Wachovia Corp New (WBPS) 10-Q 2007 Q2 Quarterly report

Exhibit (19)

SECOND QUARTER 2007
Management’s Discussion and
Analysis

WACHOVIA CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL SUPPLEMENT
SIX MONTHS ENDED JUNE 30, 2007
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		51
Time Deposits in Amounts of $100,000 or More		51
Rates and Amounts of Savings Bank Deposits		52
Long-Term Debt		53
Changes in Stockholders’ Equity		54
Capital Ratios		55
Net Interest Income Summaries — Five Quarters Ended June 30, 2007		56
Net Interest Income Summaries — Six Months Ended June 30, 2007 and 2006		58
Consolidated Balance Sheets — Five Quarters Ended June 30, 2007		59
Consolidated Statements of Income — Five Quarters Ended June 30, 2007		60
Wachovia Corporation and Subsidiaries — Consolidated Financial Statements		61

FINANCIAL HIGHLIGHTS

		Three Months Ended									Six Months Ended
		June 30,					Percent				June 30,					Percent
							Increase									Increase
(Dollars in millions, except per share data)		2007			2006		(Decrease)				2007			2006		(Decrease)
EARNINGS SUMMARY
Net interest income(GAAP)	$		4,421			3,641		21	%	$		8,881			7,131		25	%
Tax-equivalent adjustment			39			34		15				76			83		(8	)
Net interest income(Tax-equivalent)			4,460			3,675		21				8,957			7,214		24
Fee and other income			4,234			3,583		18				7,975			7,100		12
Total revenue(Tax-equivalent)			8,694			7,258		20				16,932			14,314		18
Provision for credit losses			179			59		-				356			120		-
Other noninterest expense			4,721			4,139		14				9,181			8,218		12
Merger-related and restructuring expenses			32			24		33				42			92		(54	)
Other intangible amortization			103			98		5				221			190		16
Total noninterest expense			4,856			4,261		14				9,444			8,500		11
Minority interest in income of consolidated subsidiaries			139			90		54				275			185		49
Income before income taxes(Tax-equivalent)			3,520			2,848		24				6,857			5,509		24
Tax-equivalent adjustment			39			34		15				76			83		(8	)
Income taxes			1,140			929		23				2,138			1,813		18
Net income	$		2,341			1,885		24	%	$		4,643			3,613		29	%
Diluted earnings per common share	$		1.22			1.17		4	%	$		2.42			2.26		7	%
Return on average common stockholders’ equity			13.54	%		15.41		-				13.51	%		15.02		-
Return on average assets			1.32	%		1.39		-				1.33	%		1.37		-
ASSET QUALITY
Allowance for loan losses as % of loans, net			0.79	%		1.07		-				0.79	%		1.07		-
Allowance for loan losses as % of nonperforming assets			164			421		-				164			421		-
Allowance for credit losses as % of loans, net			0.83			1.13		-				0.83			1.13		-
Net charge-offs as % of average loans, net			0.14			0.08		-				0.15			0.08		-
Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale			0.47	%		0.25		-				0.47	%		0.25		-
CAPITAL ADEQUACY
Tier I capital ratio			7.47	%		7.81		-				7.47	%		7.81		-
Total capital ratio			11.46			11.42		-				11.46			11.42		-
Leverage ratio			6.23	%		6.57		-				6.23	%		6.57		-
OTHER FINANCIAL DATA
Net interest margin			2.92	%		3.18		-				2.97	%		3.19		-
Fee and other income as % of total revenue			48.70			49.37		-				47.10			49.60		-
Effective income tax rate			33.05	%		32.02		-				33.43	%		32.72		-
BALANCE SHEET DATA
Securities	$		106,184			119,179		(11	)  %	$		106,184			119,179		(11	)%
Loans, net			429,120			282,916		52				429,120			282,916		52
Total assets			719,922			553,614		30				719,922			553,614		30
Total deposits			413,665			327,614		26				413,665			327,614		26
Long-term debt			142,047			74,627		90				142,047			74,627		90
Stockholders’ equity	$		69,266			48,872		42	%	$		69,266			48,872		42	%
OTHER DATA
Average diluted common shares(In millions)			1,919			1,613		19	%			1,922			1,599		20	%
Actual common shares(In millions)			1,903			1,589		20				1,903			1,589		20
Dividends paid per common share	$		0.56			0.51		10		$		1.12			1.02		10
Dividend payout ratio on common shares			45.90	%		43.59		5				46.28	%		45.13		3
Book value per common share	$		36.40			30.75		18		$		36.40			30.75		18
Common stock price			51.25			54.08		(5	)			51.25			54.08		(5	)
Market capitalization	$		97,530			85,960		13		$		97,530			85,960		13
Common stock price to book value			141	%		176		(20	)			141	%		176		(20	)
FTE employees			110,493			97,316		14				110,493			97,316		14
Total financial centers/brokerage offices			4,135			3,847		7				4,135			3,847		7
ATMs			5,099			5,134		(1	)%			5,099			5,134		(1	)  %

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Management’s Discussion and Analysis

This discussion contains forward-looking statements. Please refer to our Second Quarter 2007 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)	2007		2006		2007		2006
Net interest income(GAAP)	$	4,421		3,641		8,881		7,131
Tax-equivalent adjustment		39		34		76		83
Net interest income(a)		4,460		3,675		8,957		7,214
Fee and other income		4,234		3,583		7,975		7,100
Total revenue(a)		8,694		7,258		16,932		14,314
Provision for credit losses		179		59		356		120
Other noninterest expense		4,721		4,139		9,181		8,218
Merger-related and restructuring expenses		32		24		42		92
Other intangible amortization		103		98		221		190
Total noninterest expense		4,856		4,261		9,444		8,500
Minority interest in income of consolidated subsidaries		139		90		275		185
Income taxes		1,140		929		2,138		1,813
Tax-equivalent adjustment		39		34		76		83
Net income		2,341		1,885		4,643		3,613
Diluted earnings per common share	$	1.22		1.17		2.42		2.26
(a) Tax-equivalent.

Executive Summary

Wachovia’s net income in the first six months of 2007 was $4.6 billion, up 29 percent from the first six months of 2006, and diluted earnings per common share were up 7 percent to $2.42. After-tax net merger-related and restructuring expenses amounted to 1 cent per share in the first six months of 2007 and 4 cents per share in the same period of 2006. Results reflect the impact of the acquisitions of Golden West Financial Corporation from October 1, 2006; Westcorp and WFS Financial (together, Westcorp) from March 1, 2006, European Credit Management Ltd. (ECM), from January 31, 2007, as well as other 2006 and 2007 acquisitions. In addition, results reflect the divestiture of our subprime mortgage servicing operation in late 2006.

Key factors in our results in the first six months of 2007 compared with the first six months of 2006 included:

• 18 percent revenue growth driven by higher loans and deposits due to acquisitions and organic growth, with increased fee and other income led by record fiduciary and asset management fees and record advisory and underwriting results.

• 24 percent net interest income growth driven by a larger balance sheet, although growth was dampened by margin compression. Average loans rose 56 percent and average core deposits increased 29 percent, including the addition of $121.7 billion in average loans and $71.4 billion in average core deposits from Golden West.

• 11 percent increase in noninterest expense, reflecting the impact of acquisitions, investment spending and higher revenue-based incentives and commissions.

• A tax rate on a tax-equivalent basis of 32.28 percent compared with 34.43 percent in the first six months a year ago, with the decrease largely reflecting updated information on certain tax matters in the first quarter of this year.

Credit quality remained strong, with an annualized net charge-off ratio of 0.15 percent and a ratio of nonperforming assets to loans, net, foreclosed properties and loans held for sale of 0.47 percent. Provision expense increased by $236 million to $356 million, driven by growth in commercial, auto

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and credit card loans. We continue to mitigate risk and volatility on our balance sheet by actively monitoring and reducing potential problem loans, including their sale when prudent. While we expect modest increases in credit costs, we continue to be optimistic about our outlook for credit quality given the well-collateralized nature of our loan portfolio.

The 56 percent increase in average net loans compared with the first six months of 2006 to $418.3 billion included a more than doubling of average consumer loans, driven by higher consumer real estate, auto and credit card loans. Excluding the addition of an average $121.5 billion of consumer loans, primarily real estate loans from Golden West, average consumer loans increased 10 percent. Average commercial loans reflected organic growth largely in middle-market commercial and commercial real estate, as well as strategic expansion in international lending. Average core deposits increased 29 percent from the first six months of 2006 to $373.9 billion, including an average $71.4 billion from Golden West, and average low-cost core deposits increased 5 percent from the first six months of 2006 to $255.4 billion.

Our four major businesses continued to generate strong sales activity in the first half of 2007. The General Bank’s earnings rose 38 percent to $3.1 billion, reflecting the addition of Golden West, Westcorp and organic growth. Wealth Management’s earnings grew 17 percent to $137 million and reflected continuing positive response to the introduction of an open architecture investment platform. Earnings in our Corporate and Investment Bank continued to show strength compared with very strong prior year results, but were down 2 percent to $979 million reflecting modestly higher net charge-offs. Capital Management grew earnings 35 percent to $584 million, reflecting strong retail brokerage transaction activity and equity syndicate distribution fees, higher retail brokerage managed account fees and other asset-based fees, as well as the impact of ECM and other acquisitions.

We paid common stockholders dividends of $2.1 billion, or $1.12 per share, in the first six months of 2007, and $1.6 billion, or $1.02 per share in the first six months of 2006. Our target is to return 40 percent to 50 percent of our earnings to shareholders as dividends, and in the first six months of 2007, our dividend payout ratio was 46.28 percent, or 44.80 percent excluding merger-related and restructuring expenses and other intangible amortization, which is the basis we use in measuring our target.

Our balance sheet is strong and well capitalized under regulatory guidelines with a tier 1 capital ratio of 7.47 percent, a leverage ratio of 6.23 percent and a tangible capital ratio of 4.27 percent at June 30, 2007.

On May 31, 2007, we announced our agreement to acquire A.G. Edwards Inc., a retail brokerage firm headquartered in St. Louis, Missouri. Upon completion of the proposed acquisition, A.G. Edwards will be combined with Wachovia Securities and the combined firm will have a national footprint of 3,350 brokerage locations, including 1,500 dedicated retail offices in all 50 states and the District of Columbia, $1.1 trillion in client assets and nearly 15,000 financial advisors. The brokerage operation will be headquartered in St. Louis. Under the terms of the agreement, A.G. Edwards shareholders will receive 0.9844 shares of Wachovia common stock and $35.80 in cash for each share of A.G. Edwards common stock. The transaction, which is subject to applicable regulatory approvals and approval of A.G. Edwards shareholders, is expected to close in the fourth quarter of this year.

In the second quarter of 2007 compared with the second quarter of 2006, net income rose 24 percent to $2.3 billion from $1.9 billion, and diluted earnings per common share rose 4 percent to $1.22 from $1.17. These amounts include after-tax net merger-related and restructuring expenses of 1 cent per share in the second quarters of 2007 and 2006.

Total revenue rose 20 percent to $8.7 billion in the second quarter of 2007 compared with the second quarter of 2006, with 21 percent growth in tax-equivalent net interest income and 18 percent growth in fee and other income. Net interest income growth was driven by higher loans and deposits. Loan

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growth was driven by higher consumer loans related to Golden West as well as organic growth. Core deposit growth also was primarily driven by the Golden West acquisition, with average core deposits up 30 percent and average low-cost core deposits up 6 percent. In addition to the record fiduciary and asset management fees and record advisory and underwriting results mentioned above, growth in fee and other income in the second quarter of 2007 also came in nearly all categories.

Outlook

The financial outlook for 2007 that follows is as previously communicated in our July 20, 2007, Current Report on Form 8-K release of second quarter 2007 results. Since that time, the financial markets have exhibited extraordinary volatility, particularly in the fixed income markets. We participate in these markets largely through our Corporate and Investment Bank and in our Capital Management businesses. In light of market conditions as of this filing and uncertainty about how long the markets will remain volatile, we are not currently able to estimate the impact of these market conditions on our revenue outlook for the rest of the year. However, we continue to anticipate that overall revenue growth will be marginally higher than noninterest expense growth, as expense control efforts provide flexibility in managing noninterest expense growth in various revenue growth scenarios. Further, we continue to believe that 2007 net charge-offs will be in the mid-teens basis point range as a percentage of average net loans, with provision expense modestly higher primarily reflecting expected loan growth.

This outlook computes growth rates from an illustrative combined Wachovia and Golden West as if the two companies had been merged on January 1, 2006. This illustrative combined 2006 basis includes Wachovia full year 2006 results before merger-related and restructuring expenses, plus Golden West’s results from January 1, 2006, to September 30, 2006. These combined results add purchase accounting adjustments to Golden West’s results prior to the closing date. In addition, these results include funding costs, which represent interest expense calculated at a rate of 5.35 percent on the cash portion of the purchase price. The illustrative combined basis excludes certain immaterial fourth quarter 2006 adjustments, which are described inNotes to Consolidated Financial Statementsin our 2006 Annual Report on Form 10-K, and the effect of Golden West’s third quarter 2006 charitable contribution of appreciated securities.

This outlook does not include the effect of our proposed acquisition of A.G. Edwards. Based on the assumptions above, for full year 2007 compared with full year illustrative combined 2006, and before merger-related and restructuring expenses, we expect:

• Net interest income to remain relatively flat on a tax-equivalent basis compared with $18.1 billion. Expectations for net credit income, or net interest income minus provision expense, remain relatively unchanged.

• Fee income growth in the low double-digit percentage range from $14.5 billion.

• Noninterest expense growth in the mid single-digit percentage range from $18.1 billion; and to be marginally lower than revenue growth. Year-end 2007 targeted overhead efficiency ratio of 51.5 percent to 53.5 percent excluding merger-related and restructuring expenses and other intangible amortization.

• Minority interest expense increase in the high single-digit percentage range from $414 million.

• Loan growth in the high single-digit percentage range from $398.4 billion, including consumer loan growth in the mid single-digit percentage range from $249.6 billion, and commercial loan growth in the low double-digit percentage range from $148.8 billion.

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• Net charge-offs in the mid-teens basis point range as a percentage of average net loans, up from 8 basis points; and provision expense may be modestly higher.

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

• A targeted leverage ratio above 6.0 percent and a tangible capital to tangible asset ratio no lower than 4.7 percent, excluding the effect on tangible capital of the unrealized gains and losses on available for sale securities and certain risk management derivatives, and unamortized gains and losses under employee benefit plans.

• A dividend payout ratio of 40 percent to 50 percent of earnings before other intangible amortization.

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

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. In January 2005, we set a goal of reducing our annual expense growth by $600 million to $1.0 billion by the end of 2007. We have identified expense reduction opportunities that are expected to result in incremental cost savings of approximately $200 million in 2007 for total annual savings at the high end of our goal. Our efficiency efforts include enhancing the effectiveness of our branch network. We expect to consolidate up to 100 branches and open up to 130 branches in 2007.

We are focused on ensuring a successful integration of Golden West. Deposit system conversions are expected to begin in the fourth quarter of 2007 and to be completed by mid-2008.

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 2006 Annual Report on Form 10-K.

Corporate Results of Operations

Results reflect the impact of Golden West from October 1, 2006; Westcorp from March 1, 2006; ECM from January 31, 2007; and other 2006 and 2007 acquisitions, as well as the divestiture of our HomEq subprime mortgage servicing business on November 1, 2006.

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Average Balance Sheets and Interest Rates	Six Months Ended					Six Months Ended
	June 30, 2007					June 30, 2006
	Average		Interest			Average		Interest
(In millions)	Balances		Rates			Balances		Rates
Interest-bearing bank balances	$	3,198		6.25	%	$	2,447		4.61	%
Federal funds sold		13,111		5.16			18,637		4.52
Trading account assets		32,438		5.93			28,252		5.23
Securities		108,253		5.42			121,040		5.33
Commercial loans, net		161,423		7.12			144,416		6.71
Consumer loans, net		256,852		7.49			123,544		6.74
Total loans, net		418,275		7.35			267,960		6.72
Loans held for sale		17,199		6.32			8,800		6.70
Other earning assets		8,120		7.02			5,801		7.53
Risk management derivatives		—		0.04			—		0.12
Total earning assets		600,594		6.87			452,937		6.29
Interest-bearing deposits		345,544		3.67			260,401		2.88
Federal funds purchased		36,595		4.97			49,406		4.27
Commercial paper		5,032		4.70			4,427		4.20
Securities sold short		7,929		3.81			8,889		3.12
Other short-term borrowings		7,294		2.66			6,817		2.25
Long-term debt		142,746		5.36			63,932		5.13
Risk management derivatives		—		0.10			—		0.14
Total interest-bearing liabilities		545,140		4.30			393,872		3.57
Net interest income and margin	$	8,957		2.97	%	$	7,214		3.19	%

Net Interest Income and MarginTax-equivalent net interest income increased 24 percent in the first six months of 2007 from the first six months of 2006, reflecting a larger balance sheet. The net interest margin declined 22 basis points to 2.97 percent, primarily due to growth in lower-spread consumer and commercial loans, a shift in deposits toward lower-spread categories, the impact of acquisitions and the effect of an inverted yield curve. The Westcorp acquisition in March 2006 added a portfolio of higher spread auto loans while the October 2006 acquisition of Golden West added lower spread consumer real estate loans. The average federal funds rate in the first six months of 2007 was 57 basis points higher than the average rate in the first six months of 2006, while the average longer-term two-year treasury note rate decreased 1 basis point and the average 10-year treasury note rate decreased 6 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 2007, net interest rate risk management-related derivatives reduced net interest income by $176 million, or 6 basis points on our net interest margin, compared with an income contribution of $9 million, which had an insignificant impact on the net interest margin in the first six months of 2006. The decline in the impact from derivatives largely reflects the effect of receive fixed/pay floating interest rate swaps in a rising rate environment.

Fee and Other Income	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2007		2006		2007		2006
Service charges	$	667		622		1,281		1,196
Other banking fees		504		449		920		877
Commissions		649		588		1,308		1,211
Fiduciary and asset management fees		981		808		1,901		1,569
Advisory, underwriting and other investment banking fees		454		318		861		620
Trading account profits		223		164		391		383
Principal investing		298		189		346		292
Securities gain (losses)		23		25		76		(23	)
Other income		435		420		891		975
Total fee and other income	$	4,234		3,583		7,975		7,100

Fee and Other IncomeFee and other income growth of 12 percent in the first six months of 2007 from the first six months of 2006 reflected, in addition to the impact of acquisitions:

• Increased service charges driven by strength in consumer service charges on higher volume and improved pricing, while commercial service charges rose on increased volume.

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• Growth in other banking fees driven by strength in fees for banking services and gains on mortgage servicing rights (MSRs), partially offset by the divestiture of the HomEq subprime mortgage servicing business in late 2006.

• Higher commissions reflecting higher retail brokerage transaction activity including higher equity syndicate volumes.

• Growth in fiduciary and asset management fees driven by acquisitions and strong growth in retail brokerage managed account assets.

• Strong results in advisory and underwriting largely related to continued strength in equities underwriting, structured products, high yield and high grade debt origination, loan syndication and merger and acquisition advisory services.

• Modestly higher trading account profits driven by improved results in structured products and equities.

• Strong principal investing results in both the 2007 and 2006 periods, with this year’s results largely related to gains in the public and private direct investment portfolio.

• Net securities gains of $76 million compared with net securities losses of $23 million in the first six months a year ago.

• A decline of 9 percent in other income from the year ago period, which included a $100 million credit card-related termination fee received as a result of the Bank of America/MBNA merger and $33 million from the New York Stock Exchange/Archipelago merger, offset by a $122 million increase related to commercial mortgage sale and securitization activity, and a $63 million increase related to certain corporate investments. Other income also included a $55 million loss on MSR hedging, with the related MSR gains reflected in other banking fees.

The same trends drove fee and other income results in the second quarter of 2007 compared with the second quarter of 2006, with stronger results in principal investing and trading.

Noninterest Expense	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2007		2006		2007		2006
Salaries and employee benefits	$	3,122		2,652		6,094		5,349
Occupancy		331		291		643		566
Equipment		309		299		616		579
Advertising		70		56		131		103
Communications and supplies		180		162		353		329
Professional and consulting fees		209		184		386		351
Sundry expense		500		495		958		941
Other noninterest expense		4,721		4,139		9,181		8,218
Merger-related and restructuring expenses		32		24		42		92
Other intangible amortization		103		98		221		190
Total noninterest expense	$	4,856		4,261		9,444		8,500

Noninterest ExpenseNoninterest expense increased 11 percent in the first six months of 2007 from the first six months of 2006, primarily reflecting a 14 percent increase in salaries and employee benefits expense largely attributable to the addition of Golden West and Westcorp, as well as higher revenue-based incentives and commissions. Expenses also reflected $93 million associated with our growth initiatives, including de novo expansion, branch consolidations, western expansion and efficiency initiatives. The same factors drove the 14 percent increase in noninterest expense in the second quarter of 2007 compared with the second quarter of 2006.

In the first quarters of 2007 and 2006, and in the second quarter of 2006 for Capital Management, we made annual grants of stock awards to employees. Under the applicable accounting standard,

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we are required to fully expense the fair value as of the grant date of awards to employees who are retirement-eligible at the date of the grant. This incremental salaries and employee benefits expense for retirement-eligible employees amounted to $93 million in the first six months of 2007 and $107 million in the same period a year ago.

Merger-Related and Restructuring ExpensesMerger-related and restructuring expenses in the first six months of 2007 of $42 million included $22 million related to Golden West and a net $20 million related to Westcorp and other acquisitions. In the first six months of 2006, we recorded $92 million of these expenses, the majority of which related to our acquisition of SouthTrust Corporation in November 2004.

Income TaxesIncome taxes were $2.1 billion in the first six months of 2007 compared with $1.8 billion in the same period a year ago. The related income tax rates on a tax-equivalent basis were 32.28 percent and 34.43 percent a year ago. The decrease in the rate was largely related to updated information on certain income tax matters in the first quarter of 2007, which under the new accounting standard for uncertain income tax positions is recorded in the quarter in which the updated information becomes available rather than over the full year as was our policy under the prior accounting standard.

Business Segments

We provide diversified banking and nonbanking financial services and products primarily through four core business segments, the General Bank, Wealth Management, the Corporate and Investment Bank, and Capital Management. Business segment data excludes merger-related and restructuring expenses, other intangible amortization, and the effect of changes in accounting principles.

We continuously update segment information for changes that occur in the management of our businesses. In 2007, we moved our cross-border leasing activity from the Corporate and Investment Bank to the Parent to keep it aligned with the way in which this activity is reported to senior management subsequent to the adoption of the new accounting standard for leveraged leases. We also discontinued certain intercompany fee arrangements between Capital Management and the Parent and realigned how MSR hedge results are reported such that, beginning in 2007, MSR volatility is now included in the Parent. Our current and historical financial reporting reflects these changes. The impact to segment earnings for full year 2006 as a result of these changes, while not significant, was:

• No change in the General Bank.

• A $7 million decrease in Wealth Management.

• An $86 million decrease in the Corporate and Investment Bank.

• A $20 million decrease in Capital Management.

• A $113 million increase in the Parent.

In the second quarter of 2007, we announced a realignment of some of our businesses and other corporate functions. This included the combination of the General Bank’s private advisory group into the Wealth Management businesses and the General Bank’s commercial real estate business into the Corporate and Investment Bank’s investment banking line of business, which is expected to occur by the end of the year. We are still evaluating how these realignments may affect our segment reporting for future periods; however, we expect Wealth Management will remain a separate reporting segment.

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General Bank	Three Months Ended					Six Months Ended
Performance Summary	June 30,					June 30,
(Dollars in millions)	2007			2006		2007		2006
Income statement data
Net interest income(Tax-equivalent)	$	3,686			2,777		7,392		5,307
Fee and other income		975			842		1,851		1,707
Intersegment revenue		56			48		104		91
Total revenue(Tax-equivalent)		4,717			3,667		9,347		7,105
Provision for credit losses		164			95		326		157
Noninterest expense		2,093			1,737		4,121		3,394
Income taxes(Tax-equivalent)		897			670		1,788		1,298
Segment earnings	$	1,563			1,165		3,112		2,256
Performance and other data
Economic profit	$	1,164			893		2,332		1,742
Risk adjusted return on capital (RAROC)		47.04	%		54.56		47.73		56.23
Economic capital, average	$	12,959			8,219		12,805		7,767
Cash overhead efficiency ratio(Tax-equivalent)		44.36	%		47.39		44.09		47.78
Lending commitments	$	149,712			120,622		149,712		120,622
Average loans, net		331,042			191,815		328,971		184,708
Average core deposits	$	298,827			214,517		295,455		212,771
FTE employees		58,239			45,100		58,239		45,100

General BankThe General Bank includes our Retail and Small Business and Commercial lines of business. The General Bank’s earnings rose 38 percent to $3.1 billion, reflecting the addition of Golden West and Westcorp, as well as organic growth. Other key General Bank trends in the first six months of 2007 compared with the first six months of 2006 included:

• 32 percent revenue growth, led by 39 percent growth in net interest income as a result of a larger balance sheet related to Golden West. Organic strength in loan production, particularly in commercial and auto, as well as the 2006 re-entry into the credit card business, also contributed to net interest income growth.

• 8 percent growth in fee and other income, with solid growth in service charges, mortgage banking fees and interchange income more than offsetting the effect of the $100 million MBNA fee in the first six months a year ago.

• Commercial loan growth driven by middle-market commercial, commercial real estate and business banking. Consumer loan growth included the impact of Golden West, principally variable rate consumer real estate loans, with additional organic growth in auto and credit cards. Higher interest spreads in the auto loan portfolio partially offset slowing growth in home equity lines as customers shifted from variable rate to fixed rate products.

• Core deposit growth of 39 percent led by consumer certificates of deposit and money market funds, reflecting the addition of Golden West and strong sales momentum. Net new retail checking accounts increased 579,000 in the first six months of 2007, compared with an increase of 330,000 in the first six months of 2006 and 555,000 in the full year 2006. Of the net new retail checking accounts in the first six months of 2007, 13 percent came from World Savings branches.

• 21 percent increase in noninterest expense including the acquisition impact, de novo branch activity and other growth initiatives.

• An increased provision as a result of higher net charge-offs in auto, commercial and consumer real estate loans.

• Improvement in the overhead efficiency ratio to 44.09 percent due to merger activity, expense management efforts and revenue growth.

The same trends drove General Bank results in the second quarter of 2007 compared with the second quarter of 2006.

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Wealth Management	Three Months Ended					Six Months Ended
Performance Summary	June 30,					June 30,
(Dollars in millions)	2007			2006		2007		2006
Income statement data
Net interest income(Tax-equivalent)	$	149			149		295		298
Fee and other income		201			194		396		382
Intersegment revenue		2			1		3		2
Total revenue(Tax-equivalent)		352			344		694		682
Provision for credit losses		1			2		1		2
Noninterest expense		238			249		478		496
Income taxes(Tax-equivalent)		41			34		78		67
Segment earnings	$	72			59		137		117
Performance and other data
Economic profit	$	51			42		97		81
Risk adjusted return on capital (RAROC)		46.08	%		40.86		45.15		40.30
Economic capital, average	$	587			561		575		557
Cash overhead efficiency ratio(Tax-equivalent)		67.90	%		72.23		68.94		72.66
Lending commitments	$	6,892			6,285		6,892		6,285
Average loans, net		17,666			15,922		17,374		15,715
Average core deposits	$	14,097			14,270		14,172		14,448
FTE employees		4,305			4,719		4,305		4,719

Wealth ManagementWealth Management includes private banking, personal trust, investment advisory services, charitable services, financial planning and insurance brokerage. Wealth Management’s earnings increased 17 percent to $137 million in the first six months of 2007 and reflected continuing positive client response to the introduction of a new investment platform. Other key Wealth Management trends in the first six months of 2007 compared with the first six months of 2006 included:

• Increased fee and other income led by strong growth in fiduciary and asset management fees, offset by lower insurance commissions.

• A decrease in net interest income as margin compression overcame strong momentum in loans.

• Lower noninterest expense as a result of efficiency initiatives.

• 5 percent growth in assets under management from year-end 2006 to $79.3 billion as a result of higher market valuations and new client acquisition.

The same trends drove Wealth Management results in the second quarter of 2007 compared with the second quarter of 2006.

Corporate and Investment Bank	Three Months Ended						Six Months Ended
Performance Summary	June 30,						June 30,
(Dollars in millions)	2007			2006			2007			2006
Income statement data
Net interest income(Tax-equivalent)	$	511			470			966			934
Fee and other income		1,500			1,218			2,589			2,461
Intersegment revenue		(48	)		(42	)		(90	)		(79	)
Total revenue(Tax-equivalent)		1,963			1,646			3,465			3,316
Provision for credit losses		(4	)		(33	)		(4	)		(32	)
Noninterest expense		1,024			887			1,927			1,780
Income taxes(Tax-equivalent)		344			289			563			572
Segment earnings	$	599			503			979			996
Performance and other data
Economic profit	$	361			277			521			579
Risk adjusted return on capital (RAROC)		30.29	%		28.04			25.38			29.57
Economic capital, average	$	7,508			6,501			7,305			6,286
Cash overhead efficiency ratio(Tax-equivalent)		52.16	%		53.85			55.61			53.67
Lending commitments	$	111,439			106,105			111,439			106,105
Average loans, net		43,426			37,756			42,197			37,327
Average core deposits	$	31,527			26,492			30,310			26,105
FTE employees		6,170			6,219			6,170			6,219

Corporate and Investment BankOur Corporate and Investment Bank includes Corporate Lending, Investment Banking, and Treasury and International Trade Finance. Corporate and Investment Bank earnings continued to show strength compared with very strong prior year results, but were down 2 

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percent to $979 million primarily reflecting modestly higher charge-offs and lower recoveries. Record investment banking and principal investing revenues were more than offset by revenue-based incentive compensation and investment spending supporting business expansion. Key Corporate and Investment Bank trends in the first six months of 2007 compared with the first six months of 2006 included:

• A 3 percent increase in net interest income reflecting growth in deposits related to mortgage servicing, commercial mortgage-backed securities warehouse volumes, as well as higher average loans.

• A 5 percent increase in fee income with record results in investment banking and principal investing. Strong results in advisory and underwriting fees largely related to strength in equities underwriting, structured products, high yield originations, loan syndications, high grade debt, and merger and acquisition advisory services.

• An 8 percent increase in noninterest expense reflecting increased revenue-based incentive expense as well as higher technology and equipment expense.

• Average core deposit growth of 16 percent primarily from mortgage servicing and global money market deposits, and average loan growth of 13 percent driven by real estate capital markets and international trade finance.

• Provision reflecting lower recoveries than experienced in the prior year.

The same trends drove Corporate and Investment Bank results in the second quarter of 2007 compared with the second quarter of 2006.

Capital Management	Three Months Ended						Six Months Ended
Performance Summary	June 30,						June 30,
(Dollars in millions)	2007			2006			2007			2006
Income statement data
Net interest income(Tax-equivalent)	$	263			267			525			523
Fee and other income		1,502			1,211			2,946			2,427
Intersegment revenue		(11	)		(9	)		(19	)		(17	)
Total revenue(Tax-equivalent)		1,754			1,469			3,452			2,933
Provision for credit losses		—			—			—			—
Noninterest expense		1,296			1,118			2,532			2,253
Income taxes(Tax-equivalent)		167			128			336			248
Segment earnings	$	291			223			584			432
Performance and other data
Economic profit	$	247			183			497			353
Risk adjusted return on capital (RAROC)		72.30	%		62.38			73.43			60.40
Economic capital, average	$	1,615			1,430			1,604			1,441
Cash overhead efficiency ratio(Tax-equivalent)		73.86	%		76.15			73.34			76.82
Lending commitments	$	1,072			809			1,072			809
Average loans, net		1,663			1,039			1,609			948
Average core deposits	$	31,221			31,827			31,450			32,700
FTE employees		17,916			17,250			17,916			17,250

Capital ManagementCapital Management includes Retail Brokerage Services, which encompasses 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 35 percent to $584 million, reflecting strong brokerage transaction activity and equity syndicate distribution fees, higher retail brokerage managed account fees and other asset-based fees, as well as the impact of acquisitions. Other key Capital Management trends in the first six months of 2007 compared with the first six months of 2006 included:

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• Record revenue driven by strength in retail brokerage managed account fees as managed assets grew 24 percent to $151.3 billion. Commissions grew 13 percent driven by strong equity syndicate volumes.

o $2.9 billion in revenue from our retail brokerage businesses included transactional revenues of $1.1 billion and asset-based and other income of $1.8 billion. Retail brokerage fee income increased 18 percent driven by strength in managed account and other asset-based fees, higher brokerage transaction activity and equity syndicate distribution fees.

o $597 million in revenue from our asset management businesses, driven by the addition of ECM and other acquisitions, as well as growth in assets under management.

• 12 percent increase in noninterest expense, primarily due to increased commissions and the impact of acquisitions.

Total Assets Under Management (AUM)	2007										2006
	Second Quarter					First Quarter					Fourth Quarter
(In billions)	Amount		Mix			Amount		Mix			Amount		Mix
Equity	$	85		30	%	$	107		34	%	$	104		37	%
Fixed income		135		48			143		45			114		41
Money market		61		22			65		21			61		22
Total assets under management(a)	$	281		100	%	$	315		100	%	$	279		100	%
Securities lending		64		—			56		—			57		—
Total assets under management and securities lending	$	345		—		$	371		—		$	336		—
(a) Includes $45 billion in assets managed for Wealth Management, which are also reported in that segment.

Mutual Funds (AUM also included in the above)	2007										2006
	Second Quarter					First Quarter					Fourth Quarter
			Fund					Fund					Fund
(In billions)	Amount		Mix			Amount		Mix			Amount		Mix
Equity	$	38		35	%	$	37		34	%	$	36		33	%
Fixed income		22		20			23		21			23		21
Money market		49		45			50		45			49		46
Total mutual fund assets	$	109		100	%	$	110		100	%	$	108		100	%

Total assets under management (AUM) of $281.5 billion at June 30, 2007, were up 1 percent from December 31, 2006, including $26.2 billion from the ECM acquisition, $4.9 billion in net inflows and $6.0 billion in increased market valuations, offset by a decrease of $34.5 billion in assets under management, primarily equity assets, related to a change in investment discretion responsibility on previously co-managed nonproprietary assets now solely managed by Wealth Management. The change in management responsibility had no impact on AUM balances in Wealth Management. Total brokerage client assets grew 5 percent from year-end 2006 to $795.8 billion at June 30, 2007.

The same trends drove Capital Management results in the second quarter of 2007 compared with the second quarter of 2006.

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Parent	Three Months Ended						Six Months Ended
Performance Summary	June 30,						June 30,
(Dollars in millions)	2007			2006			2007			2006
Income statement data
Net interest income(Tax-equivalent)	$	(149	)		12			(221	)		152
Fee and other income		56			118			193			123
Intersegment revenue		1			2			2			3
Total revenue(Tax-equivalent)		(92	)		132			(26	)		278
Provision for credit losses		18			(5	)		33			(7	)
Noninterest expense		173			246			344			485
Minority interest		139			89			275			184
Income taxes(Tax-equivalent)		(258	)		(148	)		(535	)		(257	)
Segment earnings (loss)	$	(164	)		(50	)		(143	)		(127	)

Performance and other data
Economic profit	$	(154	)	(75	)	(119	)	(175	)
Risk adjusted return on capital (RAROC)		(16.17	)%	0.66		0.76		(1.50	)
Economic capital, average	$	2,271		2,884		2,345		2,820
Cash overhead efficiency ratio(Tax-equivalent)		(72.88	)%	111.97		(441.97	)	105.69
Lending commitments	$	626		473		626		473
Average loans, net		27,460		28,733		28,124		29,262
Average core deposits	$	2,824		4,532		2,521		4,906
FTE employees		23,863		24,028		23,863		24,028

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 the HomEq subprime mortgage servicing business, which was divested on November 1, 2006, and cross-border leasing activity, which was moved from the Corporate and Investment Bank to the Parent in the first quarter of 2007. Key trends in the Parent segment in the first six months of 2007 compared with the first six months of 2006 included:

• Lower net interest income, largely reflecting decreases in securities and other earnings assets including the sale of $13.2 billion of securities in 2006 in connection with the Golden West merger, and growth in wholesale borrowings due to the addition of Westcorp. In addition, the contribution from hedge-related derivatives was lower.

• A $70 million increase in fee and other income reflecting net securities gains of $70 million compared with losses of $52 million in the year-ago period, as well as increased fees related to certain corporate investments and improved trading results, partially offset by the effect of divestitures in 2006.

• A 29 percent decrease in noninterest expense reflecting efficiencies, the divestiture of the HomEq subprime mortgage servicing business, and increased technology costs in the business segments offset in the Parent.

The same trends drove the Parent results for net interest income and noninterest expense in the second quarter of 2007 compared with the second quarter of 2006. Fee and other income decreased in the second quarter of 2007 compared with the same period last year primarily due to lower income related to divested businesses partially offset by increased income on corporate investments.

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 $275 million in the first six months of 2007 compared with $184 million in the first six months of 2006.

In connection with Wachovia’s proposed acquisition of A.G. Edwards and under the terms of Wachovia Securities’ joint venture with Prudential Financial, Inc., Prudential elected to exercise its lookback option, which permits Prudential to delay for two years following the combination of the A.G. Edwards retail brokerage business with Wachovia Securities its decision to make or not

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make an additional capital contribution to the joint venture or other payments to avoid or limit dilution of its 38 percent ownership interest in the joint venture. During this period, Prudential’s share in the joint venture’s earnings and one-time costs associated with the combination would be based on Prudential’s diluted ownership level. At the end of the lookback period, Prudential may elect to make an additional capital contribution or other payment, based on the appraised value of the existing joint venture and the A.G. Edwards business as of the date of the combination with Wachovia Securities, to avoid or limit dilution. In this case, Prudential also would make a true-up payment of one-time costs to reflect the incremental increase in its ownership interest in the joint venture and may not exercise its existing option to put its joint venture interests to Wachovia at its appraised value, including the A.G. Edwards business, at any time after July 1, 2008, until the first anniversary of the end of the lookback period. Alternatively, at the end of the lookback period Prudential may put its joint venture interests to Wachovia based on the appraised value of the joint venture, excluding the A.G. Edwards business, as of the date of the combination of the A.G. Edwards business with Wachovia Securities.

Balance Sheet Analysis

SecuritiesThe decrease in securities available for sale from December 31, 2006, primarily reflects an increase in the net unrealized securities loss. The net unrealized securities loss in the first six months of 2007 increased $1.8 billion due to the effect of higher rates primarily on our fixed rate mortgage-backed securities. The average duration of this portfolio increased to 4.0 years from 3.4 years at year-end 2006.

Securities Available For Sale
	June 30,			December 31,
(In billions)	2007			2006
Market value	$	106.2			108.6
Net unrealized loss	$	(2.8	)		(1.0	)
Memoranda(Market value)
Residual interests	$	0.6			0.8
Retained bonds
Investment grade(a)		7.3			6.6
Other		—			—
Total	$	7.3			6.6

^(a) $ 6.7 billion had credit ratings of AA and above at June 30, 2007.

Included in securities available for sale at June 30, 2007, were residual interests with a market value of $611 million, which included a net unrealized gain of $129 million, and retained bonds from securitizations with a market value of $7.3 billion, which included a net unrealized loss of $74 million. The average rate earned on securities available for sale was 5.42 percent in the first six months of 2007 and 5.33 percent in the first six months of 2006. TheInterest Rate Risk Managementsection further explains our interest rate risk management practices.

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Loans — On-Balance Sheet
	2007						2006
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Commercial			��
Commercial, financial and agricultural	$	102,397			99,687			96,285			95,281			91,737
Real estate — construction and other		17,449			16,965			16,182			16,067			15,329
Real estate — mortgage		20,448			20,130			20,026			19,455			19,745
Lease financing		24,083			24,053			25,341			25,253			25,194
Foreign		20,959			16,240			13,464			12,677			11,680
Total commercial		185,336			177,075			171,298			168,733			163,685
Consumer
Real estate secured		220,293			220,682			225,826			100,115			98,420
Student loans		6,757			8,479			7,768			9,175			9,139
Installment loans		25,017			23,665			22,660			21,454			20,508
Total consumer		252,067			252,826			256,254			130,744			128,067
Total loans		437,403			429,901			427,552			299,477			291,752
Unearned income		(8,283	)		(8,238	)		(7,394	)		(8,718	)		(8,836	)
Loans, net (On-balance sheet)	$	429,120			421,663			420,158			290,759			282,916

Loans — Managed Portfolio(Including on-balance sheet)
	2007				2006
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
Commercial	$	197,079		187,723		180,358		174,507		167,537
Real estate secured		238,575		236,995		240,178		113,907		113,561
Student loans		11,760		11,576		10,948		12,445		12,544
Installment loans		28,273		27,118		26,355		25,477		24,803
Total managed portfolio	$	475,687		463,412		457,839		326,336		318,445

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

The increase in net loans from year-end 2006 reflected 8 percent growth in commercial loans, partially offset by a decline in our leasing portfolio largely related to the adoption of the new accounting standard for leveraged leases, as described in theStockholders’ Equitysection. While auto lending and credit cards experienced solid growth, consumer loans from year-end 2006 reflected a decline due to lower real estate loans in weaker housing markets, as well as the securitization and sale of $7.7 billion of consumer loans, including $3.3 billion of mortgage loans, $4.2 billion of prime equity lines, and $202 million in student loans. Also, at the end of the second quarter of 2007, we transferred $2.0 billion of student loans to loans held for sale.

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

• Commercial loans represented 42 percent and consumer loans 58 percent of the loan portfolio at June 30, 2007.

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

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

Of our $220.3 billion consumer real estate loan portfolio:

• 87 percent is secured by a first lien.

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

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

• Less than 4 percent of the second lien portfolio has a loan-to-value ratio greater than 90 percent.

Our managed loan portfolio grew 4 percent from year-end 2006, reflecting the growth discussed above. The managed loan portfolio includes the on-balance sheet loan portfolio; loans held for sale; loans securitized for which the retained interests are classified in securities; and the off-balance sheet portfolio of securitized loans sold where we service the loans.

Asset Quality	2007						2006
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Nonperforming assets
Nonaccrual loans	$	1,857			1,584			1,234			578			619
Foreclosed properties		207			155			132			181			99
Total nonperforming assets	$	2,064			1,739			1,366			759			718
as % of loans, net and foreclosed properties		0.48	%		0.41			0.32			0.26			0.25
Nonperforming assets in loans held for sale	$	42			26			16			23			23
Total nonperforming assets in loans and in loans held for sale	$	2,106			1,765			1,382			782			741
as % of loans, net, foreclosed properties and loans held for sale		0.47	%		0.40			0.32			0.26			0.25
Allowance for credit losses(a)
Allowance for loan losses, beginning of period	$	3,378			3,360			3,004			3,021			3,036
Balance of acquired entities at purchase date		—			—			303			—			—
Net charge-offs		(150	)		(155	)		(140	)		(116	)		(51	)
Allowance relating to loans acquired, transferred to loans held for sale or sold		(10	)		(3	)		(18	)		(15	)		(18	)
Provision for credit losses related to loans transferred to loans held for sale or sold(b)		4			1			7			(4	)		5
Provision for credit losses		168			175			204			118			49
Allowance for loan losses, end of period		3,390			3,378			3,360			3,004			3,021
Reserve for unfunded lending commitments, beginning of period		155			154			159			165			160
Provision for credit losses		7			1			(5	)		(6	)		5
Reserve for unfunded lending commitments, end of period		162			155			154			159			165
Allowance for credit losses	$	3,552			3,533			3,514			3,163			3,186
Allowance for loan losses
as % of loans, net		0.79	%		0.80			0.80			1.03			1.07
as % of nonaccrual and restructured loans(c)		182			213			272			520			488
as % of nonperforming assets(c)		164			194			246			396			421
Allowance for credit losses
as % of loans, net		0.83	%		0.84			0.84			1.09			1.13
Net charge-offs	$	150			155			140			116			51
Commercial, as % of average commercial loans		0.07	%		0.07			0.04			0.03			(0.06	)
Consumer, as % of average consumer loans		0.19			0.20			0.19			0.32			0.23
Total, as % of average loans, net		0.14	%		0.15			0.14			0.16			0.08
Past due loans, 90 days and over, and nonaccrual loans(c)
Commercial, as a % of loans, net		0.31	%		0.28			0.23			0.28			0.28
Consumer, as a % of loans, net		0.74	%		0.66			0.59			0.61			0.64

(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 increased from year-end 2006 to 0.47 percent of loans, foreclosed properties and loans held for sale driven by increases in both nonaccrual loans and foreclosed properties. Nonaccrual loans increased from year-end 2006, driven primarily by an increase of $400 million related to our consumer real estate portfolio, which is well-collateralized. New inflows to commercial nonaccrual loans in the first six months of 2007 were $401 million, up $66 million from the first six months of 2006. Impaired commercial loans were $479 million at June 30, 2007, up from $319 million at year-end 2006.

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Past Due LoansAccruing loans 90 days or more past due, excluding loans that are classified as loans held for sale, were $562 million at June 30, 2007, compared with $650 million at December 31, 2006. Of the total past due loans, $59 million were commercial loans or commercial real estate loans and $503 million were consumer loans.

Net Charge-offsAnnualized net charge-offs as a percentage of average net loans of 0.15 percent in the first six months of 2007 were up $195 million from the first six months of 2006. In the first six months of 2007, commercial net charge-offs were $56 million compared with a net recovery of $2 million in the first six months of 2006. Consumer net charge-offs were $249 million, up from $112 million in the first six months of 2006, largely reflecting increases in the auto portfolio including the effect of the Westcorp merger and higher consumer real estate losses. The low level of net charge-offs reflects the highly collateralized nature of our loan portfolio and our careful management of inherent credit risk. Our consumer real estate portfolio has a long record of relatively low net charge-offs, reflecting strong underwriting and credit risk management.

Provision for Credit LossesProvision expense was $356 million in the first six months of 2007 compared with $120 million in the same period last year, reflecting growth in commercial, auto and credit card lending.

Allowance for Loan Losses and Reserve for Unfunded Lending CommitmentsThe allowance for loan losses increased $30 million from year-end 2006 to $3.4 billion at June 30, 2007, including increased reserves for our commercial, credit card and auto portfolios partially offset by a decrease in the unallocated reserve. The unallocated portion of the allowance decreased from year-end 2006 by $30 million reflecting diminished uncertainty related to the World Savings Bank portfolio. The reserve for unfunded lending commitments was $162 million at June 30, 2007, and $154 million at December 31, 2006. 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, 2007, and December 31, 2006, core business activity, which includes residential and commercial mortgages and auto loans that we originate with the intent to sell to third parties, represented the majority of loans held for sale.

In the first six months of 2007, we sold or securitized $35.7 billion in loans out of the loans held for sale portfolio, including $23.7 billion of commercial mortgage loans and $12.0 billion of consumer loans. In the first six months of 2006, we sold or securitized $24.8 billion of loans out of the loans held for sale portfolio, including $11.5 billion of commercial loans and $13.3 billion of consumer loans, primarily residential mortgages. Virtually none of the loans sold in either period were nonperforming. Also, we transferred $2.0 billion of student loans to loans held for sale at the end of the second quarter of 2007 as part of 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 acquisitions. Purchase accounting adjustments for Golden West and ECM are preliminary and are subject to refinement for up to one year following consummation.

In the first six months of 2007, we recorded additional preliminary fair value and exit cost purchase accounting adjustments amounting to a net increase in goodwill of $69 million ($42 million reduction after tax, including certain tax adjustments) related to Golden West. In addition, we recorded a $4 million ($3 million after tax) reduction to the deposit base intangible. Including amounts recorded in

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2006 and based on a purchase price of $24.3 billion and Golden West tangible stockholders’ equity of $9.7 billion, these adjustments resulted in goodwill of $14.8 billion at June 30, 2007.

In the first six months of 2007, we recorded final fair value and exit cost purchase accounting adjustments amounting to a net decrease in goodwill of $14 million after tax related to the March 1, 2006, Westcorp acquisition. Based on a purchase price of $3.8 billion, Westcorp tangible stockholders’ equity of $1.9 billion, and dealer relationship and deposit base intangibles amounting to $405 million ($253 million after tax), these adjustments resulted in goodwill of $1.5 billion at June 30, 2007.

The rest of the $387 million increase in goodwill from December 31, 2006, related primarily to the January 31, 2007, acquisition of a majority interest in ECM.

Liquidity and Capital Adequacy

Core DepositsCore deposits increased 2 percent from year-end 2006 to $378.2 billion at June 30, 2007. Compared with the first six months of 2006, average core deposits in the first six months of 2007 increased 29 percent to $373.9 billion, which included the effect of the October 2006 addition of $67.0 billion from Golden West, and average low-cost core deposits, which exclude consumer certificates of deposit, increased 5 percent to $255.4 billion. Average consumer certificates of deposit rose $71.1 billion from the first six months of 2006.

Purchased FundsPurchased funds were $88.2 billion at June 30, 2007, compared with $84.8 billion at December 31, 2006. Average purchased funds, which include wholesale borrowings with maturities of 12 months or less, were $82.2 billion in the first six months of 2007, including the impact of the October 2006 addition of $4.5 billion from Golden West, and $95.1 billion in the first six months of 2006. Higher foreign deposits were more than offset by greater use of long-term debt for funding rather than short-term borrowings.

Long-term DebtLong-term debt was $142.0 billion at June 30, 2007, and $138.6 billion at December 31, 2006, reflecting the issuance of $23.5 billion of debt including $1.7 billion in hybrid trust preferred securities that qualify as tier 1 capital under a trust preferred shelf registration. Debt issuances were largely offset by maturities. For the rest of 2007, scheduled maturities of long-term debt amount to $16.8 billion. We anticipate replacing the maturing obligations.

Wachovia and Wachovia Bank, National Association have a $20.0 billion Euro Medium Term Note Programme (EMTN), under which we may issue senior and subordinated debt securities. These securities are not registered with the Securities and Exchange Commission (SEC) and may not be offered in the United States without applicable exemptions from registration. Under the EMTN, Wachovia and Wachovia Bank issued an aggregate $1.3 billion of debt securities in the first six months of 2007 and had up to $9.0 billion available for issuance at June 30, 2007.

Under our current shelf registration statement filed with the SEC, at June 30, 2007, we had $9.3 billion of senior or subordinated debt securities, common stock or preferred stock available for issuance under this program. In addition, we had available for issuance up to $4.3 billion under a medium-term note program covering senior or subordinated debt securities. Wachovia Bank had a global note program for the issuance of up to $13.1 billion of senior and subordinated notes. In the first six months of 2007, we issued $8.0 billion of senior and subordinated bank notes under this program. We also have a shelf registration under which we may offer and sell hybrid trust preferred securities. At June 30, 2007, $3.3 billion was available for issuance under this shelf registration. The issuance of debt or equity securities continues under all our programs and depends on future market conditions, funding needs and other factors.

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In the second quarter of 2007, Wachovia and Wachovia Bank, National Association established an A$10.0 billion Australian Medium Term Note Programme (AMTN), under which we may issue senior and subordinated debt securities. These securities are not registered with the SEC and may not be offered in the United States without applicable exemptions from registration. Under the AMTN, Wachovia and Wachovia Bank issued an aggregate A$1.5 billion (USD $1.2 billion) of debt securities in the first six months of 2007 and had up to A$8.5 billion available for issuance at June 30, 2007.

Credit LinesWachovia Bank 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. A nonbank subsidiary has $5.0 billion of committed backup lines of credit that expire in 2011. These credit facilities have no financial covenants associated with them.

Stockholders’ EquityStockholders’ equity declined slightly from year-end 2006, to $69.3 billion at June 30, 2007, including repurchases of 18 million common shares at a cost of $1.0 billion in the first half of 2007 in connection with our share repurchase programs; and net depreciation in the securities portfolio. At June 30, 2007, we were authorized to buy back 23 million shares of common stock. Our Second Quarter 2007 Report on Form 10-Q has additional information related to share repurchases.

Dividend and Share Activity
	Six Months Ended
	June 30,
(In millions, except per share data)	2007		2006
Dividends	$	2,137		1,637
Dividends per common share	$	1.12		1.02
Common shares repurchased		18		65
Average diluted common shares outstanding		1,922		1,599

On January 1, 2007, we adopted 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), FASB Interpretation (FIN) No. 48,Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No 109,Statement of Financial Accounting Standards (SFAS) No. 155,Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140,and Emerging Issues Task Force Issue No. 06-5 related to accounting for purchases of life insurance.For all these new standards, the cumulative effect of adoption is recorded as an adjustment, net of applicable taxes, to January 1, 2007, retained earnings. The adoption of the new accounting for leveraged leases on January 1, 2007, resulted in a $1.4 billion after-tax reduction to beginning retained earnings. The cumulative effect of adopting the other standards was not significant. Further information is inNotes to Consolidated Financial Statementsin our Second Quarter 2007 Report on
Form 10-Q.

Subsidiary DividendsWachovia Bank and World Savings Bank are the largest sources of subsidiary dividends paid to the parent company. Capital requirements established by regulators limit dividends that these subsidiaries 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, 2007, our subsidiaries had $8.9 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 2007.

Regulatory CapitalOur capital ratios were above regulatory minimums in the first six months of 2007 and we continued to be classified as well capitalized. The tier 1 capital ratio increased 5 basis points from December 31, 2006, to 7.47 percent at June 30, 2007. Our total capital ratio was 11.46 percent and our leverage ratio was 6.23 percent at June 30, 2007, and 11.33 percent and 6.01 percent, respectively, at December 31, 2006.

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Summary of Off-Balance Sheet Exposures
	June 30, 2007				December 31, 2006
	Carrying				Carrying
(In millions)	Amount		Exposure		Amount		Exposure
Guarantees
Securities and other lending indemnifications	$	—		69,838		—		61,715
Standby letters of credit		117		38,103		115		37,783
Liquidity agreements		11		30,803		9		27,610
Loans sold with recourse		44		6,528		50		7,543
Residual value guarantees		—		1,155		—		1,131
Total guarantees	$	172		146,427		174		135,782

Off-Balance Sheet Transactions

In the normal course of business, we engage in a variety of financial transactions that under GAAP either are not recorded on the balance sheet or are 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 $8.4 billion at June 30, 2007, and $8.2 billion at December 31, 2006.

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.

The VAR methodology assesses 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 2007 was $30 million. The total 1-day VAR was $26 million at June 30, 2007, and $30 million at December 29, 2006, and primarily related to interest rate risk and credit spread risk. The high, low and average VARs in the first six months of 2007 were $29 million, $17 million and $23 million, respectively.

Interest Rate Risk ManagementOne of the fundamental roles in banking is the management of interest rate risk, or the risk that changes in interest rates may diminish 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. Historically, our large and relatively rate-insensitive deposit base has funded a portfolio of primarily floating rate commercial and consumer loans. This mix naturally creates a highly asset-sensitive balance sheet. Furthermore, our focus on new customer acquisition and quality customer service has historically enabled us to generate deposit growth that has matched or outpaced loan growth, adding to our naturally asset-sensitive position. To achieve more neutrality or to establish a liability-sensitive position, we maintain a large portfolio of fixed rate discretionary instruments such as loans, securities and derivatives.

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We often elect to use derivatives to protect assets, liabilities and future financial transactions from changes in interest rates. When deciding whether to use derivatives instead of investing in securities to reach the same goal, we consider a number of factors, such as cost, efficiency, the effect on our liquidity and capital, and our overall interest rate risk management strategy. We choose to use derivatives when they provide greater relative value or more efficient execution of our strategy than securities. The derivatives we use for interest rate risk management include interest rate swaps, futures, forwards and various option strategies, which in some cases are designated and accounted for as accounting hedges. We fully incorporate the market risk associated with interest rate risk management derivatives into our earnings simulation model in the same manner as other on-balance sheet financial instruments.

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. Based on our June 2007 forward rate expectation, our various scenarios together measure earnings volatility to a June 2008 federal funds rate ranging from 3.14 percent to 7.14 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. At June 30, 2007, the spread between the 10-year treasury note rate and the federal funds rate was inverted at a negative 28 basis points, which is considerably different from the long-term average spread of a positive 116 basis points. While we still believe further inversion 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 inversion has somewhat subsided.

Considering the balance of risks for 2007, we are focused primarily on managing the value created through our expanded deposit base as we protect the net interest margin against the pressures of higher short-term rates, and relative to prior years, a flatter yield curve. We expect to rely on our large base of low-cost core deposits as well as diverse wholesale sources 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 we would liquidate them. If more variable rate loans were

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added to our loan portfolio, we would likely allow fixed rate securities to mature or we would liquidate them, and then add new derivatives that, in effect, would convert the incremental variable rate loans to fixed rate loans. For example, Golden West option ARMs, despite being a monthly floating rate product, reprice on an index that generally lags changes in short-term rates. A portion of these option ARMs is funded with short-term floating rate notes, which together create a profile that is liability-sensitive as measured under our earnings sensitivity analysis. Therefore, in advance of the Golden West merger, we reduced the size of our fixed rate exposure in residential mortgage-backed securities and commercial mortgage-backed securities to help achieve the desired interest rate risk profile for the combined company.

Earnings SensitivityThePolicy Period Sensitivity Measurementtable provides a summary of our interest rate sensitivity measurements.

The June 2007 forward rate expectations imply a low probability that the federal funds rate will decline 25 basis points by the end of the policy period in June 2008. If this occurs, the spread between the 10-year treasury note rate and the federal funds rate would migrate from a negative 28 basis points of slope as of June 30, 2007, to a less inverted yield curve of a negative 18 basis points of slope by June 2008. Because it is unlikely under this scenario that federal fund rates would rise an additional 200 basis points in parallel, 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 more 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 high rate sensitivity is a composite of these three scenarios.

Policy Period	Actual			Implied
Sensitivity Measurement	Fed Funds			Fed Funds		Percent
	Rate at			Rate at		Earnings
	July 2007			June 2008		Sensitivity
Market Forward Rate Scenarios(a)		5.25	%		5.14		—
High Rate Composite					7.14		(1.20	)
Low Rate					3.14		4.00

^(a) Assumes base federal funds rate mirrors market expectations.

In July 2007, our earnings simulation model indicated earnings would be negatively affected by 1.2 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 rate and the 30-year treasury note rate each decline by less than 200 basis points relative to the “market forward rate” scenario. The model indicates earnings would be positively affected by 4.0 percent in this scenario. These percentages are for a full year, but may be higher or lower in individual reporting periods.

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 potentially negative effects of changes in interest rates.

Accounting and Regulatory Matters

The following information addresses significant new accounting and regulatory developments that will affect us, as well as new or proposed legislation that will continue to have a significant impact on our industry.

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Fair ValueIn September 2006, the FASB issued SFAS 157,Fair Value Measurement(SFAS 157), which establishes a framework for measuring fair value under U.S. GAAP, expands disclosures about fair value measurement and provides new income recognition criteria for certain derivative contracts. SFAS 157 does not establish any new fair value measurements itself; rather it defines fair value for other accounting standards that require the use of fair value for recognition or disclosure. In February 2007, the FASB issued SFAS 159,The Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159). SFAS 159 permits companies to elect to carry certain financial instruments at fair value with corresponding changes in fair value reported in the results of operations. The election to carry an instrument at fair value is made at the individual contract level and can be made only at origination or inception of the instrument, or upon the occurrence of an event that results in a new basis of accounting. The election is irrevocable.

Both SFAS 157 and SFAS 159 are effective on January 1, 2008, with early adoption permitted on January 1, 2007. We will adopt these standards on January 1, 2008, and are currently assessing the impact of adoption on our consolidated financial position and results of operations. The effect of adopting SFAS 157 will be recorded either directly to first quarter 2008 results of operations or as the cumulative effect of a change in accounting principle through an adjustment to beginning retained earnings on January 1, 2008, depending on the nature of the financial instrument to which the new fair value measurement is being applied. The transition adjustment for SFAS 159 will be recorded as the cumulative effect of a change in accounting principle through an adjustment to beginning retained earnings on January 1, 2008.

Investment Company SOPIn May 2007, the Accounting Standards Executive Committee of the AICPA issued Statement of Position (SOP) 07-1,Clarification of the Scope of the Audit and Accounting Guide ‘Investment Companies’ and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies. This new standard provides guidance for determining whether an entity is an “investment company”, as defined, and whether the specialized industry accounting principles for investment companies should be retained in the consolidated financial statements of the parent or of an equity method investor.

SOP 07-1 is effective on January 1, 2008. We will adopt the SOP concurrent with the adoption of SFAS 157 and 159, and we do not expect that adoption of the SOP will have a material impact on our financial position or results of operations.

Netting of Cash CollateralIn April 2007, the FASB issued FASB Staff Position (FSP) No. FIN 39-1,Amendment of FASB Interpretation No. 39, which expands the scope of FASB Interpretation No. 39,Offsetting of Amounts Related to Certain Contracts(FIN 39), to permit netting of the fair value asset recognized for a derivative instrument against the related liability for the obligation to return cash collateral, or netting of the fair value liability recognized for a derivative instrument against the related asset for the right to reclaim cash collateral, in situations where the FIN 39 netting criteria are met. This FSP is effective on January 1, 2008, with early adoption permitted.

The effect of adopting this FSP will be recorded as a change in accounting principle through retrospective application to all periods presented. We do not expect that the adoption of this standard will have a material effect on our financial position or results of operations. We are currently evaluating when we will adopt this standard.

Transfers of Financial AssetsThe FASB has an ongoing project addressing the accounting for the transfer of financial instruments and retention of an interest in such financial instruments, which may result in an amendment to SFAS 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities(SFAS 140). This amendment may revise or clarify the criteria for derecognition of financial assets after a transfer and may address the permitted activities of a qualifying special purpose entity. Such an amendment or other form of

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clarifying guidance may result in changes to the structure of and/or the accounting for transactions subject to SFAS 140. We cannot at this time predict with certainty whether any guidance will be issued or what the transition provisions for implementation would be.

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 2006 Annual Report on Form 10-K.

In June 2004, the Basel Committee on Bank Supervision published new international guidelines for determining regulatory capital that are designed to be more risk sensitive than the current framework. In the fourth quarter of 2006, the U.S. regulatory agencies published a joint Notice of Proposed Rulemaking (NPR) for Basel II that represents the U.S. version of the international guidelines. Under the NPR, we must develop an implementation plan within six months of the effective date of the final rule with the transitional period for capital calculation to begin within 36 months of the effective date of the final rule. Regulatory efforts in the U.S. for Basel II have experienced continued timing delays, and the date of a final rule remains unknown. The NPR currently proposes to make 2008 the first possible year for a bank to conduct its parallel run (the first step towards Basel II implementation) for measuring regulatory capital under the new regulatory capital rules and the existing general risk-based capital rules. The NPR also proposes 2009 through 2011 as the first possible years for the transitional periods. We have established necessary project management infrastructure and funding to ensure we will fully comply with the new regulations.

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Table 1
EXPLANATION OF OUR USE OF NON-GAAP FINANCIAL MEASURES

     In addition to the results of operations presented in accordance with 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 related to segment performance, see the Business Segments section and the Business Segments footnote to Notes to Consolidated Financial Statements. This report contains information relating to 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 report 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)		2007			2006		2007		2006
Net interest income(GAAP)	$		4,421			3,641		8,881		7,131
Tax-equivalent adjustment			39			34		76		83
Net interest income(Tax-equivalent)	$		4,460			3,675		8,957		7,214
DIVIDEND PAYOUT RATIOS ON COMMON SHARES
Diluted earnings per common share(GAAP)	$		1.22			1.17		2.42		2.26
Other intangible amortization			0.04			0.04		0.07		0.07
Merger-related and restructuring expenses			0.01			0.01		0.01		0.04
Earnings per share (a)	$		1.27			1.22		2.50		2.37
Dividends paid per common share	$		0.56			0.51		1.12		1.02
Dividend payout ratios(GAAP)(b)			45.90	%		43.59		46.28		45.13
Dividend payout ratios (a) (b)			44.09	%		41.80		44.80		43.04

(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.

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Table 2
SELECTED STATISTICAL DATA

		2007					2006
		Second			First		Fourth		Third		Second
(Dollars in millions, except per share data)		Quarter			Quarter		Quarter		Quarter		Quarter
PROFITABILITY
Return on average common stockholders’ equity			13.54	%		13.47		13.09		14.85		15.41
Net interest margin (a)			2.92			3.01		3.09		3.03		3.18
Fee and other income as % of total revenue			48.70			45.41		46.32		49.20		49.37
Effective income tax rate			32.78	%		30.22		31.74		31.71		33.05
ASSET QUALITY
Allowance for loan losses as % of loans, net			0.79	%		0.80		0.80		1.03		1.07
Allowance for loan losses as % of nonperforming assets (b)			164			194		246		396		421
Allowance for credit losses as % of loans, net			0.83			0.84		0.84		1.09		1.13
Net charge-offs as % of average loans, net			0.14			0.15		0.14		0.16		0.08
Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale			0.47	%		0.40		0.32		0.26		0.25
CAPITAL ADEQUACY
Tier 1 capital ratio			7.47	%		7.35		7.42		7.74		7.81
Total capital ratio			11.46			11.41		11.33		11.47		11.42
Leverage			6.23			6.08		6.01		6.60		6.57
Tangible capital ratio			4.27			4.41		4.45		4.91		4.52
Tangible capital ratio (c)			4.72	%		4.68		4.75		5.09		4.96
OTHER DATA
FTE employees			110,493			110,369		109,460		97,060		97,316
Total financial centers/brokerage offices			4,135			4,167		4,126		3,870		3,847
ATMs			5,099			5,146		5,212		5,163		5,134
Actual common shares (In millions)			1,903			1,913		1,904		1,581		1,589
Common stock price	$		51.25			55.05		56.95		55.80		54.08
Market capitalization	$		97,530			105,330		108,443		88,231		85,960

(a)	Tax-equivalent.
(b)	These ratios do not include nonperforming loans included in loans held for sale.
(c)	These ratios exclude the effect on tangible capital of the unamortized gains and losses under employee benefit plans, the unrealized gains and losses on available for sale securities, certain risk management derivatives and the pension accounting adjustments to stockholders’ equity.

26

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

		2007					2006
		Second			First		Fourth		Third		Second
(In millions, except per share data)		Quarter			Quarter		Quarter		Quarter		Quarter
SUMMARIES OF INCOME
Interest income	$		10,361			10,148		10,370		7,784		7,404
Tax-equivalent adjustment			39			37		35		37		34
Interest income (a)			10,400			10,185		10,405		7,821		7,438
Interest expense			5,940			5,688		5,793		4,243		3,763
Net interest income (a)			4,460			4,497		4,612		3,578		3,675
Provision for credit losses			179			177		206		108		59
Net interest income after provision for credit losses (a)			4,281			4,320		4,406		3,470		3,616
Securities gains			23			53		47		94		25
Fee and other income			4,211			3,688		3,933		3,371		3,558
Merger-related and restructuring expenses			32			10		49		38		24
Other noninterest expense			4,824			4,578		4,882		4,007		4,237
Minority interest in income of consolidated subsidiaries			139			136		125		104		90
Income from continuing operations before income taxes (a)			3,520			3,337		3,330		2,786		2,848
Income taxes			1,140			998		1,040		872		929
Tax-equivalent adjustment			39			37		35		37		34
Income from continuing operations			2,341			2,302		2,255		1,877		1,885
Discontinued operations, net of income taxes			-			-		46		-		-
Net income	$		2,341			2,302		2,301		1,877		1,885
PER COMMON SHARE DATA
Basic earnings
Income from continuing operations	$		1.24			1.22		1.20		1.19		1.19
Net income			1.24			1.22		1.22		1.19		1.19
Diluted earnings
Income from continuing operations			1.22			1.20		1.18		1.17		1.17
Net income			1.22			1.20		1.20		1.17		1.17
Cash dividends	$		0.56			0.56		0.56		0.56		0.51
Average common shares — Basic			1,891			1,894		1,889		1,573		1,585
Average common shares — Diluted			1,919			1,925		1,922		1,600		1,613
Average common stockholders’ equity
Quarter-to-date	$		69,317			69,320		69,725		50,143		49,063
Year-to-date			69,318			69,320		54,263		49,052		48,498
Book value per common share			36.40			36.47		36.61		32.37		30.75
Common stock price High			56.81			58.77		57.49		56.67		59.85
Low			51.25			53.88		53.37		52.40		52.03
Period-end	$		51.25			55.05		56.95		55.80		54.08
To earnings ratio (b)			10.70	X		11.61		12.30		12.35		12.26
To book value			141	%		151		156		172		176
BALANCE SHEET DATA
Assets	$		719,922			706,406		707,121		559,922		553,614
Long-term debt	$		142,047			142,334		138,594		86,419		74,627

(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)		2007
Wachovia/Golden West	$		22
Wachovia/Westcorp			17
Wachovia/SouthTrust			(2	)
Other			5
Total merger-related and restructuring expenses	$		42

28

Table 5
BUSINESS SEGMENTS (a)

		2007					2006
		Second			First		Fourth			Third		Second
(Dollars in millions)		Quarter			Quarter		Quarter			Quarter		Quarter
GENERAL BANK COMBINED (b)
Net interest income (c)	$		3,686			3,706		3,763	��		2,817		2,777
Fee and other income			975			876		964			892		842
Intersegment revenue			56			48		58			48		48
Total revenue (c)			4,717			4,630		4,785			3,757		3,667
Provision for credit losses			164			162		146			122		95
Noninterest expense			2,093			2,028		1,994			1,677		1,737
Income taxes			887			880		956			703		660
Tax-equivalent adjustment			10			11		10			11		10
Segment earnings	$		1,563			1,549		1,679			1,244		1,165
Economic profit	$		1,164			1,168		1,295			980		893
Risk adjusted return on capital			47.04	%		48.44		52.23			57.34		54.56
Economic capital, average	$		12,959			12,650		12,461			8,391		8,219
Cash overhead efficiency ratio (c)			44.36	%		43.80		41.68			44.61		47.39
Lending commitments	$		149,712			144,737		139,356			127,812		120,622
Average loans, net			331,042			326,878		324,239			196,450		191,815
Average core deposits	$		298,827			292,046		288,248			216,365		214,517
FTE employees			58,239			57,286		56,619			45,371		45,100
COMMERCIAL
Net interest income (c)	$		1,124			1,092		1,116			1,095		1,071
Fee and other income			130			128		126			120		117
Intersegment revenue			40			36		47			36		35
Total revenue (c)			1,294			1,256		1,289			1,251		1,223
Provision for credit losses			99			102		90			75		57
Noninterest expense			405			412		400			376		397
Income taxes			279			260		280			282		271
Tax-equivalent adjustment			10			11		11			10		10
Segment earnings	$		501			471		508			508		488
Economic profit	$		317			302		335			333		306
Risk adjusted return on capital			33.70	%		34.07		36.58			37.03		35.98
Economic capital, average	$		5,594			5,310		5,203			5,067		4,913
Cash overhead efficiency ratio (c)			31.36	%		32.79		31.07			30.03		32.48
Average loans, net	$		111,562			108,403		105,725			103,508		100,922
Average core deposits	$		47,676			48,152		48,834			47,288		46,948
RETAIL AND SMALL BUSINESS
Net interest income (c)	$		2,562			2,614		2,647			1,722		1,706
Fee and other income			845			748		838			772		725
Intersegment revenue			16			12		11			12		13
Total revenue (c)			3,423			3,374		3,496			2,506		2,444
Provision for credit losses			65			60		56			47		38
Noninterest expense			1,688			1,616		1,594			1,301		1,340
Income taxes			608			620		676			421		389
Tax-equivalent adjustment			-			-		(1	)		1		-
Segment earnings	$		1,062			1,078		1,171			736		677
Economic profit	$		847			866		960			647		587
Risk adjusted return on capital			57.17	%		58.84		63.44			88.31		82.16
Economic capital, average	$		7,365			7,340		7,258			3,324		3,306
Cash overhead efficiency ratio (c)			49.28	%		47.90		45.59			51.90		54.83
Average loans, net	$		219,480			218,475		218,514			92,942		90,893
Average core deposits	$		251,151			243,894		239,414			169,077		167,569

(a)	Certain amounts presented in this Table 5 in periods prior to the second quarter of 2007 have been reclassified to conform to the presentation in the second quarter of 2007.
(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

		2007					2006
		Second			First		Fourth		Third		Second
(Dollars in millions)		Quarter			Quarter		Quarter		Quarter		Quarter
WEALTH MANAGEMENT
Net interest income (a)	$		149			146		149		148		149
Fee and other income			201			195		199		197		194
Intersegment revenue			2			1		3		1		1
Total revenue (a)			352			342		351		346		344
Provision for credit losses			1			-		-		-		2
Noninterest expense			238			240		236		234		249
Income taxes			41			37		42		41		34
Tax-equivalent adjustment			-			-		-		-		-
Segment earnings	$		72			65		73		71		59
Economic profit	$		51			46		53		51		42
Risk adjusted return on capital			46.08	%		44.16		47.95		47.03		40.86
Economic capital, average	$		587			564		571		565		561
Cash overhead efficiency ratio (a)			67.90	%		70.01		67.29		67.80		72.23
Lending commitments	$		6,892			6,686		6,504		6,481		6,285
Average loans, net			17,666			17,079		16,681		16,365		15,922
Average core deposits	$		14,097			14,248		14,387		13,847		14,270
FTE employees			4,305			4,384		4,466		4,522		4,719

(a) Tax-equivalent.

(Continued)

30

Table 5
BUSINESS SEGMENTS

		2007					2006
	Second			First			Fourth			Third			Second
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
CORPORATE AND INVESTMENT BANK
COMBINED (a)
Net interest income (b)	$	511			455			514			451			470
Fee and other income		1,500			1,089			1,356			993			1,218
Intersegment revenue		(48	)		(42	)		(56	)		(43	)		(42	)
Total revenue (b)		1,963			1,502			1,814			1,401			1,646
Provision for credit losses		(4	)		-			5			(5	)		(33	)
Noninterest expense		1,024			903			999			798			887
Income taxes		333			209			285			213			280
Tax-equivalent adjustment		11			10			11			9			9
Segment earnings	$	599			380			514			386			503
Economic profit	$	361			160			291			168			277
Risk adjusted return on capital		30.29	%		20.14			27.21			20.96			28.04
Economic capital, average	$	7,508			7,101			7,122			6,710			6,501
Cash overhead efficiency ratio (b)		52.16	%		60.13			55.09			56.94			53.85
Lending commitments	$	111,439			106,578			107,155			102,698			106,105
Average loans, net		43,426			40,954			41,085			39,823			37,756
Average core deposits	$	31,527			29,080			27,148			26,378			26,492
FTE employees		6,170			5,956			6,031			6,040			6,219
CORPORATE LENDING
Net interest income (b)	$	157			154			151			148			165
Fee and other income		137			122			124			114			113
Intersegment revenue		7			6			6			8			7
Total revenue (b)		301			282			281			270			285
Provision for credit losses		(4	)		-			1			(5	)		(33	)
Noninterest expense		112			114			113			94			103
Income taxes		70			61			61			66			80
Tax-equivalent adjustment		-			-			-			-			-
Segment earnings	$	123			107			106			115			135
Economic profit	$	2			(8	)		(15	)		(8	)		(1	)
Risk adjusted return on capital		11.22	%		10.05			9.36			10.08			10.90
Economic capital, average	$	3,554			3,498			3,640			3,568			3,497
Cash overhead efficiency ratio (b)		37.04	%		40.45			40.24			34.72			36.30
Average loans, net	$	25,162			25,183			25,613			25,909			25,301
Average core deposits	$	146			147			164			146			136

(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)

31

Table 5
BUSINESS SEGMENTS

		2007					2006
	Second			First			Fourth			Third			Second
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
TREASURY AND INTERNATIONAL
TRADE FINANCE
Net interest income (b)	$	98			90			103			98			98
Fee and other income		197			194			194			199			200
Intersegment revenue		(34	)		(33	)		(33	)		(33	)		(32	)
Total revenue (b)		261			251			264			264			266
Provision for credit losses		-			-			-			-			-
Noninterest expense		179			179			175			164			178
Income taxes		30			26			33			36			32
Tax-equivalent adjustment		-			-			-			-			-
Segment earnings	$	52			46			56			64			56
Economic profit	$	39			33			43			51			43
Risk adjusted return on capital		48.30	%		43.39			50.60			59.72			52.70
Economic capital, average	$	416			416			427			413			413
Cash overhead efficiency ratio (b)		68.65	%		71.17			66.42			61.83			66.74
Average loans, net	$	9,513			8,255			8,060			7,789			7,273
Average core deposits	$	20,845			19,723			17,982			17,698			17,081
INVESTMENT BANKING
Net interest income (b)	$	256			211			260			205			207
Fee and other income		1,166			773			1,038			680			905
Intersegment revenue		(21	)		(15	)		(29	)		(18	)		(17	)
Total revenue (b)		1,401			969			1,269			867			1,095
Provision for credit losses		-			-			4			-			-
Noninterest expense		733			610			711			540			606
Income taxes		233			122			191			111			168
Tax-equivalent adjustment		11			10			11			9			9
Segment earnings	$	424			227			352			207			312
Economic profit	$	320			135			263			125			235
Risk adjusted return on capital		47.32	%		28.19			45.21			29.31			47.24
Economic capital, average	$	3,538			3,187			3,055			2,729			2,591
Cash overhead efficiency ratio (b)		52.34	%		63.00			56.02			62.32			55.28
Average loans, net	$	8,751			7,516			7,412			6,125			5,182
Average core deposits	$	10,536			9,210			9,002			8,534			9,275

(Continued)

32

Table 5
BUSINESS SEGMENTS

		2007					2006
	Second			First			Fourth			Third			Second
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
CAPITAL MANAGEMENT COMBINED (a)
Net interest income (b)	$	263			262			258			253			267
Fee and other income		1,502			1,444			1,340			1,217			1,211
Intersegment revenue		(11	)		(8	)		(8	)		(8	)		(9	)
Total revenue (b)		1,754			1,698			1,590			1,462			1,469
Provision for credit losses		-			-			-			-			-
Noninterest expense		1,296			1,236			1,200			1,097			1,118
Income taxes		167			169			143			133			127
Tax-equivalent adjustment		-			-			-			-			1
Segment earnings	$	291			293			247			232			223
Economic profit	$	247			250			205			193			183
Risk adjusted return on capital		72.30	%		74.59			65.03			65.30			62.38
Economic capital, average	$	1,615			1,593			1,506			1,412			1,430
Cash overhead efficiency ratio (b)		73.86	%		72.80			75.53			74.98			76.15
Lending commitments	$	1,072			892			803			831			809
Average loans, net		1,663			1,554			1,419			1,235			1,039
Average core deposits	$	31,221			31,683			30,100			30,114			31,827
FTE employees		17,916			17,713			17,523			17,297			17,250
Assets under management	$	281,462			314,551			278,854			252,761			240,113
ASSET MANAGEMENT
Net interest income (b)	$	6			3			2			2			2
Fee and other income		314			274			245			229			220
Intersegment revenue		-			-			-			-			(1	)
Total revenue (b)		320			277			247			231			221
Provision for credit losses		-			-			-			-			-
Noninterest expense		235			231			208			197			188
Income taxes		31			17			15			11			12
Tax-equivalent adjustment		-			-			-			-			-
Segment earnings	$	54			29			24			23			21
Economic profit	$	47			22			19			16			16
Risk adjusted return on capital		82.15	%		46.66			44.64			42.20			42.26
Economic capital, average	$	263			250			220			208			201
Cash overhead efficiency ratio (b)		73.47	%		83.65			84.23			84.91			84.96
Average loans, net	$	17			33			20			25			13
Average core deposits	$	364			278			251			248			245

(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)

33

Table 5
BUSINESS SEGMENTS

		2007					2006
	Second			First			Fourth			Third			Second
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
RETAIL BROKERAGE SERVICES
Net interest income (b)	$	256			259			256			251			264
Fee and other income		1,191			1,172			1,097			990			994
Intersegment revenue		(11	)		(8	)		(8	)		(7	)		(8	)
Total revenue (b)		1,436			1,423			1,345			1,234			1,250
Provision for credit losses		-			-			-			-			-
Noninterest expense		1,065			1,010			996			904			935
Income taxes		135			151			127			123			113
Tax-equivalent adjustment		-			-			-			-			1
Segment earnings	$	236			262			222			207			201
Economic profit	$	199			226			185			175			166
Risk adjusted return on capital		69.99	%		79.22			68.04			68.83			65.26
Economic capital, average	$	1,352			1,343			1,286			1,204			1,229
Cash overhead efficiency ratio (b)		74.14	%		70.94			74.15			73.33			74.79
Average loans, net	$	1,646			1,521			1,399			1,210			1,026
Average core deposits	$	30,857			31,405			29,849			29,866			31,582
OTHER
Net interest income (b)	$	1			-			-			-			1
Fee and other income		(3	)		(2	)		(2	)		(2	)		(3	)
Intersegment revenue		-			-			-			(1	)		-
Total revenue (b)		(2	)		(2	)		(2	)		(3	)		(2	)
Provision for credit losses		-			-			-			-			-
Noninterest expense		(4	)		(5	)		(4	)		(4	)		(5	)
Income taxes		1			1			1			(1	)		2
Tax-equivalent adjustment		-			-			-			-			-
Segment earnings	$	1			2			1			2			1
Economic profit	$	1			2			1			2			1
Risk adjusted return on capital		-	%		-			-			-			-
Economic capital, average	$	-			-			-			-			-
Cash overhead efficiency ratio (b)		-	%		-			-			-			-
Average loans, net	$	-			-			-			-			-
Average core deposits	$	-			-			-			-			-

(Continued)

34

Table 5
BUSINESS SEGMENTS

		2007					2006
	Second			First			Fourth			Third			Second
(Dollars in millions)	Quarter			Quarter			Quarter			Quarter			Quarter
PARENT
Net interest income (a)	$	(149	)		(72	)		(72	)		(91	)		12
Fee and other income		56			137			121			166			118
Intersegment revenue		1			1			3			2			2
Total revenue (a)		(92	)		66			52			77			132
Provision for credit losses		18			15			55			(9	)		(5	)
Noninterest expense		173			171			453			201			246
Minority interest		139			136			124			104			89
Income tax benefits		(276	)		(293	)		(365	)		(205	)		(162	)
Tax-equivalent adjustment		18			16			14			17			14
Segment earnings (loss)	$	(164	)		21			(229	)		(31	)		(50	)
Economic profit	$	(154	)		35			(201	)		(64	)		(75	)
Risk adjusted return on capital		(16.17	)  %		16.85			(16.37	)		2.30			0.66
Economic capital, average	$	2,271			2,417			2,921			2,963			2,884
Cash overhead efficiency ratio (a)		(72.88	)  %		81.38			588.26			145.92			111.97
Lending commitments	$	626			610			597			472			473
Average loans, net		27,460			28,796			29,137			27,237			28,733
Average core deposits	$	2,824			2,213			2,544			4,523			4,532
FTE employees		23,863			25,030			24,821			23,830			24,028

(a) Tax-equivalent.

(Continued)

35

Table 5
BUSINESS SEGMENTS

		Three Months Ended June 30, 2007
															Net Merger-
						Corporate									Related
						and									and
	General			Wealth		Investment			Capital						Restructuring
(Dollars in millions)	Bank			Management		Bank			Management			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)	$	3,686			149		511			263			(149	)		(39	)		4,421
Fee and other income		975			201		1,500			1,502			56			-			4,234
Intersegment revenue		56			2		(48	)		(11	)		1			-			-
Total revenue (a)		4,717			352		1,963			1,754			(92	)		(39	)		8,655
Provision for credit losses		164			1		(4	)		-			18			-			179
Noninterest expense		2,093			238		1,024			1,296			173			32			4,856
Minority interest		-			-		-			-			139			-			139
Income taxes (benefits)		887			41		333			167			(276	)		(12	)		1,140
Tax-equivalent adjustment		10			-		11			-			18			(39	)		-
Net income (loss)	$	1,563			72		599			291			(164	)		(20	)		2,341
Economic profit	$	1,164			51		361			247			(154	)		-			1,669
Risk adjusted return on capital		47.04	%		46.08		30.29			72.30			(16.17	)		-			37.85
Economic capital, average	$	12,959			587		7,508			1,615			2,271			-			24,940
Cash overhead efficiency ratio (a)		44.36	%		67.90		52.16			73.86			(72.88	)		-			54.29
Lending commitments	$	149,712			6,892		111,439			1,072			626			-			269,741
Average loans, net		331,042			17,666		43,426			1,663			27,460			-			421,257
Average core deposits	$	298,827			14,097		31,527			31,221			2,824			-			378,496
FTE employees		58,239			4,305		6,170			17,916			23,863			-			110,493

		Three Months Ended June 30, 2006
															Net Merger-
						Corporate									Related
						and									and
	General			Wealth		Investment			Capital						Restructuring
(Dollars in millions)	Bank			Management		Bank			Management			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)	$	2,777			149		470			267			12			(34	)		3,641
Fee and other income		842			194		1,218			1,211			118			-			3,583
Intersegment revenue		48			1		(42	)		(9	)		2			-			-
Total revenue (a)		3,667			344		1,646			1,469			132			(34	)		7,224
Provision for credit losses		95			2		(33	)		-			(5	)		-			59
Noninterest expense		1,737			249		887			1,118			246			24			4,261
Minority interest		-			-		-			-			89			1			90
Income taxes (benefits)		660			34		280			127			(162	)		(10	)		929
Tax-equivalent adjustment		10			-		9			1			14			(34	)		-
Net income (loss)	$	1,165			59		503			223			(50	)		(15	)		1,885
Economic profit	$	893			42		277			183			(75	)		-			1,320
Risk adjusted return on capital		54.56	%		40.86		28.04			62.38			0.66			-			38.01
Economic capital, average	$	8,219			561		6,501			1,430			2,884			-			19,595
Cash overhead efficiency ratio (a)		47.39	%		72.23		53.85			76.15			111.97			-			57.03
Lending commitments	$	120,622			6,285		106,105			809			473			-			234,294
Average loans, net		191,815			15,922		37,756			1,039			28,733			-			275,265
Average core deposits	$	214,517			14,270		26,492			31,827			4,532			-			291,638
FTE employees		45,100			4,719		6,219			17,250			24,028			-			97,316

(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)	2007			2006
GENERAL BANK COMBINED (a)
Net interest income (b)	$	7,392			5,307
Fee and other income		1,851			1,707
Intersegment revenue		104			91
Total revenue (b)		9,347			7,105
Provision for credit losses		326			157
Noninterest expense		4,121			3,394
Income taxes		1,767			1,277
Tax-equivalent adjustment		21			21
Segment earnings	$	3,112			2,256
Economic profit	$	2,332			1,742
Risk adjusted return on capital		47.73	%		56.23
Economic capital, average	$	12,805			7,767
Cash overhead efficiency ratio (b)		44.09	%		47.78
Lending commitments	$	149,712			120,622
Average loans, net		328,971			184,708
Average core deposits	$	295,455			212,771
FTE employees		58,239			45,100
COMMERCIAL
Net interest income (b)	$	2,216			1,943
Fee and other income		258			230
Intersegment revenue		76			65
Total revenue (b)		2,550			2,238
Provision for credit losses		201			79
Noninterest expense		817			754
Income taxes		539			492
Tax-equivalent adjustment		21			21
Segment earnings	$	972			892
Economic profit	$	619			556
Risk adjusted return on capital		33.88	%		36.15
Economic capital, average	$	5,452			4,460
Cash overhead efficiency ratio (b)		32.07	%		33.70
Average loans, net	$	109,991			94,813
Average core deposits	$	47,913			47,337
RETAIL AND SMALL BUSINESS
Net interest income (b)	$	5,176			3,364
Fee and other income		1,593			1,477
Intersegment revenue		28			26
Total revenue (b)		6,797			4,867
Provision for credit losses		125			78
Noninterest expense		3,304			2,640
Income taxes		1,228			785
Tax-equivalent adjustment		-			-
Segment earnings	$	2,140			1,364
Economic profit	$	1,713			1,186
Risk adjusted return on capital		58.00	%		83.31
Economic capital, average	$	7,353			3,307
Cash overhead efficiency ratio (b)		48.60	%		54.26
Average loans, net	$	218,980			89,895
Average core deposits	$	247,542			165,434

(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)	2007			2006
WEALTH MANAGEMENT
Net interest income (a)	$	295			298
Fee and other income		396			382
Intersegment revenue		3			2
Total revenue (a)		694			682
Provision for credit losses		1			2
Noninterest expense		478			496
Income taxes		78			67
Tax-equivalent adjustment		-			-
Segment earnings	$	137			117
Economic profit	$	97			81
Risk adjusted return on capital		45.15	%		40.30
Economic capital, average	$	575			557
Cash overhead efficiency ratio (a)		68.94	%		72.66
Lending commitments	$	6,892			6,285
Average loans, net		17,374			15,715
Average core deposits	$	14,172			14,448
FTE employees		4,305			4,719

(a) Tax-equivalent.

(Continued)

38

Table 5
BUSINESS SEGMENTS

		Six Months Ended
		June 30,
(Dollars in millions)	2007			2006
CORPORATE AND INVESTMENT BANK COMBINED (a)
Net interest income (b)	$	966			934
Fee and other income		2,589			2,461
Intersegment revenue		(90	)		(79	)
Total revenue (b)		3,465			3,316
Provision for credit losses		(4	)		(32	)
Noninterest expense		1,927			1,780
Income taxes		542			541
Tax-equivalent adjustment		21			31
Segment earnings	$	979			996
Economic profit	$	521			579
Risk adjusted return on capital		25.38	%		29.57
Economic capital, average	$	7,305			6,286
Cash overhead efficiency ratio (b)		55.61	%		53.67
Lending commitments	$	111,439			106,105
Average loans, net		42,197			37,327
Average core deposits	$	30,310			26,105
FTE employees		6,170			6,219
CORPORATE LENDING
Net interest income (b)	$	311			311
Fee and other income		259			274
Intersegment revenue		13			14
Total revenue (b)		583			599
Provision for credit losses		(4	)		(32	)
Noninterest expense		226			205
Income taxes		131			156
Tax-equivalent adjustment		-			-
Segment earnings	$	230			270
Economic profit	$	(6	)		29
Risk adjusted return on capital		10.65	%		12.75
Economic capital, average	$	3,526			3,332
Cash overhead efficiency ratio (b)		38.69	%		34.25
Average loans, net	$	25,172			25,006
Average core deposits	$	147			145

(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)

39

Table 5
BUSINESS SEGMENTS

		Six Months Ended
		June 30,
(Dollars in millions)	2007			2006
TREASURY AND INTERNATIONAL TRADE FINANCE
Net interest income (b)	$	188			190
Fee and other income		391			393
Intersegment revenue		(67	)		(62	)
Total revenue (b)		512			521
Provision for credit losses		-			-
Noninterest expense		358			351
Income taxes		56			62
Tax-equivalent adjustment		-			-
Segment earnings	$	98			108
Economic profit	$	72			80
Risk adjusted return on capital		45.86	%		49.00
Economic capital, average	$	416			426
Cash overhead efficiency ratio (b)		69.89	%		67.40
Average loans, net	$	8,888			7,195
Average core deposits	$	20,287			16,830
INVESTMENT BANKING
Net interest income (b)	$	467			433
Fee and other income		1,939			1,794
Intersegment revenue		(36	)		(31	)
Total revenue (b)		2,370			2,196
Provision for credit losses		-			-
Noninterest expense		1,343			1,224
Income taxes		355			323
Tax-equivalent adjustment		21			31
Segment earnings	$	651			618
Economic profit	$	455			470
Risk adjusted return on capital		38.31	%		48.46
Economic capital, average	$	3,363			2,528
Cash overhead efficiency ratio (b)		56.69	%		55.72
Average loans, net	$	8,137			5,126
Average core deposits	$	9,876			9,130

(Continued)

40

Table 5
BUSINESS SEGMENTS

		Six Months Ended
		June 30,
(Dollars in millions)	2007			2006
CAPITAL MANAGEMENT COMBINED (a)
Net interest income (b)	$	525			523
Fee and other income		2,946			2,427
Intersegment revenue		(19	)		(17	)
Total revenue (b)		3,452			2,933
Provision for credit losses		-			-
Noninterest expense		2,532			2,253
Income taxes		336			247
Tax-equivalent adjustment		-			1
Segment earnings	$	584			432
Economic profit	$	497			353
Risk adjusted return on capital		73.43	%		60.40
Economic capital, average	$	1,604			1,441
Cash overhead efficiency ratio (b)		73.34	%		76.82
Lending commitments	$	1,072			809
Average loans, net		1,609			948
Average core deposits	$	31,450			32,700
FTE employees		17,916			17,250
Assets under management	$	281,462			240,113
ASSET MANAGEMENT
Net interest income (b)	$	9			4
Fee and other income		588			427
Intersegment revenue		-			(1	)
Total revenue (b)		597			430
Provision for credit losses		-			-
Noninterest expense		466			366
Income taxes		48			24
Tax-equivalent adjustment		-			-
Segment earnings	$	83			40
Economic profit	$	69			30
Risk adjusted return on capital		64.96	%		41.19
Economic capital, average	$	256			198
Cash overhead efficiency ratio (b)		78.19	%		85.20
Average loans, net	$	25			20
Average core deposits	$	321			251

(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)

41

Table 5
BUSINESS SEGMENTS

		Six Months Ended
		June 30,
(Dollars in millions)	2007			2006
RETAIL BROKERAGE SERVICES
Net interest income (b)	$	515			518
Fee and other income		2,363			2,006
Intersegment revenue		(19	)		(16	)
Total revenue (b)		2,859			2,508
Provision for credit losses		-			-
Noninterest expense		2,075			1,897
Income taxes		286			220
Tax-equivalent adjustment		-			1
Segment earnings	$	498			390
Economic profit	$	425			321
Risk adjusted return on capital		74.57	%		63.08
Economic capital, average	$	1,348			1,243
Cash overhead efficiency ratio (b)		72.55	%		75.58
Average loans, net	$	1,584			928
Average core deposits	$	31,129			32,449
OTHER
Net interest income (b)	$	1			1
Fee and other income		(5	)		(6	)
Intersegment revenue		-			-
Total revenue (b)		(4	)		(5	)
Provision for credit losses		-			-
Noninterest expense		(9	)		(10	)
Income taxes		2			3
Tax-equivalent adjustment		-			-
Segment earnings	$	3			2
Economic profit	$	3			2
Risk adjusted return on capital		-	%		-
Economic capital, average	$	-			-
Cash overhead efficiency ratio (b)		-	%		-
Average loans, net	$	-			-
Average core deposits	$	-			-

(Continued)

42

Table 5
BUSINESS SEGMENTS

		Six Months Ended
		June 30,
(Dollars in millions)	2007			2006
PARENT
Net interest income (a)	$	(221	)		152
Fee and other income		193			123
Intersegment revenue		2			3
Total revenue (a)		(26	)		278
Provision for credit losses		33			(7	)
Noninterest expense		344			485
Minority interest		275			184
Income tax benefits		(569	)		(287	)
Tax-equivalent adjustment		34			30
Segment loss	$	(143	)		(127	)
Economic profit	$	(119	)		(175	)
Risk adjusted return on capital		0.76	%		(1.50	)
Economic capital, average	$	2,345			2,820
Cash overhead efficiency ratio (a)		(441.97	) %		105.69
Lending commitments	$	626			473
Average loans, net		28,124			29,262
Average core deposits	$	2,521			4,906
FTE employees		23,863			24,028

(a) Tax-equivalent.

(Continued)

43

Table 5
BUSINESS SEGMENTS

		Six Months Ended June 30, 2007
															Net Merger-
						Corporate									Related
						and									and
	General			Wealth		Investment			Capital						Restructuring
(Dollars in millions)	Bank			Management		Bank			Management			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)	$	7,392			295		966			525			(221	)		(76	)		8,881
Fee and other income		1,851			396		2,589			2,946			193			-			7,975
Intersegment revenue		104			3		(90	)		(19	)		2			-			-
Total revenue (a)		9,347			694		3,465			3,452			(26	)		(76	)		16,856
Provision for credit losses		326			1		(4	)		-			33			-			356
Noninterest expense		4,121			478		1,927			2,532			344			42			9,444
Minority interest		-			-		-			-			275			-			275
Income taxes (benefits)		1,767			78		542			336			(569	)		(16	)		2,138
Tax-equivalent adjustment		21			-		21			-			34			(76	)		-
Net income (loss)	$	3,112			137		979			584			(143	)		(26	)		4,643
Economic profit	$	2,332			97		521			497			(119	)		-			3,328
Risk adjusted return on capital		47.73	%		45.15		25.38			73.43			0.76			-			38.25
Economic capital, average	$	12,805			575		7,305			1,604			2,345			-			24,634
Cash overhead efficiency ratio (a)		44.09	%		68.94		55.61			73.34			(441.97	)		-			54.22
Lending commitments	$	149,712			6,892		111,439			1,072			626			-			269,741
Average loans, net		328,971			17,374		42,197			1,609			28,124			-			418,275
Average core deposits	$	295,455			14,172		30,310			31,450			2,521			-			373,908
FTE employees		58,239			4,305		6,170			17,916			23,863			-			110,493

		Six Months Ended June 30, 2006
															Net Merger-
						Corporate									Related
						and									and
	General			Wealth		Investment			Capital						Restructuring
(Dollars in millions)	Bank			Management		Bank			Management			Parent			Expenses (b)			Total
CONSOLIDATED
Net interest income (a)	$	5,307			298		934			523			152			(83	)		7,131
Fee and other income		1,707			382		2,461			2,427			123			-			7,100
Intersegment revenue		91			2		(79	)		(17	)		3			-			-
Total revenue (a)		7,105			682		3,316			2,933			278			(83	)		14,231
Provision for credit losses		157			2		(32	)		-			(7	)		-			120
Noninterest expense		3,394			496		1,780			2,253			485			92			8,500
Minority interest		-			-		-			-			184			1			185
Income taxes (benefits)		1,277			67		541			247			(287	)		(32	)		1,813
Tax-equivalent adjustment		21			-		31			1			30			(83	)		-
Net income (loss)	$	2,256			117		996			432			(127	)		(61	)		3,613
Economic profit	$	1,742			81		579			353			(175	)		-			2,580
Risk adjusted return on capital		56.23	%		40.30		29.57			60.40			(1.50	)		-			38.57
Economic capital, average	$	7,767			557		6,286			1,441			2,820			-			18,871
Cash overhead efficiency ratio (a)		47.78	%		72.66		53.67			76.82			105.69			-			57.41
Lending commitments	$	120,622			6,285		106,105			809			473			-			234,294
Average loans, net		184,708			15,715		37,327			948			29,262			-			267,960
Average core deposits	$	212,771			14,448		26,105			32,700			4,906			-			290,930
FTE employees		45,100			4,719		6,219			17,250			24,028			-			97,316

(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)

	2007				2006
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
Net interest income(Tax-equivalent)	$	49		53		84		28		68
Trading accounts profits		190		115		32		122		151
Other fee income		62		50		66		75		62
Total net trading revenue(Tax-equivalent)	$	301		218		182		225		281

(a) Certain amounts presented in periods prior to the second quarter of 2007 have been reclassified to conform to the presentation in the second quarter of 2007.

Table 7

SELECTED RATIOS

	Six Months Ended
	June 30,					2007				2006
						Second		First		Fourth		Third		Second
	2007			2006		Quarter		Quarter		Quarter		Quarter		Quarter
PERFORMANCE RATIOS (a)
Assets to stockholders’ equity		10.13	X		10.99		10.22		10.03		10.02		11.07		11.08
Return on assets		1.33	%		1.37		1.32		1.34		1.31		1.34		1.39
Return on stockholders’ equity		13.51	%		15.02		13.54		13.47		13.09		14.85		15.41
DIVIDEND PAYOUT RATIOS
Common shares		46.28	%		45.13		45.90		46.67		46.67		47.86		43.59

(a) Based on average balances and net income.

Table 8

TRADING ACCOUNT ASSETS AND LIABILITIES

	2007				2006
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
TRADING ACCOUNT ASSETS
U.S. Treasury	$	2,348		1,164		970		2,145		2,176
U.S. Government agencies		2,865		2,874		2,459		2,492		2,319
State, county and municipal		3,551		2,961		2,193		1,199		1,077
Mortgage-backed securities		1,807		2,591		1,816		1,617		1,280
Other asset-backed securities		12,474		9,445		8,697		8,151		11,505
Corporate bonds and debentures		5,386		4,350		4,320		4,851		5,475
Equity securities		2,973		3,298		3,803		4,654		4,828
Derivative financial instruments		13,342		10,818		12,609		10,735		12,002
Sundry		8,858		13,251		8,662		8,060		5,890
Total trading account assets	$	53,604		50,752		45,529		43,904		46,552
TRADING ACCOUNT LIABILITIES
Securities sold short		9,564		9,391		8,205		9,502		8,182
Derivative financial instruments		10,615		8,759		10,023		10,051		10,227
Total trading account liabilities	$	20,179		18,150		18,228		19,553		18,409

45

Table 9

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

	2007						2006
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
ON-BALANCE SHEET LOAN PORTFOLIO COMMERCIAL
Commercial, financial and agricultural	$	102,397			99,687			96,285			95,281			91,737
Real estate — construction and other		17,449			16,965			16,182			16,067			15,329
Real estate — mortgage		20,448			20,130			20,026			19,455			19,745
Lease financing		24,083			24,053			25,341			25,253			25,194
Foreign		20,959			16,240			13,464			12,677			11,680
Total commercial		185,336			177,075			171,298			168,733			163,685
CONSUMER
Real estate secured (a)		220,293			220,682			225,826			100,115			98,420
Student loans		6,757			8,479			7,768			9,175			9,139
Installment loans		25,017			23,665			22,660			21,454			20,508
Total consumer		252,067			252,826			256,254			130,744			128,067
Total loans		437,403			429,901			427,552			299,477			291,752
Unearned income		(8,283	)		(8,238	)		(7,394	)		(8,718	)		(8,836	)
Loans, net(On-balance sheet)	$	429,120			421,663			420,158			290,759			282,916
MANAGED PORTFOLIO (b)
COMMERCIAL
On-balance sheet loan portfolio	$	185,336			177,075			171,298			168,733			163,685
Securitized loans — off-balance sheet		170			181			194			218			250
Loans held for sale		11,573			10,467			8,866			5,556			3,602
Total commercial		197,079			187,723			180,358			174,507			167,537
CONSUMER
Real estate secured
On-balance sheet loan portfolio		220,293			220,682			225,826			100,115			98,420
Securitized loans — off-balance sheet		8,112			6,595			5,611			6,151			6,833
Securitized loans included in securities		6,091			5,629			5,321			4,317			4,465
Loans held for sale		4,079			4,089			3,420			3,324			3,843
Total real estate secured		238,575			236,995			240,178			113,907			113,561
Student
On-balance sheet loan portfolio		6,757			8,479			7,768			9,175			9,139
Securitized loans — off-balance sheet		2,905			3,045			3,128			3,218			3,353
Securitized loans included in securities		52			52			52			52			52
Loans held for sale		2,046			-			-			-			-
Total student		11,760			11,576			10,948			12,445			12,544
Installment
On-balance sheet loan portfolio		25,017			23,665			22,660			21,454			20,508
Securitized loans — off-balance sheet		3,105			2,851			3,276			3,695			3,809
Securitized loans included in securities		116			126			137			169			181
Loans held for sale		35			476			282			159			305
Total installment		28,273			27,118			26,355			25,477			24,803
Total consumer		278,608			275,689			277,481			151,829			150,908
Total managed portfolio	$	475,687			463,412			457,839			326,336			318,445
SERVICING PORTFOLIO (c)
Commercial	$	298,374			271,038			250,652			227,899			212,500
Consumer	$	26,789			25,952			21,039			60,854			58,082

(a) Includes deferred interest of $2.3 billion, $1.9 billion and $1.6 billion, at June 30 and March 31, 2007, and at December 31, 2006, respectively.

(b) 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.

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

46

Table 10

LOANS HELD FOR SALE

	2007						2006
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
CORE BUSINESS ACTIVITY (a)
Core business activity, beginning of period	$	15,030			12,566			9,030			7,740			7,846
Balance of acquired entities at purchase date		-			-			193			-			-
Originations and/or purchases		22,671			17,873			18,436			16,803			13,778
Transfer to (from) loans held for sale, net		(71	)		(180	)		127			(154	)		(238	)
Lower of cost or market value adjustments		(91	)		(3	)		-			-			-
Performing loans sold or securitized		(20,946	)		(14,745	)		(14,936	)		(15,137	)		(13,357	)
Other, principally payments		(897	)		(481	)		(284	)		(222	)		(289	)
Core business activity, end of period		15,696			15,030			12,566			9,030			7,740
PORTFOLIO MANAGEMENT ACTIVITY (a)
Portfolio business activity, beginning of period		2			2			9			10			13
Transfer to loans held for sale Performing loans		2,046			-			-			-			-
Lower of cost or market value adjustments		(10	)		-			-			-			-
Nonperforming loans sold		-			-			(3	)		-			-
Other, principally payments		(1	)		-			(4	)		(1	)		(3	)
Portfolio management activity, end of period		2,037			2			2			9			10
Total loans held for sale (b)	$	17,733			15,032			12,568			9,039			7,750

(a) Core business activity means we originate and/or purchase 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 loans included in loans held for sale at June 30 and March 31, 2007, and at December 31, September 30 and June 30, 2006, were $42 million, $26 million, $16 million, $23 million and $23 million, respectively.

47

Table 11

ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS

	2007						2006
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
ALLOWANCE FOR LOAN LOSSES (a)
Balance, beginning of period	$	3,378			3,360			3,004			3,021			3,036
Provision for credit losses		168			175			204			118			49
Provision for credit losses relating to loans transferred to loans held for sale or sold		4			1			7			(4	)		5
Balance of acquired entities at purchase date		-			-			303			-			-
Allowance relating to loans acquired, transferred to loans held for sale or sold		(10	)		(3	)		(18	)		(15	)		(18	)
Net charge-offs		(150	)		(155	)		(140	)		(116	)		(51	)
Balance, end of period	$	3,390			3,378			3,360			3,004			3,021
as a % of loans, net		0.79	%		0.80			0.80			1.03			1.07
as a % of nonaccrual and restructured loans (b) (c)		182	%		213			272			520			488
as a % of nonperforming assets (b)		164	%		194			246			396			421
LOAN LOSSES
Commercial, financial and agricultural	$	39			34			32			25			32
Commercial real estate — construction and mortgage		4			6			10			2			3
Consumer		180			178			169			149			116
Total loan losses		223			218			211			176			151
LOAN RECOVERIES
Commercial, financial and agricultural		15			9			27			14			54
Commercial real estate — construction and mortgage		-			3			1			1			1
Consumer		58			51			43			45			45
Total loan recoveries		73			63			71			60			100
Net charge-offs	$	150			155			140			116			51
Commercial loan net charge-offs as % of average commercial loans, net (d)		0.07	%		0.07			0.04			0.03			(0.06	)
Consumer loan net charge-offs as % of average consumer loans, net (d)		0.19			0.20			0.19			0.32			0.23
Total net charge-offs as % of average loans, net (d)		0.14	%		0.15			0.14			0.16			0.08
NONPERFORMING ASSETS
Nonaccrual loans
Commercial, financial and agricultural	$	318			303			226			275			299
Commercial real estate — construction and mortgage		161			117			93			80			88
Consumer real estate secured		1,336			1,113			900			213			226
Installment loans		42			51			15			10			6
Total nonaccrual loans		1,857			1,584			1,234			578			619
Foreclosed properties (c)		207			155			132			181			99
Total nonperforming assets	$	2,064			1,739			1,366			759			718
Nonperforming loans included in loans held for sale	$	42			26			16			23			23
Nonperforming assets included in loans and in loans held for sale	$	2,106			1,765			1,382			782			741
as % of loans, net, and foreclosed properties (b)		0.48	%		0.41			0.32			0.26			0.25
as % of loans, net, foreclosed properties and loans held for sale (e)		0.47	%		0.40			0.32			0.26			0.25
Accruing loans past due 90 days	$	562			555			650			666			624

(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) Restructured loans are not significant.

(d) Annualized.

(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

	2007				2006
	Second		First		Fourth			Third			Second
(In millions)	Quarter		Quarter		Quarter			Quarter			Quarter
RESERVE FOR UNFUNDED LENDING
COMMITMENTS
Balance, beginning of period	$	155		154		159			165			160
Provision for credit losses		7		1		(5	)		(6	)		5
Balance, end of period	$	162		155		154			159			165

Table 13

NONACCRUAL LOAN ACTIVITY (a)

	2007						2006
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Balance, beginning of period	$	1,584			1,234			578			619			672
COMMERCIAL NONACCRUAL LOAN ACTIVITY
Commercial nonaccrual loans, beginning of period		420			319			355			387			426
New nonaccrual loans and advances		205			196			157			129			188
Gross charge-offs		(43	)		(40	)		(42	)		(27	)		(35	)
Transfers to other real estate owned		(2	)		-			(1	)		(2	)		(1	)
Sales		(15	)		(1	)		(81	)		(43	)		(32	)
Other, principally payments		(86	)		(54	)		(69	)		(89	)		(159	)
Net commercial nonaccrual loan activity		59			101			(36	)		(32	)		(39	)
Commercial nonaccrual loans, end of period		479			420			319			355			387
CONSUMER NONACCRUAL LOAN ACTIVITY
Consumer nonaccrual loans, beginning of period		1,164			915			223			232			246
Balance of acquired entities at purchase date		-			-			589			-			-
New nonaccrual loans, advances and other, net		217			249			103			(9	)		(14	)
Sales and securitizations		(3	)		-			-			-			-
Net consumer nonaccrual loan activity		214			249			103			(9	)		(14	)
Consumer nonaccrual loans, end of period		1,378			1,164			915			223			232
Balance, end of period	$	1,857			1,584			1,234			578			619

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

49

Table 14

GOODWILL AND OTHER INTANGIBLE ASSETS

	2007				2006
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
Goodwill	$	38,766		38,838		38,379		23,535		23,550
Deposit base		727		796		883		577		631
Customer relationships		651		684		662		688		714
Tradename		90		90		90		90		90
Total goodwill and other intangible assets	$	40,234		40,408		40,014		24,890		24,985

	Six Months Ended June 30, 2007
	Employee			Occupancy
	Termination			and
(In millions)	Benefits			Equipment		Other		Total
EXIT COST PURCHASE ACCOUNTING ACCRUAL ACTIVITY
Wachovia/Golden West — October 1, 2006
Balance, December 31, 2006	$	11			-		1		12
Purchase accounting adjustments		84			11		-		95
Cash payments		(26	)		-		-		(26	)
Balance, June 30, 2007	$	69			11		1		81
EXIT COST PURCHASE ACCOUNTING ACCRUAL ACTIVITY
Wachovia/Westcorp — March 1, 2006
Balance, December 31, 2006	$	2			-		-		2
Purchase accounting adjustments		2			-		-		2
Cash payments		(3	)		-		-		(3	)
Balance, June 30, 2007	$	1			-		-		1
EXIT COST PURCHASE ACCOUNTING ACCRUAL ACTIVITY
Wachovia/SouthTrust — November 1, 2004
Balance, December 31, 2006	$	51			-		2		53
Purchase accounting adjustments		-			-		-		-
Cash payments		(20	)		-		-		(20	)
Balance, June 30, 2007	$	31			-		2		33

50

Table 15

DEPOSITS

	2007				2006
	Second		First		Fourth		Third		Second
(In millions)	Quarter		Quarter		Quarter		Quarter		Quarter
CORE DEPOSITS
Noninterest-bearing	$	62,112		63,399		66,572		63,880		66,388
Savings and NOW accounts		82,629		85,404		86,106		75,536		77,297
Money market accounts		111,666		108,607		105,428		97,762		98,426
Other consumer time		121,781		119,948		113,665		54,489		50,132
Total core deposits		378,188		377,358		371,771		291,667		292,243
OTHER DEPOSITS
Foreign		23,324		20,133		21,988		18,753		20,326
Other time		12,153		10,657		13,699		12,878		15,045
Total deposits	$	413,665		408,148		407,458		323,298		327,614

Table 16

TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE

	June 30, 2007
(In millions)
MATURITY OF
3 months or less	$	20,953
Over 3 months through 6 months		16,518
Over 6 months through 12 months		9,304
Over 12 months		4,136
Total time deposits in amounts of $100,000 or more	$	50,911

51

Table 17

RATES AND AMOUNTS OF SAVINGS BANK DEPOSITS (a)

	June 30, 2007					December 31, 2006
(In millions)	Rate			Amount		Rate			Amount
Deposits
Interest-bearing checking accounts		1.54	%	$	3,449		1.60	%	$	3,844
Interest-free checking accounts		-			230		-			-
Savings accounts		3.15			7,588		3.12			9,287
Term certificate accounts with original maturities of
4 weeks to 1 year		5.17			55,064		5.27			44,988
1 to 2 years		5.24			5,329		4.95			7,969
2 to 3 years		4.20			439		3.87			573
3 to 4 years		3.76			459		3.49			551
4 years and over		4.06			1,311		4.34			1,988
Retail jumbo certificates of deposits		0.72			8		0.76			12
Brokered certificates of deposits		5.34			1,429		-			-
Total		4.76	%	$	75,306		4.69	%	$	69,212

(a) The weighted average rates and amounts of deposits are for the savings banks at June 30, 2007, and at December 31, 2006. These rates and amounts represent actual product rates and amounts and do not include purchase accounting or other adjustments.

52

Table 18

LONG-TERM DEBT

	2007						2006
	Second			First			Fourth			Third		Second
(In millions)	Quarter			Quarter			Quarter			Quarter		Quarter
NOTES AND DEBENTURES ISSUED BY THE PARENT COMPANY
Notes
Floating rate, due 2007 to 2017	$	13,651			11,151			11,149			9,649		9,249
Equity-linked and commodity-linked, due 2007 to 2012		1,055			988			869			699		590
3.50% to 5.80%, due 2008 to 2020		8,193			6,835			6,327			6,975		6,366
Floating rate, EMTN notes, due 2011 to 2014		3,370			3,321			1,975			1,897		-
4.375% to 4.875%, EMTN notes, due 2016 to 2035		3,061			3,005			2,986			943		-
Floating rate, Australian notes, due 2012		764			-			-			-		-
6.75%, Australian notes, due 2012		127			-			-			-		-
Subordinated notes
4.875% to 6.40%, due 2008 to 2035		6,449			6,441			6,444			5,192		5,491
Floating rate, due 2015 to 2016		1,250			1,250			1,250			600		600
6.605%, due 2025		250			250			250			250		250
6.30%, Putable/Callable, due 2028		200			200			200			200		200
Floating rate, hybrid trust securities, due 2037 to 2047		1,675			875			-			-		-
5.20%, income trust securities, due 2042		2,501			2,501			2,501			2,501		2,501
Subordinated debentures
6.55% to 7.574%, due 2026 to 2035		795			795			795			795		795
Hedge-related basis adjustments		(660	)		(74	)		(21	)		35		(310	)
Total notes and debentures issued by the Parent Company		42,681			37,538			34,725			29,736		25,732
NOTES ISSUED BY SUBSIDIARIES
Notes, primarily notes issued under global bank note programs, varying rates and terms to 2040		21,537			21,911			18,383			18,134		15,996
Floating rate, due 2007 to 2011		7,133			7,730			7,730			-		-
4.125% to 4.75%, due 2007 to 2012		2,689			2,687			2,686			-		-
Floating rate, EMTN notes, due 2011		3,710			3,657			3,622			3,480		-
Subordinated notes
Bank, 4.75% to 9.625%, due 2008 to 2037		9,533			9,535			8,032			8,333		8,334
7.95%, due 2007		100			100			100			100		250
Floating rate, due 2013		417			417			417			417		417
6.75%, Australian notes, due 2017		169			-			-			-		-
Floating rate, Australian notes, due 2017		170			-			-			-		-
5.25%, EMTN notes, due 2023		1,488			1,455			1,452			1,386		-
6.75%		-			-			-			200		200
Total notes issued by subsidiaries		46,946			47,492			42,422			32,050		25,197
OTHER DEBT
Auto secured financing, due 2007 to 2014		8,994			8,289			9,539			9,694		9,571
Collateralized notes, floating rate, due 2007 to 2011		4,420			4,420			4,420			4,420		4,420
Junior subordinated debentures, floating rate, due 2026 to 2029		3,100			3,097			3,099			3,112		3,112
Advances from the Federal Home Loan Bank, 1.00% to 8.45%, due 2008 to 2031		30,542			34,699			36,614			2,512		2,517
Preferred units issued by subsidiaries		2,852			2,852			2,852			2,352		2,352
Capitalized leases		9			9			30			38		38
Mortgage notes and other debt of subsidiaries		2,809			3,916			4,856			2,441		1,826
Hedge-related basis adjustments		(306	)		22			37			64		(138	)
Total other debt		52,420			57,304			61,447			24,633		23,698
Total long-term debt	$	142,047			142,334			138,594			86,419		74,627

53

Table 19

CHANGES IN STOCKHOLDERS’ EQUITY

	2007						2006
	Second			First			Fourth			Third			Second
(In millions)	Quarter			Quarter			Quarter			Quarter			Quarter
Balance, beginning of period, as reported	$	69,786			69,716			51,180			48,872			49,789
Cumulative effect of accounting changes, net of income taxes		-			(1,447	)		-			-			-
Balance, beginning of period		69,786			68,269			51,180			48,872			49,789
Comprehensive income
Net income		2,341			2,302			2,301			1,877			1,885
Unamortized gains and losses under employee benefit plans		31			-			29			-			-
Net unrealized gains (losses) on debt and equity securities		(1,284	)		101			53			1,389			(943	)
Net unrealized gains (losses) on derivative financial instruments		(76	)		65			(33	)		63			16
Total comprehensive income		1,012			2,468			2,350			3,329			958
Adjustment to initially apply SFAS 158, net of income taxes (a)		-			-			(1,086	)		-			-
Purchases of common stock		(723	)		(284	)		(389	)		(554	)		(1,462	)
Common stock issued for
Stock options and restricted stock		132			644			141			315			209
Acquisitions		-			-			18,484			(2	)		97
Deferred compensation, net		125			(240	)		100			108			96
Cash dividends on common shares		(1,066	)		(1,071	)		(1,064	)		(888	)		(815	)
Balance, end of period	$	69,266			69,786			69,716			51,180			48,872

(a) See Note 1 of accompanying Notes to Consolidated Financial Statements.

54

Table 20
CAPITAL RATIOS

	2007					2006
	Second			First		Fourth		Third		Second
(In millions)	Quarter			Quarter		Quarter		Quarter		Quarter
CONSOLIDATED CAPITAL RATIOS (a)
Qualifying capital
Tier 1 capital	$	41,516			39,790		39,428		34,842		33,910
Total capital		63,705			61,803		60,194		51,624		49,592
Adjusted risk-weighted assets		555,702			541,628		531,303		450,067		434,390
Adjusted leverage ratio assets	$	666,646			653,994		656,428		528,071		516,500
Ratios
Tier 1 capital		7.47	%		7.35		7.42		7.74		7.81
Total capital		11.46			11.41		11.33		11.47		11.42
Leverage		6.23			6.08		6.01		6.60		6.57
STOCKHOLDERS’ EQUITY TO ASSETS
Quarter-end		9.62			9.88		9.86		9.14		8.83
Average		9.78	%		9.97		9.98		9.03		9.03
BANK CAPITAL RATIOS
Tier 1 capital
Wachovia Bank, National Association		7.34	%		7.28		7.46		7.65		7.93
Wachovia Bank of Delaware, National Association		18.37			17.82		16.27		15.08		15.64
World Savings Bank, FSB		16.07			14.37		13.77		-		-
World Savings Bank, FSB (Texas) (b)		12.42			-		-		-		-
Total capital
Wachovia Bank, National Association		10.95			10.94		10.90		11.29		11.47
Wachovia Bank of Delaware, National Association		20.29			19.41		17.84		16.96		17.72
World Savings Bank, FSB		16.45			14.77		14.16		-		-
World Savings Bank, FSB (Texas) (b)		12.83			-		-		-		-
Leverage
Wachovia Bank, National Association		6.72			6.62		6.66		6.58		6.66
Wachovia Bank of Delaware, National Association		14.33			13.42		11.18		11.84		11.52
World Savings Bank, FSB		8.78			7.84		7.30		-		-
World Savings Bank, FSB (Texas) (b)		5.20	%		-		-		-		-

(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.

(b) World Savings Bank, FSB (Texas) was a subsidiary of World Savings Bank, FSB prior to April 1, 2007.

55

WACHOVIA CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES

	SECOND QUARTER 2007							FIRST QUARTER 2007
					Average							Average
			Interest		Rates					Interest		Rates
	Average		Income/		Earned/			Average		Income/		Earned/
(In millions)	Balances		Expense		Paid			Balances		Expense		Paid
ASSETS
Interest-bearing bank balances	$	4,211		61		5.85	%	$	2,173		38		7.05	%
Federal funds sold and securities purchased under resale agreements		12,110		159		5.25			14,124		177		5.07
Trading account assets (a)		35,165		519		5.90			29,681		442		5.97
Securities (a)		108,433		1,467		5.41			108,071		1,461		5.42
Loans (a) (b)
Commercial
Commercial, financial and agricultural		101,012		1,805		7.16			98,413		1,736		7.16
Real estate — construction and other		17,334		329		7.62			16,508		313		7.69
Real estate — mortgage		20,175		378		7.53			20,231		380		7.61
Lease financing		7,759		150		7.74			7,730		150		7.75
Foreign		19,232		265		5.51			14,406		196		5.49
Total commercial		165,512		2,927		7.09			157,288		2,775		7.15
Consumer
Real estate secured		222,096		4,042		7.28			225,909		4,148		7.36
Student loans		8,850		141		6.42			8,524		136		6.47
Installment loans		24,799		609		9.38			23,540		566		9.42
Total consumer		255,745		4,792		7.46			257,973		4,850		7.52
Total loans		421,257		7,719		7.31			415,261		7,625		7.38
Loans held for sale		17,644		285		6.47			16,748		255		6.16
Other earning assets		7,985		144		7.23			8,255		139		6.82
Total earning assets excluding derivatives		606,805		10,354		6.81			594,313		10,137		6.85
Risk management derivatives (c)		-		46		0.04			-		48		0.04
Total earning assets including derivatives		606,805		10,400		6.85			594,313		10,185		6.89
Cash and due from banks		11,533							12,260
Other assets		90,265							88,875
Total assets	$	708,603						$	695,448
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
Savings and NOW accounts		83,977		367		1.75			84,247		373		1.80
Money market accounts		111,562		976		3.51			107,785		917		3.45
Other consumer time		120,684		1,455		4.84			116,262		1,369		4.77
Foreign		21,871		270		4.96			20,802		249		4.85
Other time		11,054		146		5.27			12,803		167		5.32
Total interest-bearing deposits		349,148		3,214		3.69			341,899		3,075		3.65
Federal funds purchased and securities sold under repurchase agreements		38,031		473		4.98			35,142		430		4.97
Commercial paper		5,143		60		4.67			4,920		57		4.72
Securities sold short		7,158		67		3.75			8,709		83		3.86
Other short-term borrowings		7,688		52		2.77			6,898		44		2.54
Long-term debt		143,504		1,923		5.37			141,979		1,880		5.35
Total interest-bearing liabilities excluding derivatives		550,672		5,789		4.22			539,547		5,569		4.18
Risk management derivatives (c)		-		151		0.11			-		119		0.09
Total interest-bearing liabilities including derivatives		550,672		5,940		4.33			539,547		5,688		4.27
Noninterest-bearing deposits		62,273							60,976
Other liabilities		26,341							25,605
Stockholders’ equity		69,317							69,320
Total liabilities and stockholders’ equity	$	708,603						$	695,448
Interest income and rate earned — including derivatives			$	10,400		6.85	%			$	10,185		6.89	%
Interest expense and equivalent rate paid — including derivatives				5,940		3.93					5,688		3.88
Net interest income and margin — including derivatives			$	4,460		2.92	%			$	4,497		3.01	%

(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.

56

FOURTH QUARTER 2006							THIRD QUARTER 2006							SECOND QUARTER 2006
				Average							Average							Average
		Interest		Rates					Interest		Rates					Interest		Rates
Average		Income/		Earned/			Average		Income/		Earned/			Average		Income/		Earned/
Balances		Expense		Paid			Balances		Expense		Paid			Balances		Expense		Paid
$	3,596		54		5.95	%	$	2,671		34		5.07	%	$	2,027		25		5.04	%
	20,830		268		5.11			17,530		224		5.08			17,628		209		4.75
	31,069		469		6.03			31,160		409		5.24			29,252		393		5.37
	108,543		1,467		5.40			122,152		1,661		5.44			124,102		1,668		5.38
	96,359		1,726		7.10			93,886		1,673		7.07			90,259		1,555		6.92
	16,091		311		7.67			15,787		308		7.74			14,946		277		7.43
	19,830		380		7.61			19,507		378		7.69			20,118		369		7.36
	9,674		166		6.88			9,731		172		7.04			9,895		175		7.08
	12,352		170		5.49			11,655		158		5.37			11,123		142		5.10
	154,306		2,753		7.08			150,566		2,689		7.09			146,341		2,518		6.90
	226,870		4,240		7.47			99,669		1,670		6.69			97,377		1,584		6.51
	8,886		145		6.49			9,605		161		6.65			10,842		170		6.30
	22,499		546		9.62			21,270		517		9.66			20,705		482		9.33
	258,255		4,931		7.63			130,544		2,348		7.17			128,924		2,236		6.95
	412,561		7,684		7.42			281,110		5,037		7.13			275,265		4,754		6.92
	11,928		200		6.70			12,130		214		6.99			9,320		165		7.11
	8,366		149		7.05			5,386		113		8.35			5,638		99		7.00
	596,893		10,291		6.87			472,139		7,692		6.49			463,232		7,313		6.32
	-		114		0.08			-		129		0.11			-		125		0.11
	596,893		10,405		6.95			472,139		7,821		6.60			463,232		7,438		6.43
	12,418							11,973							12,055
	89,376							71,052							68,325
$	698,687						$	555,164						$	543,612
	82,924		398		1.90			75,534		355		1.86			78,539		332		1.70
	104,620		913		3.46			99,788		862		3.43			99,212		764		3.09
	111,858		1,310		4.65			52,352		548		4.15			48,389		465		3.85
	20,245		241		4.73			20,599		244		4.70			21,031		234		4.47
	12,708		166		5.17			14,534		191		5.23			15,269		197		5.16
	332,355		3,028		3.61			262,807		2,200		3.32			262,440		1,992		3.04
	43,732		537		4.87			51,314		629		4.86			48,732		543		4.47
	5,043		60		4.72			5,190		63		4.77			4,659		51		4.45
	9,934		94		3.75			8,951		82		3.61			9,255		74		3.21
	6,530		38		2.38			5,575		30		2.14			6,423		36		2.24
	139,364		1,873		5.35			80,726		1,095		5.41			71,725		940		5.25
	536,958		5,630		4.16			414,563		4,099		3.93			403,234		3,636		3.62
	-		163		0.13			-		144		0.14			-		127		0.12
	536,958		5,793		4.29			414,563		4,243		4.07			403,234		3,763		3.74
	63,025							63,553							65,498
	28,979							26,905							25,817
	69,725							50,143							49,063
$	698,687						$	555,164						$	543,612
		$	10,405		6.95	%			$	7,821		6.60	%			$	7,438		6.43	%
			5,793		3.86					4,243		3.57					3,763		3.25
		$	4,612		3.09	%			$	3,578		3.03	%			$	3,675		3.18	%

(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.

57

WACHOVIA CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES

	SIX MONTHS ENDED							SIX MONTHS ENDED
	JUNE 30, 2007							JUNE 30, 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	$	3,198		99		6.25	%	$	2,447		56		4.61	%
Federal funds sold and securities purchased under resale agreements		13,111		336		5.16			18,637		418		4.52
Trading account assets (a)		32,438		961		5.93			28,252		737		5.23
Securities (a)		108,253		2,928		5.42			121,040		3,225		5.33
Loans (a) (b)
Commercial
Commercial, financial and agricultural		99,719		3,541		7.16			89,029		2,966		6.72
Real estate — construction and other		16,924		642		7.65			14,567		520		7.19
Real estate — mortgage		20,203		758		7.57			20,142		719		7.20
Lease financing		7,745		300		7.74			9,972		346		6.95
Foreign		16,832		461		5.50			10,706		260		4.89
Total commercial		161,423		5,702		7.12			144,416		4,811		6.71
Consumer
Real estate secured		223,992		8,190		7.32			96,733		3,098		6.41
Student loans		8,688		277		6.45			10,716		327		6.15
Installment loans		24,172		1,175		9.40			16,095		724		9.06
Total consumer		256,852		9,642		7.49			123,544		4,149		6.74
Total loans		418,275		15,344		7.35			267,960		8,960		6.72
Loans held for sale		17,199		540		6.32			8,800		293		6.70
Other earning assets		8,120		283		7.02			5,801		217		7.53
Total earning assets excluding derivatives		600,594		20,491		6.83			452,937		13,906		6.17
Risk management derivatives (c)		-		94		0.04			-		288		0.12
Total earning assets including derivatives		600,594		20,585		6.87			452,937		14,194		6.29
Cash and due from banks		11,894							12,406
Other assets		89,574							67,627
Total assets	$	702,062						$	532,970
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
Savings and NOW accounts		84,111		740		1.77			79,158		636		1.62
Money market accounts		109,684		1,893		3.48			99,421		1,434		2.91
Other consumer time		118,485		2,824		4.81			47,354		872		3.71
Foreign		21,340		519		4.90			20,186		421		4.21
Other time		11,924		313		5.29			14,282		350		4.93
Total interest-bearing deposits		345,544		6,289		3.67			260,401		3,713		2.88
Federal funds purchased and securities sold under repurchase agreements		36,595		903		4.97			49,406		1,046		4.27
Commercial paper		5,032		117		4.70			4,427		92		4.20
Securities sold short		7,929		150		3.81			8,889		137		3.12
Other short-term borrowings		7,294		96		2.66			6,817		76		2.25
Long-term debt		142,746		3,803		5.36			63,932		1,637		5.13
Total interest-bearing liabilities excluding derivatives		545,140		11,358		4.20			393,872		6,701		3.43
Risk management derivatives (c)		-		270		0.10			-		279		0.14
Total interest-bearing liabilities including derivatives		545,140		11,628		4.30			393,872		6,980		3.57
Noninterest-bearing deposits		61,628							64,997
Other liabilities		25,976							25,603
Stockholders’ equity		69,318							48,498
Total liabilities and stockholders’ equity	$	702,062						$	532,970
Interest income and rate earned — including derivatives			$	20,585		6.87	%			$	14,194		6.29	%
Interest expense and equivalent rate paid — including derivatives				11,628		3.90					6,980		3.10
Net interest income and margin — including derivatives			$	8,957		2.97	%			$	7,214		3.19	%

(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.

58

WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	2007						2006
	Second			First			Fourth			Third			Second
(In millions, except per share data)	Quarter			Quarter			Quarter			Quarter			Quarter
ASSETS
Cash and due from banks	$	12,065			12,593			15,826			11,850			12,761
Interest-bearing bank balances		3,585			3,451			2,167			5,270			2,244
Federal funds sold and securities purchased under resale agreements		11,511			10,322			16,923			18,497			17,223
Total cash and cash equivalents		27,161			26,366			34,916			35,617			32,228
Trading account assets		53,604			50,752			45,529			43,904			46,552
Securities		106,184			106,841			108,619			106,553			119,179
Loans, net of unearned income		429,120			421,663			420,158			290,759			282,916
Allowance for loan losses		(3,390	)		(3,378	)		(3,360	)		(3,004	)		(3,021	)
Loans, net		425,730			418,285			416,798			287,755			279,895
Loans held for sale		17,733			15,032			12,568			9,039			7,750
Premises and equipment		6,080			6,058			6,141			5,536			5,322
Due from customers on acceptances		831			992			855			1,200			1,010
Goodwill		38,766			38,838			38,379			23,535			23,550
Other intangible assets		1,468			1,570			1,635			1,355			1,435
Other assets		42,365			41,672			41,681			45,428			36,693
Total assets	$	719,922			706,406			707,121			559,922			553,614
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-bearing deposits		62,112			63,399			66,572			63,880			66,388
Interest-bearing deposits		351,553			344,749			340,886			259,418			261,226
Total deposits		413,665			408,148			407,458			323,298			327,614
Short-term borrowings		52,715			47,144			49,157			58,749			62,787
Bank acceptances outstanding		840			1,004			863			1,213			1,021
Trading account liabilities		20,179			18,150			18,228			19,553			18,409
Other liabilities		18,079			16,741			20,004			16,513			17,305
Long-term debt		142,047			142,334			138,594			86,419			74,627
Total liabilities		647,525			633,521			634,304			505,745			501,763
Minority interest in net assets of consolidated subsidiaries		3,131			3,099			3,101			2,997			2,979
STOCKHOLDERS’ EQUITY
Preferred stock, Class A, 40 million shares, no par value; 10 million shares, no par value; none issued		-			-			-			-			-
Dividend Equalization Preferred shares, no par value, 97 million shares issued and outstanding at June 30, 2007		-			-			-			-			-
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 1.903 billion shares at June 30, 2007		6,343			6,378			6,347			5,271			5,298
Paid-in capital		51,851			51,964			51,746			34,276			34,086
Retained earnings		14,335			13,378			13,723			12,696			12,003
Accumulated other comprehensive income, net		(3,263	)		(1,934	)		(2,100	)		(1,063	)		(2,515	)
Total stockholders’ equity		69,266			69,786			69,716			51,180			48,872
Total liabilities and stockholders’ equity	$	719,922			706,406			707,121			559,922			553,614

59

WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

	2007				2006
	Second		First		Fourth		Third		Second
(In millions, except per share data)	Quarter		Quarter		Quarter		Quarter		Quarter
INTEREST INCOME
Interest and fees on loans	$	7,723		7,618		7,736		5,096		4,823
Interest and dividends on securities		1,474		1,478		1,491		1,692		1,685
Trading account interest		506		433		462		401		387
Other interest income		658		619		681		595		509
Total interest income		10,361		10,148		10,370		7,784		7,404
INTEREST EXPENSE
Interest on deposits		3,220		3,061		3,067		2,238		2,035
Interest on short-term borrowings		705		670		781		860		755
Interest on long-term debt		2,015		1,957		1,945		1,145		973
Total interest expense		5,940		5,688		5,793		4,243		3,763
Net interest income		4,421		4,460		4,577		3,541		3,641
Provision for credit losses		179		177		206		108		59
Net interest income after provision for credit losses		4,242		4,283		4,371		3,433		3,582
FEE AND OTHER INCOME
Service charges		667		614		646		638		622
Other banking fees		504		416		452		427		449
Commissions		649		659		633		562		588
Fiduciary and asset management fees		981		920		856		823		808
Advisory, underwriting and other investment banking fees		454		407		433		292		318
Trading account profits		223		168		29		123		164
Principal investing		298		48		142		91		189
Securities gains		23		53		47		94		25
Other income		435		456		742		415		420
Total fee and other income		4,234		3,741		3,980		3,465		3,583
NONINTEREST EXPENSE
Salaries and employee benefits		3,122		2,972		3,023		2,531		2,652
Occupancy		331		312		323		284		291
Equipment		309		307		314		291		299
Advertising		70		61		47		54		56
Communications and supplies		180		173		166		158		162
Professional and consulting fees		209		177		239		200		184
Other intangible amortization		103		118		141		92		98
Merger-related and restructuring expenses		32		10		49		38		24
Sundry expense		500		458		629		397		495
Total noninterest expense		4,856		4,588		4,931		4,045		4,261
Minority interest in income of consolidated subsidiaries		139		136		125		104		90
Income from continuing operations before income taxes		3,481		3,300		3,295		2,749		2,814
Income taxes		1,140		998		1,040		872		929
Income from continuing operations		2,341		2,302		2,255		1,877		1,885
Discontinued operations, net of income taxes		-		-		46		-		-
Net income	$	2,341		2,302		2,301		1,877		1,885
PER COMMON SHARE DATA
Basic earnings
Income from continuing operations	$	1.24		1.22		1.20		1.19		1.19
Net income		1.24		1.22		1.22		1.19		1.19
Diluted earnings
Income from continuing operations		1.22		1.20		1.18		1.17		1.17
Net income		1.22		1.20		1.20		1.17		1.17
Cash dividends	$	0.56		0.56		0.56		0.56		0.51
AVERAGE COMMON SHARES
Basic		1,891		1,894		1,889		1,573		1,585
Diluted		1,919		1,925		1,922		1,600		1,613

60

WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets - June 30, 2007 and December 31, 2006 (Unaudited)	62
Consolidated Statements of Income - Three and Six Months Ended June 30, 2007 and 2006 (Unaudited)	63
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2007 and 2006 (Unaudited)	64
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Summary of Significant Accounting Policies and Other Matters	65
Note 2: Securities	67
Note 3: Variable Interest Entities and Servicing Assets	69
Note 4: Share-Based Payments	71
Note 5: Comprehensive Income	73
Note 6: Business Segments	74
Note 7: Basic and Diluted Earnings Per Common Share	77
Note 8: Income Taxes	78
Note 9: Derivatives	79
Note 10: Guarantees	84

61

WACHOVIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS(Unaudited)

	June 30,			December 31,
(In millions, except per share data)	2007			2006
ASSETS
Cash and due from banks	$	12,065			15,826
Interest-bearing bank balances		3,585			2,167
Federal funds sold and securities purchased under resale agreements		11,511			16,923
Total cash and cash equivalents		27,161			34,916
Trading account assets		53,604			45,529
Securities		106,184			108,619
Loans, net of unearned income		429,120			420,158
Allowance for loan losses		(3,390	)		(3,360	)
Loans, net		425,730			416,798
Loans held for sale		17,733			12,568
Premises and equipment		6,080			6,141
Due from customers on acceptances		831			855
Goodwill		38,766			38,379
Other intangible assets		1,468			1,635
Other assets		42,365			41,681
Total assets	$	719,922			707,121
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-bearing deposits		62,112			66,572
Interest-bearing deposits		351,553			340,886
Total deposits		413,665			407,458
Short-term borrowings		52,715			49,157
Bank acceptances outstanding		840			863
Trading account liabilities		20,179			18,228
Other liabilities		18,079			20,004
Long-term debt		142,047			138,594
Total liabilities		647,525			634,304
Minority interest in net assets of consolidated subsidiaries		3,131			3,101
STOCKHOLDERS’ EQUITY
Dividend Equalization Preferred shares, no par value, 97 million shares issued and outstanding at June 30, 2007		-			-
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 1.903 billion shares at June 30, 2007		6,343			6,347
Paid-in capital		51,851			51,746
Retained earnings		14,335			13,723
Accumulated other comprehensive income, net		(3,263	)		(2,100	)
Total stockholders’ equity		69,266			69,716
Total liabilities and stockholders’ equity	$	719,922			707,121

See accompanying Notes to Consolidated Financial Statements.

62

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)	2007		2006		2007		2006
INTEREST INCOME
Interest and fees on loans	$	7,723		4,823		15,341		9,144
Interest and dividends on securities		1,474		1,685		2,952		3,250
Trading account interest		506		387		939		712
Other interest income		658		509		1,277		1,005
Total interest income		10,361		7,404		20,509		14,111
INTEREST EXPENSE
Interest on deposits		3,220		2,035		6,281		3,814
Interest on short-term borrowings		705		755		1,375		1,473
Interest on long-term debt		2,015		973		3,972		1,693
Total interest expense		5,940		3,763		11,628		6,980
Net interest income		4,421		3,641		8,881		7,131
Provision for credit losses		179		59		356		120
Net interest income after provision for credit losses		4,242		3,582		8,525		7,011
FEE AND OTHER INCOME
Service charges		667		622		1,281		1,196
Other banking fees		504		449		920		877
Commissions		649		588		1,308		1,211
Fiduciary and asset management fees		981		808		1,901		1,569
Advisory, underwriting and other investment banking fees		454		318		861		620
Trading account profits		223		164		391		383
Principal investing		298		189		346		292
Securities gains (losses)		23		25		76		(23	)
Other income		435		420		891		975
Total fee and other income		4,234		3,583		7,975		7,100
NONINTEREST EXPENSE
Salaries and employee benefits		3,122		2,652		6,094		5,349
Occupancy		331		291		643		566
Equipment		309		299		616		579
Advertising		70		56		131		103
Communications and supplies		180		162		353		329
Professional and consulting fees		209		184		386		351
Other intangible amortization		103		98		221		190
Merger-related and restructuring expenses		32		24		42		92
Sundry expense		500		495		958		941
Total noninterest expense		4,856		4,261		9,444		8,500
Minority interest in income of consolidated subsidiaries		139		90		275		185
Income before income taxes		3,481		2,814		6,781		5,426
Income taxes		1,140		929		2,138		1,813
Net income	$	2,341		1,885		4,643		3,613
PER COMMON SHARE DATA
Basic earnings	$	1.24		1.19		2.45		2.30
Diluted earnings		1.22		1.17		2.42		2.26
Cash dividends	$	0.56		0.51		1.12		1.02
AVERAGE COMMON SHARES
Basic		1,891		1,585		1,892		1,570
Diluted		1,919		1,613		1,922		1,599

See accompanying Notes to Consolidated Financial Statements.

63

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

	Six Months Ended
	June 30,
(In millions)	2007			2006
OPERATING ACTIVITIES
Net income	$	4,643			3,613
Adjustments to reconcile net income to net cash provided (used) by operating activities
Accretion and amortization of securities discounts and premiums, net		(34	)		1
Provision for credit losses		356			120
Gain on securitization transactions		(58	)		(112	)
Gain on sale of mortgage servicing rights		(3	)		(12	)
Securities transactions		(76	)		23
Depreciation and other amortization		961			834
Trading account assets, net		(8,075	)		(3,848	)
(Gain) loss on sales of premises and equipment		(4	)		12
Contribution to qualified pension plan		(270	)		-
Excess income tax benefits from share-based payment arrangements		(61	)		-
Loans held for sale, net		(5,416	)		(1,679	)
Deferred interest on certain loans		(722	)		-
Other assets, net		(1,145	)		31
Trading account liabilities, net		1,951			811
Other liabilities, net		(1,393	)		1,552
Net cash provided (used) by operating activities		(9,346	)		1,346
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities		3,852			15,144
Maturities of securities		9,882			9,172
Purchases of securities		(11,868	)		(27,517	)
Origination of loans, net		(9,370	)		(12,507	)
Sales of premises and equipment		131			113
Purchases of premises and equipment		(498	)		(858	)
Goodwill and other intangible assets		(441	)		(99	)
Purchase of bank-owned separate account life insurance, net		(499	)		(339	)
Cash equivalents acquired, net of purchases of banking organizations		-			997
Net cash used by investing activities		(8,811	)		(15,894	)
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Increase (decrease) in deposits, net		6,207			479
Securities sold under repurchase agreements and other short-term borrowings, net		3,558			834
Issuances of long-term debt		23,477			17,974
Payments of long-term debt		(20,024	)		(5,291	)
Issuances of common stock, net		267			362
Purchases of common stock		(1,007	)		(3,570	)
Excess income tax benefits from share-based payment arrangements		61			-
Cash dividends paid		(2,137	)		(1,637	)
Net cash provided by financing activities		10,402			9,151
Decrease in cash and cash equivalents		(7,755	)		(5,397	)
Cash and cash equivalents, beginning of year		34,916			37,625
Cash and cash equivalents, end of period	$	27,161			32,228
NONCASH ITEMS
Transfer to securities from loans resulting from securitizations	$	1,119			2,422
Transfer to securities from loans held for sale resulting from securitizations		-			52
Transfer to loans from loans held for sale		251			308
Cumulative effect of accounting changes, net of income taxes		(1,447	)		41
Issuance of common stock for purchase accounting acquisitions	$	-			3,965

See accompanying Notes to Consolidated Financial Statements.

64

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 results of operations as of and for the six months ended June 30, 2007, are not necessarily indicative of the results of operations that may be expected in the future. Please refer to the Company’s 2006 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, 2006, 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 31, 2007, the Company announced the signing of a definitive merger agreement with A.G. Edwards, Inc. (“A.G. Edwards”). The acquisition of this retail brokerage firm headquartered in St. Louis, Missouri is expected to be completed in the fourth quarter of 2007. The terms of this agreement provide for each A.G. Edwards shareholder to receive 0.9844 shares of Wachovia common stock and $35.80 in cash for each share of A.G. Edwards 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 (which includes the day of the announcement) of $54.39, the transaction is valued at approximately $6.7 billion.

PERSONNEL EXPENSE AND RETIREMENT BENEFITS

     The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” on December 31, 2006, and in connection therewith, reclassified certain amounts to accumulated other comprehensive income that had previously been reported as assets or liabilities. Beginning in 2007, actuarial gains and losses and prior service costs and credits that arise during the period are included in comprehensive income to the extent they are not included in net periodic pension cost.

     The components of the retirement benefit costs included in salaries and employee benefits for the six months ended June 30, 2007 and 2006, 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)	2007			2006			2007		2006		2007			2006
RETIREMENT BENEFIT COSTS
Service cost	$	92			94			1		2		2			2
Interest cost		132			126			11		13		22			23
Expected return on plan assets		(246	)		(213	)		-		-		(1	)		(1	)
Amortization of prior service cost		(13	)		(13	)		-		1		(4	)		(4	)
Amortization of actuarial losses		60			69			4		6		-			3
Special and/or contractual termination benefits		-			-			-		14		-			-
Net retirement benefit costs	$	25			63			16		36		19			23

65

     In January 2007, the Company contributed $270 million to the Qualified Pension, and does not expect to make any further contributions in 2007. Additionally, the Company’s practice is to contribute annually to each of the nonqualified pension and other postretirement benefit plans an amount equal to the benefit payments made during the year less any retiree contributions, where applicable, received during the year.

NEW ACCOUNTING PRONOUNCEMENTS

     On January 1, 2007, the Company adopted Financial Accounting Standards Board (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), FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No 109,” SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140,” and Emerging Issues Task Force (EITF) Issue No, 06-5, “Accounting for Purchases of Life Insurance-Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, ‘Accounting for Purchases of Life Insurance.’” For all of these new standards, the cumulative effect of adoption is recorded as an adjustment, net of applicable taxes, to beginning retained earnings on January 1, 2007.

     FSP 13-2 amends SFAS 13, “Accounting for Leases,” such that changes that affect the timing of cash flows but not the total net income under a leveraged lease will trigger a recalculation of the lease. The Company has 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 are broadly referred to as Sale-In, Lease-Out transactions (SILOs). The Company settled with the Internal Revenue Service (IRS) in June 2004 on all matters relating to our portfolio of LILOs. On SILOs, the Company has concluded that it is possible that upon ultimate resolution with the IRS, the Company may not realize all of the income tax benefits originally recorded. On January 1, 2007, the Company recorded a $1.4 billion after-tax charge to beginning retained earnings entirely related to the recalculation of the Company’s portfolio of LILOs and SILOs to reflect the actual change in the timing of income tax cash flows on LILOs and the expected change on SILOs.

     In performing the leveraged lease recalculation, the Company made certain assumptions relative to the amount and timing of income tax cash flows. If new information becomes available in the future causing a change in the assumptions, the Company would then be required to perform another recalculation, the effect of which would be reported in the results of operations, and could, depending on the assumption that changed, result in either an increase or a decrease to the net investment in the leases.

     See Note 8 for additional information on the adoption of FIN 48.

     SFAS 155 permits companies to record certain hybrid financial instruments at fair value with corresponding changes in fair value recorded in the results of operations. Hybrid financial instruments are those containing an embedded derivative. SFAS 155 also provides a one-time opportunity to elect to record certain hybrid financial instruments existing on January 1, 2007, at fair value. Wachovia did not elect to carry any such financial instruments at fair value, and accordingly, had no cumulative effect adjustment from the adoption. Going forward, certain retained interests in securitizations will be carried at fair value under SFAS 155 with unrealized gains and losses recorded in the results of operations.

     EITF Issue No. 06-5 addresses the accounting for certain bank and corporate-owned life insurance policies. The impact of adoption of this standard amounted to a $4 million reduction in the Company’s January 1, 2007, investment in bank and corporate-owned life insurance of $13.3 billion, with an offsetting $4 million reduction in beginning retained earnings on January 1, 2007.

RECLASSIFICATIONS

     Certain amounts in 2006 were reclassified to conform with the presentation in 2007. These reclassifications had no effect on the Company’s previously reported consolidated financial position or results of operations.

66

NOTE 2: SECURITIES

	June 30, 2007
																		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	$	518			166		150		40		874		-		14		888		3.00
Mortgage-backed securities, principally obligations of U.S. Government agencies and sponsored entities		60			15,232		52,661		31		67,984		24		2,504		70,464		7.05
Asset-backed
Residual interests from securitizations		50			373		176		12		611		129		-		482		3.49
Retained bonds from securitizations		367			2,205		99		10		2,681		15		6		2,672		1.38
Collateralized mortgage obligations		732			4,682		3,698		1,047		10,159		18		165		10,306		5.05
Commercial mortgage-backed		129			1,126		1,304		26		2,585		88		68		2,565		5.29
Other		380			986		199		18		1,583		5		12		1,590		3.32
State, county and municipal		58			576		603		2,134		3,371		146		18		3,243		14.18
Sundry		1,282			1,878		6,526		6,650		16,336		128		534		16,742		9.87
Total market value	$	3,576			27,224		65,416		9,968		106,184		553		3,321		108,952		7.18
MARKET VALUE
Debt securities	$	3,576			27,224		65,416		8,068		104,284		487		3,308		107,105
Equity securities		-			-		-		1,900		1,900		66		13		1,847
Total market value	$	3,576			27,224		65,416		9,968		106,184		553		3,321		108,952
AMORTIZED COST
Debt securities	$	3,552			27,640		67,613		8,300		107,105
Equity securities		-			-		-		1,847		1,847
Total amortized cost	$	3,552			27,640		67,613		10,147		108,952
WEIGHTED AVERAGE YIELD
U.S. Treasury		4.99	%		2.00		2.76		4.96		4.02
Mortgage-backed securities, principally obligations of U.S. Government agencies and sponsored entities		4.50			4.85		5.38		5.70		5.26
Asset-backed
Residual interests from securitizations		62.34			19.36		19.86		42.65		22.75
Retained bonds from securitizations		6.74			6.09		6.37		6.29		6.19
Collateralized mortgage obligations		4.95			5.39		5.58		5.93		5.48
Commercial mortgage-backed		7.17			7.98		5.00		11.25		6.40
Other		5.43			5.56		6.88		7.40		5.71
State, county and municipal		8.42			7.79		8.42		6.69		7.20
Sundry		5.07			5.04		4.58		5.22		4.93
Consolidated		5.89	%		5.40		5.36		5.64		5.41

67

     At June 30, 2007, all securities not classified as trading were classified as available for sale.

     At June 30, 2007, mortgage-backed securities included Federal National Mortgage Association and Federal Home Loan Mortgage Corporation securities with an amortized cost of $51.1 billion and a market value of $49.3 billion, and an amortized cost of $16.4 billion and a market value of $15.8 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 $4.7 billion and a market value of $4.6 billion at June 30, 2007.

     Included in asset-backed securities are retained bonds primarily from the securitization of commercial and consumer real estate, SBA, student and auto loans. At June 30, 2007, retained bonds with an amortized cost and a market value of $2.6 billion were considered investment grade based on external ratings. Retained bonds with an amortized cost and market value of $2.1 billion at June 30, 2007, had an external credit rating of AA and above.

     Securities with an aggregate amortized cost of $52.8 billion at June 30, 2007, 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, 2007, 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 $3.5 billion. At June 30, 2007, there were commitments to sell securities at a price that approximates a market value of $987 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, 2007, 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, 2007, were $72 million and $41 million (including $36 million of impairment losses), respectively, and gross gains and losses realized on the sale of equity securities were $46 million and $1 million (impairment losses were insignificant), respectively.

68

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, 2007, and December 31, 2006, the conduit administered by the Company had total assets of $13.8 billion and $11.4 billion, respectively, and the Company had a maximum exposure to losses of $23.8 billion and $20.0 billion, respectively, related to its liquidity agreements.

     The Company administers and has certain variable interests in a structured lending vehicle that is a VIE. The Company is not the primary beneficiary and it does not consolidate the vehicle. At June 30, 2007, this structured lending vehicle had total assets with a fair value of $7.4 billion, unused commitments of $1.7 billion and a maximum exposure to loss of $991 million related to its variable interests.

     The Company has an ownership interest in two investment funds that are VIEs. At June 30, 2007, these investment funds had total assets of $18.0 billion and the Company’s maximum exposure to losses was $3.0 billion. In January 2007, the Company purchased a majority interest in the investment manager for these funds. This purchase did not alter the Company’s conclusion that the Company is not the primary beneficiary, and therefore, these funds are still not subject to consolidation.

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 fair value of the servicing rights on the date the loans are sold. The Company also purchases certain servicing assets. The Company recognizes individual classes of servicing assets under either a fair value method or an amortized cost method.

     Originated residential mortgage servicing assets, recorded under the fair value method, are estimated using discounted cash flows with prepayment speeds and discount rates as the significant assumptions. At June 30, 2007, the weighted average prepayment speed assumption was 14.65 percent and the weighted average discount rate used was 10.76 percent.

     Servicing fee income for the six months ended June 30, 2007, was $136 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, 2007, follows.

69

	Six Months Ended June 30, 2007
	Servicing Assets
	Fair Value			Amortized Cost
				Fixed Rate
	Originated			Commercial
	Residential			Mortgage-
(In millions)	Mortgages			Backed			Other			Total
Balance, December 31, 2006	$	326			524			224			1,074
Fair value of servicing assets purchased, assumed or originated, or retained from securitizations		102			197			21			320
Servicing sold or otherwise disposed of		(4	)		-			(1	)		(5	)
Change in fair value due to changes in model inputs and/or assumptions		47			-			-			47
Other changes in fair value, primarily from fees earned		(34	)		-			-			(34	)
Amortization of servicing assets		-			(60	)		(26	)		(86	)
Balance, June 30, 2007	$	437			661			218			1,316
FAIR VALUE
December 31, 2006	$	326			725			268			1,319
June 30, 2007	$	437			863			263			1,563

70

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 $120 million in the three months ended June 30, 2007, including $93 million related to restricted stock awards and $27 million related to stock option awards. Employee stock compensation expense was $332 million in the six months ended June 30, 2007, including $264 million related to restricted stock awards and $68 million related to stock option awards. The related income tax benefit in the three and six months ended June 30, 2007, was $42 million and $116 million, respectively. 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.

     Employee stock compensation expense in the six months ended June 30, 2007 and 2006, includes $93 million and $107 million, respectively, related to the impact of awards granted to employees that were retirement-eligible at the date of grant.

     Of the stock compensation awards in the six months ended June 30, 2007, 2.4 million shares of restricted stock vest over five years if the Company achieves a specified return on average tangible common stockholders’ equity for 2007, otherwise they are forfeited. The remaining shares of restricted stock and the stock options generally vest over three years to five years based only on continued service with the Company.

     At June 30, 2007, there was $639 million and $196 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. The fair value of restricted stock awards vested in the six months ended June 30, 2007 and 2006, was $323 million and $255 million, respectively. The total intrinsic value of stock option awards exercised in the six months ended June 30 2007 and 2006, was $259 million and $317 million, respectively. The amount of cash received from the exercise of stock options granted under share-based payment arrangements was $350 million in the six months ended June 30, 2007, and the income tax benefits realized from stock options exercised were $78 million in the same period.

     At June 30, 2007, the Company had authorization to reserve 105 million shares of its common stock for issuance under its stock option plans.

71

     The weighted average grant date fair value of options awarded under the stock option plans in the six months ended June 30, 2007, was $9.10. The more significant assumptions used in estimating the fair value of stock options include risk-free interest rate of 4.67 percent, dividend yield of 3.84 percent, volatility of the Company’s common stock of 17.14 percent and weighted average expected life 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 common stock with remaining maturities of two years. This method is consistent with the prior year, but represents a change from years prior to 2006, in which the Company calculated its volatility estimate based on historical volatility adjusted for significant changes in the Company’s business activities. For the 2007 grant, the Company determined the estimated life based on historical share option exercise experience. In 2006, 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).

     Stock award activity in the six months ended June 30, 2007, is presented below.

	June 30, 2007
				Weighted-
				Average
(Options and shares in thousands)	Number			Price (a)
STOCK OPTIONS
Options outstanding, beginning of period		137,697		$	39.87
Granted		4,568			58.33
Exercised		(10,961	)		32.93
Expired		(155	)		53.19
Forfeited		(513	)		51.36
Options outstanding, end of period		130,636		$	41.03
Options vested and expected to vest, end of period		128,403		$	40.82
Options exercisable, end of period		102,386		$	38.17
RESTRICTED STOCK
Unvested shares, beginning of period		14,303		$	52.38
Granted		8,020			58.27
Vested		(5,696	)		51.62
Forfeited		(397	)		55.20
Unvested shares, end of period		16,230		$	55.49

(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.

72

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, 2007 and 2006, is presented below.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2007			2006			2007			2006
COMPREHENSIVE INCOME
Net income	$	2,341			1,885			4,643			3,613
OTHER COMPREHENSIVE INCOME
Unamortized gains and losses under employee benefit plans		31			-			31			-
Net unrealized losses on debt and equity securities		(1,284	)		(943	)		(1,183	)		(1,735	)
Net unrealized gains (losses) on derivative financial instruments		(76	)		16			(11	)		(7	)
Total comprehensive income	$	1,012			958			3,480			1,871

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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 changes 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 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.

     The Company continuously updates segment information for changes that occur in the management of the Company’s businesses. In 2007, cross-border leasing activity was moved from the Corporate and Investment Bank to the Parent to keep it aligned with the way in which this activity is reported to senior management subsequent to the adoption of FSP 13-2. In 2007, certain intercompany fee arrangements between Capital Management and the Parent were discontinued and the reporting of mortgage servicing rights (“MSR”) hedging results were realigned such that, beginning in 2007, all volatility associated with MSRs is now reported in the Parent. Segment information for 2006 has been restated to reflect these and other changes and the impact to previously reported 2006 segment earnings resulted in no change to the General Bank, a $7 million decrease in Wealth Management, an $86 million decrease in the Corporate and Investment Bank, a $20 million decrease in Capital Management, and a $113 million increase in the Parent.

	Three Months Ended
	June 30, 2007
														Net Merger-
					Corporate									Related
					and									and
	General		Wealth		Investment			Capital						Restructuring
(Dollars in millions)	Bank		Management		Bank			Management			Parent			Expenses (c)			Total
CONSOLIDATED
Net interest income (b)	$	3,686		149		511			263			(149	)		(39	)		4,421
Fee and other income		975		201		1,500			1,502			56			-			4,234
Intersegment revenue		56		2		(48	)		(11	)		1			-			-
Total revenue (b)		4,717		352		1,963			1,754			(92	)		(39	)		8,655
Provision for credit losses		164		1		(4	)		-			18			-			179
Noninterest expense		2,093		238		1,024			1,296			173			32			4,856
Minority interest		-		-		-			-			139			-			139
Income taxes (benefits)		887		41		333			167			(276	)		(12	)		1,140
Tax-equivalent adjustment		10		-		11			-			18			(39	)		-
Net income (loss)	$	1,563		72		599			291			(164	)		(20	)		2,341
Lending commitments	$	149,712		6,892		111,439			1,072			626			-			269,741
Average loans, net		331,042		17,666		43,426			1,663			27,460			-			421,257
Average core deposits	$	298,827		14,097		31,527			31,221			2,824			-			378,496

74

	Three Months Ended June 30, 2006
														Net Merger-
					Corporate									Related
					and									and
	General		Wealth		Investment			Capital						Restructuring
(Dollars in millions)	Bank		Management		Bank			Management			Parent			Expenses (c)			Total
CONSOLIDATED
Net interest income (b)	$	2,777		149		470			267			12			(34	)		3,641
Fee and other income		842		194		1,218			1,211			118			-			3,583
Intersegment revenue		48		1		(42	)		(9	)		2			-			-
Total revenue (b)		3,667		344		1,646			1,469			132			(34	)		7,224
Provision for credit losses		95		2		(33	)		-			(5	)		-			59
Noninterest expense		1,737		249		887			1,118			246			24			4,261
Minority interest		-		-		-			-			89			1			90
Income taxes (benefits)		660		34		280			127			(162	)		(10	)		929
Tax-equivalent adjustment		10		-		9			1			14			(34	)		-
Net income (loss)	$	1,165		59		503			223			(50	)		(15	)		1,885
Lending commitments	$	120,622		6,285		106,105			809			473			-			234,294
Average loans, net		191,815		15,922		37,756			1,039			28,733			-			275,265
Average core deposits	$	214,517		14,270		26,492			31,827			4,532			-			291,638

	Six Months Ended June 30, 2007
														Net Merger-
					Corporate									Related
					and									and
	General		Wealth		Investment			Capital						Restructuring
(Dollars in millions)	Bank		Management		Bank			Management			Parent			Expenses (c)			Total
CONSOLIDATED Net interest income (b)	$	7,392		295		966			525			(221	)		(76	)		8,881
Fee and other income		1,851		396		2,589			2,946			193			-			7,975
Intersegment revenue		104		3		(90	)		(19	)		2			-			-
Total revenue (b)		9,347		694		3,465			3,452			(26	)		(76	)		16,856
Provision for credit losses		326		1		(4	)		-			33			-			356
Noninterest expense		4,121		478		1,927			2,532			344			42			9,444
Minority interest		-		-		-			-			275			-			275
Income taxes (benefits)		1,767		78		542			336			(569	)		(16	)		2,138
Tax-equivalent adjustment		21		-		21			-			34			(76	)		-
Net income (loss)	$	3,112		137		979			584			(143	)		(26	)		4,643
Lending commitments	$	149,712		6,892		111,439			1,072			626			-			269,741
Average loans, net		328,971		17,374		42,197			1,609			28,124			-			418,275
Average core deposits	$	295,455		14,172		30,310			31,450			2,521			-			373,908

75

	Six Months Ended June 30, 2006
														Net Merger-
					Corporate									Related
					and									and
	General		Wealth		Investment			Capital						Restructuring
(Dollars in millions)	Bank		Management		Bank			Management			Parent			Expenses (c)			Total
CONSOLIDATED
Net interest income (b)	$	5,307		298		934			523			152			(83	)		7,131
Fee and other income		1,707		382		2,461			2,427			123			-			7,100
Intersegment revenue		91		2		(79	)		(17	)		3			-			-
Total revenue (b)		7,105		682		3,316			2,933			278			(83	)		14,231
Provision for credit losses		157		2		(32	)		-			(7	)		-			120
Noninterest expense		3,394		496		1,780			2,253			485			92			8,500
Minority interest		-		-		-			-			184			1			185
Income taxes (benefits)		1,277		67		541			247			(287	)		(32	)		1,813
Tax-equivalent adjustment		21		-		31			1			30			(83	)		-
Net income (loss)	$	2,256		117		996			432			(127	)		(61	)		3,613
Lending commitments	$	120,622		6,285		106,105			809			473			-			234,294
Average loans, net		184,708		15,715		37,327			948			29,262			-			267,960
Average core deposits	$	212,771		14,448		26,105			32,700			4,906			-			290,930

(a) Certain amounts presented in periods prior to the second quarter of 2007 have been reclassified to conform to the presentation in the second quarter of 2007.

(b) Tax-equivalent.

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

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NOTE 7: BASIC AND DILUTED EARNINGS PER COMMON SHARE

     The calculation of basic and diluted earnings per common share for the three and six months ended June 30, 2007 and 2006, is presented below. For the three and six months ended June 30, 2007, options to purchase an average 24 million and 21 million shares, respectively, were anti-dilutive. For the three and six months ended June 30, 2006, options to purchase an average 27 million and 19 million shares, respectively, were anti-dilutive. Accordingly, these anti-dilutive options were excluded in determining diluted earnings per common share in both years.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions, except per share data)	2007		2006		2007		2006
Net income	$	2,341		1,885		4,643		3,613
Basic earnings per common share		1.24		1.19		2.45		2.30
Diluted earnings per common share	$	1.22		1.17		2.42		2.26
Average common shares - basic		1,891		1,585		1,892		1,570
Common share equivalents and unvested restricted stock		28		28		30		29
Average common shares - diluted		1,919		1,613		1,922		1,599

77

NOTE 8: INCOME TAXES

     FIN 48, which became effective on January 1, 2007, clarifies the accounting for uncertain income tax positions. Upon adoption of FIN 48, the Company recognized a decrease of approximately $69 million in income tax reserves for uncertain income tax positions. Of this amount, approximately $4 million was accounted for as a reduction to beginning retained earnings and approximately $73 million as a reduction to goodwill.

     At adoption, the Company had approximately $2.5 billion of gross unrecognized income tax benefits (UTBs), including approximately $1.3 billion of UTBs attributed to income tax on timing differences and $816 million of UTBs, net of deferred federal and state income tax benefits, that would impact the effective tax rate if recognized. The tax on timing items relates to income tax positions for which the ultimate deductibility is highly certain, but the timing of the deductibility is uncertain. The income tax liability for the change in the period of deduction would not impact the effective tax rate.

     A reconciliation of the change in the UTB balance from January 1, 2007 to June 30, 2007 is as follows:

													Unrecognized
													Income Tax
							Gross			Deferred			Benefits, Net
	Federal,			Accrued			Unrecognized			Federal and			of Deferred
	State and			Interest and			Income Tax			State Income			Federal and
(In millions)	Foreign Tax			Penalties			Benefits			Tax Benefits			State Benefits
Balance at January 1, 2007	$	2,119			342			2,461			(253	)		2,208
Additions for tax positions related to the current year		175			-			175			(14	)		161
Additions for tax positions related to prior years		-			85			85			(27	)		58
Reduction for tax positions related to prior years due to IRS RAR		(95	)		(31	)		(126	)		14			(112	)
Reductions for tax positions related to acquired entities in prior years, offset to goodwill		(102	)		(30	)		(132	)		47			(85	)
Other reductions for tax positions related to prior years		(5	)		(2	)		(7	)		2			(5	)
Settlements		(41	)		(18	)		(59	)		7			(52	)
Balance at June 30, 2007		2,051			346			2,397			(224	)		2,173
Less: tax attributable to timing items included above		(1,373	)		-			(1,373	)		-			(1,373	)
Less: UTBs included above that relate to acquired entities that would impact goodwill if recognized		(56	)		(3	)		(59	)		13			(46	)
Total UTBs that, if recognized, would impact the effective income tax rate as of June 30, 2007	$	622			343			965			(211	)		754

     In the first quarter of 2007, the IRS issued a Revenue Agent’s Report (RAR) for the Company’s U.S. income tax returns for the years 2000 through 2002 in which the IRS proposed certain adjustments to the Company’s income tax positions. Based on the issuance of the RAR, the Company updated its analysis of various uncertain income tax positions identified at January 1, 2007. In the second quarter of 2007, the Company made a cash payment to the IRS related to the RAR which resulted in a net reduction of approximately $51 million to the UTB balance. The Company also initiated an appeal of unagreed issues, which is not expected to be resolved within the next twelve months.

     During the second quarter of 2007, the Company completed its analysis of recently acquired entities and reduced related income tax reserves by $85 million, offset by a reduction to goodwill.

     The Company recognizes accrued interest and penalties, as appropriate, related to UTBs in the effective tax rate. The balance of accrued interest and penalties at the reporting periods is presented in the table above.

     The Company and its subsidiaries are routinely examined by various taxing authorities. The IRS has initiated an examination of the Company’s federal income tax returns for the years 2003 through 2005, which is not expected to be completed within the next twelve months. The federal income tax returns of various acquired and deconsolidated subsidiaries are also under examination by the IRS. While one or more of these examinations may be concluded within the next twelve months, management does not believe that a significant impact to the UTB balance will occur. The Company and its subsidiaries are currently subject to examination by various other taxing authorities. While it is possible that one or more of these examinations may be resolved within the next twelve months, the Company does not anticipate a significant impact to the UTB balance.

     The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2000. The expiration of statutes of limitations for various jurisdictions is expected to reduce the UTB balance by approximately $35 million within the next twelve months.

     Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to uncertain income tax positions. The Treasury recently issued proposed regulations that, when issued in final form, could limit the Company’s ability to retain the benefit of certain foreign tax credits. Management’s estimate of the reasonably possible UTB change resulting from finalization of the proposed regulations is between zero and $95 million. As of June 30, 2007, management had identified no other potential subsequent events that could have a significant impact on the UTB balance within the next twelve months.

78

NOTE 9: DERIVATIVES

DERIVATIVES USED FOR RISK MANAGEMENT

     The Company may designate a derivative as either an accounting hedge of the fair value of a recognized fixed rate asset or liability or an unrecognized firm commitment (“fair value” hedge), an accounting hedge of a forecasted transaction or of the variability of future cash flows of a floating rate asset or liability (“cash flow” hedge), or a foreign currency fair value or cash flow hedge (“foreign currency” hedge). Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded as other fee income in the results of operations. To the extent of the effectiveness of a hedge, changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge are recorded in other comprehensive income, net of income taxes. For all hedge relationships, ineffectiveness resulting from differences between the changes in fair value or cash flows of the hedged item and changes in fair value of the derivative are recognized as other fee income in the results of operations. Net interest settlements on derivatives designated as fair value or cash flow hedges are treated as an adjustment to the interest income or interest expense of the hedged assets or liabilities.

     Concurrent with entering into a transaction that qualifies as an accounting hedge, the Company formally documents the hedge relationship, the risk management objective and the strategy for entering into the hedge. This process and documentation include identification of the hedging instrument, hedged item, risk being hedged and the methodology for assessing effectiveness and measuring ineffectiveness.

     For cash flow hedges, the designated hedged risk is primarily the risk of changes in cash flows attributable to changes in the benchmark interest rate of the hedged item or forecasted transactions. For cash flow hedges, the Company uses regression analysis to make the initial assessment of the expectation of hedge effectiveness and for each monthly period thereafter, to reassess that the hedging relationship is expected to be highly effective during the period designated as being hedged. The Company also uses regression analysis to perform the retrospective evaluation of whether the derivative was effective during the hedged period. The regression analysis performed includes an evaluation of the quantitative measures of regression necessary to validate the conclusion of high effectiveness. The Company uses the hypothetical derivative method of measuring the hedge ineffectiveness which is recorded on a monthly basis. Forward purchase commitments of loans and securities available for sale are considered all-in-one hedges for which the prospective and retrospective evaluations are performed through matching terms at inception and on a monthly basis.

     For fair value hedges, the designated hedged risk is primarily the risk of changes in fair value attributable to changes in the benchmark interest rate of the hedged item or transactions. For fair value hedges, the Company assesses the expectation of effectiveness at the inception of the hedge and at each monthly period thereafter by analyzing the price sensitivity analysis of the hedging instrument relative to that of the hedged item for changes in fair value attributable to the hedged risk. On a monthly basis, the Company uses the cumulative dollar-offset approach to validate the effectiveness of the hedge on a retrospective basis. The Company measures ongoing ineffectiveness for fair value hedges by comparing the changes in fair value of the hedging instrument to the changes in fair value of the hedged item attributable to the hedged risk. Fair value hedges of warehoused residential mortgage loans are designated and de-designated on a daily basis, and the frequency of the prospective, retrospective and actual ineffectiveness tests follows the hedge period. Forward sale commitments of securities available for sale share the same issuer, coupon rate and contractual maturity date as the hedged item, therefore the prospective and retrospective evaluations are performed through matching terms at inception and on a monthly basis.

     The Company discontinues hedge accounting prospectively when either it is determined that the derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item; the derivative expires or is sold, terminated or exercised; the derivative is de-designated because it is unlikely that a forecasted transaction will occur; or management determines designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued, the derivative is either terminated or reclassified as a trading account asset or liability. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted as an adjustment to yield over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transaction are still expected to occur, unrealized gains and losses accumulated in other comprehensive income are included in the results of operations in the same period when the results of operations are also affected by the hedged cash flow. The unrealized gains and losses are recognized in the results of operations immediately if the cash flow hedge was discontinued because a forecasted transaction is not expected to occur. For the six months ended June 30, 2007, gains in the amount of $3 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. These amounts include the time value of options. In addition, net interest income in the six months ended June 30, 2007, was decreased by $2 million representing ineffectiveness of cash flow hedges caused by differences between the reset dates and indices of the derivative and the hedged item.

     Commitments to purchase certain securities or loans and certain commitments to sell loans are derivatives. At inception, these commitments may be designated in a hedge relationship; otherwise, they are recorded as either trading derivatives or economic hedges depending upon their purpose. The Company enters into contracts that contain a derivative that is embedded in the financial instrument. If applicable, an embedded derivative is separated from the host contract and can be designated in a hedge relationship; otherwise, the derivative is recorded as a freestanding derivative and recorded as either a trading derivative or an economic hedge depending upon its purpose. The Company enters into credit derivative agreements in connection with altering the risk profile of certain loans or pools of loans in the Company’s loan portfolio. These credit derivatives do not meet the criteria for designation as an accounting hedge and are recorded as either trading derivatives or economic hedges depending upon their purpose. The Company enters into interest rate lock commitments as part of its commercial and consumer mortgage lending activities. These loan commitments are initially recorded at fair value including the amount of consideration exchanged, if any. Subsequent adjustments in the value of the loan commitment are primarily determined by changes in interest rates, changes in the probability that a commitment will be exercised and the passage of time. The estimate of fair value specifically excludes the value of servicing cash flows and excess servicing.

     Derivatives used for risk management activity at June 30, 2007, follow.

79

     Risk management derivative financial instruments at June 30, 2007, are presented below.

	June 30, 2007
												Average
	Hedged Items	Notional		Gross Unrealized								Maturity in
(In millions)	or Transactions	Amount		Gains		Losses (b)			Equity (c)			Years (d)
ASSET HEDGES (a)
Cash flow hedges
Interest rate swaps-receive fixed	First forecasted interest receipts
	on commercial loans
Pay 1 month LIBOR swaps	1 month LIBOR risk	$	3,110		-		(44	)		(27	)		3.51
Pay 3 month LIBOR swaps	1 month LIBOR risk		17,462		34		(309	)		(170	)		3.94
Purchased interest rate floors-	1 month LIBOR-indexed loans when
3 month LIBOR	LIBOR is below the purchased floor		7,000		-		(10	)		(6	)		0.50
Forward purchase commitments	Purchase of individual fixed rate debt
	securities classified as available for sale		2,400		2		-			-			0.09
Fair value hedges
Interest rate swaps-pay fixed/	Individual fixed rate debt securities
receive LIBOR	classified as available for sale		1,512		42		-			-			13.77
Forward sale commitments	Individual fixed rate debt securities
	classified as available for sale		2,000		-		(4	)		-			0.12
Forward sale commitments	Proceeds from sale of mortgage
	warehouse loans		718		-		(5	)		-			0.04
Total asset hedges		$	34,202		78		(372	)		(203	)		3.06
LIABILITY HEDGES (a)
Cash flow hedges
Interest rate swaps-pay fixed	Proceeds from first forecasted issuance
	of short-term liabilities, including deposits
	and repurchase agreements, that are
	part of a rollover strategy
Receive 1 month LIBOR swaps	1 month LIBOR risk		2,247		13		(88	)		(46	)		10.49
Receive 3 month LIBOR swaps	3 month LIBOR risk		6,000		156		-			97			3.18
Interest rate swaps-pay fixed	First forecasted interest payments
	on long-term debt
Receive 1 month LIBOR swaps	1 month LIBOR risk		125		4		(2	)		1			11.28
Receive 3 month LIBOR swaps	1 month LIBOR risk		1,587		8		(17	)		(6	)		6.49
Receive 6 month LIBOR swaps	6 month LIBOR risk		8		-		-			-			5.97
Purchased options	1 day LIBOR associated with the
	proceeds from first forecasted
	issuance of deposits that are part
	of a rollover strategy when LIBOR
	is above the cap
Interest rate caps			45,000		34		-			21			1.00
Eurodollar			25,750		-		(5	)		3			0.25
Purchased options-	First forecasted interest payments
Eurodollar	on 3 month LIBOR long-term debt		15,000		-		(1	)		(1	)		1.00
Eurodollar futures	1 day LIBOR associated with the proceeds
	from first forecasted issuance of
	deposits that are part of a rollover
	strategy		48,853		24		-			15			0.25
Eurodollar futures	First forecasted interest payments
	on 3 month LIBOR long-term debt		20,000		5		-			3			0.25
Fair value hedges
Interest rate swaps-receive	Individual fixed rate long-term
fixed/ pay floating (e)	debt issuances		32,074		2		(1,119	)		-			11.26
Total liability hedges			196,644		246		(1,232	)		87			2.48
Total		$	230,846		324		(1,604	)		(116	)		-

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(a) Includes only derivative financial instruments related to interest rate risk management activities that have been designated and accounted for as accounting hedges.

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

(c) At June 30, 2007, the net unrealized loss on derivatives included in accumulated other comprehensive income, which is a component of stockholders’ equity, was $366 million, net of income taxes. Of this net of tax amount, a $116 million loss represents the effective portion of the net gains (losses) on interest rate derivatives that qualify as cash flow hedges and a $250 million loss relates to terminated and/or redesignated derivatives. At June 30, 2007, $143 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 18.9 years.

(d) Estimated maturity approximates average life.

(e) At June 30, 2007, such swaps are denominated in U.S. dollars, Euros, Pounds Sterling and Australian dollars in the notional amounts of $27.2 billion, $1.7 billion, $2.9 billion and $297 million, respectively, and the hedged risk is the benchmark interest rate.

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     Expected maturities of risk management derivative financial instruments at June 30, 2007, are presented below.

	June 30, 2007
	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	$	2,055			700			13,317			4,500			-			20,572
Notional amount - other	$	9,400			-			-			-			-			9,400
Weighted average receive rate (a)		3.78	%		5.23			5.02			4.71			-			4.83
Weighted average pay rate (a)		5.35	%		5.35			5.35			5.36			-			5.35
Unrealized gain (loss)	$	(23	)		(3	)		(264	)		(37	)		-			(327	)
FAIR VALUE ASSET HEDGES
Notional amount - swaps-pay fixed	$	-			-			96			322			1,094			1,512
Notional amount - other	$	2,718			-			-			-			-			2,718
Weighted average receive rate (a)		-	%		-			3.56			3.56			3.58			3.58
Weighted average pay rate (a)		-	%		-			3.35			3.43			3.82			3.70
Unrealized gain (loss)	$	(8	)		-			1			5			35			33
CASH FLOW LIABILITY HEDGES
Notional amount - swaps-pay fixed	$	3,046			76			3,421			1,628			1,796			9,967
Notional amount - other	$	154,603			-			-			-			-			154,603
Weighted average receive rate (a)		5.36	%		5.31			5.34			5.29			5.29			5.33
Weighted average pay rate (a)		3.80	%		6.22			5.21			5.62			5.80			4.95
Unrealized gain (loss)	$	73			(1	)		63			37			(41	)		131
FAIR VALUE LIABILITY HEDGES
Notional amount - swaps-receive fixed	$	1,535			5,475			5,377			9,257			10,430			32,074
Weighted average receive rate (a)		4.78	%		4.23			5.43			4.87			5.29			4.99
Weighted average pay rate (a)		5.33	%		5.37			5.35			5.21			5.41			5.33
Unrealized gain (loss)	$	(3	)		(37	)		(50	)		(275	)		(752	)		(1,117	)

(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 one-to-six month LIBOR, Euros, Pound Sterling, or Australian dollar and they are the pay or receive rates in effect at June 30, 2007.

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     Activity related to risk management derivative financial instruments for the six months ended June 30, 2007, is presented below.

	June 30, 2007
	Asset			Liability
(In millions)	Hedges			Hedges			Total
Balance, December 31, 2006	$	41,080			175,856			216,936
Additions		14,770			151,543			166,313
Maturities and amortizations		(402	)		(90,092	)		(90,494	)
Terminations		(6,557	)		(12,533	)		(19,090	)
Redesignations and transfers to trading account assets		(14,689	)		(28,130	)		(42,819	)
Balance, June 30, 2007	$	34,202			196,644			230,846

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NOTE 10: GUARANTEES

	June 30, 2007				December 31, 2006
			Maximum				Maximum
	Carrying		Risk of		Carrying		Risk of
(In millions)	Amount		Loss		Amount		Loss
Securities and other lending indemnifications	$	-		69,838		-		61,715
Standby letters of credit		117		38,103		115		37,783
Liquidity agreements		11		30,803		9		27,610
Loans sold with recourse		44		6,528		50		7,543
Residual value guarantees on operating leases		-		1,155		-		1,131
Written put options		92		10,811		90		11,027
Contingent consideration		-		242		-		167
Total guarantees	$	264		157,480		264		146,976

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