Wachovia Corp New (WBPS) 10-Q 2004 Q3 Quarterly report

Exhibit (19)

WACHOVIA CORPORATION AND SUBSIDIARIES

Third Quarter 2004
Management’s Discussion and Analysis
Quarterly Financial Supplement
Nine Months Ended September 30, 2004

WACHOVIA CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL SUPPLEMENT
NINE MONTHS ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS

PAGE
Financial Highlights	1
Management’s Discussion and Analysis	2
Explanation of Our Use of Non-GAAP Financial Measures	35
Selected Statistical Data	36
Summaries of Income, Per Common Share and Balance Sheet Data	37
Merger-Related and Restructuring Expenses	38
Business Segments	39
Net Trading Revenue — Investment Banking	53
Selected Ratios	53
Trading Account Assets and Liabilities	53
Securities	54
Loans — On-Balance Sheet, and Managed and Servicing Portfolios	55
Loans Held for Sale	56
Allowance for Loan Losses and Nonperforming Assets	57
Nonaccrual Loan Activity	58
Goodwill and Other Intangible Assets	58
Deposits	59
Time Deposits in Amounts of $100,000 or More	59
Long-Term Debt	60
Changes in Stockholders’ Equity	61
Capital Ratios	61
Risk Management Derivative Financial Instruments	62
Risk Management Derivative Financial Instruments — Expected Maturities	64
Risk Management Derivative Financial Instruments Activity	64
Net Interest Income Summaries — Five Quarters Ended September 30, 2004	65
Net Interest Income Summaries — Nine Months Ended September 30, 2004 and 2003	67
Consolidated Balance Sheets — Five Quarters Ended September 30, 2004	68
Consolidated Statements of Income - Five Quarters Ended September 30, 2004	69
Wachovia Corporation and Subsidiaries — Item 1. Financial Statements	70

FINANCIAL HIGHLIGHTS

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
						Percent								Percent
						Increase								Increase
(Dollars in millions, except per share data)	2004			2003		(Decrease)			2004			2003		(Decrease)
EARNINGS SUMMARY
Net interest income(GAAP)	$	2,965			2,653		12	%	$	8,664			7,730		12	%
Tax-equivalent adjustment		63			64		(2	)		190			191		(1	)
Net interest income(Tax-equivalent)		3,028			2,717		11			8,854			7,921		12
Fee and other income		2,592			2,616		(1	)		7,948			6,840		16
Total revenue(Tax-equivalent)		5,620			5,333		5			16,802			14,761		14
Provision for credit losses		43			81		(47	)		148			500		(70	)
Other noninterest expense		3,436			3,295		4			10,159			8,770		16
Merger-related and restructuring expenses		127			148		(14	)		328			308		6
Other intangible amortization		99			127		(22	)		318			398		(20	)
Total noninterest expense		3,662			3,570		3			10,805			9,476		14
Minority interest in income of consolidated subsidiaries		28			55		(49	)		130			80		63
Income before income taxes and cumulative effect of a change in accounting principle(Tax-equivalent)		1,887			1,627		16			5,719			4,705		22
Tax-equivalent adjustment		63			64		(2	)		190			191		(1	)
Income taxes		561			475		18			1,763			1,367		29
Income before cumulative effect of a change in accounting principle		1,263			1,088		16			3,766			3,147		20
Cumulative effect of a change in accounting principle, net of income taxes		—			17		—			—			17		—
Net income		1,263			1,105		14			3,766			3,164		19
Dividends on preferred stock		—			—		—			—			5		—
Net income available to common stockholders	$	1,263			1,105		14	%	$	3,766			3,159		19	%
Diluted earnings per common share	$	0.96			0.83		16	%	$	2.85			2.35		21	%
Return on average common stockholders’ equity		15.12	%		13.71		—			15.33	%		13.14		—
Return on average assets		1.18	%		1.16		—			1.22	%		1.20		—
ASSET QUALITY
Allowance for loan losses as % of loans, net		1.33	%		1.49		—			1.33	%		1.49		—
Allowance for loan losses as % of nonperforming assets		258			164		—			258			164		—
Allowance for credit losses as % of loans, net		1.41			1.59		—			1.41			1.59		—
Net charge-offs as % of average loans, net		0.15			0.33		—			0.15			0.42		—
Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale		0.50	%		0.95		—			0.50	%		0.95		—
CAPITAL ADEQUACY
Tier I capital ratio		8.34	%		8.67		—			8.34	%		8.67		—
Total capital ratio		11.22			12.21		—			11.22			12.21		—
Leverage ratio		6.21	%		6.56		—			6.21	%		6.56		—
OTHER FINANCIAL DATA
Net interest margin		3.36	%		3.57		—			3.42	%		3.75		—
Fee and other income as % of total revenue		46.13			49.05		—			47.31			46.34		—
Effective income tax rate		30.71	%		30.41		—			31.88	%		30.30		—
BALANCE SHEET DATA
Securities	$	102,157			87,176		17	%	$	102,157			87,176		17	%
Loans, net		174,504			165,925		5			174,504			165,925		5
Total assets		436,698			388,924		12			436,698			388,924		12
Total deposits		252,981			203,495		24			252,981			203,495		24
Long-term debt		41,444			37,541		10			41,444			37,541		10
Stockholders’ equity	$	33,897			32,813		3	%	$	33,897			32,813		3	%
OTHER DATA
Average diluted common shares(In millions)		1,316			1,338		(2	)%		1,321			1,343		(2	)%
Actual common shares(In millions)		1,308			1,328		(2	)		1,308			1,328		(2	)
Dividends paid per common share	$	0.40			0.35		14		$	1.20			0.90		33
Dividend payout ratio on common shares		41.67	%		42.17		(1	)		42.11	%		38.30		10
Book value per common share	$	25.92			24.71		5		$	25.92			24.71		5
Common stock price		46.95			41.19		14			46.95			41.19		14
Market capitalization	$	61,395			54,701		12		$	61,395			54,701		12
Common stock price to book value		181	%		167		8			181	%		167		8
FTE employees		84,503			86,635		(2	)		84,503			86,635		(2	)
Total financial centers/brokerage offices		3,252			3,399		(4	)		3,252			3,399		(4	)
ATMs		4,395			4,420		(1	)%		4,395			4,420		(1	)%

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WACHOVIA

Management’s Discussion and Analysis

     This discussion contains forward-looking statements. Please refer to our Third Quarter 2004 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. This discussion should be read in conjunction with the unaudited consolidated financial statements and related notes beginning on page 70.

Summary of Results of Operations

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions, except per share data)	2004		2003		2004		2003
Net interest income(GAAP)	$	2,965		2,653		8,664		7,730
Tax-equivalent adjustment		63		64		190		191
Net interest income(a)		3,028		2,717		8,854		7,921
Fee and other income		2,592		2,616		7,948		6,840
Total revenue(a)		5,620		5,333		16,802		14,761
Provision for credit losses		43		81		148		500
Other noninterest expense		3,436		3,295		10,159		8,770
Merger-related and restructuring expenses		127		148		328		308
Other intangible amortization		99		127		318		398
Total noninterest expense		3,662		3,570		10,805		9,476
Minority interest in income of consolidated subsidiaries		28		55		130		80
Income taxes		561		475		1,763		1,367
Tax-equivalent adjustment		63		64		190		191
Income before cumulative effect of a change in accounting principle		1,263		1,088		3,766		3,147
Cumulative effect of a change in accounting principle, net of income taxes		—		17		—		17
Net income		1,263		1,105		3,766		3,164
Dividends on preferred stock		—		—		—		5
Net income available to common stockholders		1,263		1,105		3,766		3,159
Diluted earnings per common share	$	0.96		0.83		2.85		2.35

^(a) Tax-equivalent.

Executive Summary

     Wachovia’s net income available to common stockholders in the first nine months of 2004 rose 19 percent to $3.8 billion and earnings per common share rose 21 percent to $2.85 from the first nine months of 2003 as strong sales and service execution continued. Our performance underscores the benefits of our balanced business model, which combines the strength and stability of our traditional retail and corporate banking businesses with the faster-growing but less predictable retail brokerage and investment banking businesses.

     In the first nine months of 2004 compared with the same period of 2003, total revenue rose 14 percent to $16.8 billion, with strong balance sheet growth overcoming margin compression largely related to the addition of lower-yielding trading assets and growth in lower-spread consumer real-estate secured loans. Tax-equivalent net interest income grew 12 percent on growth in average earning assets of 22 percent. Fee and other income grew 16 percent largely reflecting the impact of the July 1, 2003, retail brokerage transaction on commissions and on fiduciary and asset management fees. Growth in service charges and improved principal investing results also contributed to the increase, and offset lower asset securitization results. Fee and other income was 47 percent of total revenue compared with 46 percent.

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     Average loans in the first nine months of 2004 increased $5.9 billion from the first nine months of 2003 to $163.8 billion, primarily reflecting growth in consumer real estate-secured loans and commercial loans. Average core deposits increased 24 percent from the first nine months of 2003 to $221.9 billion, including an average $22.5 billion of deposits associated with growth in our FDIC-insured money market sweep product introduced in the fourth quarter of 2003. Average low-cost core deposits increased 33 percent from the first nine months a year ago to $182.1 billion.

     Additionally, the improving credit markets and actions we have taken in previous quarters to mitigate risk led to a 70 percent decline in the provision for credit losses. Annualized net charge-offs in the nine months ended September 30, 2004, remained at a very low 15 basis points of average net loans.

     We also continue to focus on improving efficiency. Our mix of businesses and variable expense structure enables us to manage expenses in line with revenues. Total noninterest expense rose 14 percent from the first nine months of 2003, primarily reflecting increased variable pay on higher revenues, as well as the full nine months’ effect of the retail brokerage transaction and continued investments for the future.

     Three of our four core businesses generated record revenue, and outstanding deposit and loan growth provided a balance to weak retail brokerage activity.

     Our General Bank, which contributed 45 percent of total revenue, has set earnings records each quarter this year. The General Bank continued to experience outstanding deposit growth, particularly in low-cost core deposits, as well as solid loan growth. The General Bank operating leverage improved, with revenue growth of 5 percent and relatively flat expenses over the comparative period. Credit quality in the General Bank also continued to be strong, resulting in a 36 percent decline in its provision for credit losses.

     The retail brokerage and asset management businesses in Capital Management, which represented 24 percent of our total revenue, experienced declining trading activity in the first nine months of 2004, dampening their results. Growth in commissions and in fiduciary and asset management fees largely reflected the impact of the retail brokerage transaction. Capital Management’s businesses are poised to benefit when markets improve. In addition, we anticipate earnings to benefit from expense savings from the completion of the retail brokerage integration.

     Wealth Management’s contribution to revenue was 5 percent with record earnings each quarter this year fueled by solid momentum in both net interest income and in trust and investment management fees. Average loans grew 14 percent and average core deposits grew 11 percent.

     Our Corporate and Investment Bank, which contributed 24 percent of total revenue, gained new business and continued its strong performance in the first nine months of 2004, with improved principal investing results and market share gains, particularly in loan syndications, consumer asset-backed securitizations and investment grade bonds. Improving credit conditions and lower loan outstandings lessened the use of economic capital.

     In addition, as we manage interest rate risk, we believe a rising rate environment – assuming that it is accompanied by a rebound in business activity in the wake of a more robust economy – will produce many benefits for our business model. Since the beginning of 2004, we have repositioned our balance sheet to be modestly asset sensitive under a

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broad range of interest rate scenarios. Our balance sheet remains strong, with our tier 1 capital ratio above 8 percent and our leverage ratio above 6 percent.

     On October 18, 2004, we announced Wachovia’s quarterly dividend would increase 15 percent to 46 cents per common share, to be paid on December 15, 2004, to shareholders of record as of November 30, 2004. In the first nine months of 2004, we paid common stockholders total dividends of $1.6 billion, or $1.20 per share, compared with $1.2 billion, or 90 cents per share, in the first nine months of 2003. This represented dividend per share growth of 33 percent, and a dividend payout ratio on earnings excluding, merger-related and restructuring expenses, other intangible amortization and the change in accounting principle of 38.46 percent in the first nine months of 2004 and 33.83 percent in the first nine months of 2003.

     In the third quarter of 2004 compared with the third quarter of 2003, net income available to common stockholders rose 14 percent to a record $1.3 billion from $1.1 billion, and earnings per common share rose 16 percent to 96 cents from 83 cents. These amounts include after-tax net merger-related and restructuring expenses of 4 cents per share in the third quarter of 2004 and 6 cents per share offset by 1 cent per share related to the change in accounting principle in the third quarter of 2003.

     Total revenue rose 5 percent to $5.6 billion in the third quarter of 2004 compared with the third quarter of 2003, with 11 percent growth in tax-equivalent net interest income and relatively flat fee and other income. Total noninterest expense rose 3 percent from the third quarter of 2003, primarily reflecting higher incentives related to improved revenues. Average loans in the third quarter of 2004 were $168.6 billion, a 7 percent increase from the third quarter of 2003. In addition to an increase in average loans of $2.7 billion from the impact of a second quarter 2004 resolution of tax matters related to the commercial leasing portfolio, there was strong growth in commercial loans, driven by middle-market commercial, small business and asset-based lending, and consumer loans, largely in consumer real estate-secured loans and student loans. Average core deposits increased 25 percent from the third quarter of 2003 to $233.0 billion, while average low-cost core deposits increased 34 percent from the third quarter a year ago to $194.4 billion. The increase included an average $27.4 billion of core deposits associated with the FDIC-insured sweep product.

     The tax rate on a tax-equivalent basis declined to 33.04 percent in the third quarter of 2004 from 33.10 percent a year earlier due to resolution of a number of small tax matters. The second quarter 2004 resolution of commercial leasing matters had no effect on the third quarter 2004 tax rate.

Outlook

     As we look into the future, the combination of revenue growth and efficiency initiatives we are developing, fueled by momentum in our major businesses in an improving economy, gives us confidence that Wachovia will be one of the leading growth companies in our industry.

     We continue to make excellent progress in meeting our corporate objectives of quality earnings growth, increased distribution of products and services, hallmark customer service, disciplined expense control and maintaining a strong balance sheet. Our expectations for full year 2004 are fundamentally the same as we announced previously, although we have

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modestly revised our expectations for net interest income, fee income and our effective tax rate. These expectations do not include the impact of our November 1, 2004, merger with SouthTrust Corporation, which we expect will result in 4 cents per share dilution including 1 cent per share from merger related and restructuring expenses, as discussed further below. The following outlook is for the full year 2004 and reflects the full-year effect of the combined retail brokerage operation compared with a six-month effect included in 2003 results:

• Total revenue growth in the low double-digit percentage range;

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

• A lower net interest margin, primarily due to the effect of certain items amounting to 30 basis points, discussed further below;

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

• Noninterest expense growth (excluding merger-related and restructuring expenses) in the high single-digit percentage range and marginally lower than revenue growth;

• Loan growth in the mid single-digit percentage range from the fourth quarter of 2003, excluding the impact of securitization activity;

• Net charge-offs in the 15 basis point to 25 basis point range with provision expense also expected to be in this range;

• An effective tax rate of approximately 34.5 percent to 35.0 percent on a tax-equivalent basis;

• A leverage ratio above 6 percent;

• A dividend payout ratio of 40 percent to 50 percent of earnings excluding merger-related and restructuring expenses and other intangible amortization; and

• Use of excess capital to opportunistically repurchase shares, to reinvest in our businesses and to undertake financially attractive, shareholder friendly small acquisitions.

     As referenced above, we expect our net interest margin to decline in full year 2004 reflecting anticipated growth in the FDIC-insured sweep product (15 basis points), as well as the full-year impact of the July 1, 2003, consolidation of the commercial paper conduits we administer (6 basis points) and the full-year impact of lower spread assets resulting from the combined brokerage operation (9 basis points). We would otherwise expect our margin to be relatively stable.

     While these factors will put pressure on the margin, we also expect to achieve higher net interest income for the full year 2004 and to improve overall liquidity as a result of the FDIC-insured sweep product.

     In addition, our outlook for fee income growth includes the effect of the retail brokerage transaction. Approximately half of the fee income growth in 2004 is expected to result from the full year effect of this transaction. We own a 62 percent interest in the retail brokerage business, which is a consolidated subsidiary of Wachovia, and Prudential Financial, Inc., owns the remaining 38 percent interest. We expect this transaction to be

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accretive to earnings per share in 2004, before the effect of merger-related and restructuring expenses. Including these expenses, this transaction is expected to be accretive to earnings per share beginning in 2005.

     Noninterest expense growth, excluding merger-related and restructuring expenses, will reflect the retail brokerage transaction as well as our continuing investments for the future. For future growth, we are building new financial centers and upgrading financial center technology and infrastructure; hiring additional wealth relationship managers; making selected investments to enhance our distribution in asset management and insurance; and expanding our investment management capabilities.

     Looking forward, we believe our merger with SouthTrust Corporation, strengthens our competitive position. This merger creates clear market leadership in a number of high-growth southeastern states and accelerates our already announced expansion into attractive Texas markets. Key business and management decisions have been made, and an experienced merger integration team is in place to implement a detailed merger integration plan. The terms of this transaction called for Wachovia to exchange 0.89 shares of its common stock for each share of SouthTrust common stock. It is expected to dilute Wachovia’s fourth quarter 2004 earnings by 4 cents per share, including 1 cent per share from merger-related and restructuring expenses. Initial due diligence projected $255 million in annual after-tax expense reductions after a 15-month integration period following consummation of the merger, and one-time costs, including merger-related and restructuring expenses and exit cost purchase accounting adjustments, of $431 million after tax over the integration period. In addition, we now expect to record preliminary fair market value purchase accounting adjustments of $42 million after-tax, down from our original estimate of $232 million. These adjustments will depend on the value of SouthTrust’s net tangible assets at closing. We have signed an agreement to divest 18 SouthTrust branches consisting of approximately $600 million in deposits. We expect to complete the divestiture in the first quarter of 2005. Following completion of the SouthTrust merger, we are targeting a leverage ratio of approximately 6 percent and a tangible capital to tangible asset ratio of approximately 4.7 percent to 4.8 percent

     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 disposing 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.

Critical Accounting Policies

     In order to understand our financial position and results of operations, it is important to understand our more significant accounting policies and the extent to which we use judgment and estimates in applying those policies. Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States (GAAP), and they conform to general practices within the applicable industries. We use a significant amount of judgment and estimates based on assumptions for which the actual results are uncertain when we make the estimation. We have identified five policies as

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being particularly sensitive in terms of judgments and the extent to which estimates are used: allowance for loan losses and the reserve for unfunded lending commitments (which is recorded in other liabilities); fair value of certain financial instruments; consolidation; goodwill impairment; and contingent liabilities. An update of our accounting policy for the allowance for loan losses and the reserve for unfunded lending commitments is provided below. For more information on our other critical accounting policies, please refer to our 2003 Annual Report.

Allowance for Loan Losses and Reserve for Unfunded Lending CommitmentsThe allowance for loan losses and reserve for unfunded lending commitments (collectively, the “allowance for credit losses”) are maintained at levels we believe are adequate to absorb probable losses inherent in the loan portfolio and unfunded lending commitments as of the date of the consolidated financial statements. We have developed appropriate policies and procedures for assessing the adequacy of the allowance for loan losses and reserve for unfunded lending commitments that reflect our careful assessment of credit risk considering all information available to us. This assessment includes the monitoring of qualitative and quantitative trends including changes in the levels of past due, criticized and nonperforming loans. In developing this assessment, we must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown. Depending on changes in circumstances, future assessments of credit risk may yield materially different results, which may require an increase or a decrease in the allowance for credit losses.

     We employ a variety of modeling and estimation tools for measuring credit risk, which are used in developing an appropriate allowance for credit losses. These tools are periodically reevaluated and refined as appropriate. As a result, in the second quarter of 2004, we refined our allowance for loan losses model to better align its methodology with our current framework for analyzing credit risk. This change in methodology did not significantly change the level of our allowance or our view as to its adequacy. The following provides a description of each component of our allowance for credit losses, the techniques we currently use and the estimates and judgments inherent to each.

     Our refined model for the allowance for loan losses has four components: Formula-based components for both the commercial and consumer portfolios, each of which include an adjustment for historical loss variability, a reserve for impaired commercial loans and an unallocated component. Our refined methodology enables us to effectively align the allowance with the different types of inherent risk in our loan portfolio. Separate allowance ranges for the commercial and consumer components permit us to specifically address the current trends and events affecting the risk in the respective portfolios.

     For commercial loans, the formula-based component of the allowance for loan losses is based on statistical estimates of the average losses observed for commercial loans that we have classified in accordance to their credit grade. Average losses are computed using the annualized historical rate at which loans in each grade have defaulted (default rates) and the historical average losses realized for defaulted loans (“loss-given-default” or LGD). Default rates have been developed by analyzing seven years of our default experience and over 20 years of comparable external data. Default rates, which are validated annually, are estimates derived from long-term averages and are not conditioned on short-term economic or environmental factors. LGD rates have also been developed using seven years of internal data and industry data.

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     For consumer loans, the formula-based component of the allowance for loan losses is based on loss rates for specific groups of similar loans in each product category. The loss rates are based on historical loss data, historical delinquency patterns, vintage analyses, stress tests and credit score-based forecasting methods.

     For both commercial and consumer loans, the formula-based loss components include additional amounts to establish reasonable ranges that consider observed historical variability in losses. Factors we may consider in setting these amounts include, but are not limited to, industry-specific data, portfolio-specific risks or concentrations, and macroeconomic conditions. In an economic downturn, for example, the timing and magnitude of credit risk deterioration in certain industries may be faster and more severe than in others. In addition, adverse trends in macroeconomic factors such as unemployment rates, income growth, inflation and political events are likely to affect some borrowers’ ability to meet their loan payments. Including these historical variability components in our model enables us to capture probable incurred losses that are not yet evident in current default grades, delinquencies or other credit risk measurement tools.

     At September 30, 2004, the formula-based component of the allowance was $1.5 billion for commercial loans and $636 million for consumer loans.

     We have established specific reserves within the allowance for loan losses for large impaired loans. We define impaired loans as commercial loans on nonaccrual status. Impaired loans with a minimum total exposure of $10 million in our Corporate and Investment Bank and $5 million in our other segments are individually reviewed. An allowance for each individually reviewed loan is based on the difference between the loan’s carrying amount and the loan’s estimated fair value. Fair value is estimated using the present value of expected future cash flows discounted at the loan’s effective interest rate, or the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. No other allowance is provided on impaired loans that are individually reviewed. At September 30, 2004, the allowance for individually reviewed impaired loans amounted to $26 million.

     The allowance for loan losses is supplemented with an unallocated component. This component reflects in part the inherent uncertainty of estimates and is designed as a final tool in fully capturing probable incurred losses in the loan portfolio. The amount of this component and its relationship to the total allowance for loan losses may change from one period to another. We anticipate that the unallocated component of the allowance will generally not exceed 5 percent of the total allowance. At September 30, 2004, the unallocated component of the allowance for loan losses was $115 million, representing 5 percent of the allowance for loan losses.

     In June 2004, we reclassified our reserve for unfunded commercial lending commitments from the allowance for loan losses to other liabilities. The modeling process used in the determination of the reserve for unfunded lending commitments is consistent with the process described above for the commercial portion of the allowance for loan losses, also including as a key factor the historical average rate at which unfunded exposures have been funded at the time of default.

     The factors supporting the allowance for loan losses and the reserve for unfunded commitments as described above does not diminish the fact that the entire allowance for loan losses and reserve for unfunded commitments is available to absorb losses in the loan portfolio. Our principal focus, therefore, is on the adequacy of the total allowance for loan

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losses and reserve for unfunded commitments. Our Corporate Loan Loss Allowance Committee, chaired by our chief risk officer, meets quarterly and is responsible for the review and approval of the allowance for credit losses as well as for policies and procedures connected with its calculation. Policies governing the determination of the allowance for credit losses are also reviewed and approved by the Risk Committee of the board of directors.

     In addition to compliance with GAAP, the allowance for credit losses is also subject to federal and state banking regulations. Our primary bank regulators regularly conduct examinations of the allowance for credit losses and make assessments regarding its adequacy and the methodology employed in its determination.

Corporate Results of Operations

Average Balance Sheets and Interest Rates

	Nine Months Ended					Nine Months Ended
	September 30, 2004					September 30, 2003
	Average		Interest			Average		Interest
(In millions)	Balances		Rates			Balances		Rates
Interest-bearing bank balances	$	3,467		1.27	%	$	4,262		1.34	%
Federal funds sold		25,013		1.17			14,485		1.04
Trading account assets		26,402		4.18			17,841		4.50
Securities		99,980		4.87			73,205		5.39
Commercial loans, net		93,125		4.52			92,131		4.62
Consumer loans, net		70,684		5.20			65,767		5.74
Total loans, net		163,809		4.81			157,898		5.09
Loans held for sale		15,168		4.20			8,599		4.44
Other earning assets		11,241		3.12			5,829		3.66
Risk management derivatives		—		0.44			—		0.55
Total earning assets		345,080		4.84			282,119		5.36
Interest-bearing deposits		187,519		1.06			151,482		1.35
Federal funds purchased		47,340		1.14			40,602		1.29
Commercial paper		12,099		1.16			5,689		0.96
Securities sold short		10,464		2.76			7,909		2.69
Other short-term borrowings		6,165		0.76			4,697		0.88
Long-term debt		38,359		3.99			36,953		4.04
Risk management derivatives		—		0.12			—		0.07
Total interest-bearing liabilities		301,946		1.62			247,332		1.84
Net interest income and margin	$	8,854		3.42	%	$	7,921		3.75	%

Net Interest Income and MarginNet interest income increased 12 percent in the first nine months of 2004 from the first nine months of 2003 due to strong balance sheet growth. This growth offset compression in the net interest margin, which declined 33 basis points to 3.42 percent primarily due to the impact of growth in our FDIC-insured sweep product and related hedging, as well as to the July 1, 2003, consolidation of our commercial paper conduits and to a larger retail brokerage operation. In addition, margin compression was driven by growth in low-spread trading assets as well as declining yields on consumer loans as higher yielding mortgage loans were refinanced over the past two years and replaced with newly originated lower yielding mortgage loans. The average federal funds discount rate declined 2 basis points in the first nine months of 2004 from the first nine months of 2003, while average longer-term 5-year and 10-year treasury note rates increased 54 basis points and 39 basis points, respectively.

     Wachovia and the Internal Revenue Service have settled all issues relating to the IRS’s challenge of our tax position on lease-in, lease-out (LILO) transactions entered into by First Union Corporation and legacy Wachovia Corporation. Our current and deferred tax liabilities previously accrued were adequate to cover this resolution. For the purposes of presenting average balances and net interest income summaries, deferred taxes related to these leases are netted against the loan balance. Accordingly, the reduction of deferred tax

9

liabilities associated with this resolution increased the average lease balances and reduced the related average interest rate earned. In the nine months ended September 30, 2004, this resulted in an increase in average loans of $929 million and a reduction in the average interest rate earned on lease financing of approximately 122 basis points.

     In order to maintain our targeted interest rate risk profile, derivatives are used to manage the interest rate risk inherent in our assets and liabilities. In the first nine months of 2004, net interest rate risk management-related derivative income contributed $865 million to net interest income, representing a 33 basis point impact on our net interest margin, compared with $1.0 billion, or 48 basis points, in the first nine months of 2003.

     As discussed previously, we began marketing our FDIC-insured sweep product to brokerage customers in the fourth quarter of 2003. Since then, customer balances have been transferred from money market mutual fund accounts to these deposit accounts. We have been investing these deposits in securities that together produce an asset and liability structure that enables us to maintain our desired interest rate sensitivity. By September 30, 2004, this product had captured $28.9 billion in new deposits, up $17.1 billion from year-end 2003. These deposits represented $22.5 billion in average core deposits in the first nine months of 2004.

Fee and Other Income

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions)	2004			2003			2004			2003
Service charges	$	499			439			1,459			1,295
Other banking fees		304			257			856			738
Commissions		584			765			2,058			1,651
Fiduciary and asset management fees		665			662			2,019			1,605
Advisory, underwriting and other investment banking fees		233			191			622			556
Trading account profits (losses)		(69	)		(46	)		44			80
Principal investing		201			(25	)		254			(126	)
Securities gains (losses)		(71	)		22			(33	)		69
Other income		246			351			669			972
Total fee and other income	$	2,592			2,616			7,948			6,840

Fee and Other IncomeTraditionally banks earn fee and other income from service charges on deposit accounts and other banking products and services, and these continue to be a significant component of our fee income. In addition, we have balanced our earnings 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 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 are sensitive to movements in the financial markets. As the financial markets begin to recover, we are seeing gradual improvement in these market-based fees.

     Fee and other income increased 16 percent in the first nine months of 2004 from the first nine months of 2003 led by growth in commissions, fiduciary and asset management fees, service charges and principal investing gains. Commissions and fiduciary and asset management fees rose due to the full nine-month impact of the larger brokerage business. Service charges increased 13 percent, reflecting growth in checking accounts. Principal

10

investing, which includes the results of proprietary investments in equity and mezzanine securities, had net gains in the first nine months of 2004 of $254 million, due largely to higher realized gains, compared with net losses of $126 million in the first nine months of 2003.

     Net securities losses were $33 million in the first nine months of 2004 compared with gains of $69 million in the first nine months of 2003. We had gains of $88 million from sales of securities received in settlement of problem loans, offset by net losses from portfolio sales of $71 million and impairment losses of $50 million. Net securities gains of $69 million in the first nine months of 2003 included net gains from portfolio sales of $210 million offset by $141 million in impairment losses.

     Other income declined 31 percent in the first nine months of 2004 from the first nine months of 2003 primarily due to a $287 million decline in asset securitization income, including $57 million of losses on auto loan securitizations, as well as a $68 million loss associated with a sale and leaseback of corporate real estate. We expect the sale and leaseback of corporate real estate will reduce annual occupancy and other related expenses by $22 million in future periods.

     Fee and other income was relatively flat in the third quarter of 2004 compared with the third quarter of 2003. Stronger principal investing net gains of $201 million compared with a net loss of $25 million in the year-ago period was more than offset by net trading and securities losses and weaker brokerage commissions.

Noninterest Expense

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2004		2003		2004		2003
Salaries and employee benefits	$	2,118		2,109		6,464		5,556
Occupancy		234		220		687		607
Equipment		268		264		780		736
Advertising		46		38		142		104
Communications and supplies		149		159		457		442
Professional and consulting fees		134		109		369		314
Sundry expense		487		396		1,260		1,011
Other noninterest expense		3,436		3,295		10,159		8,770
Merger-related and restructuring expenses		127		148		328		308
Other intangible amortization		99		127		318		398
Total noninterest expense	$	3,662		3,570		10,805		9,476

Noninterest ExpenseNoninterest expense increased 14 percent in the first nine months of 2004 from the first nine months of 2003 primarily reflecting increased variable pay on higher revenues, as well as the full nine months’ effect of the retail brokerage transaction and continued investments for the future. Sundry expense increased 25 percent year over year primarily due to higher legal costs.

     Noninterest expense increased 3 percent in the third quarter of 2004 from the third quarter of 2003 due primarily to the increase in legal costs reflected in sundry expense and professional and consulting fees. Salaries and employee benefits were relatively flat as increased salaries were offset by lower incentives and benefit costs. The decrease in incentives for Capital Management was greater than increases in other areas and lower pension costs drove the benefit reduction.

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Merger-Related and Restructuring ExpensesWe recorded $328 million in net merger-related and restructuring expenses in the first nine months of 2004. This included $219 million related to the retail brokerage integration, which is nearing completion, and $112 million in final charges related to the First Union-Wachovia merger, offset by $3 million in reversals of previously recorded restructuring expenses. The $219 million related to the retail brokerage transaction principally comprised personnel and employee termination benefits and system conversion costs, along with occupancy and equipment and incremental advertising expense. The $112 million related to the First Union-Wachovia merger principally comprised personnel and employee termination benefits, occupancy and equipment costs and system conversion costs. In the first nine months of 2003, we recorded $308 million in merger-related and restructuring expenses. This included $271 million of expenses related to the First Union-Wachovia merger and $43 million related to the retail brokerage integration, offset by $6 million in reversals of previously recorded restructuring expenses.

     We currently expect merger-related and restructuring expenses related to the retail brokerage integration to be $500 million. Through September 30, 2004, we had recorded $304 million of these expenses and expect that substantially all of the remainder will be incurred in the fourth quarter of 2004, with the rest to be incurred through the first half of 2005.

     In the third quarter of 2004, we recorded $127 million in net merger-related and restructuring expenses compared with $148 million in the third quarter of 2003. This included $99 million related to the retail brokerage integration and $28 million related to the First Union-Wachovia merger.

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. In this section, we discuss the performance and results of our business segments. Additional segment information can be found on page 79 in the notes to our consolidated financial statements.

     Business segment earnings are presented excluding merger-related and restructuring expenses, other intangible amortization, minority interest income in consolidated subsidiaries, and the change in accounting principle. We believe that while these items apply to overall corporate operations, they are not meaningful to understanding or evaluating the performance of our individual business segments. We do not take these items into account as we manage our business segment operations or allocate capital, and therefore, our GAAP segment presentation excludes these items. Also, for segment reporting purposes, net interest income reflects 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.

     Business segment earnings are the primary measure of segment profit or loss that we use to assess segment performance and to allocate resources. Economic profit, risk-adjusted return on capital (RAROC) and efficiency ratios are additional metrics, all of which are based on and calculated directly from segment earnings, that assist

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management in evaluating segment results. Please refer to our 2003 Annual Report, including pages 31 through 35 and pages 103 through 105, for additional information related to our business segments and performance metrics.

     We continuously assess assumptions, methodologies and reporting classifications to better reflect the true economics of our business segments. Several refinements have been incorporated for 2004. We periodically review our cost base and the related activities to better align support costs to our business segments. This includes periodic cost studies, such as a 2003 study of activities in our retail branches. This cost study, using the increased amount of customer-related statistical data available, resulted in a better understanding of the costs related to certain services provided in the branches. The more detailed cost understanding led to an increase in the amount of allocated costs related to these services, some of which relate to businesses outside the General Bank. Additionally, we periodically change the manner in which certain costs are allocated, such as activities that can be better allocated to the segments based on utilization metrics rather than through a common overhead pool allocation.

     As a result of these refinements, cost allocation methodologies used in 2004 are different than the methodologies used in the original reporting of 2003 results. While these refinements do not represent a significant change in the results of operations of our segments, we have restated the 2003 amounts to allow for a consistent comparison of segment results. The impact to segment earnings for full year 2003 as a result of these refinements was a $21 million increase in the General Bank, a $17 million decrease in Capital Management, a $14 million decrease in Wealth Management, a $6 million decrease in the Corporate and Investment Bank, and a $16 million increase in the Parent.

General Bank
Performance Summary

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(Dollars in millions)	2004			2003		2004		2003
Income statement data
Net interest income(Tax-equivalent)	$	1,994			1,884		5,751		5,440
Fee and other income		601			561		1,770		1,690
Intersegment revenue		43			46		121		130
Total revenue(Tax-equivalent)		2,638			2,491		7,642		7,260
Provision for credit losses		74			120		207		325
Noninterest expense		1,354			1,319		3,966		3,909
Income taxes(Tax-equivalent)		440			384		1,259		1,104
Segment earnings	$	770			668		2,210		1,922
Performance and other data
Economic profit	$	603			499		1,684		1,401
Risk adjusted return on capital (RAROC)		57.15	%		45.90		53.69		44.00
Economic capital, average	$	5,200			5,681		5,271		5,677
Cash overhead efficiency ratio(Tax-equivalent)		51.35	%		52.94		51.89		53.84
Lending commitments	$	76,592			63,509		76,592		63,509
Average loans, net		124,585			114,574		121,610		113,021
Average core deposits	$	170,459			155,336		165,994		150,910
FTE employees		34,481			34,884		34,481		34,884

General BankThe General Bank segment includes our Retail and Small Business and Commercial lines of business. In the first nine months of 2004 compared with the first nine months of 2003, General Bank segment earnings were a record $2.2 billion, an increase of 15 percent, reflecting a 5 percent increase in revenue largely driven by outstanding core deposit growth and growth in consumer real estate-secured loans. Noninterest expense grew modestly in the same period, reflecting strong expense management, and resulted in an improved overhead efficiency ratio of 51.89 percent, excluding merger-related and restructuring expenses and other intangible amortization.

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     Fee and other income increased 5 percent from the first nine months of 2003 on strong service charge growth, offset by a market-driven decline in mortgage-related income, including mortgage origination fees, gains on sales of mortgage loans and servicing and amortization of servicing rights.

     Nonmortgage-related income includes service charges, interchange income and ATM fees. Service charges increased $166 million to $1.1 billion reflecting increased consumer activity and new products. Interchange income increased $40 million to $243 million due to higher customer transaction volume. Mortgage banking origination fee income decreased $51 million to $88 million due to lower origination volume resulting from the rising rate environment. Asset sale and securitization income in the General Bank reflects the sale of mortgage loans and related income; securitizations and related gains on the sales of consumer real estate-secured loans (for example, prime equity lines) are reflected in the Parent. In the first nine months of 2004 compared with the first nine months of 2003, asset sale and securitization income decreased $194 million to $55 million due to reduced sales of mortgages to agencies and private investors and lower gains on sales of servicing resulting from weaker volume, and included $15 million in losses on related derivatives. In the first nine months of 2003, asset sale and securitization income of $249 million included $58 million in losses on related derivatives and $22 million in market value write-downs on loans held for sale. Interchange income, mortgage banking origination fee income and amortization of servicing rights are included in other banking fees in the consolidated statements of income. Asset sale and securitization income is included in other income in the consolidated statements of income.

     The General Bank continues to do exceptionally well in attracting and retaining low-cost core deposits, with average balances increasing 19 percent from the first nine months of 2003. Net new retail checking accounts increased 464,000 in the first nine months of 2004, compared with 327,000 in the first nine months of 2003 and 412,000 in full year 2003. Average loans grew 8 percent from the first nine months of the prior year due primarily to growth in consumer real-estate secured and student loans, as well as in middle market commercial and small business lending.

     Provision expense declined by more than a third from the first nine months of 2003, primarily reflecting risk reduction strategies implemented in 2003, solid improvements in both commercial and consumer loan losses and a strengthening economy.

     In the third quarter of 2004 compared with the third quarter of 2003, General Bank segment earnings rose 15 percent based on 6 percent revenue growth to a record $2.6 billion, primarily related to average core deposit growth of 10 percent and average loan growth of 9 percent. Revenue growth doubled expense growth, which was up 3 percent from the third quarter of 2003 primarily due to higher variable expenses related to strong revenue production. Fee income increased 7 percent from the third quarter of 2003 on strong service charge growth, offset by declines in mortgage banking income, as discussed above.

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Capital Management
Performance Summary

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in millions)	2004			2003			2004			2003
Income statement data
Net interest income(Tax-equivalent)	$	152			78			400			153
Fee and other income		1,131			1,304			3,726			2,864
Intersegment revenue		(13	)		(17	)		(38	)		(52	)
Total revenue(Tax-equivalent)		1,270			1,365			4,088			2,965
Provision for credit losses		—			—			—			—
Noninterest expense		1,099			1,161			3,472			2,488
Income taxes(Tax-equivalent)		63			74			224			174
Segment earnings	$	108			130			392			303
Performance and other data
Economic profit	$	73			94			282			229
Risk adjusted return on capital (RAROC)		34.07	%		39.75			39.24			45.06
Economic capital, average	$	1,268			1,299			1,335			899
Cash overhead efficiency ratio(Tax-equivalent)		86.57	%		84.99			84.93			83.91
Average loans, net	$	346			135			247			134
Average core deposits	$	29,091			1,615			24,071			1,367
FTE employees		19,351			20,012			19,351			20,012

Capital ManagementCapital Management includes 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.

     In the first nine months of 2004 compared with the same period in 2003, Capital Management’s segment earnings increased 29 percent based on revenue growth of 38 percent and expense growth of 40 percent, largely related to the impact of the retail brokerage transaction and the net benefit of $11 million on the sale of two nonstrategic businesses in the second quarter of 2004. Revenue from the retail brokerage businesses increased $1.0 billion to $3.3 billion largely because the period ended September 30, 2004, included nine months of results related to the retail brokerage transaction that closed on July 1, 2003, while the same period in 2003 included only three months of results from the combined operations. Retail brokerage transactional revenues of $1.8 billion increased 28 percent, while recurring revenues of $1.5 billion were up 71 percent. Revenue from the asset management businesses rose $98 million to $837 million related to growth in assets under management and to the acquisition of a securities lending firm with $17 million in revenues and the net impact of the divestiture of two nonstrategic businesses with $13 million in revenues.

Total Assets Under Management

	2004															2003
	Third Quarter					Second Quarter					First Quarter					Fourth Quarter					Third Quarter
(In billions)	Amount		Mix			Amount		Mix			Amount		Mix			Amount		Mix			Amount		Mix
Assets under management
Money market	$	65		26	%	$	64		26	%	$	63		25	%	$	67		27	%	$	72		30	%
Equity		73		29			74		30			74		30			72		29			64		27
Fixed income		111		45			110		44			114		45			108		44			104		43
Total assets under management		249		100			248		100			251		100			247		100			240		100
Securities lending		36		n/a			36		n/a			36		n/a			—		n/a			—		n/a
Total assets under management and securities lending	$	285		n/a	%	$	284		n/a	%	$	287		n/a	%	$	247		n/a	%	$	240		n/a	%

     Total assets under management and securities lending grew 16 percent from year-end 2003 to $285.4 billion, largely attributable to $37.8 billion from the January 1, 2004, acquisition of the securities lending firm. Total net inflows were $10.0 billion in the first nine months of 2004, excluding the impact of acquisition and divestiture activity referred to above, and net money market fund outflows primarily related to the movement into the FDIC-insured sweep product. The inflows were led by strong institutional separate account fixed income flows and the transfer of $6.0 billion of Prudential money market assets into Evergreen funds. Continued

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positive net equity sales along with increased equity market valuations are creating a more attractive mix of funds. Assets under management growth also reflected net asset appreciation of $1.0 billion since year-end 2003 from increased market valuations.

     In addition, deposit balances related to the FDIC-insured sweep product grew to $28.9 billion, compared with $11.8 billion at year-end 2003, contributing to net interest income growth. The asset shift to the FDIC-insured sweep product resulted in a 6 percent decline in mutual fund assets from the third quarter of 2003 to $106.8 billion. Despite the decline in mutual fund assets, total assets under management at September 30, 2004, increased 4 percent from September 30, 2003, to $249.2 billion.

     In the third quarter of 2004 compared with the third quarter of 2003, Capital Management segment earnings declined 17 percent on a revenue decline of $95 million, largely due to a challenging retail brokerage environment. Retail Brokerage revenues declined 9 percent to $1.0 billion primarily due to decreases in transactional revenue reflecting lower customer transaction activity. Retail Brokerage transactional revenues of $493 million were down 26 percent while recurring and other revenues of $518 million increased 16 percent. Revenues in our asset management businesses increased 1 percent to $262 million. Noninterest expense declined 5 percent driven by lower broker compensation.

Wealth Management
Performance Summary

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(Dollars in millions)	2004			2003		2004			2003
Income statement data
Net interest income(Tax-equivalent)	$	130			113		364			319
Fee and other income		136			131		421			396
Intersegment revenue		2			1		5			4
Total revenue(Tax-equivalent)		268			245		790			719
Provision for credit losses		(1	)		2		(1	)		11
Noninterest expense		189			183		565			535
Income taxes(Tax-equivalent)		30			22		83			63
Segment earnings	$	50			38		143			110
Performance and other data
Economic profit	$	36			24		99			72
Risk adjusted return on capital (RAROC)		49.09	%		35.40		46.15			37.09
Economic capital, average	$	372			384		375			369
Cash overhead efficiency ratio(Tax-equivalent)		70.52	%		74.48		71.56			74.27
Lending commitments	$	4,497			3,843		4,497			3,843
Average loans, net		11,461			9,703		10,902			9,527
Average core deposits	$	12,327			11,054		11,987			10,773
FTE employees		3,628			3,802		3,628			3,802

Wealth ManagementWealth Management provides a comprehensive suite of private banking, trust and investment management, financial planning and insurance services.

     In the first nine months of 2004 compared with the first nine months of 2003, Wealth Management’s segment earnings were $143 million, an increase of 30 percent as higher revenues outpaced expense growth. Net interest income rose 14 percent on increased loans and core deposits. Fee and other income increased 6 percent due to solid growth in trust and investment management fees and insurance commissions. Noninterest expense rose 6 percent primarily due to higher incentives related to improved revenues and earnings. Provision expense declined as credit quality continued to improve.

     Average loans increased 14 percent from the first nine months of 2003, reflecting growth in both commercial and consumer loans. Average core deposits rose 11 percent in the same period, led by higher money market, demand deposit and interest-checking

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account balances. Included in total assets under management are wealth assets under management of $58.7 billion at September 30, 2004, which represented a modest decline from year-end 2003 in challenging markets.

     In the third quarter of 2004 compared with the third quarter of 2003, Wealth Management segment earnings increased 32 percent to a record $50 million as record revenues outpaced expense growth. Net interest income grew 15 percent on average loan growth of 18 percent. Average core deposits grew 12 percent, driven by higher money market balances. Fee and other income increased 4 percent largely due to improved trust and investment management fees related to pricing and market improvements as well as to solid growth in insurance brokerage commissions. Noninterest expense increased 3 percent year over year primarily due to higher incentives related to improved revenues.

Corporate and Investment Bank
Performance Summary

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in millions)	2004			2003			2004			2003
Income statement data
Net interest income(Tax-equivalent)	$	598			572			1,801			1,723
Fee and other income		787			539			2,246			1,641
Intersegment revenue		(33	)		(31	)		(90	)		(82	)
Total revenue(Tax-equivalent)		1,352			1,080			3,957			3,282
Provision for credit losses		(15	)		10			(45	)		215
Noninterest expense		680			577			1,913			1,687
Income taxes(Tax-equivalent)		252			183			768			513
Segment earnings	$	435			310			1,321			867
Performance and other data
Economic profit	$	270			137			822			396
Risk adjusted return on capital (RAROC)		33.08	%		21.08			33.87			19.98
Economic capital, average	$	4,865			5,404			4,804			5,894
Cash overhead efficiency ratio(Tax-equivalent)		50.24	%		53.38			48.34			51.41
Lending commitments	$	77,007			69,481			77,007			69,481
Average loans, net		33,250			31,911			30,939			34,028
Average core deposits	$	19,380			16,391			18,271			15,047
FTE employees		4,552			4,224			4,552			4,224

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

     In the first nine months of 2004 compared with the first nine months of 2003, Corporate and Investment Bank segment earnings increased 52 percent to $1.3 billion, reflecting revenue growth of 21 percent. Total fee and other income grew 37 percent due to vastly improved principal investing results and strong growth in advisory and underwriting fees, and other capital markets fees. Net interest income rose 5 percent driven by strong deposit growth in international correspondent banking, treasury services and commercial mortgage servicing. Noninterest expense rose 13 percent due to increased revenue-based variable pay and higher other personnel costs, coupled with increased investment in growth initiatives.

     Total fee and other income increased $605 million primarily due to principal investing gains of $254 million compared with losses of $126 million, reflecting higher realized gains and lower write-downs on both direct investments and fund investments. Advisory, underwriting and other investment banking fees increased $68 million to $620 million due to strong market share gains and the resulting growth in origination revenues in loan syndications, investment grade securities and equity capital markets. Trading account profits declined $18 million to $98 million. Securities gains were $103 million compared with securities losses of $25 million. Other income of $365 million was essentially flat with the first nine months of 2003.

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     Corporate loan balances declined due to low demand and continued strong refinance activity by our customers in the public debt markets. Provision expense showed a net recovery of $45 million, including $35 million related to the recovery of write-downs on loans sold out of the loan portfolio, as improving credit conditions resulted in decreased charge-offs. Economic capital usage declined driven by a continued trend of improving credit quality and lower loan outstandings.

     Average core deposits increased 21 percent in the first nine months of 2004 due to growth in commercial mortgage servicing and international trade finance. In commercial mortgage servicing, we service commercial mortgages and hold the related escrow deposits. We also service trusts supporting commercial mortgage-backed securities and hold deposits related to principal and interest payments on the underlying mortgages prior to payment of returns to investors in the securities. Beginning in late 2002, we increased our level of commercial mortgage servicing through purchases of servicing rights and increased retention of servicing rights in Wachovia-sponsored trusts. International trade finance provides demand and money market deposit services to domestic and foreign correspondent banks.

     In the third quarter of 2004 compared with the third quarter of 2003, Corporate and Investment Bank segment earnings increased 40 percent to $435 million. Revenue rose 25 percent to a record $1.4 billion, fueled by a 46 percent increase in fee and other income largely related to robust principal investing net gains of $201 million compared with $25 million in net losses a year ago, as well as strong loan syndication, investment grade and merger and acquisition advisory results. Net interest income grew 5 percent on increased trading assets and higher core deposits. Noninterest expense rose 18 percent due to increased personnel and higher incentives related to improved revenues and earnings. Average loans increased $1.3 billion due to the $2.7 billion impact of the second quarter 2004 resolution of tax matters related to the commercial leasing portfolio. Average core deposits grew 18 percent primarily from higher commercial mortgage servicing and trade finance.

ParentParent includes all asset and liability management functions, including managing our investment portfolio for earnings, liquidity and interest rate risk. Parent also includes goodwill and other intangible assets, and related funding costs; certain revenues and expenses that are not allocated to the business segments; and the results of our HomEq Servicing business, which is responsible for home equity loan servicing, including that generated and retained by our mortgage company, as well as servicing for third party portfolios.

     In the first nine months of 2004 compared with the first nine months of 2003, the Parent had a segment loss of $150 million compared with segment earnings of $128 million. Total revenue in the Parent declined $210 million to $325 million primarily as a result of a $230 million reduction in securities gains; a $291 million reduction in other income, including a loss of $68 million associated with a sale and leaseback of corporate real estate, and a $163 million reduction in income from asset securitizations, including $57 million in losses on auto loan securitizations; partially offset by a $252 million increase in net interest income. Average securities increased $24.7 billion to $93.5 billion, reflecting investment of the proceeds from the FDIC-insured sweep product.

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     Noninterest expense increased $12 million as lower intangible amortization was offset by higher legal costs. Income tax benefits increased $98 million. For segment reporting, income tax expense or benefit is allocated to each business segment based on the statutory rate, adjusted for certain other items, and any difference between the total for all core business segments and the consolidated results is included in the Parent.

     This segment reflects the impact of Prudential’s 38 percent minority interest in Wachovia Securities Financial Holdings, LLC. Total minority interest, which also includes other subsidiaries, was $214 million compared with $96 million in the first nine months of 2003.

     In the third quarter of 2004, the Parent had a loss of $45 million compared with $25 million in earnings in the third quarter of 2003 reflecting a decline in revenue and higher expenses. Net interest income increased $84 million as higher investment income more than offset an increase in funding costs credited to business units. A $144 million decline in fee and other income reflected securities losses of $78 million compared with gains of $13 million. In addition, securitization income declined $63 million, and trading losses were $29 million compared with $24 million in the third quarter of 2003. In the third quarter of 2004, we recorded a $16 million gain associated with equity collars on our stock compared with a $6 million gain in the third quarter of 2003. Noninterest expense rose $31 million primarily due to higher legal costs.

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. We use this portfolio 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 $102.2 billion at September 30, 2004, an increase from $100.4 billion at December 31, 2003.

     Securities available for sale included a net unrealized gain of $2.0 billion at September 30, 2004, and $2.2 billion at December 31, 2003. The average rate earned on securities available for sale was 4.87 percent in the first nine months of 2004 and 5.39 percent in the first nine months of 2003.

     We retain interests in the form of either bonds or residual interests in connection with certain securitizations. The retained interests result primarily from the securitization of residential mortgage loans and prime equity lines and, to a lesser extent, to auto loans from 2004 securitizations. Included in securities available for sale at September 30, 2004, were residual interests with a market value of $907 million, which included a net unrealized gain of $293 million, and retained bonds from securitizations with a market value of $9.5 billion, which included a net unrealized gain of $292 million. At September 30, 2004, retained bonds with an amortized cost of $9.1 billion and a market value of $9.4 billion were considered investment grade based on external ratings. Retained bonds with an amortized cost of $8.3 billion and a market value of $8.6 billion at September 30, 2004, had external credit ratings of AA and above. The decrease in the first nine months of 2004 in retained interests in securities available for sale from December 31, 2003, was primarily due to pay-downs on retained bonds.

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Loans - On-Balance Sheet

	2004						2003
	Third		Second		First		Fourth		Third
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
Commercial
Commercial, financial and agricultural	$	59,271		58,340		55,999		55,453		55,181
Real estate - construction and other		6,985		6,433		6,120		5,969		5,741
Real estate - mortgage		14,771		14,927		15,099		15,186		15,746
Lease financing		24,042		23,894		23,688		23,978		23,598
Foreign		7,402		8,075		7,054		6,880		6,815
Total commercial		112,471		111,669		107,960		107,466		107,081
Consumer
Real estate secured		54,965		53,759		51,207		50,726		51,516
Student loans		10,207		9,838		8,876		8,435		8,160
Installment loans		6,410		7,330		9,054		8,965		9,110
Total consumer		71,582		70,927		69,137		68,126		68,786
Total loans		184,053		182,596		177,097		175,592		175,867
Unearned income		9,549		9,679		9,794		10,021		9,942
Loans, net(on-balance sheet)	$	174,504		172,917		167,303		165,571		165,925

Loans - Managed Portfolio(Including on-balance sheet)

	2004						2003
	Third		Second		First		Fourth		Third
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
Commercial	$	116,287		115,424		112,129		112,041		110,499
Real estate secured		86,043		84,462		81,293		80,146		81,885
Student loans		10,921		10,817		10,841		10,526		10,404
Installment loans		9,094		9,254		9,054		8,965		9,110
Total managed portfolio	$	222,345		219,957		213,317		211,678		211,898

LoansNet loans increased $8.9 billion, or 5 percent in the first nine months of 2004 from year-end 2003 to $174.5 billion. Commercial loans grew 5 percent, with the majority of the growth related to increases in asset-based and international correspondent bank lending, and in middle-market commercial, small business and commercial real estate loans. Consumer loans also grew 5 percent from year-end 2003, driven primarily by increases in consumer real estate-secured loans. In addition, student loans increased due to terminated securitizations and installment loans declined from year-end 2003 due to the securitization of $3.0 billion in auto loans.

     Commercial loans represented 61 percent and consumer loans 39 percent of the loan portfolio at September 30, 2004. The portfolio mix continues to strengthen, with a greater proportion of consumer real estate-secured loans as we have pursued risk reduction strategies to actively reduce potential problem loans and certain large corporate loans. The majority of our loan portfolio is secured by collateral or is guaranteed. Eighty percent of the commercial loan portfolio is secured by collateral, and 97 percent of the consumer loan portfolio is secured by collateral or is guaranteed.

     Our consumer managed loan portfolio grew 6 percent from year-end 2003, reflecting higher balances in loans and loans held for sale, partially offset by lower securitized loans on- and off-balance sheet. The managed loan portfolio includes the on-balance sheet loan portfolio, loans securitized for which the retained interests are classified in securities, loans held for sale and the off-balance sheet portfolio of securitized loans sold where we service the loans.

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Asset Quality

	2004									2003
	Third			Second			First			Fourth				Third
(In millions)	Quarter			Quarter			Quarter			Quarter				Quarter
Nonperforming assets
Nonaccrual loans	$	798			863			968			1,035				1,391
Foreclosed properties		101			104			103			111				116
Total nonperforming assets	$	899			967			1,071			1,146				1,507
as % of loans, net and foreclosed properties		0.51	%		0.56			0.64			0.69				0.91
Nonperforming assets in loans held for sale	$	57			68			67			82				160
Total nonperforming assets in loans and in loans held for sale	$	956			1,035			1,138			1,228				1,667
as % of loans, net, foreclosed properties and loans held for sale		0.50	%		0.55			0.63			0.69				0.95
Allowance for credit losses(a)
Allowance for loan losses, beginning of period	$	2,331			2,338			2,348			2,474				2,510
Net charge-offs		(65	)		(68	)		(52	)		(156	)			(132	)
Allowance relating to loans transferred or sold		3			(3	)		(9	)		(57	)			(22	)
Provision for credit losses related to loans transferred or sold(b)		(8	)		(9	)		(8	)		24				—
Provision for credit losses		63			73			59			63				118
Allowance for loan losses, end of period		2,324			2,331			2,338			2,348				2,474
Reserve for unfunded lending commitments, beginning of period		146			149			156			157				194
Provision for credit losses		(12	)		(3	)		(7	)		(1	)			(37	)
Reserve for unfunded lending commitments, end of period		134			146			149			156		��		157
Allowance for credit losses	$	2,458			2,477			2,487			2,504				2,631
Allowance for loan losses
as % of loans, net		1.33	%		1.35			1.40			1.42				1.49
as % of nonaccrual and restructured loans(c)		291			270			242			227				178
as % of nonperforming assets(c)		258			241			218			205				164
Allowance for credit losses
as % of loans, net		1.41	%		1.43			1.49			1.51				1.59
Net charge-offs	$	65			68			52			156				132
Commercial, as % of average commercial loans		0.05	%		0.08			(0.05	)		0.31				0.21
Consumer, as % of average consumer loans		0.30			0.28			0.36			0.50				0.51
Total, as % of average loans, net		0.15	%		0.17			0.13			0.39				0.33
Past due loans, 90 days and over, and nonaccrual loans(c)
Commercial, as a % of loans, net		0.57	%		0.66			0.78			0.87				1.20
Consumer, as a % of loans, net		0.89	%		0.86			0.77			0.77				0.76

(a)	The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.
(b)	The provision related to loans transferred or sold includes recovery of lower of cost or market losses.
(c)	These ratios do not include nonperforming assets included in loans held for sale.

Nonperforming AssetsThe continuing decline in nonperforming assets reflects more favorable market conditions, with new inflows to commercial nonaccrual loans down more than half in the first nine months of 2004 compared with the same period in 2003. Nonperforming assets were also reduced by charge-offs, payments and sales of $135 million in nonperforming loans from the loan portfolio and from loans held for sale in the first nine months of 2004.

Impaired LoansImpaired loans, which are included in nonperforming loans, amounted to $576 million at September 30, 2004, and $810 million at December 31, 2003. Included in the allowance for loan losses at September 30, 2004, was $26 million related to $105 million of impaired loans. The remaining impaired loans were recorded at or below either the fair value of collateral or the present value of expected future cash flows, or were not large enough to be individually reviewed. In the first nine months of 2004, the average recorded investment in impaired loans was $697 million and $27 million of interest income was recognized on impaired loans. This income was recognized using the cash-basis method of accounting.

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Past Due LoansAccruing loans 90 days or more past due, excluding loans that are classified as loans held for sale, were $428 million at September 30, 2004. Of these past due loans, $13 million were commercial loans or commercial real estate loans and $415 million were consumer loans.

     At September 30, 2004, consumer past due loans, 90 days and over, and nonaccrual loans increased to 0.89 percent of consumer loans compared with 0.77 percent at December 31, 2003. Consumer nonaccrual loans increased 3 percent to $222 million at September 30, 2004, from $216 million at December 31, 2003. The increase in the ratio is reflected in increased consumer past due loans to $415 million at September 30, 2004, from $312 million at December 31, 2003. This increase was due to a $134 million increase in past due student loans from the second quarter 2004 termination of student loan securitizations, offset by a $31 million decrease in other consumer past due loans. The student loans that were added to the balance sheet are guaranteed against default either by agencies acting under statute of the Higher Education Act and re-insured by the Department of Education or by private guarantors. Principal and interest are 98 percent or 100 percent guaranteed under the federal government program or the private guarantee program, respectively, so the credit quality of the consumer loan mix was not affected by the terminated securitizations.

Net Charge-offsNet charge-offs as a percentage of average net loans of 0.15 percent in the first nine months of 2004 declined 27 basis points from the first nine months of 2003. Commercial net charge-offs declined from 0.39 percent in the prior year period to 0.03 percent of average commercial loans in the first nine months of 2004, mainly due to moderating trends in nonperforming assets at the current beneficial point in the credit cycle, our strategic decision to actively manage down potential problem loans, and a higher level of recoveries during the period. In the same period, consumer net charge-offs declined from 0.46 percent to 0.31 percent of average consumer loans. As older vintages of consumer loans mature or pay down, a higher quality consumer loan mix remains.

Provision for Credit LossesThe provision for credit losses declined 70 percent from the first nine months of 2003, reflecting improved loan quality and more favorable economic conditions. The provision for credit losses in the first nine months of 2004 of $148 million included a $25 million net benefit associated with the sale of $257 million of corporate and commercial loans directly out of the loan portfolio and the transfer of $115 million of exposure, including $94 million of outstandings and the related unfunded commitments of $21 million to loans held for sale. This compares with the first nine months of 2003, in which the provision of $500 million included $51 million of expense 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 $1.1 billion of corporate, commercial and consumer exposure directly out of the loan portfolio. The provision related to the transfer of loans to loans held for sale was recorded to reduce the carrying amount of these loans to their respective fair values.

     In the third quarter of 2004 compared with the third quarter of 2003, the provision for credit losses declined 47 percent as total nonperforming assets in loans and in loans held for sale declined $711 million and net charge-offs declined $67 million as economic conditions improved.

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Allowance for Loan Losses and Reserve for Unfunded Lending CommitmentsThe allowance for loan losses declined $24 million to $2.3 billion at September 30, 2004, or 1.33 percent of net loans, compared with $2.3 billion, or 1.42 percent of net loans, at year-end 2003. The decline was primarily related to loan sales or transfers to loans held for sale and improving credit quality.

     The reserve for unfunded lending commitments declined $22 million at September 30, 2004, to $134 million compared with $156 million at year-end 2003. The decline was primarily related to decreasing risk in the portfolio. The reserve for unfunded lending commitments relates to commercial loans and is included in other liabilities.

     The allowance for credit losses, which includes both the allowance for loan losses and the reserve for unfunded lending commitments, amounted to $2.5 billion at September 30, 2004, down $46 million from December 31, 2003. The allowance for credit losses relating to commercial loans amounted to $1.7 billion, or 1.66 percent of commercial loans at September 30, 2004, compared with $1.8 billion, or 1.89 percent of commercial loans at December 31, 2003. The allowance for loan losses related to consumer loans amounted to $636 million and represented 0.88 percent of consumer loans at September 30, 2004, compared with $716 million and 1.04 percent at December 31, 2003.

Loans Held for SaleLoans held for sale include not only loans originated for sale or securitization as part of our core business strategy but also the activities related to our ongoing portfolio risk management strategies to reduce exposure to areas of perceived higher risk. Our core business activity represents loans we originate with the intent to sell to third parties and primarily includes mortgages and consumer real estate-secured loans. At September 30, 2004 and December 31, 2003, core business activity represented almost all of loans held for sale. Our portfolio management activity represents loans for which we have identified market opportunities to reduce the risk in or improve the profitability of the loan portfolio through sales.

     Individual loans or pools of loans are transferred from the loan portfolio to loans held for sale when we change our intent to hold the loans and there is a plan to sell the loans within a reasonable period of time. In 2004, our portfolio management activity has been designed to reduce economic capital and related credit risk and to improve profitability. As of September 30, 2004, 99 percent of large corporate and commercial exposure transferred to held for sale since the third quarter of 2001 has been sold or paid down.

     In the first nine months of 2004, we sold or securitized $13.9 billion in loans out of the loans held for sale portfolio, including $3.8 billion of commercial loans and $10.1 billion of consumer loans, primarily residential mortgages and consumer real estate-secured loans. Substantially all of these loan sales and securitizations represented core business activity. Of the loans sold, $24 million were nonperforming.

     At September 30, 2004, consumer real estate-secured loans in held for sale amounted to $14.2 billion, an increase of $5.8 billion from year-end 2003. In the first nine months of 2004, $12.2 billion in consumer real estate-secured loans were originated, $1.0 billion were purchased, $1.8 billion were sold and $5.6 billion of payments were received. Due to the low interest rate environment, consumer real estate-secured loan activity has increased dramatically, which has resulted in originations exceeding sales or

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securitizations. Consumer real estate-secured loans are retained in held for sale until we sell or securitize the loans to enhance liquidity, meet other business needs or take advantage of the current market for asset securitization debt.

     At September 30, 2004, mortgage loans in held for sale amounted to $1.2 billion, an increase of $124 million from year-end 2003. In the first nine months of 2004, $8.2 billion in mortgage loans were originated and $8.0 billion of mortgage loans were sold. Mortgage loans are typically sold within 45 to 60 days of origination. Mortgage loans that are not sold within 150 days, usually due to incomplete documentation or other factors, are transferred to the loan portfolio at the lower of cost or market value. In the first nine months of 2004, $60 million of mortgage loans were transferred to the loan portfolio representing less than 1 percent of originations.

     We transferred $94 million of commercial loans and $21 million of additional unfunded exposure to loans held for sale in the first nine months of 2004 as part of our portfolio management activities. In connection with these transfers to loans held for sale, these loans were written down to the lower of cost or market value.

     In the first nine months of 2003, we sold or securitized $20.5 billion of loans out of the loans held for sale portfolio. Of these loans, $128 million were nonperforming.

GoodwillIn the first nine months of 2004, we recorded certain refinements to our initial estimates of the fair value of the assets and liabilities related to the retail brokerage transaction and recorded additional exit cost purchase accounting adjustments. Together, these adjustments resulted in an after-tax net increase to goodwill of $298 million. This amount includes an additional $402 million in pre-tax exit cost purchase accounting adjustments principally pertaining to occupancy and equipment as we finalized our plans for the retail brokerage integration, and reflects the costs associated with consolidating retail brokerage operations in Richmond, Virginia, and with personnel and employee termination benefits. At September 30, 2004, the goodwill attributable to the retail brokerage transaction was $503 million.

     Consistent with previous mergers and with respect to the retail brokerage transaction, we employed a disciplined, deliberate and methodical process of integration. As part of this process, detailed plans were developed and then approved by senior management prior to execution of the plans. Amounts are recorded as exit cost purchase accounting adjustments only after approval of the associated plan by senior management.

     Two significant components of the integration plan had not been finalized at July 1, 2003, and December 31, 2003. These components related to decisions on the extent of movement of the Prudential Securities back-office operations and management from New York City to Richmond, Virginia, and to the consolidation of Prudential Securities and Wachovia Securities branches in overlapping markets. To execute these components of the integration plan, we expected to incur additional exit cost purchase accounting adjustments related to vacant space, severance, contract cancellation and relocation, but because the decisions and related cost estimates had not been finalized, we recorded only $118 million in pre-tax exit cost purchase accounting adjustments for these components for the six months ended December 31, 2003.

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     In the six months ended June 30, 2004, we made final decisions with respect to the open issues described in the preceding paragraph and senior management approved plans that related to these components of the integration plan. At that time, we recorded the additional $402 million in exit cost purchase accounting adjustments that principally included finalization of real estate requirements in New York City and employee terminations.

Liquidity and Capital Adequacy

Core DepositsCore deposits increased 16 percent from December 31, 2003, to $237.3 billion at September 30, 2004. This increase in core deposits included an average $22.5 billion of core deposits associated with the FDIC-insured sweep product. Average low-cost core deposits grew 33 percent to $182.1 billion in the first nine months of 2004 from the first nine months of 2003 as we focused on increasing the proportion of low-cost core deposits over higher cost deposit balances. Low-cost core deposits are those in demand deposit, interest checking, savings and money market accounts, and exclude CAP accounts and certificates of deposit.

     The ratio of average noninterest-bearing deposits to average core deposits was 22 percent in the first nine months of 2004 and 24 percent in the first nine months of 2003. The portion of core deposits in higher rate, other consumer time deposits was 11 percent at September 30, 2004, and 14 percent at December 31, 2003. 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 $80.8 billion in the first nine months of 2004 and $66.0 billion in the first nine months of 2003. The increase was primarily the result of increases of $6.7 billion in average federal funds purchased and $6.4 billion in commercial paper primarily due to the consolidation of the commercial paper conduits we administer. Purchased funds were $83.3 billion at September 30, 2004, and $87.9 billion at December 31, 2003.

Long-term DebtLong-term debt increased from December 31, 2003, to $41.4 billion at September 30, 2004, primarily due to the debt issuances described below. In the fourth quarter of 2004, scheduled maturities of long-term debt amount to $1.6 billion. We anticipate either extending the maturities of these obligations or replacing the maturing obligations, such as with the fourth quarter 2004 issuance noted below.

     In the first nine months of 2004, we issued $5.2 billion in senior debt securities and $2.4 billion in subordinated debt securities under our current shelf registration statement filed with the Securities and Exchange Commission. Under this registration statement, we have $2.3 billion of senior or subordinated debt securities, common stock or preferred stock available for issuance. In addition, we have available for issuance up to $3.9 billion under a medium-term note program covering senior or subordinated debt securities. Also, Wachovia Bank has available a global note program for the issuance of up to $43.5 billion of senior or subordinated notes. Early in the fourth quarter of 2004, we issued $1.0 billion of subordinated bank notes under the global note program.

     In the first quarter of 2004, with the adoption of Financial Accounting Standards Board (FASB) Interpretation No. 46,Consolidation of Variable Interest Entities, Revised,we deconsolidated trust preferred securities that amounted to $3.0 billion at December 31, 2003, and that were included in long-term debt. The trusts that issued these preferred securities

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used the related proceeds to purchase our junior subordinated debentures. Accordingly, at September 30, 2004, long-term debt included $3.1 billion of junior subordinated debentures. Junior subordinated debentures at September 30, 2004, and trust preferred securities at December 31, 2003, are included in tier 1 capital for regulatory purposes.

     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 stockholders while maintaining sufficient regulatory capital ratios.

     Stockholders’ equity increased $1.5 billion from year-end 2003 to $33.9 billion at September 30, 2004. We paid $1.6 billion, or $1.20 per share, in dividends to common stockholders in the first nine months of 2004 compared with $1.2 billion, or 90 cents per share, in the first nine months of 2003. Average diluted common shares outstanding declined 16 million shares from December 31, 2003, to 1.3 billion at September 30, 2004. In the first nine months of 2004, we repurchased 22 million common shares at a cost of $1.0 billion in connection with our previously announced share repurchase programs, under which we are authorized to buy back up to a remaining 101 million shares of common stock. Please refer to our Third Quarter 2004 Form 10-Q for additional information on share repurchases.

     In the second quarter of 2004, we entered into transactions involving the simultaneous sale of put options and purchase of call options on 10 million shares of our common stock with expiration dates from October 2004 to August 2005. We entered into these equity collars to manage potential dilution associated with our employee stock options. These transactions are recorded as assets or liabilities with changes in fair value recorded in earnings. In the nine months ended September 30, 2004, we recorded a net gain of $3 million related to market value changes of these collars.

Subsidiary DividendsWachovia Bank, National Association, is the largest source of subsidiary dividends paid to the parent company. 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, 2004, our subsidiaries had $5.3 billion available for dividends that could be paid without prior regulatory approval. Our subsidiaries paid $1.3 billion in dividends to the parent company in the first nine months of 2004.

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Regulatory CapitalOur capital ratios remained strong at September 30, 2004. The tier 1 capital ratio decreased 18 basis points from December 31, 2003, to 8.34 percent, driven primarily by higher risk-weighted assets. The minimum tier 1 capital ratio is 4 percent, and at September 30, 2004, we were classified as well capitalized for regulatory purposes, the highest classification. Our total capital ratio was 11.22 percent and our leverage ratio was 6.21 percent at September 30, 2004, and 11.82 percent and 6.36 percent, respectively, at December 31, 2003.

Off-Balance Sheet Transactions

     In the normal course of business, we engage in a variety of financial transactions that, under GAAP, 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.

Summary of Off-Balance Sheet Exposures

	September 30, 2004				December 31, 2003
	Carrying				Carrying
(In millions)	Amount		Exposure		Amount		Exposure
Guarantees
Securities lending indemnifications	$	—		45,313		—		—
Standby letters of credit		100		28,557		72		27,597
Liquidity agreements		1		7,853		6		10,319
Loans sold with recourse		39		4,683		29		2,655
Residual value guarantees		8		636		4		641
Total guarantees	$	148		87,042		111		41,212

GuaranteesGuarantees are contracts that contingently require us to make payments to a guaranteed party based on an event or changes in an underlying asset, liability, rate or index. Our guarantees are generally in the form of standby letters of credit, liquidity agreements, recourse obligations and residual value guarantees. For more information on these types of guarantees, please refer to our 2003 Annual Report.

     Additionally, as a result of our acquisition of a securities lending firm in January 2004, we act as a securities lending agent. Our clients’ securities are loaned, on a fully collateralized basis, to third party broker/dealers. We indemnify our clients against broker default and support these guarantees with collateral that is marked to market daily. We generally require cash or other highly liquid collateral from the broker/dealer. At September 30, 2004, there was $46.7 billion in collateral supporting the $45.3 billion loaned. Accordingly, there is no carrying amount associated with these agreements.

Retained InterestsWe periodically securitize assets originated through our normal loan production channels or purchased in the open market. In securitization transactions, assets are typically sold to special purpose entities that are off-balance sheet. Certain securitization transactions result in a complete transfer of risk to investors, and in others, we retain risk in the form of senior or subordinated notes or residual interests in the securities issued by the off-balance sheet entities. Retained interests from securitizations with off-balance sheet entities recorded as either available for sale securities, trading account assets, loans or other assets amounted to $13.0 billion at September 30, 2004. Please refer to theBalance Sheet Analysis section and our 2003 Annual Report for more information on retained interests.

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     In the first nine months of 2004, we securitized and sold $1.0 billion of prime equity lines, retaining $24 million in the form of residual interests, and $3.0 billion of auto loans, retaining $195 million in the form of investment grade securities and $64 million in the form of residual interests. Included in other income were net losses of $55 million in the first nine months of 2004 related to these securitizations. In 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 net gains of $27 million in the first nine months of 2003 related to these securitizations.

Risk Governance and Administration

     Please refer to our 2003 Annual Report for a more detailed discussion of our comprehensive approach to managing credit, operational and liquidity risks; to allocating capital and measuring risk-adjusted returns; and to our governance structure and practices.

Market Risk ManagementWe trade a variety of equities, debt securities, foreign exchange instruments and other derivatives to provide customized solutions for the risk management needs of our customers and for proprietary trading. Market risk management activities are overseen by an independent market risk group, which reports outside of the business units to the risk management group. Risk measures include the use of value-at-risk (VAR) methodology with limits approved by the Market Risk Committee and subsequently by the Asset and Liability Committee. The Market Risk Committee also approves a variety of other trading limits designed to match trading activities to our appetite for risk and to our strategic objectives.

     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 in the first nine months of 2004 was $30 million. The total 1-day VAR was $19 million at September 30, 2004, and $12 million at December 31, 2003, and primarily related to interest rate risk and equity risk. The high, low and average VARs in the first nine months of 2004 were $27 million, $12 million and $18 million, respectively.

     The market risk associated with interest rate risk management derivatives is fully incorporated into our earnings simulation model in the same manner as financial instruments for which the interest-bearing balance is reflected on the balance sheet. TheInterest Rate Risk Managementsection describes the way in which we manage this risk.

     Detailed information on derivatives used for interest rate risk management is included inTable 20throughTable 22.

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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 earning assets. The following discussion explains how we oversee the interest rate risk management process, and the actions we take to protect earnings from 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). An asset-sensitive balance sheet 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 past two years, deposit growth has far outpaced loan growth, significantly adding to our naturally asset-sensitive position. To achieve more neutrality, we maintain a large portfolio of fixed rate discretionary instruments such as loans, securities and derivatives.

     We often elect to use derivatives to protect assets, liabilities and future financial transactions from changes in interest rates. When deciding whether to use derivatives instead of investing in securities to reach the same goal, we consider a number of factors, such as cost, efficiency, the effect on our liquidity and capital, and our overall interest rate risk management 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 Management section.

     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 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 then add new derivatives that, in effect, would convert the incremental variable rate loans to fixed rate loans.

     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 36 months. However, in analyzing interest rate sensitivity for policy measurement, we compare 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 our interest-bearing assets and liabilities 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 earnings per share in both falling and rising rate environments.

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     Our “market forward rate” is constructed using currently implied market forward rate estimates for all points on the yield curve over the next 36 months. 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.

     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-year and 30-year treasury note rates 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 is 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.

     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, at September 30, 2004, the spread between the 10-year and two-year treasury note rates was 151 basis points, which historically would be considered very wide. The average spread between the 10-year and two-year treasury note rates since 1980 has been approximately 82 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 2004 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.

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Policy Period Sensitivity Measurement

	Actual			Implied
	Fed Funds			Fed Funds		Percent
	Rate at			Rate at		Earnings
	September 1, 2004			August 31, 2005		Sensitivity
Flat Rate Scenarios(a)		1.58	%		1.75		—
High Rate					3.75		0.10
Low Rate					1.25		(0.30	)
Market Forward Rate Scenarios(b)		1.58	%		2.78		—
High Rate Composite					4.78		0.10
Low Rate					2.28		(0.10	)

(a)	Assumes that base Fed Funds rate remains unchanged.
(b)	Assumes that base Fed Funds rate mirrors market expectations.

Earnings SensitivityThe Policy Period Sensitivity Measurement table provides a summary of our interest rate sensitivity measurement.

     In September 2004, our earnings simulation model indicated earnings would be positively affected by 0.1 percent in a “high rate composite” 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 earnings would be negatively affected in this scenario by 0.1 percent, which indicates an asset sensitive position to changes in interest rates.

     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 is 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 allowing rates of terms longer than one year to increase by a lesser degree. This approach creates incrementally flatter curves. 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 note rates. In our “moderate flattening” scenario, this spread declines from 133 basis points in the “market forward rate” scenario to 80 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 and two-year treasury note rates to 26 basis points by the end of the measurement period. This approach fully stresses expected earnings to the risks of nonparallel curve shifts. The reported sensitivity is a composite of these three scenarios.

     The Policy Period Sensitivity Measurement table shows that our “flat rate” scenario holds the federal funds rate constant at 1.75 percent through August 2005. Based on our September 2004 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 period would increase 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 our “flat rate” scenario, our earnings would decrease by 0.3 percent. For our “most likely

31

rate” scenario, we believe the “market forward rate” is the most appropriate. The “market forward rate” scenario assumes the federal funds rate of 1.58 percent at September 1, 2004, gradually rises to 2.78 percent through the end of our policy measurement period.

     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 significant new developments in accounting standard setting that will affect us as well as new or proposed legislation that will continue to have a significant impact on our industry.

Other-Than-Temporary Impairment and Available for Sale SecuritiesIn March 2004, the Financial Accounting Standards Board (FASB) ratified the consensus reached by the Emerging Issues Task Force (EITF) on paragraphs 6 through 20, 22 and 23 of EITF Issue No. 03-01,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments(EITF 03-01). Paragraph 23 of EITF 03-01 provided for adoption of the related consensus as of the beginning of the third quarter 2004. Subsequent to the FASB’s ratification, in September 2004, the FASB issued FASB Staff Position (FSP) EITF 03-1-1. FSP EITF 03-1-1 effectively delays the guidance in paragraphs 10 through 20 of EITF 03-01 until the FASB issues final guidance, expected in the fourth quarter of 2004. In addition, the FASB issued proposed FSP EITF 03-1-a, which provides guidance on the application of EITF 03-01 to debt securities that are impaired as a result of interest rate and/or sector spread increases. The proposed FSP 03-1-a is expected to be discussed and issued in final form in the fourth quarter of 2004.

     Paragraphs 10 through 20 of EITF 03-01 provide guidance on when impairment of debt and equity securities is considered other-than-temporary. This guidance generally states impairment is considered other-than-temporary unless the holder of the security has both the intent and ability to hold the security until the fair value recovers and evidence supporting the recovery outweighs evidence to the contrary. We are currently evaluating the impact implementation of this guidance could have on our consolidated financial position or results of operations.

Leveraged Lease AccountingFor a leveraged lease, Statement of Financial Accounting Standards (SFAS) No. 13,Accounting for Leases(SFAS 13), as amended and interpreted, states that if a change in an important lease assumption changes the total estimated net income under the lease, the rate of return, and the allocation of lease income to positive investment years must be recalculated from inception of the lease using the revised important assumption. The net investment in the lease must then be adjusted to the revised amount by a charge or credit to the results of operations in the period in which the important assumption is changed. Changes that affect only the timing of cash flows and not the total net income under the lease do not result in a recalculation of the lease.

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     We understand that the large accounting firms have recently discussed with the staff of the FASB several matters related to leveraged lease accounting including the extent to which changes that affect the timing of cash flows but not the total net income under the lease should be incorporated into the recalculation when a change in an important assumption occurs. If the FASB staff modifies existing interpretations of SFAS 13 and related industry practice, it could result in a one-time charge to the results of operations. An amount approximating this one-time charge would then be recognized into income over the remaining terms of the affected leases. It is not possible at this time to determine whether or when any changes to existing lease accounting guidance and related industry practice might occur.

Other Postretirement BenefitsIn December 2003, Congress enacted into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act), which introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care plans. SFAS 106,Employers’ Accounting for Postretirement Benefits Other Than Pensions, requires currently enacted changes in relevant laws to be considered in the current period measurement of postretirement benefit cost and the accumulated benefit obligation. However, the FASB issued guidance that permitted companies to defer recognition of the impact of the Act until certain accounting issues are resolved by the FASB. In May 2004, the FASB issued FSP 106-2,Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,which provides guidance on accounting for the impact of the Act. We adopted the provisions of FSP 106-2 in the second quarter of 2004. The adoption of FSP 106-2 did not have a material impact on our consolidated financial position or results of operations.

Loan CommitmentsIn March 2004, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 105,Application of Accounting Principles to Loan Commitments. SAB 105 requires that the fair value measurement of mortgage loan commitments, which are derivatives, exclude any expected future cash flows related to the customer relationship or to servicing rights. We adopted the provisions of SAB 105 in the second quarter of 2004. The adoption of SAB 105 did not have a material impact on our consolidated financial position or results of operations.

Purchased LoansIn December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-3,Accounting for Certain Loans or Debt Securities Acquired in a Transfer, which addresses the accounting for differences between contractual cash flows and expected cash flows for loans acquired in a transfer when those differences are attributable at least in part to a decline in credit quality. The scope of SOP 03-3 includes loans that have shown evidence of deterioration in credit quality since origination, and includes loans acquired individually, in pools or as part of a business combination. Under SOP 03-3, the difference between expected cash flows and the purchase price is accreted as an adjustment to yield over the life of the acquired loans. The difference between contractual cash flows and expected cash flows is not subject to accretion under SOP 03-3. For loans acquired in a business combination that have evidence of credit deterioration, SOP 03-3 represents a significant change from current purchase accounting practice whereby the acquiree’s allowance for

33

loan losses is typically added to the acquirer’s allowance for loan losses. SOP 03-3 is effective for loans acquired beginning in 2005. We are currently evaluating the impact its adoption will have on our consolidated financial position or results of operations.

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 2003 Annual Report on Form 10-K.

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Table 1
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 dividend payout ratio on a basis that excludes other intangible amortization, merger-related and restructuring expenses, and the cumulative effect of a change in accounting principle; 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 the exclusion of merger-related and restructuring expenses permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that our management internally assesses our performance. These 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” sections. 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 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 other intangible amortization, merger-related and restructuring expenses, and the cumulative effect of a change in accounting principle, and has communicated certain dividend payout ratio goals to investors on this basis. We believe this 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 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.

     Although we believe 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)	2004			2003			2004		2003
Net interest income(GAAP)	$	2,965			2,653			8,664		7,730
Tax-equivalent adjustment		63			64			190		191
Net interest income(Tax-equivalent)	$	3,028			2,717			8,854		7,921
DIVIDEND PAYOUT RATIOS ON COMMON SHARES
Diluted earnings per common share(GAAP)	$	0.96			0.83			2.85		2.35
Other intangible amortization		0.05			0.05			0.16		0.18
Merger-related and restructuring expenses		0.04			0.06			0.11		0.14
Cumulative effect of a change in accounting principle		—			(0.01	)		—		(0.01	)
Earnings per share (a)	$	1.05			0.93			3.12		2.66
Dividends paid per common share	$	0.40			0.35			1.20		0.90
Dividend payout ratios(GAAP)(b)		41.67	%		42.17			42.11		38.30
Dividend payout ratios (a) (b)		38.10	%		37.63			38.46		33.83

(a)	Excludes other intangible amortization, merger-related and restructuring expenses, and the cumulative effect of a change in accounting principle.
(b)	Dividend payout ratios are calculated by dividing dividends per common share by earnings per common share.

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Table 2
SELECTED STATISTICAL DATA

	2004							2003
	Third			Second		First		Fourth		Third
(Dollars in millions, except per share data)	Quarter			Quarter		Quarter		Quarter		Quarter
PROFITABILITY Return on average common stockholders’ equity		15.12	%		15.49		15.37		13.58		13.71
Net interest margin (a)		3.36			3.37		3.55		3.64		3.57
Fee and other income as % of total revenue		46.13			47.24		48.53		46.95		49.05
Effective income tax rate		30.71	%		32.19		32.73		29.76		30.41
ASSET QUALITY Allowance for loan losses as % of loans, net		1.33	%		1.35		1.40		1.42		1.49
Allowance for loan losses as % of nonperforming assets (b)		258			241		218		205		164
Allowance for credit losses as % of loans, net		1.41			1.43		1.49		1.51		1.59
Net charge-offs as % of average loans, net		0.15			0.17		0.13		0.39		0.33
Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale		0.50	%		0.55		0.63		0.69		0.95
CAPITAL ADEQUACY Tier 1 capital ratio		8.34	%		8.36		8.54		8.52		8.67
Total capital ratio		11.22			11.32		11.67		11.82		12.21
Leverage		6.21	%		6.23		6.33		6.36		6.56
OTHER DATA FTE employees		84,503			85,042		85,460		86,114		86,635
Total financial centers/brokerage offices		3,252			3,271		3,305		3,360		3,399
ATMs		4,395			4,396		4,404		4,408		4,420
Actual common shares (In millions)		1,308			1,309		1,312		1,312		1,328
Common stock price	$	46.95			44.50		47.00		46.59		41.19
Market capitalization	$	61,395			58,268		61,650		61,139		54,701

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

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Table 3
SUMMARIES OF INCOME, PER COMMON
SHARE AND BALANCE SHEET DATA

	2004							2003
	Third			Second		First		Fourth			Third
(In millions, except per share data)	Quarter			Quarter		Quarter		Quarter			Quarter
SUMMARIES OF INCOME
Interest income	$	4,301			4,019		3,999		3,951			3,712
Tax-equivalent adjustment		63			65		62		65			64
Interest income (a)		4,364			4,084		4,061		4,016			3,776
Interest expense		1,336			1,181		1,138		1,074			1,059
Net interest income (a)		3,028			2,903		2,923		2,942			2,717
Provision for credit losses		43			61		44		86			81
Net interest income after provision for credit losses (a)		2,985			2,842		2,879		2,856			2,636
Securities gains (losses)		(71	)		36		2		(24	)		22
Fee and other income		2,663			2,563		2,755		2,628			2,594
Merger-related and restructuring expenses		127			102		99		135			148
Other noninterest expense		3,535			3,385		3,557		3,631			3,422
Minority interest in income of consolidated subsidiaries		28			45		57		63			55
Income before income taxes and cumulative effect of a change in accounting principle		1,887			1,909		1,923		1,631			1,627
Income taxes		561			592		610		466			475
Tax-equivalent adjustment		63			65		62		65			64
Income before cumulative effect of a change in accounting principle		1,263			1,252		1,251		1,100			1,088
Cumulative effect of a change in
accounting principle, net of income taxes		—			—		—		—			17
Net income	$	1,263			1,252		1,251		1,100			1,105
PER COMMON SHARE DATA
Basic
Income before change in accounting principle	$	0.97			0.96		0.96		0.84			0.83
Net income		0.97			0.96		0.96		0.84			0.84
Diluted
Income before change in accounting principle		0.96			0.95		0.94		0.83			0.82
Net income		0.96			0.95		0.94		0.83			0.83
Cash dividends	$	0.40			0.40		0.40		0.35			0.35
Average common shares — Basic		1,296			1,300		1,302		1,311			1,321
Average common shares — Diluted		1,316			1,320		1,326		1,332			1,338
Average common stockholders’ equity
Quarter-to-date	$	33,246			32,496		32,737		32,141			31,985
Year-to-date		32,828			32,616		32,737		32,135			32,132
Book value per common share		25.92			24.93		25.42		24.71			24.71
Common stock price
High		47.50			47.66		48.90		46.59			44.71
Low		43.56			44.16		45.91		42.07			40.60
Period-end	$	46.95			44.50		47.00		46.59			41.19
To earnings ratio (b)		12.76	X		12.54		13.95		14.61			13.64
To book value		181	%		178		185		189			167
BALANCE SHEET DATA
Assets	$	436,698			418,441		411,140		401,188			388,924
Long-term debt	$	41,444			37,022		39,352		36,730			37,541

(a)	Tax-equivalent.
(b)	Based on diluted earnings per common share.

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Table 4
MERGER-RELATED AND RESTRUCTURING EXPENSES

	Nine
	Months
	Ended
	Sept. 30,
(In millions)	2004
MERGER-RELATED AND RESTRUCTURING EXPENSES -
WACHOVIA/PRUDENTIAL FINANCIAL
RETAIL BROKERAGE TRANSACTION
Merger-related expenses
Personnel costs	$	88
Occupancy and equipment		11
Advertising		18
System conversion costs		78
Other		16
Total merger-related expenses		211
Restructuring expenses Occupancy and equipment		8
Total restructuring expenses		8
Total Wachovia/Prudential Financial merger-related and restructuring expenses		219
MERGER-RELATED AND RESTRUCTURING EXPENSES — FIRST
UNION/WACHOVIA
Merger-related expenses
Personnel costs		27
Occupancy and equipment		32
Advertising		1
System conversion costs		33
Other		14
Total merger-related expenses		107
Restructuring expenses
Employee termination benefits		1
Occupancy and equipment		4
Total restructuring expenses		5
Total First Union/Wachovia merger-related and restructuring expenses		112
Other restructuring expenses (reversals), net		(3	)
Total merger-related and restructuring expenses	$	328

(In millions)	Total
ACTIVITY IN THE RESTRUCTURING ACCRUAL
Balance, December 31, 2003	$	3
Reversals of prior accruals		(3	)
Balance, September 30, 2004	$	—

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Table 5
BUSINESS SEGMENTS (a)

	2004							2003
	Third			Second		First		Fourth		Third
(Dollars in millions)	Quarter			Quarter		Quarter		Quarter		Quarter
GENERAL BANK COMBINED (b)
Net interest income (c)	$	1,994			1,901		1,856		1,876		1,884
Fee and other income		601			600		569		501		561
Intersegment revenue		43			40		38		49		46
Total revenue (c)		2,638			2,541		2,463		2,426		2,491
Provision for credit losses		74			65		68		145		120
Noninterest expense		1,354			1,298		1,314		1,386		1,319
Income taxes		430			416		382		317		375
Tax-equivalent adjustment		10			11		10		10		9
Segment earnings	$	770			751		689		568		668
Economic profit	$	603			575		506		423		499
Risk adjusted return on capital		57.15	%		55.10		48.92		41.21		45.90
Economic capital, average	$	5,200			5,246		5,367		5,558		5,681
Cash overhead efficiency ratio (c)		51.35	%		51.05		53.35		57.13		52.94
Lending commitments	$	76,592			73,372		69,977		65,457		63,509
Average loans, net		124,585			122,049		118,164		116,374		114,574
Average core deposits	$	170,459			166,603		160,871		158,143		155,336
FTE employees		34,481			34,488		34,383		34,552		34,884
COMMERCIAL
Net interest income (c)	$	587			553		536		545		530
Fee and other income		101			97		125		91		91
Intersegment revenue		28			24		23		31		27
Total revenue (c)		716			674		684		667		648
Provision for credit losses		18			15		6		57		35
Noninterest expense		288			276		274		293		280
Income taxes		139			127		137		106		112
Tax-equivalent adjustment		10			11		10		10		9
Segment earnings	$	261			245		257		201		212
Economic profit	$	178			158		159		126		117
Risk adjusted return on capital		43.18	%		39.85		38.71		31.21		29.21
Economic capital, average	$	2,204			2,205		2,305		2,467		2,554
Cash overhead efficiency ratio (c)		40.23	%		40.85		40.13		43.94		43.22
Average loans, net	$	52,517			51,533		50,378		50,139		50,054
Average core deposits	$	38,930			37,739		35,295		34,106		31,979
RETAIL AND SMALL BUSINESS
Net interest income (c)	$	1,407			1,348		1,320		1,331		1,354
Fee and other income		500			503		444		410		470
Intersegment revenue		15			16		15		18		19
Total revenue (c)		1,922			1,867		1,779		1,759		1,843
Provision for credit losses		56			50		62		88		85
Noninterest expense		1,066			1,022		1,040		1,093		1,039
Income taxes		291			289		245		211		263
Tax-equivalent adjustment		—			—		—		—		—
Segment earnings	$	509			506		432		367		456
Economic profit	$	425			417		347		297		382
Risk adjusted return on capital		67.43	%		66.16		56.60		49.19		59.53
Economic capital, average	$	2,996			3,041		3,062		3,091		3,127
Cash overhead efficiency ratio (c)		55.49	%		54.73		58.44		62.13		56.36
Average loans, net	$	72,068			70,516		67,786		66,235		64,520
Average core deposits	$	131,529			128,864		125,576		124,037		123,357

a) Certain amounts presented in this Table 5 in periods prior to the third quarter of 2004 have been reclassified to conform to the presentation in the third quarter of 2004.

(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)

39

Table 5
BUSINESS SEGMENTS

	2004									2003
	Third			Second			First			Fourth			Third
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
CAPITAL MANAGEMENT COMBINED (a)
Net interest income (b)	$	152			131			117			96			78
Fee and other income		1,131			1,245			1,350			1,327			1,304
Intersegment revenue		(13	)		(12	)		(13	)		(17	)		(17	)
Total revenue (b)		1,270			1,364			1,454			1,406			1,365
Provision for credit losses		—			—			—			—			—
Noninterest expense		1,099			1,147			1,226			1,196			1,161
Income taxes		63			79			82			76			74
Tax-equivalent adjustment		—			—			—			1			—
Segment earnings	$	108			138			146			133			130
Economic profit	$	73			102			107			95			94
Risk adjusted return on capital		34.07	%		41.53			41.78			38.47			39.75
Economic capital, average	$	1,268			1,336			1,403			1,374			1,299
Cash overhead efficiency ratio (b)		86.57	%		84.12			84.27			85.08			84.99
Average loans, net	$	346			254			139			156			135
Average core deposits	$	29,091			24,725			18,343			6,999			1,615
FTE employees		19,351			19,461			19,581			19,937			20,012
Assets under management	$	249,238			247,585			250,559			246,626			240,260
RETAIL BROKERAGE SERVICES
Net interest income (b)	$	142			119			109			85			69
Fee and other income		881			963			1,086			1,070			1,057
Intersegment revenue		(12	)		(13	)		(12	)		(16	)		(15	)
Total revenue (b)		1,011			1,069			1,183			1,139			1,111
Provision for credit losses		—			—			—			—			—
Noninterest expense		884			931			1,009			982			961
Income taxes		48			48			64			55			55
Tax-equivalent adjustment		—			—			—			1			—
Segment earnings	$	79			90			110			101			95
Economic profit	$	48			60			76			67			65
Risk adjusted return on capital		29.10	%		31.59			36.82			34.02			34.25
Economic capital, average	$	1,081			1,140			1,205			1,168			1,104
Cash overhead efficiency ratio (b)		87.70	%		86.86			85.37			86.17			86.50
Average loans, net	$	—			1			—			—			—
Average core deposits	$	27,536			23,166			17,161			5,629			419

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)

40

Table 5
BUSINESS SEGMENTS

	2004									2003
	Third			Second			First			Fourth			Third
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
ASSET MANAGEMENT
Net interest income (b)	$	10			11			8			10			9
Fee and other income		253			287			269			262			252
Intersegment revenue		(1	)		—			—			—			(1	)
Total revenue (b)		262			298			277			272			260
Provision for credit losses		—			—			—			—			—
Noninterest expense		222			227			226			226			209
Income taxes		14			26			18			17			19
Tax-equivalent adjustment		—			—			—			—			—
Segment earnings	$	26			45			33			29			32
Economic profit	$	21			39			28			24			26
Risk adjusted return on capital		55.23	%		90.51			65.92			55.31			64.01
Economic capital, average	$	189			199			201			209			198
Cash overhead efficiency ratio (b)		84.34	%		76.42			81.33			83.11			80.56
Average loans, net	$	346			253			139			156			135
Average core deposits	$	1,555			1,559			1,182			1,370			1,196
OTHER
Net interest income (b)	$	—			1			—			1			—
Fee and other income		(3	)		(5	)		(5	)		(5	)		(5	)
Intersegment revenue		—			1			(1	)		(1	)		(1	)
Total revenue (b)		(3	)		(3	)		(6	)		(5	)		(6	)
Provision for credit losses		—			—			—			—			—
Noninterest expense		(7	)		(11	)		(9	)		(12	)		(9	)
Income taxes		1			5			—			4			—
Tax-equivalent adjustment		—			—			—			—			—
Segment earnings	$	3			3			3			3			3
Economic profit	$	4			3			3			4			3
Risk adjusted return on capital		—	%		—			—			—			—
Economic capital, average	$	(2	)		(3	)		(3	)		(3	)		(3	)
Cash overhead efficiency ratio (b)		—	%		—			—			—			—
Average loans, net	$	—			—			—			—			—
Average core deposits	$	—			—			—			—			—

(Continued)

41

Table 5
BUSINESS SEGMENTS

	2004							2003
	Third			Second		First		Fourth		Third
(Dollars in millions)	Quarter			Quarter		Quarter		Quarter		Quarter
WEALTH MANAGEMENT
Net interest income (a)	$	130			120		114		114		113
Fee and other income		136			144		141		138		131
Intersegment revenue		2			2		1		2		1
Total revenue (a)		268			266		256		254		245
Provision for credit losses		(1	)		—		—		1		2
Noninterest expense		189			190		186		187		183
Income taxes		30			28		25		25		22
Tax-equivalent adjustment		—			—		—		—		—
Segment earnings	$	50			48		45		41		38
Economic profit	$	36			33		30		25		24
Risk adjusted return on capital		49.09	%		46.77		42.61		37.31		35.40
Economic capital, average	$	372			374		379		385		384
Cash overhead efficiency ratio (a)		70.52	%		71.66		72.55		74.31		74.48
Lending commitments	$	4,497			4,445		4,117		4,012		3,843
Average loans, net		11,461			10,859		10,379		9,924		9,703
Average core deposits	$	12,327			12,107		11,523		11,319		11,054
FTE employees		3,628			3,674		3,745		3,791		3,802

(a) Tax-equivalent.

(Continued)

42

Table 5
BUSINESS SEGMENTS

	2004									2003
	Third			Second			First			Fourth			Third
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
CORPORATE AND INVESTMENT
BANK COMBINED (a)
Net interest income (b)	$	598			611			592			589			572
Fee and other income		787			716			743			621			539
Intersegment revenue		(33	)		(30	)		(27	)		(34	)		(31	)
Total revenue (b)		1,352			1,297			1,308			1,176			1,080
Provision for credit losses		(15	)		(4	)		(26	)		35			10
Noninterest expense		680			616			617			648			577
Income taxes		222			222			231			151			151
Tax-equivalent adjustment		30			31			32			32			32
Segment earnings	$	435			432			454			310			310
Economic profit	$	270			273			279			161			137
Risk adjusted return on capital		33.08	%		34.11			34.43			23.42			21.08
Economic capital, average	$	4,865			4,756			4,792			5,140			5,404
Cash overhead efficiency ratio (b)		50.24	%		47.59			47.12			55.07			53.38
Lending commitments	$	77,007			75,295			71,147			69,728			69,481
Average loans, net		33,250			29,827			29,714			30,833			31,911
Average core deposits	$	19,380			18,722			16,697			16,426			16,391
FTE employees		4,552			4,525			4,355			4,317			4,224
CORPORATE LENDING
Net interest income (b)	$	231			289			277			293			298
Fee and other income		179			186			182			200			189
Intersegment revenue		4			5			6			3			4
Total revenue (b)		414			480			465			496			491
Provision for credit losses		(14	)		(4	)		(27	)		36			10
Noninterest expense		132			123			118			129			116
Income taxes		108			135			140			124			137
Tax-equivalent adjustment		1			—			—			—			—
Segment earnings	$	187			226			234			207			228
Economic profit	$	83			133			123			120			111
Risk adjusted return on capital		23.52	%		31.68			30.06			26.84			24.49
Economic capital, average	$	2,644			2,573			2,605			2,981			3,268
Cash overhead efficiency ratio (b)		31.83	%		25.65			25.46			25.90			23.58
Average loans, net	$	25,569			22,853			23,728			24,989			26,089
Average core deposits	$	745			826			816			924			1,363
GLOBAL TREASURY AND TRADE FINANCE
Net interest income (b)	$	88			87			84			84			80
Fee and other income		183			181			178			176			178
Intersegment revenue		(27	)		(27	)		(26	)		(25	)		(24	)
Total revenue (b)		244			241			236			235			234
Provision for credit losses		—			—			—			—			—
Noninterest expense		170			164			167			181			174
Income taxes		25			29			25			20			22
Tax-equivalent adjustment		—			—			—			—			—
Segment earnings	$	49			48			44			34			38
Economic profit	$	40			40			37			25			27
Risk adjusted return on capital		75.47	%		79.75			74.76			49.15			48.93
Economic capital, average	$	247			235			230			258			288
Cash overhead efficiency ratio (b)		69.13	%		68.52			70.73			77.30			74.53
Average loans, net	$	5,231			4,958			4,305			4,045			4,042
Average core deposits	$	12,133			11,814			10,962			10,571			10,034

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

(b) Tax-equivalent.

(Continued)

43

Table 5
BUSINESS SEGMENTS

	2004									2003
	Third			Second			First			Fourth			Third
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
INVESTMENT BANKING
Net interest income (b)	$	282			241			236			213			191
Fee and other income		224			334			345			257			197
Intersegment revenue		(10	)		(8	)		(7	)		(12	)		(11	)
Total revenue (b)		496			567			574			458			377
Provision for credit losses		(1	)		—			1			(1	)		—
Noninterest expense		365			320			323			326			275
Income taxes		22			58			57			16			4
Tax-equivalent adjustment		29			31			32			32			32
Segment earnings	$	81			158			161			85			66
Economic profit	$	48			119			124			55			44
Risk adjusted return on capital		25.82	%		49.66			51.30			31.80			27.64
Economic capital, average	$	1,283			1,247			1,236			1,070			1,032
Cash overhead efficiency ratio (b)		73.88	%		56.53			56.01			71.06			72.42
Average loans, net	$	2,450			2,016			1,681			1,799			1,780
Average core deposits	$	6,502			6,082			4,919			4,931			4,994
PRINCIPAL INVESTING
Net interest income (b)	$	(3	)		(6	)		(5	)		(1	)		3
Fee and other income		201			15			38			(12	)		(25	)
Intersegment revenue		—			—			—			—			—
Total revenue (b)		198			9			33			(13	)		(22	)
Provision for credit losses		—			—			—			—			—
Noninterest expense		13			9			9			12			12
Income taxes (benefits)		67			—			9			(9	)		(12	)
Tax-equivalent adjustment		—			—			—			—			—
Segment earnings (loss)	$	118			—			15			(16	)		(22	)
Economic profit	$	99			(19	)		(5	)		(39	)		(45	)
Risk adjusted return on capital		67.98	%		0.07			8.46			(7.59	)		(10.71	)
Economic capital, average	$	691			701			721			831			816
Cash overhead efficiency ratio (b)		n/m	%		n/m			n/m			n/m			n/m
Average loans, net	$	—			—			—			—			—
Average core deposits	$	—			—			—			—			—

(Continued)

44

Table 5
BUSINESS SEGMENTS

	2004									2003
	Third			Second			First			Fourth			Third
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
PARENT
Net interest income (a)	$	154			140			244			267			70
Fee and other income		(63	)		(106	)		(46	)		17			81
Intersegment revenue		1			—			1			—			1
Total revenue (a)		92			34			199			284			152
Provision for credit losses		(15	)		—			2			(95	)		(51	)
Noninterest expense		213			134			214			214			182
Minority interest		65			70			79			78			71
Income tax benefits		(149	)		(123	)		(81	)		(58	)		(98	)
Tax-equivalent adjustment		23			23			20			22			23
Segment earnings (loss)	$	(45	)		(70	)		(35	)		123			25
Economic profit	$	(59	)		(68	)		(29	)		71			5
Risk adjusted return on capital		(0.26)	%		(2.10	)		5.39			24.25			11.90
Economic capital, average	$	2,098			2,101			2,114			2,098			2,094
Cash overhead efficiency ratio (a)		123.47	%		79.07			51.48			32.05			37.56
Lending commitments	$	319			328			484			482			492
Average loans, net		(1,090	)		653			785			2,313			1,671
Average core deposits	$	1,732			1,652			1,239			1,222			1,319
FTE employees		22,491			22,894			23,396			23,517			23,713

(a) Tax-equivalent.

(Continued)

45

Table 5
BUSINESS SEGMENTS

	Nine Months Ended
	September 30,
(Dollars in millions)	2004			2003
GENERAL BANK COMBINED (a)
Net interest income (b)	$	5,751			5,440
Fee and other income		1,770			1,690
Intersegment revenue		121			130
Total revenue (b)		7,642			7,260
Provision for credit losses		207			325
Noninterest expense		3,966			3,909
Income taxes		1,228			1,075
Tax-equivalent adjustment		31			29
Segment earnings	$	2,210			1,922
Economic profit	$	1,684			1,401
Risk adjusted return on capital		53.69	%		44.00
Economic capital, average	$	5,271			5,677
Cash overhead efficiency ratio (b)		51.89	%		53.84
Lending commitments	$	76,592			63,509
Average loans, net		121,610			113,021
Average core deposits	$	165,994			150,910
FTE employees		34,481			34,884
COMMERCIAL
Net interest income (b)	$	1,676			1,525
Fee and other income		323			266
Intersegment revenue		75			73
Total revenue (b)		2,074			1,864
Provision for credit losses		39			103
Noninterest expense		838			823
Income taxes		403			313
Tax-equivalent adjustment		31			29
Segment earnings	$	763			596
Economic profit	$	495			314
Risk adjusted return on capital		40.56	%		27.41
Economic capital, average	$	2,238			2,557
Cash overhead efficiency ratio (b)		40.40	%		44.14
Average loans, net	$	51,480			50,178
Average core deposits	$	37,327			29,331
RETAIL AND SMALL BUSINESS
Net interest income (b)	$	4,075			3,915
Fee and other income		1,447			1,424
Intersegment revenue		46			57
Total revenue (b)		5,568			5,396
Provision for credit losses		168			222
Noninterest expense		3,128			3,086
Income taxes		825			762
Tax-equivalent adjustment		—			—
Segment earnings	$	1,447			1,326
Economic profit	$	1,189			1,087
Risk adjusted return on capital		63.38	%		57.59
Economic capital, average	$	3,033			3,120
Cash overhead efficiency ratio (b)		56.18	%		57.19
Average loans, net	$	70,130			62,843
Average core deposits	$	128,667			121,579

(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 5
BUSINESS SEGMENTS

	Nine Months Ended
	September 30,
(Dollars in millions)	2004			2003
CAPITAL MANAGEMENT COMBINED (a)
Net interest income (b)	$	400			153
Fee and other income		3,726			2,864
Intersegment revenue		(38	)		(52	)
Total revenue (b)		4,088			2,965
Provision for credit losses		—			—
Noninterest expense		3,472			2,488
Income taxes		224			174
Tax-equivalent adjustment		—			—
Segment earnings	$	392			303
Economic profit	$	282			229
Risk adjusted return on capital		39.24	%		45.06
Economic capital, average	$	1,335			899
Cash overhead efficiency ratio (b)		84.93	%		83.91
Average loans, net	$	247			134
Average core deposits	$	24,071			1,367
FTE employees		19,351			20,012
Assets under management	$	249,238			240,260
RETAIL BROKERAGE SERVICES
Net interest income (b)	$	370			132
Fee and other income		2,930			2,166
Intersegment revenue		(37	)		(49	)
Total revenue (b)		3,263			2,249
Provision for credit losses		—			—
Noninterest expense		2,824			1,924
Income taxes		160			119
Tax-equivalent adjustment		—			—
Segment earnings	$	279			206
Economic profit	$	184			147
Risk adjusted return on capital		32.63	%		38.25
Economic capital, average	$	1,142			721
Cash overhead efficiency ratio (b)		86.58	%		85.57
Average loans, net	$	1			2
Average core deposits	$	22,639			270

(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 5
BUSINESS SEGMENTS

	Nine Months Ended
	September 30,
(Dollars in millions)	2004			2003
ASSET MANAGEMENT
Net interest income (b)	$	29			19
Fee and other income		809			721
Intersegment revenue		(1	)		(1	)
Total revenue (b)		837			739
Provision for credit losses		—			—
Noninterest expense		675			595
Income taxes		58			53
Tax-equivalent adjustment		—			—
Segment earnings	$	104			91
Economic profit	$	88			76
Risk adjusted return on capital		70.74	%		67.27
Economic capital, average	$	196			181
Cash overhead efficiency ratio (b)		80.53	%		80.54
Average loans, net	$	246			132
Average core deposits	$	1,432			1,097
OTHER
Net interest income (b)	$	1			2
Fee and other income		(13	)		(23	)
Intersegment revenue		—			(2	)
Total revenue (b)		(12	)		(23	)
Provision for credit losses		—			—
Noninterest expense		(27	)		(31	)
Income taxes		6			2
Tax-equivalent adjustment		—			—
Segment earnings	$	9			6
Economic profit	$	10			6
Risk adjusted return on capital		—	%		—
Economic capital, average	$	(3	)		(3	)
Cash overhead efficiency ratio (b)		—	%		—
Average loans, net	$	—			—
Average core deposits	$	—			—

(Continued)

48

Table 5
BUSINESS SEGMENTS

	Nine Months Ended
	September 30,
(Dollars in millions)	2004			2003
WEALTH MANAGEMENT
Net interest income (a)	$	364			319
Fee and other income		421			396
Intersegment revenue		5			4
Total revenue (a)		790			719
Provision for credit losses		(1	)		11
Noninterest expense		565			535
Income taxes		83			63
Tax-equivalent adjustment		—			—
Segment earnings	$	143			110
Economic profit	$	99			72
Risk adjusted return on capital		46.15	%		37.09
Economic capital, average	$	375			369
Cash overhead efficiency ratio (a)		71.56	%		74.27
Lending commitments	$	4,497			3,843
Average loans, net		10,902			9,527
Average core deposits	$	11,987			10,773
FTE employees		3,628			3,802

(a) Tax-equivalent.

(Continued)

49

Table 5
BUSINESS SEGMENTS

	Nine Months Ended
	September 30,
(Dollars in millions)	2004			2003
CORPORATE AND INVESTMENT
BANK COMBINED (a)
Net interest income (b)	$	1,801			1,723
Fee and other income		2,246			1,641
Intersegment revenue		(90	)		(82	)
Total revenue (b)		3,957			3,282
Provision for credit losses		(45	)		215
Noninterest expense		1,913			1,687
Income taxes		675			419
Tax-equivalent adjustment		93			94
Segment earnings	$	1,321			867
Economic profit	$	822			396
Risk adjusted return on capital		33.87	%		19.98
Economic capital, average	$	4,804			5,894
Cash overhead efficiency ratio (b)		48.34	%		51.41
Lending commitments	$	77,007			69,481
Average loans, net		30,939			34,028
Average core deposits	$	18,271			15,047
FTE employees		4,552			4,224
CORPORATE LENDING
Net interest income (b)	$	797			904
Fee and other income		547			475
Intersegment revenue		15			11
Total revenue (b)		1,359			1,390
Provision for credit losses		(45	)		217
Noninterest expense		373			339
Income taxes		383			313
Tax-equivalent adjustment		1			1
Segment earnings	$	647			520
Economic profit	$	339			230
Risk adjusted return on capital		28.36	%		19.34
Economic capital, average	$	2,607			3,694
Cash overhead efficiency ratio (b)		27.47	%		24.40
Average loans, net	$	24,055			28,448
Average core deposits	$	795			1,309
GLOBAL TREASURY AND TRADE FINANCE
Net interest income (b)	$	259			233
Fee and other income		542			528
Intersegment revenue		(80	)		(67	)
Total revenue (b)		721			694
Provision for credit losses		—			(6	)
Noninterest expense		501			517
Income taxes		79			67
Tax-equivalent adjustment		—			—
Segment earnings	$	141			116
Economic profit	$	117			80
Risk adjusted return on capital		76.65	%		47.42
Economic capital, average	$	238			295
Cash overhead efficiency ratio (b)		69.45	%		74.52
Average loans, net	$	4,833			3,752
Average core deposits	$	11,638			9,332

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

(b) Tax-equivalent.

(Continued)

50

Table 5
BUSINESS SEGMENTS

	Nine Months Ended
	September 30,
(Dollars in millions)	2004			2003
INVESTMENT BANKING
Net interest income (b)	$	759			582
Fee and other income		903			764
Intersegment revenue		(25	)		(26	)
Total revenue (b)		1,637			1,320
Provision for credit losses		—			3
Noninterest expense		1,008			798
Income taxes		137			96
Tax-equivalent adjustment		92			93
Segment earnings	$	400			330
Economic profit	$	291			255
Risk adjusted return on capital		42.01	%		43.21
Economic capital, average	$	1,254			1,052
Cash overhead efficiency ratio (b)		61.58	%		60.42
Average loans, net	$	2,051			1,827
Average core deposits	$	5,838			4,406
PRINCIPAL INVESTING
Net interest income (b)	$	(14	)		4
Fee and other income		254			(126	)
Intersegment revenue		—			—
Total revenue (b)		240			(122	)
Provision for credit losses		—			1
Noninterest expense		31			33
Income taxes (benefits)		76			(57	)
Tax-equivalent adjustment		—			—
Segment earnings (loss)	$	133			(99	)
Economic profit	$	75			(169	)
Risk adjusted return on capital		25.30	%		(15.46	)
Economic capital, average	$	705			853
Cash overhead efficiency ratio (b)		n/m	%		n/m
Average loans, net	$	—			1
Average core deposits	$	—			—

(Continued)

51

Table 5
BUSINESS SEGMENTS

	Nine Months Ended
	September 30,
(Dollars in millions)	2004			2003
PARENT
Net interest income (a)	$	538			286
Fee and other income		(215	)		249
Intersegment revenue		2			—
Total revenue (a)		325			535
Provision for credit losses		(13	)		(51	)
Noninterest expense		561			549
Minority interest		214			96
Income tax benefits		(353	)		(255	)
Tax-equivalent adjustment		66			68
Segment earnings (loss)	$	(150	)		128
Economic profit	$	(156	)		133
Risk adjusted return on capital		1.01	%		18.64
Economic capital, average	$	2,105			2,331
Cash overhead efficiency ratio (a)		74.98	%		28.47
Lending commitments	$	319			492
Average loans, net		111			1,188
Average core deposits	$	1,541			1,323
FTE employees		22,491			23,713

(a) Tax-equivalent.

52

Table 6

NET TRADING REVENUE — INVESTMENT BANKING (a)

	2004							2003
	Third			Second		First		Fourth		Third
(In millions)	Quarter			Quarter		Quarter		Quarter		Quarter
Net interest income(Tax-equivalent)	$	176			142		143		130		107
Trading accounts profits (losses)		(45	)		47		91		20		(30	)
Other fee income		54			67		64		68		67
Total net trading revenue(Tax-equivalent)	$	185			256		298		218		144

(a) Certain amounts presented in periods prior to the third quarter of 2004 have been reclassified to conform to the presentation in the third quarter of 2004.

Table 7

SELECTED RATIOS

	Nine Months Ended
	September 30,					2004						2003
						Third		Second		First		Fourth		Third
	2004			2003		Quarter		Quarter		Quarter		Quarter		Quarter
PERFORMANCE RATIOS (a)
Assets to stockholders’ equity		12.53	X		10.96		12.77		12.65		12.18		12.10		11.78
Return on assets		1.22	%		1.20		1.18		1.22		1.26		1.12		1.16
Return on common stockholders’ equity		15.33			13.14		15.12		15.49		15.37		13.58		13.71
Return on total stockholders’ equity		15.33	%		13.16		15.12		15.49		15.37		13.58		13.71
DIVIDEND PAYOUT RATIOS
Common shares		42.11	%		38.30		41.67		42.11		42.55		42.17		42.17
Preferred and common shares		42.11	%		38.28		41.67		42.11		42.55		42.17		42.17

(a) Based on average balances and net income.

Table 8

TRADING ACCOUNT ASSETS AND LIABILITIES

	2004						2003
	Third		Second		First		Fourth		Third
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
TRADING ACCOUNT ASSETS
U.S. Treasury	$	3,374		3,682		2,417		1,460		1,604
U.S. Government agencies		3,461		3,118		3,483		3,653		2,912
State, county and municipal		966		1,000		592		734		647
Mortgage-backed securities		6,336		4,942		1,844		4,009		3,185
Other asset-backed securities		6,569		6,328		6,181		4,748		4,115
Corporate bonds and debentures		5,595		4,780		4,166		3,977		3,808
Derivative financial instruments		10,676		9,862		12,015		11,859		15,660
Sundry		8,152		5,947		6,195		4,274		4,461
Total trading account assets	$	45,129		39,659		36,893		34,714		36,392
TRADING ACCOUNT LIABILITIES
Securities sold short		13,285		12,017		10,762		8,654		9,187
Derivative financial instruments		9,419		8,310		11,194		10,530		14,772
Total trading account liabilities	$	22,704		20,327		21,956		19,184		23,959

53

Table 9

SECURITIES

	September 30, 2004
												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	$	125			626		—		2		753		3		2		752		2.07
U.S. Government agencies		159			23,947		26,098		—		50,204		601		128		49,731		4.81
Asset-backed
Residual interests from securitizations		35			320		552		—		907		293		—		614		5.17
Retained bonds from securitizations		54			5,013		2,506		208		7,781		224		—		7,557		4.52
Collateralized mortgage obligations		420			10,479		842		97		11,838		93		35		11,780		2.96
Commercial mortgage-backed		136			4,461		4,102		—		8,699		557		6		8,148		5.26
Other		3,575			1,465		123		—		5,163		16		1		5,148		1.23
State, county and municipal		109			353		401		2,892		3,755		229		6		3,532		17.15
Sundry		233			6,610		3,500		2,714		13,057		172		21		12,906		7.43
Total market value	$	4,846			53,274		38,124		5,913		102,157		2,188		199		100,168		5.15
MARKET VALUE
Debt securities	$	4,846			53,274		38,124		4,666		100,910		2,162		199		98,947
Equity securities		—			—		—		1,247		1,247		26		—		1,221
Total market value	$	4,846			53,274		38,124		5,913		102,157		2,188		199		100,168
AMORTIZED COST
Debt securities	$	4,801			52,147		37,472		4,527		98,947
Equity securities		—			—		—		1,221		1,221
Total amortized cost	$	4,801			52,147		37,472		5,748		100,168
WEIGHTED AVERAGE YIELD
U.S. Treasury		1.48	%		2.66		—		5.13		2.47
U.S. Government agencies		6.85			5.05		5.07		—		5.07
Asset-backed
Residual interests from securitizations		53.68			13.80		35.51		—		25.04
Retained bonds from securitizations		5.95			5.45		3.30		3.34		4.69
Collateralized mortgage obligations		4.32			2.81		4.21		4.37		2.97
Commercial mortgage-backed		1.83			5.58		5.42		—		5.44
Other		2.69			3.72		2.97		—		2.99
State, county and municipal		8.75			9.60		9.43		7.21		7.69
Sundry		5.29			4.53		4.98		5.69		4.91
Consolidated		3.34	%		4.63		5.23		6.32		4.89

     At September 30, 2004, 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 $1.6 billion and $1.7 billion at September 30, 2004, 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, 2004, retained bonds with an amortized cost of $7.5 billion and a market value of $7.7 billion were considered investment grade based on external ratings. Retained bonds with an amortized cost and market value of $6.7 billion and $6.9 billion at September 30, 2004, respectively, had an external credit rating of AA and above.

     Securities with an aggregate amortized cost of $48.5 billion at September 30, 2004, 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, 2004, there were forward commitments to purchase securities at a cost that approximates a market value of $4.2 billion. At September 30, 2004, there were commitments to sell securities at a cost that approximates a market value of $1.3 billion.

     Gross gains and losses realized on the sale of debt securities for the nine months ended September 30, 2004, were $216 million and $324 million (including $39 million of impairment losses), respectively, and gross gains and losses realized on the sale of equity securities were $86 million and $11 million (including $10 million of impairment losses), respectively.

54

Table 10

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

	2004						2003
	Third		Second		First		Fourth		Third
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
ON-BALANCE SHEET LOAN PORTFOLIO
COMMERCIAL
Commercial, financial and agricultural	$	59,271		58,340		55,999		55,453		55,181
Real estate — construction and other		6,985		6,433		6,120		5,969		5,741
Real estate — mortgage		14,771		14,927		15,099		15,186		15,746
Lease financing		24,042		23,894		23,688		23,978		23,598
Foreign		7,402		8,075		7,054		6,880		6,815
Total commercial		112,471		111,669		107,960		107,466		107,081
CONSUMER
Real estate secured		54,965		53,759		51,207		50,726		51,516
Student loans		10,207		9,838		8,876		8,435		8,160
Installment loans		6,410		7,330		9,054		8,965		9,110
Total consumer		71,582		70,927		69,137		68,126		68,786
Total loans		184,053		182,596		177,097		175,592		175,867
Unearned income		9,549		9,679		9,794		10,021		9,942
Loans, net(On-balance sheet)	$	174,504		172,917		167,303		165,571		165,925
MANAGED PORTFOLIO (a)
COMMERCIAL
On-balance sheet loan portfolio	$	112,471		111,669		107,960		107,466		107,081
Securitized loans — off-balance sheet		1,823		1,868		1,927		2,001		2,071
Loans held for sale		1,993		1,887		2,242		2,574		1,347
Total commercial		116,287		115,424		112,129		112,041		110,499
CONSUMER
Real estate secured
On-balance sheet loan portfolio		54,965		53,759		51,207		50,726		51,516
Securitized loans — off-balance sheet		6,567		7,194		8,218		8,897		10,192
Securitized loans included in securities		8,909		9,506		10,261		10,905		11,809
Loans held for sale		15,602		14,003		11,607		9,618		8,368
Total real estate secured		86,043		84,462		81,293		80,146		81,885
Student
On-balance sheet loan portfolio		10,207		9,838		8,876		8,435		8,160
Securitized loans — off-balance sheet		554		612		1,532		1,658		1,786
Loans held for sale		160		367		433		433		458
Total student		10,921		10,817		10,841		10,526		10,404
Installment
On-balance sheet loan portfolio		6,410		7,330		9,054		8,965		9,110
Securitized loans — off-balance sheet		2,489		1,794		—		—		—
Securitized loans included in securities		195		130		—		—		—
Total installment		9,094		9,254		9,054		8,965		9,110
Total consumer		106,058		104,533		101,188		99,637		101,399
Total managed portfolio	$	222,345		219,957		213,317		211,678		211,898
SERVICING PORTFOLIO (b)
Commercial	$	130,313		108,207		99,601		85,693		80,207
Consumer	$	31,549		24,475		16,240		13,279		8,465

(a) The managed portfolio includes the on-balance sheet loan portfolio, loans securitized for which the retained interests are classified in securities on-balance sheet, loans held for sale on-balance sheet and the off-balance sheet portfolio of securitized loans sold, where we service the loans.

(b) The servicing portfolio consists of third party commercial and consumer loans for which our sole function is that of servicing the loans for the third parties.

55

Table 11

LOANS HELD FOR SALE

	2004									2003
	Third			Second			First			Fourth			Third
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Balance, beginning of period	$	16,257			14,282			12,625			10,173			10,088
CORE BUSINESS ACTIVITY (a)
Core business activity, beginning of period		16,200			14,183			12,504			9,897			9,762
Originations/purchases		8,108			10,165			6,978			8,343			9,271
Transfer to (from) loans held for sale, net		(190	)		(124	)		(92	)		8			(783	)
Lower of cost or market value adjustments		(1	)		—			—			(8	)		(7	)
Performing loans sold or securitized		(4,142	)		(5,879	)		(3,770	)		(4,484	)		(7,253	)
Nonperforming loans sold		—			—			(2	)		(36	)		(11	)
Other, principally payments		(2,255	)		(2,145	)		(1,435	)		(1,216	)		(1,082	)
Core business activity, end of period		17,720			16,200			14,183			12,504			9,897
PORTFOLIO MANAGEMENT ACTIVITY (a)
Portfolio management activity, beginning of period		57			99			121			276			326
Transfers to loans held for sale, net
Performing loans		12			16			50			29			81
Nonperforming loans		—			5			6			13			61
Lower of cost or market value adjustments		1			—			—			5			—
Performing loans sold		(21	)		(43	)		(60	)		(108	)		(102	)
Nonperforming loans sold		(6	)		(8	)		(8	)		(63	)		(64	)
Allowance for loan losses related to loans transferred to loans held for sale		—			(1	)		(7	)		(17	)		(18	)
Other, principally payments		(8	)		(11	)		(3	)		(14	)		(8	)
Portfolio management activity, end of period		35			57			99			121			276
Balance, end of period (b)	$	17,755			16,257			14,282			12,625			10,173

(a) Core business activity means we originate loans with the intent to sell them to third parties, and portfolio management activity means we look for market opportunities to reduce risk in the loan portfolio by transferring loans to loans held for sale.

(b) Nonperforming assets included in loans held for sale at September 30, June 30, and March 31, 2004, and at December 31, and September 30, 2003, were $57 million, $68 million, $67 million, $82 million and $160 million, respectively.

56

Table 12

ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS

	2004									2003
	Third			Second			First			Fourth			Third
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
ALLOWANCE FOR LOAN LOSSES (a)
Balance, beginning of period	$	2,331			2,338			2,348			2,474			2,510
Provision for credit losses		63			73			59			63			118
Provision for credit losses relating to loans transferred to loans held for sale or sold		(8	)		(9	)		(8	)		24			—
Allowance relating to loans acquired, transferred to loans held for sale or sold		3			(3	)		(9	)		(57	)		(22	)
Net charge-offs		(65	)		(68	)		(52	)		(156	)		(132	)
Balance, end of period	$	2,324			2,331			2,338			2,348			2,474
as a % of loans, net		1.33	%		1.35			1.40			1.42			1.49
as a % of nonaccrual and restructured loans (b)		291	%		270			242			227			178
as a % of nonperforming assets (b)		258	%		241			218			205			164
LOAN LOSSES
Commercial, financial and agricultural	$	50			41			48			105			88
Commercial real estate — construction and mortgage		3			1			1			4			5
Consumer		70			66			86			106			106
Total loan losses		123			108			135			215			199
LOAN RECOVERIES
Commercial, financial and agricultural		41			23			57			37			45
Commercial real estate — construction and mortgage		1			—			2			2			1
Consumer		16			17			24			20			21
Total loan recoveries		58			40			83			59			67
Net charge-offs	$	65			68			52			156			132
Commercial loan net charge-offs as % of average commercial loans, net (c)		0.05	%		0.08			(0.05	)		0.31			0.21
Consumer loan net charge-offs as % of average consumer loans, net (c)		0.30			0.28			0.36			0.50			0.51
Total net charge-offs as % of average loans, net (c)		0.15	%		0.17			0.13			0.39			0.33
NONPERFORMING ASSETS
Nonaccrual loans
Commercial, financial and agricultural	$	534			610			700			765			1,072
Commercial real estate — construction and mortgage		42			33			47			54			76
Consumer real estate secured		211			207			199			192			215
Installment loans		11			13			22			24			28
Total nonaccrual loans		798			863			968			1,035			1,391
Foreclosed properties (d)		101			104			103			111			116
Total nonperforming assets	$	899			967			1,071			1,146			1,507
Nonperforming loans included in loans held for sale (e)	$	57			68			67			82			160
Nonperforming assets included in loans and in loans held for sale	$	956			1,035			1,138			1,228			1,667
as % of loans, net, and foreclosed properties (b)		0.51	%		0.56			0.64			0.69			0.91
as % of loans, net, foreclosed properties and loans held for sale (e)		0.50	%		0.55			0.63			0.69			0.95
Accruing loans past due 90 days	$	428			419			328			341			291

(a) At September 30, 2004, the reserve for unfunded lending commitments was $134 million.

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

(c) Annualized.

(d) Restructured loans are not significant.

(e) These ratios reflect nonperforming loans included in loans held for sale. Loans held for sale are recorded at the lower of cost or market value, and accordingly, the amounts shown and included in the ratios are net of the transferred allowance for loan losses and the lower of cost or market value adjustments.

57

Table 13

NONACCRUAL LOAN ACTIVITY (a)

	2004									2003
	Third			Second			First			Fourth			Third
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Balance, beginning of period	$	863			968			1,035			1,391			1,501
Commercial nonaccrual loan activity
Commercial nonaccrual loans, beginning of period		643			747			819			1,148			1,249
New nonaccrual loans and advances		143			100			183			122			252
Gross charge-offs		(53	)		(42	)		(49	)		(109	)		(93	)
Transfers to loans held for sale		—			(6	)		(7	)		—			(37	)
Transfers to other real estate owned		(1	)		(2	)		—			(5	)		—
Sales		(19	)		(19	)		(73	)		(101	)		(56	)
Other, principally payments		(137	)		(135	)		(126	)		(236	)		(167	)
Net commercial nonaccrual loan activity		(67	)		(104	)		(72	)		(329	)		(101	)
Commercial nonaccrual loans, end of period		576			643			747			819			1,148
Consumer nonaccrual loan activity
Consumer nonaccrual loans, beginning of period		220			221			216			243			252
New nonaccrual loans, advances and other, net		2			(1	)		5			13			15
Transfers to loans held for sale		—			—			—			(13	)		(24	)
Sales and securitizations		—			—			—			(27	)		—
Net consumer nonaccrual loan activity		2			(1	)		5			(27	)		(9	)
Consumer nonaccrual loans, end of period		222			220			221			216			243
Balance, end of period	$	798			863			968			1,035			1,391

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

Table 14

GOODWILL AND OTHER INTANGIBLE ASSETS

	2004						2003
	Third		Second		First		Fourth		Third
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
Goodwill	$	11,481		11,481		11,233		11,149		11,094
Deposit base		484		568		659		757		863
Customer relationships		372		387		401		396		400
Tradename		90		90		90		90		90
Total goodwill and other intangible assets	$	12,427		12,526		12,383		12,392		12,447

	Nine Months Ended September 30, 2004
	Employee			Occupancy
	Termination			and
(In millions)	Benefits			Equipment			Other			Total
ACTIVITY IN THE EXIT COST PURCHASE ACCOUNTING
ADJUSTMENT ACCRUAL (a)
Balance, December 31, 2003	$	20			25			—			45
Purchase accounting adjustments		125			251			26			402
Cash payments		(37	)		(30	)		(18	)		(85	)
Noncash write-downs		—			(3	)		—			(3	)
Balance, September 30, 2004	$	108			243			8			359

(a) All amounts relate to the July 1, 2003, retail brokerage transaction.

58

Table 15

DEPOSITS

	2004						2003
	Third		Second		First		Fourth		Third
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
CORE DEPOSITS
Noninterest-bearing	$	52,524		51,613		49,018		48,683		45,493
Savings and NOW accounts		73,477		71,696		68,858		63,011		52,520
Money market accounts		84,075		78,658		73,170		65,045		60,363
Other consumer time		27,239		26,237		26,908		27,921		29,140
Total core deposits		237,315		228,204		217,954		204,660		187,516
OTHER DEPOSITS
Foreign		7,917		7,412		6,709		9,151		8,589
Other time		7,749		7,764		7,675		7,414		7,390
Total deposits	$	252,981		243,380		232,338		221,225		203,495

Table 16

TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE

(In millions)	September 30, 2004
MATURITY OF
3 months or less	$	3,308
Over 3 months through 6 months		1,205
Over 6 months through 12 months		1,527
Over 12 months		4,853
Total time deposits in amounts of $100,000 or more	$	10,893

59

Table 17

LONG-TERM DEBT

	2004						2003
	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 2004 to 2009	$	6,657		7,007		8,015		6,757		7,057
Floating rate, due 2005 to 2007		4,400		990		990		490		490
Floating rate extendible, due 2005		10		10		10		10		10
Equity-linked, due 2005 to 2010		59		35		35		25		25
Subordinated notes
4.875% to 7.50%, due 2005 to 2014		5,973		4,479		4,478		3,622		3,630
8.00%		—		149		149		149		149
6.605%, due 2025		250		250		250		250		250
6.30%, Putable/Callable, due 2028		200		200		200		200		200
Subordinated debentures
6.55% to 7.574%, due 2026 to 2035		795		795		795		795		795
Hedge-related basis adjustments		538		385		847		728		911
Total notes and debentures issued by the Parent Company		18,882		14,300		15,769		13,026		13,517
NOTES ISSUED BY SUBSIDIARIES
Notes, primarily notes issued under global bank note programs, varying rates and terms to 2040		4,427		4,597		5,740		6,059		6,059
Subordinated notes
6.625% to 6.75%, due 2005 to 2006		375		375		375		375		575
Bank, 5.00% to 7.875%, due 2006 to 2036		3,047		3,047		3,047		3,047		3,047
7.80% to 7.95%, due 2006 to 2007		249		249		248		248		248
Floating rate, due 2013		417		417		417		417		417
Total notes issued by subsidiaries		8,515		8,685		9,827		10,146		10,346
OTHER DEBT
Trust preferred securities		—		—		—		3,022		3,022
Subordinated debentures
Floating rate, due 2026 to 2029		3,106		3,106		3,106		—		—
Collateralized notes, floating rate, due 2006 to 2007		4,420		4,420		4,420		4,420		4,420
4.556% auto securitization financing		—		—		1		2		3
Advances from the Federal Home Loan Bank		5,001		5,001		5,001		5,001		5,010
Preferred units — The Money Store, LLC		57		57		57		57		57
Capitalized leases		750		753		757		761		764
Mortgage notes and other debt of subsidiaries		460		568		9		9		14
Hedge-related basis adjustments		253		132		405		286		388
Total other debt		14,047		14,037		13,756		13,558		13,678
Total long-term debt	$	41,444		37,022		39,352		36,730		37,541

60

Table 18

CHANGES IN STOCKHOLDERS’ EQUITY

	2004									2003
	Third			Second			First			Fourth			Third
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Balance, beginning of period	$	32,646			33,337			32,428			32,813			32,464
Comprehensive income
Net income		1,263			1,252			1,251			1,100			1,105
Net unrealized gain (loss) on debt and equity securities		744			(1,342	)		485			(94	)		(300	)
Net unrealized gain (loss) on derivative financial instruments		(221	)		99			(110	)		(242	)		(159	)
Total comprehensive income		1,786			9			1,626			764			646
Purchases of common stock		(289	)		(347	)		(387	)		(852	)		(285	)
Common stock issued for
Stock options and restricted stock		192			198			270			128			124
Gain (loss) on subsidiary issuance of stock		—			—			—			(33	)		257
Deferred compensation, net		84			(27	)		(75	)		67			73
Cash dividends on common shares		(522	)		(524	)		(525	)		(459	)		(466	)
Balance, end of period	$	33,897			32,646			33,337			32,428			32,813

Table 19

CAPITAL RATIOS

	2004							2003
	Third			Second		First		Fourth		Third
(In millions)	Quarter			Quarter		Quarter		Quarter		Quarter
CONSOLIDATED CAPITAL RATIOS (a)
Qualifying capital
Tier 1 capital	$	25,514			24,747		24,389		23,863		23,828
Total capital		34,342			33,517		33,329		33,102		33,553
Adjusted risk-weighted assets		306,040			296,041		285,691		279,979		274,895
Adjusted leverage ratio assets	$	410,790			397,514		385,192		375,447		363,303
Ratios
Tier 1 capital		8.34	%		8.36		8.54		8.52		8.67
Total capital		11.22			11.32		11.67		11.82		12.21
Leverage		6.21			6.23		6.33		6.36		6.56
STOCKHOLDERS’ EQUITY TO ASSETS
Quarter-end		7.76			7.80		8.11		8.09		8.44
Average		7.83	%		7.91		8.21		8.27		8.49
BANK CAPITAL RATIOS
Tier 1 capital
Wachovia Bank, National Association		7.93	%		7.83		7.81		7.60		7.78
Wachovia Bank of Delaware, National Association		17.48			15.01		15.25		15.46		14.82
Total capital
Wachovia Bank, National Association		11.52			11.67		11.79		11.72		12.12
Wachovia Bank of Delaware, National Association		20.07			17.56		17.94		18.28		17.64
Leverage
Wachovia Bank, National Association		6.08			6.00		6.06		5.85		6.16
Wachovia Bank of Delaware, National Association		10.15	%		9.69		10.30		9.72		10.57

(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.

61

Table 20

RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS (a)

	September 30, 2004
			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	$	38,246		2,023		(55	)		1,212			3			4.64
Interest rate swaps—pay fixed		1,370		—		(144	)		(89	)		—			6.01
Interest rate options		14,000		14		(24	)		(6	)		—			1.50
Forward purchase commitments		3,865		6		(3	)		1			(1	)		0.23
Call options on Eurodollar futures		4,500		—		(4	)		(2	)		—			0.25
Futures		2,900		2		—			1			—			0.25
Fair value hedges (c)
Interest rate swaps—pay fixed		2,007		5		(31	)		—			(12	)		17.77
Forward sale commitments		1,665		2		(8	)		—			—			0.08
Options		35		—		—			—			—			1.02
Total asset hedges	$	68,588		2,052		(269	)		1,117			(10	)		3.58
LIABILITY HEDGES
Cash flow hedges (d)
Interest rate swaps—pay fixed	$	48,326		29		(1,212	)		(733	)		(1	)		3.87
Interest rate options		44,200		10		(596	)		(360	)		(1	)		3.35
Put options on Eurodollar futures		21,000		—		(4	)		(2	)		—			0.25
Futures		25,280		3		(2	)		—			—			0.25
Fair value hedges (e)
Interest rate swaps—receive fixed		18,112		1,003		(10	)		—			—			4.43
Interest rate options		4,925		—		(1	)		—			—			0.88
Total liability hedges	$	161,843		1,045		(1,825	)		(1,095	)		(2	)		2.66

62

     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 $38.2 billion, of which $4.3 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 $1.4 billion and with receive rates based on one-month LIBOR are designated as cash flow hedges of available for sale securities. Net purchased option combinations including options on receive-fixed swaps, with a strike rate based on one-month or three-month LIBOR, have a notional amount of $14.0 billion and are primarily designated as cash flow hedges of the variability in cash flows related to the forecasted interest rate resets of one-month LIBOR-indexed loans. Forward purchase commitments of $2.9 billion and $965 million are designated as cash flow hedges of the variability of the consideration to be paid on the forecasted purchase of available for sale securities and loans, respectively. Purchased call options on Eurodollar futures with a notional amount of $4.5 billion and a set strike rate, and Eurodollar futures with a notional amount of $2.9 billion are designated as cash flow hedges of the variability in cash flows related to the forecasted interest rate resets of one-to-three month LIBOR-indexed loans.

(c) Pay-fixed interest rate swaps with a notional amount of $2.0 billion and receive rates based on one-month LIBOR are designated as fair value hedges of available for sale securities. Forward sale commitments of $530 million are designated as fair value hedges of mortgage loans in the warehouse and forward sale commitments of $1.1 billion are designated as fair value hedges of available for sale securities.

(d) Derivatives with a notional amount of $130.3 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, $25.3 billion are Eurodollar futures, $21.0 billion are purchased put options on Eurodollar futures with a set strike rate, $41.3 billion are pay-fixed interest rate swaps with receive rates based on one-to-three month LIBOR, of which $24.3 billion are forward-starting, and $39.9 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 $1.5 billion and pay-fixed interest rate swaps with a notional amount of $7.0 billion are designated as cash flow hedges of the variability in cash flows related to the forecasted interest rate resets of long-term debt.

(e) Receive-fixed interest rate swaps with a notional amount of $18.1 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 interest rate options with a notional amount of $4.9 billion are designated as fair value hedges of embedded interest rate options in long-term debt.

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

(g) At September 30, 2004, the net unrealized loss on derivatives included in accumulated other comprehensive income, which is a component of stockholders’ equity, was $251 million, net of income taxes. Of this net of tax amount, a $22 million gain represents the effective portion of the net gains (losses) on derivatives that qualify as cash flow hedges, and a $273 million loss relates to terminated and/or redesignated derivatives. At September 30, 2004, $98 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 21.59 years.

(h) In the nine months ended September 30, 2004, losses in the amount of $12 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, 2004, was decreased by $2 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.

63

Table 21

RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS — EXPECTED MATURITIES

	September 30, 2004
	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	$	1,690			4,448			12,869			19,239			—			38,246
Notional amount — swaps—pay fixed		—			1			333			998			38			1,370
Notional amount — other	$	18,865			400			6,000			—			—			25,265
Weighted average receive rate (a)		6.76	%		6.18			4.90			5.01			1.14			5.05
Weighted average pay rate (a)		1.80	%		1.82			1.94			2.01			4.58			1.97
Unrealized gain (loss)	$	15			41			601			1,162			(4	)		1,815
FAIR VALUE ASSET HEDGES
Notional amount — swaps—pay fixed	$	—			—			58			312			1,637			2,007
Notional amount — other	$	1,665			35			—			—			—			1,700
Weighted average receive rate (a)		—	%		—			1.87			1.71			1.13			1.18
Weighted average pay rate (a)		—	%		—			3.30			4.62			3.71			3.83
Unrealized gain (loss)	$	(6	)		—			—			(7	)		(19	)		(32	)
CASH FLOW LIABILITY HEDGES
Notional amount — swaps—pay fixed	$	7,656			6,379			23,160			7,380			3,751			48,326
Notional amount — other	$	36,230			20,750			25,500			8,000			—			90,480
Weighted average receive rate (a)		3.23	%		1.87			1.86			1.77			1.72			2.28
Weighted average pay rate (a)		3.25	%		2.77			6.26			6.31			6.08			4.65
Unrealized gain (loss)	$	(219	)		(185	)		(688	)		(391	)		(289	)		(1,772	)
FAIR VALUE LIABILITY HEDGES
Notional amount — swaps—receive fixed	$	3,750			750			8,840			3,750			1,022			18,112
Notional amount — other	$	3,800			1,125			—			—			—			4,925
Weighted average receive rate (a)		6.97	%		7.06			5.54			5.70			5.74			5.95
Weighted average pay rate (a)		1.98	%		1.93			1.85			2.19			1.72			1.94
Unrealized gain (loss)	$	102			58			456			266			110			992

(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 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, 2004.

Table 22

RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS ACTIVITY

	Asset			Liability
(In millions)	Hedges			Hedges			Total
Balance, December 31, 2003	$	58,761			129,736			188,497
Additions		70,150			92,575			162,725
Maturities and amortizations		(40,606	)		(52,430	)		(93,036	)
Terminations		(13,866	)		(4,539	)		(18,405	)
Redesignations and transfers to trading account assets		(5,851	)		(3,499	)		(9,350	)
Balance, September 30, 2004	$	68,588			161,843			230,431

64

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES

	THIRD QUARTER 2004							SECOND QUARTER 2004
					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	$	3,153		12		1.52	%	$	4,015		11		1.13	%
Federal funds sold and securities purchased under resale agreements		26,419		96		1.44			23,800		62		1.05
Trading account assets (a)		32,052		348		4.34			26,135		260		3.98
Securities (a)		101,493		1,237		4.88			100,209		1,196		4.77
Loans (a) (b)
Commercial
Commercial, financial and agricultural		58,278		642		4.40			56,648		599		4.25
Real estate — construction and other		6,683		67		4.02			6,309		56		3.56
Real estate — mortgage		14,877		170		4.54			15,029		158		4.21
Lease financing		9,692		178		7.33			7,011		180		10.28
Foreign		7,330		47		2.51			7,110		41		2.32
Total commercial		96,860		1,104		4.54			92,107		1,034		4.51
Consumer
Real estate secured		54,288		732		5.38			52,389		691		5.29
Student loans		10,145		97		3.80			9,941		90		3.63
Installment loans		7,259		107		5.86			9,205		126		5.48
Total consumer		71,692		936		5.21			71,535		907		5.08
Total loans		168,552		2,040		4.83			163,642		1,941		4.76
Loans held for sale		17,119		186		4.34			15,603		161		4.12
Other earning assets		11,121		96		3.43			11,443		82		2.91
Total earning assets excluding derivatives		359,909		4,015		4.45			344,847		3,713		4.32
Risk management derivatives (c)		—		349		0.39			—		371		0.43
Total earning assets including derivatives		359,909		4,364		4.84			344,847		4,084		4.75
Cash and due from banks		11,159							11,254
Other assets		53,331							54,973
Total assets	$	424,399						$	411,074
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
Savings and NOW accounts		73,171		93		0.51			70,205		78		0.45
Money market accounts		81,525		197		0.96			76,850		172		0.90
Other consumer time		26,860		180		2.68			26,288		176		2.69
Foreign		7,453		27		1.42			7,110		20		1.14
Other time		7,803		39		1.98			7,773		34		1.76
Total interest-bearing deposits		196,812		536		1.08			188,226		480		1.03
Federal funds purchased and securities sold under repurchase agreements		47,052		164		1.39			46,620		116		1.00
Commercial paper		12,065		43		1.42			12,382		32		1.04
Securities sold short		12,388		96		3.09			10,571		73		2.78
Other short-term borrowings		6,042		15		0.91			6,013		11		0.80
Long-term debt		39,951		404		4.05			37,840		378		3.99
Total interest-bearing liabilities excluding derivatives		314,310		1,258		1.60			301,652		1,090		1.45
Risk management derivatives (c)		—		78		0.09			—		91		0.12
Total interest-bearing liabilities including derivatives		314,310		1,336		1.69			301,652		1,181		1.57
Noninterest-bearing deposits		51,433							50,466
Other liabilities		25,410							26,460
Stockholders’ equity		33,246							32,496
Total liabilities and stockholders’ equity	$	424,399						$	411,074
Interest income and rate earned — including derivatives			$	4,364		4.84	%			$	4,084		4.75	%
Interest expense and equivalent rate paid — including derivatives				1,336		1.48					1,181		1.38
Net interest income and margin — including derivatives			$	3,028		3.36	%			$	2,903		3.37	%

(a) 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.

(b) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.

65

FIRST QUARTER 2004								FOURTH QUARTER 2003							THIRD QUARTER 2003
					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
$	3,237			10		1.18	%	$	2,569		7		1.17	%	$	4,342		14		1.27	%
	24,806			61		0.99			23,591		60		1.00			22,080		48		0.88
	20,956			220		4.21			20,038		213		4.24			18,941		197		4.15
	98,222			1,221		4.97			94,584		1,184		5.00			78,436		962		4.90
		��
	55,476			576		4.18			55,439		593		4.25			55,596		588		4.19
	6,022			53		3.52			5,789		52		3.53			5,574		48		3.47
	15,241			160		4.23			15,555		166		4.23			16,075		174		4.31
	6,945			183		10.52			7,084		185		10.45			6,911		183		10.61
	6,684			41		2.49			6,761		45		2.66			6,756		47		2.73
	90,368			1,013		4.50			90,628		1,041		4.56			90,912		1,040		4.55
	50,879			705		5.55			51,380		718		5.58			49,438		707		5.70
	8,908			78		3.53			8,502		78		3.62			7,962		74		3.70
	9,026			130		5.80			9,090		137		5.99			9,682		152		6.18
	68,813			913		5.32			68,972		933		5.39			67,082		933		5.54
	159,181			1,926		4.86			159,600		1,974		4.92			157,994		1,973		4.97
	12,759			131		4.12			10,627		109		4.10			10,244		111		4.34
	11,159			84		3.02			11,265		83		2.95			11,466		87		2.98
	330,320			3,653		4.43			322,274		3,630		4.49			303,503		3,392		4.45
	-			408		0.50			—		386		0.47			—		384		0.50
	330,320			4,061		4.93			322,274		4,016		4.96			303,503		3,776		4.95
	10,957								10,728							11,092
	57,411								55,985							62,299
$	398,688							$	388,987						$	376,894
	65,366			70		0.43			56,755		58		0.40			52,570		52		0.39
	69,208			154		0.90			63,202		141		0.89			58,576		126		0.85
	27,496			189		2.76			28,456		200		2.80			29,814		217		2.89
	7,673			22		1.17			10,648		31		1.13			7,581		22		1.17
	7,676			34		1.75			7,520		33		1.77			7,099		33		1.80
	177,419			469		1.06			166,581		463		1.10			155,640		450		1.15
	48,353			124		1.03			55,378		133		0.95			46,359		114		0.98
	11,852			30		1.01			11,670		31		1.06			11,978		32		1.05
	8,412			47		2.25			7,970		50		2.48			8,850		57		2.58
	6,436			10		0.59			6,551		9		0.53			7,136		15		0.87
	37,269			364		3.91			35,855		357		3.97			36,388		365		4.02
	289,741			1,044		1.45			284,005		1,043		1.46			266,351		1,033		1.54
	-			94		0.13			—		31		0.04			—		26		0.04
	289,741			1,138		1.58			284,005		1,074		1.50			266,351		1,059		1.58
	46,603								45,696							44,755
	29,607								27,145							33,803
	32,737								32,141							31,985
$	398,688							$	388,987						$	376,894
			$	4,061		4.93	%			$	4,016		4.96	%			$	3,776		4.95	%
				1,138		1.38					1,074		1.32					1,059		1.38
			$	2,923		3.55	%			$	2,942		3.64	%			$	2,717		3.57	%

(c) 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.

66

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES (a)

	NINE MONTHS ENDED 2004								NINE MONTHS ENDED 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	$	3,467		33		1.27	%		$	4,262		43		1.34	%
Federal funds sold and securities purchased under resale agreements		25,013		219		1.17				14,485		112		1.04
Trading account assets (b)		26,402		828		4.18				17,841		601		4.50
Securities (b)		99,980		3,654		4.87				73,205		2,959		5.39
Loans (b) (c)
Commercial
Commercial, financial and agricultural		56,805		1,817		4.28				56,728		1,797		4.23
Real estate — construction and other		6,339		176		3.71				5,260		138		3.52
Real estate — mortgage		15,048		488		4.33				16,669		554		4.45
Lease financing		7,890		541		9.14				6,858		554		10.78
Foreign		7,043		129		2.44				6,616		144		2.91
Total commercial		93,125		3,151		4.52				92,131		3,187		4.62
Consumer Real estate secured		52,525		2,128		5.40				48,056		2,106		5.85
Student loans		9,666		265		3.66				7,723		227		3.93
Installment loans		8,493		363		5.70				9,988		493		6.59
Total consumer		70,684		2,756		5.20				65,767		2,826		5.74
Total loans		163,809		5,907		4.81				157,898		6,013		5.09
Loans held for sale		15,168		478		4.20				8,599		286		4.44
Other earning assets		11,241		262		3.12				5,829		160		3.66
Total earning assets excluding derivatives		345,080		11,381		4.40				282,119		10,174		4.81
Risk management derivatives (d)		—		1,128		0.44				—		1,146		0.55
Total earning assets including derivatives		345,080		12,509		4.84				282,119		11,320		5.36
Cash and due from banks		11,123								10,942
Other assets		55,231								59,177
Total assets	$	411,434							$	352,238
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
Savings and NOW accounts		69,594		241		0.46				51,890		202		0.52
Money market accounts		75,881		523		0.92				53,327		424		1.06
Other consumer time		26,881		545		2.71				31,262		723		3.09
Foreign		7,412		69		1.25				7,243		73		1.36
Other time		7,751		107		1.83				7,760		110		1.89
Total interest-bearing deposits		187,519		1,485		1.06				151,482		1,532		1.35
Federal funds purchased and securities sold under repurchase agreements		47,340		404		1.14				40,602		392		1.29
Commercial paper		12,099		105		1.16				5,689		41		0.96
Securities sold short		10,464		216		2.76				7,909		159		2.69
Other short-term borrowings		6,165		36		0.76				4,697		31		0.88
Long-term debt		38,359		1,146		3.99				36,953		1,119		4.04
Total interest-bearing liabilities excluding derivatives		301,946		3,392		1.50				247,332		3,274		1.77
Risk management derivatives (d)		—		263		0.12				—		125		0.07
Total interest-bearing liabilities including derivatives		301,946		3,655		1.62				247,332		3,399		1.84
Noninterest-bearing deposits		49,508								42,941
Other liabilities		27,152								29,833
Stockholders’ equity		32,828								32,132
Total liabilities and stockholders’ equity	$	411,434							$	352,238
								��
Interest income and rate earned — including derivatives			$	12,509		4.84	%				$	11,320		5.36	%
Interest expense and equivalent rate paid — including derivatives				3,655		1.42						3,399		1.61
Net interest income and margin — including derivatives			$	8,854		3.42	%				$	7,921		3.75	%

(a) Certain amounts presented in 2003 have been reclassified to conform to the presentation in 2004.

(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.

67

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	2004									2003
	Third			Second			First			Fourth			Third
(In millions, except per share data)	Quarter			Quarter			Quarter			Quarter			Quarter
ASSETS
Cash and due from banks	$	10,355			10,701			10,564			11,479			11,178
Interest-bearing bank balances		7,664			2,059			5,881			2,308			3,664
Federal funds sold and securities purchased under resale agreements (carrying amount of collateral held $16,026 at September 30, 2004, $6,520 repledged)		30,629			21,970			23,845			24,725			22,491
Total cash and cash equivalents		48,648			34,730			40,290			38,512			37,333
Trading account assets		45,129			39,659			36,893			34,714			36,392
Securities		102,157			102,934			104,203			100,445			87,176
Loans, net of unearned income		174,504			172,917			167,303			165,571			165,925
Allowance for loan losses		(2,324	)		(2,331	)		(2,338	)		(2,348	)		(2,474	)
Loans, net		172,180			170,586			164,965			163,223			163,451
Premises and equipment		4,150			4,522			4,620			4,619			4,746
Due from customers on acceptances		563			703			605			854			732
Goodwill		11,481			11,481			11,233			11,149			11,094
Other intangible assets		946			1,045			1,150			1,243			1,353
Loans held for sale (a)		17,755			16,257			14,282			12,625			10,173
Other assets (a)		33,689			36,524			32,899			33,804			36,474
Total assets	$	436,698			418,441			411,140			401,188			388,924
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-bearing deposits		52,524			51,613			49,018			48,683			45,493
Interest-bearing deposits		200,457			191,767			183,320			172,542			158,002
Total deposits		252,981			243,380			232,338			221,225			203,495
Short-term borrowings		67,589			66,360			65,452			71,290			65,474
Bank acceptances outstanding		570			708			613			876			743
Trading account liabilities		22,704			20,327			21,956			19,184			23,959
Other liabilities		14,838			15,321			15,564			16,945			22,800
Long-term debt		41,444			37,022			39,352			36,730			37,541
Total liabilities		400,126			383,118			375,275			366,250			354,012
Minority interest in net assets of consolidated subsidiaries		2,675			2,677			2,528			2,510			2,099
STOCKHOLDERS’ EQUITY
Dividend Equalization Preferred shares, no par value, 97 million shares issued and outstanding at September 30, 2004		—			—			—			—			—
Common stock, $3.33-1/3 par value; authorized 3 billion shares, outstanding 1.308 billion shares at September 30, 2004		4,359			4,365			4,372			4,374			4,427
Paid-in capital		18,095			17,920			17,869			17,811			17,882
Retained earnings		10,449			9,890			9,382			8,904			8,829
Accumulated other comprehensive income, net		994			471			1,714			1,339			1,675
Total stockholders’ equity		33,897			32,646			33,337			32,428			32,813
Total liabilities and stockholders’ equity	$	436,698			418,441			411,140			401,188			388,924

(a) Certain amounts presented prior to the third quarter of 2004 have been reclassified to conform to the presentation in the third quarter of 2004.

68

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	2004							2003
	Third			Second		First		Fourth			Third
(In millions, except per share data)	Quarter			Quarter		Quarter		Quarter			Quarter
INTEREST INCOME
Interest and fees on loans	$	2,393			2,316		2,335		2,357			2,352
Interest and dividends on securities		1,156			1,110		1,141		1,104			885
Trading account interest		325			237		197		189			174
Other interest income		427			356		326		301			301
Total interest income		4,301			4,019		3,999		3,951			3,712
INTEREST EXPENSE
Interest on deposits		691			654		648		568			534
Interest on short-term borrowings		396			316		299		311			317
Interest on long-term debt		249			211		191		195			208
Total interest expense		1,336			1,181		1,138		1,074			1,059
Net interest income		2,965			2,838		2,861		2,877			2,653
Provision for credit losses		43			61		44		86			81
Net interest income after provision for credit losses		2,922			2,777		2,817		2,791			2,572
FEE AND OTHER INCOME
Service charges		499			489		471		436			439
Other banking fees		304			293		259		241			257
Commissions		584			682		792		778			765
Fiduciary and asset management fees		665			675		679		672			662
Advisory, underwriting and other investment banking fees		233			197		192		213			191
Trading account profits (losses)		(69	)		39		74		5			(46	)
Principal investing		201			15		38		(13	)		(25	)
Securities gains (losses)		(71	)		36		2		(24	)		22
Other income		246			173		250		296			351
Total fee and other income		2,592			2,599		2,757		2,604			2,616
NONINTEREST EXPENSE
Salaries and employee benefits		2,118			2,164		2,182		2,152			2,109
Occupancy		234			224		229		244			220
Equipment		268			253		259		285			264
Advertising		46			48		48		56			38
Communications and supplies		149			157		151		156			159
Professional and consulting fees		134			126		109		146			109
Other intangible amortization		99			107		112		120			127
Merger-related and restructuring expenses		127			102		99		135			148
Sundry expense		487			306		467		472			396
Total noninterest expense		3,662			3,487		3,656		3,766			3,570
Minority interest in income of consolidated subsidiaries		28			45		57		63			55
Income before income taxes and cumulative effect of a change in accounting principle		1,824			1,844		1,861		1,566			1,563
Income taxes		561			592		610		466			475
Income before cumulative effect of a change in accounting principle		1,263			1,252		1,251		1,100			1,088
Cumulative effect of a change in accounting principle, net of income taxes		—			—		—		—			17
Net income	$	1,263			1,252		1,251		1,100			1,105
PER COMMON SHARE DATA
Basic
Income before change in accounting principle	$	0.97			0.96		0.96		0.84			0.83
Net income		0.97			0.96		0.96		0.84			0.84
Diluted
Income before change in accounting principle		0.96			0.95		0.94		0.83			0.82
Net income		0.96			0.95		0.94		0.83			0.83
Cash dividends	$	0.40			0.40		0.40		0.35			0.35
AVERAGE COMMON SHARES
Basic		1,296			1,300		1,302		1,311			1,321
Diluted		1,316			1,320		1,326		1,332			1,338

69

WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets — September 30, 2004 and December 31, 2003 (Unaudited)	71
Consolidated Statements of Income — Three and Nine Months Ended September 30, 2004 and 2003 (Unaudited)	72
Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2004 and 2003 (Unaudited)	73
Notes to Consolidated Financial Statements	74

70

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS(Unaudited)

	September 30,			December 31,
(In millions, except per share data)	2004			2003
ASSETS
Cash and due from banks	$	10,355			11,479
Interest-bearing bank balances		7,664			2,308
Federal funds sold and securities purchased under resale agreements (carrying amount of collateral held $16,026 at September 30, 2004, $6,520 repledged)		30,629			24,725
Total cash and cash equivalents		48,648			38,512
Trading account assets		45,129			34,714
Securities		102,157			100,445
Loans, net of unearned income		174,504			165,571
Allowance for loan losses		(2,324	)		(2,348	)
Loans, net		172,180			163,223
Premises and equipment		4,150			4,619
Due from customers on acceptances		563			854
Goodwill		11,481			11,149
Other intangible assets		946			1,243
Loans held for sale		17,755			12,625
Other assets		33,689			33,804
Total assets	$	436,698			401,188
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-bearing deposits		52,524			48,683
Interest-bearing deposits		200,457			172,542
Total deposits		252,981			221,225
Short-term borrowings		67,589			71,290
Bank acceptances outstanding		570			876
Trading account liabilities		22,704			19,184
Other liabilities		14,838			16,945
Long-term debt		41,444			36,730
Total liabilities		400,126			366,250
Minority interest in net assets of consolidated subsidiaries		2,675			2,510
STOCKHOLDERS’ EQUITY
Dividend Equalization Preferred shares, no par value, 97 million shares issued and outstanding at September 30, 2004		—			—
Common stock, $3.33-1/3 par value; authorized 3 billion shares, outstanding 1.308 billion shares at September 30, 2004		4,359			4,374
Paid-in capital		18,095			17,811
Retained earnings		10,449			8,904
Accumulated other comprehensive income, net		994			1,339
Total stockholders’ equity		33,897			32,428
Total liabilities and stockholders’ equity	$	436,698			401,188

71

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions, except per share data)	2004			2003			2004			2003
INTEREST INCOME
Interest and fees on loans	$	2,393			2,352			7,044			7,150
Interest and dividends on securities		1,156			885			3,407			2,724
Trading account interest		325			174			759			535
Other interest income		427			301			1,109			720
Total interest income		4,301			3,712			12,319			11,129
INTEREST EXPENSE
Interest on deposits		691			534			1,993			1,792
Interest on short-term borrowings		396			317			1,011			908
Interest on long-term debt		249			208			651			699
Total interest expense		1,336			1,059			3,655			3,399
Net interest income		2,965			2,653			8,664			7,730
Provision for credit losses		43			81			148			500
Net interest income after provision for credit losses		2,922			2,572			8,516			7,230
FEE AND OTHER INCOME
Service charges		499			439			1,459			1,295
Other banking fees		304			257			856			738
Commissions		584			765			2,058			1,651
Fiduciary and asset management fees		665			662			2,019			1,605
Advisory, underwriting and other investment banking fees		233			191			622			556
Trading account profits (losses)		(69	)		(46	)		44			80
Principal investing		201			(25	)		254			(126	)
Securities gains (losses)		(71	)		22			(33	)		69
Other income		246			351			669			972
Total fee and other income		2,592			2,616			7,948			6,840
NONINTEREST EXPENSE
Salaries and employee benefits		2,118			2,109			6,464			5,556
Occupancy		234			220			687			607
Equipment		268			264			780			736
Advertising		46			38			142			104
Communications and supplies		149			159			457			442
Professional and consulting fees		134			109			369			314
Other intangible amortization		99			127			318			398
Merger-related and restructuring expenses		127			148			328			308
Sundry expense		487			396			1,260			1,011
Total noninterest expense		3,662			3,570			10,805			9,476
Minority interest in income of consolidated subsidiaries		28			55			130			80
Income before income taxes and cumulative effect of a change in accounting principle		1,824			1,563			5,529			4,514
Income taxes		561			475			1,763			1,367
Income before cumulative effect of a change in accounting principle		1,263			1,088			3,766			3,147
Cumulative effect of a change in accounting principle, net of income taxes		—			17			—			17
Net income		1,263			1,105			3,766			3,164
Dividends on preferred stock		—			—			—			5
Net income available to common stockholders	$	1,263			1,105			3,766			3,159
PER COMMON SHARE DATA
Basic
Income before change in accounting principle	$	0.97			0.83			2.90			2.37
Net income		0.97			0.84			2.90			2.38
Diluted
Income before change in accounting principle		0.96			0.82			2.85			2.34
Net income		0.96			0.83			2.85			2.35
Cash dividends	$	0.40			0.35			1.20			0.90
AVERAGE COMMON SHARES
Basic		1,296			1,321			1,299			1,330
Diluted		1,316			1,338			1,321			1,343

72

WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)

	Nine Months Ended
	September 30,
(In millions)	2004			2003
OPERATING ACTIVITIES
Net income	$	3,766			3,164
Adjustments to reconcile net income to net cash provided (used) by operating activities
Cumulative effect of a change in accouning principle		—			(17	)
Accretion and amortization of securities discounts and premiums, net		151			238
Provision for credit losses		148			500
Securitization transactions		(47	)		(334	)
Gain on sale of mortgage servicing rights		(30	)		(84	)
Securities transactions		33			(69	)
Depreciation and other amortization		1,051			1,111
Trading account assets, net		(10,415	)		(2,538	)
Mortgage loans held for resale		(126	)		557
Loss on sales of premises and equipment		101			34
Loans held for sale, net		(5,321	)		(4,161	)
Contribution to qualified pension plan		(253	)		(418	)
Other assets, net		680			(2,000	)
Trading account liabilities, net		3,520			1,059
Minority interest		—			300
Other liabilities, net		(2,184	)		3,596
Net cash provided (used) by operating activities		(8,926	)		938
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities		34,719			17,319
Maturities of securities		22,315			22,651
Purchases of securities		(58,873	)		(48,418	)
Origination of loans, net		(8,989	)		(2,870	)
Sales of premises and equipment		476			773
Purchases of premises and equipment		(615	)		(1,009	)
Goodwill and other intangible assets		(353	)		(64	)
Purchase of bank-owned separate account life insurance		(195	)		(187	)
Cash equivalents acquired, net of purchases of banking organizations		—			8,177
Net cash used by investing activities		(11,515	)		(3,628	)
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Increase in deposits, net		31,756			11,977
Securities sold under repurchase agreements and other short-term borrowings, net		(3,701	)		7,672
Issuances of long-term debt		7,941			2,354
Payments of long-term debt		(3,227	)		(4,475	)
Issuances of common stock		402			175
Purchases of common stock		(1,023	)		(1,405	)
Cash dividends paid		(1,571	)		(1,211	)
Net cash provided by financing activities		30,577			15,087
Increase in cash and cash equivalents		10,136			12,397
Cash and cash equivalents, beginning of year		38,512			24,936
Cash and cash equivalents, end of period	$	48,648			37,333
NONCASH ITEMS
Transfer to securities from loans	$	245			—
Transfer to loans held for sale from loans, net	$	(317	)		(298	)

73

WACHOVIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

GENERAL

     The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all the information and footnotes required by United States generally accepted accounting principles for complete financial statements. The unaudited condensed consolidated financial statements of the Company include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such financial statements for all periods presented. The financial position and result of operations as of and for the three and nine months ended September 30, 2004, are not necessarily indicative of the results of operations that may be expected in the future. Please refer to the Company’s 2003 Annual Report on Form 10-K for additional information related to the Company’s audited consolidated financial statements for the three years ended December 31, 2003, including the related notes to consolidated financial statements.

BUSINESS COMBINATIONS

     On June 21, 2004, the Company announced the signing of a definitive merger agreement with SouthTrust Corporation (“SouthTrust”), and the merger was completed on November 1, 2004. The terms of this transaction called for the Company to exchange 0.89 shares of its common stock for each share of SouthTrust common stock. Based on the Company’s average of the closing prices for a period beginning two trading days before the announcement of the merger and ending two days after the merger announcement of $45.86, the transaction is valued at $13.8 billion and represents an exchange value of $40.82 for each share of SouthTrust common stock.

ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR UNFUNDED LENDING COMMITMENTS

     The Company employs a variety of modeling and estimation tools in developing the appropriate allowance. Techniques for measuring credit risk are constantly being reevaluated and refined. In connection with this process, the Company periodically reassesses the allowance model to ensure that it reflects the best estimate of probable incurred losses. In the second quarter of 2004, the Company refined the allowance for loan losses model to better align the methodology with the Company’s current framework for analyzing and measuring credit risk. The change in methodology did not significantly change the level of the allowance or the Company’s view as to its adequacy. In June 2004, the Company reclassified the reserve for unfunded lending commitments from the allowance for loan losses to other liabilities. The modeling process used in the determination of the adequacy of the reserve for unfunded lending commitments is consistent with the process for the allowance for loan losses.

STOCK-BASED COMPENSATION

     In 2002, the Company adopted the fair value method of accounting for stock options. Certain awards made prior to January 1, 2002, continued to be accounted for using the intrinsic value method.

     The effect on net income available to common stockholders and earnings per share as if the fair value method had been applied to all outstanding and unvested awards for the three and nine months ended September 30, 2004 and 2003, is presented below.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions, except per share data)	2004			2003			2004			2003
Net income available to common stockholders, as reported	$	1,263			1,105			3,766			3,159
Add stock-based employee compensation expense included in reported net income, net of income taxes		22			18			62			49
Deduct total stock-based employee compensation expense determined under the fair value method for all awards, net of income taxes		(25	)		(35	)		(95	)		(100	)
Pro forma net income available to common stockholders	$	1,260			1,088			3,733			3,108
PER COMMON SHARE DATA
Basic — as reported	$	0.97			0.84			2.90			2.38
Basic — pro forma		0.97			0.82			2.87			2.33
Diluted — as reported		0.96			0.83			2.85			2.35
Diluted — pro forma	$	0.96			0.81			2.83			2.31

74

PERSONNEL EXPENSE AND RETIREMENT BENEFITS

     The components of the retirement benefit costs included in salaries and employee benefits for the nine months ended September 30, 2004 and 2003, are presented below.

											Other Postretirement
	Qualified Pension						Nonqualified Pension				Benefits
	Nine Months Ended						Nine Months Ended				Nine Months Ended
	September 30,						September 30,				September 30,
(In millions)	2004			2003			2004		2003		2004			2003
RETIREMENT BENEFIT COSTS
Service cost	$	115			127			1		1		3			9
Interest cost		174			178			16		16		39			41
Expected return on plan assets		(285	)		(269	)		—		—		(2	)		(4	)
Amortization of prior service cost		(20	)		1			—		—		(6	)		—
Amortization of actuarial losses		60			34			6		3		6			5
Amortization of transition losses		—			—			—		—		—			2
Net retirement benefit costs	$	44			71			23		20		40			53

     In the nine months ended September 30, 2004, the Company contributed $253 million to the Qualified Pension. The Company does not expect to make any additional contributions during the year.

     In addition to these costs, Wachovia Securities recorded $7 million of pension benefit costs and $1 million of other postretirement benefit costs in the nine months end September 30, 2003, related to employees of Wachovia Securities who continued to participate in benefit plans of Prudential Financial.

     In December 2003, Congress enacted into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”), which introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care plans. Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”, requires currently enacted changes in relevant laws to be considered in the current period measurement of postretirement benefit cost and the accumulated benefit obligation. However, the Financial Accounting Standards Board (“FASB”) issued guidance that permitted companies to defer recognition of the impact of the Act until certain accounting issues are resolved by the FASB. In May 2004, the FASB issued FASB Staff Position (“FSP”) 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”, which provides guidance on accounting for the impact of the Act. The Company adopted the provisions of FSP 106-2 in the second quarter of 2004. The adoption of FSP 106-2 and the related remeasurement of the accumulated benefit obligation resulted in a reduction in both the annual postretirement benefit cost and the accumulated benefit obligation of $9 million and $93 million, respectively, in 2004.

INCOME TAXES

     The Company and the Internal Revenue Service (“IRS”) have settled all issues relating to the IRS’s challenge of the Company’s tax position on lease-in, lease-out transactions entered into by First Union Corporation and legacy Wachovia Corporation. The Company’s current and deferred tax liabilities previously accrued were adequate to cover this resolution.

RECLASSIFICATIONS

     Certain amounts in 2003 were reclassified to conform with the presentation in 2004. These reclassifications had no effect on the Company’s previously reported consolidated financial position or results of operations.

75

NOTE 2: VARIABLE INTEREST ENTITIES

     In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities”, which addresses consolidation of variable interest entities (“VIEs”), certain of which are also referred to as special-purpose entities (“SPE”). 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 is deemed to be the “primary beneficiary,” and thus required to 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, that will receive a majority of the VIE’s expected residual returns, or both. A “variable interest” is a contractual, ownership or other interest that changes with changes in the fair value of the VIE’s net assets. “Expected losses” and “expected residual returns” are measures of variability in the expected cash flows of a VIE.

     In December 2003, the FASB issued a revision to FIN 46 (“FIN 46R”), which clarifies and interprets certain of the provisions of FIN 46 without changing the basic accounting model in FIN 46. The provisions of FIN 46R were effective March 31, 2004.

     The Company administers multi-seller commercial paper conduits through which it arranges financing for certain customer transactions that provide customers with access to the commercial paper market. The Company provides liquidity agreements to these multi-seller conduits. As currently structured, these conduits are VIEs in which the Company is the primary beneficiary. On July 1, 2003, the Company consolidated these conduits. At September 30, 2004, the Company’s balance sheet included $9.2 billion of assets, representing $4.8 billion of securities and $4.4 billion of other earning assets, and $9.5 billion of short-term commercial paper borrowings related to this consolidation.

     In connection with the adoption of FIN 46R, on March 31, 2004, the Company deconsolidated the trusts associated with its trust preferred securities, which did not have a material impact on the Company’s consolidated financial position or results of operations. More information related to the trust preferred securities is presented in Note 10 to Notes to Consolidated Financial Statements of the Company’s 2003 Annual Report.

     FIN 46 also requires disclosure of significant variable interests the Company has in VIEs for which it is not the primary beneficiary and thus not required to consolidate. The Company provides liquidity agreements to other conduits not administered by the Company, related to Company assets transferred to these conduits. No individual liquidity agreement was considered a significant variable interest at September 30, 2004. However, the aggregate of these variable interests in other conduits, which have total assets of $37.1 billion, represented a maximum exposure to loss of $2.0 billion at September 30, 2004, and is included in the table in Note 8 which follows. The Company is not the primary beneficiary of these VIEs and is not required to consolidate them.

     The Company did not consolidate or deconsolidate any other significant variable interest entities in connection with the adoption of FIN 46 or FIN 46R, and accordingly, these standards did not have a material impact on the Company’s consolidated financial position or results of operations, other than as indicated above.

76

NOTE 3: ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR UNFUNDED LENDING COMMITMENTS

     The allowance for loan losses is presented below.

	2004									2003
	Third			Second			First			Fourth			Third
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period	$	2,331			2,338			2,348			2,474			2,510
Provision for credit losses		63			73			59			63			118
Provision for credit losses relating to loans transferred to loans held for sale or sold		(8	)		(9	)		(8	)		24			—
Allowance relating to loans acquired, transferred to loans held for sale or sold		3			(3	)		(9	)		(57	)		(22	)
Total		2,389			2,399			2,390			2,504			2,606
Loan losses		(123	)		(108	)		(135	)		(215	)		(199	)
Loan recoveries		58			40			83			59			67
Net charge-offs		(65	)		(68	)		(52	)		(156	)		(132	)
Balance, end of period	$	2,324			2,331			2,338			2,348			2,474

     The reserve for unfunded lending commitments is presented below.

	2004									2003
	Third			Second			First			Fourth			Third
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
RESERVE FOR UNFUNDED LENDING COMMITMENTS
Balance, beginning of period	$	146			149			156			157			194
Provision for credit losses		(12	)		(3	)		(7	)		(1	)		(37	)
Balance, end of period	$	134			146			149			156			157

77

NOTE 4: OTHER ASSETS

	September 30,		December 31,
(In millions)	2004		2003
Accounts receivable	$	9,092		7,113
Customer receivables, including margin loans		6,224		6,538
Interest and dividends receivable		2,418		2,388
Bank and corporate-owned life insurance		7,539		7,354
Equity method investments		2,251		1,799
Prepaid pension costs		2,057		1,848
Deferred federal and state income taxes		929		1,259
Sundry assets		3,179		5,505
Total other assets	$	33,689		33,804

NOTE 5: COMPREHENSIVE INCOME

     Comprehensive income is defined as the change in equity from all transactions other than those with stockholders, and it includes net income and other comprehensive income. Comprehensive income for the three and nine months ended September 30, 2004 and 2003, is presented below.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions)	2004			2003			2004			2003
COMPREHENSIVE INCOME
Net income	$	1,263			1,105			3,766			3,164
OTHER COMPREHENSIVE INCOME
Net unrealized holding gain (loss) on securities		744			(300	)		(113	)		(207	)
Net unrealized loss on cash flow hedge derivatives		(221	)		(159	)		(232	)		(253	)
Total comprehensive income	$	1,786			646			3,421			2,704

78

NOTE 6: BUSINESS SEGMENTS (a)

     Business segment earnings are presented excluding merger-related and restructuring expenses, other intangible amortization, minority interest income in consolidated subsidiaries, and the change in accounting principle. The Company believes that while these items apply to overall corporate operations, they are not meaningful to understanding or evaluating the performance of the Company’s individual business segments. The Company does not take these items into account as it manages business segment operations or allocates capital, and therefore, the Company’s GAAP segment presentation excludes these items. Also, for segment reporting purposes, net interest income reflects 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.

     Business segment earnings are the primary measure of segment profit or loss that the Company uses to assess segment performance and to allocate resources. Economic profit, risk-adjusted return on capital (“RAROC”) and efficiency ratios are additional metrics, all of which are based on and calculated directly from segment earnings, that assist management in evaluating segment results. Please refer to the Company’s 2003 Annual Report, including pages 31 through 35 and pages 103 through 105, for additional information related to business segments and performance metrics.

     The Company continuously reassesses assumptions, methodologies and reporting classifications to better reflect the true economics of the Company’s business segments. Several refinements have been incorporated for 2004. Business segment results for each quarter of 2003 will be restated to reflect these changes, which did not affect consolidated results. In the first nine months of 2004, the Company updated its cost methodology to better align support costs to the Company’s business segments and product lines. The impact to segment earnings for full year 2003 as a result of these refinements was a $21 million increase in the General Bank, a $17 million decrease in Capital Management, a $14 million decrease in Wealth Management, a $6 million decrease in the Corporate and Investment Bank, and a $16 million increase in the Parent.

	Three Months Ended September 30, 2004
																Net Merger-
										Corporate						Related
										and						and
	General			Capital			Wealth			Investment						Restructuring
(Dollars in millions)	Bank			Management			Management			Bank			Parent			Expenses (c)			Total
CONSOLIDATED
Net interest income (b)	$	1,994			152			130			598			154			(63	)		2,965
Fee and other income		601			1,131			136			787			(63	)		—			2,592
Intersegment revenue		43			(13	)		2			(33	)		1			—			—
Total revenue (b)		2,638			1,270			268			1,352			92			(63	)		5,557
Provision for credit losses		74			—			(1	)		(15	)		(15	)		—			43
Noninterest expense		1,354			1,099			189			680			213			127			3,662
Minority interest		—			—			—			—			65			(37	)		28
Income taxes (benefits)		430			63			30			222			(149	)		(35	)		561
Tax-equivalent adjustment		10			—			—			30			23			(63	)		—
Net income (loss)	$	770			108			50			435			(45	)		(55	)		1,263
Economic profit	$	603			73			36			270			(59	)		—			923
Risk adjusted return on capital		57.15	%		34.07			49.09			33.08			(0.26	)		—			37.61
Economic capital, average	$	5,200			1,268			372			4,865			2,098			—			13,803
Cash overhead efficiency ratio (b)		51.35	%		86.57			70.52			50.24			123.47			—			61.14
Lending commitments	$	76,592			—			4,497			77,007			319			—			158,415
Average loans, net		124,585			346			11,461			33,250			(1,090	)		—			168,552
Average core deposits	$	170,459			29,091			12,327			19,380			1,732			—			232,989
FTE employees		34,481			19,351			3,628			4,552			22,491			—			84,503

79

	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 (c)			Total
CONSOLIDATED
Net interest income (b)	$	1,884			78			113		572			70			(64	)		2,653
Fee and other income		561			1,304			131		539			81			—			2,616
Intersegment revenue		46			(17	)		1		(31	)		1			—			—
Total revenue (b)		2,491			1,365			245		1,080			152			(64	)		5,269
Provision for credit losses		120			—			2		10			(51	)		—			81
Noninterest expense		1,319			1,161			183		577			182			148			3,570
Minority interest		—			—			—		—			71			(16	)		55
Income taxes (benefits)		375			74			22		151			(98	)		(49	)		475
Tax-equivalent adjustment		9			—			—		32			23			(64	)		—
Income before cumulative effect of a change in accounting principle		668			130			38		310			25			(83	)		1,088
Cumulative effect of a change in accounting principle, net of income taxes		—			—			—		—			17			—			17
Net income	$	668			130			38		310			42			(83	)		1,105
Economic profit	$	499			94			24		137			5			—			759
Risk adjusted return on capital		45.90	%		39.75			35.40		21.08			11.90			—			31.27
Economic capital, average	$	5,681			1,299			384		5,404			2,094			—			14,862
Cash overhead efficiency ratio (b)		52.94	%		84.99			74.48		53.38			37.56			—			61.79
Lending commitments	$	63,509			—			3,843		69,481			492			—			137,325
Average loans, net		114,574			135			9,703		31,911			1,671			—			157,994
Average core deposits	$	155,336			1,615			11,054		16,391			1,319			—			185,715
FTE employees		34,884			20,012			3,802		4,224			23,713			—			86,635

	Nine Months Ended September 30, 2004
																Net Merger-
										Corporate						Related
										and						and
	General			Capital			Wealth			Investment						Restructuring
(Dollars in millions)	Bank			Management			Management			Bank			Parent			Expenses (c)			Total
CONSOLIDATED
Net interest income (b)	$	5,751			400			364			1,801			538			(190	)		8,664
Fee and other income		1,770			3,726			421			2,246			(215	)		—			7,948
Intersegment revenue		121			(38	)		5			(90	)		2			—			—
Total revenue (b)		7,642			4,088			790			3,957			325			(190	)		16,612
Provision for credit losses		207			—			(1	)		(45	)		(13	)		—			148
Noninterest expense		3,966			3,472			565			1,913			561			328			10,805
Minority interest		—			—			—			—			214			(84	)		130
Income taxes (benefits)		1,228			224			83			675			(353	)		(94	)		1,763
Tax-equivalent adjustment		31			—			—			93			66			(190	)		—
Net income (loss)	$	2,210			392			143			1,321			(150	)		(150	)		3,766
Economic profit	$	1,684			282			99			822			(156	)		—			2,731
Risk adjusted return on capital		53.69	%		39.24			46.15			33.87			1.01			—			37.26
Economic capital, average	$	5,271			1,335			375			4,804			2,105			—			13,890
Cash overhead efficiency ratio (b)		51.89	%		84.93			71.56			48.34			74.98			—			60.46
Lending commitments	$	76,592			—			4,497			77,007			319			—			158,415
Average loans, net		121,610			247			10,902			30,939			111			—			163,809
Average core deposits	$	165,994			24,071			11,987			18,271			1,541			—			221,864
FTE employees		34,481			19,351			3,628			4,552			22,491			—			84,503

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	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 (c)			Total
CONSOLIDATED
Net interest income (b)	$	5,440			153			319		1,723			286			(191	)		7,730
Fee and other income		1,690			2,864			396		1,641			249			—			6,840
Intersegment revenue		130			(52	)		4		(82	)		—			—			—
Total revenue (b)		7,260			2,965			719		3,282			535			(191	)		14,570
Provision for credit losses		325			—			11		215			(51	)		—			500
Noninterest expense		3,909			2,488			535		1,687			549			308			9,476
Minority interest		—			—			—		—			96			(16	)		80
Income taxes (benefits)		1,075			174			63		419			(255	)		(109	)		1,367
Tax-equivalent adjustment		29			—			—		94			68			(191	)		—
Income before cumulative effect of a change in accounting principle		1,922			303			110		867			128			(183	)		3,147
Cumulative effect of a change in accounting principle, net of income taxes		—			—			—		—			17			—			17
Net income		1,922			303			110		867			145			(183	)		3,164
Dividends on preferred stock		—			—			—		—			5			—			5
Net income available to common stockholders	$	1,922			303			110		867			140			(183	)		3,159
Economic profit	$	1,401			229			72		396			133			—			2,231
Risk adjusted return on capital		44.00	%		45.06			37.09		19.98			18.64			—			30.66
Economic capital, average	$	5,677			899			369		5,894			2,331			—			15,170
Cash overhead efficiency ratio (b)		53.84	%		83.91			74.27		51.41			28.47			—			59.42
Lending commitments	$	63,509			—			3,843		69,481			492			—			137,325
Average loans, net		113,021			134			9,527		34,028			1,188			—			157,898
Average core deposits	$	150,910			1,367			10,773		15,047			1,323			—			179,420
FTE employees		34,884			20,012			3,802		4,224			23,713			—			86,635

(a) Certain amounts presented in periods prior to the third quarter of 2004 have been reclassified to conform to the presentation in the third quarter of 2004.

(b) Tax-equivalent.

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

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NOTE 7: BASIC AND DILUTED EARNINGS PER COMMON SHARE

     The calculation of basic and diluted earnings per common share for the three and nine months ended September 30, 2004, and September 30, 2003, is presented below.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions, except per share data)	2004		2003		2004		2003
Income before cumulative effect of a change in accounting principle and dividends on preferred stock	$	1,263		1,088		3,766		3,147
Cumulative effect of a change in accounting principle, net of income taxes		—		17		—		17
Dividends on preferred stock		—		—		—		(5	)
Income available to common stockholders	$	1,263		1,105		3,766		3,159
Basic earnings per common share
Income before change in accounting principle	$	0.97		0.83		2.90		2.37
Cumulative effect of a change in accounting principle		—		0.01		—		0.01
Net income	$	0.97		0.84		2.90		2.38
Diluted earnings per common share
Income before change in accounting principle	$	0.96		0.82		2.85		2.34
Cumulative effect of a change in accounting principle		—		0.01		—		0.01
Net income	$	0.96		0.83		2.85		2.35
Average common shares — basic		1,296		1,321		1,299		1,330
Common share equivalents, unvested restricted stock, incremental common shares from forward purchase contracts		20		17		22		13
Average common shares — diluted		1,316		1,338		1,321		1,343

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NOTE 8: GUARANTEES

     The maximum risk of loss and the carrying amount of each of the Company’s guarantees subject to the recognition and disclosure requirements of FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, and in place at September 30, 2004, and at December 31, 2003, are presented below.

	September 30, 2004				December 31, 2003
			Maximum				Maximum
	Carrying		Risk of		Carrying		Risk of
(In millions)	Amount		Loss		Amount		Loss
Securities lending indemnifications	$	—		45,313		—		—
Standby letters of credit		100		28,557		72		27,597
Liquidity agreements		1		7,853		6		10,319
Loans sold with recourse		39		4,683		29		2,655
Residual value guarantees on operating leases		8		636		4		641
Written put options		383		3,662		422		2,021
Transactions in our own stock		—		435		—		—
Contingent consideration		—		262		—		271
Total guarantees	$	531		91,401		533		43,504

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