriting, and other income and market disruptions losses were reduced by about $1.4 billion and that is associated with a dramatic reduction in exposures which Don will speak to you later.
Expenses up on the surface 14%, however excluding in addition to the legal reserve, they are only up about 3%, when you consider both the legal reserves and non-merger severance. And the 3% increase was driven by higher incentives based on higher revenue and annual merit increases.
Turning to page three, beneath the headline GAAP loss for the quarter, there is a positive story regarding the fundamental underpinning our businesses. This quarter is laden with high-credit costs and a number of notable items, which are net reflective of the longer-term earnings potential of the company. This table is intended to help illustrate this point. We start with the pre-tax loss of $10.4 billion and then back up provision expense to get a pre-tax, pre-provision loss of about $4.9 billion.
Embedded in that loss are five notable items that aggregate to nearly $9 billion of loss. They are, first, the goodwill impairment of $6.06 billion, the SILO charge of $975 million, market disruption losses of $936 million, the billed [ph] legal reserves of $590 million and the impact of discretionary plan sales of securities, which produced a $391 million loss in the quarter. Absent these items results for the quarter are modestly higher than $4 billion, which speaks to the strength of the underlying franchise. Clearly, we can't wish away any of these items and I'm not suggesting that we are collectively not responsible for these outcomes. So, I think it is useful to clear the dust to better understand how the businesses are actually performing.
While we are on this page, I would like to address the goodwill impairment we recorded in the quarter. We experienced an impairment in three of our reporting sub-segments which totaled $6 billion. Those reporting sub-segments were our corporate investment bank, corporate lending segment, our investment banking segment and in our general bank, our commercial segment. I would suspect that it's not intuitive why we do not have an impairment in the retail and small business segments, which includes Legacy, Golden West business given the radical changes we are making to our lending strategy and the core earnings outlook for the now trading Pick-a-Pay portfolio. As a little bit of background following an acquisition, the assets of the acquired business are contributed to the appropriate reporting segment of the acquirer.
In this case, the entire Golden West business was contributed to our retail and small business segment. The goodwill associated with Golden West has been homogenized with any pre-existing goodwill in this segment. We've recorded goodwill in the segment from the merger between Wachovia and First Union, the acquisition of South Trust and other miscellaneous small deals over the past two decades.
Because of the strong organic growth of this segment over the past seven or eight years, its absolute earnings power and the market value of this franchise, it continues to be able to support the full amount of goodwill assigned to this segment and it's quite unlikely this will change.
The reason for the impairment in the other segments arises from the significant disconnect between our market cap and our book value of equity. When we estimate the fair value of each reporting segment in light of our overall market cap, we are left with the three segments I mentioned earlier where the implied fair value of goodwill is less than the actual goodwill. For the CIB segment, the entire amount of the signed goodwill was written off and in the GBG commercial segment, approximately one-third of the signed goodwill was written off. We provide more detail regarding the methodology for goodwill accounting and a table detailing this on page 50 and 51.
Turning to page 4, the key points to take away from this page are the Pick-a-Pay portfolio will begin to try [ph] as we have ceased originations, they are accurately working with customers for refinance and other mortgage products.
Overall growth for the loan portfolio is expected to be down over the remainder of the year as we focus intently on preserving capital for our core customers and reduce credit only relationships both in consumer and wholesale portfolios. It's worth noting no loans were transferred to the loan portfolio from health or sale or trading accounts in the quarter. And, also we are not seeing any unusual line of credit utilization in either of the retail or wholesale portfolio.
Turning to page 5. We focus on deposits, you see low-cost core deposits at 2% linked quarter and 7% year-over-year, we saw a nice increase in our suite product, strong commercial and treasury services sales, and solid checking acquisition with 263,000 net new accounts in the quarter. We also continue to enjoy a strong response for our Way2Save product and the associated cross-sell of checking accounts. After a few months, we are approaching nearly $0.25 billion in new checking balances associated with that account.
On the CD front, we staggered originations last year so did not mature in the November to February timeframe where we're doing the branch conversions with Golden West. After those conversions were successfully completed, those CDs that we booked early in 2007 matured, and we allowed about 8 billion of those balances to run off in the quarter and those are relatively high priced CDs in the low 5% range.
We then initiated a campaign to raise CDs at the end of June, which has increased balances by about $13 billion. The CDs are spreads that are anywhere from 70 to 90 basis points more attractive on a relative basis than what we allow it to try it over that timeframe. So, as you can see the average cost of CDs has come down appreciably since the end of March, is now stabilizing somewhere in around in the low 370s, and we continue to enjoy a strong positive growth on the CD portfolio.
As we turn to page six, this page is simply intended to illustrate the core strength of each business. You see that on a segment basis, and this is consistent with our historic segment reporting methodology, which excludes merger-related restructuring expense, intangible amortization, goodwill impairment, and reserve build, those things are all held in apparent, you can see the General Bank produced on a segment basis over $1.1 billion of earnings, Wealth Management approximately $100 million, the Corporate and Investment Bank about $200 million, and Capital Management about $300 million. So good evidence of strength in each business.
Now, turning to the General Bank on page 7. On the left-hand side you see two tables. One is the conventional view of the General Bank and the second is the General Bank excluding mortgage. And the purpose for that is in general, the General Bank is doing extraordinarily well in a relatively difficult environment, and the impact of mortgage has a pretty pronounced impact on the results. So, if I can direct you to the bottom part of the page excluding mortgage, what you would see is that our segment earnings basis excluding mortgage, it was up 6% on a linked-quarter basis, down 4% year-over-year with the drivers of that reduction being higher credit costs across other portfolios in the General Bank and mostly higher expenses reflecting western expansion and continued de novo expansion.
Looking at the General Bank including mortgage, what you see is down 6% on a linked basis, down 23% on a year-over-year basis almost all attributable to the impact of higher credit costs in the mortgage portfolio. But underneath this, you see strong evidence of good solid momentum in the company, you see fees up 2%, card volume up 10%, mortgage banking fees up. Obviously, we have been very focused on expense management. You see that 53% of the expense increase is driven by a higher credit related expenses, REO disposition and management and 17% by growth initiatives so, relatively modest core expense growth.
And salary is up reflecting annual merit increases, FTE is down about 416 employees. Importantly though in this difficult environment, customer satisfaction remains best-in-class. 6.65 on a 7 point scale, strong customer loyalty, customer acquisition remained very robust, our new loss ratio of 1.23. And we also provided some further details on that, our customer acquisition rate is about 15.3% and attrition a low 12.4%. Also in the commercial side, we see customer acquisition up about 28%. And importantly what you'll hear as a resounding theme is that, across our business segments, you're seeing good evidence of synergies between the businesses. Here we highlight one, investment sales up 26% year-over-year.
Turning to page 8, the Wealth Management team delivered a record performance in the quarter, and that follows several previous records over the last several quarters. You see strength in net interest income, fee is down slightly based on market valuations, up 2% year-over-year as growth in fiduciary and asset management fees offset lower insurance commissions, a good expense management with most of it driven... most of the increase driven by expansion into the West. A record overhead efficiency ratio of 61% for the Wealth Management team, and great client acquisition, with acquisitions up 16% quarter-over-quarter. And again, here if you see the evidence of the strong partnership with record insurance bank cross sell up 51% year-over-year.
Turning to page 9, the Corporate and Investment Bank. I think highlight here are several fold. One, there has been a significant reduction in exposures that expose us to further market disruption losses, Don will detail that later.
Second, the actual losses in the quarter were trimmed by about two-thirds from the prior several quarters. And third, they continue to evidence very solid expense control in what I would characterize as generally, a fairly challenging market, you see underlying strength on the origination side with Investment Bank origination fees up 16%, with strong performance in global rates, leverage finance and equities. Principal investing is down appreciably from the prior quarter, which I'd remind you, included the implementation of FAS 157 that produced a relatively significant mark-to-market on that portfolio.
You have not yet seen all the evidence of the expense discipline in the Corporate Investment Bank. You will see about 400 of the 500 previously announced FTE reductions occurring in the third quarter in associated expense space. Loans up 6% quarter-over-quarter, about a third of that is associated with the first quarter transfers of loans from trading or available-for-sale portfolios and to loan portfolio where the other two-thirds reflects on a strong international trade finance in commercial real estate businesses.
We expect balance sheet to contract over the second half of 2008 as we are very disciplined on the lending side. And again, here you see evidence of strong internal partnerships with revenue on GBG referrals of investment banking products, up about 14% year-over-year.
The final major segment I will address is the Capital Management area. And I think here underneath the reported results are some very strong fundamentals. What you see is, net interest income up 10% on strong growth in retail deposits out of the brokerage business. Fees down 9%, reflecting $118 million of market disruption losses and lower asset valuations. Primarily we have $89 million of securities impairments relating to liquidation of an every [ph] refund and then the further mark on assets that were taken out of money market funds since last fall, together those contribute the vast majority of the reduction in revenue in the quarter.
Commissions were down 2%, driven by lower insurance commissions in our reinsurance business, and fiduciary and asset management fees down 5% quarter-over-quarter on lower market valuations despite retail brokerage managed account. I think the keys that people should take away is that we are about 40% complete with the AG Edwards integration, it is going very well, a good evidence of that would be, we have record Series 7 headcount at this point, we have client assets where we are witnessing positive net inflows, we saw $4.8 billion in the second quarter of positive net inflows, $4 billion of that within managed accounts. And despite the S&P being down 15% since consummation, client assets are only down about 7%. So, again we are doing a great job of attracting very productive brokers, retaining our core brokers and building client assets.
Evidence of the strong internal partnerships would be reflected in CIB syndicate revenue, about 61% quarter-over-quarter, and General Bank referrals are up strongly with lending up 15% and deposits up 17%. So, all in all, I think there is great reason to be very accomplished that the underlying fundamentals of our business are quite strong, we're serving customers very well.
Robert K. Steel - Chief Executive Officer and President
Thanks, Tom. And now what we will do is have Don comment on some of the issues I aligned earlier with regard to credit, and issues in the housing-related and market disruption exposure. Don?
Don Truslow - Senior Executive Vice President and Chief Risk Officer
Thanks, Bob. As has been mentioned, credit costs were very significant for the quarter, and credit metrics showed pretty meaningful deterioration throughout the quarter, primarily through the continued slide in the housing market. We continue to confront unprecedented housing price declines in the market, especially in certain markets in California where we've got Golden West concentrations.
About two-thirds of our credit costs for the quarter were related to Pick-a-Pay portfolio for both building reserves or covering charge-offs. Secondarily, but still housing-related, we continue to work through the challenges presented by the commercial real estate portfolio, tied to the housing market. Outside of those two portfolios, we have seen credit costs increase, but at a pretty manageable pace, and also I'd say, very much in line with what we have been anticipating and talking about for several quarters, and in line with what... I think one might expect to see in this part of the economic cycle and the credit cycle.
If you flip over to page 12... slide 12, it provides an overview of the credit metrics for the quarter. Again, period-end loans of $488 billion, non-performing assets ended the quarter at about $12 billion, which was up $3.6 billion at the end of the first quarter. 80% of the increase was driven by the Pick-a-Pay non-performs and higher NPAs and real estate loans related to residential properties.
Pick-a-Pay non-performs were up $2.4 billion, and end of the quarter it was about $7 billion. Of that $7 billion representing nearly 60% of the company's total non-performing loans. The nature of the Pick-a-Pay non-performing balances as we have discussed before, are such that we would expect they will continue to rise given this just fundamentals of the time frame [inaudible] how long it takes to get that property through foreclosure, that's where we can take quite... actually take action. So we have seen the rise in non-performs that we have been talking about for a while. And I would expect that going forward, we will continue to see some of that trend. Commercial real estate residential related NPA is worth about $500 million for the quarter ending at about $1 billion and non-performs in other loan portfolio is generally showed modest increases.
Provision expense of $5.6 billion includes $1.3 billion in charge-offs that resulted in 110 basis points annualized charge-off rate for the quarter. Breaking that down a little bit, commercial charge-offs totaled $455 million, up $218 million from the first quarter. The charge-offs in the real estate Financial Services Group improved nearly three quarters of this increase. And again, most of that was tied to the residential related segment of commercial real estate.
Consumer charge-offs for the quarter were $854 million, up $326 million from the end of the first quarter. This increase was driven by a $268 million increase in Pick-a-Pay charge-offs to $508 million or about 60% consumer losses. Provision expenses exceeded charge-offs in the quarter by roughly $4.2 billion resulting in an $11 billion ending allowance for loan losses which represented about 2.2% of period-end loan.
The largest portion of the provision which was $3.2 billion was to bill the allowance related to the Pick-A-Pay portfolio and as we will touch on in just a minute, this action reflects our view of more negative trends in the housing market since the end of the first quarter and a higher estimation of losses in the portfolio. The ending reserve balance associated with the Pick-A-Pay portfolio at quarter end was 4.2%.
You slip over to slide 13 and this provides an overview of the consumer loan portfolio in total and of the $272 billion of consumer loans at quarter end, the Pick-A-Pay portfolio represented about 45% of the total portfolio. Secondly in auto loans represented about 13% and 10% respectively and you will note there is very little unsecured consumer credit in our consumer loan portfolio.
Non-performing assets totaled $8.4 billion and $7 billion of which we mentioned are tied to our Pick-A-Pay, included in the $7 billion or about $1.5 billion in loans where we have modified the loans to work with borrowers who are experiencing some form of temporary hardship. And our experience has been recently good in this regard and that roughly 50% of these modified loans remain current with their modified terms after about six months of seasoning.
As I mentioned charge-offs totaled about $854 million, up $326 million from the end of the first quarter. 82% of the increase in charge-offs were increased Pick-A-Pay charge-offs and excluding the increase in Pick-A-Pay losses, all other consumer losses were up a pretty modest $58 million during the quarter, which we feel recently good about. Slide 14 provides a breakout of the consumer mortgage portfolio, which excludes the home equity products. And information concerning the home equity products is contained in the appendix on page 44 and while cost in the home equity products are up, as we have anticipated, we continue to be very pleased with how that portfolio performs relative to other portfolios in the industry.
The mortgage portfolio here is really shown in three pieces. First we've got the Pick-a-Pay loan portfolio, and as mentioned in the bullet points, we continue to be aggressive in selling foreclosed properties as quickly as practical given the falling housing prices in many of our stress markets, particularly in California. And, during the quarter we sold just under 1,200 properties against an intake of about 1,400 properties.
Severities linked to moving these properties, which include selling costs rose to an average of about 36% for the quarter, versus 32% for the first quarter. So our severities are up a little bit, it's we're being aggressive in [inaudible] properties. And I will cover our changed view of the outlook for losses on this portfolio in more depth in just a minute.
Next is the traditional mortgage book, which consists of the legacy Wachovia portfolio. And while we have seen some modest deterioration in this portfolio it now looks quite well against the challenging housing environment with charge-offs up only 3 million from the first quarter to 32 million which represents about 20 basis points.
Lastly, there is a smaller mortgage book tied to our Corporate and Investment Bank, which represents loans primarily purchased through our key wholesale channel as well as some other purchase loans, and carried as loans held for investments. And most of these loans were either purchased in a discount or mark down if they were moved from held for sale status.
To drill a little deeper into the additional provision expense during the quarter for the Pick-a-Pay portfolio, you might want to turn to slide 15. This slide outlines our key changes in our outlook. One distinction, we believe in the modeling tool, which we used as a base for forecasting Pick-a-Pay losses, and therefore we use as a backdrop for setting the allowance is that housing price assumptions in our methodology not only drive the estimated severity, but also directly impact our estimated frequency up to fall.
So basically as housing prices fall and as our assumptions around housing prices are such that we're looking for declining housing prices, the modeling methodology expects that borrowers will have a higher [inaudible] to fall as well as the higher severity of loss. And that makes the modeled output particularly sensitive to our housing price assumption. You can see the portfolio statistics at the end of the second quarter and the housing price scenario we are currently using compared with the scenario used in the first quarter, the change to a more negative outlook versus what we were using in the first quarter, were driven by a couple of things.
First, driven by what we are experiencing in the market, and I think that has been also reflected by other market commentators as we move through the second quarter. Also influenced by our view that the consumer is now facing tougher economic headwinds, particularly in employment and energy costs, lenders have generally tightened their credit standards further and that has reduced the amount of capital available with potential buyers. And we still are very concerned about the growing overhang of foreclosed properties in the market that may continue to press [ph] values.
Slide 16, all I have made is probably overly busy with data but hopefully it will provide useful information on the 25 MSC in the portfolio that it contributed to about 90% of the Pick-A-Pay losses experienced thus far. So, very quickly just a range to the page, walking across the page, first set of columns are the balances in these 25 markets as of the end of June. There is aggregation at bottom of the page and the 22 billion combined concentrated in the Central Valley and Inland Empire have both represented our biggest challenges, and actually have represented a little under 50% of all losses we've taken to date and that's where we are focusing on, much of our retention and activity.
The second set of columns begins with the average original loan to value for Pick-A-Pay loans. The next column titled, current, is the actual combined loan to value for our loans using estimated valuations or AVMs, which were updated in May for the collateral underlying our loans. And then the third column in that set titled, average at trough, approximates the average loan to value at the model trough of the market by MSA for our loans implied by the housing price decline what we have now in our allowance model.
So, just to back up on average, we began with 71% combined loan to value for our portfolio. Our current estimates using May AVMs are that average LTV each have gone to about 85% and the implied average LTV at trough, using the assumptions now in the allowance model would be about 99%, and of course the timing of those troughs will be different across these various MSAs.
The next set of columns indicate the decline in house prices underlying our loan since origination. Again using the May AVM data, for our houses, in aggregate we've seen a decline of about 9% of our house collateral with some markets such as Riverside and Stockton being a whole lot worse than that.
Taking this a step further, the next column approximates the price decline implied by the assumptions in the allowance model, from now until the model trough. So, again in short, we've experienced about 9% decline on average in our underlying house prices thus far in the housing slump. And the base model assumptions would imply another 14% to go, we're not quite half way to the decline and again with some fairly wide variations by markets.
The last set of columns we've shown here are the cumulative losses calculated by the base underlying model. And total of about 11% for the portfolio and that's up from the 7% to 8% range that we talked about at the end of the first quarter, reflecting our changed outlook in housing prices. I'll also say that, in addition to the base model losses, we made several management adjustments to the output to further stress certain markets based upon a variety of factors on what we see on the ground. And so therefore, our overall total cumulative loss for the portfolio today is about 12%.
The changes in our outlook for housing prices and are updating as [ph] the correlation among the model input based upon our actual experience over the last few months and further management adjustments that I have just described drive the credit costs, we currently see for the remainder of 2008 and 2009 shown on the next slide, slide17.
The assumptions used for modeling purposes assume basically that housing prices stabilize somewhere around mid 2010 and that our annualized charge-offs peak in 2009 and begin to trend down in 2010 and in 2011. That's why we see anticipated presumably late in 2009. In response, we're taking very aggressive steps to manage our exposure in this portfolio and some of them have already been mentioned on slide 18. We outlined some of these actions highlight and just to reiterate, we have discontinued offering of Pick-A-Pay product and therefore eliminated new loans with negative amortization features. We'll also be discontinuing our wholesale origination channel, which relies upon mortgage brokers in the General B. But focus for our mortgage production going forward will be on our core retail wealth and securities brokerage customers and that is lending, which is traditional business for us and which has held out very well through this housing crisis.
In addition, we are pursuing strategies to work closely with current Pick-A-Pay customers who craft mutually beneficial ways to reduce our overall concentration in certain markets and to the Pick-A-Pay product. And we are either refocusing or aligning over thousand of our employees to actively manage this activity.
On slide 19, we've also tightened our lending standards across the mortgage platform by various markets, and this not only encompasses Pick-A-Pay but very much driven by housing price decline dynamics in those markets. We are taking out cost of the mortgage business while at the same time increasing our resources to aggressively manage our problem loans and foreclose properties and we have also dropped the prepayment penalties on Pick-A-Pay loans that may have been a varied [ph] response finance... of ours to refinance and of course discontinued our loan retention efforts for that portfolio.
Switching gears and flipping over slide 20 relating to partial lending, our total commercial portfolio with $217 billion at quarter end with about $48 billion of that amount in our core commercial real estate portfolio with the rest spread across a number of industries and representing business banking, community banking, middle market and large corporate, but roughly $12 billion in residential related commercial real estate loans are included in the commercial real estate numbers and continue to be our biggest challenge in commercial lending, representing about $2 billion of the total commercial non-performing assets of $3.5 billion. Total charge-offs of $455 million included $262 million in residential related commercial real estate charge-off and if you pull out the impact of residential real estate, commercial... real estate loans from charge-offs for the quarter, commercial charge-offs would have been about 38 basis points.
As Tom mentioned, flipping over to slide 21, market disruption losses for the quarter were down from the first quarter totaling a little over $900 million versus $2.3 billion in the first quarter, the decrease in losses from the first quarter primarily reflects our risk reduction activities which is focused on both... certainly, but aggressively reducing our exposure to these market sensitive assets. And just to wrap up on slide 22, this captures reduction in exposure and as you can see, in leverage finance we're down quite a bit, our exposure now stands at $3.8 billion, it actually includes $600 million of new business that we committed to you during the quarter that we think is very good new business. Commercial mortgage-backed security
net exposure is now very modest $750 million, and I think compares very well with other players in the market, it reflects active selling during the quarter was about $2.5 billion sold into the market. And finally our sub-prime related market exposures were down modestly from first quarter. Now Bob has a recap of the credit numbers.
Robert K. Steel - Chief Executive Officer and President
Great, thanks Don, and now what I'll do is try to move to conclude and then we can get to your questions. And I will conclude with talking about the initiatives that are already underway to protect and preserve and generate capital and ensure the right liquidity.
If you turn to page 24, you can see a summary of the... on the right-hand side, a description graphically of various capital ratios and as we've announced, we are reducing the quarterly dividend to $0.05 per share and that will result in approximately $700 million of capital quarterly being preserved. Nextly, we are reducing expenses as budgeted and deferring capital consuming initiatives and we think that will preserve up to $1.5 billion of capital in the '08, '09 period. Nextly, we are also being much more disciplined about the balance sheet and risk reduction strategies which we think will affect results rather in a $20 billion reduction in loans and securities by this year-end, which should free up as much as $1.5 billion of capital. We also mentioned that Pick-a-Pay refinance, we're going to be driving towards marketable alternatives and that will be a very, very important initiative. We have the potential should we need to, to consider the sale of non-core assets.
If you turn to Page 25, we drill down in this a bit more with regard to the $1.5 billion of reduction in estimated expenses. We've begun a thorough reduction, a thorough effort of expense reduction in early June and we plan to lower the full-year expenses by a $1.5 billion against budget. That will be about 40% in personal, 25% in other categories, 23% in projects and 12% in marketing and advertising. These initiatives have been identified or/and are in progress. Second half '08 expense benefit of approximately $490 million will be offset by severance and other related costs.
We are reviewing additionally about 500 existing and planned capital projects and that will result in the delay or cancellation of projects to reduce 2009 CapEx by about $350 million. We believe that these expense actions should have a very modest effect on revenue. We're basically talking about reducing approximately 6,350 active employees today and 4,400 open positions and contractors. Our western retail expansion will continue but at a more deliberate pace. We expect to improve the 2009 overhead efficiency ratio by 200 to 300 basis points from the normalized level of approximately 57% and all of this should preserve $1 billion of capital.
On 26... page 26, we talk about some other aspects, which I'll go through quickly with regard to $20 billon reduction as I mentioned of loans and securities. We will focus on the reinvestment of maturing securities and be quite focused there and lean towards very little reinvestment. We'll also have enhanced discipline with regard to commercial lending to be sure that we're focused on our very most important strategic relationships. We will have new return targets for renewals and new commitments to ensure that we are using our capital in the most judicious fashion. We will have active programs to further enhance the mix of our consumer loan portfolios, reducing the mortgage concentration by tightening standards, discontinuing negative am [ph] option loan originations, eliminating the General Bank wholesale channel, and eliminating the focus on Pick-A-Pay mortgage retention.
We are offering opportunities also for people to refinance into confirming products, and so then we have additional measures of enhanced pricing in the auto portfolio, and continuing to review non-core assets. On page 27, we basically talk a bit about liquidity, which we realize as an important issue. We basically are proactively managing liquidity and capital, given this environment.
We have significantly increased funding availability in face of the rising industry challenges. The Wachovia Holding Company continues to maintain a very prudent liquidity profile. At the holding company level, we have a cash position of $22 billion at quarter and, which equates to approximately 3.5 years of long-term debt maturities, but we have premarket disruption cash position of $14 billion as of June 30, and we have now enhanced flexibility and liquidity as a result of the aforementioned dividend reduction.
Wachovia continues to be a provider of excess liquidity to the market. Our retail brokerage average deposit products increased $5.7 billion, quarter-over-quarter with expected new balances of $10 billion over the next several quarters. Balance sheet strategies and asset sales are anticipated when needed to further enhance the strong balance bank liquidity position.
And now, let me turn to the last page of our presentation. I just want to make a few comments first about the environment overall. There is no question that the economy, financial markets, housings, and financial services and Wachovia are all facing challenges. Progress is being made in working through these issues, but there will be more challenges ahead.
When we communicate with you, our goal is to be realistic and balanced and cautious and as Mathew Smith says prudently paranoid. Secondly, there is no question that given the cycle, and where we are that credit costs will rise as you would expect given these conditions.
In summary, we at Wachovia understand our issues and challenges, we are already addressing them, and we will be taking further actions. We believe we are facing up to and are realistic with regards to the realities of housing and its expected deterioration. We are discontinuing the negative amortization product and exiting the General Bank wholesale channel. We are committed to a strong balance sheet, and protecting and creating shareholder value. We have several initiatives as we have described underway to protect, preserve, and generate capital and additional options are open to us.
Our core businesses are attractive and performing well. We are committed to strengthening them, while continuing to excel and improve our operations. Just a few weeks ago Matthew Smith said that we were committed to providing to you extensive details with regard to our business performance and challenges. And we hope today that we begun to move forward in the fashion.
Let me now open the line for questions.