Wachovia Corp New (WBPS) 10-Q 2006 Q2 Quarterly report

Exhibit (19)

	Second Quarter 2006 Management’s Discussion and Analysis Quarterly Financial Supplement Six Months Ended June 30, 2006

WACHOVIA CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL SUPPLEMENT
SIX MONTHS ENDED JUNE 30, 2006
TABLE OF CONTENTS

	PAGE
Financial Highlights		1
Management’s Discussion and Analysis		2
Explanation of Our Use of Non-GAAP Financial Measures		25
Selected Statistical Data		26
Summaries of Income, Per Common Share and Balance Sheet Data		27
Merger-Related and Restructuring Expenses		28
Business Segments		29
Net Trading Revenue — Investment Banking		45
Selected Ratios		45
Trading Account Assets and Liabilities		45
Loans — On-Balance Sheet, and Managed and Servicing Portfolios		46
Loans Held for Sale		47
Allowance for Loan Losses and Nonperforming Assets		48
Reserve for Unfunded Lending Commitments		49
Nonaccrual Loan Activity		49
Goodwill and Other Intangible Assets		50
Deposits		50
Time Deposits in Amounts of $100,000 or More		50
Long-Term Debt		51
Changes in Stockholders’ Equity		52
Capital Ratios		53
Net Interest Income Summaries — Five Quarters Ended June 30, 2006		54
Net Interest Income Summaries — Six Months Ended June 30, 2006 and 2005		56
Consolidated Balance Sheets — Five Quarters Ended June 30, 2006		57
Consolidated Statements of Income — Five Quarters Ended June 30, 2006		58
Wachovia Corporation and Subsidiaries — Consolidated Financial Statements		59

FINANCIAL HIGHLIGHTS

	Three Months Ended								Six Months Ended
	June 30,					Percent			June 30,					Percent
						Increase								Increase
(Dollars in millions, except per share data)	2006			2005		(Decrease)			2006			2005		(Decrease)
EARNINGS SUMMARY
Net interest income(GAAP)	$	3,641			3,358		8	%	$	7,131			6,771		5	%
Tax-equivalent adjustment		34			53		(36	)		83			114		(27	)
Net interest income(Tax-equivalent)		3,675			3,411		8			7,214			6,885		5
Fee and other income		3,583			2,977		20			7,100			5,972		19
Total revenue(Tax-equivalent)		7,258			6,388		14			14,314			12,857		11
Provision for credit losses		59			50		18			120			86		40
Other noninterest expense		4,139			3,591		15			8,218			7,287		13
Merger-related and restructuring expenses		24			90		(73	)		92			151		(39	)
Other intangible amortization		98			107		(8	)		190			222		(14	)
Total noninterest expense		4,261			3,788		12			8,500			7,660		11
Minority interest in income of consolidated subsidiaries		90			71		27			185			135		37
Income before income taxes(Tax-equivalent)		2,848			2,479		15			5,509			4,976		11
Tax-equivalent adjustment		34			53		(36	)		83			114		(27	)
Income taxes		929			776		20			1,813			1,591		14
Net income	$	1,885			1,650		14	%	$	3,613			3,271		10	%
Diluted earnings per common share	$	1.17			1.04		13	%	$	2.26			2.05		10	%
Return on average common stockholders’ equity		15.41	%		14.04		—			15.02	%		13.98		—
Return on average assets		1.39	%		1.31		—			1.37	%		1.31		—
ASSET QUALITY
Allowance for loan losses as % of loans, net		1.07	%		1.18		—			1.07	%		1.18		—
Allowance for loan losses as % of nonperforming assets		421			284		—			421			284		—
Allowance for credit losses as % of loans, net		1.13			1.25					1.13			1.25
Net charge-offs as % of average loans, net		0.08			0.09		—			0.08			0.09		—
Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale		0.25	%		0.44		—			0.25	%		0.44		—
CAPITAL ADEQUACY
Tier I capital ratio		7.81	%		7.85		—			7.81	%		7.85		—
Total capital ratio		11.42			11.25		—			11.42			11.25		—
Leverage ratio		6.57	%		6.10		—			6.57	%		6.10		—
OTHER FINANCIAL DATA
Net interest margin		3.18	%		3.23		—			3.19	%		3.27		—
Fee and other income as % of total revenue		49.37			46.60		—			49.60			46.45		—
Effective income tax rate		33.05	%		32.02		—			33.43	%		32.72		—
BALANCE SHEET DATA
Securities	$	120,453			117,906		2	%	$	120,453			117,906		2	%
Loans, net		282,916			230,287		23			282,916			230,287		23
Total assets		553,614			511,840		8			553,614			511,840		8
Total deposits		327,614			299,910		9			327,614			299,910		9
Long-term debt		74,627			49,006		52			74,627			49,006		52
Stockholders’ equity	$	48,872			47,904		2	%	$	48,872			47,904		2	%
OTHER DATA
Average diluted common shares(In millions)		1,613			1,591		1	%		1,599			1,597		—	%
Actual common shares(In millions)		1,589			1,577		1			1,589			1,577		1
Dividends paid per common share	$	0.51			0.46		11		$	1.02			0.92		11
Dividend payout ratio on common shares		43.59	%		44.23		(1	)		45.13	%		44.88		1
Book value per common share	$	30.75			30.37		1		$	30.75			30.37		1
Common stock price		54.08			49.60		9			54.08			49.60		9
Market capitalization	$	85,960			78,236		10		$	85,960			78,236		10
Common stock price to book value		176	%		163		8			176	%		163		8
FTE employees		97,316			93,385		4			97,316			93,385		4
Total financial centers/brokerage offices		3,847			3,825		1			3,847			3,825		1
ATMs		5,134			5,089		1	%		5,134			5,089		1	%

1

Management’s Discussion and Analysis

This discussion contains forward-looking statements. Please refer to our Second Quarter 2006 Report on Form 10-Q for a discussion of various factors that could cause our actual results to differ materially from those expressed in such forward-looking statements.

Summary of Results of Operations	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions, except per share data)	2006		2005		2006		2005
Net interest income(GAAP)	$	3,641		3,358		7,131		6,771
Tax-equivalent adjustment		34		53		83		114
Net interest income(a)		3,675		3,411		7,214		6,885
Fee and other income		3,583		2,977		7,100		5,972
Total revenue(a)		7,258		6,388		14,314		12,857
Provision for credit losses		59		50		120		86
Other noninterest expense		4,139		3,591		8,218		7,287
Merger-related and restructuring expenses		24		90		92		151
Other intangible amortization		98		107		190		222
Total noninterest expense		4,261		3,788		8,500		7,660
Minority interest in income of consolidated subsidiaries		90		71		185		135
Income taxes		929		776		1,813		1,591
Tax-equivalent adjustment		34		53		83		114
Net income		1,885		1,650		3,613		3,271
Diluted earnings per common share	$	1.17		1.04		2.26		2.05

^(a) Tax-equivalent.

Executive Summary

Wachovia’s net income available to common stockholders in the first six months of 2006 was $3.6 billion, up 10 percent from the same period of 2005, and diluted earnings per common share also were up 10 percent to $2.26. After-tax net merger-related and restructuring expenses were 4 cents per share in the first six months of 2006 and 5 cents per share in the first six months of 2005. Results reflect the impact of acquisitions, including Westcorp, an auto dealer financial services business and its retail branch network, on March 1, 2006. Key factors in the first six months of 2006 compared with the same period in 2005 include:

• 11 percent revenue growth driven by a 19 percent increase in fee and other income and 5 percent higher net interest income.

• Fee and other income growth reflecting strong capital markets-related income, including higher principal investing gains, strong trading profits and solid advisory, underwriting and other investment banking fees, as well as strength in consumer service charges and other banking fees. Fee and other income represented 50 percent of total revenue compared with 46 percent in the prior year period.

• Average loan growth of 20 percent and average core deposit growth of 6 percent. Average loan growth included $9.4 billion in loans related to Westcorp.

• 11 percent growth in noninterest expense, reflecting revenue-related and other incentives, the impact of acquisitions, higher personnel expense and efficiency initiative costs.

• $107 million in increased employee stock compensation expense relating to the implementation of a new share-based payment accounting standard, which is discussed further in theOutlooksection and inNotes to Consolidated Financial Statements.

• The previously disclosed $100 million credit card-related termination fee received in the first quarter of 2006 as a result of the Bank of America/MBNA merger, which is discussed further in theOutlooksection.

2

• Another previously disclosed first quarter 2006 gain of $33 million related to the Archipelago/New York Stock Exchange merger.

In addition, results also included securities losses of $23 million, which consisted of $51 million of losses in the corporate portfolio offset by gains of $28 million in our Corporate and Investment Bank primarily related to corporate lending activities.

Credit quality continued to be very strong, with an annualized net charge-off ratio of 0.08 percent and a decline in nonperforming assets to 0.25 percent of loans, foreclosed properties and loans held for sale. Provision expense increased to $120 million, reflecting growth in the loan portfolio, including Westcorp. We continue to mitigate risk and volatility on our balance sheet by actively monitoring and reducing potential problem loans, including their sale when prudent.

Average net loans increased 20 percent to $268.0 billion. Average consumer loan growth of 33 percent from the first six months of 2005 was led by real estate-secured loans, including the effect of the transfer of $12.5 billion of home equity lines to the loan portfolio from loans held for sale at year-end 2005, and the addition of an average $9.4 billion of Westcorp loans. Excluding the transfer of home equity lines and the impact of Westcorp, consumer loans increased 9 percent. Average commercial loan growth of 12 percent reflected strength in middle-market commercial and commercial real estate, large corporate lending and international lending. Average core deposits increased to $290.9 billion and average low-cost core deposits increased to $243.6 billion, up 3 percent from the six months ended June 30, 2005.

Our four major businesses continued to generate strong sales activity and market share gains in the first six months of 2006. The General Bank’s earnings rose 21 percent to $2.3 billion on record revenue, reflecting the addition of Westcorp and organic growth. Capital Management grew earnings 29 percent to $377 million, reflecting strength in managed account fees and growth in net interest income as deposit spreads improved. Wealth Management’s earnings declined 6 percent to $117 million as higher expenses largely related to a new investment platform outpaced 11 percent revenue growth. Our Corporate and Investment Bank increased earnings 21 percent to $1.0 billion, reflecting higher principal investing gains, strong trading profits and investment banking results, and the gain from the Archipelago/New York Stock Exchange merger.

In the first six months of 2006, we paid common stockholders dividends of $1.6 billion, or $1.02 per common share. Our target is to return 40 percent to 50 percent of our earnings to shareholders as dividends, and in the first six months of 2006 our dividend payout ratio was 45.13 percent, or 43.04 percent excluding merger-related and restructuring expenses and other intangible amortization, which is the basis we use in measuring our goal.

Our balance sheet is strong and well capitalized under regulatory guidelines with a tier 1 capital ratio of 7.81 percent and a leverage ratio of 6.57 percent at June 30, 2006.

In the second quarter of 2006 compared with the second quarter of 2005, net income rose 14 percent to $1.9 billion from $1.6 billion, and diluted earnings per common share rose 13 percent to $1.17 from $1.04. These amounts include after-tax net merger-related and restructuring expenses of 1 cent per share in the second quarter of 2006 and 3 cents per share in the second quarter of 2005.

Total revenue rose 14 percent to $7.3 billion in the second quarter of 2006 compared with the second quarter of 2005, with 8 percent growth in tax-equivalent net interest income and 20 percent growth in fee and other income. Net interest income growth was driven by strength in loans and deposits. Loan growth was driven by higher consumer loans largely related to Westcorp and the year-end transfer of $12.5 billion of real estate-secured loans from loans held for sale, as well as organic growth. Core deposits continued to be strong, with average core deposits up 6 percent and average low-cost core deposits up 3 percent. In addition to the items mentioned above, growth in fee and other income in the second quarter of 2006 also came from higher service charges and interchange fees, and higher asset management and investment banking fee income.

3

Also announced in the second quarter of 2006 was the proposed acquisition of Golden West Financial Corporation, which is expected to close in the fourth quarter of this year, pending shareholder and regulatory approval. This transaction is discussed further in theOutlooksection.

Outlook

Based on our consistent performance, confidence in our business model and our capital strength, our bottom line 2006 financial outlook generally remains unchanged from the outlook provided in our 2005 Annual Report. However, we have modestly shifted some elements of the outlook below. We also note economic estimates for 2006 have changed from the beginning of the year, and our assumptions now reflect growth in the real gross domestic product (GDP) of 3.00 percent; inflation (based on the Consumer Price Index) of 3.00 percent; a federal funds rate of 5.50 percent and a 10-year treasury bond rate of 5.10 percent by December 2006. The value of the S&P 500 index has been flat this year, versus an expectation for annualized growth for 2006 of 7 percent.

The following outlook is for the full year 2006 compared with an “adjusted” 2005 amount, which includes our reported results and the reported results for the nine months ended September 30, 2005, for Westcorp. In addition, the effect of employee stock compensation costs related to Statement of Financial Accounting Standards (SFAS) No. 123 (revised) (SFAS 123R),Share-Based Paymentsthat we had previously excluded were incorporated into the expense outlook for the year. However, amounts discussed below exclude the effect of the proposed Golden West acquisition, as well as merger-related and restructuring expenses and the effect, if any, of accounting proposals or standards.

• Net interest income growth in the flat to low single-digit percentage range on a tax-equivalent basis from an adjusted $14.6 billion.

• Fee income growth in the mid-teens percentage range from an adjusted $12.3 billion.

• Noninterest expense growth in the mid single-digit percentage range from an adjusted $15.8 billion.

• Minority interest expense increase in the high single digits percentage range from an adjusted $367 million.

• Loan growth in the mid-teens percentage range from an adjusted $240.6 billion, including consumer loan growth in the high teens from an adjusted $107.9 billion, and commercial loan growth in the low double-digit percentage range from an adjusted $132.7 billion.

• Net charge-offs in the 10 basis point to 20 basis point range, up from an adjusted 15 basis points, with provision expense also expected to be in the 10 basis point to 20 basis point range.

• An effective income tax rate of approximately 34 percent to 34.5 percent on a tax-equivalent basis.

• A tier 1 capital ratio above 7.5 percent, a leverage ratio above 6.0 percent and a tangible capital to tangible asset ratio above 4.7 percent.

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

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

Recent proposals issued by the Financial Accounting Standards Board (FASB) on leveraged lease accounting and uncertain tax positions will affect our financial results in future periods. The impact will include (i) a one-time noncash charge recorded as a cumulative effect of a change in accounting principle through a reduction to beginning retained earnings on January 1, 2007, and (ii) pursuant to leveraged lease standards, the recognition as income during the remaining terms of the affected leases of amounts which in the aggregate approximate the amount of the one-time charge. TheAccounting and Regulatory Matterssection has additional information about these and other FASB projects.

4

On May 7, 2006, we announced the proposed acquisition of Golden West Financial Corporation of Oakland, California, the parent of World Savings Bank. This combination will enable us to continue to build our mortgage lending operations, leveraging Golden West’s presence in 39 states. It also strengthens Wachovia’s retail banking presence in California, Florida and Texas, and extends our banking network into attractive metropolitan markets in Arizona, Colorado, Illinois, Kansas and Nevada. Terms of the agreement call for each Golden West shareholder to receive a package of 1.051 shares of Wachovia common stock and $18.65 in cash. Based on a Wachovia share price of $55.69 per common share, which is based on the weighted average of Wachovia’s closing prices for a four-day period beginning two trading days before the day of the merger announcement and two trading days after the merger announcement (which includes the day of announcement), this represents total consideration of $24.3 billion, or a price of $81.07 per share of Golden West common stock. Total merger-related and restructuring expenses for the Golden West merger are expected to be $288 million pre-tax ($176 million after tax) related to staff training, retention and severance; real estate; systems integration; and other miscellaneous expenses. This transaction, which is expected to close in the fourth quarter of 2006, is expected to be modestly dilutive to earnings per share on a GAAP basis in 2007 and 2008. It is expected to add to Wachovia’s earnings per share in 2008 excluding merger-related and restructuring expenses and intangible amortization.

We reentered the credit card market as a direct issuer in January 2006. Results include the $100 million MBNA termination fee received in the first quarter of 2006, which will defray systems, personnel and other costs to build our credit card business. We may use securities gains or other gains during the rest of the year to defray the initial dilution associated with building this business. Actions taken in the first six months of 2006 better position us to be able to do this during the rest of the year. Key leaders are in place and we are hiring additional personnel, making decisions on operating systems and establishing business strategies. Marketing strategies, which will focus on our existing customer base, were launched in midsummer.

In addition, in June 2006, we announced the sale of our subprime mortgage servicing business, HomEq Servicing, for $469 million. No gain or loss is expected from this transaction, which is expected to close later this year, except that disposition-related costs are estimated to be $28 million and will be reflected as merger-related and restructuring expenses.

We 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. We are striving to make Wachovia a more efficient company, but it is not our intention to have the lowest overhead efficiency ratio in our peer group because we expect to continue to invest in higher growth businesses. As we disclosed in January 2005, we believe we will slow annual expense growth by $600 million to $1.0 billion by 2007. We believe this will result in position reductions in the range of 3,500 to 4,000, approximately 20 percent of which will result from normal attrition, although we also expect to add positions in higher growth businesses. To date, we have identified initial expense reduction opportunities, which when implemented, are expected to result in cost savings in the range of $650 million to $750 million annually.

In conjunction with these efforts, we have established overhead efficiency targets, excluding merger-related and restructuring expenses, other intangible amortization, discontinued operations and changes in accounting principle, for each of our four businesses and for the overall company to achieve by 2007. These 2007 targets are as follows:

5

•	General Bank	45 percent to 47 percent
•	Capital Management	75 percent to 77 percent
•	Wealth Management	60 percent to 62 percent
•	Corporate and Investment Bank	49 percent to 51 percent
•	Wachovia Corporation	52 percent to 55 percent

Segment tables in theBusiness Segmentssection have additional information.

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

Our accounting and reporting policies are in accordance with U.S. generally accepted accounting principles (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 estimations. We have identified five policies as being particularly sensitive in terms of judgments and the extent to which significant 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. For more information on these critical accounting policies, please refer to our 2005 Annual Report on Form 10-K.

Average Balance Sheets and Interest Rates	Six Months Ended					Six Months Ended
	June 30, 2006					June 30, 2005
	Average		Interest			Average		Interest
(In millions)	Balances		Rates			Balances		Rates
Interest-bearing bank balances	$	2,447		4.61	%	$	2,567		2.85	%
Federal funds sold		18,637		4.52			24,475		2.82
Trading account assets		28,252		5.23			33,504		4.66
Securities		121,040		5.33			114,983		5.13
Commercial loans, net		144,416		6.71			129,459		5.33
Consumer loans, net		123,544		6.74			93,077		5.59
Total loans, net		267,960		6.72			222,536		5.44
Loans held for sale		8,800		6.70			13,450		5.35
Other earning assets		5,801		7.53			10,279		4.71
Risk management derivatives		—		0.12			—		0.26
Total earning assets		452,937		6.29			421,794		5.37
Interest-bearing deposits		260,401		2.88			234,580		1.70
Federal funds purchased		49,406		4.27			52,697		2.63
Commercial paper		4,427		4.20			13,458		2.68
Securities sold short		8,889		3.12			11,659		3.36
Other short-term borrowings		6,817		2.25			6,532		1.73
Long-term debt		63,932		5.13			47,752		4.28
Risk management derivatives		—		0.14			—		0.15
Total interest-bearing liabilities		393,872		3.57			366,678		2.41
Net interest income and margin	$	7,214		3.19	%	$	6,885		3.27	%

Corporate Results of Operations

Net Interest Income and MarginTax-equivalent net interest income increased 5 percent in the first six months of 2006 from the first six months of 2005, reflecting strong balance sheet growth. The net interest margin declined 8 basis points to 3.19 percent primarily due to the impact of a flattening yield curve. Also contributing to the decline in the net interest margin were decreases driven by growth in lower spread loans and other assets and a modest shift in deposits from lower spread categories despite the addition of higher spread consumer loans from the Westcorp merger. Growth in retail and small business deposits was somewhat offset by decreases in commercial and retail brokerage deposits. The

6

average federal funds rate in the first six months of 2006 was 197 basis points higher than the average for 2005, while the average longer-term two-year treasury note rate increased 126 basis points and the average 10-year treasury note rate increased 59 basis points.

In order to maintain our targeted interest rate risk profile, derivatives are often used to manage the interest rate risk inherent in our assets and liabilities. We routinely deploy hedging strategies designed to protect future net interest income. These strategies may reduce current income in the short-term, although we expect them to benefit future periods. In the first six months of 2006, net interest rate risk management-related derivative income contributed $9 million to net interest income, which did not have an impact on our net interest margin, compared with $279 million, or 13 basis points, in the first six months of 2005. The decline in the impact from derivatives largely reflects deposit growth, the effect of receive fixed/pay floating rate swaps in a rising rate environment, and greater use of cash securities instead of derivatives to maintain our relatively neutral interest rate risk position.

Fee and Other Income	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2006		2005		2006			2005
Service charges	$	622		528		1,196			1,041
Other banking fees		449		355		877			706
Commissions		588		585		1,211			1,172
Fiduciary and asset management fees		808		746		1,569			1,472
Advisory, underwriting and other investment banking fees		318		257		620			490
Trading account profits		164		49		383			157
Principal investing		189		41		292			100
Securities gain (losses)		25		136		(23	)		134
Other income		420		280		975			700
Total fee and other income	$	3,583		2,977		7,100			5,972

Fee and Other IncomeFee and other income growth of 19 percent in the first six months of 2006 from the same period in 2005 came in nearly every category, and reflected:

• Higher service charges and other banking fees driven by strength in consumer activity, higher debit card interchange income on increased volume and higher rates, and higher commercial mortgage servicing income.

• 3 percent growth in commissions reflecting higher insurance commissions while retail brokerage commissions were essentially flat as customers migrate to managed account relationships.

• Higher fiduciary and asset management fees, reflecting strong growth in retail brokerage managed account assets.

• Strong results in advisory and underwriting largely related to continued strong performance in structured products, investment grade, loan syndications, and merger and acquisition advisory services.

• Stronger trading account profits reflecting increases in global rate products and leveraged finance, offset by a decline in structured products.

• Higher principal investing income related to our fund portfolio, and included a $116 million unrealized gain along with higher realized gains.

• Net securities losses of $23 million, which included net losses of $51 million in the corporate portfolio offset by gains of $28 million in our Corporate and Investment Bank related to corporate lending activities.

• Increased other income due to $101 million of income related to commercial mortgage securitization activity, which was reflected in trading account profits prior to 2006; the $100 million MBNA termination fee; and a $33 million gain related to the Archipelago/New York Stock Exchange merger. The first six months of 2005 included a gain of $122 million from the sale of equity securities received in settlement of loans.

7

Many of the same factors contributed to the 20 percent growth in the second quarter of 2006, although net securities gains were substantially less than gains in the second quarter a year ago, and nearly half of the $25 million in net realized gains were related to corporate lending activities in the Corporate and Investment Bank.

Noninterest Expense	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2006		2005		2006		2005
Salaries and employee benefits	$	2,652		2,324		5,349		4,725
Occupancy		291		271		566		521
Equipment		299		269		579		534
Advertising		56		48		103		92
Communications and supplies		162		158		329		320
Professional and consulting fees		184		155		351		282
Sundry expense		495		366		941		813
Other noninterest expense		4,139		3,591		8,218		7,287
Merger-related and restructuring expenses		24		90		92		151
Other intangible amortization		98		107		190		222
Total noninterest expense	$	4,261		3,788		8,500		7,660

Noninterest ExpenseNoninterest expense increased 11 percent in the first six months of 2006 from the same period in 2005 largely reflecting revenue-based incentives; the $107 million increase in employee stock compensation expense, which is included in salaries and employee benefits; the effect of acquisitions; and costs related to reentering the credit card business. The employee stock compensation expense increase was related to the implementation of a new share-based payment accounting standard, which applied to annual stock awards in the first six months of 2006. The increased expense is primarily due to the impact of awards granted to retirement-eligible employees, which are now expensed in full at the date of the grant rather than over the full contractual three- to five-year vesting period. The increases in most other components of noninterest expense were largely related to de novo activity, branch consolidation and other costs related to the efficiency initiative, and the impact of acquisitions.

Noninterest expense increased 12 percent in the second quarter of 2006 from the second quarter of 2005 largely due to the same factors as above.

Merger-Related and Restructuring ExpensesMerger-related and restructuring expenses in the first six months of 2006 of $92 million included $64 million related to the SouthTrust merger, which is now completed, and $28 million related to other acquisitions and the HomEq servicing business divestiture. In the first six months of 2005, we recorded $151 million of these expenses relating to SouthTrust and the retail brokerage integration, which was completed in the second quarter of 2005.

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.

Business segment data excludes merger-related and restructuring expenses, other intangible amortization, the gain on sale of discontinued operations and changes in accounting principle.

Business segment earnings are the primary measure of segment profit or loss 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 management in evaluating segment results.

We continuously update segment information for changes that occur in the management of our businesses. For example, in the first six months of 2006, we transferred certain customer relationships and financial advisors to Wealth Management from Capital Management relating to a

8

new investment platform in Wealth Management and have updated information for 2005 to reflect this and other changes. The impact to segment earnings in 2005 as a result of these changes was:

• A $37 million decrease in the General Bank.

• A $9 million increase in Capital Management.

• A $12 million decrease in Wealth Management.

• A $1 million decrease in the Corporate and Investment Bank.

• A $41 million increase in the Parent.

General Bank	Three Months Ended					Six Months Ended
Performance Summary	June 30,					June 30,
(Dollars in millions)	2006			2005		2006		2005
Income statement data
Net interest income(Tax-equivalent)	$	2,798			2,379		5,368		4,700
Fee and other income		858			688		1,730		1,372
Intersegment revenue		51			49		96		92
Total revenue(Tax-equivalent)		3,707			3,116		7,194		6,164
Provision for credit losses		95			68		157		125
Noninterest expense		1,756			1,512		3,427		3,054
Income taxes(Tax-equivalent)		679			565		1,318		1,096
Segment earnings	$	1,177			971		2,292		1,889
Performance and other data
Economic profit	$	901			742		1,771		1,423
Risk adjusted return on capital (RAROC)		54.26	%		53.59		56.25		51.89
Economic capital, average	$	8,353			6,987		7,890		7,019
Cash overhead efficiency ratio(Tax-equivalent)		47.40	%		48.55		47.65		49.56
Lending commitments	$	121,181			102,768		121,181		102,768
Average loans, net		192,500			161,902		185,452		160,763
Average core deposits	$	219,478			205,782		217,841		203,809
FTE employees		45,406			41,259		45,406		41,259

General BankThe General Bank includes our Retail and Small Business and Commercial lines of business.

The General Bank’s earnings rose 21 percent to $2.3 billion, reflecting the addition of Westcorp and organic growth. Key General Bank trends in the first six months of 2006 compared with the same period in 2005 included:

• 17 percent revenue growth, driven by 26 percent growth in fee and other income.

• 14 percent growth in net interest income related to strengthening production in commercial and consumer loans, and $348 million in net interest income from Westcorp.

• The growth in fee and other income included strong debit card interchange income and growth in service charges, as well as the $100 million MBNA termination fee. In addition, a larger mortgage servicing portfolio and higher mortgage originations contributed to growth.

• Commercial loan growth was driven by middle-market commercial and commercial real estate. More than half of consumer loan growth came from the addition of an average $9.4 billion in Westcorp lending, with additional strength in mortgages and home equity loans. Higher interest spreads in the Westcorp portfolio partially offset slowing growth in home equity lines as customers shifted from variable rate to fixed rate products.

• Deposit growth was led by consumer certificates of deposit and money market funds. Net new retail checking accounts increased by 327,000 in the first six months of 2006, compared with an increase of 270,000 in the first six months of 2005.

• 12 percent growth in noninterest expense included higher personnel costs related to increased revenue-based incentive expense, hiring and employee stock compensation

9

	expense, de novo activity and branch consolidations, the impact of Westcorp and costs related to reentering the credit card business.
•	Continued improvement in the overhead efficiency ratio to 47.65 percent, despite expense growth, due to merger efficiencies, expense management efforts and revenue growth.

The same trends drove General Bank results in the second quarter of 2006 compared with the second quarter of 2005.

Capital Management	Three Months Ended						Six Months Ended
Performance Summary	June 30,						June 30,
(Dollars in millions)	2006			2005			2006			2005
Income statement data
Net interest income(Tax-equivalent)	$	208			147			406			299
Fee and other income		1,222			1,136			2,449			2,273
Intersegment revenue		(11	)		(12	)		(22	)		(23	)
Total revenue(Tax-equivalent)		1,419			1,271			2,833			2,549
Provision for credit losses		—			—			—			—
Noninterest expense		1,111			1,042			2,239			2,087
Income taxes(Tax-equivalent)		113			83			217			169
Segment earnings	$	195			146			377			293
Performance and other data
Economic profit	$	154			107			293			214
Risk adjusted return on capital (RAROC)		51.31	%		40.67			49.32			40.71
Economic capital, average	$	1,526			1,439			1,540			1,450
Cash overhead efficiency ratio(Tax-equivalent)		78.33	%		81.88			79.05			81.86
Lending commitments	$	250			176			250			176
Average loans, net		616			344			539			333
Average core deposits	$	27,220			29,235			27,942			29,930
FTE employees		17,212			17,444			17,212			17,444

Capital ManagementCapital Management includes Retail Brokerage Services, which includes retail brokerage and our annuity and reinsurance businesses, and Asset Management, which includes mutual funds, customized advisory services and defined benefit and defined contribution retirement services.

Capital Management grew earnings 29 percent to $377 million, reflecting strength in managed account fees and growth in net interest income as deposit spreads improved. Key Capital Management trends in the first six months of 2006 compared with the same period in 2005 included:

• 11 percent revenue growth driven by strength in retail brokerage managed account fees as 35 percent growth in managed assets to $121.9 billion overcame relatively flat brokerage transaction activity. Momentum in building recurring revenue streams continued as this growth reflected strong client demand for managed accounts. Net interest income rose 36 percent as a result of improved deposit spreads.

o $2.4 billion in revenue from our retail brokerage businesses included transactional revenues of $933 million and recurring and other income of $1.5 billion.

o $451 million in revenue from our asset management businesses, an increase of $19 million reflecting the June 2006 acquisitions of the Ameriprise 401(k) record-keeping business and Metropolitan West Capital Management, as well as 5 percent growth in assets under management.

• 7 percent growth in noninterest expense, primarily due to increased production-based commissions, increased employee stock compensation expense and the impact of the two acquisitions.

10

Total Assets Under Management (AUM)	2006										2005
	Second Quarter					First Quarter					Fourth Quarter
(In billions)	Amount		Mix			Amount		Mix			Amount		Mix
Equity	$	91		38	%	$	87		37	%	$	82		35	%
Fixed income		101		43			106		44			105		46
Money market		45		19			45		19			43		19
Total assets under management(a)	$	237		100	%	$	238		100	%	$	230		100	%
Securities lending		61		—			61		—			57		—
Total assets under management and securities lending	$	298		—		$	299		—		$	287		—

^(a) Includes $68 billion in assets managed for Wealth Management, which are also reported in that segment.

Mutual Funds (AUM also included in the above)	2006										2005
	Second Quarter					First Quarter					Fourth Quarter
			Fund					Fund					Fund
(In billions)	Amount		Mix			Amount		Mix			Amount		Mix
Equity	$	32		34	%	$	34		36	%	$	32		35	%
Fixed income		23		25			23		24			23		25
Money market		38		41			38		40			37		40
Total mutual fund assets	$	93		100	%	$	95		100	%	$	92		100	%

Total assets under management increased 3 percent from year-end 2005 to $237.3 billion, led by a 10 percent increase in equity assets to $90.6 billion, including $5.5 billion in assets from the Metropolitan West Capital Management acquisition. Total net inflows in assets under management were approximately $400 million in the first six months of 2006 while net asset appreciation was approximately $1.8 billion from increased market valuations. Total brokerage client assets grew 3 percent from year-end 2005 to $704.3 billion at June 30, 2006, and included the addition of $22.9 billion in certain mutual fund assets not previously included in client asset totals. This increase was offset by a decline in client assets of $29.9 billion during the period due to the loss of assets from a clearing client that was acquired by another firm.

In the second quarter of 2006 compared with the second quarter of 2005, the same trends drove Capital Management results. In addition, total assets under management rose 5 percent and brokerage client assets rose 7 percent from the second quarter of 2005.

Wealth Management	Three Months Ended					Six Months Ended
Performance Summary	June 30,					June 30,
(Dollars in millions)	2006			2005		2006		2005
Income statement data
Net interest income(Tax-equivalent)	$	149			142		299		281
Fee and other income		197			187		388		338
Intersegment revenue		1			1		2		3
Total revenue(Tax-equivalent)		347			330		689		622
Provision for credit losses		2			—		2		(1	)
Noninterest expense		252			227		503		425
Income taxes(Tax-equivalent)		34			38		67		73
Segment earnings	$	59			65		117		125
Performance and other data
Economic profit	$	43			48		83		92
Risk adjusted return on capital (RAROC)		43.20	%		50.73		42.94		50.88
Economic capital, average	$	528			490		522		468
Cash overhead efficiency ratio(Tax-equivalent)		72.60	%		68.73		72.96		68.29
Lending commitments	$	6,285			5,154		6,285		5,154
Average loans, net		15,987			13,621		15,780		13,248
Average core deposits	$	14,251			13,188		14,497		13,182
FTE employees		4,732			4,849		4,732		4,849

Wealth ManagementWealth Management includes private banking, personal trust, investment advisory services, financial planning and insurance brokerage services (property and casualty, employee benefits and high net worth life for wealthy individuals, their families and businesses).

11

Wealth Management’s earnings declined 6 percent to $117 million as higher expenses largely related to a new investment platform outpaced revenue growth. Key Wealth Management trends in the first six months of 2006 compared with the same period in 2005 included:

• 11 percent revenue growth driven by 15 percent growth in fee and other income and a 6 percent increase in net interest income.

o Fee and other income growth reflected increased commissions due to the May 2005 acquisition of Palmer & Cay, a commercial insurance brokerage firm, and modest growth in trust and investment management fees.

o Net interest income growth driven by a 19 percent increase in average loans, largely in commercial and consumer mortgage, and a 10 percent increase in average core deposits.

• 18 percent growth in noninterest expense, in addition to higher personnel expense related to the transition to a new investment platform, included the impact of Palmer & Cay, higher revenue-based incentives and increased employee stock compensation expense.

• Growth in assets under management from year-end 2005 to $68.3 billion.

In the second quarter of 2006 compared with the second quarter of 2005, the same trends drove Wealth Management results. In addition, the provision was $2 million.

Corporate and Investment Bank	Three Months Ended						Six Months Ended
Performance Summary	June 30,						June 30,
(Dollars in millions)	2006			2005			2006			2005
Income statement data
Net interest income(Tax-equivalent)	$	501			520			1,004			1,110
Fee and other income		1,215			789			2,457			1,768
Intersegment revenue		(42	)		(40	)		(79	)		(74	)
Total revenue(Tax-equivalent)		1,674			1,269			3,382			2,804
Provision for credit losses		(33	)		(8	)		(32	)		(11	)
Noninterest expense		879			711			1,767			1,444
Income taxes(Tax-equivalent)		306			211			608			510
Segment earnings	$	522			355			1,039			861
Performance and other data
Economic profit	$	299			176			631			520
Risk adjusted return on capital (RAROC)		29.90	%		24.07			31.80			30.96
Economic capital, average	$	6,351			5,409			6,116			5,252
Cash overhead efficiency ratio(Tax-equivalent)		52.53	%		56.01			52.26			51.50
Lending commitments	$	106,105			88,365			106,105			88,365
Average loans, net		43,775			37,815			43,338			37,163
Average core deposits	$	26,148			22,459			25,738			21,681
FTE employees		5,889			4,845			5,889			4,845

Corporate and Investment BankOur Corporate and Investment Bank includes corporate lending, investment banking, and treasury and international trade finance.

Our Corporate and Investment Bank increased earnings 21 percent to $1.0 billion, reflecting higher principal investing gains, strong trading profits and investment banking results, and the gain from the Archipelago/New York Stock Exchange merger. Key Corporate and Investment Bank trends in the first six months of 2006 compared with the same period in 2005 included:

• 21 percent revenue growth reflecting a 39 percent increase in fee and other income offsetting a 10 percent decline in net interest income.

o Net interest income declined as solid loan and deposit growth was offset by spread compression in asset-based lending, run-off in higher spread leasing assets and a decline in trading-related income that was offset in trading profits.

12

o The growth in fee income reflected strong investment banking results, including strength in advisory and underwriting activities, strong structured products results, the previously mentioned principal investing gain and higher trading account profits, as well as $43 million in fees related to the issuance of Wachovia corporate securities, which is eliminated in the Parent; and a $33 million gain related to the Archipelago/New York Stock Exchange merger. The first six months of 2005 included a gain of $122 million from the sale of equity securities received in settlement of loans.

o The principal investing income included a $116 million unrealized gain in our fund portfolio recognized on the portion we retained following the sale of a minority interest in an entity holding certain of our fund investments. Additionally, realized gains on the fund portfolio were higher in the first six months of 2006 compared with the same period in 2005.

• A 22 percent increase in noninterest expense due primarily to higher revenue-based compensation, strategic hiring in 2005, investment in both revenue and efficiency projects, the impact of acquisitions, including AmNet Mortgage Inc., American Property Financing Inc., and Union Bank of California’s international correspondent banking business, and increased employee stock compensation expense.

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

The same trends drove Corporate and Investment Bank results in the second quarter of 2006 compared with the second quarter of 2005.

Parent	Three Months Ended						Six Months Ended
Performance Summary	June 30,						June 30,
(Dollars in millions)	2006			2005			2006			2005
Income statement data
Net interest income(Tax-equivalent)	$	19			223			137			495
Fee and other income		91			177			76			221
Intersegment revenue		1			2			3			2
Total revenue(Tax-equivalent)		111			402			216			718
Provision for credit losses		(5	)		(10	)		(7	)		(27	)
Noninterest expense		239			206			472			499
Minority interest		89			85			184			159
Income taxes(Tax-equivalent)		(159	)		(40	)		(282	)		(95	)
Segment earnings (loss)	$	(53	)		161			(151	)		182
Performance and other data
Economic profit	$	(79	)		135			(197	)		136
Risk adjusted return on capital (RAROC)		0.17	%		30.36			(3.22	)		20.84
Economic capital, average	$	2,853			2,807			2,772			2,794
Cash overhead efficiency ratio(Tax-equivalent)		124.03	%		24.31			129.63			38.44
Lending commitments	$	473			430			473			430
Average loans, net		22,387			10,199			22,851			11,029
Average core deposits	$	4,541			4,674			4,912			4,626
FTE employees		24,077			24,988			24,077			24,988

ParentParent includes all asset and liability management functions, including managing our securities portfolio for 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 wind-down or divested businesses, including our HomEq Servicing business, which will be divested later in 2006; and the corporate and institutional trust (CIT) businesses that were sold in December 2005.

Key trends in the Parent segment in the first six months of 2006 compared with the same period in 2005 included:

13

• Lower net interest income, reflecting reduced spreads on funding the securities portfolio and growth in wholesale borrowings due to the addition of Westcorp, partially offset by growth in the securities portfolio. In addition, there was a lower contribution from hedge-related derivatives.

• A $145 million decrease in fee and other income reflecting the impact of the divested CIT businesses and increased intercompany fees paid to the Corporate and Investment Bank that are eliminated in the Parent, while the first six months of 2005 included a gain of $38 million on the sale of a United Kingdom asset-based lending subsidiary.

• Net securities losses of $51 million compared with net gains of $53 million in the year-ago period.

• A 5 percent decrease in noninterest expense, reflecting lower legal costs.

This segment reflects the impact of Prudential Financial’s 38 percent minority interest in Wachovia Securities Financial Holdings, LLC. Total minority interest expense, which also includes other subsidiaries, was $184 million in the first six months of 2006 compared with $159 million in the first six months of 2005.

In the second quarter of 2006 compared with the second quarter of 2005, the same trends drove Parent results. In addition, there were lower affordable housing tax credit eliminations and lower securities gains.

Balance Sheet Analysis

SecuritiesThe increase in securities available for sale from December 31, 2005, reflects the Westcorp acquisition and investment of higher fixed rate funding. Unrealized net securities losses in the first six months of 2006 increased $2.8 billion due to the effect of higher rates primarily affecting our fixed rate mortgage-backed securities. The average duration of this portfolio increased to 4.2 years from 3.3 years due to the extension of mortgage-backed securities in the higher rate environment.

Securities Available For Sale

	June 30,			December 31,
(In billions)	2006			2005
Market value	$	120.5			114.9
Net unrealized loss	$	(3.3	)		(0.5	)
Memoranda(Market value)
Residual interests	$	0.9			0.9
Retained bonds
Investment grade(a)		7.0			5.1
Other		0.1			0.1
Total	$	7.1			5.2

^(a) $6.3 billion had credit ratings of AA and above at June 30, 2006.

Included in securities available for sale at June 30, 2006, were residual interests with a market value of $870 million, which included a net unrealized gain of $250 million, and retained bonds from securitizations with a market value of $7.1 billion, which included a net unrealized loss of $90 million.

The average rate earned on securities available for sale was 5.33 percent in the first six months of 2006 and 5.13 percent in the first six months of 2005. TheInterest Rate Risk Managementsection further explains our interest rate risk management practices.

14

Loans - On-Balance Sheet	2006				2005
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
Commercial
Commercial, financial and agricultural	$	91,737		89,138		87,327		83,241		80,528
Real estate — construction and other		15,329		14,483		13,972		13,653		13,216
Real estate — mortgage		19,745		20,066		19,966		19,864		19,724
Lease financing		25,194		25,238		25,368		25,022		24,836
Foreign		11,680		11,535		10,221		8,888		7,549
Total commercial		163,685		160,460		156,854		150,668		145,853
Consumer
Real estate secured		98,420		98,898		94,748		80,128		76,213
Student loans		9,139		10,555		9,922		11,458		10,828
Installment loans		20,508		20,189		6,751		6,745		6,783
Total consumer		128,067		129,642		111,421		98,331		93,824
Total loans		291,752		290,102		268,275		248,999		239,677
Unearned income		8,836		9,170		9,260		9,266		9,390
Loans, net (On-balance sheet)	$	282,916		280,932		259,015		239,733		230,287

Loans - Managed Portfolio(Including on-balance sheet)	2006				2005
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
Commercial	$	167,537		165,239		161,941		155,970		148,929
Real estate secured		115,974		114,803		110,299		106,261		102,761
Student loans		12,544		12,473		11,974		11,799		11,226
Installment loans		24,803		24,271		10,598		10,458		10,417
Total managed portfolio	$	320,858		316,786		294,812		284,488		273,333

LoansWe have taken several steps to enhance loan growth with several small acquisitions and investments that we expect will strengthen our loan portfolio mix with a greater proportion of consumer loans, including auto loans through our expanded dealer financial services network, direct issuance of credit cards, and a renewed focus on mortgage loan originations through our bank branch network. In commercial lending, we have pursued risk reduction strategies in recent years to actively reduce potential problem loans and certain large corporate loans. We will continue to actively monitor loan quality and take proactive steps to reduce risk when warranted.

The 9 percent increase in net loans from year-end 2005 included 4 percent growth in commercial loans, reflecting strength in middle-market commercial and large corporate lending, partially offset by lower lease financing. The 15 percent growth in consumer loans from year-end 2005 reflected the addition of $13.2 billion in auto loans from Westcorp and increased consumer real estate-secured activity. Additionally, the increase reflected movement into fixed rate products, particularly in the home equity market.

Our loan portfolio is broadly diversified by industry, concentration and geography. Additionally, the portfolio is well collateralized:

• Commercial loans represented 56 percent and consumer loans 44 percent of the loan portfolio at June 30, 2006.

• 77 percent of the commercial loan portfolio is secured by collateral.

• 98 percent of the consumer loan portfolio is secured by collateral or guaranteed.

Of our $98.4 billion consumer real estate-secured loan portfolio:

• 74 percent is secured by a first lien.

• 68 percent has a loan-to-value ratio of 80 percent or less.

• 89 percent has a loan-to-value ratio of 90 percent or less.

• 42 percent is priced on a variable rate basis.

15

Our managed loan portfolio grew 9 percent from year-end 2005, reflecting the growth discussed above and real estate-secured securitizations. In addition, commercial mortgage warehouse activity is now reflected in loans held for sale.

Asset Quality	2006						2005
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Nonperforming assets
Nonaccrual loans	$	619			672			620			784			819
Foreclosed properties		99			108			100			112			138
Total nonperforming assets	$	718			780			720			896			957
as % of loans, net and foreclosed properties		0.25	%		0.28			0.28			0.37			0.42
Nonperforming assets in loans held for sale	$	23			24			32			59			111
Total nonperforming assets in loans and in loans held for sale	$	741			804			752			955			1,068
as % of loans, net, foreclosed properties and loans held for sale		0.25	%		0.28			0.28			0.37			0.44
Allowance for credit losses(a)
Allowance for loan losses, beginning of period	$	3,036			2,724			2,719			2,718			2,732
Balance of acquired entities at purchase date		—			300			—			—			—
Net charge-offs		(51	)		(59	)		(51	)		(59	)		(51	)
Allowance relating to loans acquired, transferred to loans held for sale or sold		(18	)		12			(21	)		(26	)		(11	)
Provision for credit losses related to loans transferred to loans held for sale or sold(b)		5			—			5			12			—
Provision for credit losses		49			59			72			74			48
Allowance for loan losses, end of period		3,021			3,036			2,724			2,719			2,718
Reserve for unfunded lending commitments, beginning of period		160			158			154			158			156
Provision for credit losses		5			2			4			(4	)		2
Reserve for unfunded lending commitments, end of period		165			160			158			154			158
Allowance for credit losses	$	3,186			3,196			2,882			2,873			2,876
Allowance for loan losses
as % of loans, net		1.07	%		1.08			1.05			1.13			1.18
as % of nonaccrual and restructured loans(c)		488			452			439			347			332
as % of nonperforming assets(c)		421			389			378			303			284
Allowance for credit losses
as % of loans, net		1.13	%		1.14			1.11			1.20			1.25
Net charge-offs	$	51			59			51			59			51
Commercial, as % of average commercial loans		(0.06)	%		0.05			0.03			0.05			0.03
Consumer, as % of average consumer loans		0.23			0.14			0.16			0.18			0.18
Total, as % of average loans, net		0.08	%		0.09			0.09			0.10			0.09
Past due loans, 90 days and over, and nonaccrual loans(c)
Commercial, as a % of loans, net		0.28	%		0.32			0.30			0.43			0.45
Consumer, as a % of loans, net		0.64	%		0.62			0.72			0.71			0.77

^(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 AssetsNonperforming assets declined to 0.25 percent of loans, foreclosed properties and loans held for sale. Nonaccrual loans decreased slightly from year-end 2005, primarily driven by paydowns and the sale of $34 million in commercial loans. New inflows to commercial nonaccrual loans since year-end 2005 were $335 million. Impaired commercial loans were $387 million at June 30, 2006, and $392 million at December 31, 2005.

Past Due LoansAccruing loans 90 days or more past due, excluding loans that are classified as loans held for sale, were $624 million at June 30, 2006, compared with $625 million at December 31, 2005. Of total past due loans, $39 million were commercial loans or commercial real estate loans and $585 million were consumer loans.

16

Net Charge-offsAnnualized net charge-offs as a percentage of average net loans of 0.08 percent in the first six months of 2006 were down slightly from the first six months of 2005. In the first six months of 2006, commercial net charge-offs reflected a net recovery of $2 million, compared with commercial net charge-offs of $10 million from the first six months of 2005. Consumer net charge-offs were $112 million, up from $87 million from the first six months of 2005, largely reflecting the addition of Westcorp. The low level of net charge-offs reflects a continuing robust credit environment and our careful management of the inherent credit risk in our loan portfolio.

Provision for Credit LossesOur strategy is to mitigate risk and volatility on our balance sheet by actively monitoring and reducing potential problem loans, including the sale of at-risk credits when prudent. Provision expense rose 40 percent to $120 million, reflecting higher required reserve levels in our consumer portfolio related to the Westcorp acquisition. Higher consumer net charge-offs also influenced the 18 percent increase in the provision in the second quarter 2006 compared with the second quarter 2005.

Allowance for Loan Losses and Reserve for Unfunded Lending CommitmentsThe allowance for loan losses increased $297 million from year-end 2005 to $3.0 billion at June 30, 2006, primarily reflecting the addition of Westcorp. The reserve for unfunded lending commitments was $165 million at June 30, 2006, and $158 million at December 31, 2005. The reserve for unfunded lending commitments relates to commercial lending activity and is included in other liabilities.

Loans Held for SaleLoans held for sale include loans originated for sale or securitization as part of our core business strategy and the activities related to our ongoing portfolio risk management strategies to reduce exposure to areas of perceived higher risk. At June 30, 2006, and at year-end 2005, core business activity, which includes residential and commercial mortgages and auto loans that we originate with the intent to sell to third parties, represented substantially all loans held for sale.

In the first six months of 2006, we sold or securitized $24.8 billion in loans out of the loans held for sale portfolio, including $11.5 billion of commercial loans and $13.3 billion of consumer loans. None of the loans sold were nonperforming. In the first six months of 2005, we sold or securitized $12.7 billion of loans out of the loans held for sale portfolio, including $3.2 billion of commercial loans and $9.5 billion of consumer loans. Of these loans, $19 million were nonperforming. We transferred $156 million of commercial loans and $13 million of related unfunded exposure to loans held for sale in the first six months of 2005 as part of our portfolio management activities.

GoodwillIn connection with acquisitions, we record purchase accounting adjustments to reflect the respective fair values of the assets and liabilities of acquired entities, as well as certain exit costs related to these mergers, which have the effect of increasing goodwill. Purchase accounting adjustments are preliminary and are subject to refinement for up to one year following consummation.

For the Westcorp acquisition, we recorded preliminary fair value and exit cost purchase accounting adjustments of $336 million ($205 million after tax). In addition, we recorded dealer relationship and deposit base intangibles amounting to $405 million ($253 million after tax). Based on a purchase price of $3.8 billion and Westcorp tangible stockholders’ equity of $1.9 billion, this resulted in goodwill of $1.5 billion at June 30, 2006.

Liquidity and Capital Adequacy

Core DepositsCore deposits, which include savings, interest-bearing checking accounts, noninterest-bearing and other consumer time deposits, and deposits held in our CAP accounts, declined slightly from year-end 2005 to $292.2 billion at June 30, 2006. Compared with the first six months of 2005, average core deposits in the first six months of 2006, which included $1.5 billion related to Westcorp, increased 7 percent to $290.9 billion and average low-cost core deposits, which exclude consumer certificates of deposit, increased 3 percent to $243.6 billion. Average consumer certificates of deposit rose $10.3 billion from the first six months of 2005.

17

Purchased FundsAverage purchased funds, which include wholesale borrowings with maturities of 12 months or less, were $95.1 billion in the first six months of 2006 and $95.4 billion in the first six months of 2005. Purchased funds were $98.2 billion at June 30, 2006, compared with $93.3 billion at December 31, 2005, as higher foreign and other time deposits were partially offset by the effect of greater use of long-term debt for funding rather than short-term borrowing.

Long-term DebtLong-term debt was $74.6 billion at June 30, 2006, and $49.0 billion at December 31, 2005, reflecting the addition of $13.0 billion of Westcorp debt and the issuance of $18.0 billion of debt including $2.5 billion of WITS hybrid securities as noted below. In the rest of 2006, scheduled maturities of long-term debt amount to $9.0 billion. We anticipate either extending or replacing the maturing obligations.

The WITS transaction included a junior subordinated note and a forward contract for the sale of noncumulative perpetual preferred stock to a trust. The trust then issued $2.5 billion of securities to investors. The junior subordinated note qualifies as tier 1 capital.

Under our current shelf registration statement filed with the Securities and Exchange Commission, we have $18.0 billion of senior or subordinated debt securities, common stock or preferred stock available for issuance. In addition, we have available for issuance up to $7.4 billion under a medium-term note program covering senior or subordinated debt securities. Also, Wachovia Bank, National Association, has available a global note program for the issuance of up to $26.6 billion of senior or subordinated notes. In the first six months of 2006, we issued $1.5 billion of subordinated bank notes under the global note program. In July 2006, Wachovia and Wachovia Bank, National Association established a $20.0 billion Euro Medium Term Note Programme, pursuant to which they may issue senior and subordinated debt securities. These securities are not registered with the Securities and Exchange Commission and may not be offered in the United States without applicable exemptions for registration. Pursuant to this EMTN Programme, Wachovia and Wachovia Bank, National Association issued an aggregate $4.3 billion of debt securities in August 2006 and have available for issuance approximately $15.7 billion under the EMTN Programme.

The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors.

Credit LineWachovia Bank, National Association has a $1.9 billion committed back-up line of credit that expires in 2010. This credit facility contains a covenant that requires us to maintain a minimum level of adjusted total equity capital. We have not used this line of credit.

Stockholders’ EquityStockholders’ equity increased 3 percent from year-end 2005 to $48.9 billion at June 30, 2006, including the $3.8 billion purchase of Westcorp; repurchases of 65 million common shares at a cost of $3.6 billion in connection with our share repurchase programs; and net depreciation in the securities portfolio. The higher level of share repurchases in the first six months of 2006 compared with the first six months of 2005 reflected opportunistic deployment of excess capital partially related to higher earnings. At June 30, 2006, we were authorized to buy back 59 million shares of common stock. Our 2005 Form 10-K has additional information related to share repurchases.

Dividend and Share Activity

	Six Months Ended
			June 30,
(In millions, except per share data)	2006		2005
Dividends	$	1,637		1,452
Dividends per common share	$	1.02		0.92
Common shares repurchased		65		25
Average diluted common shares outstanding		1,599		1,597

We adopted Statement of Financial Accounting Standards (SFAS) No. 156,Accounting for Servicing of Financial Assets,effective January 1, 2006, which is discussed further in Notes to

18

Consolidated Financial Statements.Accordingly, we recorded a cumulative effect adjustment to beginning retained earnings of $64 million ($41 million after tax.)

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 June 30, 2006, our subsidiaries had $7.9 billion available for dividends that could be paid without prior regulatory approval. Our subsidiaries paid $1.0 billion in dividends to the parent company in the first six months of 2006.

Regulatory CapitalOur capital ratios were above regulatory minimums in the first six months of 2006 and we continued to be classified as well capitalized. The tier 1 capital ratio increased 31 basis points from December 31, 2005, to 7.81 percent at June 30, 2006, driven primarily by the issuance of securities noted above and a benefit resulting from the purchase of credit protection from a securitization trust on a portion of $9.8 billion of consumer real estate-secured loans, offset by additional risk-weighted assets. Our total capital ratio was 11.42 percent and our leverage ratio was 6.57 percent at June 30, 2006, and 10.82 percent and 6.12 percent, respectively, at December 31, 2005.

Off-Balance Sheet Transactions

Summary of Off-Balance Sheet Expenses	June 30, 2006				December 31, 2005
	Carrying				Carrying
(In millions)	Amount		Exposure		Amount		Exposure
Guarantees
Securities and other lending indemnifications	$	—		64,807		—		62,597
Standby letters of credit		112		35,972		108		35,568
Liquidity agreements		9		26,757		8		27,193
Loans sold with recourse		39		7,025		47		9,322
Residual value guarantees		—		1,119		—		1,109
Total guarantees	$	160		135,680		163		135,789

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. Retained interests from securitizations recorded as either available for sale securities, trading account assets or loans amounted to $8.2 billion at June 30, 2006, and $6.4 billion at December 31, 2005.

Risk Governance and Administration

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 is inherent in all these activities.

We use value-at-risk (VAR) methodology to assess market volatility over the most recent 252 trading days 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 and 99 percent confidence levels, and 10-day VAR at the 99 percent confidence level. 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 six months of 2006 was $30 million. The total 1-day VAR was $17 million at June 30, 2006, and $18 million at December 31, 2005, and primarily related to interest rate risk and equity risk. The high, low and average VARs in the first six months of 2006 were $22 million, $13 million and $16 million, respectively.

19

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 net interest income we earn on loans, securities and other earning assets. The following discussion explains how we oversee the interest rate risk management process and describes 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. Our focus on new customer acquisition and quality customer service has enabled us to generate deposit growth that 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 analyze and manage the amount of risk we are taking to changes in interest rates by forecasting a wide range of interest rate scenarios for time periods as long as 36 months. 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.” The policy measurement period is 12 months in length, beginning with the first month of the forecast. Our objective is to ensure we prudently manage interest-bearing assets and liabilities in ways that improve 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.

The “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 400 basis point range, or 200 basis points both above and below the “market forward rate” scenario. Our various scenarios together measure earnings volatility to a May 2007 federal funds rate ranging from 3.12 percent to 7.12 percent.

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 treasury note rate and 30-year treasury note rate 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 yield curve implicit in the “market forward rate” scenario. In the first half of 2004, the threat of rising rates, but uncertain timing, kept the yield curve very steep. Before the Federal Reserve’s Federal Open Market Committee’s tightening campaign began, our investment and hedging strategies were designed to manage both repricing risk and curve flattening that typically accompanies a rapid rise in short-term rates. Much of the anticipated flattening has occurred throughout 2004, 2005 and the first six months of 2006. At June 30, 2006, the spread between the 10-year treasury note rate and the federal funds rate was 9 basis points, which is well below the long-term average of 122 basis points. While we still believe further flattening is possible, and we will continue to measure the impact of a nonparallel shift in rates, we feel the risk of earnings volatility due to further flattening has somewhat subsided.

20

Considering the balance of risks for 2006, we will focus primarily on managing the value created through our expanded deposit base as we protect the net interest margin against the pressures of rising short-term rates, and relative to 2005, a flatter yield curve. We expect to rely on our large base of low-cost core deposits to fund incremental investments in loans and securities. 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 more fixed rate loans were added to our loan portfolio, we would likely allow existing discretionary investments to mature or to be liquidated. If more variable rate loans were added to our loan portfolio, we would likely allow fixed rate securities to mature or to be liquidated, and then add new derivatives that, in effect, would convert the incremental variable rate loans to fixed rate loans.

Earnings SensitivityThe Policy Period Sensitivity Measurement table provides a summary of our interest rate sensitivity measurement. Our model’s forward rate expectations imply a high probability of an additional 25 basis points of tightening for the federal funds target rate by the end of the policy period in May 2007. If these expectations prove to be correct, the spread between the 10-year treasury note rate and the federal funds rate would compress from a negative 2 basis points of slope in June 2006 to a more inverted yield curve of negative 11 basis points of slope by May 2007. The current market expectations, therefore, do not reflect a yield curve shape consistent with a scenario where short-term rates rise an additional 200 basis points. Therefore, our high rate sensitivity to the “market forward rate” scenario is measured using three different yield curve shapes. These yield curves are constructed to represent the likely range of yield curve shapes that may prevail in an environment where short-term rates rise 200 basis points above current market expectations. The reported sensitivity is a composite of these three scenarios.

Policy Period	Actual			Implied
Sensitivity Measurement	Fed Funds			Fed Funds		Percent
	Rate at			Rate at		Earnings
	June 30, 2006			May 31, 2007		Sensitivity
Market Forward Rate Scenarios(a)		5.01	%		5.12		—
High Rate Composite					7.12		(0.80	)
Low Rate			%		3.12		2.10
(a)Assumes base federal funds rate mirrors market expectations.

In June 2006, our earnings simulation model indicated earnings would be negatively affected by 0.8 percent in a “high rate composite” scenario relative to the “market forward rate” over the policy period. Additionally, we measure a scenario where short-term rates gradually decline 200 basis points over a 12-month period while the longer-term 10-year treasury note and 30-year treasury note rates decline by less than 200 basis points relative to the “market forward rate” scenario. The model indicates earnings would be positively affected by 2.1 percent in this scenario.

While our interest rate sensitivity modeling assumes 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.

Income TaxesThe FASB has issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes, (FIN 48) to clarify the criteria for recognition and measurement of income tax benefits in accordance with SFAS No. 109,Accounting for Income Taxes.Under FIN 48, evaluation of tax benefits is a two-step process. First, tax benefits can be recognized in financial statements for a tax

21

position only if it is considered “more likely than not,” as defined in SFAS No. 5,Accounting for Contingencies, of being sustained on audit based solely on the technical merits of the tax position. Second, if the recognition criteria are met, the amount of tax benefits to be recognized is measured based on the largest benefit that is more than 50 percent likely to be realized upon ultimate resolution of the tax position. FIN 48 has an effective date of January 1, 2007, and any amounts to be recorded upon implementation will result in a one-time charge to be recorded as a cumulative effect of a change in accounting principle through an adjustment of beginning retained earnings. As noted below, we are still assessing the impact of FIN 48 for Sale-In, Lease-Out transactions (SILOs). We do not expect the implementation of FIN 48 for other tax benefits to have a material impact on our consolidated financial position or results of operations.

Leveraged Lease AccountingAs previously disclosed, the FASB has been discussing several matters relating to leveraged lease accounting. Currently, SFAS No. 13,Accounting for Leases,as amended and interpreted, states that if a change in an important lease assumption changes the total estimated net income under the lease, then a recalculation of the net investment in the leveraged lease must occur. The FASB has recently issued FASB Staff Position FAS 13-2,Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction,(FSP 13-2). FSP 13-2 amends SFAS 13 to provide that changes affecting the timing of cash flows but not the total net income under a leveraged lease also trigger a recalculation of the net investment in the lease. Under FSP 13-2, recalculations affecting existing leveraged leases will result in a one-time noncash charge to be recorded as a cumulative effect of a change in accounting principle through an adjustment of beginning retained earnings on the date of adoption, which is January 1, 2007. Amounts, which in the aggregate approximate the amount of the charge initially recorded, are to be recognized as income over the remaining terms of the affected leases.

We have two primary classes of leveraged lease transactions that are affected by FSP 13-2: Lease-In, Lease-Out transactions (LILOs) and a second group of transactions that the Internal Revenue Service (IRS) broadly refers to as SILOs. SILOs principally include service contract and qualified technological equipment leases.

As previously disclosed, in 2004 Wachovia and the IRS settled all issues relating to the IRS’s challenge of the tax position on LILOs entered into by First Union Corporation and legacy Wachovia Corporation. The resolution of these LILO issues with the IRS led to a change in the timing of cash flows under the lease transactions and FSP 13-2 requires a recalculation of the leases. This recalculation will result in a one-time noncash charge to beginning retained earnings. We believe the one-time noncash reduction to beginning retained earnings under FSP 13-2 related to LILOs will be approximately $700 million after-tax, which is within the $500 million to $800 million after-tax estimated range we previously disclosed.

FSP 13-2 also affects our SILOs. The IRS has announced its intention to challenge the industry-wide tax treatment of SILOs. While we believe our tax treatment of SILOs is consistent with well-established tax law and that it is more likely than not that we would prevail if litigation were to become necessary, it is possible that, upon resolution of a potential dispute with the IRS, we may not realize some of the tax benefits originally recorded. Because of this possibility, the combination of FSP 13-2 and FIN 48 requires that we (i) assess our ability to recognize tax benefits associated with SILOs, (ii) estimate the amount of tax benefits to recognize, and (iii) recalculate the net investment in the leases. We have concluded for SILOs that we meet the recognition threshold in FIN 48 and, accordingly, it is appropriate to continue to recognize tax benefits associated with SILOs. However, we are still assessing the amount of tax benefits that will continue to be recognized and used in recalculation of the leases, and thus we are unable to estimate the amount of any reduction to retained earnings from recalculation of the leases.

The amount of the reduction to beginning retained earnings from the affected leases will be recognized as income over the remaining terms of the affected leases, generally 35 to 40 years. We believe that the amounts to be recognized as income over the remaining terms of the affected

22

leases would not have a material impact to our earnings per share in future periods. We will remain well capitalized for regulatory capital purposes following the reduction to retained earnings relating to the affected leases.

Financial InstrumentsThe FASB has an ongoing project addressing the accounting for the transfer and retention of financial instruments. As part of this project, the FASB issued two statements in the first six months of 2006, SFAS No. 155,Accounting for Certain Hybrid Financial Instruments, which is discussed below, and SFAS No. 156, which we implemented effective January 1, 2006, and is discussed inNotes to Consolidated Financial Statements.The FASB has also issued an exposure draft that would amend SFAS No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.This amendment would revise or clarify the criteria for derecognition of financial assets after a transfer. We cannot predict with certainty what the final amendment will provide.

In addition, we transfer commercial mortgage loans to trusts that issue various classes of securities backed by the loans (CMBS) to investors. Recently, the FASB has initiated a project regarding securitization structures that use a QSPE, including CMBS transactions, and the related servicing activities. The FASB is considering the need for clarifying guidance, which may result in changes to the structure of and/or the accounting for these transactions and potentially transfers of other asset classes. We cannot predict with certainty whether any guidance will be issued or what the transition provisions for implementing the guidance will be.

Hybrid Financial InstrumentsSFAS No. 155 amends SFAS No. 133,Accounting for Derivatives and Hedging Activity,and SFAS No. 140. Hybrid financial instruments are financial instruments that contain an embedded derivative within a single instrument. SFAS 155 permits entities an option to elect to record certain hybrid financial instruments at fair value as individual financial instruments. Prior to this amendment, certain hybrid financial instruments were required to be separated into two instruments, a derivative and host, and generally only the derivative was recorded at fair value. SFAS 155 also requires that beneficial interests in securitized assets be evaluated for derivatives, either freestanding or embedded. SFAS 155 is effective for all financial instruments acquired or issued after January 1, 2007. Additionally, SFAS 155 provides a one-time opportunity to apply the fair value election to hybrid financial instruments existing at the date of implementation at fair value as individual financial instruments, with any difference between the carrying amount of the derivative and host component of the existing hybrid financial instruments and the fair value of the single financial instrument being recorded as a cumulative effect adjustment to beginning retained earnings. We are currently assessing the impact of SFAS 155 on our consolidated financial position and results of operations.

Business CombinationsIn June 2005, the FASB issued a Proposed Statement,Business Combinations, which would replace SFAS No. 141,Business Combinations.While the Proposed Statement retains many of the current fundamental concepts, including the purchase method of accounting, it proposes changes in several areas. Under the Proposed Statement, consideration paid in a business combination would be measured at fair value, with fair value determined on the consummation date, rather than on announcement date, as is the current practice. Additionally, fair value would include obligations for contingent consideration and would exclude transaction costs, which would be recorded as expenses when incurred. Currently, contingent consideration is not recorded until payment is probable and transaction costs are included in determination of the purchase price. Also, loans would be recorded at fair value, reflecting both interest rate and credit factors, and the acquiree’s allowance for loan losses would no longer be carried forward. The Proposed Statement would be effective for business combinations that consummate beginning in 2007. The Proposed Statement was subject to a 120-day comment period and is being followed by final deliberations by the FASB, and therefore, is subject to change. We cannot predict with certainty what the final Statement will provide.

23

Pension and Other Postretirement PlansIn March 2006, the FASB issued a Proposed Statement to amend several existing Statements that address employers’ accounting and reporting for defined benefit pension and other postretirement plans. The Proposed Statement represents the initial phase of a comprehensive project on employers’ accounting for these plans. The Proposed Statement changes the presentation requirements for assets and liabilities relating to these plans, and requires recognition of prepaid or accrued pension cost as the overfunded or underfunded status of the plans, measured solely as the difference between the fair value of the plan assets and the benefit obligation. Unrecognized actuarial gains and losses and unrecognized prior service costs, which have previously been recorded as part of the prepaid or accrued pension cost, would be included as a component of accumulated other comprehensive income. Actuarial gains and losses and prior service costs and credits that arise during a period would be included in other comprehensive income to the extent they are not included in net periodic pension cost (a component of salaries and employee benefits expense for us). Upon implementation of the Proposed Statement, we would be required to record a reduction of equity for the after-tax amounts of unrecognized actuarial losses and prior service costs at that date. At December 31, 2005, this amounted to $1.9 billion before taxes, or $1.2 billion after tax. The Proposed Statement also requires that employers use a plan measurement date that is the same as its fiscal year-end. We have historically used a measurement date of September 30, and may be required to change to a December 31 measurement date upon implementation of the Proposed Statement. The Proposed Statement was subject to a comment period, and is currently being deliberated by the FASB, and the provisions and effective date of the Proposed Statement are subject to change. Information regarding our pension and other postretirement plans can be found in the Notes toConsolidated Financial Statementsin our 2005 Annual Report on Form 10-K.

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 2005 Annual Report on Form 10-K.

In March 2006, the Federal Reserve issued a draft Notice of Proposed Rulemaking for Basel II, a new advanced risk-based regulatory capital framework. Under the proposed rules we must develop an implementation plan that begins no later than 36 months after the effective date of the rule. Regulatory efforts in the U.S. for Basel II have experienced timing delays, and the date of a final rule is unknown. The regulatory agencies are currently proposing to make 2008 the first possible year for a bank to conduct its parallel run, for measuring regulatory capital under the new regulatory capital rules and the existing general risk-based capital rules. They are also proposing 2009-2011 as the first possible years for the transitional floor periods. The necessary project management infrastructure and funding have been established to ensure we will fully comply with the new regulations.

24

Table 1

EXPLANATION OF OUR USE OF NON-GAAP FINANCIAL MEASURES

     In addition to the results of operations presented in accordance with U.S. generally accepted accounting principles (GAAP), our management uses 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, discontinued operations 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 and our business and performance trends, and they facilitate 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 comparison of results for ongoing business operations, and it is on this basis that our management internally assesses our performance. Those non-operating items also are excluded from our segment measures used internally to evaluate segment performance in accordance with GAAP because management does not consider them particularly relevant or useful in evaluating the operating performance of our business segments. For additional information regarding segment performance, see the Business Segments section and the Business Segments footnote to Notes to Consolidated Financial Statements. 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, discontinued operations and the cumulative effect of a change in accounting principle and has communicated certain dividend payout ratio goals to investors on this basis. 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					Six Months Ended
	June 30,					June 30,
(In millions, except per share data)	2006			2005		2006		2005
Net interest income(GAAP)	$	3,641			3,358		7,131		6,771
Tax-equivalent adjustment		34			53		83		114
Net interest income(Tax-equivalent)	$	3,675			3,411		7,214		6,885
DIVIDEND PAYOUT RATIOS ON COMMON SHARES
Diluted earnings per common share(GAAP)	$	1.17			1.04		2.26		2.05
Other intangible amortization		0.04			0.04		0.07		0.09
Merger-related and restructuring expenses		0.01			0.03		0.04		0.05
Earnings per share (a)	$	1.22			1.11		2.37		2.19
Dividends paid per common share	$	0.51			0.46		1.02		0.92
Dividend payout ratios(GAAP)(b)		43.59	%		44.23		45.13		44.88
Dividend payout ratios (a) (b)		41.80	%		41.44		43.04		42.01

(a)	Excludes other intangible amortization, and merger-related and restructuring expenses.
(b)	Dividend payout ratios are determined by dividing dividends per common share by earnings per common share.

25

Table 2

SELECTED STATISTICAL DATA

	2006					2005
	Second			First		Fourth		Third		Second
(Dollars in millions, except per share data)	Quarter			Quarter		Quarter		Quarter		Quarter
PROFITABILITY
Return on average common stockholders’ equity		15.41	%		14.62		14.60		13.95		14.04
Net interest margin (a)		3.18			3.21		3.25		3.18		3.23
Fee and other income as % of total revenue		49.37			49.84		45.55		48.63		46.60
Effective income tax rate		33.05	%		33.84		34.10		32.21		32.02
ASSET QUALITY
Allowance for loan losses as % of loans, net		1.07	%		1.08		1.05		1.13		1.18
Allowance for loan losses as % of nonperforming assets (b)		421			389		378		303		284
Allowance for credit losses as % of loans, net		1.13			1.14		1.11		1.20		1.25
Net charge-offs as % of average loans, net		0.08			0.09		0.09		0.10		0.09
Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale		0.25	%		0.28		0.28		0.37		0.44
CAPITAL ADEQUACY
Tier 1 capital ratio		7.81	%		7.87		7.50		7.42		7.85
Total capital ratio		11.42			11.45		10.82		10.79		11.25
Leverage		6.57	%		6.86		6.12		5.96		6.10
OTHER DATA
FTE employees		97,316			97,134		93,980		92,907		93,385
Total financial centers/brokerage offices		3,847			3,889		3,850		3,840		3,825
ATMs		5,134			5,179		5,119		5,119		5,089
Actual common shares (In millions)		1,589			1,608		1,557		1,553		1,577
Common stock price	$	54.08			56.05		52.86		47.59		49.60
Market capitalization	$	85,960			90,156		82,291		73,930		78,236

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

26

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

	2006						2005
	Second			First			Fourth			Third		Second
(In millions, except per share data)	Quarter			Quarter			Quarter			Quarter		Quarter
SUMMARIES OF INCOME
Interest income	$	7,404			6,707			6,490			6,044		5,702
Tax-equivalent adjustment		34			49			52			53		53
Interest income (a)		7,438			6,756			6,542			6,097		5,755
Interest expense		3,763			3,217			2,967			2,657		2,344
Net interest income (a)		3,675			3,539			3,575			3,440		3,411
Provision for credit losses		59			61			81			82		50
Net interest income after provision for credit losses (a)		3,616			3,478			3,494			3,358		3,361
Securities gains (losses)		25			(48	)		(74	)		29		136
Fee and other income		3,558			3,565			3,063			3,229		2,841
Merger-related and restructuring expenses		24			68			58			83		90
Other noninterest expense		4,237			4,171			4,125			3,921		3,698
Minority interest in income of consolidated subsidiaries		90			95			103			104		71
Income from continuing operations before income taxes (a)		2,848			2,661			2,197			2,508		2,479
Income taxes		929			884			652			790		776
Tax-equivalent adjustment		34			49			52			53		53
Income from continuing operations		1,885			1,728			1,493			1,665		1,650
Discontinued operations, net of income taxes		—			—			214			—		—
Net income	$	1,885			1,728			1,707			1,665		1,650
PER COMMON SHARE DATA
Basic earnings
Income from continuing operations	$	1.19			1.11			0.97			1.07		1.05
Net income		1.19			1.11			1.11			1.07		1.05
Diluted earnings
Income from continuing operations		1.17			1.09			0.95			1.06		1.04
Net income		1.17			1.09			1.09			1.06		1.04
Cash dividends	$	0.51			0.51			0.51			0.51		0.46
Average common shares — Basic		1,585			1,555			1,541			1,549		1,564
Average common shares — Diluted		1,613			1,586			1,570			1,575		1,591
Average common stockholders’ equity
Quarter-to-date	$	49,063			47,926			46,407			47,328		47,114
Year-to-date		48,498			47,926			47,019			47,225		47,172
Book value per common share		30.75			30.95			30.55			30.10		30.37
Common stock price
High		59.85			57.69			55.13			51.34		53.07
Low		52.03			51.09			46.49			47.23		49.52
Period-end	$	54.08			56.05			52.86			47.59		49.60
To earnings ratio (b)		12.26	X		13.10			12.59			11.72		12.53
To book value		176	%		181			173			158		163
BALANCE SHEET DATA
Assets	$	553,614			541,842			520,755			532,381		511,840
Long-term debt	$	74,627			70,218			48,971			45,846		49,006

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

27

Table 4
MERGER-RELATED AND RESTRUCTURING EXPENSES

	Six
	Months
	Ended
	June 30,
(In millions)	2006
MERGER-RELATED AND RESTRUCTURING EXPENSES — WACHOVIA/SOUTHTRUST
Personnel costs	$	37
Occupancy and equipment		11
Advertising		1
System conversion costs		7
Other		8
Total Wachovia/SouthTrust merger-related and restructuring expenses		64
Other merger-related and restructuring expenses		28
Total merger-related and restructuring expenses	$	92

28

Table 5
BUSINESS SEGMENTS (a)

		2006					2005
		Second			First		Fourth		Third		Second
(Dollars in millions)		Quarter			Quarter		Quarter		Quarter		Quarter
GENERAL BANK COMBINED (b)
Net interest income (c)		$	2,798			2,570		2,499		2,409		2,379
Fee and other income			858			872		746		760		688
Intersegment revenue			51			45		58		55		49
Total revenue (c)			3,707			3,487		3,303		3,224		3,116
Provision for credit losses			95			62		75		77		68
Noninterest expense			1,756			1,671		1,668		1,582		1,512
Income taxes			669			628		561		564		555
Tax-equivalent adjustment			10			11		12		10		10
Segment earnings		$	1,177			1,115		987		991		971
Economic profit		$	901			870		759		765		742
Risk adjusted return on capital			54.26	%		58.52		53.45		54.03		53.59
Economic capital, average		$	8,353			7,421		7,094		7,055		6,987
Cash overhead efficiency ratio (c)			47.40	%		47.91		50.52		49.05		48.55
Lending commitments		$	121,181			115,788		111,202		106,570		102,768
Average loans, net			192,500			178,325		168,947		163,877		161,902
Average core deposits		$	219,478			216,186		213,222		208,500		205,782
FTE employees			45,406			45,349		42,022		41,399		41,259
COMMERCIAL
Net interest income (c)		$	1,068			874		821		782		774
Fee and other income			117			114		103		108		105
Intersegment revenue			34			31		43		41		33
Total revenue (c)			1,219			1,019		967		931		912
Provision for credit losses			57			22		21		22		11
Noninterest expense			396			358		327		320		296
Income taxes			271			222		215		206		212
Tax-equivalent adjustment			10			11		12		10		10
Segment earnings		$	485			406		392		373		383
Economic profit		$	304			250		252		234		239
Risk adjusted return on capital			35.65	%		36.18		38.06		36.21		37.42
Economic capital, average		$	4,940			4,033		3,700		3,676		3,635
Cash overhead efficiency ratio (c)			32.51	%		35.16		33.77		34.36		32.51
Average loans, net		$	101,267			89,107		82,039		79,419		78,608
Average core deposits		$	46,544			47,490		48,066		46,174		46,023
RETAIL AND SMALL BUSINESS
Net interest income (c)		$	1,730			1,696		1,678		1,627		1,605
Fee and other income			741			758		643		652		583
Intersegment revenue	��		17			14		15		14		16
Total revenue (c)			2,488			2,468		2,336		2,293		2,204
Provision for credit losses			38			40		54		55		57
Noninterest expense			1,360			1,313		1,341		1,262		1,216
Income taxes			398			406		346		358		343
Tax-equivalent adjustment			—			—		—		—		—
Segment earnings		$	692			709		595		618		588
Economic profit		$	597			620		507		531		503
Risk adjusted return on capital			81.19	%		85.11		70.22		73.41		71.12
Economic capital, average		$	3,413			3,388		3,394		3,379		3,352
Cash overhead efficiency ratio (c)			54.70	%		53.16		57.46		55.02		55.19
Average loans, net		$	91,233			89,218		86,908		84,458		83,294
Average core deposits		$	172,934			168,696		165,156		162,326		159,759

(a)	Certain amounts presented in this Table 5 in periods prior to the second quarter of 2006 have been reclassified to conform to the presentation in the second quarter of 2006.
(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)

29

Table 5
BUSINESS SEGMENTS

	2006						2005
	Second			First			Fourth			Third			Second
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
CAPITAL MANAGEMENT COMBINED (a)
Net interest income (b)	$	208			198			178			159			147
Fee and other income		1,222			1,227			1,166			1,146			1,136
Intersegment revenue		(11	)		(11	)		(9	)		(12	)		(12	)
Total revenue (b)		1,419			1,414			1,335			1,293			1,271
Provision for credit losses		—			—			—			—			—
Noninterest expense		1,111			1,128			1,100			1,060			1,042
Income taxes		112			104			87			85			83
Tax-equivalent adjustment		1			—			—			1			—
Segment earnings	$	195			182			148			147			146
Economic profit	$	154			139			107			107			107
Risk adjusted return on capital		51.31	%		47.34			39.23			40.53			40.67
Economic capital, average	$	1,526			1,556			1,497			1,444			1,439
Cash overhead efficiency ratio (b)		78.33	%		79.78			82.47			81.98			81.88
Lending commitments	$	250			237			208			184			176
Average loans, net		616			462			388			372			344
Average core deposits	$	27,220			28,671			28,328			28,521			29,235
FTE employees		17,212			17,107			17,295			17,310			17,444
Assets under management	$	237,270			238,305			229,631			233,114			225,350
ASSET MANAGEMENT
Net interest income (b)	$	2			2			3			2			2
Fee and other income		231			217			216			211			214
Intersegment revenue		(1	)		—			—			—			(1	)
Total revenue (b)		232			219			219			213			215
Provision for credit losses		—			—			—			—			—
Noninterest expense		190			180			200			179			173
Income taxes		15			14			8			13			15
Tax-equivalent adjustment		—			—			—			—			—
Segment earnings	$	27			25			11			21			27
Economic profit	$	21			19			4			16			22
Risk adjusted return on capital		48.15	%		46.78			19.04			42.07			53.64
Economic capital, average	$	225			218			225			203			202
Cash overhead efficiency ratio (b)		81.65	%		81.96			92.18			84.05			80.24
Average loans, net	$	13			28			13			18			10
Average core deposits	$	245			258			220			214			195

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

(Continued)

30

Table 5
BUSINESS SEGMENTS

	2006						2005
	Second			First			Fourth			Third			Second
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
RETAIL BROKERAGE SERVICES
Net interest income (b)	$	205			196			175			157			144
Fee and other income		994			1,013			953			937			925
Intersegment revenue		(10	)		(11	)		(9	)		(11	)		(11	)
Total revenue (b)		1,189			1,198			1,119			1,083			1,058
Provision for credit losses		—			—			—			—			—
Noninterest expense		926			953			905			885			874
Income taxes		95			89			79			72			66
Tax-equivalent adjustment		1			—			—			1			—
Segment earnings	$	167			156			135			125			118
Economic profit	$	132			119			101			90			84
Risk adjusted return on capital		51.48	%		47.08			42.36			39.85			38.16
Economic capital, average	$	1,301			1,338			1,272			1,241			1,237
Cash overhead efficiency ratio (b)		77.90	%		79.58			80.82			81.81			82.44
Average loans, net	$	603			434			375			354			334
Average core deposits	$	26,975			28,413			28,108			28,307			29,040
OTHER
Net interest income (b)	$	1			—			—			—			1
Fee and other income		(3	)		(3	)		(3	)		(2	)		(3	)
Intersegment revenue		—			—			—			(1	)		—
Total revenue (b)		(2	)		(3	)		(3	)		(3	)		(2	)
Provision for credit losses		—			—			—			—			—
Noninterest expense		(5	)		(5	)		(5	)		(4	)		(5	)
Income taxes		2			1			—			—			2
Tax-equivalent adjustment		—			—			—			—			—
Segment earnings	$	1			1			2			1			1
Economic profit	$	1			1			2			1			1
Risk adjusted return on capital		—	%		—			—			—			—
Economic capital, average	$	—			—			—			—			—
Cash overhead efficiency ratio (b)		—	%		—			—			—			—
Average loans, net	$	—			—			—			—			—
Average core deposits	$	—			—			—			—			—

(Continued)

31

Table 5
BUSINESS SEGMENTS

	2006					2005
	Second			First		Fourth		Third		Second
(Dollars in millions)	Quarter			Quarter		Quarter		Quarter		Quarter
WEALTH MANAGEMENT
Net interest income (a)	$	149			150		153		147		142
Fee and other income		197			191		192		197		187
Intersegment revenue		1			1		2		1		1
Total revenue (a)		347			342		347		345		330
Provision for credit losses		2			—		1		6		—
Noninterest expense		252			251		257		241		227
Income taxes		34			33		32		36		38
Tax-equivalent adjustment		—			—		—		—		—
Segment earnings	$	59			58		57		62		65
Economic profit	$	43			40		40		48		48
Risk adjusted return on capital		43.20	%		42.67		42.06		48.32		50.73
Economic capital, average	$	528			517		510		505		490
Cash overhead efficiency ratio (a)		72.60	%		73.32		73.86		70.14		68.73
Lending commitments	$	6,285			6,229		5,840		5,574		5,154
Average loans, net		15,987			15,570		14,889		14,201		13,621
Average core deposits	$	14,251			14,747		14,291		13,391		13,188
FTE employees		4,732			4,771		4,808		4,816		4,849

(a) Tax-equivalent.

(Continued)

32

Table 5
BUSINESS SEGMENTS

	2006						2005
	Second			First			Fourth			Third			Second
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
CORPORATE AND INVESTMENT BANK COMBINED (a)
Net interest income (b)	$	501			503			588			531			520
Fee and other income		1,215			1,242			900			1,026			789
Intersegment revenue		(42	)		(37	)		(51	)		(44	)		(40	)
Total revenue (b)		1,674			1,708			1,437			1,513			1,269
Provision for credit losses		(33	)		1			(13	)		(3	)		(8	)
Noninterest expense		879			888			787			809			711
Income taxes		297			280			224			241			184
Tax-equivalent adjustment		9			22			23			21			27
Segment earnings	$	522			517			416			445			355
Economic profit	$	299			332			226			262			176
Risk adjusted return on capital		29.90	%		33.87			26.96			29.55			24.07
Economic capital, average	$	6,351			5,880			5,626			5,604			5,409
Cash overhead efficiency ratio (b)		52.53	%		52.00			54.75			53.48			56.01
Lending commitments	$	106,105			103,812			103,079			92,966			88,365
Average loans, net		43,775			42,896			41,517			38,784			37,815
Average core deposits	$	26,148			25,322			25,894			24,770			22,459
FTE employees		5,889			5,669			5,796			4,799			4,845
CORPORATE LENDING
Net interest income (b)	$	205			198			211			215			217
Fee and other income		113			161			108			111			102
Intersegment revenue		7			7			7			6			5
Total revenue (b)		325			366			326			332			324
Provision for credit losses		(33	)		1			(25	)		(3	)		(9	)
Noninterest expense		109			108			96			115			105
Income taxes		94			97			97			84			88
Tax-equivalent adjustment		—			—			—			—			—
Segment earnings	$	155			160			158			136			140
Economic profit	$	15			53			36			29			33
Risk adjusted return on capital		12.70	%		17.58			15.66			14.65			15.49
Economic capital, average	$	3,587			3,263			3,099			3,110			2,993
Cash overhead efficiency ratio (b)		33.64	%		29.36			29.54			34.48			32.48
Average loans, net	$	31,350			30,755			30,373			29,420			28,873
Average core deposits	$	137			158			233			360			422

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

(Continued)

33

Table 5
BUSINESS SEGMENTS

				2006										2005
	Second			First			Fourth			Third			Second
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
TREASURY AND INTERNATIONAL TRADE FINANCE
Net interest income (b)	$	93			90			93			88			87
Fee and other income		200			192			183			185			177
Intersegment revenue		(32	)		(30	)		(30	)		(29	)		(28	)
Total revenue (b)		261			252			246			244			236
Provision for credit losses		—			—			12			—			—
Noninterest expense		177			173			171			169			169
Income taxes		30			29			24			27			25
Tax-equivalent adjustment		—			—			—			—			—
Segment earnings	$	54			50			39			48			42
Economic profit	$	42			38			34			38			32
Risk adjusted return on capital		61.65	%		53.55			46.27			58.37			52.41
Economic capital, average	$	333			363			382			314			312
Cash overhead efficiency ratio (b)		67.89	%		68.67			69.73			69.09			71.71
Average loans, net	$	7,265			7,106			6,311			5,600			5,241
Average core deposits	$	16,779			16,206			16,508			15,582			14,403
INVESTMENT BANKING
Net interest income (b)	$	203			215			284			228			216
Fee and other income		902			889			609			730			510
Intersegment revenue		(17	)		(14	)		(28	)		(21	)		(17	)
Total revenue (b)		1,088			1,090			865			937			709
Provision for credit losses		—			—			—			—			1
Noninterest expense		593			607			520			525			437
Income taxes		173			154			103			130			71
Tax-equivalent adjustment		9			22			23			21			27
Segment earnings	$	313			307			219			261			173
Economic profit	$	242			241			156			195			111
Risk adjusted return on capital		50.93	%		54.29			39.83			46.66			32.07
Economic capital, average	$	2,431			2,254			2,145			2,180			2,104
Cash overhead efficiency ratio (b)		54.50	%		55.75			59.98			56.14			61.55
Average loans, net	$	5,160			5,035			4,833			3,764			3,701
Average core deposits	$	9,232			8,958			9,153			8,828			7,634

(Continued)

34

Table 5
BUSINESS SEGMENTS

	2006						2005
	Second			First			Fourth			Third			Second
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
PARENT
Net interest income (a)	$	19			118			157			194			223
Fee and other income		91			(15	)		(15	)		129			177
Intersegment revenue		1			2			—			—			2
Total revenue (a)		111			105			142			323			402
Provision for credit losses		(5	)		(2	)		18			2			(10	)
Noninterest expense		239			233			313			229			206
Minority interest		89			95			103			105			85
Income tax benefits		(173	)		(139	)		(231	)		(105	)		(56	)
Tax-equivalent adjustment		14			16			17			21			16
Segment earnings (loss)	$	(53	)		(98	)		(78	)		71			161
Economic profit	$	(79	)		(118	)		(99	)		47			135
Risk adjusted return on capital		0.17	%		(6.86	)		(2.24	)		17.40			30.36
Economic capital, average	$	2,853			2,687			2,963			2,905			2,807
Cash overhead efficiency ratio (a)		124.03	%		135.72			152.67			39.98			24.31
Lending commitments	$	473			516			508			433			430
Average loans, net		22,387			23,321			11,741			11,726			10,199
Average core deposits	$	4,541			5,288			5,767			5,566			4,674
FTE employees		24,077			24,238			24,059			24,583			24,988

(a) Tax-equivalent.

(Continued)

35

Table 5
BUSINESS SEGMENTS

	Three Months Ended June 30, 2006
															Net Merger-
									Corporate						Related
									and						and
	General			Capital			Wealth		Investment						Restructuring
(Dollars in millions)	Bank			Management			Management		Bank			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)	$	2,798			208			149		501			19			(34	)		3,641
Fee and other income		858			1,222			197		1,215			91			—			3,583
Intersegment revenue		51			(11	)		1		(42	)		1			—			—
Total revenue (a)		3,707			1,419			347		1,674			111			(34	)		7,224
Provision for credit losses		95			—			2		(33	)		(5	)		—			59
Noninterest expense		1,756			1,111			252		879			239			24			4,261
Minority interest		—			—			—		—			89			1			90
Income taxes (benefits)		669			112			34		297			(173	)		(10	)		929
Tax-equivalent adjustment		10			1			—		9			14			(34	)		—
Net income (loss)	$	1,177			195			59		522			(53	)		(15	)		1,885
Economic profit	$	901			154			43		299			(79	)		—			1,318
Risk adjusted return on capital		54.26	%		51.31			43.20		29.90			0.17			—			37.97
Economic capital, average	$	8,353			1,526			528		6,351			2,853			—			19,611
Cash overhead efficiency ratio (a)		47.40	%		78.33			72.60		52.53			124.03			—			57.03
Lending commitments	$	121,181			250			6,285		106,105			473			—			234,294
Average loans, net		192,500			616			15,987		43,775			22,387			—			275,265
Average core deposits	$	219,478			27,220			14,251		26,148			4,541			—			291,638
FTE employees		45,406			17,212			4,732		5,889			24,077			—			97,316

	Three Months Ended June 30, 2005
															Net Merger-
									Corporate						Related
									and						and
	General			Capital			Wealth		Investment						Restructuring
(Dollars in millions)	Bank			Management			Management		Bank			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)	$	2,379			147			142		520			223			(53	)		3,358
Fee and other income		688			1,136			187		789			177			—			2,977
Intersegment revenue		49			(12	)		1		(40	)		2			—			—
Total revenue (a)		3,116			1,271			330		1,269			402			(53	)		6,335
Provision for credit losses		68			—			—		(8	)		(10	)		—			50
Noninterest expense		1,512			1,042			227		711			206			90			3,788
Minority interest		—			—			—		—			85			(14	)		71
Income taxes (benefits)		555			83			38		184			(56	)		(28	)		776
Tax-equivalent adjustment		10			—			—		27			16			(53	)		—
Net income	$	971			146			65		355			161			(48	)		1,650
Economic profit	$	742			107			48		176			135			—			1,208
Risk adjusted return on capital		53.59	%		40.67			50.73		24.07			30.36			—			39.30
Economic capital, average	$	6,987			1,439			490		5,409			2,807			—			17,132
Cash overhead efficiency ratio (a)		48.55	%		81.88			68.73		56.01			24.31			—			56.19
Lending commitments	$	102,768			176			5,154		88,365			430			—			196,893
Average loans, net		161,902			344			13,621		37,815			10,199			—			223,881
Average core deposits	$	205,782			29,235			13,188		22,459			4,674			—			275,338
FTE employees		41,259			17,444			4,849		4,845			24,988			—			93,385

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

(Continued)

36

Table 5
BUSINESS SEGMENTS

	Six Months Ended
	June 30,
(Dollars in millions)	2006			2005
GENERAL BANK COMBINED (a)
Net interest income (b)	$	5,368			4,700
Fee and other income		1,730			1,372
Intersegment revenue		96			92
Total revenue (b)		7,194			6,164
Provision for credit losses		157			125
Noninterest expense		3,427			3,054
Income taxes		1,297			1,076
Tax-equivalent adjustment		21			20
Segment earnings	$	2,292			1,889
Economic profit	$	1,771			1,423
Risk adjusted return on capital		56.25	%		51.89
Economic capital, average	$	7,890			7,019
Cash overhead efficiency ratio (b)		47.65	%		49.56
Lending commitments	$	121,181			102,768
Average loans, net		185,452			160,763
Average core deposits	$	217,841			203,809
FTE employees		45,406			41,259
COMMERCIAL
Net interest income (b)	$	1,942			1,531
Fee and other income		231			222
Intersegment revenue		65			62
Total revenue (b)		2,238			1,815
Provision for credit losses		79			15
Noninterest expense		754			616
Income taxes		493			415
Tax-equivalent adjustment		21			20
Segment earnings	$	891			749
Economic profit	$	554			458
Risk adjusted return on capital		35.89	%		36.30
Economic capital, average	$	4,489			3,651
Cash overhead efficiency ratio (b)		33.71	%		33.97
Average loans, net	$	95,221			77,717
Average core deposits	$	47,014			46,028
RETAIL AND SMALL BUSINESS
Net interest income (b)	$	3,426			3,169
Fee and other income		1,499			1,150
Intersegment revenue		31			30
Total revenue (b)		4,956			4,349
Provision for credit losses		78			110
Noninterest expense		2,673			2,438
Income taxes		804			661
Tax-equivalent adjustment		—			—
Segment earnings	$	1,401			1,140
Economic profit	$	1,217			965
Risk adjusted return on capital		83.13	%		68.77
Economic capital, average	$	3,401			3,368
Cash overhead efficiency ratio (b)		53.94	%		56.06
Average loans, net	$	90,231			83,046
Average core deposits	$	170,827			157,781

(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)

37

Table 5
BUSINESS SEGMENTS

	Six Months Ended
	June 30,
(Dollars in millions)	2006			2005
CAPITAL MANAGEMENT COMBINED (a)
Net interest income (b)	$	406			299
Fee and other income		2,449			2,273
Intersegment revenue		(22	)		(23	)
Total revenue (b)		2,833			2,549
Provision for credit losses		—			—
Noninterest expense		2,239			2,087
Income taxes		216			169
Tax-equivalent adjustment		1			—
Segment earnings	$	377			293
Economic profit	$	293			214
Risk adjusted return on capital		49.32	%		40.71
Economic capital, average	$	1,540			1,450
Cash overhead efficiency ratio (b)		79.05	%		81.86
Lending commitments	$	250			176
Average loans, net		539			333
Average core deposits	$	27,942			29,930
FTE employees		17,212			17,444
Assets under management	$	237,270			225,350
ASSET MANAGEMENT
Net interest income (b)	$	4			4
Fee and other income		448			429
Intersegment revenue		(1	)		(1	)
Total revenue (b)		451			432
Provision for credit losses		—			—
Noninterest expense		370			345
Income taxes		29			31
Tax-equivalent adjustment		—			—
Segment earnings	$	52			56
Economic profit	$	40			45
Risk adjusted return on capital		47.48	%		55.21
Economic capital, average	$	222			204
Cash overhead efficiency ratio (b)		81.80	%		79.65
Average loans, net	$	20			15
Average core deposits	$	251			201

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

(Continued)

38

Table 5
BUSINESS SEGMENTS

	Six Months Ended
	June 30,
(Dollars in millions)	2006			2005
RETAIL BROKERAGE SERVICES
Net interest income (b)	$	401			294
Fee and other income		2,007			1,851
Intersegment revenue		(21	)		(22	)
Total revenue (b)		2,387			2,123
Provision for credit losses		—			—
Noninterest expense		1,879			1,753
Income taxes		184			136
Tax-equivalent adjustment		1			—
Segment earnings	$	323			234
Economic profit	$	251			166
Risk adjusted return on capital		49.26	%		37.89
Economic capital, average	$	1,318			1,246
Cash overhead efficiency ratio (b)		78.74	%		82.57
Average loans, net	$	519			318
Average core deposits	$	27,691			29,729
OTHER
Net interest income (b)	$	1			1
Fee and other income		(6	)		(7	)
Intersegment revenue		—			—
Total revenue (b)		(5	)		(6	)
Provision for credit losses		—			—
Noninterest expense		(10	)		(11	)
Income taxes		3			2
Tax-equivalent adjustment		—			—
Segment earnings	$	2			3
Economic profit	$	2			3
Risk adjusted return on capital		—	%		—
Economic capital, average	$	—			—
Cash overhead efficiency ratio (b)		—	%		—
Average loans, net	$	—			—
Average core deposits	$	—			—

(Continued)

39

Table 5
BUSINESS SEGMENTS

	Six Months Ended
	June 30,
(Dollars in millions)	2006			2005
WEALTH MANAGEMENT
Net interest income (a)	$	299			281
Fee and other income		388			338
Intersegment revenue		2			3
Total revenue (a)		689			622
Provision for credit losses		2			(1	)
Noninterest expense		503			425
Income taxes		67			73
Tax-equivalent adjustment		—			—
Segment earnings	$	117			125
Economic profit	$	83			92
Risk adjusted return on capital		42.94	%		50.88
Economic capital, average	$	522			468
Cash overhead efficiency ratio (a)		72.96	%		68.29
Lending commitments	$	6,285			5,154
Average loans, net		15,780			13,248
Average core deposits	$	14,497			13,182
FTE employees		4,732			4,849

(a) Tax-equivalent.

(Continued)

40

Table 5
BUSINESS SEGMENTS

	Six Months Ended
	June 30,
(Dollars in millions)	2006			2005
CORPORATE AND INVESTMENT BANK COMBINED (a)
Net interest income (b)	$	1,004			1,110
Fee and other income		2,457			1,768
Intersegment revenue		(79	)		(74	)
Total revenue (b)		3,382			2,804
Provision for credit losses		(32	)		(11	)
Noninterest expense		1,767			1,444
Income taxes		577			455
Tax-equivalent adjustment		31			55
Segment earnings	$	1,039			861
Economic profit	$	631			520
Risk adjusted return on capital		31.80	%		30.96
Economic capital, average	$	6,116			5,252
Cash overhead efficiency ratio (b)		52.26	%		51.50
Lending commitments	$	106,105			88,365
Average loans, net		43,338			37,163
Average core deposits	$	25,738			21,681
FTE employees		5,889			4,845
CORPORATE LENDING
Net interest income (b)	$	403			452
Fee and other income		274			346
Intersegment revenue		14			11
Total revenue (b)		691			809
Provision for credit losses		(32	)		(12	)
Noninterest expense		217			211
Income taxes		191			231
Tax-equivalent adjustment		—			—
Segment earnings	$	315			379
Economic profit	$	68			176
Risk adjusted return on capital		15.01	%		23.24
Economic capital, average	$	3,426			2,900
Cash overhead efficiency ratio (b)		31.38	%		26.12
Average loans, net	$	31,054			28,439
Average core deposits	$	147			476

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

(Continued)

41

Table 5
BUSINESS SEGMENTS

	Six Months Ended
	June 30,
(Dollars in millions)	2006			2005
TREASURY AND INTERNATIONAL TRADE FINANCE
Net interest income (b)	$	183			178
Fee and other income		392			360
Intersegment revenue		(62	)		(58	)
Total revenue (b)		513			480
Provision for credit losses		—			—
Noninterest expense		350			328
Income taxes		59			56
Tax-equivalent adjustment		—			—
Segment earnings	$	104			96
Economic profit	$	80			77
Risk adjusted return on capital		57.45	%		64.00
Economic capital, average	$	348			295
Cash overhead efficiency ratio (b)		68.27	%		68.38
Average loans, net	$	7,186			5,222
Average core deposits	$	16,494			13,993
INVESTMENT BANKING
Net interest income (b)	$	418			480
Fee and other income		1,791			1,062
Intersegment revenue		(31	)		(27	)
Total revenue (b)		2,178			1,515
Provision for credit losses		—			1
Noninterest expense		1,200			905
Income taxes		327			168
Tax-equivalent adjustment		31			55
Segment earnings	$	620			386
Economic profit	$	483			267
Risk adjusted return on capital		52.54	%		37.09
Economic capital, average	$	2,342			2,057
Cash overhead efficiency ratio (b)		55.13	%		59.71
Average loans, net	$	5,098			3,502
Average core deposits	$	9,097			7,212

(Continued)

42

Table 5
BUSINESS SEGMENTS

	Six Months Ended
	June 30,
(Dollars in millions)	2006			2005
PARENT
Net interest income (a)	$	137			495
Fee and other income		76			221
Intersegment revenue		3			2
Total revenue (a)		216			718
Provision for credit losses		(7	)		(27	)
Noninterest expense		472			499
Minority interest		184			159
Income tax benefits		(312	)		(134	)
Tax-equivalent adjustment		30			39
Segment earnings (loss)	$	(151	)		182
Economic profit	$	(197	)		136
Risk adjusted return on capital		(3.22	)%		20.84
Economic capital, average	$	2,772			2,794
Cash overhead efficiency ratio (a)		129.63	%		38.44
Lending commitments	$	473			430
Average loans, net		22,851			11,029
Average core deposits	$	4,912			4,626
FTE employees		24,077			24,988

(a) Tax-equivalent.

(Continued)

43

Table 5
BUSINESS SEGMENTS

	Six Months Ended June 30, 2006
															Net Merger-
									Corporate						Related
									and						and
	General			Capital			Wealth		Investment						Restructuring
(Dollars in millions)	Bank			Management			Management		Bank			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)	$	5,368			406			299		1,004			137			(83	)		7,131
Fee and other income		1,730			2,449			388		2,457			76			—			7,100
Intersegment revenue		96			(22	)		2		(79	)		3			—			—
Total revenue (a)		7,194			2,833			689		3,382			216			(83	)		14,231
Provision for credit losses		157			—			2		(32	)		(7	)		—			120
Noninterest expense		3,427			2,239			503		1,767			472			92			8,500
Minority interest		—			—			—		—			184			1			185
Income taxes (benefits)		1,297			216			67		577			(312	)		(32	)		1,813
Tax-equivalent adjustment		21			1			—		31			30			(83	)		—
Net income (loss)	$	2,292			377			117		1,039			(151	)		(61	)		3,613
Economic profit	$	1,771			293			83		631			(197	)		—			2,581
Risk adjusted return on capital		56.25	%		49.32			42.94		31.80			(3.22	)		—			38.63
Economic capital, average	$	7,890			1,540			522		6,116			2,772			—			18,840
Cash overhead efficiency ratio (a)		47.65	%		79.05			72.96		52.26			129.63			—			57.41
Lending commitments	$	121,181			250			6,285		106,105			473			—			234,294
Average loans, net		185,452			539			15,780		43,338			22,851			—			267,960
Average core deposits	$	217,841			27,942			14,497		25,738			4,912			—			290,930
FTE employees		45,406			17,212			4,732		5,889			24,077			—			97,316

	Six Months Ended June 30, 2005
																Net Merger-
										Corporate						Related
										and						and
	General			Capital			Wealth			Investment						Restructuring
(Dollars in millions)	Bank			Management			Management			Bank			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)	$	4,700			299			281			1,110			495			(114	)		6,771
Fee and other income		1,372			2,273			338			1,768			221			—			5,972
Intersegment revenue		92			(23	)		3			(74	)		2			—			—
Total revenue (a)		6,164			2,549			622			2,804			718			(114	)		12,743
Provision for credit losses		125			—			(1	)		(11	)		(27	)		—			86
Noninterest expense		3,054			2,087			425			1,444			499			151			7,660
Minority interest		—			—			—			—			159			(24	)		135
Income taxes (benefits)		1,076			169			73			455			(134	)		(48	)		1,591
Tax-equivalent adjustment		20			—			—			55			39			(114	)		—
Net income	$	1,889			293			125			861			182			(79	)		3,271
Economic profit	$	1,423			214			92			520			136			—			2,385
Risk adjusted return on capital		51.89	%		40.71			50.88			30.96			20.84			—			39.32
Economic capital, average	$	7,019			1,450			468			5,252			2,794			—			16,983
Cash overhead efficiency ratio (a)		49.56	%		81.86			68.29			51.50			38.44			—			56.67
Lending commitments	$	102,768			176			5,154			88,365			430			—			196,893
Average loans, net		160,763			333			13,248			37,163			11,029			—			222,536
Average core deposits	$	203,809			29,930			13,182			21,681			4,626			—			273,228
FTE employees		41,259			17,444			4,849			4,845			24,988			—			93,385

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

44

Table 6
NET TRADING REVENUE — INVESTMENT BANKING (a)

	2006				2005
	Second		First		Fourth			Third		Second
(In millions)	Quarter		Quarter		Quarter			Quarter		Quarter
Net interest income(Tax-equivalent)	$	61		56		126			107		92
Trading accounts profits (losses)		156		208		(51	)		135		44
Other fee income		70		104		88			67		74
Total net trading revenue(Tax-equivalent)	$	287		368		163			309		210

(a) Certain amounts presented in periods prior to the second quarter of 2006 have been reclassified to conform to the presentation in the second quarter of 2006.

Table 7
SELECTED RATIOS

	Six Months Ended
	June 30,					2006				2005
						Second		First		Fourth		Third		Second
	2006			2005		Quarter		Quarter		Quarter		Quarter		Quarter
PERFORMANCE RATIOS (a)
Assets to stockholders’ equity		10.99	X		10.64		11.08		10.90		11.21		10.81		10.68
Return on assets		1.37	%		1.31		1.39		1.34		1.30		1.29		1.31
Return on common stockholders’ equity		15.02			13.98		15.41		14.62		14.60		13.95		14.04
Return on total stockholders’ equity		15.02	%		13.98		15.41		14.62		14.60		13.95		14.04
DIVIDEND PAYOUT RATIOS
Common shares		45.13	%		44.88		43.59		46.79		46.79		48.11		44.23

(a) Based on average balances and net income.

Table 8
TRADING ACCOUNT ASSETS AND LIABILITIES

	2006				2005
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
TRADING ACCOUNT ASSETS
U.S. Treasury	$	2,176		938		1,293		1,120		2,815
U.S. Government agencies		2,319		1,990		2,154		2,692		2,882
State, county and municipal		1,077		1,449		2,180		1,998		1,874
Mortgage-backed securities		1,280		2,580		2,582		4,470		5,112
Other asset-backed securities		11,505		5,923		7,486		9,360		8,523
Corporate bonds and debentures		5,475		5,578		4,932		5,598		5,604
Equity securities		4,828		4,864		5,665		5,657		5,297
Derivative financial instruments		12,002		10,990		10,010		11,144		11,110
Sundry		5,890		5,073		6,402		7,607		3,302
Total trading account assets	$	46,552		39,385		42,704		49,646		46,519
TRADING ACCOUNT LIABILITIES
Securities sold short		8,182		8,418		8,790		9,914		9,953
Derivative financial instruments		10,227		9,428		8,808		9,901		9,874
Total trading account liabilities	$	18,409		17,846		17,598		19,815		19,827

45

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

	2006				2005
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
ON-BALANCE SHEET LOAN PORTFOLIO
COMMERCIAL
Commercial, financial and agricultural	$	91,737		89,138		87,327		83,241		80,528
Real estate — construction and other		15,329		14,483		13,972		13,653		13,216
Real estate — mortgage		19,745		20,066		19,966		19,864		19,724
Lease financing		25,194		25,238		25,368		25,022		24,836
Foreign		11,680		11,535		10,221		8,888		7,549
Total commercial		163,685		160,460		156,854		150,668		145,853
CONSUMER
Real estate secured		98,420		98,898		94,748		80,128		76,213
Student loans		9,139		10,555		9,922		11,458		10,828
Installment loans		20,508		20,189		6,751		6,745		6,783
Total consumer		128,067		129,642		111,421		98,331		93,824
Total loans		291,752		290,102		268,275		248,999		239,677
Unearned income		8,836		9,170		9,260		9,266		9,390
Loans, net(On-balance sheet)	$	282,916		280,932		259,015		239,733		230,287
MANAGED PORTFOLIO (a)
COMMERCIAL
On-balance sheet loan portfolio	$	163,685		160,460		156,854		150,668		145,853
Securitized loans — off-balance sheet		250		1,191		1,227		1,263		1,293
Loans held for sale		3,602		3,588		3,860		4,039		1,783
Total commercial		167,537		165,239		161,941		155,970		148,929
CONSUMER
Real estate secured
On-balance sheet loan portfolio		98,420		98,898		94,748		80,128		76,213
Securitized loans — off-balance sheet		6,833		7,598		8,438		9,255		10,199
Securitized loans included in securities		6,878		4,628		4,817		4,218		4,426
Loans held for sale		3,843		3,679		2,296		12,660		11,923
Total real estate secured		115,974		114,803		110,299		106,261		102,761
Student
On-balance sheet loan portfolio		9,139		10,555		9,922		11,458		10,828
Securitized loans — off-balance sheet		3,353		1,866		2,000		341		382
Securitized loans included in securities		52		52		52		—		—
Loans held for sale		—		—		—		—		16
Total student		12,544		12,473		11,974		11,799		11,226
Installment
On-balance sheet loan portfolio		20,508		20,189		6,751		6,745		6,783
Securitized loans — off-balance sheet		3,809		3,297		3,392		2,228		2,662
Securitized loans included in securities		181		193		206		146		163
Loans held for sale		305		592		249		1,339		809
Total installment		24,803		24,271		10,598		10,458		10,417
Total consumer		153,321		151,547		132,871		128,518		124,404
Total managed portfolio	$	320,858		316,786		294,812		284,488		273,333
SERVICING PORTFOLIO (b)
Commercial	$	212,500		192,367		173,428		158,650		152,923
Consumer	$	58,082		58,697		56,741		55,813		51,954

(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.

46

Table 10
LOANS HELD FOR SALE

	2006						2005
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Core business activity, beginning of period (a)	$	7,846			6,388			18,014			14,447			13,715
Balance of acquired entities at purchase date		—			—			873			—			—
Originations/purchases		13,870			13,068			13,704			15,157			10,577
Transfer to (from) loans held for sale, net		(238	)		(70	)		(12,060	)		(562	)		(583	)
Lower of cost or market value adjustments		—			—			—			—			(1	)
Performing loans sold or securitized		(13,357	)		(11,397	)		(11,444	)		(8,604	)		(6,999	)
Other, principally payments		(381	)		(143	)		(2,699	)		(2,424	)		(2,262	)
Core business activity, end of period		7,740			7,846			6,388			18,014			14,447
Portfolio management activity, end of period (a)		10			13			17			24			84
Total loans held for sale (b)	$	7,750			7,859			6,405			18,038			14,531

(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 June 30, and March 31, 2006, and at December 31, September 30, and June 30, 2005, were $23 million, $24 million, $32 million, $59 million and $111 million, respectively.

47

Table 11
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS

	2006						2005
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
ALLOWANCE FOR LOAN LOSSES (a)
Balance, beginning of period	$	3,036			2,724			2,719			2,718			2,732
Provision for credit losses		49			59			72			74			48
Provision for credit losses relating to loans transferred to loans held for sale or sold		5			—			5			12			—
Balance of acquired entities at purchase date		—			300			—			—			—
Allowance relating to loans acquired, transferred to loans held for sale or sold		(18	)		12			(21	)		(26	)		(11	)
Net charge-offs		(51	)		(59	)		(51	)		(59	)		(51	)
Balance, end of period	$	3,021			3,036			2,724			2,719			2,718
as a % of loans, net		1.07	%		1.08			1.05			1.13			1.18
as a % of nonaccrual and restructured loans (b)		488	%		452			439			347			332
as a % of nonperforming assets (b)		421	%		389			378			303			284
LOAN LOSSES
Commercial, financial and agricultural	$	32			27			52			43			35
Commercial real estate — construction and mortgage		3			7			12			9			—
Consumer		116			69			65			71			75
Total loan losses		151			103			129			123			110
LOAN RECOVERIES
Commercial, financial and agricultural		54			16			50			35			25
Commercial real estate — construction and mortgage		1			—			3			2			1
Consumer		45			28			25			27			33
Total loan recoveries		100			44			78			64			59
Net charge-offs	$	51			59			51			59			51
Commercial loan net charge-offs as % of average commercial loans, net (c)		(0.06)	%		0.05			0.03			0.05			0.03
Consumer loan net charge-offs as % of average consumer loans, net (c)		0.23			0.14			0.16			0.18			0.18
Total net charge-offs as % of average loans, net (c)		0.08	%		0.09			0.09			0.10			0.09
NONPERFORMING ASSETS
Nonaccrual loans
Commercial, financial and agricultural	$	299			342			307			445			497
Commercial real estate — construction and mortgage		88			84			85			120			88
Consumer real estate secured		226			240			221			209			221
Installment loans		6			6			7			10			13
Total nonaccrual loans		619			672			620			784			819
Foreclosed properties (d)		99			108			100			112			138
Total nonperforming assets	$	718			780			720			896			957
Nonperforming loans included in loans held for sale (e)	$	23			24			32			59			111
Nonperforming assets included in loans and in loans held for sale	$	741			804			752			955			1,068
as % of loans, net, and foreclosed properties (b)		0.25	%		0.28			0.28			0.37			0.42
as % of loans, net, foreclosed properties and loans held for sale (e)		0.25	%		0.28			0.28			0.37			0.44
Accruing loans past due 90 days	$	624			610			625			525			521

(a)	See Table 12 for information related to the reserve for unfunded lending commitments.
(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.

48

Table 12
RESERVE FOR UNFUNDED LENDING COMMITMENTS

	2006				2005
	Second		First		Fourth		Third			Second
(In millions)	Quarter		Quarter		Quarter		Quarter			Quarter
RESERVE FOR UNFUNDED LENDING COMMITMENTS
Balance, beginning of period	$	160		158		154		158			156
Provision for credit losses		5		2		4		(4	)		2
Balance, end of period	$	165		160		158		154			158

Table 13
NONACCRUAL LOAN ACTIVITY (a)

	2006						2005
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Balance, beginning of period	$	672			620			784			819			910
Commercial nonaccrual loan activity
Commercial nonaccrual loans, beginning of period		426			392			565			585			658
New nonaccrual loans and advances		188			147			117			229			195
Gross charge-offs		(35	)		(34	)		(64	)		(52	)		(35	)
Transfers to other real estate owned		(1	)		—			(1	)		(1	)		(25	)
Sales		(32	)		(2	)		(91	)		(93	)		(83	)
Other, principally payments		(159	)		(77	)		(134	)		(103	)		(125	)
Net commercial nonaccrual loan activity		(39	)		34			(173	)		(20	)		(73	)
Commercial nonaccrual loans, end of period		387			426			392			565			585
Consumer nonaccrual loan activity
Consumer nonaccrual loans, beginning of period		246			228			219			234			252
New nonaccrual loans, advances and other, net		(14	)		18			(5	)		(15	)		(18	)
Transfers from loans held for sale		—			—			15			—			—
Sales and securitizations		—			—			(1	)		—			—
Net consumer nonaccrual loan activity		(14	)		18			9			(15	)		(18	)
Consumer nonaccrual loans, end of period		232			246			228			219			234
Balance, end of period	$	619			672			620			784			819

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

49

Table 14
GOODWILL AND OTHER INTANGIBLE ASSETS

	2006				2005
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
Goodwill	$	23,550		23,443		21,807		21,857		21,861
Deposit base		631		691		705		779		861
Customer relationships		714		742		413		416		427
Tradename		90		90		90		90		90
Total goodwill and other intangible assets	$	24,985		24,966		23,015		23,142		23,239

	Six Months Ended June 30, 2006
	Employee			Occupancy
	Termination			and
(In millions)	Benefits			Equipment			Other			Total
EXIT COST PURCHASE ACCOUNTING ACCRUAL ACTIVITY
Wachovia/SouthTrust — November 1, 2004
Balance, December 31, 2005	$	123			9			3			135
Purchase accounting adjustments		—			—			—			—
Cash payments		(36	)		—			(1	)		(37	)
Noncash write-downs		—			(6	)		—			(6	)
Balance, June 30, 2006	$	87			3			2			92

Table 15
DEPOSITS

	2006				2005
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
CORE DEPOSITS
Noninterest-bearing	$	66,388		67,365		67,487		68,402		63,079
Savings and NOW accounts		77,297		80,773		81,536		78,013		79,957
Money market accounts		98,426		100,078		100,220		98,838		92,869
Other consumer time		50,132		47,876		44,319		42,479		39,376
Total core deposits		292,243		296,092		293,562		287,732		275,281
OTHER DEPOSITS
Foreign		20,326		19,157		18,041		15,736		15,029
Other time		15,045		13,315		13,291		16,971		9,600
Total deposits	$	327,614		328,564		324,894		320,439		299,910

Table 16
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE

	June 30, 2006
(In millions)
MATURITY OF
3 months or less	$	5,790
Over 3 months through 6 months		4,630
Over 6 months through 12 months		6,977
Over 12 months		6,726
Total time deposits in amounts of $100,000 or more	$	24,123

50

Table 17
LONG-TERM DEBT

	2006						2005
	Second			First			Fourth			Third		Second
(In millions)	Quarter			Quarter			Quarter			Quarter		Quarter
NOTES AND DEBENTURES ISSUED BY THE PARENT COMPANY
Notes
3.50% to 6.625%, due 2006 to 2020	$	6,366			6,352			5,724			5,724		7,575
Floating rate, due 2006 to 2012		9,249			9,249			8,449			7,149		7,149
Equity-linked, due 2006 to 2012		590			444			343			168		128
Subordinated notes
5.80%, income trust securities, due 2042		2,501			2,501			—			—		—
4.875% to 7.50%, due 2006 to 2035		5,491			5,489			5,784			5,787		5,738
6.30%, Putable/Callable, due 2028		200			200			200			200		200
6.605%, due 2025		250			250			250			250		250
Floating rate, due 2015		600			600			600			—		—
Subordinated debentures
6.55% to 7.574%, due 2026 to 2035		795			795			796			795		795
Hedge-related basis adjustments		(310	)		(103	)		111			97		405
Total notes and debentures issued by the Parent Company		25,732			25,777			22,257			20,170		22,240
NOTES ISSUED BY SUBSIDIARIES
Notes, primarily notes issued under global bank note programs, varying rates and terms to 2040		15,996			9,619			6,235			4,386		4,922
Subordinated notes
Bank, 4.75% to 9.625%, due 2006 to 2036		8,334			8,336			6,549			6,549		6,849
Floating rate, due 2013		417			417			417			417		417
7.80% to 7.95%, due 2006 to 2007		250			250			250			250		250
6.75%, due 2006		200			200			200			200		200
Total notes issued by subsidiaries		25,197			18,822			13,651			11,802		12,638
OTHER DEBT
Junior subordinated debentures, floating rate, due 2026 to 2029		3,112			3,114			3,114			3,106		3,106
Auto secured financing, due 2006 to 2013		9,571			11,138			—			—		—
Collateralized notes, floating rate, due 2007 to 2011		4,420			4,420			4,420			4,420		4,420
Advances from the Federal Home Loan Bank		2,517			2,519			2,519			4,145		4,970
Preferred units issued by subsidiaries		2,352			2,352			2,352			852		322
Capitalized leases		38			38			39			737		740
Mortgage notes and other debt of subsidiaries		1,826			2,072			706			525		324
Hedge-related basis adjustments		(138	)		(34	)		(87	)		89		246
Total other debt		23,698			25,619			13,063			13,874		14,128
Total long-term debt	$	74,627			70,218			48,971			45,846		49,006

51

Table 18
CHANGES IN STOCKHOLDERS’ EQUITY

	2006						2005
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Balance, beginning of period, as reported	$	49,789			47,561			46,757			47,904			46,467
Cumulative effect of an accounting change, net of income taxes		—			41			—			—			—
Balance, beginning of period		49,789			47,602			46,757			47,904			46,467
Comprehensive income
Net income		1,885			1,728			1,707			1,665			1,650
Minimum pension liability		—			—			(19	)		—			—
Net unrealized gain (loss) on debt and equity securities		(943	)		(792	)		(397	)		(848	)		607
Net unrealized gain (loss) on derivative financial instruments		16			(23	)		(29	)		(9	)		5
Total comprehensive income		958			913			1,262			808			2,262
Purchases of common stock		(1,462	)		(2,108	)		(42	)		(1,305	)		(247	)
Common stock issued for
Stock options and restricted stock		209			455			299			73			234
Acquisitions		97			3,868			—			3			—
Deferred compensation, net		96			(119	)		79			67			(87	)
Cash dividends on common shares		(815	)		(822	)		(794	)		(793	)		(725	)
Balance, end of period	$	48,872			49,789			47,561			46,757			47,904

52

Table 19
CAPITAL RATIOS

	2006					2005
	Second			First		Fourth		Third		Second
(In millions)	Quarter			Quarter		Quarter		Quarter		Quarter
CONSOLIDATED CAPITAL RATIOS (a)
Qualifying capital
Tier 1 capital	$	33,910			34,013		30,308		28,993		29,176
Total capital		49,592			49,510		43,709		42,183		41,791
Adjusted risk-weighted assets		434,390			432,215		404,068		390,843		371,511
Adjusted leverage ratio assets	$	516,500			495,531		495,601		486,865		478,524
Ratios
Tier 1 capital		7.81	%		7.87		7.50		7.42		7.85
Total capital		11.42			11.45		10.82		10.79		11.25
Leverage		6.57			6.86		6.12		5.96		6.10
STOCKHOLDERS’ EQUITY TO ASSETS
Quarter-end		8.83			9.19		9.13		8.78		9.36
Average		9.03	%		9.18		8.92		9.25		9.36
BANK CAPITAL RATIOS
Tier 1 capital
Wachovia Bank, National Association		7.93	%		7.71		7.45		7.55		7.95
Wachovia Bank of Delaware, National Association		15.64			15.02		14.07		13.59		14.09
Total capital
Wachovia Bank, National Association		11.47			11.25		10.70		11.07		11.79
Wachovia Bank of Delaware, National Association		17.72			17.16		16.27		15.67		16.43
Leverage
Wachovia Bank, National Association		6.66			6.89		6.26		6.27		6.40
Wachovia Bank of Delaware, National Association		11.52	%		11.60		10.52		11.48		11.83

(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.

53

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES

	SECOND QUARTER 2006							FIRST QUARTER 2006
					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	$	2,027		25		5.04	%	$	2,872		31		4.31	%
Federal funds sold and securities purchased under resale agreements		17,628		209		4.75			19,657		209		4.31
Trading account assets (a)		29,252		393		5.37			27,240		344		5.08
Securities (a)		124,102		1,668		5.38			117,944		1,557		5.28
Loans (a) (b)
Commercial
Commercial, financial and agricultural		90,259		1,555		6.92			87,784		1,411		6.51
Real estate — construction and other		14,946		277		7.43			14,184		243		6.95
Real estate — mortgage		20,118		369		7.36			20,166		350		7.04
Lease financing		9,895		175		7.08			10,050		171		6.81
Foreign		11,123		142		5.10			10,285		118		4.67
Total commercial		146,341		2,518		6.90			142,469		2,293		6.52
Consumer
Real estate secured		97,377		1,584		6.51			96,082		1,514		6.31
Student loans		10,842		170		6.30			10,589		157		6.00
Installment loans		20,705		482		9.33			11,434		242		8.57
Total consumer		128,924		2,236		6.95			118,105		1,913		6.50
Total loans		275,265		4,754		6.92			260,574		4,206		6.51
Loans held for sale		9,320		165		7.11			8,274		128		6.24
Other earning assets		5,638		99		7.00			5,966		118		8.04
Total earning assets excluding derivatives		463,232		7,313		6.32			442,527		6,593		6.00
Risk management derivatives (c)		—		125		0.11			—		163		0.15
Total earning assets including derivatives		463,232		7,438		6.43			442,527		6,756		6.15
Cash and due from banks		12,055							12,762
Other assets		68,325							66,920
Total assets	$	543,612						$	522,209
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
Savings and NOW accounts		78,539		332		1.70			79,783		304		1.54
Money market accounts		99,212		764		3.09			99,632		670		2.73
Other consumer time		48,389		465		3.85			46,309		407		3.57
Foreign		21,031		234		4.47			19,330		187		3.92
Other time		15,269		197		5.16			13,286		153		4.67
Total interest-bearing deposits		262,440		1,992		3.04			258,340		1,721		2.70
Federal funds purchased and securities sold under repurchase agreements		48,732		543		4.47			50,087		503		4.07
Commercial paper		4,659		51		4.45			4,193		41		3.93
Securities sold short		9,255		74		3.21			8,520		63		3.01
Other short-term borrowings		6,423		36		2.24			7,214		40		2.26
Long-term debt		71,725		940		5.25			56,052		697		4.99
Total interest-bearing liabilities excluding derivatives		403,234		3,636		3.62			384,406		3,065		3.23
Risk management derivatives (c)		—		127		0.12			—		152		0.16
Total interest-bearing liabilities including derivatives		403,234		3,763		3.74			384,406		3,217		3.39
Noninterest-bearing deposits		65,498							64,490
Other liabilities		25,817							25,387
Stockholders’ equity		49,063							47,926
Total liabilities and stockholders’ equity	$	543,612						$	522,209
Interest income and rate earned — including derivatives			$	7,438		6.43	%			$	6,756		6.15	%
Interest expense and equivalent rate paid — including derivatives				3,763		3.25					3,217		2.94
Net interest income and margin — including derivatives			$	3,675		3.18	%			$	3,539		3.21	%

(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.

54

FOURTH QUARTER 2005							THIRD QUARTER 2005							SECOND QUARTER 2005
				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
$	2,514		24		3.75	%	$	2,417		21		3.46	%	$	2,649		20		3.07	%
	22,647		237		4.17			24,451		216		3.50			24,676		189		3.08
	34,461		482		5.59			33,720		407		4.82			31,879		377		4.73
	115,557		1,506		5.21			114,902		1,461		5.08			115,006		1,469		5.11
	85,155		1,326		6.17			81,488		1,184		5.77			80,213		1,084		5.42
	13,803		226		6.51			13,322		201		5.96			12,885		177		5.53
	20,132		333		6.57			19,684		302		6.09			20,204		288		5.71
	10,153		184		7.26			9,979		178		7.15			10,252		183		7.11
	9,118		97		4.23			8,164		80		3.88			7,641		68		3.55
	138,361		2,166		6.22			132,637		1,945		5.82			131,195		1,800		5.50
	80,984		1,236		6.10			78,088		1,166		5.97			74,799		1,072		5.74
	11,235		155		5.46			11,267		144		5.07			10,995		129		4.72
	6,902		127		7.32			6,968		124		7.04			6,892		115		6.75
	99,121		1,518		6.11			96,323		1,434		5.94			92,686		1,316		5.69
	237,482		3,684		6.17			228,960		3,379		5.87			223,881		3,116		5.58
	17,646		270		6.10			16,567		244		5.90			14,024		194		5.51
	8,897		155		6.92			10,329		138		5.27			10,419		125		4.84
	439,204		6,358		5.77			431,346		5,866		5.42			422,534		5,490		5.20
	—		184		0.16			—		231		0.21			—		265		0.26
	439,204		6,542		5.93			431,346		6,097		5.63			422,534		5,755		5.46
	12,770							12,277							12,389
	68,408							67,944							68,438
$	520,382						$	511,567						$	503,361
	78,936		258		1.30			78,961		220		1.10			80,113		194		0.97
	100,999		609		2.39			97,746		529		2.15			94,990		455		1.92
	43,549		369		3.37			41,063		325		3.13			38,064		273		2.87
	17,464		157		3.56			15,285		123		3.18			11,857		81		2.75
	14,859		166		4.46			10,338		109		4.21			9,999		78		3.09
	255,807		1,559		2.42			243,393		1,306		2.13			235,023		1,081		1.84
	55,336		526		3.77			56,426		460		3.24			53,984		375		2.79
	8,062		76		3.74			12,664		108		3.39			13,365		97		2.91
	8,801		70		3.13			9,040		77		3.38			10,648		92		3.49
	7,164		39		2.18			6,471		29		1.80			6,694		30		1.82
	47,804		576		4.81			47,788		536		4.48			48,114		528		4.39
	382,974		2,846		2.95			375,782		2,516		2.66			367,828		2,203		2.40
	—		121		0.13			—		141		0.15			—		141		0.16
	382,974		2,967		3.08			375,782		2,657		2.81			367,828		2,344		2.56
	64,018							62,978							62,171
	26,983							25,479							26,248
	46,407							47,328							47,114
$	520,382						$	511,567						$	503,361
		$	6,542		5.93	%			$	6,097		5.63	%			$	5,755		5.46	%
			2,967		2.68					2,657		2.45					2,344		2.23
		$	3,575		3.25	%			$	3,440		3.18	%			$	3,411		3.23	%

(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.

55

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES

	SIX MONTHS ENDED							SIX MONTHS ENDED
	JUNE 30, 2006							JUNE 30, 2005
					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	$	2,447		56		4.61	%	$	2,567		36		2.85	%
Federal funds sold and securities purchased under resale agreements		18,637		418		4.52			24,475		342		2.82
Trading account assets (a)		28,252		737		5.23			33,504		779		4.66
Securities (a)		121,040		3,225		5.33			114,983		2,946		5.13
Loans (a) (b)
Commercial
Commercial, financial and agricultural		89,029		2,966		6.72			78,442		2,044		5.25
Real estate — construction and other		14,567		520		7.19			12,747		333		5.28
Real estate — mortgage		20,142		719		7.20			20,470		559		5.51
Lease financing		9,972		346		6.95			10,382		365		7.02
Foreign		10,706		260		4.89			7,418		126		3.42
Total commercial		144,416		4,811		6.71			129,459		3,427		5.33
Consumer
Real estate secured		96,733		3,098		6.41			74,729		2,109		5.65
Student loans		10,716		327		6.15			10,999		249		4.56
Installment loans		16,095		724		9.06			7,349		237		6.52
Total consumer		123,544		4,149		6.74			93,077		2,595		5.59
Total loans		267,960		8,960		6.72			222,536		6,022		5.44
Loans held for sale		8,800		293		6.70			13,450		360		5.35
Other earning assets		5,801		217		7.53			10,279		240		4.71
Total earning assets excluding derivatives		452,937		13,906		6.17			421,794		10,725		5.11
Risk management derivatives (c)		—		288		0.12			—		544		0.26
Total earning assets including derivatives		452,937		14,194		6.29			421,794		11,269		5.37
Cash and due from banks		12,406							12,524
Other assets		67,627							67,613
Total assets	$	532,970						$	501,931
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
Savings and NOW accounts		79,158		636		1.62			80,589		355		0.89
Money market accounts		99,421		1,434		2.91			94,238		812		1.74
Other consumer time		47,354		872		3.71			37,040		512		2.79
Foreign		20,186		421		4.21			11,429		142		2.51
Other time		14,282		350		4.93			11,284		161		2.86
Total interest-bearing deposits		260,401		3,713		2.88			234,580		1,982		1.70
Federal funds purchased and securities sold under repurchase agreements		49,406		1,046		4.27			52,697		687		2.63
Commercial paper		4,427		92		4.20			13,458		179		2.68
Securities sold short		8,889		137		3.12			11,659		194		3.36
Other short-term borrowings		6,817		76		2.25			6,532		56		1.73
Long-term debt		63,932		1,637		5.13			47,752		1,021		4.28
Total interest-bearing liabilities excluding derivatives		393,872		6,701		3.43			366,678		4,119		2.26
Risk management derivatives (c)		—		279		0.14			—		265		0.15
Total interest-bearing liabilities including derivatives		393,872		6,980		3.57			366,678		4,384		2.41
Noninterest-bearing deposits		64,997							61,361
Other liabilities		25,603							26,720
Stockholders’ equity		48,498							47,172
Total liabilities and stockholders’ equity	$	532,970						$	501,931
Interest income and rate earned — including derivatives			$	14,194		6.29	%			$	11,269		5.37	%
Interest expense and equivalent rate paid — including derivatives				6,980		3.10					4,384		2.10
Net interest income and margin — including derivatives			$	7,214		3.19	%			$	6,885		3.27	%

(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.
(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.

56

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	2006						2005
	Second			First			Fourth			Third			Second
(In millions, except per share data)	Quarter			Quarter			Quarter			Quarter			Quarter
ASSETS
Cash and due from banks	$	12,761			12,668			15,072			12,976			12,464
Interest-bearing bank balances		2,244			1,563			2,638			2,492			2,852
Federal funds sold and securities purchased under resale agreements (carrying amount of collateral held $11,657 at June 30, 2006, $3,341 repledged)		17,223			18,807			19,915			27,083			22,528
Total cash and cash equivalents		32,228			33,038			37,625			42,551			37,844
Trading account assets		46,552			39,385			42,704			49,646			46,519
Securities		120,453			118,818			114,889			117,195			117,906
Loans, net of unearned income		282,916			280,932			259,015			239,733			230,287
Allowance for loan losses		(3,021	)		(3,036	)		(2,724	)		(2,719	)		(2,718	)
Loans, net		279,895			277,896			256,291			237,014			227,569
Loans held for sale		7,750			7,859			6,405			18,038			14,531
Premises and equipment		5,322			5,194			4,910			5,352			5,354
Due from customers on acceptances		1,010			968			824			882			826
Goodwill		23,550			23,443			21,807			21,857			21,861
Other intangible assets		1,435			1,523			1,208			1,285			1,378
Other assets		35,419			33,718			34,092			38,561			38,052
Total assets	$	553,614			541,842			520,755			532,381			511,840
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-bearing deposits		66,388			67,365			67,487			68,402			63,079
Interest-bearing deposits		261,226			261,199			257,407			252,037			236,831
Total deposits		327,614			328,564			324,894			320,439			299,910
Short-term borrowings		62,787			55,390			61,953			78,184			75,726
Bank acceptances outstanding		1,021			985			892			932			859
Trading account liabilities		18,409			17,846			17,598			19,815			19,827
Other liabilities		17,305			16,070			15,986			16,504			15,750
Long-term debt		74,627			70,218			48,971			45,846			49,006
Total liabilities		501,763			489,073			470,294			481,720			461,078
Minority interest in net assets of consolidated subsidiaries		2,979			2,980			2,900			3,904			2,858
STOCKHOLDERS’ EQUITY
Dividend Equalization Preferred shares, no par value, 97 million shares issued and outstanding at June 30, 2006		—			—			—			—			—
Non-Cumulative Perpetual Class A Preferred Stock, Series I, $100,000 liquidation preference per share, 25,010 shares authorized		—			—			—			—			—
Common stock, $3.33-1/3 par value; authorized 3 billion shares, outstanding 1.589 billion shares at June 30, 2006		5,298			5,362			5,189			5,178			5,258
Paid-in capital		34,086			34,291			31,172			30,821			31,038
Retained earnings		12,003			11,724			11,973			11,086			11,079
Accumulated other comprehensive income, net		(2,515	)		(1,588	)		(773	)		(328	)		529
Total stockholders’ equity		48,872			49,789			47,561			46,757			47,904
Total liabilities and stockholders’ equity	$	553,614			541,842			520,755			532,381			511,840

57

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	2006					2005
	Second		First			Fourth			Third		Second
(In millions, except per share data)	Quarter		Quarter			Quarter			Quarter		Quarter
INTEREST INCOME
Interest and fees on loans	$	4,823		4,321			3,846			3,588		3,362
Interest and dividends on securities		1,685		1,565			1,486			1,434		1,437
Trading account interest		387		325			462			387		354
Other interest income		509		496			696			635		549
Total interest income		7,404		6,707			6,490			6,044		5,702
INTEREST EXPENSE
Interest on deposits		2,035		1,779			1,618			1,408		1,221
Interest on short-term borrowings		755		718			764			742		670
Interest on long-term debt		973		720			585			507		453
Total interest expense		3,763		3,217			2,967			2,657		2,344
Net interest income		3,641		3,490			3,523			3,387		3,358
Provision for credit losses		59		61			81			82		50
Net interest income after provision for credit losses		3,582		3,429			3,442			3,305		3,308
FEE AND OTHER INCOME
Service charges		622		574			555			555		528
Other banking fees		449		428			400			385		355
Commissions (a)		588		623			573			598		585
Fiduciary and asset management fees (a)		808		761			790			749		746
Advisory, underwriting and other investment banking fees		318		302			325			294		257
Trading account profits (losses)		164		219			(31	)		160		49
Principal investing		189		103			135			166		41
Securities gains (losses)		25		(48	)		(74	)		29		136
Other income		420		555			316			322		280
Total fee and other income		3,583		3,517			2,989			3,258		2,977
NONINTEREST EXPENSE
Salaries and employee benefits		2,652		2,697			2,470			2,476		2,324
Occupancy		291		275			283			260		271
Equipment		299		280			277			276		269
Advertising		56		47			51			50		48
Communications and supplies		162		167			155			158		158
Professional and consulting fees		184		167			213			167		155
Other intangible amortization		98		92			93			101		107
Merger-related and restructuring expenses		24		68			58			83		90
Sundry expense		495		446			583			433		366
Total noninterest expense		4,261		4,239			4,183			4,004		3,788
Minority interest in income of consolidated subsidiaries		90		95			103			104		71
Income from continuing operations before income taxes		2,814		2,612			2,145			2,455		2,426
Income taxes		929		884			652			790		776
Income from continuing operations		1,885		1,728			1,493			1,665		1,650
Discontinued operations, net of income taxes		—		—			214			—		—
Net income	$	1,885		1,728			1,707			1,665		1,650
PER COMMON SHARE DATA
Basic earnings
Income from continuing operations	$	1.19		1.11			0.97			1.07		1.05
Net income		1.19		1.11			1.11			1.07		1.05
Diluted earnings
Income from continuing operations		1.17		1.09			0.95			1.06		1.04
Net income		1.17		1.09			1.09			1.06		1.04
Cash dividends	$	0.51		0.51			0.51			0.51		0.46
AVERAGE COMMON SHARES
Basic		1,585		1,555			1,541			1,549		1,564
Diluted		1,613		1,586			1,570			1,575		1,591

(a) Amounts presented prior to the second quarter of 2006 have been reclassified to conform to the presentation in the second quarter of 2006.

58

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets — June 30, 2006 and December 31, 2005 (Unaudited)	60
Consolidated Statements of Income — Three and Six Months Ended June 30, 2006 and 2005 (Unaudited)	61
Consolidated Statements of Cash Flows — Six Months Ended June 30, 2006 and 2005 (Unaudited)	62
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Summary of Significant Accounting Policies and Other Matters	63
Note 2: Securities	65
Note 3: Variable Interest Entities and Servicing Assets	67
Note 4: Share-Based Payments	68
Note 5: Comprehensive Income	69
Note 6: Business Segments	70
Note 7: Basic and Diluted Earnings Per Common Share	72
Note 8: Derivatives	73
Note 9: Guarantees	76

59

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS(Unaudited)

	June 30,			December 31,
(In millions, except per share data)	2006			2005
ASSETS
Cash and due from banks	$	12,761			15,072
Interest-bearing bank balances		2,244			2,638
Federal funds sold and securities purchased under resale agreements (carrying amount of collateral held $11,657 at June 30, 2006, $3,341 repledged)		17,223			19,915
Total cash and cash equivalents		32,228			37,625
Trading account assets		46,552			42,704
Securities		120,453			114,889
Loans, net of unearned income		282,916			259,015
Allowance for loan losses		(3,021	)		(2,724	)
Loans, net		279,895			256,291
Loans held for sale		7,750			6,405
Premises and equipment		5,322			4,910
Due from customers on acceptances		1,010			824
Goodwill		23,550			21,807
Other intangible assets		1,435			1,208
Other assets		35,419			34,092
Total assets	$	553,614			520,755
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-bearing deposits		66,388			67,487
Interest-bearing deposits		261,226			257,407
Total deposits		327,614			324,894
Short-term borrowings		62,787			61,953
Bank acceptances outstanding		1,021			892
Trading account liabilities		18,409			17,598
Other liabilities		17,305			15,986
Long-term debt		74,627			48,971
Total liabilities		501,763			470,294
Minority interest in net assets of consolidated subsidiaries		2,979			2,900
STOCKHOLDERS’ EQUITY
Dividend Equalization Preferred shares, no par value, 97 million shares issued and outstanding at June 30, 2006		—			—
Non-Cumulative Perpetual Class A Preferred Stock, Series I, $100,000 liquidation preference per share, 25,010 shares authorized		—			—
Common stock, $3.33-1/3 par value; authorized 3 billion shares, outstanding 1.589 billion shares at June 30, 2006		5,298			5,189
Paid-in capital		34,086			31,172
Retained earnings		12,003			11,973
Accumulated other comprehensive income, net		(2,515	)		(773	)
Total stockholders’ equity		48,872			47,561
Total liabilities and stockholders’ equity	$	553,614			520,755

See accompanying Notes to Consolidated Financial Statements.

60

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions, except per share data)	2006		2005		2006			2005
INTEREST INCOME
Interest and fees on loans	$	4,823		3,362		9,144			6,536
Interest and dividends on securities		1,685		1,437		3,250			2,863
Trading account interest		387		354		712			732
Other interest income		509		549		1,005			1,024
Total interest income		7,404		5,702		14,111			11,155
INTEREST EXPENSE
Interest on deposits		2,035		1,221		3,814			2,271
Interest on short-term borrowings		755		670		1,473			1,271
Interest on long-term debt		973		453		1,693			842
Total interest expense		3,763		2,344		6,980			4,384
Net interest income		3,641		3,358		7,131			6,771
Provision for credit losses		59		50		120			86
Net interest income after provision for credit losses		3,582		3,308		7,011			6,685
FEE AND OTHER INCOME
Service charges		622		528		1,196			1,041
Other banking fees		449		355		877			706
Commissions		588		585		1,211			1,172
Fiduciary and asset management fees		808		746		1,569			1,472
Advisory, underwriting and other investment banking fees		318		257		620			490
Trading account profits		164		49		383			157
Principal investing		189		41		292			100
Securities gains (losses)		25		136		(23	)		134
Other income		420		280		975			700
Total fee and other income		3,583		2,977		7,100			5,972
NONINTEREST EXPENSE
Salaries and employee benefits		2,652		2,324		5,349			4,725
Occupancy		291		271		566			521
Equipment		299		269		579			534
Advertising		56		48		103			92
Communications and supplies		162		158		329			320
Professional and consulting fees		184		155		351			282
Other intangible amortization		98		107		190			222
Merger-related and restructuring expenses		24		90		92			151
Sundry expense		495		366		941			813
Total noninterest expense		4,261		3,788		8,500			7,660
Minority interest in income of consolidated subsidiaries		90		71		185			135
Income before income taxes		2,814		2,426		5,426			4,862
Income taxes		929		776		1,813			1,591
Net income	$	1,885		1,650		3,613			3,271
PER COMMON SHARE DATA
Basic earnings	$	1.19		1.05		2.30			2.09
Diluted earnings		1.17		1.04		2.26			2.05
Cash dividends	$	0.51		0.46		1.02			0.92
AVERAGE COMMON SHARES
Basic		1,585		1,564		1,570			1,567
Diluted		1,613		1,591		1,599			1,597

See accompanying Notes to Consolidated Financial Statements.

61

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)

	Six Months Ended
	June 30,
(In millions)	2006			2005
OPERATING ACTIVITIES
Net income	$	3,613			3,271
Adjustments to reconcile net income to net cash provided (used) by operating activities
Accretion and amortization of securities discounts and premiums, net		1			128
Provision for credit losses		120			86
Gain on securitization transactions		(112	)		(99	)
Gain on sale of mortgage servicing rights		(12	)		(12	)
Securities transactions		23			(134	)
Depreciation and other amortization		834			727
Trading account assets, net		(3,848	)		(587	)
Loss on sales of premises and equipment		12			61
Contribution to qualified pension plan		—			(330	)
Loans held for sale, net		(1,679	)		(1,645	)
Other assets, net		31			(554	)
Trading account liabilities, net		811			(1,882	)
Other liabilities, net		1,552			(167	)
Net cash provided (used) by operating activities		1,346			(1,137	)
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities		15,144			24,000
Maturities of securities		9,172			18,762
Purchases of securities		(27,517	)		(50,198	)
Origination of loans, net		(12,507	)		(6,530	)
Sales of premises and equipment		113			35
Purchases of premises and equipment		(858	)		(519	)
Goodwill and other intangible assets		(99	)		(327	)
Purchase of bank-owned separate account life insurance		(339	)		(1,624	)
Cash equivalent acquired, net of purchases of banking operations		997			18
Net cash used by investing activities		(15,894	)		(16,383	)
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Increase in deposits, net		479			4,857
Securities sold under repurchase agreements and other short-term borrowings, net		834			12,320
Issuances of long-term debt		17,974			4,261
Payments of long-term debt		(5,291	)		(2,014	)
Issuances of common stock, net		362			147
Purchases of common stock		(3,570	)		(1,346	)
Cash dividends paid		(1,637	)		(1,452	)
Net cash provided by financing activities		9,151			16,773
Decrease in cash and cash equivalents		(5,397	)		(747	)
Cash and cash equivalents, beginning of year		37,625			38,591
Cash and cash equivalents, end of period	$	32,228			37,844
NONCASH ITEMS
Transfer to securities from loans	$	2,422			51
Transfer to securities from loans held for sale		52			87
Transfer to loans from loans held for sale		308			15
Cumulative effect of an accounting change, net of income taxes		41			—
Issuance of common stock for purchase accounting acquisitions	$	3,965			—

See accompanying Notes to Consolidated Financial Statements.

62

WACHOVIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

GENERAL

     Wachovia Corporation and subsidiaries (together the “Company”) is a diversified financial services company whose operations are principally domestic.

     The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. 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 U.S. 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 six months ended June 30, 2006, are not necessarily indicative of the results of operations that may be expected in the future. Please refer to the Company’s 2005 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, 2005, including the related notes to consolidated financial statements.

     Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Actual results could differ from those estimates.

BUSINESS COMBINATIONS

     On May 8, 2006, the Company announced the signing of a definitive merger agreement with Golden West Financial Corporation. The acquisition of this California-based retail banking and mortgage lending franchise is expected to be completed in the fourth quarter of 2006. The terms of this agreement provide for the right of each Golden West shareholder to receive (A) a number of shares of Wachovia common stock equal to the product of (i) 1.365 times (ii) 77 percent times (iii) the number of shares of Golden West common stock held by such holder of record, and (B) an amount in cash equal to the product of (i) $81.07 times (ii) 23 percent times (iii) the number of shares of Golden West common stock held by such holder of record, based on the number of shares of Golden West common stock held by such holder on the record date. Based on the Company’s weighted average of the closing prices for a period two trading days before the announcement of the merger and two trading days after the merger announcement of $55.69 (which includes the day of announcement), the transaction is valued at $24.3 billion.

     On September 12, 2005, the Company announced the signing of a definitive merger agreement with Westcorp and WFS Financial Inc (“WFS”) the common stock of which 84 percent was owned by Westcorp and 16 percent was held by the public. The acquisition of this California-based auto loan originator business was completed on March 1, 2006. The terms of this transaction called for the Company to exchange 1.2749 shares of its common stock for each share of Westcorp common stock and 1.4661 shares of its common stock for each share of WFS common stock. Based on the Company’s weighted average of the closing prices for a period two trading days before the announcement of the merger and two trading days after the merger announcement of $49.60 (which includes the day of announcement), the transaction is valued at $3.8 billion. As of June 30, 2006, the Company has recorded fair value and exit cost purchase accounting adjustments of $336 million along with dealer relationship and deposit base intangibles of $405 million. Based on Westcorp tangible stockholders’ equity of $1.9 billion, this resulted in preliminary goodwill of $1.5 billion. The Westcorp March 1, 2006, allowance for loan losses recorded by the Company excluded Westcorp’s allowance for loan losses related to nonperforming loans.

PERSONNEL EXPENSE AND RETIREMENT BENEFITS

     The components of the retirement benefit costs included in salaries and employee benefits for the six months ended June 30, 2006 and 2005, are presented below.

											Other Postretirement
	Qualified Pension						Nonqualified Pension				Benefits
	Six Months Ended						Six Months Ended				Six Months Ended
	June 30,						June 30,				June 30,
(In millions)	2006			2005			2006		2005		2006			2005
RETIREMENT BENEFIT COSTS
Service cost	$	94			89			2		2		2			2
Interest cost		126			121			13		13		23			26
Expected return on plan assets		(213	)		(207	)		—		—		(1	)		(1	)
Amortization of prior service cost		(13	)		(13	)		1		—		(4	)		(4	)
Amortization of actuarial losses		69			44			6		5		3			3
Special and/or contractual termination benefits		—			—			14		—		—			—
Net retirement benefit costs	$	63			34			36		20		23			26

63

     With respect to the Qualified Pension, the Company estimates there will be no minimum required contribution in 2006 and that the maximum allowed contribution will be approximately $450 million. Additionally, the Company’s practice is to contribute annually to each of the Nonqualified Pension and Other Postretirement Benefits an amount equal to the benefit payments made during the year less any retiree contributions received during the year.

RECLASSIFICATIONS

     Certain amounts in 2005 were reclassified to conform with the presentation in 2006. These reclassifications had no effect on the Company’s previously reported consolidated financial position or results of operations. Changes in fair value of certain derivatives held for other-than-trading purposes, which are economic hedges not designated and accounted for as accounting hedges, are now presented in other income. Previously, for these certain derivatives, the changes in fair value were included in trading account profits. Prior period amounts have been reclassified to be consistent with the current period presentation.

64

NOTE 2: SECURITIES

	June 30, 2006
																		Average
	1 Year			1-5		5-10		After 10				Gross Unrealized				Amortized		Maturity
(In millions)	or Less			Years		Years		Years		Total		Gains		Losses		Cost		in Years
MARKET VALUE
U.S. Treasury	$	811			161		135		38		1,145		—		14		1,159		2.40
Mortgage-backed securities, principally obligations of U.S. Government agencies and sponsored entities		111			6,610		73,210		8		79,939		6		3,168		83,101		7.42
Asset-backed
Residual interests from securitizations		62			603		174		31		870		250		—		620		3.71
Retained bonds from securitizations		391			2,353		175		21		2,940		31		3		2,912		2.67
Collateralized mortgage obligations		229			2,853		3,916		1,163		8,161		17		240		8,384		6.21
Commercial mortgage-backed		9			2,513		4,218		25		6,765		119		206		6,852		5.83
Other		132			478		189		—		799		3		14		810		3.16
State, county and municipal		56			641		589		2,356		3,642		183		14		3,473		14.74
Sundry		722			1,598		6,518		7,354		16,192		72		337		16,457		11.15
Total market value	$	2,523			17,810		89,124		10,996		120,453		681		3,996		123,768		7.67
MARKET VALUE
Debt securities	$	2,523			17,810		89,124		8,244		117,701		642		3,975		121,034
Equity securities		—			—		—		2,752		2,752		39		21		2,734
Total market value	$	2,523			17,810		89,124		10,996		120,453		681		3,996		123,768
AMORTIZED COST
Debt securities	$	2,505			17,677		92,507		8,345		121,034
Equity securities		—			—		—		2,734		2,734
Total amortized cost	$	2,505			17,677		92,507		11,079		123,768
WEIGHTED AVERAGE YIELD
U.S. Treasury		4.81	%		2.01		2.58		4.95		4.14
Mortgage-backed securities, principally obligations of U.S. Government agencies and sponsored entities		6.26			5.16		5.27		5.01		5.26
Asset-backed
Residual interests from securitizations		22.78			20.18		18.03		12.25		19.58
Retained bonds from securitizations		6.35			6.08		6.70		4.46		6.14
Collateralized mortgage obligations		4.75			4.98		5.44		5.74		5.30
Commercial mortgage-backed		5.02			7.12		5.14		5.80		5.84				��
Other		6.39			5.49		5.63		—		5.67
State, county and municipal		8.37			8.63		8.10		6.81		7.36
Sundry		5.28			5.03		4.53		5.30		4.97
Consolidated		5.76	%		5.96		5.25		5.67		5.40

65

     At June 30, 2006, all securities were classified as available for sale.

     At June 30, 2006, mortgage-backed securities included Federal National Mortgage Association and Federal Home Loan Mortgage Corporation securities with an amortized cost of $60.3 billion and a market value of $58.0 billion, and an amortized cost of $18.4 billion and a market value of $17.6 billion, respectively. Also included in mortgage-backed securities are U.S. Government agency and Government-sponsored entity securities retained from the securitization of residential mortgage loans. These securities had an amortized cost of $4.3 billion and a market value of $4.2 billion at June 30, 2006.

     Included in asset-backed securities are retained bonds primarily from the securitization of commercial and consumer real estate, SBA and auto loans. At June 30, 2006, retained bonds with an amortized cost and a market value of $2.8 billion were considered investment grade based on external ratings. Retained bonds with an amortized cost and market value of $2.2 billion at June 30, 2006, had an external credit rating of AA and above.

     Securities with an aggregate amortized cost of $64.0 billion at June 30, 2006, are pledged to secure U.S. Government and other public deposits and for other purposes as required by various statutes or agreements.

     Expected maturities of beneficial interests and the contractual maturities of all other securities are summarized in the table. 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 June 30, 2006, there were forward commitments to purchase securities on both a regular way and non-regular way basis at a cost that approximates a market value of $987 million. At June 30, 2006, there were commitments to sell securities at a cost that approximates a market value of $662 million.

     On a quarterly basis, the Company makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis. The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the write-down recorded as a realized loss in securities gains (losses).

     Gross unrealized losses at June 30, 2006, are primarily caused by interest rate changes. The Company has reviewed these securities in accordance with its accounting policy for other-than-temporary impairment discussed above and does not consider them other-than-temporarily impaired.

     Gross gains and losses realized on the sale of debt securities in the six months ended June 30, 2006, were $55 million and $117 million (including $30 million of impairment losses), respectively, and gross gains and losses realized on the sale of equity securities were $40 million and $1 million (no impairment losses), respectively.

66

NOTE 3: VARIABLE INTEREST ENTITIES AND SERVICING ASSETS

VARIABLE INTEREST ENTITIES

     The Company administers a multi-seller commercial paper conduit 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 this multi-seller conduit which is a variable interest entity (“VIE”) and the liquidity agreements are considered variable interests. The Company is not the primary beneficiary of the conduit and does not consolidate the conduit. At June 30, 2006, and December 31, 2005, the conduit administered by the Company had total assets of $10.7 billion and $9.7 billion, respectively, and the Company had a maximum exposure to losses of $19.2 billion and $19.9 billion, respectively, related to its liquidity agreements.

     The Company has an ownership interest in an investment fund that is a VIE. At June 30, 2006, this investment fund had total assets of $24.1 billion and the Company’s maximum exposure to losses was $2.7 billion.

SERVICING ASSETS

     In connection with certain transactions where the Company securitizes and sells originated or purchased loans with servicing retained, servicing assets or liabilities are recorded based on the relative fair value of the servicing rights on the date the loans are sold. The Company also purchases certain servicing assets. Servicing assets recorded at amortized cost are amortized in proportion to and over the estimated period of net servicing income.

     The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 156, “Accounting for Servicing of Financial Assets,” effective January 1, 2006. SFAS 156 requires that all servicing assets and liabilities initially be recognized at fair value, rather than based on an allocated fair value amount. Additionally, SFAS 156 permits entities to choose to recognize individual classes of servicing assets at fair value on an ongoing basis, with subsequent changes in fair value recorded in earnings. The Company determined its classes of servicing assets based on the asset type being serviced along with the methods used to manage the risk inherent in the servicing assets, which includes the market inputs used to value the servicing assets. The risks inherent in these servicing assets vary based on asset class but include changes in market interest rates, prepayments, default rates and cost to service in event of default, among other factors. The Company elected to record a class of originated residential mortgage servicing assets at fair value on an ongoing basis with the adoption of SFAS 156. Accordingly, the Company has recorded a $41 million after-tax cumulative effect adjustment to beginning retained earnings, as required by SFAS 156, for the difference between the carrying amount of originated residential mortgage servicing assets and their fair value at the date of adoption. Valuation of the originated residential mortgage servicing assets recorded at fair value is estimated using discounted cash flows with prepayment speeds and discount rates as significant assumptions. At June 30, 2006, the weighted average prepayment speed assumption was 13.00 percent and the weighted average discount rate used was 11.18 percent. Valuation of the servicing assets recorded on an amortized cost basis is also estimated using discounted cash flows with key assumptions including prepayment speeds, discount rates, estimated default rates and cost to service. Servicing assets recorded at amortized cost are periodically evaluated for impairment based on the fair value of those assets. If, by individual stratum, the carrying amount of servicing assets exceeds fair value, a valuation reserve is established. The valuation reserve is adjusted as the fair value changes. For purposes of impairment evaluation and measurement, the Company stratifies servicing assets based on predominant risk characteristics of the underlying loans, including loan type, amortization type, loan coupon rate, and in certain circumstances, period of origination.

     Included in other servicing assets below are servicing assets with a carrying amount of $264 million at June 30, 2006, that are associated with the Company’s HomEq servicing business which is being divested.

     Servicing fee income in the six months ended June 30, 2006, was $232 million and is included in other banking fees on the consolidated statements of income. Changes in the fair value and amortization of servicing assets are included in other banking fees. The change in the fair value of originated residential mortgage servicing assets and the change in the carrying amount of servicing assets which are recorded at amortized cost in the six months ended June 30, 2006, follows.

67

	Six Months Ended June 30, 2006
	Servicing Assets
	Fair Value			Amortized Cost
				Fixed Rate
	Originated			Commercial
	Residential			Mortgage-
(In millions)	Mortgages			Backed			Other			Total
Balance, December 31, 2005	$	195			372			400			967
Cumulative effect of an accounting change		64			—			—			64
Balance, January 1, 2006		259			372			400			1,031
Fair value of servicing assets purchased, assumed or originated, or retained from securitizations		79			133			195			407
Servicing sold or otherwise disposed of		(22	)		—			—			(22	)
Change in fair value due to changes in model inputs and/or assumptions		17			—			—			17
Other changes in fair value, primarily from fees earned		(33	)		—			—			(33	)
Amortization of servicing assets		—			(43	)		(89	)		(132	)
Impairment		—			—			(5	)		(5	)
Other		6			—			(5	)		1
Balance, June 30, 2006	$	306			462			496			1,264
FAIR VALUE
December 31, 2005	$	259			516			515			1,290
June 30, 2006	$	306			614			622			1,542

NOTE 4: SHARE-BASED PAYMENTS

     The Company has stock option plans under which incentive and nonqualified stock options may be granted periodically to certain employees. The options are granted at an exercise price equal to the fair value of the underlying shares at the date of grant, vest based on continued service with the Company for a specified period, generally three years to five years following the date of grant, and have a contractual life of ten years. Restricted stock may also be granted under the stock option plans. The restricted stock generally vests over three years to five years, during which time the holder receives dividends and has full voting rights. Employee stock compensation expense was $119 million in the three months ended June 30, 2006, including $91 million related to restricted stock awards and $28 million related to stock option awards. Employee stock compensation expense was $313 million in the six months ended June 30, 2006, including $198 million related to restricted stock awards and $115 million related to stock option awards. The related income tax benefit in the three and six months ended June 30, 2006, was $42 million and $110 million, respectively.

     At June 30, 2006, there was $602 million and $295 million of total unrecognized compensation costs related to restricted stock awards and stock option awards, respectively. Those costs are expected to be recognized over a weighted-average period of 1.4 years and 1.7 years, respectively. The fair value of restricted stock awards vested in the six months ended June 30, 2006, and June 30, 2005, was $255 million and $315 million, respectively. The total intrinsic value of stock option awards exercised in the six months ended June 30, 2006, and June 30, 2005, was $317 million and $182 million, respectively.

     The Company adopted the fair value method of accounting for stock options in 2002 and all awards made prior to January 1, 2002, had fully vested prior to December 31, 2005. Under this method, fair value is measured on the date of grant using the Black-Scholes option pricing model with market assumptions. This amount was amortized on a straight-line basis over the vesting period for all recipients. Accordingly, the primary impact to the Company from the implementation of SFAS 123 (revised) (“SFAS 123R”) “Share-Based Payments”, effective January 1, 2006, was the different treatment of awards to retirement-eligible employees, which must now be expensed in full at the date of grant, or from the date of grant to the date that an employee will become retirement-eligible, if that is before the end of the stated vesting period. Employee stock compensation expense in the three and six months ended June 30, 2006, includes $9 million and $107 million, respectively, associated with the implementation of SFAS 123R, primarily related to the impact of awards granted to employees that were retirement-eligible at the date of grant.

     At June 30, 2006, the Company had 66 million shares of common stock reserved for issuance under the stock option plans.

68

     The weighted average grant date fair value of options awarded under the stock option plans in the six months ended June 30, 2006, was $10.07. The more significant assumptions used in estimating the fair value of stock options include risk-free interest rates of 4.83 percent, dividend yield of 3.64 percent, volatility of the Company’s common stock of 18.87 percent, and weighted average expected lives of the stock options of 7.0 years. The Company calculated its volatility estimate from implied volatility of actively traded options on the Company’s stock with remaining maturities of two years. This represents a change from prior years, in which the Company calculated its volatility estimate based on historical volatility adjusted for significant changes in the Company’s business activities. The Company determined the estimated life using the simple average of the 10-year contractual term of the options and the vesting term (using an average of the 5-year graded vesting period). In prior years, the Company determined the estimated life based on historical share option experience.

     Stock award activity in the six months ended June 30, 2006, is presented below.

	June 30, 2006
				Weighted-
				Average
(Options and shares in thousands)	Number			Price (a)
STOCK OPTIONS
Options outstanding, beginning of period		133,870		$	38.67
Granted		14,191			56.03
Options of acquired entities		1,619			27.89
Exercised		(14,724	)		34.63
Expired		(221	)		45.63
Forfeited		(988	)		45.63
Options outstanding, end of period		133,747		$	40.78
Options exercisable, end of period		96,361		$	37.60
RESTRICTED STOCK
Unvested shares, beginning of period		14,055		$	48.59
Granted		6,556			56.14
Vested		(4,783	)		47.13
Forfeited		(674	)		51.00
Unvested shares, end of period		15,154		$	52.01

(a) The weighted-average price for stock options is the weighted-average exercise price of the options, and for restricted stock, the weighted-average fair value of the stock at the date of grant.

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 six months ended June 30, 2006 and 2005, is presented below.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In millions)	2006			2005		2006			2005
COMPREHENSIVE INCOME
Net income	$	1,885			1,650		3,613			3,271
OTHER COMPREHENSIVE INCOME
Net unrealized holding gain (loss) on securities		(943	)		607		(1,735	)		(179	)
Net unrealized gain (loss) on cash flow hedge derivatives		16			5		(7	)		(17	)
Total comprehensive income	$	958			2,262		1,871			3,075

69

NOTE 6: BUSINESS SEGMENTS (a)

     Business segment earnings are presented excluding merger-related and restructuring expenses, other intangible amortization, minority interest in consolidated subsidiaries and a 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. Cost transfers are made for service provided by one segment to another. In the first six months of 2006, fee and other income in the Corporate and Investment Bank included $83 million of fees related to certain corporate underwriting and structured products activity which was eliminated in the Parent segment.

     The Company continuously updates segment information for changes that occur in the management of the Company’s businesses. For example, in the first quarter of 2006, the Company transferred certain customer relationships and financial advisors to Wealth Management from Capital Management relating to a new investment platform in Wealth Management and have updated information for 2005 to reflect this and other changes. The impact to segment earnings in 2005 as a result of these changes was a $37 million decrease in the General Bank, a $9 million increase in Capital Management, a $12 million decrease in Wealth Management, a $1 million decrease in the Corporate and Investment Bank, and a $41 million increase in the Parent.

	Three Months Ended June 30, 2006
															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)	$	2,798			208			149		501			19			(34	)		3,641
Fee and other income		858			1,222			197		1,215			91			—			3,583
Intersegment revenue		51			(11	)		1		(42	)		1			—			—
Total revenue (b)		3,707			1,419			347		1,674			111			(34	)		7,224
Provision for credit losses		95			—			2		(33	)		(5	)		—			59
Noninterest expense		1,756			1,111			252		879			239			24			4,261
Minority interest		—			—			—		—			89			1			90
Income taxes (benefits)		669			112			34		297			(173	)		(10	)		929
Tax-equivalent adjustment		10			1			—		9			14			(34	)		—
Net income (loss)	$	1,177			195			59		522			(53	)		(15	)		1,885
Economic profit	$	901			154			43		299			(79	)		—			1,318
Risk adjusted return on capital		54.26	%		51.31			43.20		29.90			0.17			—			37.97
Economic capital, average	$	8,353			1,526			528		6,351			2,853			—			19,611
Cash overhead efficiency ratio (b)		47.40	%		78.33			72.60		52.53			124.03			—			57.03
Lending commitments	$	121,181			250			6,285		106,105			473			—			234,294
Average loans, net		192,500			616			15,987		43,775			22,387			—			275,265
Average core deposits	$	219,478			27,220			14,251		26,148			4,541			—			291,638
FTE employees		45,406			17,212			4,732		5,889			24,077			—			97,316

70

	Three Months Ended June 30, 2005
															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)	$	2,379			147			142		520			223			(53	)		3,358
Fee and other income		688			1,136			187		789			177			—			2,977
Intersegment revenue		49			(12	)		1		(40	)		2			—			—
Total revenue (b)		3,116			1,271			330		1,269			402			(53	)		6,335
Provision for credit losses		68			—			—		(8	)		(10	)		—			50
Noninterest expense		1,512			1,042			227		711			206			90			3,788
Minority interest		—			—			—		—			85			(14	)		71
Income taxes (benefits)		555			83			38		184			(56	)		(28	)		776
Tax-equivalent adjustment		10			—			—		27			16			(53	)		—
Net income	$	971			146			65		355			161			(48	)		1,650
Economic profit	$	742			107			48		176			135			—			1,208
Risk adjusted return on capital		53.59	%		40.67			50.73		24.07			30.36			—			39.30
Economic capital, average	$	6,987			1,439			490		5,409			2,807			—			17,132
Cash overhead efficiency ratio (b)		48.55	%		81.88			68.73		56.01			24.31			—			56.19
Lending commitments	$	102,768			176			5,154		88,365			430			—			196,893
Average loans, net		161,902			344			13,621		37,815			10,199			—			223,881
Average core deposits	$	205,782			29,235			13,188		22,459			4,674			—			275,338
FTE employees		41,259			17,444			4,849		4,845			24,988			—			93,385

	Six Months Ended June 30, 2006
															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)	$	5,368			406			299		1,004			137			(83	)		7,131
Fee and other income		1,730			2,449			388		2,457			76			—			7,100
Intersegment revenue		96			(22	)		2		(79	)		3			—			—
Total revenue (b)		7,194			2,833			689		3,382			216			(83	)		14,231
Provision for credit losses		157			—			2		(32	)		(7	)		—			120
Noninterest expense		3,427			2,239			503		1,767			472			92			8,500
Minority interest		—			—			—		—			184			1			185
Income taxes (benefits)		1,297			216			67		577			(312	)		(32	)		1,813
Tax-equivalent adjustment		21			1			—		31			30			(83	)		—
Net income (loss)	$	2,292			377			117		1,039			(151	)		(61	)		3,613
Economic profit	$	1,771			293			83		631			(197	)		—			2,581
Risk adjusted return on capital		56.25	%		49.32			42.94		31.80			(3.22	)		—			38.63
Economic capital, average	$	7,890			1,540			522		6,116			2,772			—			18,840
Cash overhead efficiency ratio (b)		47.65	%		79.05			72.96		52.26			129.63			—			57.41
Lending commitments	$	121,181			250			6,285		106,105			473			—			234,294
Average loans, net		185,452			539			15,780		43,338			22,851			—			267,960
Average core deposits	$	217,841			27,942			14,497		25,738			4,912			—			290,930
FTE employees		45,406			17,212			4,732		5,889			24,077			—			97,316

71

	Six Months Ended June 30, 2005
																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)	$	4,700			299			281			1,110			495			(114	)		6,771
Fee and other income		1,372			2,273			338			1,768			221			—			5,972
Intersegment revenue		92			(23	)		3			(74	)		2			—			—
Total revenue (b)		6,164			2,549			622			2,804			718			(114	)		12,743
Provision for credit losses		125			—			(1	)		(11	)		(27	)		—			86
Noninterest expense		3,054			2,087			425			1,444			499			151			7,660
Minority interest		—			—			—			—			159			(24	)		135
Income taxes (benefits)		1,076			169			73			455			(134	)		(48	)		1,591
Tax-equivalent adjustment		20			—			—			55			39			(114	)		—
Net income	$	1,889			293			125			861			182			(79	)		3,271
Economic profit	$	1,423			214			92			520			136			—			2,385
Risk adjusted return on capital		51.89	%		40.71			50.88			30.96			20.84			—			39.32
Economic capital, average	$	7,019			1,450			468			5,252			2,794			—			16,983
Cash overhead efficiency ratio (b)		49.56	%		81.86			68.29			51.50			38.44			—			56.67
Lending commitments	$	102,768			176			5,154			88,365			430			—			196,893
Average loans, net		160,763			333			13,248			37,163			11,029			—			222,536
Average core deposits	$	203,809			29,930			13,182			21,681			4,626			—			273,228
FTE employees		41,259			17,444			4,849			4,845			24,988			—			93,385

(a)	Certain amounts presented in periods prior to the second quarter of 2006 have been reclassified to conform to the presentation in the second quarter of 2006.
(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.

NOTE 7: BASIC AND DILUTED EARNINGS PER COMMON SHARE

The calculation of basic and diluted earnings per common share for the three and six months ended June 30, 2006 and 2005, is presented below.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions, except per share data)	2006		2005		2006		2005
Income available to common stockholders	$	1,885		1,650		3,613		3,271
Basic earnings per common share		1.19		1.05		2.30		2.09
Diluted earnings per common share	$	1.17		1.04		2.26		2.05
Average common shares — basic		1,585		1,564		1,570		1,567
Common share equivalents, unvested restricted stock		28		27		29		30
Average common shares — diluted		1,613		1,591		1,599		1,597

72

NOTE 8: DERIVATIVES (a)

     Risk management derivative financial instruments at June 30, 2006, are presented below.

	June 30, 2006
											In-			Average
	Notional		Gross Unrealized								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	$	37,279		15		(875	)		(524	)		(8	)		3.59
Interest rate options		7,000		—		(6	)		(3	)		—			0.75
Forward purchase commitments		541		1		—			—			—			0.13
Fair value hedges (c)
Interest rate swaps—pay fixed		1,650		78		—			—			1			15.74
Forward sale commitments		493		—		(4	)		—			3			0.05
Total asset hedges	$	46,963		94		(885	)		(527	)		(4	)		3.51
LIABILITY HEDGES
Cash flow hedges (d)
Interest rate swaps—pay fixed		29,655		702		(104	)		370			1			3.68
Interest rate options		17,500		11		—			7			—			1.00
Put options on Eurodollar futures		4,000		1		—			—			1			0.25
Eurodollar futures		55,315		21		—			13			2			0.25
Fair value hedges (e)
Interest rate swaps—receive fixed		19,957		—		(637	)		—			11			6.41
Total liability hedges		126,427		735		(741	)		390			15			2.13
Total	$	173,390		829		(1,626	)		(137	)		11			—

73

(a) Includes only derivative financial instruments related to interest rate risk management activities that have been designated and accounted for as accounting hedges. The change in fair value of derivatives not accounted for as accounting hedges is recorded in the results of operations.

(b) Receive-fixed interest rate swaps with a notional amount of $37.3 billion, of which $14.7 billion are forward-starting, and with pay rates based on LIBOR are primarily designated as cash flow hedges of the variability in cash flows related to the forecasted interest rate resets of LIBOR-indexed loans. In addition, $7.0 billion of purchased interest rate floors also hedge the variability in cash flows related to the forecasted interest rate resets of LIBOR-indexed loans when LIBOR is below the purchased floor. Forward purchase commitments of $541 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.

(c) Pay-fixed interest rate swaps with a notional amount of $1.7 billion and receive rates based on LIBOR are designated as fair value hedges of available for sale securities. Forward sale commitments of $493 million are designated as fair value hedges of warehoused mortgage loans.

(d) Derivatives with a notional amount of $95.8 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. Of this amount, $19.0 billion are pay-fixed interest rate swaps with receive rates based on LIBOR, of which $6.0 billion are forward-starting, $55.3 billion are Eurodollar futures, $4.0 billion are purchased put options on Eurodollar futures and $17.5 billion are LIBOR-based purchased interest rate options. Pay-fixed interest rate swaps with a notional amount of $10.6 billion, of which $2.0 billion are forward starting, and with rates based on LIBOR, are designated as cash flow hedges of the variability in cash flows related to the forecasted interest rate resets of LIBOR-indexed long-term debt.

(e) Receive-fixed interest rate swaps with a notional amount of $20.0 billion and with pay rates based on LIBOR are designated as fair value hedges of fixed rate liabilities, primarily long-term debt.

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

(g) At June 30, 2006, the net unrealized loss on derivatives included in accumulated other comprehensive income, which is a component of stockholders’ equity, was $385 million, net of income taxes. Of this net of tax amount, a $137 million loss represents the effective portion of the net gains (losses) on derivatives that qualify as cash flow hedges, and a $248 million loss relates to terminated and/or redesignated derivatives. At June 30, 2006, $78 million of net losses, net of income taxes, recorded in accumulated other comprehensive income, is 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 19.85 years.

(h) In the six months ended June 30, 2006, gains in the amount of $11 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. This amount also includes the changes in the time value of options. In addition, net interest income in the six months ended June 30, 2006, decreased by $9 million representing ineffectiveness of cash flow hedges caused by certain differences between the critical terms of the derivative and the hedged item, primarily differences in reset dates.

(i) Estimated maturity approximates average life.

74

     Expected maturities of risk management derivative financial instruments at June 30, 2006, are presented below.

	June 30, 2006
	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	$	2,716			2,055			20,949			11,559			—			37,279
Notional amount — other	$	7,541			—			—			—			—			7,541
Weighted average receive rate (a)		4.61	%		3.78			4.59			4.92			—			4.62
Weighted average pay rate (a)		5.28	%		5.06			5.31			5.39			—			5.31
Unrealized gain (loss)	$	(10	)		(53	)		(452	)		(350	)		—			(865	)
FAIR VALUE ASSET HEDGES
Notional amount — swaps—pay fixed	$	17			—			10			277			1,346			1,650
Notional amount — other	$	493			—			—			—			—			493
Weighted average receive rate (a)		5.51	%		—			5.13			3.62			3.57			3.57
Weighted average pay rate (a)		2.93	%		—			4.07			3.41			3.79			3.72
Unrealized gain (loss)	$	(4	)		—			1			7			70			74
CASH FLOW LIABILITY HEDGES
Notional amount — swaps—pay fixed	$	11,987			3,082			2,571			9,925			2,090			29,655
Notional amount — other	$	65,152			11,663			—			—			—			76,815
Weighted average receive rate (a)		5.25	%		5.43			5.17			5.37			5.27			5.30
Weighted average pay rate (a)		3.97	%		3.84			6.72			5.12			5.84			4.41
Unrealized gain (loss)	$	132			60			52			431			(44	)		631
FAIR VALUE LIABILITY HEDGES
Notional amount — swaps—receive fixed	$	2,657			835			7,925			6,222			2,318			19,957
Weighted average receive rate (a)		5.43	%		5.30			4.82			4.78			5.45			4.98
Weighted average pay rate (a)		5.36	%		5.13			5.18			5.14			5.13			5.18
Unrealized gain (loss)	$	(19	)		(8	)		(145	)		(255	)		(210	)		(637	)

(a) Weighted average receive and pay rates include the impact of currently effective interest rate 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 LIBOR, and they are the pay or receive rates in effect at June 30, 2006.

75

     Activity related to risk management derivative financial instruments for the six months ended June 30, 2006, is presented below.

	June 30, 2006
	Asset			Liability
(In millions)	Hedges			Hedges			Total
Balance, December 31, 2005	$	50,360			90,948			141,308
Additions		54,343			70,882			125,225
Maturities and amortizations		(8,110	)		(21,678	)		(29,788	)
Terminations		(39,261	)		(1,449	)		(40,710	)
Redesignations and transfers to trading account assets		(10,369	)		(12,276	)		(22,645	)
Balance, June 30, 2006	$	46,963			126,427			173,390

NOTE 9: GUARANTEES

	June 30, 2006				December 31, 2005
			Maximum				Maximum
	Carrying		Risk of		Carrying		Risk of
(In millions)	Amount		Loss		Amount		Loss
Securities and other lending indemnifications	$	—		64,807		—		62,597
Standby letters of credit		112		35,972		108		35,568
Liquidity agreements		9		26,757		8		27,193
Loans sold with recourse		39		7,025		47		9,322
Residual value guarantees on operating leases		—		1,119		—		1,109
Written put options		113		8,873		133		8,337
Contingent consideration		—		180		—		264
Total guarantees	$	273		144,733		296		144,390

76