Wachovia Corp New (WBPS) 10-Q 2003 Q3 Quarterly report

WACHOVIA CORPORATION AND SUBSIDIARIES

Third Quarter 2003

Management’s Discussion and Analysis
Quarterly Financial Supplement
Nine Months Ended September 30, 2003

WACHOVIA CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL SUPPLEMENT
NINE MONTHS ENDED SEPTEMBER 30, 2003
TABLE OF CONTENTS

	PAGE
Explanation of Our Use of Non-GAAP Financial Measures		1
Financial Highlights		2
Management’s Discussion and Analysis		3
Selected Statistical Data		35
Summaries of Income, Per Common Share and Balance Sheet Data		36
Merger-Related and Restructuring Expenses		37
Business Segments		38
Net Trading Revenue — Investment Banking		54
Selected Ratios		55
Trading Account Assets and Liabilities		56
Securities		57
Loans — On-Balance Sheet, and Managed and Servicing Portfolios		58
Loans Held for Sale		59
Allowance for Loan Losses and Nonperforming Assets		60
Nonaccrual Loan Activity		61
Goodwill and Other Intangible Assets		62
Deposits		63
Time Deposits in Amounts of $100,000 or More		63
Long-Term Debt		64
Changes in Stockholders’ Equity		65
Capital Ratios		66
Risk Management Derivative Financial Instruments		67
Risk Management Derivative Financial Instruments — Expected Maturities		69
Risk Management Derivative Financial Instruments Activity		69
Net Interest Income Summaries — Five Quarters Ended September 30, 2003		70
Net Interest Income Summaries — Nine Months Ended September 30, 2003 and 2002		72
Consolidated Balance Sheets — Five Quarters Ended September 30, 2003		73
Consolidated Statements of Income — Five Quarters Ended September 30, 2003		74
Consolidated Statements of Income — Nine Months Ended September 30, 2003 and 2002		75
Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2003 and 2002		76

EXPLANATION OF OUR USE OF NON-GAAP FINANCIAL MEASURES

     In addition to the results of operations presented in accordance with generally accepted accounting principles (GAAP), our management uses, and this quarterly financial supplement contains, certain non-GAAP financial measures, such as expenses excluding merger-related and restructuring expenses, the cumulative effect of a change in accounting principle, the dividend payout ratio on a basis that excludes merger-related and restructuring expenses, the cumulative effect of a change in accounting principle and other intangible amortization, and net interest income on a tax-equivalent basis.

     We believe these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance, our business and performance trends, and facilitates comparisons with the performance of others in the financial services industry. Specifically, we believe that the exclusion of merger-related and restructuring expenses and the cumulative effect of a change in accounting principle, permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that our management internally assesses our performance. Those non-operating items also are excluded from our 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. For additional information regarding segment performance, see the Business Segments section on page 12. This quarterly financial supplement contains information regarding estimates of our future expenses excluding merger-related and restructuring expenses. The amount and timing of those future merger-related and restructuring expenses, however, are not estimable until such expenses actually occur, and therefore, reconciliation information relating to those future expenses and GAAP expenses has not been provided.

     In addition, because of the significant amount of deposit base intangible amortization, we believe that the exclusion of this expense provides investors with consistent and meaningful comparisons to other financial service firms. Also, our management makes recommendations to our board of directors about dividend payments based on reported earnings excluding merger-related and restructuring expenses, the cumulative effect of a change in accounting principle, and other intangible amortization (cash earnings), and has communicated certain cash dividend payout ratio goals to investors. We believe that the cash dividend payout ratio is useful to investors because it provides investors with a better understanding of and permits investors to monitor our dividend payout policy.

     This quarterly financial supplement also includes net interest income on a tax-equivalent basis. We believe that 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 practice.

     Further, we consummated our retail brokerage combination with Prudential Financial in the third quarter of 2003, and we have excluded the effect of that transaction and the consolidation of assets related to FIN 46 from certain performance measures, which management believes is useful to investors in comparing those performance measures with historical periods.

     Although we believe that the above mentioned non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. The reconciliation of these non-GAAP financial measures from GAAP to non-GAAP is presented below.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In millions)	2003			2002		2003			2002
Net interest income(GAAP)	$	2,613			2,466		7,647			7,353
Tax-equivalent adjustment		63			54		190			159
Net interest income(Tax-equivalent)	$	2,676			2,520		7,837			7,512
DIVIDEND PAYOUT RATIOS ON COMMON SHARES
Diluted earnings per common share(GAAP)	$	0.83			0.66		2.35			1.95
Other intangible amortization		0.05			0.07		0.18			0.22
Merger-related and restructuring expenses		0.06			0.05		0.14			0.11
Cumulative effect of a change in accounting principle		(0.01	)		—		(0.01	)		—
Earnings per share(Cash basis)	$	0.93			0.78		2.66			2.28
Dividends paid per common share	$	0.35			0.26		0.90			0.74
Dividend payout ratios(GAAP)		42.17	%		39.39		38.30			37.95
Dividend payout ratios(Cash basis)(a)		37.63	%		33.33		33.83			32.46

		Nine Months						Estimated Impact
		Ended						Nine Months Ended
		September 30,						September 30,
																	Non-
(Dollars in millions, except per share data)		2003			2002			Prudential			FIN 46			GAAP			GAAP
FEE AND OTHER INCOME
Total fee and other income		$	6,887			6,027			495			—			14	%		6
NONINTEREST EXPENSE
Noninterest expense		$	9,439			8,640			523			—			—	%		—
Merger-related and restructuring expenses			(308	)		(242	)		(43	)		—			—			—
	Total	$	9,131			8,398			480			—			9	%		3
NET INTEREST MARGIN
Basis points			371	bp		394			(9	)		(2	)		(23	)		(12	)
Percent			3.71	%		3.94			(0.09	)		(0.02	)		3.71			3.82
CAPITAL MANAGEMENT SEGMENT
Noninterest expense		$	2,431			1,934			480			—			26	%		1

(a) Dividend payout ratios are calculated by dividing dividends per common share by earnings per common share on a cash basis.

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FINANCIAL HIGHLIGHTS

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
							Percent								Percent
							Increase								Increase
(Dollars in millions, except per share data)		2003			2002		(Decrease)			2003			2002		(Decrease)
EARNINGS SUMMARY
Net interest income (GAAP)		$	2,613			2,466		6	%	$	7,647			7,353		4	%
Tax-equivalent adjustment			63			54		17			190			159		19
Net interest income(Tax-equivalent)			2,676			2,520		6			7,837			7,512		4
Fee and other income			2,643			1,890		40			6,887			6,027		14
	Total revenue(Tax-equivalent)		5,319			4,410		21			14,724			13,539		9
Provision for loan losses			81			435		(81	)		500			1,171		(57	)
Other noninterest expense			3,282			2,686		22			8,733			7,917		10
Merger-related and restructuring expenses			148			107		38			308			242		27
Other intangible amortization			127			152		(16	)		398			481		(17	)
	Total noninterest expense		3,557			2,945		21			9,439			8,640		9
Minority interest in income of consolidated subsidiaries			55			—					80			—
Income before income taxes and cumulative effect
	of a change in accounting principle (Tax-equivalent)		1,626			1,030		58			4,705			3,728		26
Tax-equivalent adjustment			63			54		17			190			159		19
Income taxes			475			60		—			1,368			885		55
Income before cumulative effect of a change in accounting principle			1,088			916		19			3,147			2,684		17
Cumulative effect of a change in accounting principle, net of income taxes			17			—					17			—
Net income			1,105			916		21			3,164			2,684		18
Dividends on preferred stock			—			3		—			5			15		(67	)
Net income available to common stockholders		$	1,105			913		21	%	$	3,159			2,669		18	%
Diluted earnings per common share		$	0.83			0.66		26	%	$	2.35			1.95		21	%
Return on average common stockholders’ equity			13.71	%		11.63		—			13.14	%		11.95		—
Return on average assets			1.16	%		1.13		—			1.20	%		1.13		—
ASSET QUALITY
Allowance as % of loans, net			1.59	%		1.81		—			1.59	%		1.81		—
Allowance as % of nonperforming assets			175			149		—			175			149		—
Net charge-offs as % of average loans, net			0.33			0.59		—			0.42			0.80		—
Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale			0.95	%		1.23		—			0.95	%		1.23		—
CAPITAL ADEQUACY
Tier I capital ratio			8.67	%		8.11		—			8.67	%		8.11		—
Total capital ratio			12.21			12.02		—			12.21			12.02		—
Leverage ratio			6.56	%		6.82		—			6.56	%		6.82		—
OTHER FINANCIAL DATA
Net interest margin			3.51	%		3.94		—			3.71	%		3.94		—
Fee and other income as % of total revenue			49.68			42.86		—			46.77			44.52		—
Effective income tax rate			30.41	%		6.20		—			30.30	%		24.80		—
BALANCE SHEET DATA
Securities		$	87,176			72,071		21	%	$	87,176			72,071		21	%
Loans, net			165,925			157,542		5			165,925			157,542		5
Total assets			388,767			333,880		16			388,767			333,880		16
Total deposits			203,495			187,785		8			203,495			187,785		8
Long-term debt			37,541			39,758		(6	)		37,541			39,758		(6	)
Stockholders’ equity		$	32,813			32,105		2	%	$	32,813			32,105		2	%
OTHER DATA
Average diluted common shares(In millions)			1,338			1,374		(3	)%		1,343			1,372		(2	)%
Actual common shares(In millions)			1,328			1,373		(3	)		1,328			1,373		(3	)
Dividends paid per common share		$	0.35			0.26		35		$	0.90			0.74		22
Dividends paid per preferred share		$	—			0.04		—		$	0.05			0.16		(69	)
Dividend payout ratio on common shares			42.17	%		39.39		—			38.30	%		37.95		—
Book value per common share		$	24.71			23.38		6		$	24.71			23.38		6
Common stock price			41.19			32.69		26			41.19			32.69		26
Market capitalization		$	54,701			44,887		22		$	54,701			44,887		22
Common stock to book price			167	%		140		—			167	%		140		—
FTE employees			87,550			80,987		8			87,550			80,987		8
Total financial centers/brokerage offices			3,399			3,342		2			3,399			3,342		2
ATMs			4,420			4,604		(4	)%		4,420			4,604		(4	)%

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WACHOVIA

     This discussion and other portions of this Quarterly Report contain forward-looking statements. Please refer to our 2003 Third Quarter Report on Form 10-Q for a discussion of various factors that could cause our actual results to differ materially from those expressed in such forward-looking statements. Please refer to our 2002 Annual Report on Form 10-K for further information related to our critical accounting policies, off-balance sheet profile, risk governance and administration, and regulation and supervision.

Summary of Results of Operations

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In millions, except per share data)		2003		2002		2003		2002
Net interest income(GAAP)		$	2,613		2,466		7,647		7,353
Tax-equivalent adjustment			63		54		190		159
Net interest income (a)			2,676		2,520		7,837		7,512
Fee and other income			2,643		1,890		6,887		6,027
	Total revenue (a)		5,319		4,410		14,724		13,539
Provision for loan losses			81		435		500		1,171
Other noninterest expense			3,282		2,686		8,733		7,917
Merger-related and restructuring expenses			148		107		308		242
Intangible amortization			127		152		398		481
	Total noninterest expense		3,557		2,945		9,439		8,640
Minority interest in income of consolidated subsidiaries			55		—		80		—
Income taxes			475		60		1,368		885
Tax-equivalent adjustment			63		54		190		159
Income before cumulative effect of a change in accounting principle			1,088		916		3,147		2,684
Cumulative effect of a change in accounting principle, net of income taxes			17		—		17		—
Net income			1,105		916		3,164		2,684
Dividends on preferred stock			—		3		5		15
Net income available to common stockholders			1,105		913		3,159		2,669
Diluted earnings per common share		$	0.83		0.66		2.35		1.95
(a) Tax-equivalent

Financial SummaryWachovia’s diversified mix of businesses produces both the interest income traditionally associated with a banking company and the fee income generated by such businesses as brokerage, asset management and investment banking. Although all of these businesses, to varying degrees, are affected by fluctuations in the financial markets and other external factors, our goal is to produce a balanced and growing revenue stream over the course of a business cycle.

     The benefit of this balanced business model and our distribution strength in a challenging economic environment was evident in the first nine months of 2003, during which Wachovia increased net income available to common stockholders to $3.2 billion, an 18 percent increase from the first nine months of 2002. On a per common share basis, earnings rose 21 percent to $2.35. The increase was driven by growth in net interest income and fee income, and a decline in the provision for loan losses.

     The growth in fee income primarily reflected approximately $495 million from the addition of the Prudential Financial retail brokerage business to Wachovia Securities, LLC, which is discussed further in theOutlookandBusiness Segmentsections. Excluding the Prudential transaction, fee income rose 6 percent from the first nine months of 2002, primarily due to improvement in trading account profits, lower net principal investing losses, an increase in asset securitization income, and gains on direct loan sales and on assets held for sale. Net interest income benefited from increased earning assets and improved spreads resulting from a rapidly increasing proportion of low-cost core deposits relative to a planned decline in higher cost products such as certificates of deposit.

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     Provision expense declined 57 percent from the first nine months of 2002 reflecting improved loan quality and more favorable economic conditions. In the third quarter of 2003, the allowance for loan losses declined $73 million from June 30, 2003. Of the $73 million decline, $22 million was related to loans sold or transferred to held for sale. The remaining decline was due to improving credit quality trends. Our strategy is to actively reduce potential problem loans and certain large corporate loans, including the sale of at-risk credits whenever prudent. Continued positive trends in the economy and improving asset quality suggest that provision expense may be lower over the next few quarters and may result in a reduction in our allowance for loan losses. As we evaluate opportunities to position our company for continued strong earnings growth in 2004, we will consider a range of initiatives that may moderately increase expenses. In aggregate, we would not expect the net impact of a lower provision expense and the cost of any initiatives to be material to our results.

     Total noninterest expense increased 9 percent from the first nine months of 2002, or 3 percent excluding $480 million of expense related to the Prudential retail brokerage business and net merger-related and restructuring expenses. Our continued emphasis on cost control and expense efficiencies gained from the First Union and Wachovia merger integration has enabled us to more effectively control core expense growth.

     Wachovia paid common stockholders total dividends of $1.2 billion, or 90 cents per share, in the first nine months of 2003 compared with $1.0 billion, or 74 cents per share, in the first nine months of 2002. Wachovia paid holders of Dividend Equalization Preferred shares (DEPs) issued in connection with the First Union and Wachovia merger total dividends of $5 million, or 5 cents per share, in the first nine months of 2003 compared with $15 million or 16 cents per share, in the first nine months of 2002. Wachovia did not pay a dividend on the DEPs in the third quarter of 2003, when our common stock dividend of 35 cents per share exceeded the former Wachovia’s historical 30 cents per equivalent share dividend. The DEPs were a new class of preferred shares issued to shareholders of the former Wachovia who elected to receive them rather than a one-time cash payment of 48 cents per common share. In addition, future dividend rights of the DEPs will cease following the fourth quarter 2003 common stock dividend payment, when Wachovia’s total dividends paid to common stockholders will have equaled $1.20 per common share over four consecutive quarters. Wachovia has declared a common stock dividend of 35 cents per share, payable on December 15, 2003, to holders of record on November 28, 2003. More information on dividends is in theStockholders’ Equitysection.

     In addition, our tier 1 capital ratio improved from year-end 2002 to 8.67 percent at September 30, 2003, driven primarily by higher retained earnings and the impact of the Prudential retail brokerage transaction.

Outlook

     We continue to make excellent progress in meeting our corporate objectives of quality earnings growth, increased distribution of products and services, improved customer service, tight expense control and a strengthened balance sheet. Based on this consistent

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performance, our confidence in our balanced business model, our capital strength and improving market conditions, we have updated our 2003 outlook. This outlook is for the full year 2003 compared with 2002, unless otherwise noted:

• Net interest income growth in the mid single-digit percentage range;

• A net interest margin in the fourth quarter of 2003 consistent with the third quarter of 2003;

• Fee income growth in the mid-upper teens percentage range;

• Growth in noninterest expense (excluding merger-related and restructuring expenses) in the low- to mid-teens percentage range;

• Loan growth in the low- to mid-single digit percentage range from the third quarter of 2003 (excluding the impact of securitization activity);

• Net charge-offs as a percentage of average net loans at the lower end of our expected 40 basis point to 50 basis point range;

• An effective tax rate of approximately 33 percent on a tax-equivalent basis;

• A dividend payout ratio of 40 percent to 50 percent of earnings before merger-related and restructuring expenses, other intangible amortization and the cumulative effect of a change in accounting principle; and

• Use of excess capital to opportunistically repurchase shares in the open market and to pursue financially attractive acquisitions.

     This outlook excludes the impact of our new FDIC-insured money market sweep product, which we estimate could add approximately $11.0 billion to $13 billion of securities to the balance sheet; move $5 million to $7 million of fee income to net interest income; and add an incremental $40 million to $50 million of net interest income in the fourth quarter of 2003. The new product is designed to improve liquidity and to reduce debt issuance while providing more attractive returns for clients.

     Noninterest expense growth will reflect our continuing investments for the future, including building new financial centers and upgrading financial center technology and infrastructure; hiring additional small business bankers and wealth relationship managers; making selected investments to enhance our distribution in asset management and insurance; and expanding our investment management capabilities.

     On July 1, 2003, we consummated the combination of the retail brokerage forces of Wachovia and Prudential Financial, Inc. Under the terms of the agreement, Wachovia owns a 62 percent interest in the new retail brokerage firm, which is a consolidated subsidiary of Wachovia, and Prudential owns the remaining 38 percent interest. This transaction created the third largest retail brokerage firm in the country, based on combined client assets of $568.5 billion and nearly 12,000 registered representatives. The new firm operates under the brand name of Wachovia Securities and has a national footprint of 3,400 brokerage locations, including nearly 800 dedicated retail offices in 48 states and Washington, D.C. The new full-service firm provides advice to clients based on research from multiple providers and has access to a broad suite of financial products and services from its parent organizations. The transaction is expected to be accretive to

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earnings per share in 2004, excluding the effect of merger-related and restructuring expenses. Merger-related and restructuring expenses and exit cost purchase accounting adjustments of approximately $1.1 billion pre-tax are projected in connection with this transaction over the anticipated 18-month integration period. In addition, we will record fair value purchase accounting adjustments on the Prudential assets and liabilities contributed to the new brokerage firm. The transaction added $14.4 billion of average earning assets and will add approximately $50 million to $60 million in net interest income; $1.0 billion in fee income; and $1.0 billion in expenses in 2003, excluding any merger-related and restructuring expenses referenced above that are incurred in 2003.

     We are optimistic about the future due to our growth strategies, improving economic conditions, and the demographic trends that favor our core businesses of the General Bank, Capital Management, Wealth Management, and the Corporate and Investment Bank. Financial performance has been enhanced by increased attention to customer service. Exceptional customer service and our broad distribution capability have contributed to growth in low-cost core deposits, where we are among the industry’s leaders in our markets. At the same time, our balanced business model positions us well to attract our customers’ investment business.

     We will continue to evaluate our operations and organizational structures to ensure they are closely aligned with our goal of maximizing performance through increased efficiency and competitiveness in our four core businesses. When consistent with our overall business strategy, we may consider the disposition of certain assets, branches, subsidiaries or lines of business. We continue to routinely explore acquisition opportunities in areas that would complement our core businesses, 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 could occur.

     On July 1, 2003, we implemented the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46),Consolidation of Variable Interest Entities,relating to the consolidation of commercial paper conduits that we administer. Consolidation of these conduits added $9.1 billion in assets and $9.3 billion in short-term commercial paper borrowings in the third quarter of 2003. In addition, $12 million of fees was recharacterized as net interest income in the third quarter of 2003. These assets and liabilities were the only significant additions to our balance sheet from the implementation of FIN 46. TheAccounting and Regulatory Matterssection has further information.

Critical Accounting Policies

     Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America, and they conform to general practices within the applicable industries. The application of certain of these principles involves a significant amount of judgment and the use of estimates based on assumptions that involve significant uncertainty at the time of estimation.

     We have identified the following critical accounting policies: allowance for loan losses, retained interests in securitizations, principal investing, consolidation, pensions, stock options, goodwill impairment and contingent liabilities. For more information on all of these critical accounting policies, please refer to our 2002 Annual Report on Form 10-K. An update to some of these policies is provided below.

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ConsolidationsAs discussed in theAccounting and Regulatory Matterssection, the provisions of FIN 46 were effective on February 1, 2003, for new variable interest entities created after January 31, 2003, and no later than December 31, 2003, for variable interest entities created before February 1, 2003. On July 1, 2003, we implemented FIN 46. Applying the provisions of FIN 46 involves a significant degree of subjectivity including the determination of the entities in which we have a potential variable interest, whether that entity is a variable interest entity and, subject to the provisions of FIN 46, whether we are the primary beneficiary of the entity, and thus required to consolidate the variable interest entity. These determinations require the assessment of both quantitative and qualitative factors regarding both our interests in the entities and characteristics of the entities themselves. The assessment of these factors involves a significant amount of judgment, and at times, estimation of expected operating results of an entity.

PensionsIn May 2003, we amended our qualified pension plan to convert to a cash balance plan effective January 1, 2008. Until that time, benefits will continue to be earned and paid under the current plan. In connection with this plan amendment, we remeasured plan assets and benefit obligations as of May 31, 2003, and recalculated 2003 pension expense. As a result of the plan amendment, updated assumptions and company contributions to the plan, our pension expense is expected to increase for the full year 2003 compared with 2002 by approximately $86 million, $13 million of which is related to Prudential. The assumptions used in calculating our 2003 pension expense for the rest of 2003 are a discount rate of 6.00 percent (compared with 6.75 percent at the beginning of the year), a weighted average rate of increase in future compensation levels of 3.50 percent (compared with 3.75 percent at the beginning of the year) and an expected rate of return on plan assets of 8.50 percent (unchanged). As of May 31, 2003, the fair value of the plan assets exceeded both the total obligation and the accumulated benefit obligation, and as a result, the plan was over-funded. In addition, in May 2003, we also amended our postretirement medical plan effective January 1, 2008. As a result of the plan amendments and updated assumptions, retirement benefit expense is expected to decrease for the full year 2003 compared with 2002 by $16 million.

Stock OptionsStock options granted in April 2003 will vest over the five years from the date of grant. Using the Black-Scholes option pricing model, the grant date fair value of options awarded in 2003 was $8.38 per share. The assumptions used in determining the fair value of these options include a risk-free interest rate of 3.15 percent, a dividend yield of 3.10 percent, a weighted average expected life of six years and volatility of 28.0 percent. Assuming we were to continue our stock option grants at comparable levels for the next five years and assuming all fair value and vesting assumptions and outstanding shares remain unchanged, the after-tax impact on net income available to common stockholders and diluted earnings per share would be approximately $65 million, or $0.05, in 2003; $86 million, or $0.06, in 2004; $69 million, or $0.05, in 2005; $77 million, or $0.06, in 2006; $97 million, or $0.07, in 2007; and $102 million, or $0.08, in 2008.

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Corporate Results of Operations

Average Balance Sheets and Interest Rates

		Nine Months Ended					Nine Months Ended
		September 30, 2003					September 30, 2002
		Average		Interest			Average		Interest
(In millions)		Balances		Rates			Balances		Rates
Interest-bearing bank balances		$	4,262		1.34	%	$	3,276		2.00	%
Federal funds sold			14,485		1.04			11,104		1.88
Trading account assets			17,841		4.41			14,805		4.92
Securities			73,205		5.39			59,074		6.50
Commercial loans, net			92,131		4.62			98,326		5.20
Consumer loans, net			65,767		5.74			56,521		6.96
	Total loans, net		157,898		5.09			154,847		5.84
Other earning assets			14,428		4.12			11,404		5.13
Risk management derivatives			—		0.53			—		0.54
	Total earning assets		282,119		5.34			254,510		6.23
Interest-bearing deposits			151,482		1.35			140,210		2.08
Federal funds purchased			40,602		1.38			32,119		1.83
Commercial paper			5,689		0.96			3,154		1.17
Securities sold short			7,909		2.69			6,551		2.45
Other short-term borrowings			5,424		1.32			3,475		2.56
Long-term debt			36,953		4.04			38,951		4.32
Risk management derivatives			—		0.07			—		0.15
	Total interest-bearing liabilities		248,059		1.86			224,460		2.59
Net interest income and margin		$	7,837		3.71	%	$	7,512		3.94	%

Net Interest Income and MarginNet interest income increased $325 million, or 4 percent, in the first nine months of 2003 from the first nine months of 2002, while the net interest margin declined 23 basis points to 3.71 percent. Excluding the third quarter 2003 addition of lower spread assets from the Prudential retail brokerage business and from the conduit consolidation under FIN 46, the net interest margin would have declined 12 basis points to 3.82 percent. Net interest income grew due to an 11 percent increase in average earning assets including $14 billion in average securities and $3.1 billion in average loans, supported by growth in low-cost core deposits. The increase in earning assets in the first nine months of 2003 included $5.0 billion in average earning assets from the Prudential retail brokerage business and $3.2 billion in average earning assets from conduits consolidated in connection with FIN 46, as well as $1.4 billion in securities that represented advanced funding of a new FDIC-insured money market sweep product being introduced to clients. The new product is designed to improve liquidity and to reduce debt issuance while providing more attractive returns for clients.

     Typically bank liabilities, such as deposits, reprice in tandem with changes in short-term rates, while many asset positions are influenced by longer-term rates. Our interest rate risk position generally benefits in a declining rate environment because liabilities reprice more quickly than assets. However, when long-term rates decline faster than short-term rates, this benefit is somewhat offset. TheInterest Rate Risk Managementsection includes further information. The average federal funds discount rate declined 57 basis points from the first nine months of 2002, while longer-term 5- and 10-year Treasury bond rates declined 121 basis points and 89 basis points, respectively. Our current reinvestment strategy is designed to minimize margin compression while reducing duration or long-term risk.

     In order to maintain our targeted interest rate risk profile, derivatives are used to hedge the interest rate risk inherent in our assets and liabilities. In a declining rate environment, an increase in the contribution of derivatives, primarily interest rate swaps on fixed rate debt and floating rate loans, offsets declining net interest income from our

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balance sheet positions. However, it is important to evaluate hedge-related derivative income within the overall context of interest rate risk management. Our derivatives activity is undertaken as part of a program to manage interest rate risk and maintain a stable net interest margin. As one example, we use derivatives to swap our fixed rate debt issuances to floating rate debt. We do this rather than issue floating rate debt because there is a broader market for fixed rate debt. TheRisk Governance and Administrationsection provides additional information on our methodology for interest rate risk management.

     The average rate on earning assets declined 89 basis points from the first nine months of 2002 to 5.34 percent in the first nine months of 2003, and the average rate on interest-bearing liabilities decreased 73 basis points from the first nine months of 2002 to 1.86 percent in the first nine months of 2003.

Fee and Other Income

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(In millions)		2003			2002			2003			2002
Service charges		$	439			432			1,295			1,277
Other banking fees			257			232			738			709
Commissions			732			440			1,603			1,329
Fiduciary and asset management fees			657			448			1,591			1,438
Advisory, underwriting and other investment banking fees			216			149			581			491
Trading account profits (losses)			(6	)		(71	)		163			66
Principal investing			(25	)		(29	)		(126	)		(161	)
Securities gains			22			71			69			123
Other income			351			218			973			755
	Total fee and other income	$	2,643			1,890			6,887			6,027

Fee and Other IncomeTraditionally banks have earned fee and other income from service charges on deposit accounts and other banking products and services, and these continue to be one of the largest components of our fee income. In addition, we have balanced our earnings stream with a diversified mix of businesses that provide alternative investment and financing products and services for the more sophisticated needs of our clients. These alternative products produce income in our brokerage, asset management and investment banking businesses from commissions and fees for financial advice, custody, insurance and sophisticated financing alternatives such as loan syndications and asset securitizations. Additionally, we realize gains from selling our investments in securities such as bonds and equities. The fees on many of these products and services are based on market valuations, and therefore have been sensitive to downturns in the financial markets of the past two years. As the markets begin to recover, we are seeing gradual improvement in these market-sensitive businesses.

     In the nine months ended September 30, 2003, fee and other income represented 47 percent of total revenue. Fee and other income increased from the first nine months of 2002 due primarily to improvement in trading account profits, lower net principal investing losses and an increase in asset securitization income and assets held for sale gains. Commissions, fiduciary and asset management fees, and advisory, underwriting and other investment banking fees reflected the impact of the addition of the Prudential retail brokerage business.

     Service charges increased slightly from the first nine months of 2002, reflecting growth in checking accounts. There also was a modest increase in other banking fees driven primarily by debit card income and mortgage-related fees. Commissions, which include brokerage and insurance commissions, increased primarily due to the addition of the Prudential retail brokerage business. Advisory, underwriting and other investment banking fees primarily include fees from asset securitization, loan syndication and debt underwriting businesses, as well as commitment fees. In these businesses, we act as the agent between our clients and the

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investors who provide financing. An improving equity market and strong activity in new product offerings in our fixed income businesses enabled advisory, underwriting and other investment banking fees to grow 18 percent from the first nine months of 2002.

     Trading account profits increased $97 million from the first nine months of 2002, primarily due to strength in fixed income products. We believe that normalized trading account profits would be in the $25 million to $50 million range per quarter. Principal investing, which includes the results of investments in equity and mezzanine securities, had lower net losses compared with the first nine months of 2002 primarily due to a reduction in net losses in direct investments.

     Net portfolio securities gains were $69 million in the first nine months of 2003, down $54 million from the same period in 2002, and included net gains from portfolio sales of $210 million offset by $141 million in impairment losses. Net portfolio securities gains in the first nine months of 2002 included net gains from portfolio sales of $247 million offset by $124 million in impairment losses.

     Other income increased $218 million from the first nine months of 2002. This included a $92 million increase in asset securitization and sales income in the first nine months of 2003 compared with the first nine months of 2002. Of the $92 million increase, $96 million related to mortgage securitization and sales partially offset by a decline of $4 million related to securitization and sales of prime equity lines. The sale of loans out of the portfolio and market value adjustments on loans held for sale resulted in a net gain of $142 million in the first nine months of 2003 compared with $40 million in the first nine months of 2002.

Noninterest Expense

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
(In millions)			2003		2002		2003		2002
Salaries and employee benefits			$	2,109		1,588		5,556		4,916
Occupancy				220		195		607		584
Equipment				264		234		736		691
Advertising				38		20		104		64
Communications and supplies				156		136		433		402
Professional and consulting fees				109		111		312		295
Sundry expense				386		402		985		965
	Other noninterest expense			3,282		2,686		8,733		7,917
Merger-related and restructuring expenses				148		107		308		242
Other intangible amortization				127		152		398		481
		Total noninterest expense	$	3,557		2,945		9,439		8,640

Noninterest ExpenseNoninterest expense increased 9 percent from the first nine months of 2002 due primarily to the addition of $480 million in expense related to the Prudential retail brokerage business. Excluding Prudential and merger-related and restructuring expenses, noninterest expense year over year would have increased only 3 percent from higher revenue-based incentives, stock option expense and nondiscretionary costs such as pension expense. The increase in noninterest expense was partially offset by the impact of expense control initiatives and merger efficiencies. Salaries and employee benefits expense in the first nine months of 2003 included additional pension expense of $63 million, and $75 million related to the fair value method of accounting for stock options compared with $38 million in the first nine months of 2002. Advertising expense increased due to rebranding activity.

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Merger-Related and Restructuring ExpensesIn connection with the Prudential Financial retail brokerage transaction, which closed on July 1, 2003, we began recording certain merger-related and restructuring expenses in the third quarter of 2003. These expenses are reflected in our consolidated statements of income.

     We have essentially completed the integration of First Union and the former Wachovia as it relates to high customer impact areas. We expect to recognize approximately $300 million of merger-related and restructuring expenses through September 2004 in connection with this transaction, including costs related to information technology infrastructure consolidation, advertising costs, some remaining branch consolidations and severance costs related to remaining displacements. In the first quarter of 2003, we reduced our estimate of anticipated one-time charges related to the First Union and Wachovia merger by $110 million to $125 million, to an estimated maximum of $1.4 billion over the three-year integration period.

     Beginning in the first quarter of 2003, restructuring expenses are being recorded in accordance with Statement of Financial Accounting Standards (SFAS) No. 146,Accounting for Costs Associated with Exit or Disposal Activities, which became effective January 1, 2003. TheAccounting and Regulatory Matters section has further information.

     We recorded $308 million in net merger-related and restructuring expenses in the first nine months of 2003. This included $271 million of expenses related to the First Union-Wachovia merger, offset by $6 million in reversals of previously recorded restructuring expenses, and $43 million related to the Prudential transaction. These expenses primarily related to systems conversions, and occupancy and equipment costs. Net merger-related and restructuring expenses also included $43 million of incremental advertising expense specifically related to First Union-Wachovia merger activity such as branch conversions. We recorded $6 million of employee termination costs and displacement activity in the first nine months of 2003.

     Since the consummation of the First Union-Wachovia merger on September 1, 2001, $293 million of employee termination costs have been recorded representing approximately 3,700 employee terminations. Of the 3,700 employees, 46 percent were from staff support areas within the Parent, 21 percent were from the General Bank, 14 percent were from Capital Management, 12 percent were from the Corporate and Investment Bank, and 7 percent were from Wealth Management. Of the $293 million, $141 million was recorded as merger-related and restructuring expenses and $152 million was recorded as purchase accounting adjustments. Through September 30, 2003, we have paid $124 million in employee termination costs recorded as merger-related and restructuring expenses and $145 million as purchase accounting adjustments, leaving $17 million and $7 million from the restructuring and purchase accounting accruals, respectively, for future payments.

     In the first nine months of 2002, we recorded $242 million in merger-related and restructuring expenses primarily in connection with the First Union-Wachovia merger. This included $363 million of expenses offset by $121 million in gains from the sale of 27 First Union branch offices. These expenses consisted primarily of systems conversion, occupancy and equipment, and employee termination costs.

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Goodwill and Other Intangible AssetsWe recorded purchase accounting adjustments to reflect Prudential Financial’s contributed assets and liabilities at their respective fair values as of July 1, 2003, and to reflect certain exit costs related to Prudential’s contributed business, which has the effect of increasing goodwill. These purchase accounting adjustments are preliminary and subject to refinement.

     In connection with the Prudential transaction, we estimate merger-related and restructuring expenses and exit cost purchase accounting adjustments of approximately $1.1 billion pre-tax over the anticipated 18-month integration period. At September 30, 2003, we recorded goodwill of $196 million and customer relationship intangibles of $151 million ($91 million after tax) related to the Prudential contributed business. In addition, we recorded preliminary fair value purchase accounting adjustments of $142 million ($86 million after tax) and exit cost purchase accounting adjustments of $93 million ($61 million after tax), primarily related to occupancy and equipment costs. The fair value purchase accounting adjustments related to the Prudential contributed business are subject to further refinement for up to one year from July 1, 2003. At July 1, 2003, the fair value of the Prudential contributed net assets (contributed value) less their book value was $140 million.

Business Segments

     We provide a diversified range of banking and nonbanking financial services and products primarily through our four core business segments, the General Bank, Capital Management, Wealth Management, and the Corporate and Investment Bank. The results for these four core business segments are presented excluding merger-related and restructuring expenses, deposit base and other intangible amortization, minority interest and the cumulative effect of a change in accounting principle. This is the basis upon which we manage the operations of and allocate capital to our business segments, and therefore, is the basis upon which we present the profit measure of segment performance under GAAP. In addition, for segment reporting purposes, net interest income is presented to reflect tax-exempt interest income on a tax-equivalent basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a tax-equivalent basis is also used in determining the cash overhead efficiency ratios presented for each business segment. This ratio is calculated by dividing noninterest expense, excluding merger-related and restructuring expenses, and deposit base and other intangible amortization, by the sum of tax-equivalent net interest income and fee and other income.

     In addition, we use other financial segment profitability measures such as Risk Adjusted Return on Capital (RAROC) and Economic Profit to allocate resources to our various segments and to assess the performance of our segments. We believe this approach is consistent with the complexity of our businesses and that no single metric is adequate to measure segment performance. Rather, we use a range of segment performance measures, which we believe is necessary to adequately evaluate segment performance and to provide a more complete financial review of each segment. Because we use these segment profit measures for this purpose, we believe investors may also find them useful in evaluating the financial performance and trends of our business segments.

     RAROC is a ratio of return to risk, and is calculated by dividing economic net income (reported net income adjusted for intangible amortization and the after-tax impact of merger-related and restructuring expenses, the cumulative effect of a change in accounting

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principle and expected losses) by economic capital (capital assigned based on a statistical assessment of the credit, market, operating and other risks taken to generate profits in a particular business unit or product).

     Economic Profit is a measure of earnings over and above an explicit charge for the capital used to support a specific transaction or a line of business. This metric is calculated by deducting a capital charge(economic capital times the cost of capital)from economic net income. The charge for economic capital reflects the minimum return that stockholders should expect based on the capital asset pricing model. For 2003, we have calculated our cost of capital to be 11 percent, the same as in 2002.

     We continuously assess our assumptions, methodologies and reporting classifications to better reflect the true economics of our business segments. Business segment results for 2002 were restated to reflect several significant refinements that were incorporated for 2003. For example, in the first quarter of 2003, we incorporated cost methodology refinements to better align support costs to our business segments and product lines. The impact to segment earnings for full year 2002 as a result of these refinements was a $46 million decrease in the General Bank, a $25 million increase in Capital Management, a $4 million decrease in Wealth Management, a $3 million decrease in the Corporate and Investment Bank, and a $28 million increase in the Parent. In addition, we have realigned the lines of business of our Corporate and Investment Bank for internal management reporting purposes to better reflect the way we manage our corporate and investment banking businesses and to provide more clarity about the relative market sensitivity of these businesses. This realignment does not affect Corporate and Investment Bank combined results.

General Bank
Performance Summary

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
(Dollars in millions)		2003			2002		2003		2002
Income statement data
Net interest income(Tax-equivalent)		$	1,886			1,738		5,442		5,108
Fee and other income			568			520		1,711		1,526
Intersegment revenue			48			38		136		120
	Total revenue(Tax-equivalent)		2,502			2,296		7,289		6,754
Provision for loan losses			121			114		325		327
Noninterest expense			1,340			1,282		3,961		3,765
Income taxes(Tax-equivalent)			379			329		1,096		972
	Segment earnings	$	662			571		1,907		1,690
Performance and other data
Economic profit		$	495			395		1,390		1,156
Risk adjusted return on capital (RAROC)			45.82	%		38.53		44.06		38.16
Economic capital, average		$	5,643			5,683		5,622		5,689
Cash overhead efficiency ratio(Tax-equivalent)			53.54	%		55.87		54.34		55.75
Lending commitments		$	63,509			56,469		63,509		56,469
Average loans, net			114,217			101,429		112,705		100,131
Average core deposits		$	155,098			141,861		150,622		139,220
FTE employees			35,451			36,175		35,451		36,175

General BankThe General Bank serves 8 million retail households and 900,000 small and middle-market businesses in 11 East Coast states and Washington, D.C., through 2,600 financial centers, 4,400 automated teller machines and online and telephone banking. Customized retail deposit and lending products include checking, savings and money market accounts, time deposits and IRAs, home equity, residential mortgage, student loans, credit cards and personal loans; and investment products include mutual funds and annuities. Retail banking includes services to small businesses with annual revenues up to

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$3 million. Business banking includes a full range of deposit, credit and investment products and services to businesses with annual revenues between $3 million and $15 million. Commercial customers, typically with annual revenues between $15 million and $250 million, receive comprehensive commercial deposit, lending and commercial real estate solutions, as well as access to asset management, global treasury management and capital markets products and services through partnerships with Capital Management, Wealth Management, and the Corporate and Investment Bank.

     Our strategic focus is on providing superior execution of sales and service strategies to acquire, deepen, enhance and retain customer relationships through exceptional service, in-depth customer knowledge, and tailored products and services. Our goal is to increase the proportion of our customers who transact, save or invest, and borrow with us, and reduce the number of single-service users. The General Bank is particularly focused on providing excellent service to customers, growing low-cost core deposits, and improving both loan spreads and efficiency.

     The General Bank segment includes our Commercial, and Retail and Small Business lines of business. General Bank earnings increased $217 million in the first nine months of 2003 from the first nine months of 2002 due to higher consumer real estate-secured balances and strong growth in small business lending and core deposits.

     The rise in net interest income reflected 13 percent growth in average loans and 8 percent growth in average core deposits. Growth in average low-cost core deposits was particularly strong at 19 percent from the first nine months of 2002. Fee and other income rose due to mortgage-related revenue and strong debit card revenue.

     Noninterest expense increased 5 percent from the first nine months of 2002, reflecting higher production-based costs such as incentives. Strong expense management and the realization of merger efficiencies were evident in an improved cash overhead efficiency ratio of 54.3 percent in the first nine months of 2003, down from 55.8 percent in the first nine months of 2002.

Capital Management
Performance Summary

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(Dollars in millions)		2003			2002			2003			2002
Income statement data
Net interest income(Tax-equivalent)		$	77			42			154			123
Fee and other income			1,292			729			2,827			2,300
Intersegment revenue			(17	)		(18	)		(52	)		(54	)
	Total revenue(Tax-equivalent)		1,352			753			2,929			2,369
Provision for loan losses			—			—			—			—
Noninterest expense			1,144			614			2,431			1,934
Income taxes(Tax-equivalent)			76			51			182			159
	Segment earnings	$	132			88			316			276
Performance and other data
Economic profit		$	95			70			241			219
Risk adjusted return on capital (RAROC)			39.94	%		53.07			46.83			52.98
Economic capital, average		$	1,308			658			901			696
Cash overhead efficiency ratio(Tax-equivalent)			84.66	%		81.59			83.03			81.65
Average loans, net		$	135			177			136			177
Average core deposits		$	1,754			1,314			1,488			1,294
FTE employees			19,911			12,999			19,911			12,999

Capital ManagementCapital Management has created a growing and diversified business with a balanced mix of products and multiple channels of distribution. Through these channels, we offer a full line of investment products and services, including retail

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brokerage services, fixed and variable annuities, defined benefit and defined contribution retirement services, mutual funds, other customized investment advisory services, and corporate and institutional trust services. Since the July 1, 2003, combination of the retail securities brokerage forces of Wachovia and Prudential Financial, these products and services have been available through nearly 12,000 registered representatives operating in our national retail brokerage network of nearly 800 dedicated retail offices in 48 states and Washington, D.C.; full-service retail financial centers in our East Coast marketplace; and online brokerage. Financial reporting for this segment beginning with this quarter includes the addition of the Prudential Financial retail brokerage operations. The Parent reflects the impact of Prudential’s 38 percent interest in this business.

     Capital Management lines of business are Retail Brokerage Services, which includes the retail brokerage and insurance groups; and Asset Management, which includes mutual funds, customized investment advisory services, and corporate and institutional trust services.

     Capital Management’s results were largely driven by the addition of the Prudential Financial retail brokerage business in the third quarter of 2003, although underlying performance also continued to strengthen due to improved equity markets. Earnings increased 14 percent in the first nine months of 2003 compared with the first nine months of 2002. Total revenue increased 24 percent and noninterest expense increased 26 percent. Excluding the impact of Prudential, noninterest expense increased modestly from the first nine months of 2002.

     Assets under management increased $9.1 billion from December 31, 2002, to $241.6 billion at September 30, 2003, as equity markets improved. Record net fluctuating fund sales and institutional fixed income inflows offset money market outflows. Mutual fund assets of $113.7 billion increased slightly from year-end 2002 due to positive net inflows to equity funds and continued strength in fixed income funds, including $2.8 billion in closed-end fund offerings in the first nine months of 2003. Broker client assets of $568.5 billion at September 30, 2003, more than doubled from December 31, 2002, including $280.9 billion from the Prudential Financial retail brokerage business.

Wealth Management
Performance Summary

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
(Dollars in millions)		2003			2002		2003		2002
Income statement data
Net interest income(Tax-equivalent)		$	115			100		325		297
Fee and other income			132			122		398		394
Intersegment revenue			1			1		4		4
	Total revenue(Tax-equivalent)		248			223		727		695
Provision for loan losses			2			3		11		11
Noninterest expense			180			161		525		487
Income taxes(Tax-equivalent)			23			21		70		72
	Segment earnings	$	43			38		121		125
Performance and other data
Economic profit		$	26			24		79		87
Risk adjusted return on capital (RAROC)			37.14	%		37.52		38.03		43.53
Economic capital, average		$	403			364		393		358
Cash overhead efficiency ratio(Tax-equivalent)			72.39	%		72.08		72.29		70.14
Lending commitments		$	3,843			3,145		3,843		3,145
Average loans, net			9,833			8,854		9,604		8,630
Average core deposits		$	11,083			10,006		10,855		9,928
FTE employees			3,839			3,760		3,839		3,760

Wealth ManagementWealth Management provides a comprehensive suite of private banking, trust and investment management, financial planning and insurance services primarily to high net worth individuals and families through 57 teams of relationship

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managers and product specialists. Strategic partnerships with the General Bank, Capital Management, and the Corporate and Investment Bank ensure that a comprehensive array of financial solutions is available to clients across the entire Wachovia franchise. Products and services offered through Wealth Management include cash management; online account aggregation, banking and bill payment; credit and debt management products; risk management services including insurance; investment management and advisory services including equity, fixed income and alternative investment services; financial, tax and estate planning services; philanthropy management including charitable trusts, foundation and planned giving services; and legacy management including personal trust and estate settlement services.

     The 3 percent decline in Wealth Management’s earnings from the first nine months of 2002 primarily reflected 5 percent growth in total revenue offset by an 8 percent increase in noninterest expense. Net interest income grew 9 percent as a result of continued strong loan and deposit production. Fee and other income rose modestly on higher insurance commissions, largely due to the third quarter 2002 Cameron M. Harris & Co., acquisition. Trust and investment management fees declined, reflecting lower average equity valuations in the first nine months of 2003. Noninterest expense rose due to higher benefit and incentive expense as well as the Cameron M. Harris & Co. acquisition.

     Steady loan and deposit production throughout the year drove average loans up 11 percent and average core deposits up 9 percent from the first nine months of 2002. Loan growth was strongest in the consumer sector. Higher checking and money market account balances led deposit growth. Assets under management of $62.5 billion represented a modest increase from year-end 2002.

Corporate and Investment Bank
Performance Summary

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(Dollars in millions)		2003			2002			2003			2002
Income statement data
Net interest income(Tax-equivalent)		$	559			602			1,674			1,768
Fee and other income			560			347			1,709			1,340
Intersegment revenue			(31	)		(20	)		(86	)		(62	)
	Total revenue(Tax-equivalent)		1,088			929			3,297			3,046
Provision for loan losses			10			317			215			832
Noninterest expense			578			509			1,700			1,545
Income taxes(Tax-equivalent)			187			40			514			252
	Segment earnings	$	313			63			868			417
Performance and other data
Economic profit		$	140			15			393			160
Risk adjusted return on capital (RAROC)			21.14	%		11.88			19.82			13.92
Economic capital, average		$	5,444			6,964			5,950			7,324
Cash overhead efficiency ratio(Tax-equivalent)			53.20	%		54.71			51.58			50.71
Lending commitments		$	73,606			84,188			73,606			84,188
Average loans, net			32,145			40,250			34,271			41,713
Average core deposits		$	16,472			12,832			15,144			12,599
FTE employees			4,305			4,308			4,305			4,308

Corporate and Investment BankOur Corporate and Investment Bank serves 2,600 domestic and international corporate clients typically with revenues in excess of $250 million, and 1,500 targeted institutional investor relationships. Corporate coverage primarily targets 10 key industry sectors: healthcare; technology; media and communications; information technology and business services; financial institutions; real estate; consumer and retail; industrial growth; defense and aerospace; and energy and power.

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     The Corporate and Investment Bank segment includes Corporate Lending, Treasury and Trade Finance, Investment Banking, and Principal Investing lines of business.

• Corporate Lending products and services include large corporate lending, loan syndications and commercial leasing.

• Treasury and Trade Finance includes treasury management products and services, domestic and international correspondent banking operations, and international trade services.

• Investment Banking products and services include equity capital markets, merger and acquisition advisory services, equity linked products and the activities of our fixed income division (including interest rate products, credit products, structured products and nondollar products).

• Principal Investing includes direct investments primarily in private equity and mezzanine securities and investments in funds sponsored by select private equity and venture capital groups.

     Corporate and Investment Bank earnings more than doubled to $868 million in the first nine months of 2003. Total revenue increased 8 percent in the same period as strong results in fixed income products, lower net principal investing losses and improvement in trading account profits more than offset a decline in net interest income from lower loan balances in corporate lending. Provision expense fell $617 million from the first nine months of 2002 due to higher recoveries, improved credit quality and more favorable economic conditions. Economic capital usage declined 19 percent due to improved credit quality and lower unfunded commitments.

     Net interest income declined 5 percent, or $94 million, from the first nine months of 2002. Average net loans declined 18 percent from the first nine months of 2002 as a result of weak loan demand and lower credit facility usage, as well as portfolio management activity designed to reduce risk and to improve returns. Average core deposits increased 20 percent in the same period due to growth in commercial mortgage servicing and international trade finance.

     Fee and other income increased $369 million from the first nine months of 2002, led by strong investment banking trading account profits, which increased $125 million from the first nine months of 2002. Higher commercial mortgage-backed securities fees, foreign exchange results and improvement in convertible bond trading results more than offset a decline in credit default swap results. Fee income also improved due to increased underwriting fees in fixed income and loan syndications.

     The provision for loan losses of $215 million included $37 million related to the sale of loans or transfer of loans to loans held for sale of $1.6 billion of exposure. The provision was higher in the first nine months of 2002 primarily related to higher net charge-offs in the telecommunications sector, Argentina and the energy services sector.

     Principal investments, which are classified in other assets on our consolidated balance sheet, are recorded at fair value, with realized and unrealized gains and losses included in principal investing income in the results of operations. The carrying value of the principal investing portfolio at September 30, 2003, was $1.8 billion, consisting of $173

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million in direct equity investments that are publicly traded, $330 million of direct investments in mezzanine securities (typically subordinated debt), $490 million of direct private equity investments and $784 million in private equity fund investments. The principal investing portfolio was $2.1 billion at year-end 2002.

     In the first nine months of 2003, principal investing net losses were $126 million, consisting of $181 million in gross gains and $307 million in gross losses. Net losses were attributable to both our direct investment portfolio and our investments in private equity funds, which accounted for $44 million and $82 million of net losses, respectively. Net losses in the first nine months of 2002 were $161 million, which included $145 million in gross gains and $306 million in gross losses.

ParentParent includes all of our asset and liability management functions, as well as:

• The goodwill and deposit base intangible assets, and related funding costs;

• Certain revenue items not recorded in the business segments discussed in theFee and Other Incomesection;

• Certain expenses that are not allocated to the business segments;

• Branch sale gains and the results of The Money Store home equity lending, mortgage servicing, indirect auto leasing and credit card businesses that have been divested or are being wound down; and

• The results of our HomEq Servicing business, which is responsible for loan servicing for the former Money Store loans and home equity loans generated by our mortgage company, as well as servicing for third party portfolios.

     Earnings in the Parent were $118 million in the first nine months of 2003 compared with $327 million in the first nine months of 2002. Total revenue in the Parent declined $193 million from the first nine months of 2002 to $482 million in the first nine months of 2003 primarily as a result of a $65 million reduction in mortgage banking income and a $62 million reduction in security gains. The decline in mortgage banking income was primarily related to increased deferral of loan origination fees from higher origination volume. Loan origination fees and costs are accounted for on a cash basis in the core business segments and the Parent includes an adjustment to defer and amortize the fees and costs over the life of the loan. In addition, advisory fees in the first nine months of 2002 included an incremental $42 million related to the securitization of assets from one of our multi-seller commercial paper conduits. Trading losses of $26 million in the first nine months of 2003 included a $31 million loss related to liquidity agreements we have with the conduits that we administer. Trading losses of $24 million in the first nine months of 2002 included a $42 million loss related to the purchase of $361 million of assets from the conduit pursuant to a credit enhancement agreement we had with the conduit.

     Noninterest expense declined by $153 million from the first nine months of 2002 primarily due to reduced deposit base intangible amortization and lower costs associated with legal settlements. Income tax expense increased $117 million from the first nine months of 2002, which included the recognition in 2002 of a tax benefit related to a realized tax loss on our investment in The Money Store. For segment reporting, income tax expense or benefit is allocated to each business segment, and any difference between the total for all business segments and the consolidated results is included in the Parent.

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     Third quarter financial reporting for this segment reflects the impact of Prudential’s 38 percent interest. Net interest income, fee income and noninterest expense related to this transaction are included in Capital Management.

Balance Sheet Analysis

SecuritiesThe securities portfolio, all of which is classified as available for sale, consists primarily of U.S. Government agency and asset-backed securities. Activity in this portfolio is undertaken primarily to manage liquidity, interest rate risk and regulatory capital, and to take advantage of market conditions that create more economically attractive returns on these investments. We had securities available for sale with a market value of $87.2 billion at September 30, 2003, an increase from $75.8 billion at December 31, 2002, related to the addition of $5.1 billion from the consolidation of the conduits in connection with FIN 46 and $8.7 billion in securities related to the introduction of a new FDIC-insured sweep product.

     Securities available for sale included an unrealized gain of $2.3 billion at September 30, 2003, and $2.7 billion at December 31, 2002. The average rate earned on securities available for sale was 5.39 percent in the first nine months of 2003 and 6.50 percent in the first nine months of 2002.

     In connection with certain securitizations, we retain interests in the form of either bonds or residual interests. The retained interests resulted primarily from the securitization of residential mortgage loans and prime equity lines. Included in securities available for sale at September 30, 2003, were residual interests with a market value of $1.3 billion, which included a net unrealized gain of $465 million, and retained bonds from securitizations with a market value of $12.0 billion, which included a net unrealized gain of $402 million. At December 31, 2002, securities available for sale included residual interests with a market value of $1.3 billion, which included a net unrealized gain of $491 million and retained bonds from securitizations with a market value of $18.0 billion, which included a net unrealized gain of $649 million.

     At September 30, 2003, retained bonds with an amortized cost of $9.0 billion and a market value of $9.3 billion were rated as investment grade by external rating agencies. Retained bonds with an amortized cost of $8.3 billion and a market value of $8.6 billion at September 30, 2003, have external credit ratings of AA and above.

     The decrease in retained interests in securities available for sale from December 31, 2002, was primarily due to pay-downs in retained bonds.

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Loans — On-Balance Sheet

		2003						2002
		Third		Second		First		Fourth		Third
(In millions)		Quarter		Quarter		Quarter		Quarter		Quarter
Commercial
Commercial, financial and agricultural		$	55,181		54,857		56,476		56,501		57,899
Real estate — construction and other			5,741		5,442		4,712		4,542		4,990
Real estate — mortgage			15,746		17,538		18,550		18,962		19,535
Lease financing			23,598		23,204		23,060		22,667		22,616
Foreign			6,815		6,622		6,433		6,425		6,992
	Total commercial		107,081		107,663		109,231		109,097		112,032
Consumer
Real estate secured			51,516		47,853		47,623		46,706		38,721
Student loans			8,160		7,657		7,466		6,921		6,305
Installment loans and vehicle leasing			9,110		9,644		9,982		10,249		10,433
	Total consumer		68,786		65,154		65,071		63,876		55,459
	Total loans		175,867		172,817		174,302		172,973		167,491
Unearned income			9,942		9,984		10,080		9,876		9,949
	Loans, net(on-balance sheet)	$	165,925		162,833		164,222		163,097		157,542

Loans — Managed Portfolio(Including on-balance sheet)

		2003						2002
		Third		Second		First		Fourth		Third
(In millions)		Quarter		Quarter		Quarter		Quarter		Quarter
Commercial		$	110,499		111,071		113,038		112,455		115,591
Real estate secured			81,885		79,035		78,847		79,512		73,187
Student loans			10,404		10,187		10,218		9,845		9,348
Installment loans and vehicle leasing			9,110		9,644		9,982		10,249		10,434
	Total managed portfolio	$	211,898		209,937		212,085		212,061		208,560

LoansNet loans increased 2 percent from December 31, 2002, primarily due to the purchase of $7.3 billion of residential mortgage loans for investment purposes, which offset a decline in large corporate loans as a result of sales, securitizations and transfers to loans held for sale. In the first nine months of 2003, we transferred to loans held for sale or sold $1.2 billion of loans, largely from the large corporate portfolio, compared with transfers or sales of $3.2 billion in the first nine months of 2002.

     Commercial loans represented 61 percent and consumer loans 39 percent of the loan portfolio at September 30, 2003. The portfolio mix has been gradually shifting to a greater proportion of consumer real estate secured loans as we have pursued risk reduction strategies to actively manage down potential problem loans and certain large corporate loans over the past several quarters.

     The managed loan portfolio includes the on-balance sheet loan portfolio, loans securitized for which the assets are classified in securities on-balance sheet, loans held for sale that are classified in other assets on-balance sheet and the off-balance sheet portfolio of securitized loans sold where we service the loans.

     The average rate earned on loans decreased 75 basis points from the first nine months of 2002 to 5.09 percent in the first nine months of 2003, which was in line with reductions in interest rates.

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Asset Quality

		2003									2002
		Third			Second			First			Fourth			Third
(In millions)		Quarter			Quarter			Quarter			Quarter			Quarter
Nonperforming assets
Nonaccrual loans		$	1,391			1,501			1,622			1,585			1,751
Foreclosed properties			116			130			118			150			156
	Total nonperforming assets	$	1,507			1,631			1,740			1,735			1,907
as % of loans, net and foreclosed properties			0.91	%		1.00			1.06			1.06			1.21
Nonperforming assets in loans held for sale		$	160			167			114			138			115
	Total nonperforming assets in loans and in loans held for sale	$	1,667			1,798			1,854			1,873			2,022
as % of loans, net, foreclosed properties and loans in other assets as held for sale			0.95	%		1.04			1.08			1.11			1.23
Allowance for loan losses
Balance, beginning of period		$	2,704			2,747			2,798			2,847			2,951
Net charge-offs			(132	)		(169	)		(195	)		(199	)		(224	)
Allowance relating to loans transferred or sold			(22	)		(69	)		(80	)		(158	)		(315	)
Provision for loan losses related to loans transferred or sold			—			26			25			109			211
Provision for loan losses			81			169			199			199			224
Balance, end of period		$	2,631			2,704			2,747			2,798			2,847
as % of loans, net			1.59	%		1.66			1.67			1.72			1.81
as % of nonaccrual and restructured loans (a)			189			180			169			177			163
as % of nonperforming assets (a)			175	%		166			158			161			149
Net charge-offs		$	132			169			195			199			224
Commercial, as % of average commercial loans			0.21	%		0.42			0.53			0.53			0.61
Consumer, as % of average consumer loans			0.51			0.44			0.44			0.52			0.56
Total, as % of average loans, net			0.33	%		0.43			0.49			0.52			0.59
Past due loans, 90 days and over
Commercial, as a % of loans, net			1.20	%		1.30			1.41			1.42			1.58
Consumer, as a % of loans, net			0.76	%		0.80			0.79			0.75			0.77
(a) These ratios do not include nonperforming assets included in other assets as held for sale.

Nonperforming AssetsThe 11 percent decline in nonperforming assets from December 31, 2002, reflected more favorable market conditions and a slowdown in new inflows to commercial nonaccrual loans as well as $171 million in loan sales directly from the loan portfolio. Nonperforming assets were also reduced by net charge-offs, write-downs in the loans held for sale portfolio and sales of $128 million in nonperforming assets in assets held for sale.

Impaired LoansImpaired loans, which are included in nonaccrual loans, declined $242 million from December 31, 2002, to $1.1 billion at September 30, 2003. Included in the allowance for loan losses at September 30, 2003, was $169 million related to $650 million of impaired loans. The remaining $481 million of impaired loans were recorded at the lower of either the fair value of collateral or the present value of expected future cash flows and, accordingly, no allowance was required. In the first nine months of 2003, the average recorded investment in impaired loans was $1.3 billion, and $15 million of interest income was recognized on impaired loans. This income was recognized using the cash-basis method of accounting.

Past Due LoansAccruing loans 90 days or more past due, excluding loans that are classified as loans held for sale, were $291 million at September 30, 2003. Of these past due loans, $8 million were commercial loans or commercial real estate loans and $283 million were consumer loans.

Net Charge-offsNet charge-offs declined 46 percent from the first nine months of 2002, due mainly to moderating trends in nonperforming assets and our strategic decision to actively manage down potential problem loans over the past several quarters. We expect net charge-offs to be at the low end of a range of 40 basis points to 50 basis points of average loans for the full year 2003.

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Provision and Allowance for Loan LossesThe provision for loan losses declined 57 percent from the first nine months of 2002, reflecting improved loan quality and more favorable economic conditions. In addition, we continue to mitigate risk and strengthen our balance sheet by transferring many at-risk credits to loans held for sale or selling loans directly out of the loan portfolio. The provision for loan losses in the first nine months of 2003 of $500 million included $51 million associated with the transfer of $837 million of exposure, including $561 million of outstandings and the related unfunded commitments of $276 million, to loans held for sale and to the sale of $623 million of corporate, commercial and consumer loans directly out of the loan portfolio. This compares with the first nine months of 2002, in which the provision of $1 billion included $248 million related to $3.2 billion of loans sold directly out of the loan portfolio or transferred to loans held for sale. The provision related to the transfer of loans to loans held for sale was recorded to reduce the carrying value of these loans to their respective fair values.

     The allowance for loan losses declined $73 million in the third quarter of 2003 to $2.6 billion, or 1.59 percent of net loans. The decline was related to $22 million in allowance associated with loans that were sold or transferred to held for sale, and to improving credit quality trends.

Loans Held for SaleLoans held for sale include loans originated for sale or securitization as part of our core business strategy as well as the activities related to our ongoing portfolio risk management to reduce exposure to areas of perceived higher risk.

     In the first nine months of 2003, we sold or securitized $20.5 billion in loans out of the held for sale portfolio. Of the $20.5 billion, $1.6 billion were commercial loans and $18.9 billion were consumer loans, primarily residential mortgages and prime equity lines. Substantially all of these loan sales and securitizations represented normal flow, or core business activity, which means we originate the loans with the intent to sell them to third parties. Of the loans sold, $128 million were nonperforming.

     As part of our ongoing portfolio management activities, we transferred $432 million of commercial loans and $276 million of additional exposure to held for sale in the first nine months of 2003. In connection with this transfer to loans held for sale, these loans were written down to the lower of cost or market value, and in the aggregate these loans were recorded in loans held for sale at 70 percent of their original face value.

     In the first nine months of 2003, we also sold $623 million of loans directly out of the loan portfolio. Of these loans, $452 million were performing and $171 million were nonperforming at the time of the sale. Loan sales are recorded as sales directly out of the loan portfolio in situations where the sale is closed in the same period in which the decision to sell was made. We will continue to look for market opportunities to reduce risk in the loan portfolio by either selling loans directly out of the loan portfolio or by transferring loans to loans held for sale.

Funding Sources

Core DepositsDeposits are our primary source of funding. We are one of the nation’s largest core deposit-funded banking institutions with a deposit base that is spread across the economically strong South Atlantic region and high per-capita income Middle Atlantic region. We believe this geographic diversity creates considerable funding diversity and stability. The stability of this funding source is affected by other factors including returns available to customers on alternative

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investments, the quality of customer service levels and competitive forces. Core deposits include savings, negotiable order of withdrawal (NOW), money market, noninterest-bearing and other consumer time deposits. Core deposits increased 7 percent from December 31, 2002, to $187.5 billion. Average low-cost core deposits, which exclude consumer certificates of deposit and deposits held in CAP Accounts, grew 19 percent to $137.3 billion in the first nine months of 2003 from the first nine months of 2002 as we focused on increasing the proportion of low-cost core deposits over higher cost consumer certificate of deposit balances.

     In the first nine months of 2003 and 2002, average noninterest-bearing deposits were 24 percent and 23 percent, respectively, of average core deposits. The portion of core deposits in higher rate, other consumer time deposits was 16 percent at September 30, 2003, and 19 percent at December 31, 2002. Other consumer time and other noncore deposits usually pay higher rates than savings and transaction accounts, but they generally are not available for immediate withdrawal. They are also less expensive to service.

Purchased FundsAverage purchased funds, which include wholesale borrowings with maturities of 12 months or less, were $66.7 billion in the first nine months of 2003 and $52.7 billion in the first nine months of 2002. The increase was primarily related to the Prudential Financial transaction. Purchased funds were $81.5 billion at September 30, 2003, and $56.9 billion at December 31, 2002.

Long-Term DebtLong-term debt declined $2.1 billion from December 31, 2002, to $37.5 billion at September 30, 2003, primarily due to scheduled maturities. In the fourth quarter of 2003, scheduled maturities of long-term debt amount to $589 million. We anticipate either extending the maturities of these obligations or replacing the maturing obligations.

     Long-term debt included $417 million in subordinated notes issued by Prudential Financial on July 1, 2003, in connection with the retail brokerage transaction. Long-term debt also included $3.0 billion of trust preferred securities at September 30, 2003, and at December 31, 2002. Subsidiary trusts issued these preferred securities and used the proceeds to purchase junior subordinated debentures from the Parent. These preferred securities are considered tier 1 capital for regulatory purposes. TheAccounting and Regulatory Matterssection has additional information.

     Wachovia Bank has available a global note program for the issuance of up to $45.0 billion of senior or subordinated notes. In July 2003, we issued $500 million in subordinated bank notes under this program. The sale of any notes under this program will depend on future market conditions, funding needs and other factors.

     Under a current shelf registration statement filed with the Securities and Exchange Commission, we have $9.9 billion of senior or subordinated debt securities, common stock or preferred stock available for issuance. In July 2003, we issued $750 million in senior debt securities under this shelf registration. In addition, we have available for issuance up to $4.0 billion under a medium-term note program covering senior or subordinated debt securities. The sale of debt or equity securities will depend on future market conditions, funding needs and other factors.

Stockholders’ EquityThe management of capital in a regulated banking environment requires a balance between optimizing leverage and return on equity while maintaining sufficient capital levels and related ratios to satisfy regulatory requirements. Our goal is to generate attractive returns on equity to our stockholders while maintaining sufficient regulatory capital ratios.

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     Stockholders’ equity increased by $735 million from year-end 2002 to $33 billion at September 30, 2003. Average diluted common shares outstanding declined by 29 million shares from September 30, 2002, to 1.3 billion diluted common shares at September 30, 2003. In the first nine months of 2003, we repurchased 16 million common shares at a cost of $632 million in connection with our previously announced buyback program, and we settled our remaining equity forward contract by purchasing 24 million shares at a cost of $773 million. At September 30, 2003, we had authority to repurchase up to 82 million shares of our common stock.

     In the third quarter of 2002, we entered into transactions involving the simultaneous sale of put options and the purchase of call options on 5 million shares of our common stock with expiration dates from October 2003 to December 2003. We entered into these collar transactions to manage the potential dilution associated with employee stock options. The put options were sold to offset the cost of purchasing the call options. On July 1. 2003, we recorded a $17 million gain after tax from a change in accounting principle related to the treatment of our collar transactions upon the adoption of SFAS No. 150,Accounting for Certain Transactions with Characteristics of Liabilities and Equity.At September 30, 2003, we had collar transactions involving 5 million shares at a cost of $170 million, of which 3 million shares were settled subsequent to quarter end. We anticipate that we will settle the remaining collars in the fourth quarter of 2003. TheAccounting and Regulatory Matters section has further information.

     We paid $1.2 billion, or 90 cents per share, in dividends to common stockholders in the first nine months of 2003 compared with $1.0 billion, or 74 cents per share, in the first nine months of 2002. This represented a dividend payout ratio on cash earnings of 33.83 percent in the first nine months of 2003 and 32.46 percent in the first nine months of 2002. Dividends of $5 million, or 5 cents per DEP share, were paid to holders of the DEPs in the first nine months of 2003. The current dividend of 35 cents per share exceeded the former Wachovia’s historical 30 cents per equivalent share dividend, so there was no third quarter 2003 dividend on the DEPs. More information is in theFinancial Summarysection.

Subsidiary DividendsWachovia Bank is the largest source of subsidiary dividends paid to the Parent. Capital requirements established by regulators limit dividends that this subsidiary and certain other of our subsidiaries can pay. Under these and other limitations, which include an internal requirement to maintain all deposit-taking banks at the well capitalized level, at September 30, 2003, our subsidiaries had $4.4 billion available for dividends that could be paid without prior regulatory approval. Our subsidiaries paid $2.8 billion in dividends to the Parent in the first nine months of 2003.

Regulatory CapitalAs a regulated financial services company, we are governed by certain regulatory capital requirements. Our tier 1 capital ratio increased 45 basis points from December 31, 2002, to 8.67 percent at September 30, 2003, driven primarily by higher retained earnings and the impact of the Prudential retail brokerage transaction. The minimum tier 1 ratio is 4 percent. At September 30, 2003, we were classified as well capitalized for regulatory purposes, the highest classification. Our total capital and leverage ratios were 12.21 percent and 6.56 percent, respectively, at September 30, 2003, and 12.01 percent and 6.77 percent, respectively, at December 31, 2002.

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Off-Balance Sheet Transactions

     In the normal course of business, we engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk, and fall under two broad categories: corporate transactions and customer transactions. Corporate transactions are designed to diversify our funding sources; reduce our credit, market or liquidity risk; and optimize capital. Customer transactions are executed to facilitate customers’ funding needs or risk management objectives. Within these two categories, there are many types of transactions, which for purposes of the following table, we have grouped into lending commitments, conduit transactions, asset securitizations, other credit enhancements, leasing, and other transactions. For a detailed description of each of these types of transactions, please refer to our 2002 Annual Report on Form 10-K.

Summary of Off-Balance Sheet Exposures

		Business Segments								Total
						Corporate
						and
		General		Wealth		Investment				September 30,		December 31,
(In millions)		Bank		Management		Bank		Parent		2003		2002
Lending commitments
Commercial		$	24,481		2,396		60,541		14,399		101,817		111,058
Letters of credit			3,320		—		13,065		—		16,385		14,878
Consumer			35,708		1,447		—		—		37,155		32,084
	Total lending commitments		63,509		3,843		73,606		14,399		155,357		158,020
Conduit transactions			—		—		6,954		—		6,954		17,604
Asset securitizations			—		—		4,063		7,581		11,644		12,857
Other credit enhancements			7,057		—		4,229		—		11,286		11,023
Leasing transactions			—		—		644		—		644		595
Other transactions
Principal investing			—		—		793		—		793		972
Transactions in our own stock			—		—		—		150		150		1,155
Contingent consideration			—		—		—		277		277		281
	Total	$	70,566		3,843		90,289		22,407		187,105		202,507

     Our off-balance sheet exposure declined $15.4 billion from December 31, 2002, to September 30, 2003, primarily driven by lower lending commitments and conduit transactions discussed in more detail below.

Lending CommitmentsLending commitments include unfunded loan commitments and letters of credit. From December 31, 2002, commercial loan commitments declined $9.2 billion consistent with the decrease in commercial loans as a result of lower loan demand and our commercial portfolio management activity designed to reduce risk. Consumer loan commitments increased $5.1 billion in line with the increase in consumer loan activity.

Conduit TransactionsOn July 1, 2003, we consolidated the conduits we administer in connection with the implementation of FIN 46. The consolidation resulted in the addition to our balance sheet of $9.1 billion of assets, representing the funded and outstanding balances of the conduits. At September 30, 2003, we had off-balance sheet exposure of $7.0 billion, representing the incremental amount of commitments above outstanding balances.

     In the first six months of 2003, we purchased $306 million of assets from the conduits we administer and recorded $31 million in losses related to liquidity agreements we have with the conduits. There were no purchases or losses in the third quarter of 2003. In

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the first nine months of 2002, we purchased $596 million of assets from the conduits we administered, and incurred $42 million in related losses. TheAccounting and Regulatory Matterssection has additional information.

Asset SecuritizationsIn the first nine months of 2003, we securitized and sold $2.4 billion of prime equity lines, retaining $57 million in the form of residual interests. Included in other income were gains related to these securitizations of $101 million in the first nine months of 2003 and $116 million in the first nine months of 2002. Retained interests from securitizations, recorded as either available for sale securities, trading account assets, loans or other assets, were $14.8 billion at September 30, 2003, and $20.3 billion at December 31, 2002.

     Retained interests from collateralized loan obligation (CLO) and collateralized debt obligation (CDO) transactions are recorded as available for sale securities and were $147 million at September 30, 2003, and $151 million at December 31, 2002. Impairment losses included in other income related to retained interests in CLOs and CDOs were $24 million in the first nine months of 2003 and $35 million in the first nine months of 2002.

     Retained interests from securitizations of fixed rate municipal bonds were $289 million at September 30, 2003, and $318 million at December 31, 2002.

Leasing TransactionsTotal assets within off-balance sheet lease structures were $1.6 billion at September 30, 2003, compared with $876 million at December 31, 2002. At September 30, 2003, assets of $840 million have been classified as capital leases; accordingly, the present value of the minimum lease payments, including the present value of the maximum residual guarantee at the end of the lease term, has been recorded as a capital asset and as long-term debt.

     We provided $1.4 billion in residual value guarantees at September 30, 2003, with $644 million representing assets under operating leases. The residual value guarantees protect the lessor from loss on sale of the property at the end of the lease term. To the extent that a sale results in proceeds less than a stated percent (generally 80 percent to 89 percent) of the property’s cost less depreciation, we will be required to reimburse the lessor under our residual value guarantee.

Principal InvestingPrincipal Investing investments were recorded on the balance sheet at a fair value of $2.1 billion at September 30, 2003, and $1.8 billion at December 31, 2002. These investments are subject to all the risks of the equity markets and many of these investments are illiquid. Direct investments in public and private companies typically do not involve legally binding commitments to participate in subsequent equity or debt offerings. Fund investments do however involve legally binding commitments to contribute capital pursuant to the terms of limited partnership agreements. At September 30, 2003, we had unfunded commitments to more than 200 fund sponsors amounting to $793 million. We expect that these commitments will be drawn over the next three to five years.

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Risk Governance and Administration

     Please refer to our 2002 Annual Report on Form 10-K for a more detailed discussion of our comprehensive approach to managing credit, operational and liquidity risks, and to allocating capital and measuring risk-adjusted returns as well as our governance structure and practices.

Market Risk ManagementWe trade a variety of equities, debt securities, foreign exchange instruments and other derivatives in order to provide customized solutions for the risk management needs of our customers and for proprietary trading. Risk is managed through the use of Value-at-Risk (VAR) methodology with limits approved by the Asset and Liability Management Committee and an active, independent monitoring process.

     The VAR methodology uses recent market volatility to estimate within a given level of confidence the maximum trading loss over a period of time that we would expect to incur from an adverse movement in market rates and prices over the period. We calculate 1-day VAR at the 97.5 percent confidence level. The VAR model uses historical data from the most recent 252 trading days. The VAR model is supplemented by stress testing on a daily basis. The analysis captures all financial instruments that are considered trading positions. Our 1-day VAR limit for the first nine months of 2003 was $30 million. The total 1-day VAR was $11 million at September 30, 2003, and $13 million at December 31, 2002, and primarily related to interest rate risk and equity risk. The high, low and average VARs in the first nine months of 2003 were $20 million, $10 million and $13 million, respectively.

Interest Rate Risk ManagementOne of the fundamental roles in banking is the management of interest rate risk, or the risk that changes in interest rates may diminish the income that we earn on loans, securities and other assets. The following discussion explains how we oversee the interest rate management process; two major risk factors that affect the decisions we make in this process; and the actions we have taken in the past nine months to protect earnings from interest rate risk.

     The Asset and Liability Management Committee, which oversees the interest rate risk management process and approves policy guidelines, is led by the chief financial officer and includes the chief executive officer, leaders of our business units, the treasury division, and other finance personnel. This committee meets at least monthly and reports to the Credit and Finance Committee of our company’s board of directors. Treasury division management and other finance personnel monitor the day-to-day exposure to changes in interest rates in response to loan and deposit flows. They make adjustments within established policy guidelines as needed to manage overall interest rate risk.

     A balance sheet is considered asset sensitive when its assets (loans and securities) reprice faster or to a greater extent than liabilities (deposits and borrowings). Loans and securities will produce more net interest income when interest rates rise and less net interest income when interest rates decline. Our large and relatively rate-insensitive deposit base funds a portfolio of primarily floating rate commercial and consumer loans. This mix naturally creates a highly asset-sensitive balance sheet. Over the last 15 to 21 months, our deposit growth has far outpaced our loan growth, significantly adding to our naturally asset-sensitive position.

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     To achieve more neutrality or liability-sensitivity in our balance sheet, we maintain a large portfolio of fixed rate discretionary instruments such as loans, securities and derivatives. A balance sheet is described as liability-sensitive when its liabilities (deposits) reprice more frequently or to a greater degree than its assets (loans and securities). A liability-sensitive balance sheet will produce a lower level of net interest income when interest rates rise than when rates remain unchanged, because interest expense will rise faster than interest income.

     We often elect to use derivatives to hedge assets, liabilities and future transactions against interest rate risk. When deciding whether to use derivatives or invest in securities to reach the same goal, we weigh a number of factors, such as cost, the implications for liquidity and capital, whether it is more efficient to enter into a derivative transaction or buy an investment security, and our overall strategy. We choose to use derivatives when they provide greater relative value or more efficient execution of our strategy than securities. The derivatives we use for interest rate risk management include various interest rate swaps, futures, forwards and options. We fully incorporate the market risk associated with interest rate risk management derivatives into our earnings simulation model in the same manner as other on balance sheet financial instruments. The market risk associated with trading and customer derivative positions is managed using the VAR methodology, as described in theMarket Risk Managementsection. Our 2002 Annual Report on Form 10-K has additional information related to derivatives.

     As economic conditions improve and loan demand increases, we expect to rely to a larger extent on our large base of low-cost core deposits to fund lending activities. The characteristics of the loans that we add will prompt different strategies. Fixed rate loans, for example, diminish the need to buy discretionary investments, so if we add more fixed rate loans to our loan portfolio, we would likely allow existing discretionary investments to mature or be liquidated. If we add more variable rate loans, we would likely allow fixed rate securities to mature or be liquidated and add new derivatives that, in effect, convert the incremental variable rate loans to fixed rate loans.

     The two risk factors having the largest impact on our expected earnings are repricing risk and curve risk.

     Repricing risk refers to the impact that changes in short-term interest rates such as federal funds, LIBOR and the prime rate can have on variable rate assets and liabilities, and on interest rate derivatives. Curve risk refers to the impact of changes in rates greater than one year in term on existing assets and liabilities, as well as new fixed rate loans, securities and debt. Our definition of curve risk, most notably, would include the impact from customer options to prepay, which would affect the cash flows of mortgage-related assets.

     We analyze and manage the amount of risk we are taking to changes in interest rates by forecasting a wide range of interest rate scenarios and for time periods as long as 24 months. However, in analyzing interest rate sensitivity for policy measurement, we compare our forecasted earnings per share in both “high rate” and “low rate” scenarios to the “market forward rate” and “flat rate” scenarios. The policy measurement period is 12 months in length, beginning with the first month of the forecast. Our objective is to ensure that we prudently manage the interest-bearing assets and liabilities on our balance

28

sheet in ways that improve our financial performance without unduly putting earnings at risk. Our policy is to limit the risk we can take through balance sheet management actions to 5 percent of our earnings per share in both falling and rising rate environments.

     Our “market forward rate” is constructed using currently implied market forward rate estimates for all points on the yield curve over the next 12 months. The “high rate” and “low rate” scenarios assume gradual 200 basis point increases or decreases in the federal funds rate relative to the “market forward rate” scenario. Our standard approach evaluates expected earnings in a 200 basis point range both above and below the “market forward rate” scenario. However, due to the currently low absolute level of the federal funds rate, we modified the “low rate” scenario to measure a decline of only 50 basis points. All rates with terms shorter than one year are derived in the above manner, and we measure repricing risk accordingly.

     To capture the impact of curve-related risk, we simultaneously measure the impact of a parallel and nonparallel shift in rates on each of our interest rate scenarios. A parallel shift would, as the term implies, shift all points on the yield curve by the same increments. For example, by the twelfth month in our policy measurement period, short-term rates such as the federal funds rate would increase by 200 basis points over the “market forward rate”, while longer term rates such as the 10- and 30-year treasury notes would increase by 200 basis points as well. A nonparallel shift would consist of a 200 basis point increase in short-term rates, while long-term rates would increase by a different amount. A rate shift in which short-term rates rise to a greater degree than long-term rates would be referred to as a “flattening” of the yield curve. Conversely long-term rates rising to a greater degree than short-term rates would lead to a “steepening” of the yield curve. A steepening of the yield curve typically lessens the negative effect on rate sensitivity as short-term rates rise. Conversely, a flattening of the yield curve increases the negative effect of rising rates on our liability sensitive balance sheet.

     The impact of a nonparallel shift in rates depends on the types of assets in which funds are invested, and the shape of the curve implicit in the “market forward rate” scenario. For example, as of the end of the third quarter of 2003, the spread between the 10-year and two-year treasury rates was 248 basis points, which historically would be considered very wide. The average spread between the 10-year and two-year treasury rates since 1980 has been approximately 76 basis points, including periods of inversion.

     In this historically steep yield curve environment, we believe prudent risk management practices dictate the evaluation of rate shifts that include a “flattening” of the yield curve where short-term rates rise faster and to a greater degree than long-term rates. Accordingly, in September 2003 we evaluated scenarios that measure the impact of a “moderate flattening” and a “severe flattening” of the yield curve. Interest rate risk management decisions are based on a composite view of sensitivity considering parallel and nonparallel shifts. The methodology we use is discussed further in theEarnings Sensitivitysection.

     Over the course of 2003, our investment strategy has been tailored to manage both repricing and curve-related risk. Investments in mortgage-related loans and securities comprise approximately 57 percent of all of our discretionary positions. We use mortgage securities as a hedge against both rising and falling interest rates, depending upon their purchase price, which has a significant impact on their yield in different rate environments. As a balance to the risks inherent in investing in mortgage-backed securities, we also maintain a diversified portfolio of assets with differing risk profiles. Assets such as highly rated

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commercial mortgage-backed securities are structured with prepayment protection and therefore they have more certain cash flows. At September 2003, this asset class made up about 8 percent of our portfolio. More information on our investment strategy pertaining to mortgage-related assets is included in our Quarterly Report on Form 10-Q dated June 30, 2003.

Earnings SensitivityThe table below provides a summary of our interest rate sensitivity measurement:

Policy Period Sensitivity Measurement

	Actual			Implied
	Fed Funds			Fed Funds		Percent
	Rate as of			Rate as of		Earnings
Flat Rate Scenario	September 1, 2003			August 31, 2004		Sensitivity
High Rate		1.00	%		3.00		(0.10	)
Flat Rate		1.00			1.00		—
Low Rate		1.00	%		0.50		1.00

Policy Period Sensitivity Measurement

	Actual			Implied
	Fed Funds			Fed Funds
	Rate as of			Rate as of		Earnings
Market Forward Rate Scenario	September 1, 2003			August 31, 2004		Sensitivity
High Rate		1.00	%		3.55		(2.10	)
Market Forward Rate		1.00			1.55		—
Low Rate		1.00	%		1.05		0.60

     Our “flat rate” scenario holds the federal funds rate constant at 1.00 percent through August 2004. Based on our September 2003 outlook, if interest rates were to follow our “high rate” scenario (i.e., a 200 basis point increase in short-term rates from our “flat rate” scenario) with a parallel shift in the yield curve, our earnings sensitivity model indicates earnings during the 12- month policy measurement would decline by 0.1 percent.

     Typically, we analyze a 200 basis point decline for our “low rate” scenario. However, because of the current federal funds rate level, we believe a 50 basis point decline in rates is more appropriate. If rates were to follow the “low rate” scenario relative to “flat rates,” earnings would increase by 1.0 percent.

     For our “most likely rate” scenario, we believe the “market forward rate” is the most appropriate for this policy measurement period. The “market forward rate” scenario assumes the federal funds rate remains at 1.00 percent in the fourth quarter of 2003 through February 2004, then gradually rises to 1.55 percent through the end of our policy measurement period, and continues rising to 2.25 percent by December 2004. As previously discussed, the current yield curve is considered quite steep. In the third quarter of 2003, the spread between the 10-year and two-year treasury notes was 248 basis points. Our “market forward rate” scenario would anticipate a narrowing of this spread over the forecast horizon to approximately 191 basis points by year-end 2004. While the “flattening” of the yield curve in this instance is quite significant, 191 basis points is still considered a steep curve. In fact, the average spread between the 10-year and two-year treasury note rates since 1980 would be approximately 76 basis points, including periods of inversion.

     Our sensitivity to the “market forward rate” scenario is measured using three different yield curve shapes. The first is a gradual 200 basis point increase at each point on the yield curve over a 12-month period. This would be referred to as a parallel shift in the curve and would follow the “market forward rate” scenario’s expected flattening. Next we measure the exposure to nonparallel shifts by allowing short-term rates to rise by 200 basis points, while

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rates of terms longer than one year increase by a lesser degree. This approach creates incrementally flatter curves. In a liability sensitive balance sheet, this has the impact of stressing liability costs by a full 200 basis points, while new fixed-rate lending and investment rates receive less than a 200 basis point increase. The focal point is the spread between the 10-year and two-year treasury notes. In our “moderate flattening” scenario, this spread declines from 191 basis points in the “market forward rate” scenario to 97 basis points. This flattening is quite significant in relation to the most likely scenario; however, it is still above the historical average. Our “severe flattening” scenario reduces the spread between the 10-year treasury notes and the two-year treasury notes to 26 basis points by the end of the measurement period. This approach fully stresses expected earnings to the risks on nonparallel curve shifts. The reported sensitivity is a composite of these three scenarios.

     Our model indicates that earnings would be negatively affected by 2.1 percent in a “high rate” scenario relative to the “market forward rate” over the policy period. Additionally, we measure a scenario where rates gradually decline 50 basis points over a 12-month period relative to the “market forward rate” scenario. The model indicates that earnings would be positively affected in this scenario by 0.6 percent. While our interest rate sensitivity modeling assumes that management takes no action, we regularly assess the viability of strategies to reduce unacceptable risks to earnings and we implement such strategies when we believe those actions are prudent. As new monthly outlooks become available, we formulate strategies aimed at protecting earnings from the potential negative effects of changes in interest rates.

Accounting and Regulatory Matters

     The following information addresses new or proposed accounting pronouncements related to our industry as well as new or proposed legislation that will continue to have a significant impact on our industry.

Qualifying Special-Purpose EntitiesIn June 2003, the FASB issued a proposed statement,Qualifying Special-Purpose Entities and Isolation of Transferred Assets. The proposed statement would amend SFAS 140 to provide additional restrictions on the permitted activities of qualifying special-purpose entities, including additional restrictions on the transactions a qualifying special-purpose entity could enter into with the transferor. The provisions of the proposed statement would apply prospectively to new transactions after June 30, 2004, and would also apply to existing qualifying special-purpose entities in certain circumstances. The FASB has decided to issue another exposure draft of the proposed statement in the fourth quarter of 2003 and is expected to finalize the proposed statement in the first half of 2004. We are assessing the potential impact that the proposed statement would have on us, which could result in consolidation of certain qualifying special-purpose entities that are currently not included in our consolidated financial statements. We will not know the actual impact until the FASB finalizes the proposed statement.

Liabilities and EquityIn May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity. SFAS 150 requires that the fair value of certain financial instruments that the issuer may settle by issuing its own equity be classified as assets or liabilities. Subsequent changes to fair value are recorded in earnings. We have equity collar transactions that expire in October through December 2003 and are considered financial instruments within the scope of SFAS 150. In connection with the adoption of SFAS 150 on July 1, 2003, we recorded the fair value of

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these instruments as an asset and recognized after-tax income of $17 million ($26 million before tax), which is presented in the consolidated statements of income as the cumulative effect of a change in accounting principle. Other than recording this cumulative effect, the adoption of SFAS 150 did not have a material impact on our consolidated financial position or results of operations. The future impact of SFAS 150 will depend on the extent to which we enter into these transactions in the future.

DerivativesIn April 2003, the FASB issued SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends SFAS 133 for decisions made as part of the Derivatives Implementation Group (DIG) process and in connection with other FASB projects. Specifically, SFAS 149 clarifies the definition of a derivative by focusing on the meaning of the initial net investment criteria, amends the definition of an “underlying” (that is, the rate or index in a derivative transaction) in SFAS 133 to conform with language in FIN 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,and clarifies when a derivative contains a financing component. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except for provisions made as part of the DIG process, which continue to be applied in accordance with their respective effective dates. The adoption of SFAS 149 did not have a material impact on our consolidated financial position or results of operations.

ConsolidationsIn January 2003, FASB issued FIN 46,Consolidation of Variable Interest Entities,which addresses consolidation of variable interest entities (VIEs), certain of which are also referred to as SPEs. VIEs are entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinate financial support from other parties. Under the provisions of FIN 46, a company will consolidate a VIE if the company has a variable interest (or combination of variable interests) that will absorb a majority of the VIE’s expected losses if they occur, that will receive a majority of the VIE’s expected residual returns if they occur, or both. The company that consolidates a VIE is called the primary beneficiary. The provisions of FIN 46 are applicable to variable interests in VIEs created after January 31, 2003. Variable interests in VIEs created before February 1, 2003, were originally subject to the provisions of FIN 46 no later than July 1, 2003. In October 2003, the FASB issued guidance that provides for a deferral of the effective date of applying FIN 46 to entities created before February 1, 2003, to no later than December 31, 2003. In addition, the deferral permits a public company to apply FIN 46 to some or all of the VIEs in which it holds an interest.

     We arrange financing for certain customer transactions through multi-seller commercial paper conduits that provide our customers with access to the commercial paper market. We provide liquidity commitments to these multi-seller conduits that we administer. As currently structured, these conduits are VIEs in which we are the primary beneficiary. Accordingly, by applying FIN 46 to these entities on July 1, 2003, we consolidated the conduits we administer. This consolidation added $9.1 billion of assets, including an increase in securities of $5.0 billion and other earning assets of $4.1 billion. Short-term commercial paper borrowings increased $9.3 billion. As administrator of the conduits, we are currently evaluating various restructuring alternatives, including alternatives in which our variable interests in the form of liquidity and credit enhancement no longer would cause us to be the primary beneficiary, resulting in deconsolidation of the conduits.

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     We did not consolidate or deconsolidate any other significant variable interest entities in connection with the application of FIN 46 at July 1, 2003; thus the implementation did not have a material impact on our consolidated financial position or results of operations, other than as indicated above. However, the continued consolidation of trusts associated with our trust preferred securities and the appropriate balance sheet classification of the securities under FIN 46 is still under consideration by the accounting standard setters, and we will apply FIN 46 to these entities on December 31, 2003, as appropriate. The implementation of FIN 46 for these entities will not affect our total assets or liabilities.

     In addition, we will not apply FIN 46 to our investments in low income housing tax credit partnerships until December 31, 2003, to allow for clarification of the accounting guidance relating to these entities. The application of FIN 46 to these entities is not expected to have a material impact on our consolidated financial position or results of operations.

     The FASB has issued a proposed interpretation that will modify FIN 46, and the FASB and its staff are continuing to discuss other implementation matters. We will continue to monitor this evolving guidance and evaluate entities with which we are involved as appropriate.

     Banking regulators have recently approved an interim rule stipulating that the capital requirements related to assets of conduits consolidated under FIN 46 will remain unchanged until April 1, 2004. Banking regulators have also indicated that the capital requirements related to trust preferred securities, if deconsolidated under FIN 46, will remain unchanged until further notice. Therefore, we expect no change in tier 1 or total capital as a result of the adoption of FIN 46 until April 1, 2004, when the regulatory capital rules related to conduits may change. If the banking regulators change the capital treatment for trust preferred securities, our tier 1 and total capital would be reduced by the amount of outstanding trust preferred securities, but we believe that our regulatory capital would remain at the well capitalized level.

GuaranteesIn November 2002, the FASB issued FIN 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires a company to record as a liability the fair value of certain guarantees initiated by the company. The offsetting entry is dependent on the nature of the guarantee, with an asset generally being recorded, such as the consideration received for providing a letter of credit or prepaid rent for a residual value guarantee in an operating lease. The liability recorded will typically be reduced by a credit to the results of operations as the guarantee lapses, which generally will occur on a systematic basis over the term of the guarantee or at settlement of the guarantee.

     The initial measurement and recognition provisions of FIN 45 are effective for applicable guarantees written or modified after December 31, 2002. These recognition provisions require recording liabilities associated with certain guarantees that we provide. These include standby letters of credit for which the consideration is received at periods other than at the beginning of the term, certain liquidity facilities we provide to conduits we administer and any residual value guarantees we provide on operating leases. The adoption of FIN 45 did not have a material effect on our consolidated financial position or results of operations.

Exit CostsIn June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities. Under the provisions of SFAS 146, a liability for costs associated with exit or disposal activities is recognized only when a liability has been

33

incurred. Previously, a liability was recognized when management committed to a plan of disposal and the plan met certain criteria, even though commitment to a plan did not, by itself, necessarily result in a liability.

     Specifically, under SFAS 146, involuntary employee termination costs associated with a one-time termination plan in excess of benefits that would be paid under an ongoing severance plan are recorded on the date that employees are notified, if the period between notification and termination is the lesser of 60 days or the legally required notification period. Otherwise, these costs are recognized evenly over the period from notification to termination. Involuntary termination costs under an ongoing plan are recorded under SFAS No. 112,Employers’ Accounting for Postemployment Benefits, on the date that management has committed to an exit or disposal plan. Under SFAS 146, costs associated with terminating a contract, including leases, are recognized when the contract is legally terminated or the benefits of the contract are no longer being realized.

     SFAS 146 is effective for exit plans initiated after December 31, 2002. The impact of this standard is dependent on the number and size of any exit or disposal activities that we undertake, and the effect will be largely based on the timing of expense recognition.

Regulatory MattersVarious legislative and regulatory proposals concerning the financial services industry are pending in Congress, the legislatures in states in which we conduct operations and before various regulatory agencies that supervise our operations. Given the uncertainty of the legislative and regulatory process, we cannot assess the impact of any such legislation or regulations on our consolidated financial position or results of operations. For a more detailed description of the laws and regulations governing our business operations, please see our 2002 Annual Report on Form 10-K.

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Table 1
SELECTED STATISTICAL DATA

	2003							2002
	Third			Second		First		Fourth		Third
(Dollars in millions)	Quarter			Quarter		Quarter		Quarter		Quarter
PROFITABILITY
Return on average common stockholders’ equity		13.71	%		12.78		12.94		11.07		11.63
Net interest margin (a)		3.51			3.78		3.86		3.86		3.94
Fee and other income as % of total revenue		49.68			45.60		44.64		43.89		42.86
Effective income tax rate		30.41	%		30.54		29.94		18.39		6.20
ASSET QUALITY
Allowance as % of loans, net		1.59	%		1.66		1.67		1.72		1.81
Allowance as % of nonperforming assets (b)		175			166		158		161		149
Net charge-offs as % of average loans, net		0.33			0.43		0.49		0.52		0.59
Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale		0.95	%		1.04		1.08		1.11		1.23
CAPITAL ADEQUACY
Tier 1 capital ratio		8.67	%		8.33		8.27		8.22		8.11
Total capital ratio		12.21			11.92		11.99		12.01		12.02
Leverage		6.56	%		6.78		6.71		6.77		6.82
OTHER DATA
Employees		87,550			81,316		81,152		80,778		80,987
Total financial centers/brokerage offices		3,399			3,176		3,251		3,280		3,342
ATMs		4,420			4,479		4,539		4,560		4,604
Actual common shares (In millions)		1,328			1,332		1,345		1,357		1,373
Common stock price	$	41.19			39.96		34.07		36.44		32.69
Market capitalization	$	54,701			53,228		45,828		49,461		44,887

(a)	Tax-equivalent.
(b)	These ratios do not include nonperforming loans included in loans held for sale.

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Table 2
SUMMARIES OF INCOME, PER COMMON SHARE AND BALANCE SHEET DATA

				2003							2002
				Third			Second		First		Fourth		Third
(In millions, except per share data)				Quarter			Quarter		Quarter		Quarter		Quarter
SUMMARIES OF INCOME
Interest income				$	3,687			3,694		3,716		3,877		3,912
Tax-equivalent adjustment					63			63		64		59		54
Interest income (a)					3,750			3,757		3,780		3,936		3,966
Interest expense					1,074			1,174		1,202		1,407		1,446
Net interest income (a)					2,676			2,583		2,578		2,529		2,520
Provision for loan losses					81			195		224		308		435
Net interest income after provision for loan losses (a)					2,595			2,388		2,354		2,221		2,085
Securities gains					22			10		37		46		71
Fee and other income					2,621			2,156		2,041		1,932		1,819
Merger-related and restructuring expenses					148			96		64		145		107
Other noninterest expense (b)					3,409			2,892		2,830		2,897		2,838
Minority interest in income of consolidated subsidiaries (b)					55			16		9		—		—
Income before income taxes and cumulative effect of a change in accounting principle					1,626			1,550		1,529		1,157		1,030
Income taxes					475			455		438		203		60
Tax-equivalent adjustment					63			63		64		59		54
Income before cumulative effect of a change in accounting principle					1,088			1,032		1,027		895		916
Cumulative effect of a change in accounting principle, net of income taxes					17			—		—		—		—
			Net income		1,105			1,032		1,027		895		916
Dividends on preferred stock					—			1		4		4		3
			Net income available to common stockholders	$	1,105			1,031		1,023		891		913
PER COMMON SHARE DATA
Basic
	Income before change in accounting principle			$	0.83			0.77		0.77		0.66		0.67
	Net income				0.84			0.77		0.77		0.66		0.67
Diluted
	Income before change in accounting principle				0.82			0.77		0.76		0.66		0.66
	Net income				0.83			0.77		0.76		0.66		0.66
Cash dividends				$	0.35			0.29		0.26		0.26		0.26
Average common shares — Basic					1,321			1,333		1,335		1,350		1,362
Average common shares — Diluted					1,338			1,346		1,346		1,360		1,374
Average common stockholders’ equity
	Quarter-to-date			$	31,985			32,362		32,052		31,944		31,098
	Year-to-date				32,132			32,208		32,052		30,384		29,858
Book value per common share					24.71			24.37		23.99		23.63		23.38
Common stock price
	High				44.71			43.15		38.69		37.43		37.47
	Low				40.60			34.47		32.72		28.75		30.51
	Period-end			$	41.19			39.96		34.07		36.44		32.69
		To earnings ratio (c)			13.64	X		14.02		12.62		14.02		13.18
		To book value			167	%		164		142		154		140
BALANCE SHEET DATA
Assets				$	388,767			364,285		348,064		341,839		333,880
Long-term debt				$	37,541			37,051		39,204		39,662		39,758

(a)	Tax-equivalent.
(b)	Certain amounts presented in periods prior to the third quarter of 2003 have been reclassified to conform to the presentation in the third quarter of 2003.
(c)	Based on diluted earnings per common share.

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Table 3
MERGER-RELATED AND RESTRUCTURING EXPENSES

			Nine
			Months
			Ended
			Sept. 30,
(In millions)			2003
MERGER-RELATED AND RESTRUCTURING EXPENSES — WACHOVIA/PRUDENTIAL FINANCIAL RETAIL BROKERAGE TRANSACTION
	Personnel costs		$	13
	Occupancy and equipment			1
	System conversion costs			12
	Other			17
		Total Wachovia/Prudential Financial merger-related and restructuring expenses		43
MERGER-RELATED AND RESTRUCTURING EXPENSES — FIRST UNION/WACHOVIA
Merger-related expenses
	Personnel costs			15
	Occupancy and equipment			55
	Gain on regulatory-mandated branch sales			(9	)
	Advertising			43
	System conversion costs			105
	Other			41
		Total merger-related expenses		250
Restructuring expenses
	Occupancy and equipment			18
	Contract cancellations			3
		Total restructuring expenses		21
		Total First Union/Wachovia merger-related and restructuring expenses		271
Other restructuring expenses (reversals), net				(6	)
		Total merger-related and restructuring expenses	$	308

	First Union/
	Wachovia
(In millions)	Merger			Other			Total
ACTIVITY IN THE RESTRUCTURING ACCRUAL
Balance, December 31, 2002	$	61			12			73
Cash payments		(14	)		(2	)		(16	)
Noncash write-downs		(5	)		—			(5	)
Reversals of prior accruals		—			(6	)		(6	)
Balance, March 31, 2003		42			4			46
Cash payments		(17	)		(1	)		(18	)
Noncash write-downs		(6	)		—			(6	)
Balance, June 30, 2003		19			3			22
Cash payments		(6	)		—			(6	)
Balance, September 30, 2003	$	13			3			16

37

Table 4
BUSINESS SEGMENTS (a)

		2003							2002
		Third			Second		First		Fourth		Third
(Dollars in millions)		Quarter			Quarter		Quarter		Quarter		Quarter
GENERAL BANK COMBINED (b)
Net interest income (c)		$	1,886			1,812		1,744		1,768		1,738
Fee and other income			568			581		562		569		520
Intersegment revenue			48			45		43		42		38
	Total revenue (c)		2,502			2,438		2,349		2,379		2,296
Provision for loan losses			121			99		105		144		114
Noninterest expense			1,340			1,324		1,297		1,341		1,282
Income taxes			370			362		335		316		319
Tax-equivalent adjustment			9			10		10		10		10
	Segment earnings	$	662			643		602		568		571
Economic profit		$	495			464		431		413		395
Risk adjusted return on capital			45.82	%		43.91		42.40		40.05		38.53
Economic capital, average		$	5,643			5,653		5,569		5,643		5,683
Cash overhead efficiency ratio (c)			53.54	%		54.33		55.21		56.36		55.87
Lending commitments		$	63,509			63,712		59,557		57,358		56,469
Average loans, net			114,217			112,996		110,864		106,081		101,429
Average core deposits		$	155,098			151,166		145,496		144,252		141,861
FTE employees			35,451			36,933		36,634		36,503		36,175
COMMERCIAL
Net interest income (c)		$	533			513		491		502		499
Fee and other income			92			81		95		84		86
Intersegment revenue			27			25		23		24		18
	Total revenue (c)		652			619		609		610		603
Provision for loan losses			34			28		41		73		38
Noninterest expense			264			255		255		264		255
Income taxes			119			113		104		90		104
Tax-equivalent adjustment			9			10		10		10		10
	Segment earnings	$	226			213		199		173		196
Economic profit		$	127			109		109		98		97
Risk adjusted return on capital			29.86	%		27.46		27.90		25.77		25.08
Economic capital, average		$	2,656			2,678		2,604		2,631		2,729
Cash overhead efficiency ratio (c)			40.43	%		41.21		41.81		43.30		42.26
Average loans, net		$	49,781			50,255		49,720		49,519		49,959
Average core deposits		$	31,390			28,910		26,121		25,483		23,721
RETAIL AND SMALL BUSINESS
Net interest income (c)		$	1,353			1,299		1,253		1,266		1,239
Fee and other income			476			500		467		485		434
Intersegment revenue			21			20		20		18		20
	Total revenue (c)		1,850			1,819		1,740		1,769		1,693
Provision for loan losses			87			71		64		71		76
Noninterest expense			1,076			1,069		1,042		1,077		1,027
Income taxes			251			249		231		226		215
Tax-equivalent adjustment			—			—		—		—		—
	Segment earnings	$	436			430		403		395		375
Economic profit		$	368			355		322		315		298
Risk adjusted return on capital			60.01	%		58.72		55.14		52.53		50.96
Economic capital, average		$	2,987			2,975		2,965		3,012		2,954
Cash overhead efficiency ratio (c)			58.17	%		58.79		59.89		60.86		60.71
Average loans, net		$	64,436			62,741		61,144		56,562		51,470
Average core deposits		$	123,708			122,256		119,375		118,769		118,140

(a)	Certain amounts presented in this Table 4 in periods prior to the third quarter of 2003 have been reclassified to conform to the presentation in the third quarter of 2003.
(b)	General Bank Combined represents the consolidation of the General Bank’s Commercial, and Retail and Small Business lines of business.
(c)	Tax-equivalent.

(Continued)

38

Table 4
BUSINESS SEGMENTS

		2003									2002
		Third			Second			First			Fourth			Third
(Dollars in millions)		Quarter			Quarter			Quarter			Quarter			Quarter
CAPITAL MANAGEMENT COMBINED (a)
Net interest income (b)		$	77			38			39			39			42
Fee and other income			1,292			800			735			750			729
Intersegment revenue			(17	)		(16	)		(19	)		(18	)		(18	)
	Total revenue (b)		1,352			822			755			771			753
Provision for loan losses			—			—			—			—			—
Noninterest expense			1,144			662			625			621			614
Income taxes			76			59			47			55			51
Tax-equivalent adjustment			—			—			—			—			—
	Segment earnings	$	132			101			83			95			88
Economic profit		$	95			81			65			76			70
Risk adjusted return on capital			39.94	%		56.90			49.76			56.57			53.07
Economic capital, average		$	1,308			710			678			667			658
Cash overhead efficiency ratio (b)			84.66	%		80.69			82.67			80.56			81.59
Average loans, net		$	135			140			134			131			177
Average core deposits		$	1,754			1,338			1,367			1,487			1,314
FTE employees			19,911			12,428			12,528			12,682			12,999
Assets under management		$	241,560			239,837			233,134			232,430			227,486
RETAIL BROKERAGE SERVICES
Net interest income (b)		$	69			30			33			31			36
Fee and other income			1,050			572			521			524			515
Intersegment revenue			(15	)		(16	)		(18	)		(18	)		(17	)
	Total revenue (b)		1,104			586			536			537			534
Provision for loan losses			—			—			—			—			—
Noninterest expense			952			481			458			452			457
Income taxes			57			39			28			32			29
Tax-equivalent adjustment			—			—			—			—			—
	Segment earnings	$	95			66			50			53			48
Economic profit		$	63			51			36			39			34
Risk adjusted return on capital			33.38	%		48.60			38.89			42.12			38.57
Economic capital, average		$	1,124			550			523			505			499
Cash overhead efficiency ratio (b)			86.48	%		82.15			85.28			84.27			85.65
Average loans, net		$	—			2			3			2			2
Average core deposits		$	419			208			180			210			198

(a)	Capital Management Combined represents the consolidation of Capital Management’s Retail Brokerage Services, Asset Management, and Other, which primarily serves to eliminate intersegment revenue.
(b)	Tax-equivalent.

(Continued)

39

Table 4
BUSINESS SEGMENTS

		2003									2002
		Third			Second			First			Fourth			Third
(Dollars in millions)		Quarter			Quarter			Quarter			Quarter			Quarter
ASSET MANAGEMENT
Net interest income (b)		$	8			7			5			7			5
Fee and other income			247			236			224			233			225
Intersegment revenue			(1	)		1			(1	)		—			(2	)
	Total revenue (b)		254			244			228			240			228
Provision for loan losses			—			—			—			—			—
Noninterest expense			201			192			178			180			170
Income taxes			19			19			18			21			21
Tax-equivalent adjustment			—			—			—			—			—
	Segment earnings	$	34			33			32			39			37
Economic profit		$	29			28			28			34			33
Risk adjusted return on capital			72.67	%		79.96			81.90			93.15			90.01
Economic capital, average		$	187			163			158			165			162
Cash overhead efficiency ratio (b)			78.88	%		78.87			77.96			74.66			74.65
Average loans, net		$	135			138			131			129			175
Average core deposits		$	1,335			1,130			1,187			1,277			1,116
OTHER
Net interest income (b)		$	—			1			1			1			1
Fee and other income			(5	)		(8	)		(10	)		(7	)		(11	)
Intersegment revenue			(1	)		(1	)		—			—			1
	Total revenue (b)		(6	)		(8	)		(9	)		(6	)		(9	)
Provision for loan losses			—			—			—			—			—
Noninterest expense			(9	)		(11	)		(11	)		(11	)		(13	)
Income taxes			—			1			1			2			1
Tax-equivalent adjustment			—			—			—			—			—
	Segment earnings	$	3			2			1			3			3
Economic profit		$	3			2			1			3			3
Risk adjusted return on capital			—	%		—			—			—			—
Economic capital, average		$	(3	)		(3	)		(3	)		(3	)		(3	)
Cash overhead efficiency ratio (b)			—	%		—			—			—			—
Average loans, net		$	—			—			—			—			—
Average core deposits		$	—			—			—			—			—

(Continued)

40

Table 4
BUSINESS SEGMENTS

		2003							2002
		Third			Second		First		Fourth		Third
(Dollars in millions)		Quarter			Quarter		Quarter		Quarter		Quarter
WEALTH MANAGEMENT
Net interest income (a)		$	115			107		103		103		100
Fee and other income			132			133		133		135		122
Intersegment revenue			1			2		1		1		1
	Total revenue (a)		248			242		237		239		223
Provision for loan losses			2			5		4		6		3
Noninterest expense			180			175		170		172		161
Income taxes			23			24		23		22		21
Tax-equivalent adjustment			—			—		—		—		—
	Segment earnings	$	43			38		40		39		38
Economic profit		$	26			26		27		27		24
Risk adjusted return on capital			37.14	%		36.40		40.78		39.82		37.52
Economic capital, average		$	403			400		375		375		364
Cash overhead efficiency ratio (a)			72.39	%		72.81		71.66		71.62		72.08
Lending commitments		$	3,843			3,678		3,343		3,288		3,145
Average loans, net			9,833			9,617		9,357		9,028		8,854
Average core deposits		$	11,083			10,817		10,662		10,339		10,006
FTE employees			3,839			3,921		3,881		3,726		3,760

(a) Tax-equivalent.

(Continued)

41

Table 4
BUSINESS SEGMENTS

		2003									2002
		Third			Second			First			Fourth			Third
(Dollars in millions)		Quarter			Quarter			Quarter			Quarter			Quarter
CORPORATE AND INVESTMENT BANK COMBINED (a)
Net interest income (b)		$	559			551			564			589			602
Fee and other income			560			578			571			375			347
Intersegment revenue			(31	)		(29	)		(26	)		(25	)		(20	)
	Total revenue (b)		1,088			1,100			1,109			939			929
Provision for loan losses			10			95			110			161			317
Noninterest expense			578			566			556			537			509
Income taxes			155			132			133			69			22
Tax-equivalent adjustment			32			31			31			23			18
	Segment earnings	$	313			276			279			149			63
Economic profit		$	140			127			126			13			15
Risk adjusted return on capital			21.14	%		19.44			19.03			11.77			11.88
Economic capital, average		$	5,444			6,045			6,370			6,602			6,964
Cash overhead efficiency ratio (b)			53.20	%		51.45			50.12			57.28			54.71
Lending commitments		$	73,606			75,132			79,060			82,163			84,188
Average loans, net			32,145			34,608			36,104			38,673			40,250
Average core deposits		$	16,472			14,815			14,120			13,491			12,832
FTE employees			4,305			4,309			4,157			4,203			4,308
CORPORATE LENDING
Net interest income (b)		$	299			300			310			339			355
Fee and other income			189			134			155			107			120
Intersegment revenue			4			3			4			3			4
	Total revenue (b)		492			437			469			449			479
Provision for loan losses			10			95			112			160			317
Noninterest expense			128			129			121			112			112
Income taxes			133			79			90			67			22
Tax-equivalent adjustment			—			1			—			1			—
	Segment earnings	$	221			133			146			109			28
Economic profit		$	104			49			54			32			36
Risk adjusted return on capital			23.56	%		16.22			16.30			13.87			14.02
Economic capital, average		$	3,270			3,738			4,162			4,423			4,728
Cash overhead efficiency ratio (b)			26.11	%		29.40			25.93			24.89			23.49
Average loans, net		$	26,314			29,100			30,686			33,113			34,565
Average core deposits		$	1,347			1,249			1,301			1,410			1,534
TREASURY AND TRADE FINANCE
Net interest income (b)		$	84			76			79			83			81
Fee and other income			179			175			178			170			176
Intersegment revenue			(26	)		(23	)		(23	)		(19	)		(16	)
	Total revenue (b)		237			228			234			234			241
Provision for loan losses			—			(3	)		(3	)		2			—
Noninterest expense			173			174			174			172			163
Income taxes			24			21			23			21			28
Tax-equivalent adjustment			—			—			—			1			1
	Segment earnings	$	40			36			40			38			49
Economic profit		$	32			25			30			32			40
Risk adjusted return on capital			63.05	%		52.87			60.20			66.12			80.64
Economic capital, average		$	240			244			247			229			231
Cash overhead efficiency ratio (b)			73.45	%		76.49			74.15			73.29			67.86
Average loans, net		$	4,042			3,703			3,507			3,687			3,788
Average core deposits		$	10,297			9,226			9,040			8,908			8,663

(a)	Corporate and Investment Bank Combined represents the consolidation of the Corporate and Investment Bank’s Corporate Lending, Treasury and Trade Finance, Investment Banking, and Principal Investing lines of business.
(b)	Tax-equivalent.

(Continued)

42

Table 4
BUSINESS SEGMENTS

		2003									2002
		Third			Second			First			Fourth			Third
(Dollars in millions)		Quarter			Quarter			Quarter			Quarter			Quarter
INVESTMENT BANKING
Net interest income (b)		$	173			175			174			169			168
Fee and other income			217			326			282			203			80
Intersegment revenue			(9	)		(9	)		(7	)		(9	)		(8	)
	Total revenue (b)		381			492			449			363			240
Provision for loan losses			—			3			—			(1	)		—
Noninterest expense			263			252			255			246			228
Income taxes (benefits)			12			57			38			21			(14	)
Tax-equivalent adjustment			32			30			31			21			17
	Segment earnings	$	74			150			125			76			9
Economic profit		$	49			121			96			47			(11	)
Risk adjusted return on capital			28.43	%		52.36			45.99			28.52			6.65
Economic capital, average		$	1,119			1,172			1,112			1,062			1,044
Cash overhead efficiency ratio (b)			69.09	%		51.21			56.63			67.84			94.15
Average loans, net		$	1,789			1,805			1,907			1,868			1,897
Average core deposits		$	4,828			4,340			3,779			3,173			2,635
PRINCIPAL INVESTING
Net interest income (b)		$	3			—			1			(2	)		(2	)
Fee and other income			(25	)		(57	)		(44	)		(105	)		(29	)
Intersegment revenue			—			—			—			—			—
	Total revenue (b)		(22	)		(57	)		(43	)		(107	)		(31	)
Provision for loan losses			—			—			1			—			—
Noninterest expense			14			11			6			7			6
Income tax benefits			(14	)		(25	)		(18	)		(40	)		(14	)
Tax-equivalent adjustment			—			—			—			—			—
	Segment loss	$	(22	)		(43	)		(32	)		(74	)		(23	)
Economic profit		$	(45	)		(68	)		(54	)		(98	)		(50	)
Risk adjusted return on capital			(10.91	)%		(19.48	)		(14.96	)		(32.77	)		(9.50	)
Economic capital, average		$	815			891			849			888			961
Cash overhead efficiency ratio (b)			n/m	%		n/m			n/m			n/m			n/m
Average loans, net		$	—			—			4			5			—
Average core deposits		$	—			—			—			—			—

(Continued)

43

Table 4
BUSINESS SEGMENTS

		2003									2002
		Third			Second			First			Fourth			Third
(Dollars in millions)		Quarter			Quarter			Quarter			Quarter			Quarter
PARENT
Net interest income (a)		$	39			75			128			30			38
Fee and other income			91			74			77			149			172
Intersegment revenue			(1	)		(2	)		1			—			(1	)
	Total revenue (a)		129			147			206			179			209
Provision for loan losses			(52	)		(4	)		5			(3	)		1
Noninterest expense			167			165			182			226			272
Minority interest			71			16			9			—			—
Income tax benefits			(100	)		(86	)		(76	)		(206	)		(313	)
Tax-equivalent adjustment			22			22			23			26			26
	Segment earnings	$	21			34			63			136			223
Economic profit		$	6			40			88			148			252
Risk adjusted return on capital			11.95	%		17.85			25.85			36.74			54.15
Economic capital, average		$	2,072			2,418			2,368			2,276			2,317
Cash overhead efficiency ratio (a)			31.12	%		22.48			20.60			44.49			56.64
Lending commitments		$	14,399			16,091			15,381			15,211			15,537
Average loans, net			1,664			374			1,505			(634	)		1,218
Average core deposits		$	1,308			1,281			1,343			1,169			1,171
FTE employees			24,044			23,725			23,952			23,664			23,745

(a) Tax-equivalent.

(Continued)

44

Table 4
BUSINESS SEGMENTS

		Three Months Ended September 30, 2003
																Net Merger-
										Corporate						Related
										and						and
		General			Capital			Wealth		Investment						Restructuring
(Dollars in millions)		Bank			Management			Management		Bank			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)		$	1,886			77			115		559			39			(63	)		2,613
Fee and other income			568			1,292			132		560			91			—			2,643
Intersegment revenue			48			(17	)		1		(31	)		(1	)		—			—
	Total revenue (a)		2,502			1,352			248		1,088			129			(63	)		5,256
Provision for loan losses			121			—			2		10			(52	)		—			81
Noninterest expense			1,340			1,144			180		578			167			148			3,557
Minority interest			—			—			—		—			71			(16	)		55
Income taxes (benefits)			370			76			23		155			(100	)		(49	)		475
Tax-equivalent adjustment			9			—			—		32			22			(63	)		—
Income before cumulative effect of a change in accounting principle			662			132			43		313			21			(83	)		1,088
Cumulative effect of a change in accounting principle, net of income taxes			—			—			—		—			17			—			17
	Net income		662			132			43		313			38			(83	)		1,105
Dividends on preferred stock			—			—			—		—			—			—			—
	Net income available to common stockholders	$	662			132			43		313			38			(83	)		1,105
Economic profit		$	495			95			26		140			6			—			762
Risk adjusted return on capital			45.82	%		39.94			37.14		21.14			11.95			—			31.31
Economic capital, average		$	5,643			1,308			403		5,444			2,072			—			14,870
Cash overhead efficiency ratio (a)			53.54	%		84.66			72.39		53.20			31.12			—			61.70
Lending commitments		$	63,509			—			3,843		73,606			14,399			—			155,357
Average loans, net			114,217			135			9,833		32,145			1,664			—			157,994
Average core deposits		$	155,098			1,754			11,083		16,472			1,308			—			185,715
FTE employees			35,451			19,911			3,839		4,305			24,044			—			87,550

		Three Months Ended September 30, 2003
																Net Merger-
										Corporate						Related
										and						and
		General			Capital			Wealth		Investment						Restructuring
(Dollars in millions)		Bank			Management			Management		Bank			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)		$	1,738			42			100		602			38			(54	)		2,466
Fee and other income			520			729			122		347			172			—			1,890
Intersegment revenue			38			(18	)		1		(20	)		(1	)		—			—
	Total revenue (a)		2,296			753			223		929			209			(54	)		4,356
Provision for loan losses			114			—			3		317			1			—			435
Noninterest expense			1,282			614			161		509			272			107			2,945
Income taxes (benefits)			319			51			21		22			(313	)		(40	)		60
Tax-equivalent adjustment			10			—			—		18			26			(54	)		—
	Net income		571			88			38		63			223			(67	)		916
Dividends on preferred stock			—			—			—		—			3			—			3
	Net income available to common stockholders	$	571			88			38		63			220			(67	)		913
Economic profit		$	395			70			24		15			252			—			756
Risk adjusted return on capital			38.53	%		53.07			37.52		11.88			54.15			—			29.76
Economic capital, average		$	5,683			658			364		6,964			2,317			—			15,986
Cash overhead efficiency ratio (a)			55.87	%		81.59			72.08		54.71			56.64			—			60.87
Lending commitments		$	56,469			—			3,145		84,188			15,537			—			159,339
Average loans, net			101,429			177			8,854		40,250			1,218			—			151,928
Average core deposits		$	141,861			1,314			10,006		12,832			1,171			—			167,184
FTE employees			36,175			12,999			3,760		4,308			23,745			—			80,987

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

(Continued)

45

Table 4
BUSINESS SEGMENTS

		Nine Months Ended
		September 30,
(Dollars in millions)		2003			2002
GENERAL BANK COMBINED (a)
Net interest income (b)		$	5,442			5,108
Fee and other income			1,711			1,526
Intersegment revenue			136			120
	Total revenue (b)		7,289			6,754
Provision for loan losses			325			327
Noninterest expense			3,961			3,765
Income taxes			1,067			942
Tax-equivalent adjustment			29			30
	Segment earnings	$	1,907			1,690
Economic profit		$	1,390			1,156
Risk adjusted return on capital			44.06	%		38.16
Economic capital, average		$	5,622			5,689
Cash overhead efficiency ratio (b)			54.34	%		55.75
Lending commitments		$	63,509			56,469
Average loans, net			112,705			100,131
Average core deposits		$	150,622			139,220
FTE employees			35,451			36,175
COMMERCIAL
Net interest income (b)		$	1,537			1,458
Fee and other income			268			270
Intersegment revenue			75			56
	Total revenue (b)		1,880			1,784
Provision for loan losses			103			124
Noninterest expense			774			752
Income taxes			336			302
Tax-equivalent adjustment			29			30
	Segment earnings	$	638			576
Economic profit		$	345			284
Risk adjusted return on capital			28.41	%		24.83
Economic capital, average		$	2,646			2,746
Cash overhead efficiency ratio (b)			41.13	%		42.16
Average loans, net		$	49,919			50,221
Average core deposits		$	28,827			22,033
RETAIL AND SMALL BUSINESS
Net interest income (b)		$	3,905			3,650
Fee and other income			1,443			1,256
Intersegment revenue			61			64
	Total revenue (b)		5,409			4,970
Provision for loan losses			222			203
Noninterest expense			3,187			3,013
Income taxes			731			640
Tax-equivalent adjustment			—			—
	Segment earnings	$	1,269			1,114
Economic profit		$	1,045			872
Risk adjusted return on capital			57.98	%		50.60
Economic capital, average		$	2,976			2,943
Cash overhead efficiency ratio (b)			58.94	%		60.62
Average loans, net		$	62,786			49,910
Average core deposits		$	121,795			117,187

(a)	General Bank Combined represents the consolidation of the General Bank’s Commercial, and Retail and Small Business lines of business.
(b)	Tax-equivalent.

(Continued)

46

Table 4
BUSINESS SEGMENTS

		Nine Months Ended
		September 30,
(Dollars in millions)		2003			2002
CAPITAL MANAGEMENT COMBINED (a)
Net interest income (b)		$	154			123
Fee and other income			2,827			2,300
Intersegment revenue			(52	)		(54	)
	Total revenue (b)		2,929			2,369
Provision for loan losses			—			—
Noninterest expense			2,431			1,934
Income taxes			182			159
Tax-equivalent adjustment			—			—
	Segment earnings	$	316			276
Economic profit		$	241			219
Risk adjusted return on capital			46.83	%		52.98
Economic capital, average		$	901			696
Cash overhead efficiency ratio (b)			83.03	%		81.65
Average loans, net		$	136			177
Average core deposits		$	1,488			1,294
FTE employees			19,911			12,999
Assets under management		$	241,560			227,486
RETAIL BROKERAGE SERVICES
Net interest income (b)		$	132			115
Fee and other income			2,143			1,631
Intersegment revenue			(49	)		(54	)
	Total revenue (b)		2,226			1,692
Provision for loan losses			—			—
Noninterest expense			1,891			1,460
Income taxes			124			85
Tax-equivalent adjustment			—			—
	Segment earnings	$	211			147
Economic profit		$	150			103
Risk adjusted return on capital			38.47	%		36.80
Economic capital, average		$	734			533
Cash overhead efficiency ratio (b)			85.05	%		86.31
Average loans, net		$	1			3
Average core deposits		$	270			136

(a)	Capital Management Combined represents the consolidation of Capital Management’s Retail Brokerage Services, Asset Management, and Other, which primarily serves to eliminate intersegment revenue.
(b)	Tax-equivalent.

(Continued)

47

Table 4
BUSINESS SEGMENTS

		Nine Months Ended
		September 30,
(Dollars in millions)		2003			2002
ASSET MANAGEMENT
Net interest income (b)		$	20			5
Fee and other income			707			702
Intersegment revenue			(1	)		(3	)
	Total revenue (b)		726			704
Provision for loan losses			—			—
Noninterest expense			571			511
Income taxes			56			71
Tax-equivalent adjustment			—			—
	Segment earnings	$	99			122
Economic profit		$	85			109
Risk adjusted return on capital			77.85	%		98.56
Economic capital, average		$	170			166
Cash overhead efficiency ratio (b)			78.59	%		72.66
Average loans, net		$	135			174
Average core deposits		$	1,218			1,158
OTHER
Net interest income (b)		$	2			3
Fee and other income			(23	)		(33	)
Intersegment revenue			(2	)		3
	Total revenue (b)		(23	)		(27	)
Provision for loan losses			—			—
Noninterest expense			(31	)		(37	)
Income taxes			2			3
Tax-equivalent adjustment			—			—
	Segment earnings	$	6			7
Economic profit		$	6			7
Risk adjusted return on capital			—	%		—
Economic capital, average		$	(3	)		(3	)
Cash overhead efficiency ratio (b)			—	%		—
Average loans, net		$	—			—
Average core deposits		$	—			—

(Continued)

48

Table 4
BUSINESS SEGMENTS

		Nine Months Ended
		September 30,
(Dollars in millions)		2003			2002
WEALTH MANAGEMENT
Net interest income (a)		$	325			297
Fee and other income			398			394
Intersegment revenue			4			4
	Total revenue (a)		727			695
Provision for loan losses			11			11
Noninterest expense			525			487
Income taxes			70			72
Tax-equivalent adjustment			—			—
	Segment earnings	$	121			125
Economic profit		$	79			87
Risk adjusted return on capital			38.03	%		43.53
Economic capital, average		$	393			358
Cash overhead efficiency ratio (a)			72.29	%		70.14
Lending commitments		$	3,843			3,145
Average loans, net			9,604			8,630
Average core deposits		$	10,855			9,928
FTE employees			3,839			3,760

(a) Tax-equivalent.

(Continued)

49

Table 4
BUSINESS SEGMENTS

		Nine Months Ended
		September 30,
(Dollars in millions)		2003			2002
CORPORATE AND INVESTMENT BANK COMBINED (a)
Net interest income (b)		$	1,674			1,768
Fee and other income			1,709			1,340
Intersegment revenue			(86	)		(62	)
	Total revenue (b)		3,297			3,046
Provision for loan losses			215			832
Noninterest expense			1,700			1,545
Income taxes			420			182
Tax-equivalent adjustment			94			70
	Segment earnings	$	868			417
Economic profit		$	393			160
Risk adjusted return on capital			19.82	%		13.92
Economic capital, average		$	5,950			7,324
Cash overhead efficiency ratio (b)			51.58	%		50.71
Lending commitments		$	73,606			84,188
Average loans, net			34,271			41,713
Average core deposits		$	15,144			12,599
FTE employees			4,305			4,308
CORPORATE LENDING
Net interest income (b)		$	909			1,075
Fee and other income			478			390
Intersegment revenue			11			11
	Total revenue (b)		1,398			1,476
Provision for loan losses			217			817
Noninterest expense			378			344
Income taxes			302			123
Tax-equivalent adjustment			1			1
	Segment earnings	$	500			191
Economic profit		$	207			115
Risk adjusted return on capital			18.43	%		14.11
Economic capital, average		$	3,720			4,933
Cash overhead efficiency ratio (b)			27.08	%		23.31
Average loans, net		$	28,684			36,165
Average core deposits		$	1,299			1,319
TREASURY AND TRADE FINANCE
Net interest income (b)		$	239			233
Fee and other income			532			515
Intersegment revenue			(72	)		(52	)
	Total revenue (b)		699			696
Provision for loan losses			(6	)		16
Noninterest expense			521			477
Income taxes			68			74
Tax-equivalent adjustment			—			1
	Segment earnings	$	116			128
Economic profit		$	87			113
Risk adjusted return on capital			58.70	%		76.34
Economic capital, average		$	244			232
Cash overhead efficiency ratio (b)			74.68	%		68.64
Average loans, net		$	3,753			3,547
Average core deposits		$	9,526			8,655

(a)	Corporate and Investment Bank Combined represents the consolidation of the Corporate and Investment Bank’s Corporate Lending, Treasury and Trade Finance, Investment Banking, and Principal Investing lines of business.
(b)	Tax-equivalent.

(Continued)

50

Table 4
BUSINESS SEGMENTS

		Nine Months Ended
		September 30,
(Dollars in millions)		2003			2002
INVESTMENT BANKING
Net interest income (b)		$	522			461
Fee and other income			825			596
Intersegment revenue			(25	)		(21	)
	Total revenue (b)		1,322			1,036
Provision for loan losses			3			(1	)
Noninterest expense			770			707
Income taxes			107			51
Tax-equivalent adjustment			93			68
	Segment earnings	$	349			211
Economic profit		$	266			129
Risk adjusted return on capital			42.34	%		26.02
Economic capital, average		$	1,135			1,146
Cash overhead efficiency ratio (b)			58.20	%		68.16
Average loans, net		$	1,833			2,001
Average core deposits		$	4,319			2,625
PRINCIPAL INVESTING
Net interest income (b)		$	4			(1	)
Fee and other income			(126	)		(161	)
Intersegment revenue			—			—
	Total revenue (b)		(122	)		(162	)
Provision for loan losses			1			—
Noninterest expense			31			17
Income tax benefits			(57	)		(66	)
Tax-equivalent adjustment			—			—
	Segment loss	$	(97)			(113	)
Economic profit		$	(167)			(197	)
Risk adjusted return on capital			(15.23)	%		(14.94	)
Economic capital, average		$	851			1,013
Cash overhead efficiency ratio (b)			n/m	%		n/m
Average loans, net		$	1			—
Average core deposits		$	—			—

(Continued)

51

Table 4
BUSINESS SEGMENTS

		Nine Months Ended
		September 30,
(Dollars in millions)		2003			2002
PARENT
Net interest income (a)		$	242			216
Fee and other income			242			467
Intersegment revenue			(2	)		(8	)
	Total revenue (a)		482			675
Provision for loan losses			(51	)		1
Noninterest expense			514			667
Minority interest			96			—
Income tax benefits			(262	)		(379	)
Tax-equivalent adjustment			67			59
	Segment earnings	$	118			327
Economic profit		$	134			420
Risk adjusted return on capital			18.78	%		34.36
Economic capital, average		$	2,284			2,405
Cash overhead efficiency ratio (a)			24.03	%		27.46
Lending commitments		$	14,399			15,537
Average loans, net			1,182			4,196
Average core deposits		$	1,311			1,718
FTE employees			24,044			23,745

(a) Tax-equivalent.

(Continued)

52

Table 4
BUSINESS SEGMENTS

		Nine Months Ended September 30, 2003
																Net Merger-
										Corporate						Related
										and						and
		General			Capital			Wealth		Investment						Restructuring
(Dollars in millions)		Bank			Management			Management		Bank			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)		$	5,442			154			325		1,674			242			(190	)		7,647
Fee and other income			1,711			2,827			398		1,709			242			—			6,887
Intersegment revenue			136			(52	)		4		(86	)		(2	)		—			—
	Total revenue (a)		7,289			2,929			727		3,297			482			(190	)		14,534
Provision for loan losses			325			—			11		215			(51	)		—			500
Noninterest expense			3,961			2,431			525		1,700			514			308			9,439
Minority interest			—			—			—		—			96			(16	)		80
Income taxes (benefits)			1,067			182			70		420			(262	)		(109	)		1,368
Tax-equivalent adjustment			29			—			—		94			67			(190	)		-
Income before cumulative effect of a change in accounting principle			1,907			316			121		868			118			(183	)		3,147
Cumulative effect of a change in accounting principle, net of income taxes			—			—			—		—			17			—			17
	Net income		1,907			316			121		868			135			(183	)		3,164
Dividends on preferred stock			—			—			—		—			5			—			5
	Net income available to common stockholders	$	1,907			316			121		868			130			(183	)		3,159
Economic profit		$	1,390			241			79		393			134			—			2,237
Risk adjusted return on capital			44.06	%		46.83			38.03		19.82			18.78			—			30.74
Economic capital, average		$	5,622			901			393		5,950			2,284			—			15,150
Cash overhead efficiency ratio (a)			54.34	%		83.03			72.29		51.58			24.03			—			59.32
Lending commitments		$	63,509			—			3,843		73,606			14,399			—			155,357
Average loans, net			112,705			136			9,604		34,271			1,182			—			157,898
Average core deposits		$	150,622			1,488			10,855		15,144			1,311			—			179,420
FTE employees			35,451			19,911			3,839		4,305			24,044			—			87,550

		Nine Months Ended September 30, 2002
																Net Merger-
										Corporate						Related
										and						and
		General			Capital			Wealth		Investment						Restructuring
(Dollars in millions)		Bank			Management			Management		Bank			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)		$	5,108			123			297		1,768			216			(159	)		7,353
Fee and other income			1,526			2,300			394		1,340			467			—			6,027
Intersegment revenue			120			(54	)		4		(62	)		(8	)		—			—
	Total revenue (a)		6,754			2,369			695		3,046			675			(159	)		13,380
Provision for loan losses			327			—			11		832			1			—			1,171
Noninterest expense			3,765			1,934			487		1,545		��	667			242			8,640
Income taxes (benefits)			942			159			72		182			(379	)		(91	)		885
Tax-equivalent adjustment			30			—			—		70			59			(159	)		—
	Net income		1,690			276			125		417			327			(151	)		2,684
Dividends on preferred stock			—			—			—		—			15			—			15
	Net income available to common stockholders	$	1,690			276			125		417			312			(151	)		2,669
Economic profit		$	1,156			219			87		160			420			—			2,042
Risk adjusted return on capital			38.16	%		52.98			43.53		13.92			34.36			—			27.57
Economic capital, average		$	5,689			696			358		7,324			2,405			—			16,472
Cash overhead efficiency ratio (a)			55.75	%		81.65			70.14		50.71			27.46			—			58.47
Lending commitments		$	56,469			—			3,145		84,188			15,537			—			159,339
Average loans, net			100,131			177			8,630		41,713			4,196			—			154,847
Average core deposits		$	139,220			1,294			9,928		12,599			1,718			—			164,759
FTE employees			36,175			12,999			3,760		4,308			23,745			—			80,987

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

53

Table 5
NET TRADING REVENUE — INVESTMENT BANKING (a)

		2003							2002
		Third			Second		First		Fourth			Third
(In millions)		Quarter			Quarter		Quarter		Quarter			Quarter
Net interest income(Tax-equivalent)		$	90			102		108		93			108
Trading accounts profits (losses)			(11	)		87		117		(19	)		(80	)
Other fee income			65			57		51		66			53
	Total net trading revenue(Tax-equivalent)	$	144			246		276		140			81

(a) Certain amounts presented in periods prior to the third quarter of 2003 have been reclassified to conform to the presentation in the third quarter of 2003.

54

Table 6
SELECTED RATIOS

	Nine Months Ended
	September 30,					2003						2002
						Third		Second		First		Fourth		Third
	2003			2002		Quarter		Quarter		Quarter		Quarter		Quarter
PERFORMANCE RATIOS (a)
Assets to stockholders’ equity		10.96	X		10.62		11.78		10.56		10.52		10.33		10.34
Return on assets		1.20	%		1.13		1.16		1.21		1.23		1.08		1.13
Return on common stockholders’ equity		13.14			11.95		13.71		12.78		12.94		11.07		11.63
Return on total stockholders’ equity		13.16	%		12.01		13.71		12.79		12.99		11.12		11.68
DIVIDEND PAYOUT RATIOS
Common shares		38.30	%		37.95		42.17		37.66		34.21		39.39		39.39
Preferred and common shares		38.28	%		38.32		42.17		37.90		34.43		39.90		39.38

(a) Based on average balances and net income.

55

Table 7
TRADING ACCOUNT ASSETS AND LIABILITIES

		2003						2002
		Third		Second		First		Fourth		Third
(In millions)		Quarter		Quarter		Quarter		Quarter		Quarter
TRADING ACCOUNT ASSETS
U.S. Treasury		$	1,640		2,832		3,716		2,545		2,608
U.S. Government agencies			2,912		3,203		2,523		1,802		2,129
State, county and municipal			647		248		453		358		811
Mortgage-backed securities			3,185		7,439		3,538		1,664		4,415
Other asset-backed securities			4,115		3,351		3,816		4,103		3,955
Corporate bonds and debentures			3,808		4,077		3,683		3,295		3,543
Derivative financial instruments			15,624		16,722		15,108		17,214		17,344
Sundry			4,461		2,564		1,841		2,174		1,097
	Total trading account assets	$	36,392		40,436		34,678		33,155		35,902
TRADING ACCOUNT LIABILITIES
Securities sold short			9,187		9,064		6,423		5,920		4,796
Derivative financial instruments			14,772		16,077		14,473		16,980		17,414
	Total trading account liabilities	$	23,959		25,141		20,896		22,900		22,210

56

Table 8
SECURITIES

				September 30, 2003
															Gross Unrealized						Average
				1 Year			1-5		5-10		After 10								Amortized		Maturity
(In millions)				or Less			Years		Years		Years		Total		Gains		Losses		Cost		in Years
MARKET VALUE
U.S. Treasury				$	105			634		—		2		741		7		—		734		2.34
U.S. Government agencies					227			19,964		14,547		—		34,738		662		222		34,298		4.21
Asset-backed
	Residual interests from securitizations				37			653		539		48		1,277		468		3		812		4.46
	Retained bonds
		from securitizations			186			7,076		2,184		8		9,454		296		2		9,160		4.35
	Collateralized mortgage
		obligations			3,017			7,217		596		—		10,830		98		9		10,741		2.59
	Commercial mortgage-backed				—			3,668		4,833		—		8,501		701		8		7,808		5.52
	Other				3,680			2,909		106		15		6,710		22		8		6,696		1.68
State, county and municipal					73			313		472		2,400		3,258		236		10		3,032		16.92
Sundry					689			5,581		2,515		2,882		11,667		188		70		11,549		7.98
			Total market value	$	8,014			48,015		25,792		5,355		87,176		2,678		332		84,830		4.85
MARKET VALUE
Debt securities				$	8,014			48,015		25,792		4,033		85,854		2,643		325		83,536
Equity securities					—			—		—		1,322		1,322		35		7		1,294
			Total market value	$	8,014			48,015		25,792		5,355		87,176		2,678		332		84,830
AMORTIZED COST
Debt securities				$	7,900			46,713		25,031		3,892		83,536
Equity securities					—			—		—		1,294		1,294
			Total amortized cost	$	7,900			46,713		25,031		5,186		84,830
WEIGHTED AVERAGE YIELD
U.S. Treasury					1.12	%		2.22		—		5.14		2.07
U.S. Government agencies					6.28			4.27		4.96		—		4.57
Asset-backed
	Residual interests
		from securitizations			—			61.62		18.60		42.19		45.54
	Retained bonds
		from securitizations			8.49			4.91		1.92		14.82		4.28
	Collateralized mortgage
		obligations			3.35			2.49		4.55		—		2.84
	Commercial mortgage-backed				—			5.60		5.32		—		5.44
	Other				2.28			1.38		8.06		8.53		2.00
State, county and municipal					7.79			9.18		9.18		7.04		7.54
Sundry					6.55			5.09		5.49		4.79		5.18
	Consolidated				3.32	%		4.72		5.04		5.95		4.76

     At September 30, 2003, all securities were classified as available for sale.

     Included in U.S. Government agencies are agency securities retained from the securitization of residential mortgage loans. These securities had an amortized cost and market value of $2.4 billion and $2.5 billion at September 30, 2003, respectively.

     Included in asset-backed securities are retained bonds primarily from the securitization of prime equity lines, residential mortgage, commercial real estate, SBA and student loans. At September 30, 2003, retained bonds with an amortized cost of $9.0 billion and a market value of $9.3 billion are considered investment grade based on external ratings. Retained bonds with an amortized cost and market value of $8.3 billion and $8.6 billion at September 30, 2003, respectively, have an external credit rating of AA and above.

     Securities with an aggregate amortized cost of $51 billion at September 30, 2003, are pledged to secure U.S. Government and other public deposits and for other purposes as required by various statutes or agreements.

     Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Average maturity excludes equity securities and money market funds.

     Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent and applicable state tax rates.

     At September 30, 2003, there were forward commitments to purchase securities at a cost that approximates a market value of $11.2 billion. At September 30, 2003, there were commitments to sell securities at a cost that approximates a market value of $1.0 billion.

     Gross gains and losses realized on the sale of debt securities for the nine months ended September 30, 2003, were $283 million and $188 million (including $112 million of impairment losses), respectively, and gross gains and losses realized on the sale of equity securities were $7 million and $33 million, respectively.

57

Table 9
LOANS — ON-BALANCE SHEET, AND MANAGED AND SERVICING PORTFOLIOS (a)

			2003						2002
			Third		Second		First		Fourth		Third
(In millions)			Quarter		Quarter		Quarter		Quarter		Quarter
ON-BALANCE SHEET LOAN PORTFOLIO
	COMMERCIAL
	Commercial, financial and agricultural		$	55,181		54,857		56,476		56,501		57,899
	Real estate — construction and other			5,741		5,442		4,712		4,542		4,990
	Real estate — mortgage			15,746		17,538		18,550		18,962		19,535
	Lease financing			23,598		23,204		23,060		22,667		22,616
	Foreign			6,815		6,622		6,433		6,425		6,992
		Total commercial		107,081		107,663		109,231		109,097		112,032
	CONSUMER
	Real estate secured			51,516		47,853		47,623		46,706		38,721
	Student loans			8,160		7,657		7,466		6,921		6,305
	Installment loans and vehicle leasing			9,110		9,644		9,982		10,249		10,433
		Total consumer		68,786		65,154		65,071		63,876		55,459
		Total loans		175,867		172,817		174,302		172,973		167,491
	Unearned income			9,942		9,984		10,080		9,876		9,949
		Loans, net(On-balance sheet)	$	165,925		162,833		164,222		163,097		157,542
MANAGED PORTFOLIO (b)
COMMERCIAL
On-balance sheet loan portfolio			$	107,081		107,663		109,231		109,097		112,032
Securitized loans — off-balance sheet				2,071		2,126		2,190		2,218		2,288
Loans held for sale included in other assets				1,347		1,282		1,617		1,140		1,271
		Total commercial		110,499		111,071		113,038		112,455		115,591
CONSUMER
Real estate secured
	On-balance sheet loan portfolio			51,516		47,853		47,623		46,706		38,721
	Securitized loans — off-balance sheet			10,192		9,944		11,210		11,236		11,066
	Securitized loans included in securities			11,809		13,015		14,813		17,316		18,963
	Loans held for sale included in other assets			8,368		8,223		5,201		4,254		4,437
		Total real estate secured		81,885		79,035		78,847		79,512		73,187
Student loans
	On-balance sheet loan portfolio			8,160		7,657		7,466		6,921		6,305
	Securitized loans — off-balance sheet			1,786		1,947		2,109		2,306		2,494
	Loans held for sale included in other assets			458		583		643		618		549
		Total student loans		10,404		10,187		10,218		9,845		9,348
Installment loans and vehicle leasing
	On-balance sheet loan portfolio			9,110		9,644		9,982		10,249		10,433
	Securitized loans — off-balance sheet			—		—		—		—		1
		Total installment loans and vehicle leasing		9,110		9,644		9,982		10,249		10,434
		Total consumer		101,399		98,866		99,047		99,606		92,969
		Total managed portfolio	$	211,898		209,937		212,085		212,061		208,560
SERVICING PORTFOLIO (c)
Commercial			$	80,207		73,128		65,076		59,336		53,611
Consumer			$	8,465		6,581		2,236		2,272		2,490

(a)	Certain amounts presented prior to the third quarter of 2003 have been reclassified to conform to the presentation in the third quarter of 2003. Real estate — construction and other and real estate — mortgage amounts prior to the third quarter of 2003 are based on estimates.
(b)	The managed portfolio includes the on-balance sheet loan portfolio, loans securitized for which the assets are classified in securities on-balance sheet, loans held for sale that are classified in other assets on-balance sheet and the off-balance sheet portfolio of securitized loans sold, where we service the loans.
(c)	The servicing portfolio consists of third party commercial and consumer loans for which our sole function is that of servicing the loans for the third parties.

58

Table 10
LOANS HELD FOR SALE

		2003									2002
		Third			Second			First			Fourth			Third
(In millions)		Quarter			Quarter			Quarter			Quarter			Quarter
Balance, beginning of period		$	10,088			7,461			6,012			6,257			8,398
Core business activity
Core business activity, beginning of period			9,762			6,937			5,488			4,562			8,225
Originations/purchases			9,271			9,729			8,488			8,692			7,200
Transfer of loans to (from) loans held for sale, net			(783	)		18			(49	)		(52	)		(3,639	)
Lower of cost or market value adjustments			(7	)		(6	)		(46	)		(13	)		(36	)
Performing loans sold or securitized			(7,253	)		(6,171	)		(6,491	)		(7,419	)		(6,823	)
Nonperforming loans sold			(11	)		—			—			—			—
Other, principally payments			(1,082	)		(745	)		(453	)		(282	)		(365	)
Core business activity, end of period			9,897			9,762			6,937			5,488			4,562
Portfolio management activity
Portfolio management activity, beginning of period			326			524			524			1,695			173
Transfers to (from) loans held for sale, net
	Performing loans		81			83			244			245			1,697
	Nonperforming loans		61			59			(12	)		105			201
Lower of cost or market value adjustments			—			—			40			(1	)		19
Performing loans sold			(102	)		(220	)		(147	)		(1,357	)		(13	)
Nonperforming loans sold			(64	)		(2	)		(51	)		(12	)		(30	)
Allowance for loan losses related to loans
	transferred to loans held for sale		(18	)		(44	)		(55	)		(122	)		(309	)
Other, principally payments			(8	)		(74	)		(19	)		(29	)		(43	)
Portfolio management activity, end of period			276			326			524			524			1,695
Balance, end of period (a)		$	10,173			10,088			7,461			6,012			6,257

(a) Nonperforming assets included in loans held for sale at September 30, June 30, and March 31, 2003, and at December 31, and September 30, 2002, were $160 million, $167 million, $114 million, $138 million and $115 million, respectively.

59

Table 11
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS

			2003									2002
			Third			Second			First			Fourth			Third
(In millions)			Quarter			Quarter			Quarter			Quarter			Quarter
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period			$	2,704			2,747			2,798			2,847			2,951
Provision for loan losses relating to loans transferred to other assets or sold				—			26			25			109			211
Provision for loan losses				81			169			199			199			224
Allowance relating to loans acquired, transferred to other assets or sold				(22	)		(69	)		(80	)		(158	)		(315	)
Net charge-offs				(132	)		(169	)		(195	)		(199	)		(224	)
Balance, end of period			$	2,631			2,704			2,747			2,798			2,847
as a % of loans, net				1.59	%		1.66			1.67			1.72			1.81
as a % of nonaccrual and restructured loans (a)				189	%		180			169			177			163
as a % of nonperforming assets (a)				175	%		166			158			161			149
LOAN LOSSES
Commercial, financial and agricultural			$	88			128			150			136			160
Commercial real estate — construction and mortgage				5			7			2			12			5
Consumer (b)				106			91			93			92			94
		Total loan losses		199			226			245			240			259
LOAN RECOVERIES
Commercial, financial and agricultural				45			37			29			24			17
Commercial real estate — construction and mortgage				1			1			—			—			—
Consumer (b)				21			19			21			17			18
		Total loan recoveries		67			57			50			41			35
		Net charge-offs	$	132			169			195			199			224
Commercial loan net charge-offs as % of average commercial loans, net (c)				0.21	%		0.42			0.53			0.53			0.61
Consumer loan net charge-offs as % of average consumer loans, net (c)				0.51			0.44			0.44			0.52			0.56
Total net charge-offs as % of average loans, net (c)				0.33	%		0.43			0.49			0.52			0.59
NONPERFORMING ASSETS
Nonaccrual loans
	Commercial, financial and agricultural		$	1,072			1,153			1,260			1,269			1,440
	Commercial real estate — construction and mortgage			76			96			111			105			137
	Consumer real estate secured (b)			215			221			219			208			152
	Installment loans and vehicle leasing (b)			28			31			32			3			22
		Total nonaccrual loans		1,391			1,501			1,622			1,585			1,751
Foreclosed properties (d)				116			130			118			150			156
		Total nonperforming assets	$	1,507			1,631			1,740			1,735			1,907
Nonperforming loans included in loans held for sale (e)			$	160			167			114			138			115
Nonperforming assets included in loans and in loans held for sale			$	1,667			1,798			1,854			1,873			2,022
as % of loans, net, and foreclosed properties (a)				0.91	%		1.00			1.06			1.06			1.21
as % of loans, net, foreclosed properties and loans in other assets as held for sale (e)				0.95	%		1.04			1.08			1.11			1.23
Accruing loans past due 90 days			$	291			293			289			304			284

(a)	These ratios do not include nonperforming loans included in loans held for sale.
(b)	Certain amounts presented prior to the third quarter of 2003 have been reclassified to conform to the presentation in the third quarter of 2003.
(c)	Annualized.
(d)	Restructured loans are not significant.
(e)	These ratios reflect nonperforming loans included in loans held for sale. Loans held for sale, which are included in other assets, are recorded at the lower of cost or market value, and accordingly, the amounts shown and included in the ratios are net of the transferred allowance for loan losses and the lower of cost or market value adjustments.

60

Table 12
NONACCRUAL LOAN ACTIVITY (a)

		2003									2002
		Third			Second			First			Fourth			Third
(In millions)		Quarter			Quarter			Quarter			Quarter			Quarter
Balance, beginning of period		$	1,501			1,622			1,585			1,751			1,805
Commercial nonaccrual loan activity
Commercial nonaccrual loans, beginning of period			1,249			1,371			1,374			1,577			1,600
New nonaccrual loans and advances			252			291			386			485			528
Gross charge-offs			(93	)		(135	)		(152	)		(148	)		(165	)
Transfers (to) from loans held for sale			(37	)		(44	)		12			(105	)		(134	)
Transfers to other real estate owned			—			(6	)		(1	)		(4	)		(8	)
Sales			(56	)		(29	)		(70	)		(49	)		(31	)
Other, principally payments			(167	)		(199	)		(178	)		(382	)		(213	)
	Net commercial nonaccrual loan activity		(101	)		(122	)		(3	)		(203	)		(23	)
Commercial nonaccrual loans, end of period			1,148			1,249			1,371			1,374			1,577
Consumer nonaccrual loan activity
Consumer nonaccrual loans, beginning of period			252			251			211			174			205
New nonaccrual loans and advances, net			15			22			56			55			38
Transfers to loans held for sale			(24	)		(21	)		—			—			(58	)
Sales and securitizations			—			—			(16	)		(18	)		(11	)
	Net consumer nonaccrual loan activity		(9	)		1			40			37			(31	)
Consumer nonaccrual loans, end of period			243			252			251			211			174
Balance, end of period		$	1,391			1,501			1,622			1,585			1,751

(a) Excludes nonaccrual loans included in loans held for sale and foreclosed properties.

61

Table 13
GOODWILL AND OTHER INTANGIBLE ASSETS

		2003						2002
		Third		Second		First		Fourth		Third
(In millions)		Quarter		Quarter		Quarter		Quarter		Quarter
Goodwill		$	11,094		10,907		10,869		10,880		10,810
Deposit base			863		977		1,097		1,225		1,363
Customer relationships			400		254		258		239		222
Tradename			90		90		90		90		90
	Total goodwill and other intangible assets	$	12,447		12,228		12,314		12,434		12,485

62

Table 14
DEPOSITS

		2003						2002
		Third		Second		First		Fourth		Third
(In millions)		Quarter		Quarter		Quarter		Quarter		Quarter
CORE DEPOSITS
Noninterest-bearing		$	45,493		48,081		46,348		44,640		44,186
Savings and NOW accounts			52,520		52,765		52,430		51,691		49,305
Money market accounts			60,363		55,927		50,439		45,649		44,644
Other consumer time			29,140		30,620		32,017		33,763		35,562
	Total core deposits		187,516		187,393		181,234		175,743		173,697
OTHER DEPOSITS
Foreign			8,589		6,561		6,985		6,608		7,603
Other time			7,390		7,338		7,618		9,167		6,485
	Total deposits	$	203,495		201,292		195,837		191,518		187,785

Table 15
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE

		September 30, 2003
(In millions)
MATURITY OF
3 months or less		$	3,790
Over 3 months through 6 months			811
Over 6 months through 12 months			1,416
Over 12 months			4,041
	Total	$	10,058

63

Table 16
LONG-TERM DEBT

				2003						2002
				Third		Second		First		Fourth		Third
(In millions)				Quarter		Quarter		Quarter		Quarter		Quarter
NOTES AND DEBENTURES ISSUED BY
	THE PARENT COMPANY
	Notes
		3.50% to 7.70%, due 2003 to 2008		$	7,057		6,500		6,500		6,500		6,473
		Floating rate, due 2004 to 2005			490		840		1,120		1,720		1,866
		Floating rate extendible, due 2005			10		10		10		10		10
		Floating rate indexed notes, due 2005			25		19		—		—		—
	Subordinated notes
		5.625% to 7.50%, due 2005 to 2009			3,630		3,639		3,900		4,060		4,428
		8.00%, due 2009			149		149		149		149		149
		6.605%, due 2025			250		250		250		250		250
		6.30%, Putable/Callable, due 2028			200		200		200		200		200
		Floating rate, due 2003			—		150		150		150		150
	Subordinated debentures
		6.55% to 7.574%, due 2026 to 2035			795		795		795		795		795
Hedge-related basis adjustments					911		1,123		1,062		1,094		1,094
			Total notes and debentures issued by the Parent Company		13,517		13,675		14,136		14,928		15,415
NOTES ISSUED BY SUBSIDIARIES
Notes, primarily notes issued under global bank
	note programs, varying rates and terms to 2040				6,059		6,188		7,287		7,562		7,680
Subordinated notes
	5.875% to 6.75%, due 2003 to 2006				575		575		825		825		825
	Bank, 5.00% to 7.875%, due 2006 to 2036				3,047		2,547		2,547		2,547		2,544
	7.800% to 7.95%, due 2006 to 2007				248		248		247		398		572
	Floating rate, due 2013				417		—		—		—		—
			Total notes issued by subsidiaries		10,346		9,558		10,906		11,332		11,621
OTHER DEBT
Trust preferred securities					3,022		3,021		3,021		3,020		2,990
Collateralized notes, floating rate, due 2006 to 2007					4,420		4,420		4,420		4,420		4,391
4.556% auto securitization financing, due 2008					3		13		29		61		97
Advances from the Federal Home Loan Bank					5,010		5,010		5,010		5,255		4,758
Preferred units — The Money Store, LLC					57		57		57		57		57
Capitalized leases					764		768		1,210		176		22
Mortgage notes and other debt of subsidiaries					14		17		7		6		6
Hedge-related basis adjustments					388		512		408		407		401
			Total other debt		13,678		13,818		14,162		13,402		12,722
			Total	$	37,541		37,051		39,204		39,662		39,758

64

Table 17
CHANGES IN STOCKHOLDERS’ EQUITY

			2003									2002
			Third			Second			First			Fourth			Third
(In millions)			Quarter			Quarter			Quarter			Quarter			Quarter
Balance, beginning of period			$	32,464			32,267			32,078			32,105			30,379
Comprehensive income
	Net income			1,105			1,032			1,027			895			916
	Net unrealized (loss) gain on debt and equity securities			(300	)		78			15			70			780
	Net unrealized gain (loss) on derivative financial instruments			(159	)		(46	)		(48	)		(7	)		257
		Total comprehensive income		646			1,064			994			958			1,953
Purchases of common stock				(285	)		(619	)		(501	)		(674	)		—
Common stock issued for
	Stock options and restricted stock			124			139			71			(24	)		5
	Acquisitions						—			—			—			51
Joint venture				257			—			—			—			—
Deferred compensation, net				73			4			(21	)		69			78
Cash dividends
	Preferred shares			—			(1	)		(4	)		(4	)		(3	)
	Common shares			(466	)		(390	)		(350	)		(352	)		(358	)
Balance, end of period			$	32,813			32,464			32,267			32,078			32,105

65

Table 18
CAPITAL RATIOS

		2003							2002
		Third			Second		First		Fourth		Third
(In millions)		Quarter			Quarter		Quarter		Quarter		Quarter
CONSOLIDATED CAPITAL RATIOS (a)
Qualifying capital
	Tier 1 capital	$	23,828			22,270		21,718		21,411		21,001
	Total capital		33,553			31,871		31,471		31,289		31,135
Adjusted risk-weighted assets			274,895			267,447		262,574		260,609		259,057
Adjusted leverage ratio assets		$	363,303			328,483		323,879		316,473		307,890
Ratios
	Tier 1 capital		8.67	%		8.33		8.27		8.22		8.11
	Total capital		12.21			11.92		11.99		12.01		12.02
	Leverage		6.56			6.78		6.71		6.77		6.82
STOCKHOLDERS’ EQUITY TO ASSETS
Quarter-end			8.44			8.91		9.27		9.38		9.62
Average			8.49	%		9.47		9.50		9.68		9.67
BANK CAPITAL RATIOS
Tier 1 capital
	Wachovia Bank, National Association		7.78	%		7.76		7.66		7.42		7.63
	Wachovia Bank of Delaware, National Association		14.82			16.01		15.56		14.35		11.97
Total capital
	Wachovia Bank, National Association		12.12			11.94		11.99		11.81		12.12
	Wachovia Bank of Delaware, National Association		17.64			18.94		18.49		16.58		14.59
Leverage
	Wachovia Bank, National Association		6.16			6.45		6.30		6.25		6.61
	Wachovia Bank of Delaware, National Association		10.57	%		11.83		11.52		11.04		8.03

(a) Risk-based capital ratio guidelines require a minimum ratio of tier 1 capital to risk-weighted assets of 4.00 percent and a minimum ratio of total capital to risk-weighted assets of 8.00 percent. The minimum leverage ratio of tier 1 capital to adjusted average quarterly assets is from 3.00 percent to 4.00 percent.

66

Table 19
RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS (a)

			September 30, 2003
					Gross Unrealized								In-			Average
			Notional										effective-			Maturity in
(In millions)			Amount		Gains		Losses (f)			Equity (g)			ness (h)			Years (i)
ASSET HEDGES
Cash flow hedges (b)
	Interest rate swaps—receive fixed		$	36,030		2,976		(45	)		1,811			2			5.95
	Interest rate swaps—pay fixed			1,514		—		(215	)		(134	)		—			6.88
	Interest rate options			7,200		49		(20	)		18			—			1.54
	Forward purchase commitments			10,029		215		—			133			(2	)		0.04
	Futures			2,000		22		—			14			—			0.25
Fair value hedges (c)
	Interest rate swaps—pay fixed			1,010		2		(14	)		—			(4	)		20.51
	Forward sale commitments			881		—		(20	)		—			(2	)		0.02
		Total asset hedges	$	58,664		3,264		(314	)		1,842			(6	)		4.39
LIABILITY HEDGES
Cash flow hedges (d)
	Interest rate swaps—pay fixed		$	31,692		—		(1,578	)		(976	)		—			4.71
	Interest rate options			49,200		17		(785	)		(474	)		—			3.82
	Futures			9,365		—		(94	)		(58	)		—			0.25
Fair value hedges (e)
	Interest rate swaps—receive fixed			16,404		1,528		—			—			—			4.10
	Interest rate options			4,925		3		—			—			—			1.88
		Total liability hedges	$	111,586		1,548		(2,457	)		(1,508	)		—			3.73

67

     We use derivative contracts, primarily interest rate swaps, to manage exposure to interest rate risk. Derivatives used to protect against variability in the periodic payments associated with floating rate assets, liabilities or forecasted transactions are designated as cash flow hedges. Generally, receive-fixed swaps are used to hedge the variability associated with the floating rate loans we make; pay-fixed swaps are used to hedge the variability associated with our forecasted issuance of fixed rate short-term liabilities.

     Derivatives used to protect against changes in the fair value of fixed-rate assets and liabilities due to changes in interest rates are designated as fair value hedges. Generally, we use pay-fixed swaps to hedge the fair value of our fixed rate assets, principally available for sale securities, and we use receive-fixed swaps to hedge the fair value of our fixed rate liabilities, mainly debt. The following provides additional detail of our hedging relationships.

(a)  Includes only derivative financial instruments related to interest rate risk management activities. All other derivative financial instruments are classified as trading.

(b)  Receive-fixed interest rate swaps with a notional amount of $36.0 billion, of which $8.1 billion are forward-starting, and with pay rates based on one-to-six month LIBOR are primarily designated as cash flow hedges of the variability in cash flows related to the forecasted interest rate resets of one-to-six month LIBOR-indexed loans. Pay-fixed interest rate swaps with a notional amount of $1.5 billion and with receive rates based on one-month LIBOR are designated as cash flow hedges of available for sale securities. Interest rate option combinations with a notional amount of $6.0 billion that qualify as net purchased options are designated as cash flow hedges of the variability in cash flows related to the forecasted interest rate resets of one-month LIBOR-indexed loans, when one-month or three-month LIBOR is above or below the strike rates of the written and purchased options. Net purchased options on receive fixed-swaps with a notional amount of $1.0 billion and a strike rate based on three-month LIBOR are designated as a cash flow hedge of the variability in cash flows related to the forecasted interest rate resets of one-month LIBOR-indexed loans. Forward purchase commitments of $10.0 billion and purchased options on securities with a notional amount of $200 million are designated as cash flow hedges of the variability of the consideration to be paid in the forecasted purchase of available for sale securities. Eurodollar futures with a notional amount of $2.0 billion are designated as cash flow hedges of the variability in cash flows related to the forecasted interest rate resets of three-month LIBOR-indexed loans.

(c)  Pay-fixed interest rate swaps with a notional amount of $1.0 billion and receive rates based on one-month LIBOR are designated as fair value hedges of available for sale securities. Forward sale commitments of $881 million are designated as fair value hedges of mortgage loans in the warehouse.

(d)  Derivatives with a notional amount of $82.6 billion are designated as cash flow hedges of the variability in cash flows attributable to the forecasted issuance of fixed rate short-term liabilities that are part of a rollover strategy, primarily repurchase agreements and deposit products. Of this amount, $9.4 billion are Eurodollar futures, $27.5 billion are pay-fixed interest rate swaps with receive rates based on one-to-three month LIBOR, of which $20.0 billion are forward-starting, and $42.9 billion are net purchased options on pay-fixed swaps with a strike based on three-month LIBOR. Interest rate collars with a notional amount of $2.8 billion that qualify as net purchased options also hedge the forecasted issuance of fixed rate short-term liabilities that are part of a rollover strategy, when three-month LIBOR is below the sold floor or between the purchased and written caps. Purchased options on pay-fixed swaps with a notional amount of $3.5 billion and a strike rate based on three-month LIBOR are designated as cash flow hedges of the variability in cash flows related to the forecasted interest rate resets of three-month LIBOR-indexed long-term debt. Pay-fixed interest rate swaps with a notional amount of $4.1 billion and receive rates based on the 5-year Constant Maturity Swap index are designated as cash flow hedges of the variability in cash flows related to the forecasted interest rate resets of the 5-year Constant Maturity Swap indexed debt.

(e)  Receive-fixed interest rate swaps with a notional amount of $16.4 billion and with pay rates based primarily on one-to-six month LIBOR are designated as fair value hedges of fixed rate liabilities, primarily long-term debt and bank notes. Purchased options with a notional amount of $4.9 billion and a strike rate based on the 5-year Constant Maturity Swap index are designated as fair value hedges of debt when the 5-year Constant Maturity Swap index is below the strike rate.

(f)  Represents the fair value of derivative financial instruments less accrued interest receivable or payable.

(g)  At September 30, 2003, the net unrealized gain on derivatives included in accumulated other comprehensive income, which is a component of stockholders’ equity, was $223 million, net of income taxes. Of this net of tax amount, a $334 million gain represents the effective portion of the net gains (losses) on derivatives that qualify as cash flow hedges, and a $111 million loss relates to terminated and/or redesignated derivatives. At September 30, 2003, $382 million of net gains, net of income taxes, recorded in accumulated other comprehensive income are expected to be reclassified as interest income or expense during the next twelve months. The maximum length of time over which cash flow hedges are hedging the variability in future cash flows associated with the forecasted transactions is 22.60 years.

(h)  In the nine months ended September 30, 2003, losses in the amount of $6 million were recognized in other fee income representing the ineffective portion of the net gains (losses) on derivatives that qualify as cash flow and fair value hedges. In addition, net interest income for the nine months ended September 30, 2003, was increased by $1 million representing ineffectiveness of cash flow hedges caused by differences between the critical terms of the derivative and the hedged item, primarily differences in reset dates.

(i)  Estimated maturity approximates average life.

68

Table 20
RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS — EXPECTED MATURITIES

	September 30, 2003
	1 Year			1-2			2-5			5-10			After 10
(In millions)	or Less			Years			Years			Years			Years			Total
CASH FLOW ASSET HEDGES
Notional amount — swaps—receive fixed	$	751			1,689			13,253			20,337			—			36,030
Notional amount — swaps—pay fixed		10			1			188			1,277			38			1,514
Notional amount — other	$	13,229			6,000			—			—			—			19,229
Weighted average receive rate (a)		5.61	%		6.75			5.48			5.31			0.75			5.42
Weighted average pay rate (a)		1.17	%		1.23			1.22			1.39			4.58			1.33
Unrealized gain (loss)	$	243			113			1,060			1,572			(6	)		2,982
FAIR VALUE ASSET HEDGES
Notional amount — swaps—pay fixed	$	—			—			—			—			1,010			1,010
Notional amount — other	$	881			—			—			—			—			881
Weighted average receive rate (a)		—	%		—			—			—			0.75			0.75
Weighted average pay rate (a)		—	%		—			—			—			3.65			3.65
Unrealized gain (loss)	$	(20)			—			—			—			(12	)		(32	)
CASH FLOW LIABILITY HEDGES
Notional amount — swaps—pay fixed	$	5,310			2,742			11,197			9,752			2,691			31,692
Notional amount — other	$	14,085			6,030			20,950			17,500			—			58,565
Weighted average receive rate (a)		1.14	%		1.18			1.08			1.13			1.00			1.11
Weighted average pay rate (a)		2.56	%		3.55			5.66			7.22			6.39			6.19
Unrealized gain (loss)	$	(497)			(279	)		(402	)		(939	)		(323	)		(2,440	)
FAIR VALUE LIABILITY HEDGES
Notional amount — swaps—receive fixed	$	1,900			3,750			6,607			3,125			1,022			16,404
Notional amount — other	$	—			3,800			1,125			—			—			4,925
Weighted average receive rate (a)		6.63	%		6.97			5.97			6.52			5.74			6.36
Weighted average pay rate (a)		1.16	%		1.17			1.27			1.16			1.12			1.20
Unrealized gain (loss)	$	55			305			572			482			117			1,531

(a) Weighted average receive and pay rates include the impact of currently effective interest rate swaps and basis swaps only and not the impact of forward-starting interest rate swaps. All of the interest rate swaps have variable pay or receive rates based on one-to-six month LIBOR, and they are the pay or receive rates in effect at September 30, 2003.

Table 21
RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS ACTIVITY

	Asset			Liability
(In millions)	Hedges			Hedges			Total
Balance, December 31, 2002	$	45,830			89,263			135,093
Additions		35,723			37,093			72,816
Maturities and amortizations		(19,245	)		(13,957	)		(33,202	)
Terminations		(1,950	)		(781	)		(2,731	)
Redesignations and transfers to trading account assets		(1,694	)		(32	)		(1,726	)
Balance, September 30, 2003	$	58,664			111,586			170,250

69

WACHOVIA CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES (a)

				THIRD QUARTER 2003							SECOND QUARTER 2003
								Average							Average
						Interest		Rates					Interest		Rates
				Average		Income/		Earned/			Average		Income/		Earned/
(In millions)				Balances		Expense		Paid			Balances		Expense		Paid
ASSETS
Interest-bearing bank balances				$	4,342		14		1.27	%	$	4,751		16		1.34	%
Federal funds sold and securities purchased under resale agreements					22,080		48		0.88			12,282		35		1.10
Trading account assets (b)					18,941		193		4.07			18,254		200		4.40
Securities (b)					78,436		962		4.90			68,994		977		5.67
Loans (b) (c)
	Commercial
		Commercial, financial and agricultural			55,186		582		4.18			55,726		584		4.20
		Real estate — construction and other			5,574		48		3.47			5,516		49		3.54
		Real estate — mortgage			16,485		180		4.33			17,710		201		4.57
		Lease financing			6,911		183		10.61			6,885		187		10.87
		Foreign			6,756		47		2.73			6,627		47		2.89
			Total commercial		90,912		1,040		4.55			92,464		1,068		4.63
	Consumer
		Real estate secured			49,438		707		5.70			47,558		691		5.82
		Student loans			7,962		74		3.70			7,710		78		4.04
		Installment loans and vehicle leasing			9,682		152		6.18			10,003		166		6.63
			Total consumer		67,082		933		5.54			65,271		935		5.73
			Total loans		157,994		1,973		4.97			157,735		2,003		5.09
Other earning assets					21,710		198		3.62			11,859		134		4.52
			Total earning assets excluding derivatives		303,503		3,388		4.45			273,875		3,365		4.92
Risk management derivatives (d)					—		362		0.47			—		392		0.57
			Total earning assets including derivatives		303,503		3,750		4.92			273,875		3,757		5.49
Cash and due from banks					11,092							10,845
Other assets					62,111							56,998
			Total assets	$	376,706						$	341,718
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
	Savings and NOW accounts				52,570		52		0.39			52,196		71		0.55
	Money market accounts				58,576		126		0.85			53,302		156		1.18
	Other consumer time				29,814		217		2.89			31,330		243		3.09
	Foreign				7,581		22		1.17			6,841		24		1.44
	Other time				7,099		33		1.80			7,542		35		1.88
			Total interest-bearing deposits		155,640		450		1.15			151,211		529		1.40
Federal funds purchased and securities sold under repurchase agreements					46,359		124		1.06			37,957		149		1.57
Commercial paper					11,978		32		1.05			2,381		5		0.80
Securities sold short					8,850		57		2.58			8,121		58		2.84
Other short-term borrowings					7,797		21		1.05			4,267		15		1.44
Long-term debt					36,388		365		4.02			35,751		366		4.10
			Total interest-bearing liabilities excluding derivatives		267,012		1,049		1.56			239,688		1,122		1.88
Risk management derivatives (d)					—		25		0.04			—		52		0.08
			Total interest-bearing liabilities including derivatives		267,012		1,074		1.60			239,688		1,174		1.96
Noninterest-bearing deposits					44,755							42,589
Other liabilities					32,954							27,079
Stockholders’ equity					31,985							32,362
			Total liabilities and stockholders’ equity	$	376,706						$	341,718
Interest income and rate earned — including derivatives						$	3,750		4.92	%			$	3,757		5.49	%
Interest expense and equivalent rate paid — including derivatives							1,074		1.41					1,174		1.71
Net interest income and margin — including derivatives						$	2,676		3.51	%			$	2,583		3.78	%

(a)	Certain amounts presented in periods prior to the third quarter of 2003 have been reclassified to conform to the presentation in the third quarter of 2003. Real estate — construction and other and real estate — mortgage amounts prior to the third quarter of 2003 are based on estimates.
(b)	Yields related to securities and loans exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent and applicable state tax rates. Lease financing amounts include related deferred income taxes.
(c)	The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.

70

FIRST QUARTER 2003							FOURTH QUARTER 2002							THIRD QUARTER 2002
				Average							Average							Average
		Interest		Rates					Interest		Rates					Interest		Rates
Average		Income/		Earned/			Average		Income/		Earned/			Average		Income/		Earned/
Balances		Expense		Paid			Balances		Expense		Paid			Balances		Expense		Paid
$	3,688		13		1.43	%	$	3,416		14		1.59	%	$	2,891		14		1.90	%
	8,949		29		1.33			9,507		39		1.63			10,474		49		1.83
	16,298		196		4.84			14,683		178		4.83			14,945		194		5.17
	72,116		1,020		5.66			71,249		1,045		5.86			62,806		999		6.36
	56,464		593		4.26			57,318		663		4.58			57,788		693		4.76
	4,679		41		3.56			4,826		46		3.79			5,241		54		4.10
	18,658		211		4.57			19,077		236		4.91			19,756		255		5.11
	6,777		184		10.86			7,112		187		10.53			7,105		189		10.65
	6,461		50		3.11			6,731		58		3.43			6,879		59		3.41
	93,039		1,079		4.69			95,064		1,190		4.97			96,769		1,250		5.13
	47,147		708		6.03			40,892		687		6.71			41,309		703		6.79
	7,492		75		4.08			6,792		73		4.21			3,055		38		4.98
	10,286		175		6.92			10,531		190		7.18			10,795		204		7.48
	64,925		958		5.95			58,215		950		6.50			55,159		945		6.82
	157,964		2,037		5.21			153,279		2,140		5.55			151,928		2,195		5.75
	9,580		114		4.81			8,969		115		5.10			11,771		144		4.86
	268,595		3,409		5.11			261,103		3,531		5.39			254,815		3,595		5.62
	—		371		0.56			—		405		0.61			—		371		0.58
	268,595		3,780		5.67			261,103		3,936		6.00			254,815		3,966		6.20
	10,887							10,636							9,955
	57,799							58,221							56,741
$	337,281						$	329,960						$	321,511
	50,887		79		0.63			49,768		99		0.79			48,883		115		0.93
	47,987		142		1.20			45,618		156		1.35			43,495		167		1.53
	32,671		263		3.27			34,834		331		3.78			36,034		347		3.82
	7,304		27		1.47			8,030		33		1.59			6,491		30		1.84
	8,656		42		1.97			8,674		45		2.08			6,134		33		2.13
	147,505		553		1.52			146,924		664		1.79			141,037		692		1.95
	37,392		147		1.60			32,608		149		1.81			32,094		149		1.85
	2,604		4		0.70			2,796		7		0.87			3,001		9		1.19
	6,734		44		2.67			5,644		35		2.44			6,422		42		2.58
	4,170		18		1.72			3,881		15		1.67			3,082		18		2.25
	38,744		388		4.01			38,758		405		4.18			37,540		412		4.38
	237,149		1,154		1.97			230,611		1,275		2.20			223,176		1,322		2.35
	—		48		0.08			—		132		0.22			—		124		0.22
	237,149		1,202		2.05			230,611		1,407		2.42			223,176		1,446		2.57
	41,443							40,518							38,772
	26,637							26,885							28,460
	32,052							31,946							31,103
$	337,281						$	329,960						$	321,511
		$	3,780		5.67	%			$	3,936		6.00	%			$	3,966		6.20	%
			1,202		1.81					1,407		2.14					1,446		2.26
		$	2,578		3.86	%			$	2,529		3.86	%			$	2,520		3.94	%

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

71

WACHOVIA CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES (a)

				NINE MONTHS ENDED 2003							NINE MONTHS ENDED 2002
								Average							Average
						Interest		Rates					Interest		Rates
				Average		Income/		Earned/			Average		Income/		Earned/
(In millions)				Balances		Expense		Paid			Balances		Expense		Paid
ASSETS
Interest-bearing bank balances				$	4,262		43		1.34	%	$	3,276		49		2.00	%
Federal funds sold and securities purchased under resale agreements					14,485		112		1.04			11,104		156		1.88
Trading account assets (b)					17,841		589		4.41			14,805		545		4.92
Securities (b)					73,205		2,959		5.39			59,074		2,880		6.50
Loans (b) (c)
	Commercial
		Commercial, financial and agricultural			55,788		1,759		4.21			58,891		2,123		4.82
		Real estate — construction and other			5,260		138		3.52			5,466		171		4.19
		Real estate — mortgage			17,609		592		4.49			19,770		777		5.25
		Lease financing			6,858		554		10.78			7,276		575		10.54
		Foreign			6,616		144		2.91			6,923		181		3.49
			Total commercial		92,131		3,187		4.62			98,326		3,827		5.20
	Consumer
		Real estate secured			48,056		2,106		5.85			42,335		2,197		6.92
		Student loans			7,723		227		3.93			2,946		110		5.01
		Installment loans and vehicle leasing			9,988		493		6.59			11,240		639		7.61
			Total consumer		65,767		2,826		5.74			56,521		2,946		6.96
			Total loans		157,898		6,013		5.09			154,847		6,773		5.84
Other earning assets					14,428		446		4.12			11,404		438		5.13
			Total earning assets excluding derivatives		282,119		10,162		4.81			254,510		10,841		5.69
Risk management derivatives (d)					—		1,125		0.53			—		1,027		0.54
			Total earning assets including derivatives		282,119		11,287		5.34			254,510		11,868		6.23
Cash and due from banks					10,942							10,204
Other assets					58,985							52,491
			Total assets	$	352,046						$	317,205
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
	Savings and NOW accounts				51,890		202		0.52			48,862		365		1.00
	Money market accounts				53,327		424		1.06			40,395		501		1.66
	Other consumer time				31,262		723		3.09			37,051		1,111		4.01
	Foreign				7,243		73		1.36			7,084		98		1.86
	Other time				7,760		110		1.89			6,818		108		2.11
			Total interest-bearing deposits		151,482		1,532		1.35			140,210		2,183		2.08
Federal funds purchased and securities sold under repurchase agreements					40,602		420		1.38			32,119		440		1.83
Commercial paper					5,689		41		0.96			3,154		27		1.17
Securities sold short					7,909		159		2.69			6,551		120		2.45
Other short-term borrowings					5,424		54		1.32			3,475		67		2.56
Long-term debt					36,953		1,119		4.04			38,951		1,262		4.32
			Total interest-bearing liabilities excluding derivatives		248,059		3,325		1.79			224,460		4,099		2.44
Risk management derivatives (d)					—		125		0.07			—		257		0.15
			Total interest-bearing liabilities including derivatives		248,059		3,450		1.86			224,460		4,356		2.59
Noninterest-bearing deposits					42,941							38,451
Other liabilities					28,914							24,425
Stockholders’ equity					32,132							29,869
			Total liabilities and stockholders’ equity	$	352,046						$	317,205
Interest income and rate earned — including derivatives						$	11,287		5.34	%			$	11,868		6.23	%
Interest expense and equivalent rate paid — including derivatives							3,450		1.63					4,356		2.29
Net interest income and margin — including derivatives						$	7,837		3.71	%			$	7,512		3.94	%

(a)	Certain amounts presented in 2002 have been reclassified to conform to the presentation in 2003. Real estate — construction and other and real estate - - mortgage amounts in 2002 are based on estimates.
(b)	Yields related to securities and loans exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent and applicable state tax rates. Lease financing amounts include related deferred income taxes.
(c)	The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.
(d)	The rates earned and the rates paid on risk management derivatives are based on off-balance sheet notional amounts. The fair value of these instruments is included in other assets and other liabilities.

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WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

			2003									2002
			Third			Second			First			Fourth			Third
(In millions, except per share data)			Quarter			Quarter			Quarter			Quarter			Quarter
ASSETS
Cash and due from banks			$	11,178			13,088			13,161			12,264			11,930
Interest-bearing bank balances				3,664			7,539			4,855			3,512			3,561
Federal funds sold and securities purchased under
	resale agreements (carrying amount of collateral held
	$11,486 at September 30, 2003, $4,010 repledged)			22,491			13,854			11,092			9,160			7,132
		Total cash and cash equivalents		37,333			34,481			29,108			24,936			22,623
Trading account assets				36,392			40,436			34,678			33,155			35,902
Securities				87,176			73,764			73,339			75,804			72,071
Loans, net of unearned income				165,925			162,833			164,222			163,097			157,542
	Allowance for loan losses			(2,631	)		(2,704	)		(2,747	)		(2,798	)		(2,847	)
		Loans, net		163,294			160,129			161,475			160,299			154,695
Premises and equipment				4,746			4,635			5,118			4,903			5,422
Due from customers on acceptances				732			1,074			1,485			1,051			1,080
Goodwill				11,094			10,907			10,869			10,880			10,810
Other intangible assets				1,353			1,321			1,445			1,554			1,675
Other assets				46,647			37,538			30,547			29,257			29,602
		Total assets	$	388,767			364,285			348,064			341,839			333,880
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
	Noninterest-bearing deposits			45,493			48,081			46,348			44,640			44,186
	Interest-bearing deposits			158,002			153,211			149,489			146,878			143,599
		Total deposits		203,495			201,292			195,837			191,518			187,785
Short-term borrowings				65,474			49,123			44,812			41,173			36,350
Bank acceptances outstanding				743			1,078			1,492			1,061			1,093
Trading account liabilities				23,959			25,141			20,896			22,900			22,210
Other liabilities (a)				22,643			17,287			13,039			13,447			14,579
Long-term debt				37,541			37,051			39,204			39,662			39,758
		Total liabilities (a)		353,855			330,972			315,280			309,761			301,775
Minority interest (a)				2,099			849			517			—			—
STOCKHOLDERS’ EQUITY
Dividend Equalization Preferred shares, no par value,
	97 million shares issued and outstanding at September 30, 2003			—			—			—			—			2
Common stock, $3.33-1/3 par value; authorized 3 billion
	shares, outstanding 1.328 billion shares at September 30, 2003			4,427			4,440			4,484			4,524			4,577
Paid-in capital				17,882			17,784			17,903			18,070			18,233
Retained earnings				8,829			8,106			7,778			7,349			7,221
Accumulated other comprehensive income, net				1,675			2,134			2,102			2,135			2,072
		Total stockholders’ equity		32,813			32,464			32,267			32,078			32,105
		Total liabilities and stockholders’ equity	$	388,767			364,285			348,064			341,839			333,880

(a) Certain amounts presented in periods prior to the third quarter of 2003 have been reclassified to conform to the presentation in the third quarter of 2003.

73

WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

			2003									2002
			Third			Second			First			Fourth			Third
(In millions, except per share data)			Quarter			Quarter			Quarter			Quarter			Quarter
INTEREST INCOME
Interest and fees on loans			$	2,342			2,391			2,407			2,538			2,558
Interest and dividends on securities				874			900			939			978			935
Trading account interest				170			179			174			158			179
Other interest income				301			224			196			203			240
		Total interest income		3,687			3,694			3,716			3,877			3,912
INTEREST EXPENSE
Interest on deposits				534			619			639			832			847
Interest on short-term borrowings				332			321			306			295			310
Interest on long-term debt				208			234			257			280			289
		Total interest expense		1,074			1,174			1,202			1,407			1,446
Net interest income				2,613			2,520			2,514			2,470			2,466
Provision for loan losses				81			195			224			308			435
Net interest income after provision for loan losses				2,532			2,325			2,290			2,162			2,031
FEE AND OTHER INCOME
Service charges				439			426			430			421			432
Other banking fees				257			248			233			236			232
Commissions (a)				732			459			412			454			440
Fiduciary and asset management fees (a)				657			470			464			447			448
Advisory, underwriting and other investment banking fees (a)				216			220			145			190			149
Trading account profits (losses)				(6	)		69			100			(42	)		(71	)
Principal investing				(25	)		(57	)		(44	)		(105	)		(29	)
Securities gains				22			10			37			46			71
Other income (a)				351			321			301			331			218
		Total fee and other income		2,643			2,166			2,078			1,978			1,890
NONINTEREST EXPENSE
Salaries and employee benefits				2,109			1,748			1,699			1,681			1,588
Occupancy				220			190			197			202			195
Equipment				264			238			234			255			234
Advertising				38			34			32			16			20
Communications and supplies				156			136			141			143			136
Professional and consulting fees				109			104			99			126			111
Other intangible amortization				127			131			140			147			152
Merger-related and restructuring expenses				148			96			64			145			107
Sundry expense				386			311			288			327			402
		Total noninterest expense		3,557			2,988			2,894			3,042			2,945
Minority interest in income of consolidated subsidiaries				55			16			9			—			—
Income before income taxes and cumulative effect of a change in accounting principle				1,563			1,487			1,465			1,098			976
Income taxes				475			455			438			203			60
Income before cumulative effect of a change in accounting principle				1,088			1,032			1,027			895			916
Cumulative effect of a change in accounting principle, net of income taxes				17			—			—			—			—
		Net income		1,105			1,032			1,027			895			916
Dividends on preferred stock				—			1			4			4			3
		Net income available to common stockholders	$	1,105			1,031			1,023			891			913
PER COMMON SHARE DATA
Basic
	Income before change in accounting principle		$	0.83			0.77			0.77			0.66			0.67
	Net income			0.84			0.77			0.77			0.66			0.67
Diluted
	Income before change in accounting principle			0.82			0.77			0.76			0.66			0.66
	Net income			0.83			0.77			0.76			0.66			0.66
Cash dividends			$	0.35			0.29			0.26			0.26			0.26
AVERAGE COMMON SHARES
Basic				1,321			1,333			1,335			1,350			1,362
Diluted				1,338			1,346			1,346			1,360			1,374

(a) Certain amounts presented in periods prior to the third quarter of 2003 have been reclassified to conform to the presentation in the third quarter of 2003.

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WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

			Nine Months Ended
			September 30,
(In millions, except per share data)			2003			2002
INTEREST INCOME
Interest and fees on loans			$	7,140			7,758
Interest and dividends on securities				2,713			2,697
Trading account interest				523			507
Other interest income				721			747
		Total interest income		11,097			11,709
INTEREST EXPENSE
Interest on deposits				1,792			2,598
Interest on short-term borrowings				959			896
Interest on long-term debt				699			862
		Total interest expense		3,450			4,356
Net interest income				7,647			7,353
Provision for loan losses				500			1,171
Net interest income after provision for loan losses				7,147			6,182
FEE AND OTHER INCOME (a)
Service charges				1,295			1,277
Other banking fees				738			709
Commissions				1,603			1,329
Fiduciary and asset management fees				1,591			1,438
Advisory, underwriting and other investment banking fees				581			491
Trading account profits				163			66
Principal investing				(126	)		(161	)
Securities gains				69			123
Other income				973			755
		Total fee and other income		6,887			6,027
NONINTEREST EXPENSE
Salaries and employee benefits				5,556			4,916
Occupancy				607			584
Equipment				736			691
Advertising				104			64
Communications and supplies				433			402
Professional and consulting fees				312			295
Other intangible amortization				398			481
Merger-related and restructuring expenses				308			242
Sundry expense				985			965
		Total noninterest expense		9,439			8,640
Minority interest in income of consolidated subsidiaries				80			—
Income before income taxes and cumulative effect of a change in accounting principle				4,515			3,569
Income taxes				1,368			885
Income before cumulative effect of a change in accounting principle				3,147			2,684
Cumulative effect of a change in accounting principle, net of income taxes				17			—
		Net income		3,164			2,684
Dividends on preferred stock				5			15
		Net income available to common stockholders	$	3,159			2,669
PER COMMON SHARE DATA
Basic
	Income before change in accounting principle		$	2.37			1.96
	Net income			2.38			1.96
Diluted
	Income before change in accounting principle			2.34			1.95
	Net income			2.35			1.95
Cash dividends			$	0.90			0.74
AVERAGE COMMON SHARES
Basic				1,330			1,359
Diluted				1,343			1,372

(a) Certain amounts presented in 2002 have been reclassified to conform to the presentation in 2003.

75

WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

			Nine Months Ended
			September 30,
(In millions)			2003			2002
OPERATING ACTIVITIES
Net income			$	3,164			2,684
Adjustments to reconcile net income to net cash provided (used) by operating activities
	Cumulative effect of a change in accounting principle			(17	)		—
	Accretion and amortization of securities discounts and premiums, net			238			16
	Provision for loan losses			500			1,171
	Securitization gains			(334	)		(242	)
	Gain on sale of mortgage servicing rights			(84	)		(47	)
	Securities transactions			(69	)		(123	)
	Depreciation and other amortization			1,111			1,231
	Trading account assets, net			(2,538	)		(10,516	)
	Mortgage loans held for resale			557			(53	)
	Loss on sales of premises and equipment			34			3
	Contribution to qualified pension plan			(418	)		(703	)
	Other assets, net			(11,070	)		1,532
	Trading account liabilities, net			1,059			6,323
	Minority interest			2,099			—
	Other liabilities, net			1,804			(4,693	)
		Net cash used by operating activities		(3,964	)		(3,417	)
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
	Sales of securities			17,319			23,009
	Maturities of securities			22,651			10,377
	Purchases of securities			(51,870	)		(38,669	)
	Origination of loans, net			(2,870	)		2,955
	Sales of premises and equipment			773			118
	Purchases of premises and equipment			(1,009	)		(359	)
	Goodwill and other intangible assets			(64	)		(144	)
	Purchase of bank-owned separate account life insurance			(187	)		(147	)
	Cash equivalents acquired, net of purchases of banking organizations			8,177			9
		Net cash used by investing activities		(7,080	)		(2,851	)
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
	Purchases of deposits, net			11,977			332
	Securities sold under repurchase agreements and other short-term borrowings, net			16,026			(3,239	)
	Issuances of long-term debt			2,354			3,525
	Payments of long-term debt			(4,475	)		(5,500	)
	Issuances of common stock			175			91
	Purchases of common stock			(1,405	)		—
	Cash dividends paid			(1,211	)		(1,029	)
		Net cash provided (used) by financing activities		23,441			(5,820	)
		Increase (decrease) in cash and cash equivalents		12,397			(12,088	)
		Cash and cash equivalents, beginning of year		24,936			34,711
		Cash and cash equivalents, end of period	$	37,333			22,623
NONCASH ITEMS
Transfer to securities from loans			$	—			4,070
Transfer to securities from other assets				—			2,246
Transfer to other assets from loans, net				(298	)		(1,851	)
Issuance of common stock for purchase accounting merger			$	—			51

76