Exhibit 19

FINANCIAL HIGHLIGHTS


	*Three Months Ended*					Percent			*Six Months Ended*					Percent
	*June 30,*					Increase			*June 30,*					Increase
(Dollars in millions, except per share data)	*2008*			2007		(Decrease)			*2008*			2007		(Decrease)

EARNINGS SUMMARY
Net interest income (GAAP)	$	4,290			4,449		(4)	%	$	9,042			8,949		1	%
Tax-equivalent adjustment		54			38		42			107			75		43

Net interest income (Tax-equivalent)		4,344			4,487		(3	)		9,149			9,024		1
Fee and other income		3,165			4,240		(25	)		5,942			7,974		(25	)

Total revenue (Tax-equivalent)		7,509			8,727		(14	)		15,091			16,998		(11	)
Provision for credit losses		5,567			179		—			8,398			356		—
Other noninterest expense		6,376			4,755		34			11,473			9,248		24
Merger-related and restructuring expenses		251			32		—			492			42		—
Goodwill impairment		6,060			—		—			6,060			—		—
Other intangible amortization		97			103		(6	)		200			221		(10	)

Total noninterest expense		12,784			4,890		—			18,225			9,511		92
Minority interest in income of consolidated subsidiaries		(18	)		139		—			137			275		(50	)

Income (loss) before income taxes (benefits) (Tax-equivalent)		(10,824	)		3,519		—			(11,669	)		6,856		—
Tax-equivalent adjustment		54			38		42			107			75		43
Income taxes (benefits)		(1,963	)		1,140		—			(2,197	)		2,138		—

Net income (loss)		(8,915	)		2,341		—			(9,579	)		4,643		—
Dividends on preferred stock		193			—		—			236			—		—

Net income (loss) available to common stockholders	$	(9,108	)		2,341		—	%	$	(9,815	)		4,643		—	%

Diluted earnings per common share (a)
Net income (loss) available to common stockholders	$	(4.31	)		1.22		—	%	$	(4.82	)		2.42		—	%
Return on average common stockholders’ equity		(50.47	)%		13.54		—			(26.80	)%		13.51		—
Return on average assets (b)		(4.50	)%		1.33		—			(2.44	)%		1.34		—

ASSET QUALITY
Allowance for loan losses as % of loans, net		2.20	%		0.79		—			2.20	%		0.79		—
Allowance for loan losses as % of nonperforming assets		90			157		—			90			157		—
Allowance for credit losses as % of loans, net		2.24			0.83		—			2.24			0.83		—
Net charge-offs as % of average loans, net		1.10			0.14		—			0.88			0.15		—
Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale		2.41	%		0.49		—			2.41	%		0.49		—

CAPITAL ADEQUACY
Tier I capital ratio		8.00	%		7.47		—			8.00	%		7.47		—
Total capital ratio		12.74			11.46		—			12.74			11.46		—
Leverage ratio		6.57	%		6.23		—			6.57	%		6.23		—

OTHER FINANCIAL DATA
Net interest margin		2.58	%		2.96		—			2.74	%		3.01		—
Fee and other income as % of total revenue		42.15			48.58		—			39.37			46.91		—
Effective income tax rate		18.06	%		32.78		—			18.67	%		31.53		—

BALANCE SHEET DATA
Securities	$	113,461			106,184		7	%	$	113,461			106,184		7	%
Loans, net		488,198			429,120		14			488,198			429,120		14
Total assets		812,433			715,428		14			812,433			715,428		14
Total deposits		447,790			410,030		9			447,790			410,030		9
Long-term debt		184,401			142,047		30			184,401			142,047		30
Stockholders’ equity	$	75,127			69,266		8	%	$	75,127			69,266		8	%

OTHER DATA
Average basic common shares (In millions)		2,111			1,891		12	%		2,037			1,892		8	%
Average diluted common shares (In millions)		2,119			1,919		10			2,048			1,922		7
Actual common shares (In millions)		2,159			1,903		13			2,159			1,903		13
Dividends paid per common share	$	0.38			0.56		(33	)	$	1.02			1.12		(9	)
Dividend payout ratio on common shares		(8.70	)%		45.90		—			(21.06	)%		46.28		—
Book value per common share	$	30.25			36.40		(17	)	$	30.25			36.40		(17	)
Common stock price		15.53			51.25		(70	)		15.53			51.25		(70	)
Market capitalization	$	33,527			97,530		(66	)	$	33,527			97,530		(66	)
Common stock price to book value		51	%		141		(64	)		51	%		141		(64	)
FTE employees		119,952			110,493		9			119,952			110,493		9
Total financial centers/brokerage offices		4,820			4,135		17			4,820			4,135		17
ATMs		5,277			5,099		3	%		5,277			5,099		3	%

(a) Calculated using average basic common shares in 2008.

(b) Net income (loss) as a percentage of average assets.

Management’s Discussion and Analysis

This discussion contains forward-looking statements. Please refer to our Second Quarter 2008 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.

Executive Summary

Summary of Results of Operations


	Three Months Ended					Six Months Ended
	June 30,					June 30,

(In millions, except per share data)	*2008*			2007		*2008*			2007

Net interest income (GAAP)	$	4,290			4,449		9,042			8,949
Tax-equivalent adjustment		54			38		107			75

Net interest income (a)		4,344			4,487		9,149			9,024
Fee and other income		3,165			4,240		5,942			7,974

Total revenue (a)		7,509			8,727		15,091			16,998
Provision for credit losses		5,567			179		8,398			356
Other noninterest expense		6,376			4,755		11,473			9,248
Goodwill impairment		6,060			-		6,060			-
Merger-related and restructuring expenses		251			32		492			42
Other intangible amortization		97			103		200			221

Total noninterest expense		12,784			4,890		18,225			9,511
Minority interest in income (loss) of consolidated subsidiaries		(18	)		139		137			275
Income taxes (benefits)		(1,963	)		1,140		(2,197	)		2,138
Tax-equivalent adjustment		54			38		107			75

Net income (loss)		(8,915	)		2,341		(9,579	)		4,643

Dividends on preferred stock		193			-		236			-

Net income (loss) available to common stockholders		(9,108	)		2,341		(9,815	)		4,643

Diluted earnings (loss) per common share	$	(4.31	)		1.22		(4.82	)		2.42

(a) Tax-equivalent.

Against a backdrop of the weakest domestic economy in more than 16 years and continued instability in the housing and financial markets, we reported a net loss applicable to common shareholders of $9.8 billion, or a net loss of $4.82 per share, in the first half of 2008 compared with earnings of $4.6 billion, or $2.42 per share, in the first half of 2007. Subsequent to our announcement of second quarter financial results on July 22, 2008, we further increased our legal reserves as of June 30, 2008, by $500 million pre-tax to reflect the effect of recent and active settlement discussions with securities regulators of investigations relating to auction rate securities. More information about the increased legal reserve is in the Outlook and Noninterest Expense sections. Key drivers in the pre-tax loss were:

	•		An $8.4 billion loan loss provision, which increased reserves by $6.2 billion, including $4.4 billion for the payment option mortgage portfolio called Pick-a-Payment.

	•		A $6.1 billion noncash goodwill impairment charge in commercial-related subsegments reflecting declining equity market valuations and underlying asset values. The goodwill impairment charge had no impact on Wachovia’s tangible capital levels, regulatory capital ratios or liquidity. More information is in the Critical Accounting Policies and Balance Sheet Analysis: Goodwill sections.

	•		$3.2 billion in market disruption-related losses.

	•		A $1.2 billion increase in legal reserves, $590 million of which was recorded in the second quarter of 2008, primarily related to previously disclosed matters, and $500 million of which was recorded after our July 22, 2008 release of second quarter 2008 results, for the effect of recent and active settlement discussions related to auction rate securities, partially offset by the first quarter 2008 reversal of $102 million of litigation reserves related to our ownership interest in Visa, Inc.

	•		A $975 million noncash charge related to certain leasing transactions widely referred to as “sale in, lease out” or SILO transactions.

	•		$481 million in net gains related to the adoption of new fair value accounting standards on January 1, 2008.

	•		$391 million in losses related to planned discretionary securities sales.

	•		A $225 million gain from our ownership in Visa, which completed its initial public offering in March 2008.

Results also included after-tax net merger-related and restructuring expenses of $251 million, or 12 cents per share, in the first half of 2008 and $26 million, or 1 cent per share, in the first half of 2007. Revenues and expenses also reflect the impact of the A.G. Edwards, Inc. acquisition from October 1, 2007; and a majority interest investment in European Credit Management Ltd. (ECM), a London-based fixed income investment management firm, from January 31, 2007.

Actions on Capital, Liquidity and Risk

We are committed to protecting and creating shareholder value through the disciplined use of capital and maintaining a strong balance sheet in view of current and anticipated challenges in the credit environment.

During the second quarter of 2008, the board of directors and senior management conducted a strategic review of our major business lines given the changing financial services landscape. As a result, we outlined several initiatives aimed at three near-term strategic priorities: Protecting, preserving and generating capital; further enhancing Wachovia’s liquidity position; and reducing risk. On July 22, 2008, actions announced included:

	•		Reducing the quarterly dividend on our common stock by 32.5 cents to 5 cents per share, which is estimated to preserve approximately $700 million in capital per quarter. The dividend is payable on September 15, 2008, to shareholders of record on August 29, 2008. In the first half of 2008, we paid common stockholders dividends of $2.1 billion, or $1.015 per share.

	•		More aggressively managing our balance sheet, which we estimate will result in a $20 billion reduction in loans and securities by year-end 2008 and preserve an estimated $1.5 billion in capital. Proceeds from selected maturing securities will not be reinvested in order to reduce the securities portfolio balance. To reduce capital usage in the loan portfolio, we are implementing enhanced discipline to ensure more focus on strategic commercial customer relationships, and instituting programs to further enhance the mix of our consumer loan portfolio. This includes reducing mortgage concentration in our consumer loan portfolio by tightening mortgage underwriting standards, discontinuing origination of negative amortization loans, eliminating the General Bank wholesale mortgage origination channel, eliminating focus on Pick-a-Payment loan retention and offering opportunities for Pick-a-Payment borrowers to refinance mortgages into marketable products. Also, as we focus on disciplined deployment of capital in this environment, we currently expect new loan growth to be more modest due to increased pricing discipline and tighter underwriting guidelines. In addition, we will also consider the possible sale of certain noncore assets, which could preserve additional capital.

•

Instituting a more rigorous expense discipline, which we estimate will preserve up to $1 billion in capital. This includes an initiative to reduce planned expense growth in the second half of this year by approximately $490 million, more than offset by restructuring costs, and a reduction in full year 2009 planned expense growth by $1.5 billion. As part of this initiative, we reviewed 500 existing or planned capital expenditure projects and decided to delay or cancel $350 million of expenses related to these projects. Forty percent of the expense savings is expected to come from lower personnel costs and will involve reductions affecting approximately 6,950 active employees, revised upward by 600 subsequent to our original announcement, and 4,400 open positions. These expense actions are expected to have only a modest impact on revenue. Initiatives such as western expansion in retail, commercial and wealth will continue but at a more deliberate pace. The Merger-Related and Restructuring Expenses section has more information.

We estimate these strategies will generate or preserve more than $5 billion in tier 1 capital by year-end 2009 and further enhance our liquidity position. Wachovia ended the second quarter of 2008 with approximately $50 billion in tier 1 regulatory capital and a tier 1 capital ratio of 8.00 percent, a leverage ratio of 6.57 percent and a tangible capital ratio of 4.68 percent at June 30, 2008. Based on our tier 1, leverage and tangible capital ratios, we are considered “well capitalized.” More information is in the Stockholders’ Equity section.

On August 6, 2008, we announced a decision to end our acceptance of private undergraduate student loan applications effective immediately. This decision was made in light of the current economic environment.

In the first half of 2008, we added $11.55 billion in capital through common and preferred stock offerings. In April 2008, we issued in concurrent offerings $4.025 billion of convertible preferred stock and $4.025 billion of common stock and in February 2008 we issued $3.5 billion of preferred stock.

Over the past four quarters, prompted by continuing significant home price devaluation in stressed real estate markets, particularly in Florida and California, and our current expectation for continued devaluation through mid 2010, we have increased the allowance for credit losses by $7.4 billion, to $11.0 billion or 2.24 percent of loans. The $3.3 billion increase in Pick-a-Payment reserves in the second quarter reflected a continued severe decline in home market values and what we believe will be the related effect on borrower behavior in the face of the loss of equity in their home.

The provision for credit losses of $8.4 billion compared with $356 million in the first half of 2007, and exceeded net charge-offs by $6.3 billion. In the first half of 2008 our net charge-offs were $2.1 billion, an increase of $1.8 billion from the first half of 2007, and represented a 73 basis point increase in the net charge-off ratio to 0.88 percent of average net loans. This included commercial net charge-offs of $692 million, up $636 million from the first half of 2007, with the increase driven by $398 million of net losses in our Real Estate Financial Services portfolio and $182 million of net losses on large corporate loans. Consumer net charge-offs were $1.4 billion, up $1.1 billion, driven by net losses of $1.0 billion in consumer real estate, including $748 million in Pick-a-Payment loans as well as $274 million in auto loans.

Nonperforming assets, including loans held for sale, were $12.0 billion, representing a ratio of nonperforming assets to loans, foreclosed properties and loans held for sale of 2.41 percent at June 30, 2008, an increase from $5.4 billion, or 1.14 percent, at December 31, 2007, largely reflecting increases relating to our Pick-a-Payment mortgage product and residential-related

commercial real estate. We continue to mitigate the risk and volatility of our balance sheet through risk management practices, including increased collection efforts.

Strengthening Core Businesses

Another significant strategic priority is a continued focus on generating growth in our core businesses. While credit headwinds and the capital markets disruption overwhelmed our first half 2008 results, continued momentum in most of our businesses generated solid underlying performance. In the first half of 2008 compared with the first half of 2007, growth came from:

	•		Modestly higher net interest income, driven by our higher loans and deposits and improved margins, somewhat offset by the effect of the $975 million SILO-related lease charge and increasing nonaccrual loans.

	•		A 13 percent increase in average loans to $471.3 billion. Average consumer loans rose 5 percent, driven by higher traditional mortgage loans. Average commercial loan growth of 25 percent reflected strength in large corporate and middle-market commercial loans and in commercial real estate. Increased consumer and commercial loans included the transfer of $4.1 billion in commercial loans and $2.8 billion in consumer loans from the held-for-sale portfolio in the first half of 2008.

	•		A 5 percent increase in average core deposits to $392.6 billion. We expect deposits to grow further in 2008 as we continue to expand product distribution in the newly integrated former World Savings branches, offer retail brokerage deposits in the former A.G. Edwards franchise, increase productivity in our de novo (or new) branches and benefit from product introductions, such as Way2Save and competitive certificate of deposit campaigns, to attract and enhance customer relationships. We also continue to enhance the efficiency of our financial center network and expand our presence in higher growth markets. In the first half of 2008, we opened 46 de novo branches, consolidated 94 branches, and expanded our commercial banking presence, all of which added $84 million to noninterest expense. As a result of our strategic review, we currently plan to continue to open additional branches, but at a more deliberate pace.

	•		Higher fiduciary and asset management fees and brokerage commissions largely reflecting the A.G. Edwards acquisition.

Our core banking businesses, while absorbing increased credit costs, continued to perform well, as did our brokerage operations, in the first half of 2008 compared with the first half of 2007. The General Bank’s earnings declined to $2.3 billion, down 20 percent, driven by rapidly rising credit costs and related expenses, which overshadowed continued sales momentum and a 6 percent increase in revenue. Wealth Management earned $190 million, up 10 percent, on 6 percent revenue growth in challenging markets. The capital markets disruption continued to dampen results in the Corporate and Investment Bank (CIB), which earned $131 million, down 90 percent, driven by $2.1 billion in net market-related valuation losses and reduced origination volume in most markets-related businesses. The losses were somewhat offset by $466 million of principal investing net gains related to the adoption of new fair value accounting standards. In addition, CIB has a number of businesses that were not adversely affected by the market disruption, as described further in the Corporate and Investment Bank section. Capital Management earnings declined to $365 million, reflecting 35 percent revenue growth, primarily related to the A.G. Edwards acquisition, more than offset by legal reserves related to the auction rate securities.

Other Matters

Leveraged Lease Charge The noncash charge of $975 million, or $855 million after tax, recorded in the second quarter of 2008 relates to certain leasing transactions we entered into between 1999 and 2003 involving lease-to-service contracts and leases of qualified technological equipment, which are widely known as sale in, lease-out or SILO transactions. We discontinued originating these transactions in 2003. The decision to record the noncash charge came after our analysis of a federal appeals court opinion in a case involving another financial institution that disallowed tax benefits associated with certain lease-in, lease-out or LILO transactions. We believe some aspects of the court decision could be extended to SILO transactions. Subsequently, a federal court issued an adverse decision on a SILO transaction entered into by two other large financial institutions. While the tax law involving SILO transactions remains unsettled, as we disclosed in Note 1 to Consolidated Financial Statements in our 2007 Annual Report, applicable accounting standards require us to update the tax cash flow assessment on our SILO transactions in light of the federal court ruling. A majority of the charge will be recognized as income over the remaining terms of the affected leases, generally 35 to 40 years. However, because this charge occurs relatively early in the term of the SILOs, the effect on net interest income of recording this charge is expected to be a decrease through 2018, then positive thereafter. We estimate the related decrease in net interest income in the second half of 2008 will be $45 million. More information is in Note 1 to Consolidated Financial Statements in our Second Quarter 2008 Report on Form 10-Q.

On August 6, 2008, the Internal Revenue Service announced a settlement initiative related to SILO transactions. Management is evaluating the offer notification and potential impact to our financial condition and results of operations, in the event that we were to accept the terms of the offer. This settlement offer would have no impact on our LILO portfolio as we settled all issued related to this portfolio with the IRS in 2004.

Fair Value Implementation On January 1, 2008, we adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, and SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 157 establishes a framework for measuring fair value under U.S. GAAP, expands disclosures about fair value measurements and provides new income recognition criteria for certain derivative contracts. SFAS 157 does not establish any new fair value measurements; rather it defines “fair value” for other accounting standards that require the use of fair value for recognition or disclosure. SFAS 159 permits companies to elect to carry certain financial instruments at fair value with corresponding changes in fair value recorded in the results of operations. The effect of adopting SFAS 157 was recorded either directly to first quarter 2008 results of operations or as a 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 fair value adjustment. The transition adjustment for SFAS 159 was recorded as a cumulative effect of a change in accounting principle through an adjustment to beginning retained earnings on January 1, 2008.

The adoption of SFAS 157 resulted in net gains in the first quarter 2008 results of operations of $481 million pre-tax related primarily to a change in the methodology used to calculate the fair value of certain investments in private equity funds held in a wholly owned investment company. This amount excludes the ongoing effect in the first half of 2008 related to the application of SFAS 157. Also, on January 1, 2008, we recorded a $38 million after-tax gain ($61 million pre-tax) as a cumulative effect adjustment to beginning retained earnings related to removal of blockage discounts previously applied in determining the fair value of certain actively traded public equity investments and to profits previously deferred on certain derivative transactions. SFAS 157 prohibits the use of blockage discounts in determining the fair value of certain financial instruments.

Upon adoption of SFAS 159, we elected to record certain existing securities available for sale and a small percentage of our loans held-for-sale portfolio at fair value, and as a result recorded a $38 million after-tax charge ($60 million pre-tax) to 2008 beginning retained earnings as a cumulative effect of the adoption of SFAS 159.

Market Disruption-Related Losses, Net


	*2008*												*2007*
	*1st Half*												*2nd Half*			*Cumulative*

	*Trading*			*Securities*
	*profits*			*gains*			*Other*
(Pre-tax dollars in millions)	*(losses)*			*(losses)*			*Income*			*Total*			*Total*			*Total*

Corporate and Investment Bank
ABS CDO and other subprime-related	$	(387	)		(199	)		9			(577	)		(1,048	)		(1,625	)
Commercial mortgage (CMBS)		(399	)		(2	)		(329	)		(730	)		(1,088	)		(1,818	)
Consumer mortgage		(229	)		-			(90	)		(319	)		(205	)		(524	)
Leveraged finance		147			-			(354	)		(207	)		(179	)		(386	)
Other		(272	)		(15	)		(9	)		(296	)		(50	)		(346	)

Total		(1,140	)		(216	)		(773	)		(2,129	)		(2,570	)		(4,699	)
Capital Management
Impairment losses		(94	)		(24	)		-			(118	)		(57	)		(175	)
Parent
Impairment losses / other		-			(655	)		(321	)		(976	)		(94	)		(1,070	)

Total, net		(1,234	)		(895	)		(1,094	)		(3,223	)		(2,721	)		(5,944	)
Discontinued operations (Bluepoint)	$	-			-			-			-			(330	)		(330	)

Market Disruption-Related Losses Net market disruption-related valuation losses were $3.2 billion in the first half of 2008, with $2.3 billion in the first quarter of 2008 and $936 million in the second quarter of 2008. We began to incur market disruption-related losses in the second half of 2007 and such losses amounted to $2.7 billion in 2007, excluding discontinued operations. Of the 2008 losses, $2.1 billion were in the Corporate and Investment Bank, $976 million were in the Parent, and $118 million were in Capital Management, as detailed in the Market Disruption-Related Losses, Net table.

For a number of years, we have been a major participant in structuring and underwriting fixed income investment products backed by pools of loans, such as commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS), as well as collateralized debt obligations (CDOs) that are typically backed by pools of bonds including CMBS and RMBS, loans and other assets. We have also been a participant in underwriting and syndicating leveraged commercial loans. Our CMBS and RMBS structuring activities involved consumer and commercial real estate loans underwritten primarily through our direct origination channels. Our CDO business involved transactions predominantly backed by commercial loans and commercial real estate loans. We purchased subprime residential assets such as RMBS as part of our CDO distribution strategy.

The markets for subprime RMBS and for CDOs collateralized by subprime RMBS, which we refer to as ABS CDOs, as well as for CMBS, have been particularly hard hit by the market disruption, while the market for leveraged loans has been affected by spread widening.

Rising defaults and delinquencies in subprime residential mortgages as well as rating agencies’ downgrades of a large number of subprime RMBS have led to continued declines in the valuations of these types of securities and certain indices that serve as a reference point for determining the value of such securities. The continued pressures of the weaker housing markets, particularly in income-producing categories, as well as continuing concerns over the U.S. economy and illiquidity in the commercial real estate sector have led to further declines in the value of CMBS and CDOs backed by commercial real estate loans.

Leveraged finance results included net market disruption-related losses of $309 million in the first quarter of 2008 and net gains of $102 million in the second quarter of 2008. The first quarter results were driven by losses on several large unfunded commitments partially offset by gains on

economic hedges. Second quarter results were driven by recoveries of previous write-downs related to the resolution of certain commitments, partially offset by $372 million of losses related to ineffectiveness of economic hedges that were largely unwound during the second quarter.

With respect to our monoline-related structured product exposure, in the first half of 2008 we recorded $166 million of reserves based on monoline exposure profiles and our assessments of the credit quality of each monoline.

Market disruption-related losses in Capital Management in the first half of 2008 amounted to $118 million of write-downs on trading and available for sale securities. This included $89 million of securities write-downs related to the liquidation of an Evergreen fund and $24 million on securities purchased in the third quarter of 2007 from Evergreen money market funds. Market disruption-related losses in the Parent in the first half of 2008 amounted to $976 million, including impairment write-downs on securities available for sale of $655 million, and valuation losses of $314 million related to our BOLI portfolio.

In the second half of 2007, we recorded market disruption-related losses of $330 million related to BluePoint Re Limited, a Bermuda-based monoline bond reinsurer that is a consolidated subsidiary of Wachovia. There were no additional losses in the first half of 2008.

The fair values of all of our assets that are subject to market valuation adjustments, including but not limited to subprime RMBS and ABS CDOs, CMBS warehouse assets and leveraged finance commitments, depend on market conditions and assumptions that may change over time. Accordingly, the fair values of these assets in future periods and their effect on our financial results will depend on future market developments and assumptions and may be materially greater or less than the changes in values discussed above.

Further information on these market disruption-related losses is provided in the Corporate Results of Operations, Fee Income, Corporate and Investment Bank and Capital Management sections that follow. The Outlook section also has additional information.

Subprime-Related, CMBS and Leveraged Finance
Distribution Exposure, Net


				*6/ 30/ 08*
				*Exposure*
	*6/ 30/ 08*			*Hedged With*			*6/ 30/ 08*			*3/ 31/ 08*		*12/ 31/ 07*
	*Gross*			*Various*			*Net*			*Net*		*Net*
($ in millions)	*Exposure*			*Instruments*			*Exposure*			*Exposure*		*Exposure*

ABS CDO-related exposures:
Super senior ABS CDO exposures
High grade	$	2,331			(2,331	)		-			-		-
Mezzanine		2,022			(1,603	)		419			439		613

Total super senior ABS CDO exposures		4,353			(3,934	)		419			439		613
Other retained ABS CDO-related exposures		29			(17	)		12			68		208

Total ABS CDO-related exposures (a)		4,382			(3,951	)		431			507		821
Subprime RMBS exposures:
AAA rated		1,524			-			1,524			1,684		1,948
Below AAA rated (net of hedges) (b)		(46	)		-			(46	)		40		(253	)

Total subprime RMBS exposures		1,478			-			1,478			1,724		1,695
Total subprime-related exposure		5,860			(3,951	)		1,909			2,231		2,516
Commercial mortgage-related (CMBS)		756			-			756			2,954		7,564
Leveraged finance (net of applicable fees)	$	n.a.			n.a.			3,766			8,157		9,149

(a) At 6/ 30/ 08, $2.0 billion is hedged with highly rated monoline financial guarantors; $900 million with a AA-rated large European bank, under margin agreements; and $1.0 billion with a large AA-rated global multi-line insurer, under margin agreements.
(b) Net short position due to hedging activities.

Market Disruption-Related Distribution Exposure We have taken steps to reduce the size of our exposure to structured products and leveraged finance assets originally intended for distribution, which have been most exposed to market disruptions, specifically ABS CDOs, subprime RMBS, CMBS and leveraged finance commitments. The table above shows our remaining exposure at June 30, 2008, and the comparable changes in those exposures since March 31, 2008, and December 31, 2007.

Since the market disruption began in July 2007, we have elected to transfer certain assets that were originally intended for distribution to the loan portfolio based on our view that the market valuations provide attractive longer term investment returns. These assets were transferred at fair value and are no longer being marketed. In the first half of 2008, these transfers amounted to $4.4 billion of commercial and commercial real estate exposure and $2.0 billion of consumer real estate loans.

As of June 30, 2008, our notional subprime ABS CDO distribution exposure, net of hedges with financial guarantors, was $431 million and $1.5 billion of our subprime RMBS exposure was rated AAA or equivalent by rating agencies.

Our CMBS mark-to-market exposure of $756 million at June 30, 2008, was down from $7.6 billion at December 31, 2007. More than 50 percent of the remaining exposure at June 30, 2008, was AAA-rated or equivalent.

Our leveraged finance exposure of $3.8 billion at June 30, 2008, was down from $9.1 billion at December 31, 2007, with the decrease attributable in part to cancellation of a large unfunded commitment. Of the June 30, 2008 exposure $574 million related to unfunded commitments. There was no bridge equity exposure at June 30, 2008.

Outlook

In the face of significant deterioration in the housing market and pressure on our markets-oriented businesses beginning with the disruption in the capital markets in the second half of 2007, our core businesses are performing well and we are committed to strengthening them. We anticipate continued housing market deterioration and rising credit costs as well as a continuing challenge for revenue generation in many of our markets-related businesses over the next few quarters. But longer term, we are optimistic that our capital and liquidity position us well to take advantage of the opportunities arising in the wake of these market conditions.

Looking ahead, we are taking steps to ensure that as financial markets remain unsettled and loan losses increase, we focus intently on strengthening our balance sheet, controlling costs and actively managing our exposures in a challenging credit environment. We believe our company is in the right businesses for long-term growth, and that our strategies around capital and liquidity, focus on high growth businesses and markets, customer service, expense discipline, and our commitment to credit risk management will restore value for shareholders over the long term.

Wachovia is in active discussions of potential settlement with various state regulators and the SEC of ongoing investigations concerning the underwriting, sale and subsequent auctions of certain auction rate securities by Wachovia Securities, LLC, and Wachovia Capital Markets, LLC, including the likelihood of liquidity solutions. Based on the probability of such settlement, current market value estimates, affected auction rate securities and expected future redemptions, we recorded a $500 million pre-tax increase to legal reserves for the second quarter of 2008. This legal expense includes amounts reserved for estimated market valuation losses on auction rate securities associated with a potential settlement. We do not currently expect that the possible settlement would have a material effect on capital, liquidity or overall financial results through estimated maturities or redemptions for affected auction rate securities, or alter Wachovia’s previously announced focus on improving our tier 1 capital ratio. We currently expect that our tier 1 capital ratio will decrease by approximately 3 basis points following a potential settlement. More information is in the Noninterest Expense and Business Segments: Capital Management sections and Note 1 to Consolidated Financial Statements.

Our outlook for 2008, which follows, generally assumes a slowing U.S. economy overall and the benefits of a steeper yield curve and low short-term interest rates. Based on these assumptions and before merger-related and restructuring expenses, we expect that in the second half of 2008:

	•		Net interest income will decline modestly from first half 2008 levels, excluding the impact of the SILO lease-related charge;

	•		Fee income will remain exposed to net market disruption-related losses/gains;

	•		A continued focus on expense control;

	•		A continued challenging credit environment;

	•		A full year 2008 effective income tax rate of approximately 20.5 percent to 21.5 percent on a tax-equivalent basis; and

	•		A focus on the actions described above to increase tier 1 capital from current levels.

In addition, we are focused on ensuring a successful integration of the A.G. Edwards acquisition, with integration activity scheduled to continue through the third quarter of 2009. Merger milestones have been met to date and systems integration activities remain on track.

As part of our near-term strategic priorities and when consistent with our overall business strategy, we may consider disposing of certain assets, branches, subsidiaries or lines of business. Although not currently a priority or focus of management, in the future we may also explore acquisition opportunities in areas that would complement our core businesses 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. GAAP, and 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. There are five policies that we identify as being particularly sensitive to 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 (which includes assessment of available for sale securities for other-than-temporary impairment); consolidation; goodwill impairment; and contingent liabilities. Because of the relative significance of the provision for credit losses and the goodwill impairment charge to our results in the first half of 2008, we included information regarding the related policies below. For more information on the other critical accounting policies, please refer to our 2007 Annual Report on Form 10-K.

Allowance for Loan Losses and Reserve for Unfunded Lending Commitments The allowance for loan losses and reserve for unfunded lending commitments, which we refer to collectively as the allowance for credit losses, are maintained at levels we believe are adequate to absorb probable losses inherent in the loan portfolio and unfunded lending commitments as of the date of the consolidated financial statements. We monitor various qualitative and quantitative credit metrics and trends, including changes in the levels of past due, criticized and nonperforming

loans as part of our allowance modeling process. In addition, we rely on estimates and exercise judgment in assessing credit risk. At June 30, 2008, the allowance for loan losses was $10.7 billion and the reserve for unfunded lending commitments was $212 million.

We employ a variety of modeling and estimation tools for measuring credit risk. These tools are periodically reevaluated and refined as appropriate. The following provides a description of each component of our allowance for credit losses, the techniques we use and the estimates and judgments inherent in each.

Our model for the allowance for loan losses has four components: formula-based components for both the commercial and consumer portfolios, each including a factor for historical loss variability; a reserve for impaired commercial loans; and an unallocated component.

For commercial loans, the formula-based component of the allowance for loan losses is based on statistical estimates of the average losses observed by credit grade. Average losses for each credit grade reflect the annualized historical default rate and the average losses realized for defaulted loans.

For consumer loans, the formula-based component of the allowance for loan losses is based on statistical estimates of the average losses observed by product classification. We compute average losses for each product class using historical loss data, including analysis of delinquency patterns, origination vintage and various credit risk forecast indicators. In addition, for certain residential real estate loans, primarily the Pick-a-Payment portfolio, we use borrowers’ standard credit scoring measure (FICO), loan-to-value ratios for underlying properties, home price appreciation or depreciation data and other general economic data in estimating losses. In certain cases, we may stratify the portfolio geographically in the estimation of future home value changes. Credit loss estimates derived from statistical models may be augmented by amounts reflecting management’s judgment regarding probable incurred losses not captured by the applicable models. In the second quarter of 2008, we updated our model inputs to reflect expected continued deterioration in housing and a general worsening of the overall economy. Model inputs for our Pick-a-Payment portfolio were adjusted to include a more severe home price decline scenario and greater sensitivity to changes in borrower equity, which resulted in an increased cumulative loss output.

For both commercial and consumer loans, the formula-based components include additional amounts to establish reasonable ranges that consider observed historical variability in losses. This historical loss variability component represents a measure of the potential for significant volatility above average losses over short periods. Factors we may consider in setting these amounts include, but are not limited to, industry-specific data, geographic data, portfolio-specific risks or concentrations, and macroeconomic conditions.

At June 30, 2008, the formula-based components of the allowance were $2.3 billion for commercial loans and $7.6 billion for consumer loans, compared with $2.2 billion and $2.0 billion, respectively, at December 31, 2007.

We have established specific reserves within the allowance for loan losses for impaired commercial loans. We individually review any nonaccrual commercial loan with a minimum total exposure of $10 million in the Corporate and Investment Bank and $5 million in other segments to determine the amount of impairment, if any. In addition, certain nonaccrual commercial real estate loans in the Corporate and Investment Bank having a minimum exposure of $5 million are also reviewed individually. The reserve for each individually reviewed loan is based on the difference between the loan’s carrying amount and the loan’s estimated fair value. No other reserve is provided on impaired loans that are individually reviewed. At June 30, 2008,

the allowance for loan losses included $457 million and the reserve for unfunded lending commitments included $3 million for individually reviewed impaired loans compared with $226 million and $4 million, respectively, at December 31, 2007.

The allowance for loan losses is supplemented with an unallocated component to reflect the inherent uncertainty of our estimates. The amount of this component and its relationship to the total allowance for loan losses may change from one period to another as warranted by facts and circumstances. We anticipate the unallocated component of the allowance will generally not exceed 5 percent of the total allowance for loan losses. At June 30, 2008, the unallocated component of the allowance for loan losses was $330 million, or 3 percent of the allowance for loan losses, compared with $165 million, or 4 percent, at December 31, 2007.

The reserve for unfunded lending commitments, which relates only to commercial business where our intent is to hold the funded loan in the loan portfolio, is based on a modeling process that is consistent with the methodology described above for the commercial portion of the allowance. In addition, this model includes as a key factor the historical average rate at which unfunded commercial exposures have been funded at the time of default. At June 30, 2008, and December 31, 2007, the reserve for unfunded lending commitments was $212 million and $210 million, respectively, including the reserve for impaired commitments.

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

Additionally, our primary bank regulators regularly conduct examinations of the allowance for credit losses and make assessments regarding its adequacy and the methodology employed in its determination.

Goodwill Impairment We test goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment. As discussed in the Business Segments section, we operate in four core business segments. Goodwill impairment testing is performed at the sub-segment level (referred to as a reporting unit). The eight reporting units are General Bank: Commercial, and Retail and Small Business; Wealth Management; Corporate and Investment Bank: Corporate Lending, Investment Banking, and Treasury and International Trade Finance; and Capital Management: Retail Brokerage Services and Asset Management.

Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill.

Under applicable accounting standards, goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying value, applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of impairment.

At June 30, 2008, the fair values of our reporting units were based on a discounted cash flow methodology using discount rates that reflect our current market capitalization plus a control premium. In the past, we used a composite of several methods in estimating the fair value of reporting units. However, in view of the current market environment, we believe the discounted cash flow methodology is more reflective of a market participant’s view, and accordingly, we used this methodology exclusively in our second quarter 2008 impairment analysis.

Estimating the fair value of reporting units is a very subjective process that involves the use of estimates and judgments, particularly related to cash flows, the appropriate discount rates and an applicable control premium. Our cash flow estimates were consistent with our most recent financial projections for each reporting unit. The discount rates used ranged from 14.2 percent to 20.9 percent and were based on the relationship between the total fair value of the reporting units and the market capitalization of the company plus an estimated control premium.

The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill in the “pro forma” business combination accounting as described above, exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted under applicable accounting standards.

The more significant fair value adjustments in the pro forma business combination in the second step were to loans in each of the reporting units. Also, our step two analysis included adjustments to previously recorded identifiable intangible assets to reflect them at fair value and also included the fair value of additional intangibles not previously recognized (generally related to businesses not acquired in a purchase business combination). The adjustments to measure the assets, liabilities and intangibles at fair value are for the purpose of measuring the implied fair value of goodwill and such adjustments are not reflected in the consolidated balance sheet.

We performed goodwill impairment testing for all eight reporting units at December 31, 2007, March 31, 2008, and June 30, 2008. Goodwill amounted to $37.0 billion at June 30, 2008, compared with $43.1 billion at December 31, 2007, with the decrease related to the second quarter 2008 goodwill impairment charge of $6.1 billion. The Goodwill section has further information. Applicable Notes to Consolidated Financial Statements provide additional information.

Corporate Results of Operations

Average Balance Sheets and Interest Rates


	*Six Months Ended*					Six Months Ended
	*June 30, 2008*					June 30, 2007

	*Average*		*Interest*			Average		Interest
(In millions)	*Balances*		*Rates*			Balances		Rates

Interest-bearing bank balances	$	4,616		3.91	%	$	2,459		6.55	%
Federal funds sold		12,470		2.98			13,111		5.16
Trading account assets		44,115		5.13			32,438		5.93
Securities		113,452		5.55			108,253		5.42
Commercial loans, net (a)		202,391		4.34			161,423		7.12
Consumer loans, net		268,944		6.86			256,852		7.53

Total loans, net		471,335		5.78			418,275		7.37

Loans held for sale		10,367		7.03			17,199		6.32
Other earning assets		10,706		5.30			8,119		7.02

Risk management derivatives		-		0.05			-		0.03

Total earning assets		667,061		5.69			599,854		6.88

Interest-bearing deposits		382,293		2.67			342,159		3.66
Federal funds purchased		39,622		2.95			36,595		4.97
Commercial paper		5,348		2.19			5,032		4.70
Securities sold short		6,581		3.53			7,929		3.81
Other short-term borrowings		9,722		1.57			7,295		2.66
Long-term debt		171,506		4.33			142,746		5.36

Risk management derivatives		-		0.06			-		0.10

Total interest-bearing liabilities		615,072		3.20			541,756		4.29

Net interest income and margin	$	9,149		2.74	%	$	9,024		3.01	%

(a) Includes the effect of the $975 million leverage lease recalculation charge in the second quarter of 2008.

Net Interest Income and Margin Tax-equivalent net interest income increased modestly in the first half of 2008 from the first half of 2007. The effect of earning asset growth of $67.2 billion, improving loan spreads and deposit growth, the effect of our preferred stock issuances in the first half of 2008 and in December 2007, and the benefit of a liability sensitive rate position were partially offset by the noncash $975 million SILO lease-related charge, the shift to lower spread deposits, increased liquidity levels and higher funding costs in response to the market disruption, as well as increased nonperforming loans.

The net interest margin declined 27 basis points to 2.74 percent. The net interest margin was 3.15 percent excluding the 41 basis point impact of the SILO charge, an improvement of 14 basis points reflecting improving loan spreads, deposit growth as well as the benefit of a liability sensitive rate position. Offsets to margin improvement, excluding the impact of the SILO charge, were a shift in deposits toward lower-spread categories, the impact of increased liquidity levels and higher wholesale funding costs in response to the market disruption, as well as increased nonperforming loans.

The average federal funds rate in the first half of 2008 was 262 basis points lower than the average rate in the first half of 2007, while the average longer-term two-year treasury note rate decreased 257 basis points and the average 10-year treasury note rate decreased 98 basis points.

Market rates suggest that in 2008 the yield curve will be steeper than in 2007 as a result of short-term rates falling more than long-term rates. If this expectation materializes, we expect the effect on net interest income and the margin to be positive. The Interest Rate Risk Management section has more information.

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 income in the short-term, although we expect them to benefit future periods. In the first half of 2008, interest rate risk management-related derivatives reduced net interest income by $15 million, which had an insignificant effect on the net interest margin, compared with a decrease in the first half of 2007 of $176 million, or 6 basis points.

Fee and Other Income


	Three Months Ended					Six Months Ended
	June 30,					June 30,

(In millions)	*2008*			2007		*2008*			2007

Service charges	$	709			667		1,385			1,281
Other banking fees		518			449		1,016			865
Commissions		910			649		1,824			1,308
Fiduciary and asset management fees		1,355			1,015		2,794			1,968
Advisory, underwriting and other investment banking fees		280			454		541			861
Trading account profits (losses)		(510	)		195		(818	)		323
Principal investing		136			298		582			346
Securities gains (losses)		(808	)		23		(1,013	)		76
Other income		575			490		(369	)		946

Total fee and other income	$	3,165			4,240		5,942			7,974

Fee and Other Income Fee and other income declined 25 percent in the first half of 2008 compared with the first half of 2007 due to net market disruption-related valuation losses of $3.2 billion and reduced volume in several of our investment banking businesses. Otherwise, momentum continued in underlying businesses. Results included $481 million in net gains related to adoption of new fair value accounting standards and a $225 million gain related to the Visa initial public offering. In addition, in the first half of 2008 compared with the first half of 2007:

	•		Service charge growth was driven by consumer service charges on higher volume and improved pricing, while commercial service charges rose on increased volume.

	•		Other banking fees rose largely due to mortgage banking income and interchange fees.

	•		Higher commissions reflected the addition of A.G. Edwards, partially offset by lower transactional revenue as well as lower insurance commissions.

	•		Increased fiduciary and asset management fees were driven by continued growth in retail brokerage managed account and other asset-based fees, reflecting the addition of A.G. Edwards and organic growth, somewhat offset by the effect of lower market valuations.

	•		Advisory and underwriting results declined from a strong first half a year ago driven by lower origination activity in businesses affected by the market disruption.

	•		Trading account losses of $818 million compared with profits of $323 million in the same period a year ago, with the decline driven by net market disruption-related losses of $1.2 billion in the first half of 2008 including:

	o		$387 million in subprime residential asset-backed CDOs and other subprime-related products largely relating to losses on warehouse positions.

	o		$399 million in commercial mortgage structured products.

	o		$229 million in consumer mortgage structured products.

	o		$147 million of hedging gains on economic hedges in leveraged finance.

	o		$272 million in non-subprime collateralized debt obligations and other structured products.

	o		$94 million of primarily securities write-downs recorded in connection with the liquidation of an Evergreen fund.

	•		Principal investing results were up from the first half of 2007 largely due to the $466 million of net gains related to the adoption of new fair value accounting standards on January 1, 2008.

	•		Net securities losses of $1.0 billion were driven by $895 million of market disruption-related losses and $391 million of losses (of which $343 million was in the Parent) reflecting our change in intent from holding certain securities to selling them in the near term, partially offset by the $225 million gain related to the Visa initial public offering. This compared with gains of $76 million in the first half a year ago.

	•		Other income was a net loss of $369 million in the first half of 2008 compared with income of $946 million a year ago. The decline was largely attributable to $1.1 billion of market disruption-related losses in other income in the first half of this year. The year over year results included:

	o		A $336 million loss in the commercial sales and securitization business in the first half of 2008 largely related to the market disruption compared with $241 million of income in the same period a year ago.

	o		A decline in results for certain corporate investments largely reflecting the $314 million loss on certain BOLI contracts in the first quarter of 2008.

	o		An $80 million decline in consumer loan sale and securitization results on lower volume.

	o		Net market disruption-related losses of $354 million in the leveraged finance business largely related to net write-downs on unfunded commitments. The first quarter of 2008 included $792 million of write-downs, while the second quarter results were a net gain of $438 million reflecting recoveries of previous write-downs related to the resolution of certain leveraged finance commitments. Related economic hedge results are reflected in trading. Unfunded commitments are valued assuming the commitments are fully funded under the current contractual terms.

The same trends described above in the six month period also were the primary drivers in fee and other income results in the second quarter of 2008. These included market disruption-related valuation losses, net securities losses, and lower advisory, underwriting and other investment banking fees. These were partially offset by higher service charges, other banking fees, commissions, and fiduciary and asset management fees. However, principal investing gains were lower in the second quarter of 2008 compared with the second quarter of 2007 due to lower gains on public and private direct investments. While other income was higher in the second quarter of 2008 compared with the same quarter one year ago.

Noninterest Expense

Three Months Ended

Six Months Ended

June 30,

(In millions)

2008

2007

2008

2007

Salaries and employee benefits

3,435

3,122

6,695

6,094

Occupancy

377

331

756

643

Equipment

317

309

640

616

Marketing

192

140

Communications and supplies

184

178

370

351

Professional and consulting fees

218

205

414

382

Sundry expense

1,750

532

2,406

1,022

Other noninterest expense

6,376

4,755

11,473

9,248

Merger-related and restructuring expenses

251

492

Goodwill impairment

6,060

Other intangible amortization

103

200

221

Total noninterest expense

12,784

4,890

18,225

9,511

Noninterest Expense Noninterest expense increased 92 percent in the first half of 2008 from the first half of 2007. The majority of the increase was driven by the $6.1 billion noncash goodwill impairment charge as well as increased credit-related sundry expense primarily related to maintaining foreclosed properties, and previously mentioned legal expense. In addition, salaries and employee benefits expense contributed to the increase, largely attributable to the addition of A.G. Edwards. Nonmerger-related severance expense increased $40 million in the first half of 2008 compared with the same period a year ago.

Legal reserves in the first half of 2008 increased $1.2 billion, driven by second quarter of 2008 reserves of $590 million, primarily related to previously disclosed matters, and $500 million for the effect of recent and active settlement discussions related to auction rate securities, partially offset by the first quarter 2008 reversal of $102 million of litigation reserves related to our ownership interest in Visa. The first half of 2008 also included $208 million associated with our strategic initiatives, including de novo expansion, branch consolidations and western expansion, compared with $93 million in 2007.

In the first half of 2008 and 2007, we made annual stock award grants to employees. Under the applicable accounting standards, 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 $109 million in the first half of 2008 and $93 million in the same period a year ago.

The same trends described above in the six month period also drove noninterest expense results in the second quarter of 2008 compared with the second quarter of 2007.

Merger-Related and Restructuring Expenses Merger-related and restructuring expenses in the first half of 2008 of $492 million included $411 million related to A.G. Edwards and $79 million related to Golden West. In the first half of 2007, we recorded $42 million of these expenses.

As described in the Executive Summary, on July 22, 2008, we announced a plan to reduce the number of active employees by 6,350. Subsequently, we revised this number to 6,950, which includes all of the personnel reductions contemplated in the strategies outlined in Executive Summary: Actions on Capital, Liquidity and Risk. In connection with the personnel reductions, we expect to record $525 million to $650 million in restructuring costs, including approximately $50 million in exit costs, primarily lease terminations, with the rest being severance. We expect to record substantially all the severance costs in the third quarter of 2008; however, the cash expenditures will occur through the end of 2009.

Income Taxes Income tax benefit on a tax-equivalent basis was $2.1 billion in the first half of 2008 compared with income tax expense of $2.2 billion in the first half of 2007. The related effective income tax rates were 17.92 percent and 32.28 percent, respectively. The significant decline in the tax rate was the result of the $6.1 billion goodwill impairment charge, only a very small percentage of which is deductible for income tax purposes.

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. We also have a Parent segment that includes all asset and liability management functions, including managing our securities portfolio for liquidity and interest rate risk. Business segment data excludes the goodwill impairment charge, merger-related and restructuring expenses, other intangible amortization, discontinued operations, and the effect of changes in accounting principles. A provision for credit losses is allocated to each core business segment based on net charge-offs, and the difference between the total provision for the segments and the consolidated provision is recorded in the Parent segment. In the first half of 2008, provision for credit losses in the Parent segment amounted to $6.3 billion, the majority of which related to certain loans in the General Bank. While the $6.1 billion goodwill impairment charge is not included in segment results, the Goodwill section shows the components of the charge attributed to each sub-segment.

We continuously update segment information for changes that occur in the management of our businesses. In the first half of 2008, we updated our segment reporting to reflect BluePoint as a discontinued operation, which is included in the Parent. Previously, BluePoint was included in the Corporate and Investment Bank. Also, we realigned corporate overhead allocations, resulting in a shift of such allocations from the four core business segments to the Parent. Our current and historical financial reporting reflects these changes. The impact to full year 2007 segment earnings as a result of these changes was:

	•		In the General Bank, an increase of $203 million.

	•		In Wealth Management, an increase of $26 million.

	•		In the Corporate and Investment Bank, an increase of $330 million.

	•		In Capital Management, an increase of $77 million.

	•		In the Parent, a decrease of $406 million, not including $230 million in 2007 losses from discontinued operations excluded from core segment earnings; previously, this amount was included in Corporate and Investment Bank segment earnings.

The economic capital and expected loss factors for the Pick-a-Payment mortgage portfolio within the General Bank’s Retail and Small Business line of business were revised in the second quarter of 2008 based on updated performance expectations, modeling and macroeconomic conditions. This will more closely align economic capital and expected loss with management’s view of the perceived risk profile of the business going forward.

General Bank
Performance Summary


	Three Months Ended					Six Months Ended
	June 30,					June 30,

(Dollars in millions)	*2008*			2007		*2008*		2007

Income statement data
Net interest income (Tax-equivalent)	$	3,671			3,372		7,116		6,770
Fee and other income		1,000			935		1,980		1,781
Intersegment revenue		57			56		112		102

Total revenue (Tax-equivalent)		4,728			4,363		9,208		8,653
Provision for credit losses		919			154		1,488		301
Noninterest expense		2,050			1,922		4,088		3,787
Income taxes (Tax-equivalent)		642			834		1,326		1,665

Segment earnings	$	1,117			1,453		2,306		2,900



Performance and other data
Economic profit	$	919			1,124		1,911		2,250
Risk adjusted return on capital (RAROC)		33.02	%		52.66		37.07		53.24
Economic capital, average	$	16,786			10,821		14,739		10,744
Cash overhead efficiency ratio (Tax-equivalent)		43.35	%		44.05		44.39		43.76
Lending commitments	$	133,201			129,851		133,201		129,851
Average loans, net		319,574			291,607		315,565		289,985
Average core deposits	$	290,381			290,455		293,776		287,263
FTE employees		54,415			57,574		54,415		57,574

General Bank The General Bank includes our Retail and Small Business and our Commercial lines of business. The General Bank’s earnings declined to $2.3 billion, down $594 million, driven by rapidly rising credit costs and related expenses, primarily in the mortgage business, which overshadowed continued sales momentum elsewhere as reflected in total revenue of $9.2 billion, up 6 percent. Other key General Bank trends in the first half of 2008 compared with the first half of 2007 included:

	•		Average loan growth of 9 percent, with 12 percent growth in wholesale and 8 percent growth in retail. Retail growth included a 5 percent increase in consumer real estate lending that primarily reflected a decline in prepayments.

	•		Significant efforts in our mortgage business to mitigate risk in the face of declining housing markets by restructuring its operating model, including exiting the General Bank’s wholesale mortgage origination channel; implementing extensive loss mitigation efforts; tightening underwriting guidelines and undertaking initiatives such as waiving prepayment fees on Pick-a-Payment loans and assisting Pick-a-Payment customers in refinancing their loans, to increase the volume of marketable mortgages.

	•		Reduced home equity originations, reflecting implementation of tightened credit standards. More than 95 percent of our home equity loans are originated through our branch network and other direct channels.

	•		An 18 percent increase in auto originations with continued focus on higher credit scores.

	•		Average core deposit growth of 2 percent, largely reflecting strength in wholesale deposits, which were up 8 percent, and an increase of 1 percent in retail deposits.

	•		Growth in net new retail checking accounts, reflecting continued benefits from retention and acquisition efforts resulting in an increase of 437,000 in the first half of 2008 compared with an increase of 582,000 in the first half of 2007.

	•		305,000 new checking accounts linked to the new Way2Save accounts, which launched in mid-January 2008.

	•		11 percent growth in fee and other income, with strength in service charges, interchange income and mortgage banking fee income. Growth of 21 percent in interchange income reflected a 17 percent increase in debit/credit card volume from the first half of 2007.

	•		Noninterest expense up 8 percent due to growth in credit-related sundry expense, as well as continued strategic investment in de novo branch activity and western expansion. During the first half of 2008, 46 de novo branches were opened and 94 branches were consolidated. As a result of performance initiatives, operating leverage continued to improve, which enabled continued strategic investment.

	•		An increase in the provision for credit losses to $1.5 billion largely reflecting rapid deterioration in consumer real estate in certain housing markets and higher losses in auto.

The same trends described above in the six month period also drove General Bank results in the second quarter of 2008 compared with the second quarter of 2007.

Wealth Management
Performance Summary


	Three Months Ended					Six Months Ended
	June 30,					June 30,

(Dollars in millions)	*2008*			2007		*2008*		2007

Income statement data
Net interest income (Tax-equivalent)	$	202			182		384		362
Fee and other income		207			202		418		398
Intersegment revenue		3			3		8		6

Total revenue (Tax-equivalent)		412			387		810		766
Provision for credit losses		8			2		13		3
Noninterest expense		253			244		499		491
Income taxes (Tax-equivalent)		53			51		108		99

Segment earnings	$	98			90		190		173



Performance and other data
Economic profit	$	76			70		146		133
Risk adjusted return on capital (RAROC)		52.61	%		56.73		52.04		55.46
Economic capital, average	$	731			612		715		602
Cash overhead efficiency ratio (Tax-equivalent)		61.05	%		62.80		61.50		64.00
Lending commitments	$	6,915			6,892		6,915		6,892
Average loans, net		23,151			21,056		22,758		20,689
Average core deposits	$	17,559			17,466		17,732		17,368
FTE employees		4,665			4,580		4,665		4,580

Wealth Management Wealth Management includes private banking, personal trust, investment advisory services, charitable services, financial planning and insurance brokerage. Wealth Management earned $190 million on 6 percent revenue growth in challenging markets. Other key Wealth Management trends in the first half of 2008 compared with the first half of 2007 included:

	•		6 percent growth in net interest income led by loan growth.

	•		22 percent growth in fiduciary and asset management fees as a pricing initiative implemented in the third quarter of 2007 and other growth offset declines in equity valuations. Insurance commissions declined largely due to a soft market for insurance premiums and nonstrategic insurance account dispositions.

	•		Modest expense growth as efficiency initiatives offset the effect of private banking and western expansion investment.

	•		An 8 percent decline in assets under management since year-end 2007 to $77.3 billion largely due to market depreciation.

The same trends described above in the six month period also drove Wealth Management results in the second quarter of 2008 compared with the second quarter of 2007, along with improved deposit spreads.

Corporate and Investment Bank
Performance Summary


	Three Months Ended						Six Months Ended
	June 30,						June 30,

(Dollars in millions)	*2008*			2007			*2008*			2007

Income statement data
Net interest income (Tax-equivalent)	$	1,124			773			2,152			1,489
Fee and other income		657			1,522			499			2,631
Intersegment revenue		(52	)		(50	)		(102	)		(93	)

Total revenue (Tax-equivalent)		1,729			2,245			2,549			4,027
Provision for credit losses		438			(2	)		635			4
Noninterest expense		960			1,020			1,707			1,931
Income taxes (Tax-equivalent)		122			448			76			763

Segment earnings	$	209			779			131			1,329



Performance and other data
Economic profit (loss)	$	4			490			(408	)		776
Risk adjusted return on capital (RAROC)		11.12	%		33.22			4.93			29.22
Economic capital, average	$	13,816			8,850			13,525			8,590
Cash overhead efficiency ratio (Tax-equivalent)		55.60	%		45.43			67.00			47.94
Lending commitments	$	113,559			115,430			113,559			115,430
Average loans, net		106,642			76,744			103,844			75,065
Average core deposits	$	31,682			36,713			32,652			35,481
FTE employees		6,394			6,872			6,394			6,872

Corporate and Investment Bank Our Corporate and Investment Bank includes corporate lending, investment banking and treasury and international trade finance. The capital markets disruption has hit our Corporate and Investment Bank particularly hard since the third quarter of 2007, with a 90 percent decline in first half 2008 segment earnings to $131 million driven by $2.1 billion in net valuation losses reflecting continued disruption in the capital markets and reduced origination volume in most markets-related businesses. The losses were somewhat offset by $584 million of principal investing net gains largely due to $466 million of gains in the first quarter of 2008 related to the adoption of new fair value accounting standards. The market disruption-related valuation losses, net of applicable hedges, included:

	•		$577 million in subprime residential asset-backed collateralized debt obligations and other related exposures;

	•		$730 million in commercial mortgage structured products;

	•		$319 million in consumer mortgage structured products;

	•		$207 million in leveraged finance net of fees and macro credit hedges; and

	•		$296 million in non-subprime collateralized debt obligations and other structured products.

Additional key Corporate and Investment Bank trends in the first half of 2008 compared with the first half of 2007 included:

•

A 45 percent increase in net interest income, which reflected 38 percent growth in average loans including $7.2 billion of net transfers into the loan portfolio of certain loans originally slated for disposition, as well as loan growth in the corporate lending and the global financial institutions businesses.

	•		Growth in equities, global rate products and high grade, offset by lower results in loan syndications, structured products and merger and advisory products and services.

	•		A 12 percent decline in noninterest expense primarily due to lower revenue-based incentive compensation and reduced headcount in markets-related businesses.

	•		Provision for credit losses of $635 million largely reflecting residential-related commercial real estate losses, compared with $4 million in the first half of 2007.

The same trends described above in the six month period also were the primary drivers of the Corporate and Investment Bank’s results in the second quarter of 2008 compared with the second quarter of 2007, with the exception of principal investing. Principal investing results were higher in the first half of 2008 compared with the same period a year ago while the second quarter of 2008 was lower than the second quarter of 2007 due to lower gains on public and private direct investments.

Capital Management
Performance Summary


	Three Months Ended						Six Months Ended
	June 30,						June 30,

(Dollars in millions)	*2008*			2007			*2008*			2007

Income statement data
Net interest income (Tax-equivalent)	$	308			260			589			519
Fee and other income		1,995			1,536			4,186			3,013
Intersegment revenue		(8	)		(11	)		(18	)		(19	)

Total revenue (Tax-equivalent)		2,295			1,785			4,757			3,513
Provision for credit losses		-			-			-			-
Noninterest expense		2,327			1,294			4,182			2,531
Income taxes (benefits) (Tax-equivalent)		(11	)		179			210			358

Segment earnings (loss)	$	(21	)		312			365			624



Performance and other data
Economic profit (loss)	$	(79	)		275			248			550
Risk adjusted return on capital (RAROC)		(3.97	)%		92.77			34.49			93.76
Economic capital, average	$	2,105			1,348			2,124			1,341
Cash overhead efficiency ratio (Tax-equivalent)		101.39	%		72.47			87.91			72.04
Lending commitments	$	1,544			1,169			1,544			1,169
Average loans, net		2,881			1,663			2,722			1,609
Average core deposits	$	48,647			31,221			45,866			31,450
FTE employees		29,680			17,905			29,680			17,905

Capital Management Capital Management includes Retail Brokerage Services and Asset Management. Capital Management generated earnings of $365 million in the first half of 2008, reflecting 35 percent revenue growth, primarily related to the A.G. Edwards acquisition. Results in the first half of 2008 included net market disruption-related losses of $118 million, including $89 million of write-downs on securities recorded in connection with the liquidation of the Evergreen Ultra Short Opportunities Fund. In June 2008, we provided financing to this fund in connection with its planned liquidation. As a result we consolidated the fund and recorded its assets on our consolidated balance sheet. The market disruption-related losses also included $24 million of write-downs on securities purchased in the third quarter of 2007 from Evergreen money market funds. Other key Capital Management trends in the first half of 2008 compared with the first half of 2007 included:

•

Growth in revenue despite declining equity markets year over year.

$4.3 billion in revenue from our retail brokerage businesses reflecting transactional revenues of $1.6 billion and asset-based and other income of $2.7 billion. Retail brokerage fee income increased 53 percent driven by the addition of A.G. Edwards and growth in managed account and other asset-based fees, partially offset by lower brokerage transaction activity and equity syndicate distribution fees.

$484 million in revenue from our asset management businesses, down $108 million, driven by the $118 million of market disruption-related losses.

	•		Retail brokerage core deposit growth of $14.4 billion, which was partially offset by spread compression.

	•		65 percent growth in noninterest expense largely due to the effect of A.G. Edwards as well as higher legal expense including $500 million for the effect of recent and active settlement discussions related to auction rate securities.

Total Assets Under Management (AUM)


	*2008*					2007
	*Second Quarter*					Fourth Quarter					Second Quarter

(In billions)	*Amount*		*Mix*			Amount		Mix			Amount		Mix

Equity	$	73		30	%	$	84		30	%	$	85		30	%
Fixed income		108		44			123		45			135		48
Money market		65		26			68		25			61		22

Total assets under management (a)	$	246		100	%	$	275		100	%	$	281		100	%
Securities lending		42		-			52		-			64		-

Total assets under management and securities lending	$	288		-		$	327		-		$	345		-

(a) Includes $37 billion in assets managed for Wealth Management, which are also reported in that segment.

Mutual Funds (AUM also included in the above)


	*2008*					2007
	*Second Quarter*					Fourth Quarter					Second Quarter

			*Fund*					Fund					Fund
(In billions)	*Amount*		*Mix*			Amount		Mix			Amount		Mix

Equity	$	30		29	%	$	36		32	%	$	38		35	%
Fixed income		16		16			19		17			22		20
Money market		57		55			58		51			49		45

Total mutual fund assets	$	103		100	%	$	113		100	%	$	109		100	%

Total assets under management (AUM) of $245.9 billion at June 30, 2008, decreased 10 percent from December 31, 2007, driven by net outflows of $17.6 billion as well as $11.2 billion in lower market valuations. Total brokerage client assets were $1.1 trillion at June 30, 2008, down 5 percent from year-end 2007 as lower market valuations were partially offset by positive net inflows. Retail Brokerage client accounts held an estimated $8.7 billion, $9.6 billion and $13.2 billion of auction rate securities at August 1, 2008, June 30, 2008 and March 31, 2008, respectively.

The same trends described above in the six month period also drove Capital Management results in the second quarter of 2008 compared with the second quarter of 2007.

Parent
Performance Summary


	Three Months Ended						Six Months Ended
	June 30,						June 30,

(Dollars in millions)	*2008*			2007			*2008*			2007

Income statement data
Net interest income (Tax-equivalent)	$	(961	)		(100	)		(1,092	)		(116	)
Fee and other income		(694	)		45			(1,141	)		151
Intersegment revenue		-			2			-			4

Total revenue (Tax-equivalent)		(1,655	)		(53	)		(2,233	)		39
Provision for credit losses		4,202			25			6,262			48
Noninterest expense		883			378			1,197			729
Minority interest		26			139			224			275
Income taxes (benefits) (Tax-equivalent)		(2,633	)		(322	)		(3,653	)		(656	)
Preferred dividends		193			-			236			-

Segment loss	$	(4,326	)		(273	)		(6,499	)		(357	)



Performance and other data
Economic loss	$	(1,623	)		(246	)		(2,463	)		(310	)
Risk adjusted return on capital (RAROC)		(430.13	)%		(29.52	)		(284.89	)		(13.56	)
Economic capital, average	$	1,480			2,436			1,674			2,546
Cash overhead efficiency ratio (Tax-equivalent)		(47.55	)%		(496.52	)		(44.70	)		1,390.16
Lending commitments	$	543			569			543			569
Average loans, net		24,486			30,187			26,446			30,927
Average core deposits	$	2,401			2,641			2,565			2,346
FTE employees		24,798			23,562			24,798			23,562

Parent Parent 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 revenue and expenses that are not allocated to the business segments; and the results of wind-down or divested businesses, including the cross-border leasing activity. In addition, the Parent includes the provision for loan losses that exceeds net charge-offs in the business segments. Key trends in the Parent segment in the first half of 2008 compared with the first half of 2007 included:

	•		A decline in net interest income, reflecting the SILO lease-related charge, growth in wholesale funding as well as securitization of higher yielding real estate-secured loans that were largely replaced by lower yielding foreign commercial loans.

	•		A $6.2 billion increase in the provision for credit losses reflecting greater credit risk and loan growth. More information is in the Provision for Credit Losses section.

	•		A $1.3 billion decrease in fee and other income, reflecting net securities losses of $713 million compared with net gains of $70 million in the year ago period, as well as $314 million of valuation losses on our BOLI portfolio in the first half of 2008. Of the $713 million of net securities losses, $655 million of losses were market disruption-related and $343 million reflected our change in intent from holding certain securities to selling them in the near term, partially offset by the $225 million Visa gain.

	•		A 64 percent increase in noninterest expense, primarily reflecting higher legal costs.

The same trends described above in the six month period also drove the Parent results for the second quarter of 2008 compared with the second quarter of 2007.

In the first quarter of 2008 we recorded valuation losses of $314 million in the Parent segment following a review of three stable value agreements (SVAs) totaling $386 million provided by a third party guarantor in connection with our BOLI portfolio. SVAs are designed to protect cash surrender value on certain BOLI policies from market fluctuations on underlying investments.

BOLI assets on our balance sheet amounted to $15.0 billion at June 30, 2008, and at December 31, 2007. BOLI is an insurance investment product where we purchase life insurance policies on a

group of officer-level employees, and where we are the owner and beneficiary of the policies. The insurance premiums we pay are recorded as cash surrender value on the balance sheet. The earnings from the policies, represented by increases in the cash surrender value, offset the costs of providing employee benefits. BOLI portfolio results are reported as a component of other noninterest income in our results of operations. The cash surrender value of BOLI may increase or decrease further depending on market conditions related to the underlying investments.

Of our total BOLI portfolio, 25 percent is in general account life insurance placed with several highly rated insurance carriers. This general account life insurance typically includes a feature guaranteeing minimum returns. Seventy-five percent is in separate account life insurance, which is managed by third party investment advisors under pre-determined investment guidelines. Stable value protection is a feature available with respect to separate account life insurance policies that is designed to protect a policy’s cash surrender value from market fluctuations on underlying investments. Approximately 95 percent of our separate account portfolio has some form of stable value protection, with 74 percent of such protected portfolio being fully protected and 26 percent having partial protection. Nearly all of the stable value protection is provided by large, highly rated financial institutions. Approximately 5 percent of the separate account portfolio has no protection.

The Parent segment includes the impact of Prudential Financial Inc.’s (Prudential’s) minority interest in Wachovia Securities Financial Holdings, LLC (WSFH). As a result of Wachovia’s contribution to WSFH of the retail securities business of A.G. Edwards on January 1, 2008, Prudential’s percentage interest in WSFH was diluted as of that date based on the value of the contributed business relative to the value of WSFH. Although the adjustment in Prudential’s interest will be effective on a retroactive basis as of the January 1, 2008 contribution date, the valuations necessary to calculate the precise reduction in that percentage interest are not yet complete. Based on currently available information, Wachovia estimates that Prudential’s percentage interest has been diluted from its pre-contribution percentage interest of 38 percent to approximately 23 percent as a result of the A.G. Edwards contribution. This percentage interest may be adjusted higher or lower in a subsequent quarter retroactive to January 1, 2008, if the final valuations differ from Wachovia’s current estimate.

In connection with Wachovia’s acquisition of A.G. Edwards and under the terms of Wachovia Securities’ joint venture with Prudential, 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 make an additional capital contribution to the joint venture or other payments to avoid or limit dilution of its 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 will be based on Prudential’s diluted ownership level following the A.G. Edwards combination. At the end of the lookback period, Prudential may elect to make an additional capital contribution or other payment, based on the appraised value (as defined in the joint venture agreement) 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. In addition, in this case, Prudential may not then exercise its existing discretionary put option, described below, 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. Prudential also has a discretionary right to put its joint venture interests to Wachovia, including the A.G. Edwards business, at any time after July 1, 2008. If this put option is exercised, the closing would occur

approximately one year from the date of exercise and the appraised value would be determined at that time. Wachovia may pay the purchase price for the put option in cash, shares of Wachovia common stock, or a combination thereof. Total minority interest expense was $137 million in the first half of 2008 compared with $275 million in the first half of 2007, of which $81 million and $208 million, respectively, related to Prudential.

Wachovia controls 100 percent of the outstanding stock of BluePoint Re Limited (BluePoint), a Bermuda-based monoline bond reinsurer, and accordingly consolidates this subsidiary. The results for the third and fourth quarters of 2007 have been reclassified to reflect the results of BluePoint as a discontinued operation. Results from inception of BluePoint in 2005 through the second quarter of 2007 were not material and, accordingly, have not been included in discontinued operations. BluePoint’s board of directors has authorized its management to wind-up the company’s affairs, and a petition to wind up BluePoint was filed with the Supreme Court of Bermuda on August 7, 2008.

In the second half of 2007, BluePoint recorded significant losses on certain derivative instruments (principally credit default swaps on ABS CDOs) and these losses through December 31, 2007, approximated substantially all of Wachovia’s investment in BluePoint and were included in Wachovia’s 2007 consolidated financial results. Wachovia has no further obligation to inject capital in BluePoint. BluePoint continued to record these instruments at fair value in 2008. In estimating the fair value of these instruments under SFAS 157, a company must consider, among other things, its own credit rating, which in this case is BluePoint’s. As Wachovia has no obligation to fund losses in excess of BluePoint’s equity, BluePoint assessed the discount required in valuing these instruments to reflect a market participant’s view of BluePoint’s non-performance risk. BluePoint’s valuation at June 30, 2008, reflected a very significant discount for its non-performance risk, such that BluePoint recorded no further loss on the derivative instruments in the first half of 2008. Accordingly, consolidated results for the first half of 2008 reflected no additional losses in discontinued operations.

Balance Sheet Analysis

Securities The decrease in securities from December 31, 2007, is primarily attributable to the transfer to trading of $6.8 billion of securities in connection with the January 1, 2008, election under SFAS 159 to carry these securities at fair value as well as a $2.7 billion increase in net unrealized losses due to continued spread widening predominantly on our fixed rate mortgage-backed securities, largely offset by purchases and net securities retained from agency securitizations of consumer real estate loans. The average duration of this portfolio was 4.1 years in the first half of 2008, an increase from 3.4 years at year-end 2007 driven largely by slowing prepayments. The average rate earned on securities available for sale was 5.55 percent in the first half of 2008 and 5.42 percent in the first half of 2007.

Securities Available For Sale


	*June 30,*			December 31,
(In billions)	*2008*			2007

Market value	$	113.5			115.0
Net unrealized loss	$	(4.0	)		(1.3	)

Memoranda *(Market value)*
Residual interests	$	0.4			0.5
Retained bonds Investment grade (a)	$	16.0			11.6

(a) $ 15.7 billion had credit ratings of AA and above at June 30, 2008.

The Interest Rate Risk Management section further explains our interest rate risk management practices.

We retain interests in the form of either bonds or residual interests in connection with certain securitizations primarily of residential mortgage loans, home equity loans and lines, auto loans and student loans. Securities available for sale at June 30, 2008, included residual interests with a market value of $374 million, which included a net unrealized gain of $69 million, and retained bonds from securitizations with a market value of $16.0 billion, which included a net unrealized gain of $97 million.

Retained interests from securitizations recorded as either securities available for sale, trading account assets or loans amounted to $16.7 billion at June 30, 2008, and $12.4 billion at December 31, 2007.

Loans — On-Balance Sheet


	*2008*						2007
	*Second*			First			Fourth			Third			Second
(In millions)	*Quarter*			Quarter			Quarter			Quarter			Quarter

COMMERCIAL
Commercial, financial and agricultural	$	122,628			119,193			112,509			109,269			102,397
Real estate — construction and other		18,629			18,597			18,543			18,167			17,449
Real estate — mortgage		27,191			26,370			23,846			21,514			20,448
Lease financing		24,605			23,637			23,913			23,966			24,083
Foreign		35,168			33,616			29,540			26,471			20,959

Total commercial		228,221			221,413			208,351			199,387			185,336

Consumer
Real estate secured		230,520			230,197			227,719			225,355			220,293
Student loans		9,945			9,324			8,149			7,742			6,757
Installment loans		29,261			27,437			25,635			24,763			25,017

Total consumer		269,726			266,958			261,503			257,860			252,067

Total loans		497,947			488,371			469,854			457,247			437,403
Unearned income		(9,749	)		(7,889	)		(7,900	)		(8,041	)		(8,283	)

Loans, Net (On-balance sheet)	$	488,198			480,482			461,954			449,206			429,120

Loans — Managed Portfolio (including on-balance sheet)


	*2008*				2007
	*Second*		First		Fourth		Third		Second
(In millions)	*Quarter*		Quarter		Quarter		Quarter		Quarter

Commercial	$	230,550		224,875		217,896		213,434		197,079
Real estate secured		255,190		254,685		250,520		242,526		238,575
Student loans		12,718		12,148		11,012		12,618		11,760
Installment loans		33,710		31,571		30,487		29,365		28,273

Total managed portfolio	$	532,168		523,279		509,915		497,943		475,687

Loans The 6 percent increase in net loans from year-end 2007 to $488.2 billion reflected 10 percent growth in commercial loans and 3 percent growth in consumer loans. Commercial loan growth was driven by large corporate and middle-market loans as well as commercial real estate, including the impact of $4.1 billion transferred to the loan portfolio from loans held for sale in late 2007 and early 2008 as a result of a change in management’s strategy based on our view that the market valuations provide attractive long-term investment returns.

Consumer loan growth was driven by consumer real estate and auto loans, partially offset by the impact of the securitization and sale of $3.9 billion of consumer loans, including securitization of $3.7 billion of real estate secured loans and $128 million in student loans. We transferred to held for sale $2.6 billion of real estate secured loans and transferred from held for sale $801 million of auto loans and $1.9 billion of consumer real estate loans in the Corporate and Investment Bank.

Our loan portfolio is broadly diversified by industry, concentration and geography. Additionally, the majority of the portfolio is collateralized and we periodically estimate the impact that changes in market conditions would have on our loan-to-value (LTV) positions for loans in certain portfolios. At June 30, 2008:

	•		Commercial loans represented 46 percent and consumer loans 54 percent of the loan portfolio.

	•		73 percent of the commercial loan portfolio was secured by collateral.

•

99 percent of the consumer loan portfolio was either secured by collateral or guaranteed.

Of our $230.5 billion consumer real estate loan portfolio:

	•		85 percent is secured by a first lien.

	•		84 percent has an original loan-to-value ratio of 80 percent or less.

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

	•		13 percent of the home equity and prime equity portfolios have an original loan-to-value ratio greater than 90 percent; of which 43 percent are in the first lien position.

For Pick-a-Payment loans, certain of the payment options result in deferral of interest, which is added to the loan balance. The balance of deferred interest on this portfolio at June 30, 2008, was $3.9 billion, of which $307 million related to loans classified as nonperforming, compared with $3.1 billion, of which $81 million was related to loans classified as nonperforming, at December 31, 2007.

Our managed loan portfolio grew 4 percent from year-end 2007, 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


	*2008*					2007
	*Second*			First		Fourth		Third		Second
(In millions)	*Quarter*			Quarter		Quarter		Quarter		Quarter

Nonperforming assets
Nonaccrual loans	$	11,049			7,788		4,995		2,715		1,945
Troubled debt restructurings (a)		248			48		-		-		-
Foreclosed properties		631			530		389		334		207

Total nonperforming assets	$	11,928			8,366		5,384		3,049		2,152

as % of loans, net and foreclosed properties		2.44	%		1.74		1.16		0.68		0.50

Nonperforming assets in loans held for sale	$	63			5		62		59		42

Total nonperforming assets in loans and in loans held for sale	$	11,991			8,371		5,446		3,108		2,194

as % of loans, net, foreclosed properties and loans held for sale		2.41	%		1.70		1.14		0.66		0.49

Provision for credit losses	$	5,567			2,831		1,497		408		179
Allowance for credit losses	$	10,956			6,767		4,717		3,691		3,552

Allowance for loan losses
as % of loans, net		2.20	%		1.37		0.98		0.78		0.79
as % of nonaccrual and restructured loans (b)		95			84		90		129		174
as % of nonperforming assets (b)		90			78		84		115		157
Allowance for credit losses
as % of loans, net		2.24	%		1.41		1.02		0.82		0.83

Net charge-offs	$	1,309			765		461		206		150
Commercial, as % of average commercial loans		0.88	%		0.48		0.34		0.08		0.07
Consumer, as % of average consumer loans		1.26			0.79		0.46		0.27		0.19
Total, as % of average loans, net		1.10	%		0.66		0.41		0.19		0.14

Past due accruing loans, 90 days and over	$	1,181			866		708		590		562
Commercial, as a % of loans, net		0.14	%		0.05		0.05		0.04		0.03
Consumer, as a % of loans, net		0.32	%		0.28		0.23		0.20		0.20

(a) Troubled debt restructurings were not significant prior to the first quarter of 2008.

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

Nonperforming Assets Increases in both nonaccrual loans and foreclosed properties resulting from significant weakness in the housing market particularly in stressed regions of Florida and California contributed to the $6.5 billion increase in nonperforming assets from year-end 2007 to $12.0 billion, or 2.41 percent of loans, foreclosed properties and loans held for sale at June 30, 2008. Consumer nonaccrual loans were $7.6 billion at June 30, 2008, up $4.3 billion from year-end 2007, driven primarily by new nonaccruals of $3.7 billion related to our Pick-a-Payment portfolio and $228 million related to nonbranch-originated Alt-A loans in the Corporate and Investment Bank transferred from loans held for sale to the portfolio. Commercial nonaccrual loans at June 30, 2008, were $3.4 billion, up $1.8 billion from year-end 2007, reflecting new nonaccrual loans of $3.1 billion, including $1.5 billion of residential-related commercial real estate in our Real Estate Financial Services portfolio, and three large commercial credits, partially offset by gross charge-offs of $722 million. We continue to mitigate the risk and volatility of our balance sheet through prudent risk management practices, including increased collection efforts.

Nonperforming Assets


	*2008*					2007
	*Second*			First		Fourth		Third		Second
(In millions)	*Quarter*			Quarter		Quarter		Quarter		Quarter

Nonaccrual Loans
Commercial:
Commercial, financial and agricultural	$	1,229			908		602		354		318
Commercial real estate — construction and mortgage		2,203			1,750		1,059		289		161

Total commercial		3,432			2,658		1,661		643		479

Consumer:
Real estate secured:
First lien		7,430			5,015		3,234		1,986		1,380
Second lien		147			75		58		41		44
Installment and other loans (a)		40			40		42		45		42

Total consumer		7,617			5,130		3,334		2,072		1,466

Total nonaccrual loans		11,049			7,788		4,995		2,715		1,945
Troubled debt restructurings (b)		248			48		-		-		-
Foreclosed properties		631			530		389		334		207

Total nonperforming assets	$	11,928			8,366		5,384		3,049		2,152
As % of loans, net, and foreclosed properties (c)		2.44	%		1.74		1.16		0.68		0.50

Nonperforming assets included in loans held for sale
Commercial	$	56			-		-		-		-
Consumer		7			5		62		50		37

Total nonaccrual loans		63			5		62		50		37
Foreclosed properties		-			-		-		9		5

Total nonperforming assets included in loans held for sale		63			5		62		59		42

Nonperforming assets included in loans and in loans held for sale	$	11,991			8,371		5,446		3,108		2,194
As % of loans, net, foreclosed properties and loans held for sale (d)		2.41	%		1.70		1.14		0.66		0.49

Past due loans, 90 days and over, and nonaccrual loans
Accruing loans past due 90 days and over	$	1,181			866		708		590		562
Nonaccrual loans		11,049			7,788		4,995		2,715		1,945

Total past due loans 90 days and over, and nonaccrual loans	$	12,230			8,654		5,703		3,305		2,507
Commercial, as a % of loans, net		1.73	%		1.31		0.89		0.38		0.31
Consumer, as a % of loans, net		3.12	%		2.19		1.49		1.00		0.78

(a) Principally auto loans; nonaccrual status does not apply to student loans.

(b) Troubled debt restructurings were not significant prior to the first quarter of 2008.

(d) These ratios reflect nonperforming assets included in loans held for sale.

Nonperforming assets at June 30, 2008, included $248 million of troubled debt restructurings, all of which were consumer real estate-secured loans and included $129 million of Pick-a-Payment loans, $73 million of predominantly first lien home equity loans and $46 million of first lien construction loans to consumer borrowers. A loan is classified as a troubled debt restructuring in situations where we modify a loan to a borrower who is unable to make payments under the terms of the loan agreement and the modification represents a concession to the borrower as measured using a discounted cash flows analysis. The majority of our troubled debt restructurings involve interest rate reductions.

Past Due Loans Accruing loans 90 days or more past due, excluding loans that are classified as loans held for sale, were $1.2 billion at June 30, 2008, compared with $708 million at year-end 2007. Of the total past due loans, $312 million were commercial loans or commercial real estate loans and $869 million were consumer loans.

Charge-offs


	*2008*					2007
	*Second*			First		Fourth		Third		Second
(In millions)	*Quarter*			Quarter		Quarter		Quarter		Quarter

Loan losses:
Commercial, financial and agricultural	$	254			171		67		41		39
Commercial real estate — construction and mortgage		216			81		117		5		4

Total commercial		470			252		184		46		43
Real estate secured		700			351		156		59		40
Student loans		3			3		4		5		2
Installment and other loans (a)		230			242		225		168		138

Total consumer		933			596		385		232		180

Total loan losses		1,403			848		569		278		223
Loan recoveries:
Commercial, financial and agricultural		15			14		22		9		15
Commercial real estate — construction and mortgage		-			1		-		3		-

Total commercial		15			15		22		12		15
Real estate secured		18			10		9		12		11
Student loans		1			1		2		3		-
Installment and other loans (a)		60			57		75		45		47

Total consumer		79			68		86		60		58

Total loan recoveries		94			83		108		72		73

Net charge-offs:
Commercial, financial and agricultural		239			157		45		32		24
Commercial real estate — construction and mortgage		216			80		117		2		4

Total commercial		455			237		162		34		28
Real estate secured		682			341		147		47		29
Student loans		2			2		2		2		2
Installment and other loans (a)		170			185		150		123		91

Total consumer		854			528		299		172		122

Net charge-offs	$	1,309			765		461		206		150
Net charge-offs as a % of average loans, net(b)
Commercial, financial and agricultural		0.60	%		0.41		0.12		0.10		0.07
Commercial real estate — construction and mortgage		1.89			0.73		1.12		0.02		0.04

Total commercial		0.88			0.48		0.34		0.08		0.07
Real estate secured		1.18			0.59		0.26		0.08		0.05
Student loans		0.07			0.08		0.10		0.14		0.07
Installment and other loans (a)		2.36			2.76		2.35		1.99		1.47

Total consumer		1.26			0.79		0.46		0.27		0.19

Total, as % of average loans, net		1.10	%		0.66		0.41		0.19		0.14

Consumer real estate secured net charge-offs:
First lien	$	592			291		122		32		17
Second lien		90			50		25		15		12

Total consumer real estate secured net charge-offs	$	682			341		147		47		29

(a) Principally auto loans.

(b) Annualized.

Net Charge-offs Net charge-offs, which represent loan amounts written off as uncollectible, net of recoveries of previously charged-off amounts, were $2.1 billion, or 88 basis points of average net loans in the first half of 2008, an increase of $1.8 billion from the first half of 2007. The increase was driven by the effect of declining home values particularly in stressed markets such as California and Florida. Commercial net charge-offs were $692 million in the first half of 2008,

compared with $56 million in the first half of 2007, and included $296 million in residential-related commercial real estate loans. Consumer net charge-offs were $1.4 billion, up $1.1 billion from the first half of 2007. The increase in consumer net charge-offs was driven by consumer real estate losses of $1.0 billion, including Pick-a-Payment losses of $748 million, and installment losses of $355 million, including $274 million in the auto portfolio.

Allowance for Credit Losses


	*2008*						2007
	*Second*			First			Fourth			Third			Second
(In millions)	*Quarter*			Quarter			Quarter			Quarter			Quarter

Allowance for credit losses (a)
Allowance for loan losses, beginning of period	$	6,567			4,507			3,505			3,390			3,378
Net charge-offs		(1,309	)		(765	)		(461	)		(206	)		(150	)
Allowance relating to loans acquired, transferred to loans held for sale or sold		(69	)		(16	)		(10	)		(63	)		(10	)
Provision for credit losses related to loans transferred to loans held for sale or sold (b)		51			7			6			3			4
Provision for credit losses		5,504			2,834			1,467			381			168

Allowance for loan losses, end of period		10,744			6,567			4,507			3,505			3,390

Reserve for unfunded lending commitments, beginning of period		200			210			186			162			155
Provision for credit losses		12			(10	)		24			24			7

Reserve for unfunded lending commitments, end of period		212			200			210			186			162

Allowance for credit losses	$	10,956			6,767			4,717			3,691			3,552

Allowance for loan losses
as % of loans, net		2.20	%		1.37			0.98			0.78			0.79
as % of nonaccrual and restructured loans (c)		95			84			90			129			174
as % of nonperforming assets (c)		90			78			84			115			157
Allowance for credit losses
as % of loans, net		2.24	%		1.41			1.02			0.82			0.83

(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.

Provision and Allowance for Credit Losses Provision expense was $8.4 billion in the first half of 2008 and $356 million in the first half of 2007, with the increase driven mostly by the effect of dramatic deterioration in certain housing markets. Provision exceeded net charge-offs by $6.3 billion, which included:

	•		$5.7 billion due principally to higher expected loss factors for Pick-a-Payment, home equity and traditional mortgage, and auto portfolios on significant market weakness and changing consumer behaviors. Of this amount, $4.4 billion related to the Pick-a-Payment portfolio.

	•		$247 million on the commercial portfolio on higher loss frequency and severity expectations.

	•		$157 million on the commercial real estate portfolio, including $127 million on impaired loans.

	•		$165 million higher unallocated reserves due to increased credit risk uncertainty stemming from economic and other market environmental factors.

In the first quarter of 2008, we updated our credit loss modeling for the Pick-a-Payment portfolio in the context of significant continuing deterioration in the housing market particularly in certain geographic areas, resulting in additional reserves of $4.4 billion. Our credit loss modeling strongly correlates forward expected losses to changes in home prices and the resulting change in borrower behavior, although it does rely on historical delinquency trends over the shorter term. In addition, the updated model incorporates a variety of loan and/or borrower

characteristics to further enhance loss forecasting by correlating borrower propensity to default and resulting loss severity to a widely used home price index, and it connects borrower equity to projected changes in home prices by geographic region. In the second quarter of 2008, the Pick-a-Payment portfolio performed below our first quarter 2008 expectations as trends and outlooks for both housing and the economy continued to worsen. As a result of these negative trends and outlooks, we further updated our model inputs to reflect greater sensitivity to changes in borrower equity and more severe home price decline scenarios, which resulted in increased 12-month forward expected losses for the portfolio. We use 12-month forward expected losses as a measure of probable incurred losses in the portfolio as of the balance sheet date.

More information on the provision for credit losses, including the impact of transfers to loans held for sale, is in Table 11: Allowance for Credit Losses. The Corporate Results of Operations section has further information.

The allowance for credit losses increased $6.2 billion from year-end 2007 to $11.0 billion at June 30, 2008, reflecting increased overall credit risk and loan growth. Our allowance for loan losses as a percent of nonperforming assets increased to 90 percent at June 30, 2008, from 84 percent at December 31, 2007. In the context of evaluating this allowance coverage ratio, it is important to note the high percentage of our portfolio that is collateralized and our low level of unsecured loans, such as credit card loans, which on an industry-wide basis typically generate higher losses.

The reserve for unfunded lending commitments increased $2 million from year-end 2007 to $212 million at June 30, 2008, which reflected slightly increased volume. The reserve for unfunded lending commitments relates to commercial lending activity.

Loans Held for Sale Loans held for sale declined $8.3 billion from year-end 2007 to $8.4 billion at June 30, 2008, as $6.9 billion of transfers to the loan portfolio of commercial and consumer real estate and auto loans, largely in the first quarter, and sales activity were somewhat offset by leveraged finance fundings. Net write-downs on the held for sale portfolio amounted to $461 million in the first half of 2008 compared with $104 million in the same period a year ago.

The loans held for sale portfolio includes 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, 2008 and 2007, core business activity represented the majority of loans held for sale. Core business activity includes residential and commercial mortgages, auto loans and credit card receivables that we originate with the intent to sell to third parties.

In the first half of 2008, we sold or securitized $19.5 billion in loans out of the loans held for sale portfolio, including $5.6 billion of commercial loans and $13.9 billion of consumer loans. In the first half of 2007, we sold or securitized $35.7 billion of loans out of the loans held for sale portfolio, including $23.7 billion of commercial loans and $12.0 billion of consumer loans, primarily residential mortgages. Substantially all of the loans sold in both periods were performing.

Goodwill

Goodwill amounted to $37.0 billion at June 30, 2008, compared with $43.1 billion at December 31, 2007, with the decrease related to the second quarter 2008 goodwill impairment charge of $6.1 billion described below.

In 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 are subject to refinement for up to one year following acquisition consummation.

Related to the October 1, 2007, A.G. Edwards acquisition, in the first half of 2008, we recorded fair value and exit cost purchase accounting adjustments amounting to a net $25 million increase in goodwill. Based on a purchase price of $6.8 billion, A.G. Edwards tangible stockholders’ equity of $2.2 billion and a customer relationship intangible of $850 million ($513 million after-tax), goodwill amounted to $4.1 billion at June 30, 2008.

Goodwill impairment testing is performed at the sub-segment level (referred to as the reporting unit). The eight reporting units are General Bank: Commercial, and Retail and Small Business; Wealth Management; Corporate and Investment Bank: Corporate Lending, Investment Banking, and Treasury and International Trade Finance; and Capital Management: Retail Brokerage Services and Asset Management. The Critical Accounting Policies: Goodwill Impairment section discusses our methodology, including the two-step testing process, and the key estimates and judgments involved in testing goodwill for impairment.

We performed goodwill impairment testing for all eight reporting units at December 31, 2007, March 31, 2008, and June 30, 2008. There was no indication of impairment in the first step of the test in any of these reporting units at either December 31, 2007, or March 31, 2008, and accordingly, we did not perform the second step. At June 30, 2008, there was an indication of impairment in four of our eight reporting units, and accordingly, the second step was performed on these four reporting units. Based on the results of the second step, we recorded the $6.1 billion goodwill impairment charge in the second quarter of 2008 across three of the four reporting units, as shown in the table below.

Goodwill Impairment

General Bank

Corporate and Investment Bank

All Other

June 30,

Retail and

Corporate

Investment

Reporting

2008

(Dollars in millions)

Commercial

Small Business

Lending

Banking

Units

Total

Assigned goodwill

7,083

23,976

2,937

597

8,460

43,053

Impairment

(2,526

)

(2,937

)

(597

)

(6,060

)

Remaining goodwill

4,557

23,976

8,460

36,993

The primary cause of impairment of our goodwill in the three reporting units was the 38 percent decline in our market capitalization from March 31, 2008, to $33.5 billion at June 30, 2008. The decline was a function of both financial services industry-wide and company-specific factors. Although there was an initial indication of possible impairment in the General Bank Retail and Small Business reporting unit, which holds the Pick-a-Payment portfolio, the step two measurement indicated no impairment largely due to the value that the retail banking network contributes to that reporting unit.

The goodwill impairment charge includes all of the goodwill assigned to the two reporting units in the Corporate and Investment Bank that were subject to the step two analysis and approximately one-third of the goodwill assigned to the Commercial reporting unit in the General Bank. As indicated in the Critical Accounting Policies section, the total fair value of the reporting units does not exceed our June 30, 2008, market capitalization plus a control premium (referred to as enterprise value). As an indication of the relative sensitivity of the goodwill impairment measurement to changes in the enterprise value, a 30 percent decrease in the enterprise value would increase the impairment charge by approximately $2 billion in the Commercial reporting unit and would not result in impairment in the Retail and Small Business reporting unit.

Liquidity and Capital Adequacy

We have recently announced a series of initiatives to preserve, generate and protect capital and maintain strong liquidity as described in the Executive Summary. Our liquidity position benefits from our liquidity management processes, which we have had in place for many years. Throughout the current credit markets disruption, we have heightened our focus on balance sheet liquidity. Our liquidity management processes incorporate liquidity stress-testing in a range of possible scenarios. In addition, we focus on both assets and liabilities and the manner in which they combine to provide adequate liquidity to meet our objectives. As one of the largest deposit-funded financial institutions in the country, we have a stable funding base with 87 percent of our funding provided through deposits, long-term debt and capital.

Core Deposits Core deposits increased modestly from year-end 2007 to $400.4 billion at June 30, 2008. Compared with the first half of 2007, average core deposits in the first half of 2008 increased 5 percent to $392.6 billion. Average low-cost core deposits, which exclude consumer certificates of deposit, increased 7 percent, to $274.0 billion. Average consumer certificates of deposit rose $131 million from the first half of 2007. Core deposit growth benefited from higher retail brokerage deposits driven by the A.G. Edwards acquisition as well as organic growth, including our new retail checking account product Way2Save, which was launched in early 2008.

Purchased Funds Purchased funds, which include federal funds purchased, commercial paper, other short-term borrowings and foreign and other time deposits with maturities of 12 months or less, were $102.9 billion at June 30, 2008, compared with $102.1 billion at December 31, 2007.

Average purchased funds were $101.6 billion in the first half of 2008 and $78.8 billion in the first half of 2007. The level of average purchased funds has increased since the beginning of the third quarter of 2007, reflecting significantly higher liquidity levels in response to the market disruption.

Long-term Debt Long-term debt was $184.4 billion at June 30, 2008, and $161.0 billion at December 31, 2007, reflecting issuances of $45.2 billion, including $21.5 billion in Federal Home Loan Bank advances in the first half of 2008, partially offset by maturities. In the rest of 2008, scheduled maturities of long-term debt amount to $20.7 billion, which includes $8.8 billion in Federal Home Loan Bank advances and $1.0 billion in structured debt. We anticipate replacing the maturing obligations, subject to market conditions.

Wachovia and Wachovia Bank, National Association have a $25.0 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 $2.3 billion of debt securities in the first six months of 2008 and had up to $22.4 billion available for issuance at June 30, 2008.

In addition, Wachovia and Wachovia Bank, National Association have 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. No AMTN debt securities were issued in the first half of 2008. We had up to A$8.5 billion available for issuance at June 30, 2008.

At June 30, 2008, we had $17.5 billion of senior or subordinated debt securities, common stock or preferred stock available for issuance under our current shelf registration statement filed with the SEC. In the first half of 2008, we issued $11.55 billion of common stock and preferred stock under

this program. The Stockholders’ Equity section has more information. In addition, we had available for issuance up to $8.4 billion under a medium-term note program covering senior or subordinated debt securities under a separate shelf registration filed with the SEC. We issued $6.3 billion of senior and subordinated debt securities in the first half of 2008 under this program. Wachovia Bank has a global note program under which we issued $7.4 billion of senior and subordinated bank notes in the first half of 2008. We had $49.0 billion available for issuance under this program at June 30, 2008.

We also have a shelf registration with the SEC under which we may offer and sell hybrid trust preferred securities. At June 30, 2008, $2.5 billion was available for issuance under this shelf registration.

In June 2008, Wachovia Bank, National Association obtained $6.0 billion of term funding in a transaction with a third party. For liquidity management purposes, this funding, due to its terms, is considered one-year financing, but it has a contractual maturity of June 2038.

The issuance of debt or equity securities may continue under any of our programs and depends on future market conditions, funding needs and other factors.

Following our second quarter 2008 earnings announcement on July 22, 2008, Fitch Ratings, Standard and Poor’s and Moody’s each downgraded the long-term debt ratings of Wachovia Corporation and its rated subsidiaries by one grade, which was above investment grade. All short-term ratings were affirmed.

Credit Lines Wachovia 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.

Stockholders’ Equity Stockholders’ equity declined 2 percent from $76.9 billion at year-end 2007 to $75.1 billion at June 30, 2008. In February 2008, we issued $3.5 billion of perpetual preferred stock. In April 2008, we issued in concurrent public offerings an aggregate $8.05 billion of capital consisting of 168 million shares or $4.025 billion of common stock and 4 million shares or $4.025 billion of 7.5 percent perpetual convertible preferred stock. The effect on stockholders’ equity of the issuance of $11.55 billion of additional capital from these offerings was more than offset by $9.6 billion of net losses in the first half of 2008, $2.1 billion of common stock dividends and $236 million of preferred stock dividends paid in the first half of 2008, a $20 million reduction related to share repurchases, a $24 million reduction related to adoption of new accounting standards, and a $2.7 billion increase in after-tax depreciation in securities available for sale to $4.0 billion at June 30, 2008.

Dividend and Share Activity


	Six Months Ended
			June 30,
(In millions, except per share data)	*2008*		2007

Dividends on common shares	$	2,082		2,137
Dividends per common share	$	1.02		1.12
Common shares repurchased		1		18
Average diluted common shares outstanding		2,048		1,922

In the six months ended June 30, 2008, we repurchased 540,000 common shares at a cost of $20 million. At June 30, 2008, we had authorization to buy back approximately 19 million shares of common stock. Our Second Quarter 2008 Report on Form 10-Q has additional information related to share repurchases.

In the first half of 2008, we reduced the quarterly dividend on our common stock twice; first, from 64 cents to 37.5 cents per common share effective with the June 2008 dividend, and then

from 37.5 cents to 5 cents per common share effective with the September 15, 2008, dividend. The Executive Summary has further information.

In connection with the January 1, 2008, adoption of new fair value accounting standards, certain of the effects of adoption were recorded as an adjustment to January 1, 2008, retained earnings and the amount was insignificant.

Also on January 1, 2008, we adopted two new accounting pronouncements relating to the accounting for split-dollar life insurance policies that we hold on certain current and former employees. The effect of adoption of these standards amounted to a $19 million after-tax reduction in January 1, 2008, retained earnings.

Subsidiary Dividends Wachovia Bank and Wachovia Mortgage, FSB (formerly World Savings Bank, FSB) 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, 2008, our subsidiaries had $9.2 billion available for dividends that could be paid without prior regulatory approval. Our subsidiaries paid $22 million to the parent company in the first half of 2008.

Regulatory Capital Our capital ratios were above regulatory minimums at June 30, 2008, and we continued to be classified as well capitalized. The tier 1 capital ratio was 8.00 percent at June 30, 2008, up from 7.35 percent at December 31, 2007. Our total capital ratio was 12.74 percent and our leverage ratio was 6.57 percent at June 30, 2008, and 11.82 percent and 6.09 percent, respectively, at December 31, 2007. The goodwill impairment charge had no impact on our regulatory capital ratios or tangible capital levels because goodwill is deducted when computing those ratios.

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, included in the Summary of Off-Balance Sheet Exposures table, involve varying elements of market, credit and liquidity risk. Generally these transactions are forms of guarantees that contingently require us to make payments to a guaranteed party based on an event or change in an underlying asset, liability, rate or index.

Summary of Off-Balance Sheet Exposures


	*June 30, 2008*				December 31, 2007
	*Carrying*				Carrying
(In millions)	*Amount*		*Exposure*		Amount		Exposure

GUARANTEES
Securities and other lending indemnifications	$	-		48,041		-		59,238
Standby letters of credit		118		32,423		124		29,295
Liquidity agreements		360		29,773		14		36,926
Loans sold with recourse		45		6,111		44		6,710
Residual value guarantees		-		1,315		-		1,220
Written put options		2,373		14,892		2,001		15,273

Total guarantees	$	2,896		132,555		2,183		148,662

The decrease in securities and other lending indemnifications exposure reflected seasonality. The decrease in liquidity agreement exposure was due to lower volume in our off-balance sheet commercial paper conduit as a result of our strategic focus on customer relationships and protecting our liquidity profile. The increase in the carrying amount of written put options was due to widening

spreads on liquidity puts related to certain ABS CDOs. Of the written put option exposure, approximately $400 million is included in our market disruption-related distribution exposure.

In addition to the off-balance sheet exposures in the table above, the Business Segments: Parent section provides information on the option Prudential holds relative to their minority interest in our retail brokerage joint venture, and the Business Segments: Capital Management section provides information on the second quarter 2008 consolidation of a fund we manage.

Risk Governance and Administration

Market Risk Management We 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 Value at Risk 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. As of January 1, 2008, we chose to split our VaR analysis into two categories: discretionary VaR, which is subject to limits, and nondiscretionary VaR, which is reserved for positions in runoff and for positions under the discretion of the asset and liability committee. On May 20, 2008, the market risk committee increased our 1-day VaR limit on the discretionary portion from $50 million to $70 million due to volatility arising from the market disruptions and the effect of the adoption of fair value accounting, which resulted in the addition of the mortgage pipeline and associated hedges to the VaR analysis. The total 1-day VaR was $65 million at June 30, 2008, and $62 million at December 31, 2007, and was primarily related to interest rate risk and credit spread risk. The high, low and average VaRs in the first half of 2008 were $78 million, $54 million and $66 million, respectively.

Interest Rate Risk Management One of the fundamental roles in banking is the management of interest rate risk, or the risk that changes in interest rates may diminish the 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 net interest income 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 an asset-sensitive balance sheet. 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.

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 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.

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.

Our policy is to limit the risk we can take through balance sheet management actions such that consolidated net interest income will not be negatively affected by more than 3.5 percent in both rising and falling rate environments over the policy measurement period. In June 2008, we established our policy limit as a percent of net interest income rather than our previously defined limit of 5 percent of consolidated net income. This change was made to decrease the volatility of the measurement caused by items unrelated to the margin. The policy is sized to be in line with our historical interest rate risk limits.

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 net interest income in both “high rate” and “low rate” scenarios to the “market forward rate.” Our 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 net interest income at risk.

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 net interest income in a 400 basis point range, or 200 basis points both above and below the “market forward rate” scenario. Based on our July 2008 forward rate expectation, our various scenarios together measure net interest income volatility to a June 2009 federal funds rate ranging from 1.15 percent to 5.15 percent. We always incorporate into our modeling all repricing and balance sheet dynamics that depend on interest rate levels. For example, in the current market outlook and low rate scenario referenced above, we particularly stress the repricing characteristics of our deposit portfolio. We expect deposit repricing downward to be slowed in very low rate environments and we have taken actions to mitigate this risk.

We simultaneously measure the impact of a parallel and nonparallel shift in rates on each of our interest rate scenarios. A parallel shift would, as the term implies, shift all points on the yield curve by the same increments. For example, by the twelfth month in our policy measurement period, short-term rates such as the federal funds rate would increase by 200 basis points over the “market forward rate,” while longer term rates such as the 10-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 is 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.

Net Interest Income Sensitivity The Policy Period Sensitivity Measurement table provides a summary of our interest rate sensitivity measurements, and as noted earlier, in June 2008 we changed our sensitivity measurement to measure sensitivity over a base of net interest income rather than consolidated net income.

The July 2008 forward rate expectations imply a high probability that the federal funds rate will increase by 115 basis points by the end of our policy period in June 2009. If this occurs, the spread between the 10-year treasury note rate and the target federal funds rate would migrate from a positive 197 basis points of slope at June 30, 2008, to a positive slope of 121 basis points by June 2009. The long-term average spread is a positive 113 basis points. Because it is unlikely short-term rates would rise an additional 200 basis points above the market forward rates while all other points on the yield curve would move in simultaneous parallel increments, 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 throughout the policy period 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
Sensitivity Measurement

Implied

Percent

Fed Funds

Net Interest

Rate at

Rate for

Income

June 30, 2008

June 2009

Sensitivity

Market Forward Rate Scenarios (a)

2.00

3.15

High Rate Composite

5.15

(0.90

)

Low Rate

1.15

0.50

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

In July 2008, our earnings simulation model indicated net interest income would be negatively affected by 0.9 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 rates decline by less than 200 basis points relative to the “market forward rate” scenario. The model indicates net interest income would be positively affected by 0.5 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 net interest income and we implement such strategies when we believe those actions are prudent. As new monthly outlooks become available, we formulate strategies aimed at protecting net interest income 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.

Business Combinations and Noncontrolling Interests In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 (revised), Business Combinations (SFAS 141(R)), and SFAS 160, Noncontrolling

Interests in Consolidated Financial Statements—an amendment of ARB 51. These new standards will significantly change the accounting and reporting for business combinations and noncontrolling interests (previously referred to as minority interests).

SFAS 141(R) retains the fair value model for assets and liabilities acquired in a business combination while making other significant changes to business combination accounting. The more significant changes include: recognizing 100 percent of the fair values of assets and liabilities acquired in acquisitions of less than a 100 percent controlling interest, measuring shares issued as consideration in a business combination based on their fair value at the acquisition date, recognizing contingent consideration arrangements and pre-acquisition gain and loss contingencies at their respective acquisition date fair values, expensing acquisition-related transaction costs as incurred, and capitalizing acquisition-related restructuring costs only if certain criteria are met.

SFAS 160 retains much of the existing guidance for consolidation while making significant changes to the reporting of noncontrolling interests, which we currently report as liabilities. Under SFAS 160, noncontrolling interests in consolidated subsidiaries will be reported as a component of stockholders’ equity. Also under SFAS 160, a change in ownership interests in a consolidated subsidiary that does not result in loss of control will be recorded directly to stockholders’ equity. A change in ownership interest that results in deconsolidation may trigger recognition of a gain or loss and establishment of a new fair value basis in the remaining interest held.

These standards are effective on January 1, 2009, for calendar year-end companies, with early adoption prohibited. SFAS 141(R) is effective for business combinations for which the acquisition date is on or after the adoption date. SFAS 160 must be adopted prospectively with retrospective adoption required for disclosure of noncontrolling interests held as of the adoption date.

Derivative Disclosure In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133, which enhances the disclosure requirements for derivative instruments and hedging activities. SFAS 161 requires quantitative disclosures of the fair value of all derivative instruments by primary underlying risk and accounting designation, as well as gains and losses recognized on derivative instruments. Further, SFAS 161 requires qualitative disclosures about how and why a company uses derivatives as well as any credit risk-related contingencies. This new standard is effective on January 1, 2009.

Hedge Accounting In June 2008, the FASB issued an exposure draft of a proposed Statement of Financial Accounting Standards, Accounting for Hedging Activities—an amendment of FASB Statement No. 133. The FASB’s primary objectives in undertaking this project are to simplify the accounting for hedging activities, improve financial reporting for hedging activities, and resolve practice issues that have arisen under SFAS No. 133. The proposed changes are substantial including an amendment that will no longer permit companies to hedge by individual risk (for example, benchmark interest rate). Further, significant changes are being proposed to the frequency and manner in which a company must assess whether a hedge is effective in offsetting the overall changes in fair value of the hedged item. Additional provisions of the exposure draft would affect a company’s ability to achieve hedge accounting and the income/expense recognition associated with hedging instruments.

The exposure draft provides for an effective date of January 1, 2010. We have not completed our assessment of the potential impact that a new standard, if finalized as currently drafted, would have on us.

Transfers of Financial Assets and Consolidation The FASB has an ongoing project that may result in significant changes to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and FASB Interpretation (FIN) No. 46R, Consolidation of Variable Interest Entities.

The FASB has tentatively decided to remove the concept of a qualifying special purpose entity (QSPE) from SFAS 140, thereby eliminating the exception from consolidation that is accorded to QSPEs. This will have the effect of dramatically increasing the number of variable interest entities that companies must evaluate for consolidation under FIN 46R. The FASB has also decided to make other amendments to SFAS 140 and FIN 46R that may significantly reduce the number of transactions that qualify for off-balance sheet treatment, which may result in assets and liabilities remaining on a transferor’s or sponsor’s balance sheet.

The FASB currently plans to issue exposure drafts of amendments to SFAS 140 and FIN 46R in the third quarter of 2008, with final standards effective on January 1, 2010. We cannot predict with certainty whether any guidance will be issued, what changes may be required to the structure of or the accounting for transactions subject to SFAS 140 or FIN 46R, or what the transition provisions for implementation of any new guidance would be.

Legislative and Regulatory Matters Various 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 effect 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 2007 Annual Report on Form 10-K.

In June 2004, the Basel Committee on Bank Supervision published new international guidelines for determining regulatory capital (Basel II) that are designed to be more risk sensitive than the current framework. In December 2007, the U.S. regulatory agencies jointly adopted a final rule for Basel II that represents the U.S. version of the international guidelines. Under the final rule, which was effective April 1, 2008, we must adopt a board of directors-approved implementation plan by October 1, 2008, and begin a three-year transitional period for capital calculation no later than April 1, 2011. The final rule also requires that prior to beginning the three-year transitional period, we complete a satisfactory parallel run period of no less than four consecutive calendar quarters during which we will be required to confidentially report regulatory capital under the new risk-based capital rule as well as under the existing capital rule. The final rule allows banks to enter a parallel run starting in April 2008, and the first possible years for the transitional periods are 2009 through 2011. We have established necessary project management infrastructure, funding and management support to ensure we will comply with the new regulations.

Table 1

EXPLANATION OF OUR USE OF NON-GAAP FINANCIAL MEASURES

In addition to 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, other intangible amortization and goodwill impairment charges; net interest income excluding charges related to certain leasing transactions widely referred to as SILO transactions; and net interest income on a tax-equivalent basis. In addition, Wachovia presents certain information regarding its loan portfolio on a “managed” basis, which is a non-GAAP financial measure that combines loans reported on-balance sheet with 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.

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, other intangible amortization and goodwill impairment charges, as well as the exclusion of the SILO lease-related charge from net interest income, 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 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, to the extent any of these non-GAAP financial measures are included in this report, is presented below or elsewhere in this report, including in the Loans — On-Balance Sheet, and Managed and Servicing Portfolios table.

Three Months Ended

Six Months Ended

June 30,

(In millions)

2008

2007

2008

2007

Net interest income (GAAP)

4,290

4,449

9,042

8,949

Tax-equivalent adjustment

107

Net interest income (Tax-equivalent)

4,344

4,487

9,149

9,024

Table 2

SELECTED STATISTICAL DATA


	*2008*						2007
	*Second*			First			Fourth		Third		Second
(Dollars in millions, except per share data)	*Quarter*			Quarter			Quarter		Quarter		Quarter

PROFITABILITY
Return on average common stockholders’ equity		(50.47	)%		(3.81	)		0.28		9.19		13.54
Return on average total stockholders’ equity		(43.86	)		(3.39	)		0.28		9.19		13.54
Net interest margin (a)		2.58			2.92			2.88		2.92		2.96
Fee and other income as % of total revenue		42.15			36.62			36.99		39.02		48.58
Effective income tax rate		18.06	%		26.02			122.05		27.33		32.78

ASSET QUALITY
Allowance for loan losses as % of loans, net		2.20	%		1.37			0.98		0.78		0.79
Allowance for loan losses as % of nonperforming assets (b)		90			78			84		115		157
Allowance for credit losses as % of loans, net		2.24			1.41			1.02		0.82		0.83
Net charge-offs as % of average loans, net		1.10			0.66			0.41		0.19		0.14
Nonperforming assets as % of loans, net, foreclosed properties and loans held for sale		2.41	%		1.70			1.14		0.66		0.49

CAPITAL ADEQUACY
Tier 1 capital ratio		8.00	%		7.42			7.35		7.10		7.47
Total capital ratio		12.74			12.05			11.82		10.84		11.46
Leverage		6.57			6.18			6.09		6.10		6.23
Tangible capital ratio		4.68			4.31			4.29		4.19		4.30
Tangible capital ratio (c)		5.07	%		4.59			4.50		4.56		4.76

OTHER DATA
FTE employees		119,952			120,378			121,890		109,724		110,493
Total financial centers/brokerage offices		4,820			4,850			4,894		4,167		4,135
ATMs		5,277			5,308			5,139		5,123		5,099
Actual common shares (In millions) (d)		2,159			1,992			1,980		1,901		1,903
Common stock price	$	15.53			27.00			38.03		50.15		51.25
Market capitalization (d)	$	33,527			53,782			75,302		95,326		97,530

(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.

(d) Includes restricted stock for which the holder receives dividends and has full voting rights.

Table 3

SUMMARIES OF INCOME, PER COMMON SHARE AND BALANCE SHEET DATA


	*2008*						2007
	*Second*			First			Fourth			Third			Second
(In millions, except per share data)	*Quarter*			Quarter			Quarter			Quarter			Quarter

SUMMARIES OF INCOME
Interest income	$	8,646			10,179			10,910			10,831			10,350
Tax-equivalent adjustment		54			53			44			33			38

Interest income (a)		8,700			10,232			10,954			10,864			10,388
Interest expense		4,356			5,427			6,280			6,280			5,901

Net interest income (a)		4,344			4,805			4,674			4,584			4,487
Provision for credit losses		5,567			2,831			1,497			408			179

Net interest income after provision for credit losses (a)		(1,223	)		1,974			3,177			4,176			4,308
Securities gains (losses)		(808	)		(205	)		(320	)		(34	)		23
Fee and other income		3,973			2,982			3,064			2,967			4,217
Merger-related and restructuring expenses		251			241			187			36			32
Goodwill impairment		6,060			-			-			-			-
Other noninterest expense		6,473			5,200			5,599			4,489			4,858
Minority interest in income of consolidated subsidiaries		(18	)		155			107			189			139

Income (loss) from continuing operations before income taxes (benefits) (a)		(10,824	)		(845	)		28			2,395			3,519
Income taxes (benefits)		(1,963	)		(234	)		(209	)		656			1,140
Tax-equivalent adjustment		54			53			44			33			38

Income (loss) from continuing operations		(8,915	)		(664	)		193			1,706			2,341
Discontinued operations, net of income taxes		-			-			(142	)		(88	)		-

Net income (loss)		(8,915	)		(664	)		51			1,618			2,341
Dividends on preferred stock		193			43			-			-			-

Net income (loss) available to common stockholders	$	(9,108	)		(707	)		51			1,618			2,341

PER COMMON SHARE DATA
Basic earnings
Income (loss) from continuing operations	$	(4.31	)		(0.36	)		0.10			0.91			1.24
Net income (loss) available to common stockholders		(4.31	)		(0.36	)		0.03			0.86			1.24
Diluted earnings (b) Income (loss) from continuing operations		(4.31	)		(0.36	)		0.10			0.90			1.22
Net income (loss) available to common stockholders		(4.31	)		(0.36	)		0.03			0.85			1.22
Cash dividends	$	0.38			0.64			0.64			0.64			0.56
Average common shares - Basic		2,111			1,963			1,959			1,885			1,891
Average common shares - Diluted		2,119			1,977			1,983			1,910			1,919
Average common stockholders’ equity Quarter-to-date	$	72,579			74,697			73,599			69,857			69,317
Year-to-date		73,638			74,697			70,533			69,500			69,318
Book value per common share (c)		30.25			36.24			37.66			36.90			36.40
Common stock price High		30.08			38.76			51.80			52.64			56.81
Low		15.53			25.60			38.03			44.94			51.25
Period-end	$	15.53			27.00			38.03			50.15			51.25
To earnings ratio (d)		(4.10	)X		15.52			11.52			11.22			10.70
To book value		51	%		75			101			136			141
BALANCE SHEET DATA
Assets	$	812,433			808,575			782,896			754,168			715,428
Long-term debt	$	184,401			175,653			161,007			158,584			142,047

(a) Tax-equivalent.

(b) Calculated using average basic common shares in 2008.

(c) Share count in the calculation includes restricted stock for which the holder receives dividends and has full voting rights.

(d) Based on diluted earnings per common share.

Table 5

BUSINESS SEGMENTS (a)


	*2008*					2007
	*Second*			First		Fourth		Third		Second
(Dollars in millions)	*Quarter*			Quarter		Quarter		Quarter		Quarter

GENERAL BANK COMBINED (b)
Net interest income (c)	$	3,671			3,445		3,401		3,464		3,372
Fee and other income		1,000			980		929		936		935
Intersegment revenue		57			55		58		59		56

Total revenue (c)		4,728			4,480		4,388		4,459		4,363
Provision for credit losses		919			569		320		207		154
Noninterest expense		2,050			2,038		2,037		1,897		1,922
Income taxes		632			673		730		850		824
Tax-equivalent adjustment		10			11		11		11		10

Segment earnings	$	1,117			1,189		1,290		1,494		1,453

Economic profit	$	919			992		1,043		1,189		1,124
Risk adjusted return on capital		33.02	%		42.43		47.99		54.28		52.66
Economic capital, average	$	16,786			12,693		11,183		10,898		10,821
Cash overhead efficiency ratio (c)		43.35	%		45.50		46.42		42.56		44.05
Lending commitments	$	133,201			132,805		133,733		132,779		129,851
Average loans, net		319,574			311,556		303,396		294,709		291,607
Average core deposits	$	290,381			297,171		296,194		290,133		290,455
FTE employees		54,415			54,831		55,559		56,519		57,574

COMMERCIAL
Net interest income (c)	$	1,013			943		932		903		865
Fee and other income		133			131		116		114		110
Intersegment revenue		46			43		43		44		42

Total revenue (c)		1,192			1,117		1,091		1,061		1,017
Provision for credit losses		180			174		178		121		96
Noninterest expense		394			400		389		347		353
Income taxes		215			187		181		205		198
Tax-equivalent adjustment		10			11		11		11		10

Segment earnings	$	393			345		332		377		360

Economic profit	$	224			213		240		256		230
Risk adjusted return on capital		28.20	%		28.09		33.01		35.20		33.43
Economic capital, average	$	5,245			5,015		4,333		4,196		4,110
Cash overhead efficiency ratio (c)		33.04	%		35.78		35.73		32.64		34.79
Average loans, net	$	88,272			84,875		82,127		80,172		78,178
Average core deposits	$	45,396			47,844		46,460		42,828		43,145

RETAIL AND SMALL BUSINESS
Net interest income (c)	$	2,658			2,502		2,469		2,561		2,507
Fee and other income		867			849		813		822		825
Intersegment revenue		11			12		15		15		14

Total revenue (c)		3,536			3,363		3,297		3,398		3,346
Provision for credit losses		739			395		142		86		58
Noninterest expense		1,656			1,638		1,648		1,550		1,569
Income taxes		417			486		549		645		626
Tax-equivalent adjustment		-			-		-		-		-

Segment earnings	$	724			844		958		1,117		1,093

Economic profit	$	695			779		803		933		894
Risk adjusted return on capital		35.21	%		51.79		57.46		66.23		64.44
Economic capital, average	$	11,541			7,678		6,850		6,702		6,711
Cash overhead efficiency ratio (c)		46.83	%		48.72		49.95		45.65		46.86
Average loans, net	$	231,302			226,681		221,269		214,537		213,429
Average core deposits	$	244,985			249,327		249,734		247,305		247,310

(a) Certain amounts presented in this Table 5 in periods prior to the second quarter of 2008 have been reclassified to conform to the presentation in the second quarter of 2008.

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

(Continued)

Table 5
BUSINESS SEGMENTS


	*2008*						2007
	*Second*			First			Fourth			Third			Second
(Dollars in millions)	*Quarter*			Quarter			Quarter			Quarter			Quarter

CORPORATE AND INVESTMENT BANK COMBINED (a)
Net interest income (b)	$	1,124			1,028			988			839			773
Fee and other income		657			(158	)		(552	)		175			1,522
Intersegment revenue		(52	)		(50	)		(50	)		(52	)		(50	)

Total revenue (b)		1,729			820			386			962			2,245
Provision for credit losses		438			197			112			1			(2	)
Noninterest expense		960			747			953			626			1,020
Income taxes (benefits)		103			(67	)		(267	)		114			437
Tax-equivalent adjustment		19			21			19			9			11

Segment earnings (loss)	$	209			(78	)		(431	)		212			779

Economic profit (loss)	$	4			(412	)		(744	)		(114	)		490
Risk adjusted return on capital		11.12	%		(1.53	)		(15.22	)		6.39			33.22
Economic capital, average	$	13,816			13,233			11,263			9,791			8,850
Cash overhead efficiency ratio (b)		55.60	%		91.00			247.26			65.15			45.43
Lending commitments	$	113,559			114,114			118,734			119,791			115,430
Average loans, net		106,642			101,046			91,665			82,969			76,744
Average core deposits	$	31,682			33,623			36,214			37,188			36,713
FTE employees		6,394			6,342			6,600			6,730			6,872

CORPORATE LENDING
Net interest income (b)	$	410			431			417			412			405
Fee and other income		69			154			148			135			140
Intersegment revenue		10			13			18			16			19

Total revenue (b)		489			598			583			563			564
Provision for credit losses		350			132			103			2			(1	)
Noninterest expense		128			141			137			139			148
Income taxes		4			119			126			152			152
Tax-equivalent adjustment		-			-			-			1			-

Segment earnings	$	7			206			217			269			265

Economic profit (loss)	$	(20	)		45			65			81			97
Risk adjusted return on capital		9.82	%		13.74			15.34			17.12			19.20
Economic capital, average	$	6,739			6,627			5,922			5,266			4,778
Cash overhead efficiency ratio (b)		26.21	%		23.61			23.50			24.62			26.22
Average loans, net	$	65,451			64,035			62,338			58,533			56,083
Average core deposits	$	4,429			4,534			4,597			5,087			5,054

(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)

Table 5
BUSINESS SEGMENTS


	*2008*						2007
	*Second*			First			Fourth			Third			Second
(Dollars in millions)	*Quarter*			Quarter			Quarter			Quarter			Quarter

TREASURY AND INTERNATIONAL TRADE FINANCE
Net interest income (b)	$	122			112			110			104			100
Fee and other income		226			218			218			220			213
Intersegment revenue		(52	)		(47	)		(47	)		(46	)		(49	)

Total revenue (b)		296			283			281			278			264
Provision for credit losses		-			(2	)		-			(1	)		-
Noninterest expense		169			175			174			170			172
Income taxes		46			40			38			40			33
Tax-equivalent adjustment		-			-			-			-			-

Segment earnings	$	81			70			69			69			59

Economic profit	$	68			56			56			58			47
Risk adjusted return on capital		82.71	%		70.21			74.12			77.84			68.15
Economic capital, average	$	382			383			355			342			335
Cash overhead efficiency ratio (b)		57.09	%		61.70			61.78			60.98			65.13
Average loans, net	$	13,612			13,461			12,309			10,813			9,540
Average core deposits	$	18,132			19,633			20,858			21,253			21,121

INVESTMENT BANKING
Net interest income (b)	$	592			485			461			323			268
Fee and other income		362			(530	)		(918	)		(180	)		1,169
Intersegment revenue		(10	)		(16	)		(21	)		(22	)		(20	)

Total revenue (b)		944			(61	)		(478	)		121			1,417
Provision for credit losses		88			67			9			-			(1	)
Noninterest expense		663			431			642			317			700
Income taxes (benefits)		53			(226	)		(431	)		(78	)		252
Tax-equivalent adjustment		19			21			19			8			11

Segment earnings (loss)	$	121			(354	)		(717	)		(126	)		455

Economic profit (loss)	$	(44	)		(513	)		(865	)		(253	)		346
Risk adjusted return on capital		8.34	%		(22.21	)		(57.88	)		(12.96	)		48.01
Economic capital, average	$	6,695			6,223			4,986			4,183			3,737
Cash overhead efficiency ratio (b)		70.37	%		(708.47	)		(134.16	)		265.36			49.41
Average loans, net	$	27,579			23,550			17,018			13,623			11,121
Average core deposits	$	9,121			9,456			10,759			10,848			10,538

(Continued)

Table 5
BUSINESS SEGMENTS


	*2008*						2007
	*Second*			First			Fourth			Third			Second
(Dollars in millions)	*Quarter*			Quarter			Quarter			Quarter			Quarter

CAPITAL MANAGEMENT COMBINED (a)
Net interest income (b)	$	308			281			320			268			260
Fee and other income		1,995			2,191			2,210			1,444			1,536
Intersegment revenue		(8	)		(10	)		(11	)		(8	)		(11	)

Total revenue (b)		2,295			2,462			2,519			1,704			1,785
Provision for credit losses		-			-			-			-			-
Noninterest expense		2,327			1,855			1,936			1,241			1,294
Income taxes (benefits)		(11	)		220			213			169			179
Tax-equivalent adjustment		1			1			1			-			-

Segment earnings (loss)	$	(21	)		386			369			294			312

Economic profit (loss)	$	(79	)		327			310			258			275
Risk adjusted return on capital		(3.97	)%		72.26			69.14			88.96			92.77
Economic capital, average	$	2,105			2,144			2,119			1,310			1,348
Cash overhead efficiency ratio (b)		101.39	%		75.34			76.90			72.82			72.47
Lending commitments	$	1,544			1,348			1,281			1,164			1,169
Average loans, net		2,881			2,562			2,295			2,142			1,663
Average core deposits	$	48,647			43,084			38,019			31,489			31,221
FTE employees		29,680			29,841			29,891			17,908			17,905
Assets under management	$	245,940			258,691			274,736			285,422			281,462

ASSET MANAGEMENT
Net interest income (b)	$	12			14			7			6			5
Fee and other income		165			295			279			244			312
Intersegment revenue		(1	)		(1	)		-			(1	)		-

Total revenue (b)		176			308			286			249			317
Provision for credit losses		-			-			-			-			-
Noninterest expense		209			224			217			206			222
Income taxes		(13	)		31			26			15			35
Tax-equivalent adjustment		-			-			-			-			-

Segment earnings (loss)	$	(20	)		53			43			28			60

Economic profit (loss)	$	(25	)		47			37			22			55
Risk adjusted return on capital		(39.89	)%		99.16			82.68			56.73			112.79
Economic capital, average	$	203			216			205			194			215
Cash overhead efficiency ratio (b)		117.97	%		72.81			76.33			82.50			70.01
Average loans, net	$	17			41			22			36			17
Average core deposits	$	304			453			405			418			364

(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)

Table 5
BUSINESS SEGMENTS


	*2008*						2007
	*Second*			First			Fourth			Third			Second
(Dollars in millions)	*Quarter*			Quarter			Quarter			Quarter			Quarter

RETAIL BROKERAGE SERVICES
Net interest income (b)	$	296			267			313			262			254
Fee and other income		1,832			1,898			1,933			1,202			1,227
Intersegment revenue		(7	)		(9	)		(11	)		(7	)		(11	)

Total revenue (b)		2,121			2,156			2,235			1,457			1,470
Provision for credit losses		-			-			-			-			-
Noninterest expense		2,121			1,634			1,723			1,038			1,076
Income taxes		1			189			186			154			143
Tax-equivalent adjustment		1			1			1			-			-

Segment earnings (loss)	$	(2	)		332			325			265			251

Economic profit (loss)	$	(55	)		279			272			235			219
Risk adjusted return on capital		(.30	)%		69.06			67.42			94.13			88.54
Economic capital, average	$	1,902			1,928			1,914			1,116			1,133
Cash overhead efficiency ratio (b)		100.07	%		75.79			77.08			71.33			73.18
Average loans, net	$	2,864			2,521			2,273			2,106			1,646
Average core deposits	$	48,343			42,631			37,614			31,071			30,857

OTHER
Net interest income (b)	$	-			-			-			-			1
Fee and other income		(2	)		(2	)		(2	)		(2	)		(3	)
Intersegment revenue		-			-			-			-			-

Total revenue (b)		(2	)		(2	)		(2	)		(2	)		(2	)
Provision for credit losses		-			-			-			-			-
Noninterest expense		(3	)		(3	)		(4	)		(3	)		(4	)
Income taxes		-			-			1			-			1
Tax-equivalent adjustment		-			-			-			-			-

Segment earnings	$	1			1			1			1			1

Economic profit	$	1			1			1			1			1
Risk adjusted return on capital		-	%		-			-			-			-
Economic capital, average	$	-			-			-			-			-
Cash overhead efficiency ratio (b)		-	%		-			-			-			-
Average loans, net	$	-			-			-			-			-
Average core deposits	$	-			-			-			-			-

(Continued)

Table 5
BUSINESS SEGMENTS

Three Months Ended June 30, 2008

Goodwill

Impairment,

Corporate

Net Merger-

and

Related and

General

Wealth

Investment

Capital

Restructuring

(Dollars in millions)

Bank

Management

Bank

Management

Parent

Expenses (b)

Total

CONSOLIDATED

Net interest income (a)

3,671

202

1,124

308

(961

)

(54

)

4,290

Fee and other income

1,000

207

657

1,995

(694

)

3,165

Intersegment revenue

(52

)

Total revenue (a)

4,728

412

1,729

2,295

(1,655

)

(54

)

7,455

Provision for credit losses

919

438

4,202

5,567

Noninterest expense

2,050

253

960

2,327

883

6,311

12,784

Minority interest

(44

)

(18

)

Income taxes (benefits)

632

103

(12

)

(2,657

)

(82

)

(1,963

)

Tax-equivalent adjustment

(54

)

Net income (loss)

1,117

209

(21

)

(4,133

)

(6,185

)

(8,915

)

Dividends on preferred stock

193

Net income (loss) available to
common stockholders

1,117

209

(21

)

(4,326

)

(6,185

)

(9,108

)

Economic profit (loss)

919

(79

)

(1,623

)

(703

)

Risk adjusted return on capital

33.02

52.61

11.12

(3.97

)

(430.14

)

2.90

Economic capital, average

16,786

731

13,816

2,105

1,480

34,918

Cash overhead efficiency ratio (a)

43.35

61.05

55.60

101.39

(47.55

)

84.92

Lending commitments

133,201

6,915

113,559

1,544

543

255,762

Average loans, net

319,574

23,151

106,642

2,881

24,486

476,734

Average core deposits

290,381

17,559

31,682

48,647

2,401

390,670

FTE employees

54,415

4,665

6,394

29,680

24,798

119,952


	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)	$	3,372			182		773			260			(100	)		(38	)		4,449
Fee and other income		935			202		1,522			1,536			45			-			4,240
Intersegment revenue		56			3		(50	)		(11	)		2			-			-

Total revenue (a)		4,363			387		2,245			1,785			(53	)		(38	)		8,689
Provision for credit losses		154			2		(2	)		-			25			-			179
Noninterest expense		1,922			244		1,020			1,294			378			32			4,890
Minority interest		-			-		-			-			139			-			139
Income taxes (benefits)		824			51		437			179			(339	)		(12	)		1,140
Tax-equivalent adjustment		10			-		11			-			17			(38	)		-

Net income (loss)	$	1,453			90		779			312			(273	)		(20	)		2,341

Economic profit (loss)	$	1,124			70		490			275			(246	)		-			1,713
Risk adjusted return on capital		52.66	%		56.73		33.22			92.77			(29.52	)		-			39.55
Economic capital, average	$	10,821			612		8,850			1,348			2,436			-			24,067
Cash overhead efficiency ratio (a)		44.05	%		62.80		45.43			72.47			(496.52	)		-			54.47
Lending commitments	$	129,851			6,892		115,430			1,169			569			-			253,911
Average loans, net		291,607			21,056		76,744			1,663			30,187			-			421,257
Average core deposits	$	290,455			17,466		36,713			31,221			2,641			-			378,496
FTE employees		57,574			4,580		6,872			17,905			23,562			-			110,493

(a) Tax-equivalent.

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

(Continued)

Table 5
BUSINESS SEGMENTS


	*Six Months Ended*
	*June 30,*

(Dollars in millions)	*2008*			2007

GENERAL BANK COMBINED (a)
Net interest income (b)	$	7,116			6,770
Fee and other income		1,980			1,781
Intersegment revenue		112			102

Total revenue (b)		9,208			8,653
Provision for credit losses		1,488			301
Noninterest expense		4,088			3,787
Income taxes		1,305			1,644
Tax-equivalent adjustment		21			21

Segment earnings	$	2,306			2,900

Economic profit	$	1,911			2,250
Risk adjusted return on capital		37.07	%		53.24
Economic capital, average	$	14,739			10,744
Cash overhead efficiency ratio (b)		44.39	%		43.76
Lending commitments	$	133,201			129,851
Average loans, net		315,565			289,985
Average core deposits	$	293,776			287,263
FTE employees		54,415			57,574

COMMERCIAL
Net interest income (b)	$	1,956			1,702
Fee and other income		264			219
Intersegment revenue		89			78

Total revenue (b)		2,309			1,999
Provision for credit losses		354			193
Noninterest expense		794			711
Income taxes		402			379
Tax-equivalent adjustment		21			21

Segment earnings	$	738			695

Economic profit	$	437			444
Risk adjusted return on capital		28.14	%		33.22
Economic capital, average	$	5,130			4,028
Cash overhead efficiency ratio (b)		34.37	%		35.59
Average loans, net	$	86,574			77,060
Average core deposits	$	46,620			43,367

RETAIL AND SMALL BUSINESS
Net interest income (b)	$	5,160			5,068
Fee and other income		1,716			1,562
Intersegment revenue		23			24

Total revenue (b)		6,899			6,654
Provision for credit losses		1,134			108
Noninterest expense		3,294			3,076
Income taxes		903			1,265
Tax-equivalent adjustment		-			-

Segment earnings	$	1,568			2,205

Economic profit	$	1,474			1,806
Risk adjusted return on capital		41.83	%		65.25
Economic capital, average	$	9,609			6,716
Cash overhead efficiency ratio (b)		47.75	%		46.21
Average loans, net	$	228,991			212,925
Average core deposits	$	247,156			243,896

(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)

Table 5
BUSINESS SEGMENTS


	*Six Months Ended*
	*June 30,*

(Dollars in millions)	*2008*			2007

CORPORATE AND INVESTMENT BANK COMBINED (a)
Net interest income (b)	$	2,152			1,489
Fee and other income		499			2,631
Intersegment revenue		(102	)		(93	)

Total revenue (b)		2,549			4,027
Provision for credit losses		635			4
Noninterest expense		1,707			1,931
Income taxes		36			742
Tax-equivalent adjustment		40			21

Segment earnings	$	131			1,329

Economic profit (loss)	$	(408	)		776
Risk adjusted return on capital		4.93	%		29.22
Economic capital, average	$	13,525			8,590
Cash overhead efficiency ratio (b)		67.00	%		47.94
Lending commitments	$	113,559			115,430
Average loans, net		103,844			75,065
Average core deposits	$	32,652			35,481
FTE employees		6,394			6,872

CORPORATE LENDING
Net interest income (b)	$	841			804
Fee and other income		223			265
Intersegment revenue		23			37

Total revenue (b)		1,087			1,106
Provision for credit losses		482			4
Noninterest expense		269			300
Income taxes		123			293
Tax-equivalent adjustment		-			-

Segment earnings	$	213			509

Economic profit	$	25			186
Risk adjusted return on capital		11.77	%		18.99
Economic capital, average	$	6,683			4,696
Cash overhead efficiency ratio (b)		24.78	%		27.15
Average loans, net	$	64,743			55,593
Average core deposits	$	4,481			5,061

(b) Tax-equivalent.

(Continued)

Table 5
BUSINESS SEGMENTS


	*Six Months Ended*
	*June 30,*

(Dollars in millions)	*2008*			2007

CAPITAL MANAGEMENT COMBINED (a)
Net interest income (b)	$	589			519
Fee and other income		4,186			3,013
Intersegment revenue		(18	)		(19	)

Total revenue (b)		4,757			3,513
Provision for credit losses		-			-
Noninterest expense		4,182			2,531
Income taxes		208			358
Tax-equivalent adjustment		2			-

Segment earnings	$	365			624

Economic profit	$	248			550
Risk adjusted return on capital		34.49	%		93.76
Economic capital, average	$	2,124			1,341
Cash overhead efficiency ratio (b)		87.91	%		72.04
Lending commitments	$	1,544			1,169
Average loans, net		2,722			1,609
Average core deposits	$	45,866			31,450
FTE employees		29,680			17,905
Assets under management	$	245,940			281,462

ASSET MANAGEMENT
Net interest income (b)	$	26			8
Fee and other income		460			584
Intersegment revenue		(2	)		-

Total revenue (b)		484			592
Provision for credit losses		-			-
Noninterest expense		433			442
Income taxes		18			55
Tax-equivalent adjustment		-			-

Segment earnings	$	33			95

Economic profit	$	22			84
Risk adjusted return on capital		31.69	%		91.06
Economic capital, average	$	210			211
Cash overhead efficiency ratio (b)		89.27	%		74.67
Average loans, net	$	29			25
Average core deposits	$	378			321

(b) Tax-equivalent.

(Continued)

Table 5
BUSINESS SEGMENTS

Six Months Ended June 30, 2008

Goodwill

Impairment,

Corporate

Net Merger-

and

Related and

General

Wealth

Investment

Capital

Restructuring

(Dollars in millions)

Bank

Management

Bank

Management

Parent

Expenses (b)

Total

CONSOLIDATED

Net interest income (a)

7,116

384

2,152

589

(1,092

)

(107

)

9,042

Fee and other income

1,980

418

499

4,186

(1,141

)

5,942

Intersegment revenue

112

(102

)

(18

)

Total revenue (a)

9,208

810

2,549

4,757

(2,233

)

(107

)

14,984

Provision for credit losses

1,488

635

6,262

8,398

Noninterest expense

4,088

499

1,707

4,182

1,197

6,552

18,225

Minority interest

224

(87

)

137

Income taxes (benefits)

1,305

108

208

(3,697

)

(157

)

(2,197

)

Tax-equivalent adjustment

(107

)

Net income (loss)

2,306

190

131

365

(6,263

)

(6,308

)

(9,579

)

Dividends on preferred stock

236

Net income (loss) available to
common stockholders

2,306

190

131

365

(6,499

)

(6,308

)

(9,815

)

Economic profit (loss)

1,911

146

(408

)

248

(2,463

)

(566

)

Risk adjusted return on capital

37.07

52.04

4.93

34.49

(284.89

)

7.53

Economic capital, average

14,739

715

13,525

2,124

1,674

32,777

Cash overhead efficiency ratio (a)

44.39

61.50

67.00

87.91

(44.70

)

76.03

Lending commitments

133,201

6,915

113,559

1,544

543

255,762

Average loans, net

315,565

22,758

103,844

2,722

26,446

471,335

Average core deposits

293,776

17,732

32,652

45,866

2,565

392,591

FTE employees

54,415

4,665

6,394

29,680

24,798

119,952


	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)	$	6,770			362		1,489			519			(116	)		(75	)		8,949
Fee and other income		1,781			398		2,631			3,013			151			-			7,974
Intersegment revenue		102			6		(93	)		(19	)		4			-			-

Total revenue (a)		8,653			766		4,027			3,513			39			(75	)		16,923
Provision for credit losses		301			3		4			-			48			-			356
Noninterest expense		3,787			491		1,931			2,531			729			42			9,511
Minority interest		-			-		-			-			275			-			275
Income taxes (benefits)		1,644			99		742			358			(689	)		(16	)		2,138
Tax-equivalent adjustment		21			-		21			-			33			(75	)		-

Net income (loss)	$	2,900			173		1,329			624			(357	)		(26	)		4,643

Economic profit (loss)	$	2,250			133		776			550			(310	)		-			3,399
Risk adjusted return on capital		53.24	%		55.46		29.22			93.76			(13.56	)		-			39.77
Economic capital, average	$	10,744			602		8,590			1,341			2,546			-			23,823
Cash overhead efficiency ratio (a)		43.76	%		64.00		47.94			72.04			1,390.16			-			54.40
Lending commitments	$	129,851			6,892		115,430			1,169			569			-			253,911
Average loans, net		289,985			20,689		75,065			1,609			30,927			-			418,275
Average core deposits	$	287,263			17,368		35,481			31,450			2,346			-			373,908
FTE employees		57,574			4,580		6,872			17,905			23,562			-			110,493

(a) Tax-equivalent.

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

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


	*2008*						2007

	*Second*			First			Fourth			Third			Second
(In millions)	*Quarter*			Quarter			Quarter			Quarter			Quarter

ON-BALANCE SHEET LOAN PORTFOLIO COMMERCIAL
Commercial, financial and agricultural	$	122,628			119,193			112,509			109,269			102,397
Real estate — construction and other		18,629			18,597			18,543			18,167			17,449
Real estate — mortgage		27,191			26,370			23,846			21,514			20,448
Lease financing		24,605			23,637			23,913			23,966			24,083
Foreign		35,168			33,616			29,540			26,471			20,959

Total commercial		228,221			221,413			208,351			199,387			185,336

CONSUMER
Real estate secured (a)		230,520			230,197			227,719			225,355			220,293
Student loans		9,945			9,324			8,149			7,742			6,757
Installment loans		29,261			27,437			25,635			24,763			25,017

Total consumer		269,726			266,958			261,503			257,860			252,067

Total loans		497,947			488,371			469,854			457,247			437,403
Unearned income		(9,749	)		(7,889	)		(7,900	)		(8,041	)		(8,283	)

Loans, net (On-balance sheet)	$	488,198			480,482			461,954			449,206			429,120


MANAGED PORTFOLIO (b) (c)

COMMERCIAL
On-balance sheet loan portfolio	$	228,221			221,413			208,351			199,387			185,336
Securitized loans — off-balance sheet		105			120			131			142			170
Loans held for sale		2,224			3,342			9,414			13,905			11,573

Total commercial		230,550			224,875			217,896			213,434			197,079

CONSUMER
Real estate secured
On-balance sheet loan portfolio		230,520			230,197			227,719			225,355			220,293
Securitized loans — off-balance sheet		6,337			6,845			7,230			7,625			8,112
Securitized loans included in securities		14,918			11,683			10,755			5,963			6,091
Loans held for sale		3,415			5,960			4,816			3,583			4,079

Total real estate secured		255,190			254,685			250,520			242,526			238,575

Student
On-balance sheet loan portfolio		9,945			9,324			8,149			7,742			6,757
Securitized loans — off-balance sheet		2,721			2,772			2,811			2,856			2,905
Securitized loans included in securities		52			52			52			52			52
Loans held for sale		-			-			-			1,968			2,046

Total student		12,718			12,148			11,012			12,618			11,760

Installment
On-balance sheet loan portfolio		29,261			27,437			25,635			24,763			25,017
Securitized loans — off-balance sheet		1,630			1,968			2,263			2,572			3,105
Securitized loans included in securities		28			39			47			55			116
Loans held for sale		2,791			2,127			2,542			1,975			35

Total installment		33,710			31,571			30,487			29,365			28,273

Total consumer		301,618			298,404			292,019			284,509			278,608

Total managed portfolio	$	532,168			523,279			509,915			497,943			475,687


SERVICING PORTFOLIO (c) (d)
Commercial	$	351,277			354,624			353,464			337,721			298,374
Consumer	$	29,100			27,415			27,523			28,015			26,341

(a) Includes deferred interest of $3.9 billion, $3.5 billion, $3.1 billion, $2.7 billion and $2.3 billion, at June 30 and March 31, 2008, and at December 31, September 30 and June 30, 2007, 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) Certain amounts presented in periods prior to the second quarter of 2008 have been reclassified to conform to the presentation in the second quarter of 2008.

(d) 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.

Table 10
LOANS HELD FOR SALE


	*2008*						2007

	*Second*			First			Fourth			Third			Second
(In millions)	*Quarter*			Quarter			Quarter			Quarter			Quarter

CORE BUSINESS ACTIVITY (a)
Core business activity, beginning of period	$	8,406			15,094			17,646			15,696			15,030
Originations and/or purchases		8,069			8,144			8,160			13,007			22,671
Transfer to (from) loans held for sale, net		373			(6,801	)		(1,278	)		2,162			(71	)
Allowance for loan losses related to loans		-			-			-			(57	)		-
Lower of cost or market value adjustments (b)		(87	)		(364	)		(223	)		(249	)		(91	)
Market value adjustments for fair value option loans		(47	)		42			-			-			-
Performing loans sold or securitized		(8,796	)		(7,355	)		(8,992	)		(11,606	)		(20,910	)
Other, principally payments		(94	)		(354	)		(219	)		(1,307	)		(933	)

Core business activity, end of period		7,824			8,406			15,094			17,646			15,696

PORTFOLIO MANAGEMENT ACTIVITY (a)
Portfolio business activity, beginning of period		3,023			1,678			3,785			2,037			2
Originations and/or purchases		-			83			-			-			-
Transfer to (from) loans held for sale, net Performing loans (c)		(19	)		2,317			137			1,831			2,046
Lower of cost or market value adjustments (b)		26			(31	)		(30	)		(6	)		(10	)
Performing loans sold or securitized		(2,373	)		(990	)		(2,078	)		-			-
Other, principally payments		(51	)		(34	)		(136	)		(77	)		(1	)

Portfolio management activity, end of period		606			3,023			1,678			3,785			2,037

Total loans held for sale (d)	$	8,430			11,429			16,772			21,431			17,733

(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) Lower of cost or market value adjustments exclude amounts related to unfunded commitments. Market disruption-related recoveries on unfunded commitments amounted to $438 million in the second quarter of 2008. Market disruption-related write-downs on unfunded commitments amounted to $729 million, $78 million and $311 million in the first quarter of 2008 and in the fourth and third quarters of 2007, respectively.

(c) Includes $1.8 billion in the third quarter of 2007 in connection with consolidation of a structured lending vehicle that we administered; first quarter of 2008 and fourth quarter of 2007 include funding of the structured lending vehicle’s commitments amounting to $54 million and $159 million, respectively.

(d) Nonperforming loans included in loans held for sale at June 30 and March 31, 2008, and at December 31, September 30 and June 30, 2007, were $63 million, $5 million, $62 million, $59 million and $42 million, respectively.

Table 11

ALLOWANCE FOR CREDIT LOSSES


	*2008*						2007
	*Second*			First			Fourth			Third			Second
(In millions)	*Quarter*			Quarter			Quarter			Quarter			Quarter

ALLOWANCE FOR CREDIT LOSSES (a)
Balance, beginning of period	$	6,767			4,717			3,691			3,552			3,533
Provision for credit losses		5,504			2,834			1,467			381			168
Provision for credit losses relating to loans transferred to loans held for sale or sold		51			7			6			3			4
Provision for credit losses for unfunded lending commitments		12			(10	)		24			24			7
LOAN LOSSES
Commercial, financial and agricultural		(254	)		(171	)		(67	)		(41	)		(39	)
Commercial real estate — construction and mortgage		(216	)		(81	)		(117	)		(5	)		(4	)

Total commercial		(470	)		(252	)		(184	)		(46	)		(43	)

Real estate secured		(700	)		(351	)		(156	)		(59	)		(40	)
Student loans		(3	)		(3	)		(4	)		(5	)		(2	)
Installment and other loans (b)		(230	)		(242	)		(225	)		(168	)		(138	)

Total consumer		(933	)		(596	)		(385	)		(232	)		(180	)

Total loan losses		(1,403	)		(848	)		(569	)		(278	)		(223	)

LOAN RECOVERIES
Commercial, financial and agricultural		15			14			22			9			15
Commercial real estate — construction and mortgage		-			1			-			3			-

Total commercial		15			15			22			12			15

Real estate secured		18			10			9			12			11
Student loans		1			1			2			3			-
Installment and other loans (b)		60			57			75			45			47

Total consumer		79			68			86			60			58

Total loan recoveries		94			83			108			72			73

Net charge-offs		(1,309	)		(765	)		(461	)		(206	)		(150	)

Allowance relating to loans acquired, transferred to loans held for sale or sold		(69	)		(16	)		(10	)		(63	)		(10	)

Balance, end of period	$	10,956			6,767			4,717			3,691			3,552

CONSUMER REAL ESTATE SECURED NET CHARGE-OFFS
First lien	$	(592	)		(291	)		(122	)		(32	)		(17	)
Second lien		(90	)		(50	)		(25	)		(15	)		(12	)

Total consumer real estate secured net charge-offs	$	(682	)		(341	)		(147	)		(47	)		(29	)

ALLOWANCE FOR CREDIT LOSSES
Allocation of the allowance for loan losses
Commercial	$	2,793			2,645			2,392			2,054			1,889
Consumer		7,621			3,592			1,950			1,246			1,371
Unallocated		330			330			165			205			130

Total allowance for loan losses		10,744			6,567			4,507			3,505			3,390
Reserve for unfunded lending commitments		212			200			210			186			162

Total allowance for credit losses	$	10,956			6,767			4,717			3,691			3,552

(a) The allowance for credit losses is the sum of the allowance for loan losses and the reserve for unfunded lending commitments.

(b) Principally auto loans.

Table 13

NONPERFORMING ASSETS


	*2008*					2007

	*Second*			First		Fourth		Third		Second
(In millions)	*Quarter*			Quarter		Quarter		Quarter		Quarter

NONPERFORMING ASSETS
Nonaccrual loans
Commercial
Commercial, financial and agricultural	$	1,229			908		602		354		318
Commercial real estate — construction and mortgage		2,203			1,750		1,059		289		161

Total commercial		3,432			2,658		1,661		643		479

Consumer
Real estate secured
First lien		7,430			5,015		3,234		1,986		1,380
Second lien		147			75		58		41		44
Installment and other loans (a)		40			40		42		45		42

Total consumer		7,617			5,130		3,334		2,072		1,466

Total nonaccrual loans		11,049			7,788		4,995		2,715		1,945
Troubled debt restructurings (b)		248			48		-		-		-
Foreclosed properties		631			530		389		334		207

Total nonperforming assets	$	11,928			8,366		5,384		3,049		2,152

as % of loans, net, and foreclosed properties (c)		2.44	%		1.74		1.16		0.68		0.50

Nonperforming assets included in loans held for sale
Commercial	$	56			-		-		-		-
Consumer		7			5		62		50		37

Total nonaccrual loans		63			5		62		50		37
Foreclosed properties		-			-		-		9		5

Total nonperforming assets included in loans held for sale		63			5		62		59		42

Nonperforming assets included in loans and in loans held for sale	$	11,991			8,371		5,446		3,108		2,194

as % of loans, net, foreclosed properties and loans held for sale (d)		2.41	%		1.70		1.14		0.66		0.49

PAST DUE LOANS 90 DAYS AND OVER, AND NONACCRUAL LOANS (c)
Accruing loans past due 90 days and over	$	1,181			866		708		590		562
Nonaccrual loans		11,049			7,788		4,995		2,715		1,945

Total past due loans 90 days and over, and nonaccrual loans	$	12,230			8,654		5,703		3,305		2,507

Commercial as % of loans, net		1.73	%		1.31		0.89		0.38		0.31
Consumer as % of loans, net		3.12	%		2.19		1.49		1.00		0.78

(a) Principally auto loans; nonaccrual status does not apply to student loans.

(b) Troubled debt restructurings were not significant prior to the first quarter of 2008.

(d) 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.

Table 15

GOODWILL AND OTHER INTANGIBLE ASSETS


	*2008*				2007

	*Second*		First		Fourth		Third		Second
(In millions)	*Quarter*		Quarter		Quarter		Quarter		Quarter

Goodwill (a)	$	36,993		43,068		43,122		38,848		38,766
Deposit base		531		573		619		670		727
Customer relationships		1,321		1,375		1,410		620		651
Tradename		90		90		90		90		90

Total goodwill and other intangible assets	$	38,935		45,106		45,241		40,228		40,234


	*Six Months Ended June 30, 2008*
	*Employee*			*Occupancy*
	*Termination*			*and*
(In millions)	*Benefits*			*Equipment*			*Other*		*Total*

EXIT COST PURCHASE ACCOUNTING ACCRUAL ACTIVITY Wachovia/A.G. Edwards — October 1, 2007
Balance, December 31, 2007	$	16			-			-		16
Purchase accounting adjustments		36			-			-		36
Cash payments		(14	)		-			-		(14	)

Balance, June 30, 2008	$	38			-			-		38

EXIT COST PURCHASE ACCOUNTING ACCRUAL ACTIVITY Wachovia/Golden West — October 1, 2006
Balance, December 31, 2007	$	49			9			-		58
Purchase accounting adjustments		(6	)		-			-		(6	)
Cash payments		(28	)		(16	)		-		(44	)

Balance, June 30, 2008	$	15			(7	)		-		8

EXIT COST PURCHASE ACCOUNTING ACCRUAL ACTIVITY Wachovia/SouthTrust — November 1, 2004
Balance, December 31, 2007	$	37			-			-		37
Purchase accounting adjustments		-			-			-		-
Cash payments		(11	)		-			-		(11	)

Balance, June 30, 2008	$	26			-			-		26

(a) Goodwill impairment of $6.1 billion was recorded in the second quarter of 2008. See Note 3 of accompanying Notes to Consolidated Financial Statements.

Table 18

LONG-TERM DEBT


	*2008*				2007

	*Second*		First		Fourth		Third			Second
(In millions)	*Quarter*		Quarter		Quarter		Quarter			Quarter

NOTES AND DEBENTURES ISSUED BY THE PARENT COMPANY
Notes
Floating rate, 2.483% to 4.69%, due 2008 to 2017	$	16,163		15,513		15,514		15,401			13,651
Equity-linked and commodity-linked, due 2008 to 2012		612		814		792		1,047			1,055
3.50% to 5.80%, due 2008 to 2020		14,560		11,508		9,011		8,551			8,193
Floating rate, EMTN notes, due 2011 to 2014		3,932		3,955		3,649		3,549			3,370
Floating rate, Australian notes, due 2012		864		822		789		799			764
6.75%, Australian notes, due 2012		144		137		131		133			127
4.375%, EMTN notes, due 2016		1,174		1,181		1,090		1,060			1,006
Subordinated notes
4.875% to 6.375%, due 2008 to 2035		6,159		6,491		6,454		6,452			6,449
Floating rate, due 2015 to 2016		1,250		1,250		1,250		1,250			1,250
4.375% to 4.875%, EMTN notes, due 2018 to 2035		2,156		2,158		2,099		2,112			2,055
6.605%, due 2025		250		250		250		250			250
6.30%		-		200		200		200			200
Floating rate, hybrid trust securities, due 2037 to 2047		2,513		2,513		2,513		1,675			1,675
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		796		795		795		795			795
Hedge-related basis adjustments		198		1,073		406		(139	)		(660	)

Total notes and debentures issued by the Parent Company		53,272		51,161		47,444		45,636			42,681

NOTES ISSUED BY SUBSIDIARIES
Primarily notes issued under global bank note programs, varying rates and terms to 2040		27,654		29,550		23,562		21,226			21,537
Floating rate, 2.403% to 2.901%, due 2008 to 2011		3,400		5,133		5,133		7,133			7,133
4.125% to 4.75%, due 2009 to 2012		1,691		1,690		2,390		2,389			2,689
Floating rate, EMTN notes, due 2009 to 2011		4,628		4,652		4,316		3,907			3,710
6.00%, EMTN notes, due 2013		2,363		-		-		-			-
Subordinated notes
Bank, 3.076% to 9.625%, due 2008 to 2038		12,800		12,802		12,955		9,532			9,533
7.95%		-		-		-		100			100
Floating rate, due 2013		417		417		417		417			417
6.75%, Australian notes, due 2017		191		182		175		176			169
Floating rate, Australian notes, due 2017		192		183		175		177			170
5.25%, EMTN notes, due 2023		1,477		1,475		1,477		1,512			1,488

Total notes issued by subsidiaries		54,813		56,084		50,600		46,569			46,946

OTHER DEBT
Auto secured financing, 2.50% to 7.05%, due 2008 to 2015		6,292		6,147		6,679		7,748			8,994
Collateralized notes		-		-		4,300		4,300			4,420
Junior subordinated debentures, floating rate, due 2026 to 2029		3,110		3,110		3,098		3,099			3,100
Advances from the Federal Home Loan Bank, 1.00% to 8.45%, due 2010 to 2031		55,611		53,209		41,888		43,017			30,542
Preferred units issued by subsidiaries		2,852		2,852		2,852		2,852			2,852
Capitalized leases		7		7		8		9			9
Mortgage notes and other debt of subsidiaries, varying rates and terms		8,323		2,467		3,870		5,411			2,809
Hedge-related basis adjustments		121		616		268		(57	)		(306	)

Total other debt		76,316		68,408		62,963		66,379			52,420

Total long-term debt	$	184,401		175,653		161,007		158,584			142,047

Table 20

CAPITAL RATIOS


	*2008*					2007

	*Second*			First		Fourth		Third		Second
(In millions)	*Quarter*			Quarter		Quarter		Quarter		Quarter

CONSOLIDATED CAPITAL RATIOS (a)
Qualifying capital
Tier 1 capital	$	49,473			45,353		43,528		41,853		41,516
Total capital		78,811			73,684		70,003		63,948		63,705
Adjusted risk-weighted assets		618,736			611,596		592,065		589,844		555,702
Adjusted leverage ratio assets	$	753,108			734,233		714,633		686,373		666,646
Ratios
Tier 1 capital		8.00	%		7.42		7.35		7.10		7.47
Total capital		12.74			12.05		11.82		10.84		11.46
Leverage		6.57			6.18		6.09		6.10		6.23
STOCKHOLDERS’ EQUITY TO ASSETS
Quarter-end		9.25			9.65		9.82		9.30		9.68
Average		10.26	%		10.05		9.69		9.58		9.84

BANK CAPITAL RATIOS
Tier 1 capital
Wachovia Bank, National Association		7.25	%		7.50		7.50		7.09		7.34
Wachovia Bank of Delaware, National Association		13.90			15.04		15.60		17.14		18.37
Wachovia Mortgage, FSB (b)		11.88			11.92		12.44		13.44		16.07
Wachovia Bank, FSB (c)		22.17			19.66		17.07		15.94		12.42
Total capital
Wachovia Bank, National Association		11.58			11.72		11.45		10.57		10.95
Wachovia Bank of Delaware, National Association		16.02			17.07		17.67		19.27		20.29
Wachovia Mortgage, FSB (b)		13.19			13.18		13.70		13.81		16.45
Wachovia Bank, FSB (c)		23.45			20.91		17.95		16.25		12.83
Leverage
Wachovia Bank, National Association		6.27			6.39		6.71		6.69		6.72
Wachovia Bank of Delaware, National Association		9.48			9.99		9.82		15.66		14.33
Wachovia Mortgage, FSB (b)		6.00			6.38		6.56		7.17		8.78
Wachovia Bank, FSB (c)		6.45	%		6.26		5.94		5.50		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) Formerly World Savings Bank, FSB, prior to December 31, 2007.

(c) Formerly World Savings Bank, FSB (Texas) prior to December 31, 2007, which was a subsidiary of Wachovia Mortgage, FSB (formerly World Savings Bank, FSB) prior to April 1, 2007.

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES


	*SECOND QUARTER 2008*								FIRST QUARTER 2008
						*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	$	4,980		39			3.11	%	$	4,253		51		4.85	%
Federal funds sold and securities purchased under resale agreements		13,075		81			2.51			11,865		103		3.49
Trading account assets (a)		43,575		541			4.97			44,655		589		5.28
Securities (a)		116,504		1,603			5.51			110,401		1,545		5.60
Loans (a) (b)
Commercial
Commercial, financial and agricultural		120,693		1,493			4.98			115,377		1,671		5.82
Real estate — construction and other		18,849		204			4.35			18,634		251		5.42
Real estate — mortgage		26,730		338			5.08			25,291		374		5.95
Lease financing (c)		6,713		(857	)		(51.02	)		7,167		140		7.79
Foreign		33,219		360			4.34			32,109		389		4.86

Total commercial		206,204		1,538			3.01			198,578		2,825		5.72

Consumer
Real estate secured		231,754		3,715			6.42			231,392		3,926		6.79
Student loans		9,887		108			4.41			9,155		113		4.96
Installment loans		28,889		686			9.55			26,811		659		9.88

Total consumer		270,530		4,509			6.68			267,358		4,698		7.04

Total loans		476,734		6,047			5.09			465,936		7,523		6.48

Loans held for sale		9,141		141			6.17			11,592		223		7.71
Other earning assets		11,080		136			4.94			10,331		146		5.69

Total earning assets excluding derivatives		675,089		8,588			5.10			659,033		10,180		6.19
Risk management derivatives (d)		-		112			0.07			-		52		0.04

Total earning assets including derivatives		675,089		8,700			5.17			659,033		10,232		6.23

Cash and due from banks		11,472								11,645
Other assets		109,876								112,915

Total assets	$	796,437							$	783,593

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
Savings and NOW accounts		86,317		137			0.64			86,452		236		1.10
Money market accounts		132,792		504			1.53			128,074		747		2.34
Other consumer time		113,579		1,145			4.05			123,655		1,437		4.68
Foreign		25,913		191			2.97			26,197		231		3.55
Other time		18,965		181			3.83			22,643		265		4.71

Total interest-bearing deposits		377,566		2,158			2.30			387,021		2,916		3.03
Federal funds purchased and securities sold under repurchase agreements		43,288		274			2.54			35,956		308		3.45
Commercial paper		5,186		20			1.61			5,509		38		2.74
Securities sold short		6,243		53			3.42			6,919		62		3.63
Other short-term borrowings		9,288		33			1.34			10,154		45		1.77
Long-term debt		177,473		1,737			3.93			165,540		1,961		4.75

Total interest-bearing liabilities excluding derivatives		619,044		4,275			2.77			611,099		5,330		3.51
Risk management derivatives (d)		-		81			0.06			-		97		0.06

Total interest-bearing liabilities including derivatives		619,044		4,356			2.83			611,099		5,427		3.57

Noninterest-bearing deposits		57,982								56,332
Other liabilities		37,671								37,415
Stockholders’ equity		81,740								78,747

Total liabilities and stockholders’ equity	$	796,437							$	783,593

Interest income and rate earned — including derivatives			$	8,700			5.17	%			$	10,232		6.23	%
Interest expense and equivalent rate paid — including derivatives				4,356			2.59					5,427		3.31

Net interest income and margin — including derivatives			$	4,344			2.58	%			$	4,805		2.92	%

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


FOURTH QUARTER 2007								THIRD QUARTER 2007							SECOND QUARTER 2007
					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


	$	5,083		64		5.05	%	$	6,459		93		5.68	%	$	3,384		50		6.00	%
		12,901		155		4.77			14,206		194		5.42			12,110		158		5.25
		37,694		569		6.04			38,737		575		5.93			35,165		519		5.90
		115,436		1,625		5.62			111,424		1,522		5.46			108,433		1,467		5.41


		111,500		1,908		6.79			106,263		1,927		7.19			101,012		1,805		7.16
		18,435		318		6.85			17,795		344		7.66			17,334		329		7.62
		22,973		426		7.36			20,883		406		7.71			20,175		378		7.53
		7,374		145		7.82			7,523		146		7.80			7,759		150		7.74
		27,882		380		5.42			22,208		308		5.53			19,232		265		5.51

		188,164		3,177		6.70			174,672		3,131		7.12			165,512		2,927		7.09


		227,893		4,042		7.08			223,356		4,070		7.28			222,096		4,042		7.28
		8,073		126		6.19			7,299		122		6.61			8,850		141		6.42
		25,675		651		10.04			24,474		614		9.96			24,799		609		9.84

		261,641		4,819		7.35			255,129		4,806		7.52			255,745		4,792		7.50

		449,805		7,996		7.08			429,801		7,937		7.35			421,257		7,719		7.34

		18,998		360		7.53			20,209		363		7.14			17,644		285		6.47
		10,223		166		6.48			7,937		138		6.91			7,985		144		7.23

		650,140		10,935		6.70			628,773		10,822		6.86			605,978		10,342		6.84
		-		19		0.01			-		42		0.02			-		46		0.03

		650,140		10,954		6.71			628,773		10,864		6.88			605,978		10,388		6.87

		12,028							11,134							11,533
		101,319							89,097							87,262

	$	763,487						$	729,004						$	704,773



		83,370		345		1.64			81,851		357		1.73			83,977		367		1.75
		121,717		949		3.09			116,404		980		3.34			111,562		976		3.51
		127,061		1,557		4.86			122,474		1,507		4.88			120,684		1,455		4.84
		27,354		306		4.44			23,322		292		4.97			21,871		270		4.96
		20,169		263		5.16			13,776		187		5.40			8,051		107		5.30

		379,671		3,420		3.57			357,827		3,323		3.68			346,145		3,175		3.68

		36,386		413		4.50			44,334		556		4.98			38,031		473		4.98
		7,272		78		4.27			5,799		65		4.42			5,143		60		4.67
		6,728		61		3.62			7,420		70		3.74			7,158		67		3.75
		10,369		58		2.24			7,793		55		2.74			7,688		52		2.77
		158,704		2,129		5.34			151,226		2,067		5.44			143,504		1,923		5.37

		599,130		6,159		4.08			574,399		6,136		4.24			547,669		5,750		4.21
		-		121		0.08			-		144		0.10			-		151		0.11

		599,130		6,280		4.16			574,399		6,280		4.34			547,669		5,901		4.32

		57,895							58,280							62,273
		32,476							26,468							25,514
		73,986							69,857							69,317

	$	763,487						$	729,004						$	704,773

			$	10,954		6.71	%			$	10,864		6.88	%			$	10,388		6.87	%
				6,280		3.83					6,280		3.96					5,901		3.91

			$	4,674		2.88	%			$	4,584		2.92	%			$	4,487		2.96	%

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

WACHOVIA CORPORATION AND SUBSIDIARIES

NET INTEREST INCOME SUMMARIES


	*SIX MONTHS ENDED*								SIX MONTHS ENDED
	*JUNE 30, 2008*								JUNE 30, 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	$	4,616		90			3.91	%	$	2,459		80		6.55	%
Federal funds sold and securities purchased under resale agreements		12,470		184			2.98			13,111		335		5.16
Trading account assets (a)		44,115		1,130			5.13			32,438		961		5.93
Securities (a)		113,452		3,148			5.55			108,253		2,928		5.42
Loans (a) (b)
Commercial
Commercial, financial and agricultural		118,036		3,164			5.39			99,719		3,541		7.16
Real estate — construction and other		18,741		455			4.88			16,924		642		7.65
Real estate — mortgage		26,010		712			5.51			20,203		758		7.57
Lease financing (c)		6,940		(717	)		(20.65	)		7,745		300		7.74
Foreign		32,664		749			4.60			16,832		461		5.50

Total commercial		202,391		4,363			4.34			161,423		5,702		7.12

Consumer
Real estate secured		231,573		7,641			6.61			223,992		8,190		7.32
Student loans		9,521		221			4.68			8,688		277		6.45
Installment loans		27,850		1,345			9.71			24,172		1,175		9.80

Total consumer		268,944		9,207			6.86			256,852		9,642		7.53

Total loans		471,335		13,570			5.78			418,275		15,344		7.37

Loans held for sale		10,367		364			7.03			17,199		540		6.32
Other earning assets		10,706		282			5.30			8,119		283		7.02

Total earning assets excluding derivatives		667,061		18,768			5.64			599,854		20,471		6.85
Risk management derivatives (d)		-		164			0.05			-		94		0.03

Total earning assets including derivatives		667,061		18,932			5.69			599,854		20,565		6.88

Cash and due from banks		11,558								11,894
Other assets		111,396								86,191

Total assets	$	790,015							$	697,939

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits
Savings and NOW accounts		86,385		373			0.87			84,111		740		1.77
Money market accounts		130,433		1,251			1.93			109,684		1,893		3.48
Other consumer time		118,616		2,582			4.38			118,485		2,824		4.81
Foreign		26,055		422			3.26			21,340		519		4.90
Other time		20,804		446			4.31			8,539		226		5.34

Total interest-bearing deposits		382,293		5,074			2.67			342,159		6,202		3.66
Federal funds purchased and securities sold under repurchase agreements		39,622		582			2.95			36,595		903		4.97
Commercial paper		5,348		58			2.19			5,032		117		4.70
Securities sold short		6,581		115			3.53			7,929		150		3.81
Other short-term borrowings		9,722		78			1.57			7,295		96		2.66
Long-term debt		171,506		3,698			4.33			142,746		3,803		5.36

Total interest-bearing liabilities excluding derivatives		615,072		9,605			3.14			541,756		11,271		4.19
Risk management derivatives (d)		-		178			0.06			-		270		0.10

Total interest-bearing liabilities including derivatives		615,072		9,783			3.20			541,756		11,541		4.29

Noninterest-bearing deposits		57,157								61,628
Other liabilities		37,542								25,237
Stockholders’ equity		80,244								69,318

Total liabilities and stockholders’ equity	$	790,015							$	697,939

Interest income and rate earned — including derivatives			$	18,932			5.69	%			$	20,565		6.88	%
Interest expense and equivalent rate paid — including derivatives				9,783			2.95					11,541		3.87

Net interest income and margin — including derivatives			$	9,149			2.74	%			$	9,024		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.
(c) Includes the effect of the $975 million leverage lease recalculation charge in the second quarter of 2008.
(d) The rates earned and the rates paid on risk management derivatives are based on off-balance sheet notional amounts. The fair value of these instruments is included in other assets and other liabilities.

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	*2008*						2007

	*Second*			First			Fourth			Third			Second
(In millions, except per share data)	*Quarter*			Quarter			Quarter			Quarter			Quarter

ASSETS
Cash and due from banks	$	15,127			14,703			15,124			12,681			12,065
Interest-bearing bank balances		10,289			3,236			3,057			4,449			2,726
Federal funds sold and securities purchased under resale agreements		21,923			10,644			15,449			11,995			11,511

Total cash and cash equivalents		47,339			28,583			33,630			29,125			26,302

Trading account assets		62,589			72,592			55,882			54,835			51,540
Securities		113,461			114,183			115,037			111,827			106,184
Loans, net of unearned income		488,198			480,482			461,954			449,206			429,120
Allowance for loan losses		(10,744	)		(6,567	)		(4,507	)		(3,505	)		(3,390	)

Loans, net		477,454			473,915			457,447			445,701			425,730

Loans held for sale		8,430			11,429			16,772			21,431			17,733
Premises and equipment		6,667			6,733			6,605			6,002			6,080
Due from customers on acceptances		1,302			1,109			1,418			1,295			831
Goodwill		36,993			43,068			43,122			38,848			38,766
Other intangible assets		1,942			2,038			2,119			1,380			1,468
Other assets		56,256			54,925			50,864			43,724			40,794

Total assets	$	812,433			808,575			782,896			754,168			715,428

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-bearing deposits		63,393			60,951			60,893			56,825			62,112
Interest-bearing deposits		384,397			384,013			388,236			365,112			347,918

Total deposits		447,790			444,964			449,129			421,937			410,030
Short-term borrowings		55,448			57,857			50,393			62,714			52,715
Bank acceptances outstanding		1,307			1,118			1,424			1,303			840
Trading account liabilities		26,305			28,887			21,585			17,771			19,319
Other liabilities		19,023			19,036			19,151			18,424			18,080
Long-term debt		184,401			175,653			161,007			158,584			142,047

Total liabilities		734,274			727,515			702,689			680,733			643,031

Minority interest in net assets of consolidated subsidiaries		3,032			3,068			3,335			3,295			3,131

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, 2008		-			-			-			-			-
Non-Cumulative Perpetual Class A Preferred Stock, Series I, $100,000 liquidation preference per share, 25,010 shares authorized		-			-			-			-			-
Non-Cumulative Perpetual Class A Preferred Stock, Series J, $1,000 liquidation preference per share, 92 million depositary shares issued and outstanding at June 30, 2008		2,300			2,300			2,300			-			-
Non-Cumulative Perpetual Class A Preferred Stock, Series K, $1,000 liquidation preference per share, 3.5 million shares issued and outstanding at June 30, 2008		3,500			3,500			-			-			-
Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L, $1,000 liquidation preference per share, 4.025 million shares issued and outstanding at June 30, 2008		4,025			-			-			-			-
Common stock, $3.33-1/3 par value; authorized 3 billion shares, outstanding 2.136 billion shares at June 30, 2008		7,121			6,551			6,534			6,283			6,289
Paid-in capital		59,797			56,367			56,149			51,938			51,905
Retained earnings		1,534			11,449			13,456			14,670			14,335
Accumulated other comprehensive income (loss), net		(3,150	)		(2,175	)		(1,567	)		(2,751	)		(3,263	)

Total stockholders’ equity		75,127			77,992			76,872			70,140			69,266

Total liabilities and stockholders’ equity	$	812,433			808,575			782,896			754,168			715,428

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


	*2008*						2007

	*Second*			First			Fourth			Third			Second
(In millions, except per share data)	*Quarter*			Quarter			Quarter			Quarter			Quarter

INTEREST INCOME
Interest and fees on loans	$	6,187			7,577			7,980			7,937			7,723
Interest and dividends on securities		1,530			1,496			1,616			1,529			1,474
Trading account interest		522			571			557			566			506
Other interest income		407			535			757			799			647

Total interest income		8,646			10,179			10,910			10,831			10,350

INTEREST EXPENSE
Interest on deposits		2,176			2,941			3,433			3,334			3,180
Interest on short-term borrowings		418			523			673			801			706
Interest on long-term debt		1,762			1,963			2,174			2,145			2,015

Total interest expense		4,356			5,427			6,280			6,280			5,901

Net interest income		4,290			4,752			4,630			4,551			4,449
Provision for credit losses		5,567			2,831			1,497			408			179

Net interest income (loss) after provision for credit losses		(1,277	)		1,921			3,133			4,143			4,270

FEE AND OTHER INCOME
Service charges		709			676			716			689			667
Other banking fees		518			498			497			471			449
Commissions		910			914			970			600			649
Fiduciary and asset management fees		1,355			1,439			1,436			1,029			1,015
Advisory, underwriting and other investment banking fees		280			261			249			393			454
Trading account profits (losses)		(510	)		(308	)		(524	)		(301	)		195
Principal investing		136			446			41			372			298
Securities gains (losses)		(808	)		(205	)		(320	)		(34	)		23
Other income		575			(944	)		(321	)		(286	)		490

Total fee and other income		3,165			2,777			2,744			2,933			4,240

NONINTEREST EXPENSE
Salaries and employee benefits		3,435			3,260			3,468			2,628			3,122
Occupancy		377			379			375			325			331
Equipment		317			323			334			283			309
Marketing		95			97			80			74			78
Communications and supplies		184			186			191			176			178
Professional and consulting fees		218			196			271			194			205
Goodwill impairment		6,060			-			-			-			-
Other intangible amortization		97			103			111			92			103
Merger-related and restructuring expenses		251			241			187			36			32
Sundry expense		1,750			656			769			717			532

Total noninterest expense		12,784			5,441			5,786			4,525			4,890

Minority interest in income (loss) of consolidated subsidiaries		(18	)		155			107			189			139

Income (loss) from continuing operations before income taxes (benefits)		(10,878	)		(898	)		(16	)		2,362			3,481
Income taxes (benefits)		(1,963	)		(234	)		(209	)		656			1,140

Income (loss) from continuing operations		(8,915	)		(664	)		193			1,706			2,341
Discontinued operations, net of income taxes		-			-			(142	)		(88	)		-

Net income (loss)		(8,915	)		(664	)		51			1,618			2,341
Dividends on preferred stock		193			43			-			-			-

Net income (loss) available to common stockholders	$	(9,108	)		(707	)		51			1,618			2,341

PER COMMON SHARE DATA (after preferred stock dividends)
Basic earnings
Income (loss) from continuing operations	$	(4.31	)		(0.36	)		0.10			0.91			1.24
Net income (loss) available to common stockholders		(4.31	)		(0.36	)		0.03			0.86			1.24
Diluted earnings (a)
Income (loss) from continuing operations		(4.31	)		(0.36	)		0.10			0.90			1.22
Net income (loss) available to common stockholders		(4.31	)		(0.36	)		0.03			0.85			1.22
Cash dividends	$	0.38			0.64			0.64			0.64			0.56
AVERAGE COMMON SHARES
Basic		2,111			1,963			1,959			1,885			1,891
Diluted		2,119			1,977			1,983			1,910			1,919

(a) Calculated using average basic common shares in 2008.

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)


	*June 30,*			December 31,

(In millions, except per share data)	*2008*			2007

ASSETS
Cash and due from banks	$	15,127			15,124
Interest-bearing bank balances		10,289			3,057
Federal funds sold and securities purchased under resale agreements		21,923			15,449

Total cash and cash equivalents		47,339			33,630

Trading account assets		62,589			55,882
Securities		113,461			115,037
Loans, net of unearned income (includes $18 at fair value at June 30, 2008)		488,198			461,954
Allowance for loan losses		(10,744	)		(4,507	)

Loans, net		477,454			457,447

Loans held for sale (includes $3,350 at fair value at June 30, 2008)		8,430			16,772
Premises and equipment		6,667			6,605
Due from customers on acceptances		1,302			1,418
Goodwill		36,993			43,122
Other intangible assets		1,942			2,119
Other assets		56,256			50,864

Total assets	$	812,433			782,896

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-bearing deposits		63,393			60,893
Interest-bearing deposits		384,397			388,236

Total deposits		447,790			449,129
Short-term borrowings		55,448			50,393
Bank acceptances outstanding		1,307			1,424
Trading account liabilities		26,305			21,585
Other liabilities		19,023			19,151
Long-term debt		184,401			161,007

Total liabilities		734,274			702,689

Minority interest in net assets of consolidated subsidiaries		3,032			3,335

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, 2008		-			-
Non-Cumulative Perpetual Class A Preferred Stock, Series I, $100,000 liquidation preference per share, 25,010 shares authorized		-			-
Non-Cumulative Perpetual Class A Preferred Stock, Series J, $1,000 liquidation preference per share, 92 million depositary shares issued and outstanding at June 30, 2008		2,300			2,300
Non-Cumulative Perpetual Class A Preferred Stock, Series K, $1,000 liquidation preference per share, 3.5 million shares issued and outstanding at June 30, 2008		3,500			-
Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L, $1,000 liquidation preference per share, 4.025 million shares issued and outstanding at June 30, 2008		4,025			-
Common stock, $3.33-1/3 par value; authorized 3 billion shares, outstanding 2.136 billion shares at June 30, 2008		7,121			6,534
Paid-in capital		59,797			56,149
Retained earnings		1,534			13,456
Accumulated other comprehensive income (loss), net		(3,150	)		(1,567	)

Total stockholders’ equity		75,127			76,872

Total liabilities and stockholders’ equity	$	812,433			782,896

See accompanying Notes to Consolidated Financial Statements.

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)	*2008*			2007		*2008*			2007

INTEREST INCOME
Interest and fees on loans	$	6,187			7,723		13,764			15,341
Interest and dividends on securities		1,530			1,474		3,026			2,952
Trading account interest		522			506		1,093			939
Other interest income		407			647		942			1,258

Total interest income		8,646			10,350		18,825			20,490

INTEREST EXPENSE
Interest on deposits		2,176			3,180		5,117			6,194
Interest on short-term borrowings		418			706		941			1,375
Interest on long-term debt		1,762			2,015		3,725			3,972

Total interest expense		4,356			5,901		9,783			11,541

Net interest income		4,290			4,449		9,042			8,949
Provision for credit losses		5,567			179		8,398			356

Net interest income (loss) after provision for credit losses		(1,277	)		4,270		644			8,593

FEE AND OTHER INCOME
Service charges		709			667		1,385			1,281
Other banking fees		518			449		1,016			865
Commissions		910			649		1,824			1,308
Fiduciary and asset management fees		1,355			1,015		2,794			1,968
Advisory, underwriting and other investment banking fees		280			454		541			861
Trading account profits (losses)		(510	)		195		(818	)		323
Principal investing		136			298		582			346
Securities gains (losses)		(808	)		23		(1,013	)		76
Other income		575			490		(369	)		946

Total fee and other income		3,165			4,240		5,942			7,974

NONINTEREST EXPENSE
Salaries and employee benefits		3,435			3,122		6,695			6,094
Occupancy		377			331		756			643
Equipment		317			309		640			616
Marketing		95			78		192			140
Communications and supplies		184			178		370			351
Professional and consulting fees		218			205		414			382
Goodwill impairment		6,060			-		6,060			-
Other intangible amortization		97			103		200			221
Merger-related and restructuring expenses		251			32		492			42
Sundry expense		1,750			532		2,406			1,022

Total noninterest expense		12,784			4,890		18,225			9,511

Minority interest in income (loss) of consolidated subsidiaries		(18	)		139		137			275

Income (loss) before income taxes (benefits)		(10,878	)		3,481		(11,776	)		6,781
Income taxes (benefits)		(1,963	)		1,140		(2,197	)		2,138

Net income (loss)		(8,915	)		2,341		(9,579	)		4,643
Dividends on preferred stock		193			-		236			-

Net income (loss) available to common stockholders	$	(9,108	)		2,341		(9,815	)		4,643

PER COMMON SHARE DATA
Basic earnings
Net income (loss) available to common stockholders	$	(4.31	)		1.24		(4.82	)		2.45
Diluted earnings
Net income (loss) available to common stockholders		(4.31	)		1.22		(4.82	)		2.42
Cash dividends	$	0.38			0.56		1.02			1.12
AVERAGE COMMON SHARES
Basic		2,111			1,891		2,037			1,892
Diluted		2,119			1,919		2,048			1,922

See accompanying Notes to Consolidated Financial Statements.

WACHOVIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	*Six Months Ended*
	*June 30,*

(In millions)	*2008*			2007

OPERATING ACTIVITIES
Net income (loss)	$	(9,579	)		4,643
Adjustments to reconcile net income to net cash provided (used) by operating activities Accretion and amortization of securities discounts and premiums, net		81			(34	)
Provision for credit losses		8,398			356
Gain on securitization transactions		(33	)		(58	)
Gain on sale of mortgage servicing rights		(1	)		(3	)
Securities transactions		1,013			(76	)
Goodwill impairment		6,060			-
Depreciation and other amortization		1,034			961
Trading account assets, net		100			(6,799	)
Loss (gain) on sales of premises and equipment		18			(4	)
Valuation losses on bank-owned separate account life insurance		314			-
Contribution to qualified pension plan		-			(270	)
Income tax shortfall (excess income tax benefit) from share-based payment arrangements		19			(61	)
Loans held for sale, net		(3,967	)		(5,416	)
Deferred interest on certain loans		(796	)		(722	)
Other assets, net		(3,722	)		1,214
Trading account liabilities, net		4,720			1,091
Other liabilities, net		(606	)		(1,392	)

Net cash provided (used) by operating activities		3,053			(6,570	)

INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities		13,430			3,852
Maturities of securities		21,416			9,882
Purchases of securities		(38,012	)		(11,868	)
Origination of loans, net		(21,113	)		(9,370	)
Sales of premises and equipment		132			131
Purchases of premises and equipment		(754	)		(498	)
Goodwill and other intangible assets		46			(441	)
Purchase of bank-owned separate account life insurance, net		(665	)		(499	)

Net cash used by investing activities		(25,520	)		(8,811	)

FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Increase (decrease) in deposits, net		(1,339	)		2,572
Securities sold under repurchase agreements and other short-term borrowings, net		5,055			3,558
Issuances of long-term debt		45,162			23,477
Payments of long-term debt		(21,768	)		(20,024	)
Issuances of preferred shares		7,472			-
Issuances of common stock, net		3,951			267
Purchases of common stock		(20	)		(1,007	)
(Income tax shortfall) excess income tax benefit from share-based payment arrangements		(19	)		61
Cash dividends paid		(2,318	)		(2,137	)

Net cash provided by financing activities		36,176			6,767

Increase (decrease) in cash and cash equivalents		13,709			(8,614	)
Cash and cash equivalents, beginning of year		33,630			34,916

Cash and cash equivalents, end of period	$	47,339			26,302

NONCASH ITEMS
Transfer to securities from loans resulting from securitizations	$	-			1,119
Transfer to securities from loans held for sale resulting from securitizations		5,881			-
Transfer to trading account assets from securities		6,807			-
Transfer to loans from loans held for sale		6,428			251
Cumulative effect of accounting changes, net of income taxes	$	(24	)		(1,447	)

See accompanying Notes to Consolidated Financial Statements.

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 “Wachovia” or 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 (“GAAP”) for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all the information and footnotes required by GAAP 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, 2008, are not necessarily indicative of the results of operations that may be expected in the future. Please refer to the Company’s 2007 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, 2007, including the related notes to consolidated financial statements.

The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates and assumptions. The Company regularly assesses various assets, including goodwill, for impairment as dictated by applicable GAAP, giving appropriate consideration to general economic and specific market factors.

PERSONNEL EXPENSE AND RETIREMENT BENEFITS

Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Certain Defined Benefit Pension and Other Postretirement Plans,” which the Company adopted on December 31, 2006, also requires employers to use a plan measurement date that is the same as its fiscal year-end beginning no later than December 31, 2008. The Company has historically used a measurement date of September 30, and is required under SFAS 158 to change to a December 31 measurement date by no later than December 31, 2008. The Company changed its measurement date using the alternative provided in SFAS 158 where the September 30, 2007, measurement establishes a 15-month cost, three-fifteenths of which, or $4 million, was recorded as an adjustment to retained earnings on January 1, 2008.

The components of the retirement benefit costs (credits) included in salaries and employee benefits expense for the six months ended June 30, 2008 and 2007, 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)	*2008*			2007			*2008*		2007		*2008*			2007

RETIREMENT BENEFIT COSTS (CREDITS)
Service cost	$	86			92			-		1		1			2
Interest cost		129			132			10		11		23			22
Expected return on plan assets		(259	)		(246	)		-		-		(1	)		(1	)
Amortization of prior service cost		(23	)		(13	)		-		-		-			(4	)
Amortization of actuarial losses		38			60			2		4		-			-

Net retirement benefit costs (credits)	$	(29	)		25			12		16		23			19

SALE-IN, LEASE-OUT TRANSACTIONS

In the second quarter of 2008, the Company recorded a $975 million charge to interest income related to the recalculation of certain leveraged lease transactions. These transactions, which the Company entered into between 1999 and 2003, are widely known as sale-in, lease-out or “SILO” transactions. This noncash charge resulted from the Company’s analysis of a federal court of appeals opinion in a case involving another financial institution where tax benefits associated with certain lease-in, lease-out or “LILO” transactions were disallowed. The Company believes that some aspects of the court decision could be extended to SILO transactions. Subsequently, a federal court issued an adverse decision regarding a SILO transaction entered into by two other large financial institutions. While tax laws involving SILO transactions remain unsettled, applicable accounting standards, including Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”) on income taxes and FASB Staff Position FAS 13-2 on leveraged leases, require the Company to update the income tax cash flow assessment on SILO transactions for potential changes in the timing of tax cash flows in light of the court rulings. See Note 1 to the Consolidated Financial Statements in the Company’s 2007 Annual Report on Form 10-K for more information on these leasing transactions and on the applicable accounting standards. On August 6, 2008, the Internal Revenue Service announced a settlement initiative related to SILO transactions. See Note 9 for more information.

GOODWILL

The Company tests goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment. The Company operates in four core business segments. Goodwill impairment testing is performed at the sub-segment level (or “reporting unit”). There are eight reporting units within the Company. They are General Bank: Commercial, and Retail and Small Business; Wealth Management; Corporate and Investment Bank: Corporate Lending, Investment Banking, and Treasury and International Trade Finance; and Capital Management: Retail Brokerage Services and Asset Management.

The goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying value, applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of impairment.

The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted under applicable accounting standards.

At June 30, 2008, the fair values of the Company’s reporting units were based on a discounted cash flow methodology using discount rates that reflect the Company’s current market capitalization plus a control premium.

See Note 3 for goodwill impairment recorded at June 30, 2008.

OTHER

The company recorded market disruption-related net valuation gains of $314 million and losses of $1.1 billion in other income in the consolidated statement of income for the three and six months ended June 30, 2008, respectively. For the six months ended June 30, 2008, this amount includes net losses of $354 million related to the Company’s leveraged finance commitments, $329 million related to the commercial mortgage securitization business, $90 million related to wholesale consumer warehouses and $314 million related to certain bank-owned life insurance assets.

In March 2008, Visa, Inc. (“Visa”) completed their initial public offering (“IPO”) of shares. Visa redeemed a proportionate share of member banks’ ownership which resulted in the Company recording a gain of $225 million in securities gains (losses) within fee and other income. In connection with the IPO, Visa also established an escrow account of $3 billion to cover litigation, and as a result, the Company recorded a $102 million reduction to previously established reserves representing the Company’s proportionate share of that escrow account. The reduction is reported in sundry expense within noninterest expense.

PREFERRED STOCK

On February 8, 2008, the Company issued $3.5 billion of non-cumulative perpetual Class A preferred stock. This preferred stock pays dividends of 7.98 percent until 2018, after which dividends will be payable at a floating rate of three-month LIBOR plus 3.77 percent. If the Company does not declare a preferred stock dividend for a particular period, the Company may not pay a dividend on its common stock. Beginning on March 18, 2018, the Company may redeem the preferred stock at par plus accrued but unpaid dividends.

On April 14, 2008, the Company issued $4.025 billion of non-cumulative perpetual convertible Class A preferred stock. This preferred stock pays dividends of 7.50 percent. If the Company does not declare a preferred stock dividend for a particular period, the Company may not pay a dividend on its common stock. The preferred stock is not redeemable by the Company.

DISCONTINUED OPERATIONS

The Company controls 100 percent of the outstanding equity of BluePoint Re Limited (“BluePoint”), a Bermuda-based monoline bond reinsurer, and accordingly consolidates this subsidiary. The results for the third and fourth quarters of 2007 have been reclassified to reflect the results of BluePoint as a discontinued operation. Results from inception of BluePoint in 2005 through the second quarter of 2007 were not material, and accordingly, have not been included in discontinued operations.

In the six months ended December 31, 2007, BluePoint recorded significant losses on certain derivative instruments (principally credit default swaps on collateralized debt obligations where the underlying collateral is subprime residential mortgage-backed securities) and these losses through December 31, 2007, approximated substantially all of Wachovia’s investment in this subsidiary and were included in Wachovia’s 2007 consolidated results of operations. Wachovia has no further obligation to inject capital in BluePoint. BluePoint continued to record these instruments at fair value in the first six months of 2008. In estimating the fair value of these instruments under SFAS 157 (see “New Accounting Pronouncements” section of this note), a company must consider, among other things, its own credit rating, which in this case is BluePoint’s. As Wachovia has no obligation to fund losses in excess of BluePoint’s equity, BluePoint assessed the discount required in valuing these instruments to reflect a market participant’s view of BluePoint’s nonperformance risk. BluePoint’s valuation at June 30, 2008, reflected a very significant discount for its nonperformance risk, such that BluePoint recorded no further losses on the derivative instruments in the first six months of 2008. Accordingly, the Company’s consolidated results for the six months ended June 30, 2008, reflected no additional losses in discontinued operations.

NEW ACCOUNTING PRONOUNCEMENTS

On January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” Emerging Issues Task Force (EITF) Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” and EITF Issue No. 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements.” The effect of adopting SFAS 157 is recorded directly to first quarter 2008 results of operations or is recorded as a cumulative effect of a change in accounting principle as an adjustment, net of applicable taxes, to beginning retained earnings on January 1, 2008, depending on the nature of the financial instrument to which the new fair value measurement is applied. For SFAS 159 and the two EITF issues, the cumulative effect of adoption is recorded as an adjustment, net of applicable taxes, to beginning retained earnings on January 1, 2008. See Note 12 for SFAS 157 and SFAS 159 disclosures.

EITF Issue No. 06-4 and EITF Issue No. 06-10 address the accounting for split-dollar life insurance policies that are held on certain current and former employees. The effect of adopting these standards was a $19 million after-tax charge to January 1, 2008, retained earnings.

RECLASSIFICATIONS

Certain amounts in 2007 were reclassified to conform with the presentation in 2008. These reclassifications had no effect on the Company’s previously reported consolidated financial position or results of operations.

SUBSEQUENT EVENT

Wachovia is in active discussions of potential settlement with various state regulators and the SEC of ongoing investigations concerning the underwriting, sale and subsequent auctions of certain auction rate securities by two subsidiaries of the Company. Auction rate securities are debt instruments with long-term maturities, but which reprice through auction on a more frequent basis. Subsequent to June 30, 2008, this matter reached the threshold for accrual of a liability as of June 30, 2008. Based on the probability of such settlement, current market value estimates, affected auction rate securities and expected future redemptions, the Company recorded a $500 million increase to legal reserves as of June 30, 2008. This expense, which is reflected in sundry, includes estimated market valuation losses on auction rate securities associated with a potential settlement.

NOTE 2: SECURITIES

June 30, 2008

Average

1 Year

1-5

5-10

After 10

Gross Unrealized

Amortized

Maturity

(In millions)

or Less

Years

Total

Gains

Losses

Cost

in Years

MARKET VALUE

U.S. Treasury

322

185

170

717

702

3.06

Mortgage-backed securities

128

18,138

45,779

64,085

332

979

64,732

6.40

Asset-backed

Residual interests from securitizations

217

132

374

305

4.18

Retained bonds from securitizations

1,386

143

1,585

1,658

1.34

Collateralized mortgage obligations

650

14,308

4,548

140

19,646

1,683

21,257

4.26

Commercial mortgage-backed

257

1,082

1,174

2,540

126

2,624

4.58

Other

489

3,698

394

227

4,808

679

5,480

3.86

State, county and municipal

678

543

2,590

3,873

113

3,824

13.61

Sundry

1,551

2,241

4,942

7,099

15,833

147

1,205

16,891

9.36

Total market value

4,862

40,690

57,738

10,171

113,461

807

4,819

117,473

6.38

MARKET VALUE

Debt securities

4,862

40,690

57,738

8,618

111,908

667

4,791

116,032

Equity securities

1,553

140

1,441

Total market value

4,862

40,690

57,738

10,171

113,461

807

4,819

117,473

AMORTIZED COST

Debt securities

4,873

42,439

59,346

9,374

116,032

Equity securities

1,441

Total amortized cost

4,873

42,439

59,346

10,815

117,473

WEIGHTED AVERAGE YIELD

U.S. Treasury

1.58

1.96

2.70

4.87

2.12

Mortgage-backed securities

3.67

5.44

5.34

5.32

5.36

Asset-backed

Residual interests from securitizations

126.45

21.55

18.20

22.28

Retained bonds from securitizations

3.12

6.02

7.02

3.65

Collateralized mortgage obligations

4.72

6.22

6.09

6.34

6.15

Commercial mortgage-backed

6.39

7.42

4.98

11.37

6.19

Other

4.29

4.67

4.96

4.66

State, county and municipal

6.57

5.58

5.17

4.87

5.06

Sundry

2.88

4.82

4.78

4.86

4.64

Consolidated

3.69

5.72

5.35

4.89

5.38

At June 30, 2008, all securities not classified as trading were classified as available for sale.

At June 30, 2008, mortgage-backed securities consist principally of obligations of U.S. Government agencies and sponsored entities. Included in mortgage-backed securities are Federal National Mortgage Association and Federal Home Loan Mortgage Corporation securities with an amortized cost of $48.7 billion and a market value of $48.3 billion, and an amortized cost of $12.8 billion and a market value of $12.6 billion, respectively.

Also included in mortgage-backed securities are U.S. Government agency and Government-sponsored entity securities retained from the securitization of residential mortgage loans. These securities had an amortized cost of $14.2 billion and a market value of $14.4 billion at June 30, 2008.

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, 2008, retained bonds with an amortized cost and market value of $1.6 billion were considered investment grade based on external ratings. Retained bonds with an amortized cost and market value of $1.3 billion at June 30, 2008, have an external credit rating of AA and above.

Securities with an aggregate amortized cost of $79.1 billion at June 30, 2008, 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, 2008, 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 $1.9 billion. At June 30, 2008, there were commitments to sell securities at a price that approximates a market value of $1.7 billion.

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, 2008, 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 recorded $1.3 billion of impairment losses, as noted below. The Company does not consider any other securities to be other-than-temporarily impaired. However, without recovery in the near term such that liquidity returns to the markets and spreads return to levels that reflect underlying credit characteristics, additional other-than-temporary impairments may occur in future periods.

The components of realized gains and losses on sales of debt and equity securities for the six months ended June 30, 2008 and 2007, are presented below.


	*Six Months Ended*
	*June 30,*
(In millions)	*2008*			2007

Debt securities	$
Gross gains		79			72
Gross losses (a)		(950	)		(41	)

Net gains (losses) on sales of debt securities		(871	)		31

Equity securities
Gross gains		248			46
Gross losses (b)		(390	)		(1	)

Net gains (losses) on sales of equity securities		(142	)		45

Total securities gains (losses)	$	(1,013	)		76

(a) Impairment losses were $945 million and $36 million in the six months ended June 30, 2008 and 2007, respectively.

(b) Impairment losses were $378 million in the six months ended June 30, 2008 and insignificant in the six months ended June 30, 2007.

NOTE 3: GOODWILL IMPAIRMENT

The Company performed goodwill impairment testing for all eight reporting units at December 31, 2007, March 31, 2008 and June 30, 2008, in accordance with the policy described in Note 1. There was no indication of impairment in the first step of the impairment test in any reporting unit at either December 31, 2007, or March 31, 2008, and accordingly, the Company did not perform the second step. At June 30, 2008, there was an indication of impairment in four of the eight reporting units, and accordingly, the second step was performed on these four reporting units. Based on the results of the second step, the Company recorded a $6.1 billion goodwill impairment charge in the second quarter of 2008 across three of the four reporting units, as shown in the table below.

General Bank

Corporate and Investment Bank

All Other

Retail and

Corporate

Investment

Reporting

(In millions)

Commercial

Small Business

Lending

Banking

Units

Total

Assigned goodwill

7,083

23,976

2,937

597

8,460

43,053

Impairment

(2,526

)

(2,937

)

(597

)

(6,060

)

Remaining goodwill

4,557

23,976

8,460

36,993

The primary cause of the goodwill impairment in the three reporting units is the decline in the Company’s market capitalization, which declined 38 percent from March 31, 2008, to $33.5 billion at June 30, 2008. The decline was a function of both financial services industry-wide and company-specific factors. Although there was an initial indication of possible impairment in the General Bank Retail and Small Business reporting unit, which holds the Pick-a-Payment portfolio, the step two measurement indicated no impairment largely due to the value that the retail banking network contributes to that reporting unit.

NOTE 4: VARIABLE INTEREST ENTITIES AND SERVICING ASSETS

VARIABLE INTEREST ENTITIES

The Company administers a multi-seller commercial paper conduit that arranges financing for certain customer transactions thereby providing customers with access to the commercial paper market. The Company provides liquidity facilities on all the commercial paper issued by the conduit. The conduit is a variable interest entity (“VIE”) and the liquidity agreements are considered variable interests; however, because the Company does not hold a majority of the expected losses or expected residual returns through its variable interests, the Company does not consolidate the conduit on the balance sheet. At the discretion of the administrator, the provisions of the liquidity agreements require the Company to purchase assets from the conduit at par value plus interest, including in situations where the conduit is unable to issue commercial paper. Par value may be different from fair value. Any losses incurred on such purchases would be initially absorbed by the third-party holder of a subordinated note in the conduit. The ability of the conduit to issue commercial paper is a function of general market conditions and the credit rating of the liquidity provider. This conduit has always been able to issue commercial paper. At June 30, 2008 and December 31, 2007, the conduit had total assets of $12.3 billion and $15.0 billion, respectively, and the Company had a maximum exposure to losses of $19.7 billion and $26.1 billion, respectively, including funded positions and committed exposure, related to its liquidity agreements.

The Company provides liquidity to certain third party commercial paper conduits and other entities in connection with collateralized debt obligation (“CDO”) securitization transactions. The Company has also entered into derivative contracts with certain entities in connection with CDO securitization transactions that may require the Company to purchase assets at a specified price. These entities are VIEs and the Company’s liquidity facilities and derivative exposures are variable interests. The Company does not consolidate these entities because the Company does not hold a majority of the expected losses or expected residual returns through its variable interests. At June 30, 2008 and December 31, 2007, the Company had a maximum exposure to losses of $6.0 billion and $7.3 billion, respectively, related to these agreements.

The Company holds an investment amounting to $3.5 billion and $3.2 billion at June 30, 2008 and December 31, 2007, respectively, in four investment funds managed by European Credit Management Ltd. (“ECM”). In January 2007, the Company purchased a majority interest in ECM. This purchase did not alter the Company’s conclusion that these funds are not subject to consolidation. At June 30, 2008 and December 31, 2007, the funds in which the Company held an investment had total assets of $19.2 billion and $20.0 billion, respectively. In March 2008, the Company entered into repo lending arrangements with one of these funds. The Company also entered into a default protection agreement with another repo lender to this fund. These lending arrangements have a maximum loss exposure, before considering collateral the Company holds, of $141 million, of which $50 million is unfunded. The total assets of this fund were $886 million at June 30, 2008.

In the third quarter of 2007, the Company purchased and placed in the securities available for sale portfolio $1.1 billion of asset-backed commercial paper from Evergreen money market funds, which the Company manages. The Company recorded $57 million of valuation losses in 2007 and $24 million in the first half of 2008 on this purchase, which were included in securities gains (losses) in the consolidated results of operations. The Company was not required by contract to purchase these or any other assets from the Evergreen funds. There are certain circumstances under which a money market fund may be considered a VIE and consolidated by the manager. At June 30, 2008, the Company did not consolidate the money market funds it manages.

In June 2008, the Company provided financing to a fund the Company manages in connection with the liquidation of the fund. As a result of providing this financing, the Company became the primary beneficiary of the fund, which is a VIE, and accordingly consolidated the fund in June 2008. In connection with consolidation of this fund, the Company recorded $351 million of trading securities in the consolidated balance sheet and $89 million of write-downs on these securities.

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.

The fair values of 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, 2008, the weighted average prepayment speed assumption was 15.62 percent and the weighted average discount rate used was 12.04 percent.

Servicing fee income for the six months ended June 30, 2008, was $158 million and is included in other banking fees in the consolidated results of operations. 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, 2008, are presented on the following page.

NOTE 5: SHARE-BASED PAYMENTS

The Company has stock option plans under which incentive and nonqualified stock options as well as restricted stock may be granted periodically to certain employees. The options typically 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. 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 for the three and six months ended June 30, 2008 and 2007, are presented below.


	*Three Months Ended*				*Six Months Ended*
	*June 30,*				*June 30,*

(In millions)	*2008*		2007		*2008*		2007

Employee stock compensation expense
Restricted stock awards	$	97		93		293		264
Stock option awards		22		27		75		68

Total employee stock compensation expense		119		120		368		332

Related income tax benefit		42		42		129		116
Retirement-eligible portion of total employee stock compensation expense	$	-		-		109		93

The stock compensation awards granted in the six months ended June 30, 2008, vest over three to five years based only on continued service with the Company, with the exception of 720,000 shares of restricted stock awards to certain senior executives of the Company, which vest over three years if the Company achieves a specified return on average tangible common stockholders’ equity for 2008; otherwise these shares are forfeited. For stock options, the exercise price is the closing price on the date of grant, with the exception of 852,000 and 994,000 options awarded to certain senior executives of the Company, for which the exercise price is approximately a 20 percent and 40 percent premium, respectively, above the closing price on the date of grant.

Information on unrecognized compensation cost for restricted stock and stock options at June 30, 2008 and 2007, and for the six months ended June 30, 2008 and 2007, is presented below.


	*June 30,*

(Dollars in millions)	*2008*			2007

Unrecognized compensation cost
Restricted stock	$	572			639
Stock options	$	139			196
Weighted average period for cost recognition	1.4		yrs		1.4


	*Six Months Ended*
	*June 30,*

(In millions)	*2008*		2007

Fair value of restricted stock vested	$	259		323
Intrinsic value of stock option awards exercised		35		259
Cash received from the exercise of stock options granted		65		350
Income tax benefit realized from stock options exercised	$	11		78

The weighted average grant date fair value of options awarded in the six months ended June 30, 2008, was $6.83. The more significant assumptions used in estimating the fair value of these stock options include risk-free interest rate of 3.51 percent, expected dividend yield of 7.58 percent (as of the date of grant; subsequently the Company made the decision and announced a reduction in the dividend), expected volatility of the Company’s common stock of 44 percent and weighted average expected life of the stock options of 8.0 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 two years, 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 2008 grants, the Company determined the estimated life based on historical stock option experience. Of the options and restricted stock awarded in the six months ended June 30, 2008, substantially all was awarded in the three months ended March 31, 2008.

At June 30, 2008, the Company had authorization to reserve 88 million shares of its common stock for issuance under its stock option plans.

NOTE 7: BUSINESS SEGMENTS

Business segment results are presented excluding merger-related and restructuring expenses, goodwill impairment, other intangible amortization, minority interest in consolidated subsidiaries, discontinued operations and the effect of changes in accounting principles. 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. Provision for credit losses is allocated to each core business segment in an amount equal to net charge-offs, and the difference between the total provision for the core segments and the consolidated provision, amounting to $4.2 billion and $6.3 billion in the three and six months ended June 30, 2008, respectively, is recorded in the Parent. The majority of the provision reflected in the Parent relates to loans in the General Bank segment.

The Company continuously updates segment information for changes that occur in the management of the Company’s businesses. In the first quarter of 2008, the Company updated its segment reporting to reflect BluePoint as a discontinued operation (see Note 1), which is included in the Parent, and realigned certain corporate overhead allocations resulting in a shift of such allocations from the four core business segments to the Parent. Segment information for 2007 has been restated to reflect these changes and the impact to previously reported 2007 segment earnings is a $203 million increase to the General Bank, a $26 million increase in Wealth Management, a $330 million increase in the Corporate and Investment Bank, a $77 million increase in Capital Management, and a $406 million decrease in the Parent. Losses from discontinued operations in 2007 excluded from segment earnings were $230 million. Certain amounts presented in periods prior to the second quarter of 2008 have been reclassified to conform to the presentation in the second quarter of 2008.

Three Months Ended June 30, 2008

Goodwill

Impairment,

Corporate

Net Merger-

and

Related and

General

Wealth

Investment

Capital

Restructuring

(Dollars in millions)

Bank

Management

Bank

Management

Parent

Expenses (b)

Consolidated

CONSOLIDATED

Net interest income (a)

3,671

202

1,124

308

(961

)

(54

)

4,290

Fee and other income

1,000

207

657

1,995

(694

)

3,165

Intersegment revenue

(52

)

Total revenue (a)

4,728

412

1,729

2,295

(1,655

)

(54

)

7,455

Provision for credit losses

919

438

4,202

5,567

Noninterest expense

2,050

253

960

2,327

883

6,311

12,784

Minority interest

(44

)

(18

)

Income taxes (benefits)

632

103

(12

)

(2,657

)

(82

)

(1,963

)

Tax-equivalent adjustment

(54

)

Net income (loss)

1,117

209

(21

)

(4,133

)

(6,185

)

(8,915

)

Dividends on preferred stock

193

Net income (loss) available to common stockholders

1,117

209

(21

)

(4,326

)

(6,185

)

(9,108

)

Lending commitments

133,201

6,915

113,559

1,544

543

255,762

Average loans, net

319,574

23,151

106,642

2,881

24,486

476,734

Average core deposits

290,381

17,559

31,682

48,647

2,401

390,670


	Three Months Ended June 30, 2007

					Corporate									Net Merger-
					and									Related and
	General		Wealth		Investment			Capital						Restructuring
(Dollars in millions)	Bank		Management		Bank			Management			Parent			Expenses (b)			Consolidated

CONSOLIDATED
Net interest income (a)	$	3,372		182		773			260			(100	)		(38	)		4,449
Fee and other income		935		202		1,522			1,536			45			-			4,240
Intersegment revenue		56		3		(50	)		(11	)		2			-			-

Total revenue (a)		4,363		387		2,245			1,785			(53	)		(38	)		8,689
Provision for credit losses		154		2		(2	)		-			25			-			179
Noninterest expense		1,922		244		1,020			1,294			378			32			4,890
Minority interest		-		-		-			-			139			-			139
Income taxes (benefits)		824		51		437			179			(339	)		(12	)		1,140
Tax-equivalent adjustment		10		-		11			-			17			(38	)		-

Net income (loss)	$	1,453		90		779			312			(273	)		(20	)		2,341

Lending commitments	$	129,851		6,892		115,430			1,169			569			-			253,911
Average loans, net		291,607		21,056		76,744			1,663			30,187			-			421,257
Average core deposits	$	290,455		17,466		36,713			31,221			2,641			-			378,496

Six Months Ended June 30, 2008

Goodwill

Impairment,

Corporate

Net Merger-

and

Related and

General

Wealth

Investment

Capital

Restructuring

(Dollars in millions)

Bank

Management

Bank

Management

Parent

Expenses (b)

Consolidated

CONSOLIDATED

Net interest income (a)

7,116

384

2,152

589

(1,092

)

(107

)

9,042

Fee and other income

1,980

418

499

4,186

(1,141

)

5,942

Intersegment revenue

112

(102

)

(18

)

Total revenue (a)

9,208

810

2,549

4,757

(2,233

)

(107

)

14,984

Provision for credit losses

1,488

635

6,262

8,398

Noninterest expense

4,088

499

1,707

4,182

1,197

6,552

18,225

Minority interest

224

(87

)

137

Income taxes (benefits)

1,305

108

208

(3,697

)

(157

)

(2,197

)

Tax-equivalent adjustment

(107

)

Net income (loss)

2,306

190

131

365

(6,263

)

(6,308

)

(9,579

)

Dividends on preferred stock

236

Net income (loss) available to common stockholders

2,306

190

131

365

(6,499

)

(6,308

)

(9,815

)

Lending commitments

133,201

6,915

113,559

1,544

543

255,762

Average loans, net

315,565

22,758

103,844

2,722

26,446

471,335

Average core deposits

293,776

17,732

32,652

45,866

2,565

392,591

NOTE 9: INCOME TAXES

At January 1, 2008, the Company had $2.6 billion of gross unrecognized income tax benefits (“UTBs”), including $1.5 billion of UTBs attributed to income tax on timing differences and $830 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 difference items relates to SILO leasing transactions as described below, for which the period of recognition of income or deductions differs for tax return and financial statement purposes. The income tax liability for the change in the period of deduction would not impact the effective income tax rate.

A reconciliation of the change in the UTB balance from January 1, 2008 to June 30, 2008, is presented below.


													*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, 2008	$	2,217			425			2,642			(257	)		2,385
Additions for tax positions related to the current year		32			-			32			(11	)		21
Additions for tax positions related to prior years		1,622			461			2,083			(169	)		1,914
Reduction for tax positions related to prior years		(3	)		-			(3	)		1			(2	)
Reductions for tax positions related to acquired entities in prior years, offset to goodwill		-			(4	)		(4	)		(1	)		(5	)
Reductions related to settlements with taxing authorities		(3	)		-			(3	)		-			(3	)

Balance at June 30, 2008		3,865			882			4,747			(437	)		4,310
Less: tax attributable to timing items included above		(3,050	)		-			(3,050	)		-			(3,050	)
Less: UTBs included above that relate to acquired entities that would impact goodwill if recognized by December 31, 2008		(78	)		(9	)		(87	)		25			(62	)

Total UTBs that, if recognized, would impact the effective income tax rate as of June 30, 2008	$	737			873			1,610			(412	)		1,198

On April 29, 2008, the U.S. Court of Appeals for the Fourth Circuit issued an opinion in the matter of BB&T Corporation v. United States of America that disallowed tax benefits associated with certain of BB&T’s LILO transactions (see Note 1 for a more detailed description of these leasing transactions). Although the BB&T decision involved LILOs, the Company believes some aspects of the decision could be extended to SILO transactions. Subsequently, on May 28, 2008, the United States District Court for the Northern District of Ohio issued an adverse decision regarding a SILO transaction entered into by two other large financial institutions. While the Company continues to believe its SILO transactions comply with applicable laws, under the principles established by FIN 48, the Company increased its projected December 31, 2008 UTBs by approximately $1.7 billion as a result of applying these decisions to the Company’s SILO transactions. Of the total increase, approximately $1.4 billion represents the tax on timing differences that will impact deferred income tax on the balance sheet, in accordance with the applicable accounting for leveraged leases. The remaining $300 million will impact income tax expense, of which $263 million was recorded through June 30, 2008.

The IRS is currently examining the Company for tax years 2003 through 2005, certain non-consolidated subsidiaries for tax years 2001 through 2006 and A.G. Edwards for the period ending October 1, 2007. The Company and its subsidiaries are currently subject to examination by various state, local and foreign taxing authorities. While one or more of these examinations may be concluded by year end, management does not believe that a significant impact to the UTB balance will occur.

With few exceptions, the Company is no longer subject to state, local or foreign income tax examinations by taxing authorities for years before 2000. The expiration of statutes of limitations for various jurisdictions is expected to reduce the UTB balance by an insignificant amount during the remainder of 2008.

Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to uncertain income tax positions. On August 6, 2008, the IRS announced a settlement initiative related to SILO transactions. Management is evaluating the offer notification and potential impact to our financial condition and results of operations. In the event that the Company were to accept the terms of the offer, management estimates a decrease to the December 31, 2008 UTB balance that would impact the effective income tax rate, pursuant to FIN 48, of between zero and $150 million. The full potential impact (of which the effect on the UTB is only a part), such as the impact of applying FSP 13-2 and lease termination costs, is under evaluation. Management has not yet decided whether the Company will accept the offer. The settlement initiative does not impact the Company’s LILO transactions, which were settled with the IRS in 2004. At June 30, 2008, management had identified no other potential subsequent events that are expected to have a significant impact on the UTB balance during the remainder of 2008.

100

NOTE 10: 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 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 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, 2008, losses of $314,000 were recognized in other fee income representing the ineffective portion of the net gains (losses) on derivatives that qualify as cash flow and fair value hedges. This amount includes the time value of options. In addition, net interest income in the six months ended June 30, 2008, was decreased by $31 million, representing ineffectiveness of cash flow hedges caused by differences between the critical terms of the derivative and the hedged item, primarily differences in reset dates.

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. In the normal course of business 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, it 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. Subsequent adjustments in the value of the loan commitment are primarily related to 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, 2008, are presented on the following page.

101

June 30, 2008

Average

Notional

Gross Unrealized

Maturity in

(In millions)

Hedged items 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

2,998

2.62

Pay 3 month LIBOR swaps

1 month LIBOR risk

11,510

320

199

3.61

Purchased interest rate floors-3 month LIBOR

First forecasted interest receipts on 1 month LIBOR commercial loans

9,000

(56

)

(35

)

1.99

Call options on Eurodollar futures

First forecasted interest payments on 1 month LIBOR commercial loans

36,250

(10

)

0.25

Fair value hedges

Interest rate swaps-pay fixed/ receive LIBOR

Individual fixed rate debt securities classified as available for sale

732

(18

)

11.06

Foreign currency forwards

Currency risk associated with foreign currency denominated securities classified as available for sale

9,714

0.04

Total asset hedges

70,204

404

(84

)

215

1.21

LIABILITY HEDGES (a)

Cash flow hedges

Interest rate swaps-pay fixed

First forecasted interest payments on long-term debt

Receive 1 month LIBOR swaps

1 month LIBOR risk

2,144

(187

)

(114

)

9.66

Receive 3 month LIBOR swaps

1 month LIBOR risk

6,503

(174

)

(108

)

2.73

Receive 3 month LIBOR swaps

3 month LIBOR risk

8,225

2.21

Receive 6 month LIBOR swaps

6 month LIBOR risk

4.97

Eurodollar futures

1 day LIBOR risk associated with the proceeds from first forecasted issuance of repurchase agreements that are part of a rollover strategy

10,000

)

0.25

Eurodollar futures

First forecasted interest payments on 3 month LIBOR long-term debt

137,000

252

(15

)

148

0.25

Fair value hedges

Interest rate swaps-receive fixed/ pay floating (e)

Individual fixed rate long-term debt issuances

35,144

760

(511

)

9.70

Foreign currency forwards

Currency risk associated with foreign currency denominated repurchase agreements and long-term debt

18,369

)

0.13

Currency swaps (e)

Currency risk associated with individual foreign currency denominated long-term debt

1,055

151

4.81

Total liability hedges

218,447

1,251

(889

)

(24

)

2.02

Total

288,651

1,655

(973

)

191

102

Expected maturities of risk management derivative financial instruments at June 30, 2008, are presented below.

June 30, 2008

1 Year

1-2

2-5

5-10

After 10

(In millions)

or Less

Years

Total

CASH FLOW ASSET HEDGES

Notional amount — swaps—receive fixed

676

12,999

740

14,508

Notional amount — other

36,250

5,000

4,000

45,250

Weighted average receive rate (a)

5.23

5.26

5.11

4.71

5.10

Weighted average pay rate (a)

2.65

2.48

2.71

2.91

2.72

Unrealized gain (loss)

(20

)

345

336

FAIR VALUE ASSET HEDGES

Notional amount — swaps—pay fixed

215

181

336

732

Notional amount — other

9,704

9,714

Weighted average receive rate (a)

1.65

1.69

1.67

Weighted average pay rate (a)

3.39

3.92

3.63

Unrealized gain (loss)

)

(16

)

CASH FLOW LIABILITY HEDGES

Notional amount — swaps—pay fixed

13,390

546

1,553

1,351

16,879

Notional amount — other

147,000

Weighted average receive rate (a)

2.27

2.78

2.48

2.61

2.53

2.69

Weighted average pay rate (a)

5.84

5.27

5.56

5.71

5.95

5.47

Unrealized gain (loss)

247

(30

)

(27

)

(101

)

(130

)

(41

)

FAIR VALUE LIABILITY HEDGES

Notional amount — swaps—receive fixed

4,925

1,900

6,006

13,145

9,168

35,144

Notional amount — other

18,369

863

192

19,424

Weighted average receive rate (a)

4.27

4.78

5.21

4.81

5.17

4.89

Weighted average pay rate (a)

2.84

2.72

3.58

3.11

3.92

3.34

Unrealized gain (loss)

179

281

(127

)

403

(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-month to six-month LIBOR, Euros, Pounds Sterling, or Australian dollars and they are the pay or receive rates in effect at June 30, 2008.

104

NOTE 12: FAIR VALUE MEASUREMENTS AND FAIR VALUE OPTION

FAIR VALUE MEASUREMENTS

The Company adopted SFAS 157, “Fair Value Measurements,” on January 1, 2008. SFAS 157 establishes a framework for measuring fair value, expands disclosures about fair value measurements and provides new income recognition criteria for certain derivative contracts. SFAS 157 nullifies the guidance included in EITF Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities,” that prohibited the recognition of gain or loss at the inception of a derivative contract unless the fair value was based on observable market data. SFAS 157 requires that a fair value measurement reflect assumptions market participants would use in pricing an asset or liability. In addition, SFAS 157 prohibits the use of “block discounts” for large holdings of unrestricted financial instruments where quoted prices are readily and regularly available in an active market, and requires a company to consider its creditworthiness when valuing derivatives and other liabilities recorded at fair value. The provisions of SFAS 157 are applied prospectively with changes recorded in current earnings, except changes in fair value measurements that result from the initial application of SFAS 157 to existing derivative financial instruments measured under EITF 02-3, existing hybrid financial instruments measured at fair value and block discounts, all of which are recorded as an adjustment to beginning retained earnings on the date of adoption. Accordingly, the Company recorded a cumulative effect adjustment of $61 million ($38 million after-tax) as an increase to beginning retained earnings on January 1, 2008. Additionally, on the date of adoption, the Company recorded net gains in the first quarter 2008 results of continuing operations of $481 million related primarily to a change in methodology used to calculate the fair value of certain investments in private equity funds held in a wholly owned investment company subsidiary, as described in more detail in the Principal Investments section below. Also, BluePoint reflected a significant discount for its nonperformance risk when estimating the fair value of its derivatives under SFAS 157. See “Discontinued Operations” in Note 1 for additional information on BluePoint.

FASB Staff Position (“FSP”) No. 157-2, “Effective Date of FASB Statement No. 157,” delays the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except for items recognized or disclosed at fair value on a recurring basis. Under the provisions of FSP 157-2, the Company has not applied certain provisions of SFAS 157 to non-financial assets, such as real estate owned.

SFAS 157 defines “fair value” as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market, or if none exists, the most advantageous market, for the specific asset or liability at the measurement date (referred to as an exit price). SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy under SFAS 157 are:

Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.

Level 2 Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. SFAS 157 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

DETERMINATION OF FAIR VALUE

In determining fair value, the Company uses market prices of the same or similar instruments whenever such prices are available, even in situations where trading volume may be low when compared with prior periods as has been the case during the current market disruption. A fair value measurement assumes that an asset or liability is exchanged in an orderly transaction between market participants, and accordingly, fair value is not determined based upon a forced liquidation or distressed sale. Where necessary, the Company estimates fair value using other market observable data such as prices for synthetic or derivative instruments, market indices, industry ratings of underlying collateral or models employing techniques such as discounted cash flow analyses. The assumptions used in the models, which typically include assumptions for interest rates, credit losses and prepayments, are corroborated by and independently verified against market observable data where possible. Market observable real estate data is used in valuing instruments where the underlying collateral is real estate or where the fair value of an instrument being valued highly correlates to real estate prices. Where appropriate, the Company may use a combination of these valuation approaches.

Where the market price of the same or similar instruments is not available, the valuation of financial instruments becomes more subjective and involves a high degree of judgment. Where modeling techniques are used, the models are subject to independent validation procedures in accordance with risk management policies and procedures. Further, pricing data is subject to independent verification.

The following sections describe the valuation methodologies used by the Company to measure classes of financial instruments at fair value and specify the level in the fair value hierarchy where various financial instruments are generally classified. Valuation models, significant inputs to those models and any significant assumptions are included where appropriate.

Derivatives

The Company enters into both exchange-traded and over-the-counter (“OTC”) derivatives. Exchange-traded derivatives are generally valued using quoted market or exchange prices and are accordingly classified within Level 1 of the fair value hierarchy.

106

The majority of the Company’s derivatives, however, are not listed on an exchange and are instead executed over the counter. As no quoted market prices exist for such instruments, OTC derivatives are valued using internal valuation techniques. Valuation techniques and inputs to internally-developed models depend on the type of derivative and the nature of the underlying rate, price or index upon which the derivative’s value is based. Key inputs can include yield curves, credit curves, foreign-exchange rates, prepayment rates, volatility measurements and correlation of such inputs. Where model inputs can be observed in a liquid market and the model does not require significant judgment, such derivatives are typically classified within Level 2 of the fair value hierarchy. Examples of derivatives within Level 2 include generic interest rate swaps, foreign currency swaps, commodity swaps and option contracts. When instruments are traded in less liquid markets and significant inputs are unobservable, such derivatives are classified within Level 3. Examples of derivatives within Level 3 include complex and highly structured derivatives, credit default swaps referenced to subprime residential mortgage-backed securities (“RMBS”) and long-dated equity options where volatility is not observable.

Derivatives include accounting hedges, trading derivatives, economic hedges and interest rate locks in the Company’s mortgage business. Accounting hedges are included in other assets or other liabilities. Those derivatives that are held for trading purposes are considered trading derivatives and are included in trading account assets or liabilities. Economic hedges are included in other assets or other liabilities, and interest rate locks are included in other assets.

Securities and Trading Activities

When available, the Company uses quoted market prices in active markets to determine the fair value of securities. Such instruments are classified within Level 1 of the fair value hierarchy. Examples include exchange-traded equity securities and some highly liquid government securities such as U.S. Treasuries.

When instruments are traded in secondary markets and quoted market prices do not exist for such securities, the Company generally relies on internal valuation techniques or on prices obtained from independent vendors. The majority of fair values derived using internal valuation techniques are verified against prices obtained from independent vendors. Vendors compile prices from various sources and often apply matrix pricing for similar securities when no price is observable. Securities measured with these internal valuation techniques are generally classified within Level 2 of the hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow analyses using inputs observable in the market where available. Examples include corporate bonds and U.S. Government agency and Government-sponsored entity mortgage-backed securities and collateralized mortgage obligations.

Where significant inputs are unobservable in the market due to limited activity or a less liquid market, securities valued using models with such inputs are classified in Level 3 of the fair value hierarchy. Securities classified within Level 3 include subprime RMBS and collateralized debt obligations (“CDOs”) backed by subprime RMBS, which the Company refers to as ABS CDOs. ABS CDOs are valued using the prices of similar instruments, the pricing of completed or pending third party transactions or the pricing of the underlying collateral within the CDO. Where prices are not readily available, management’s best estimate is used. Additional examples of securities classified within Level 3 include certain residual and retained interests in securitizations and collateralized loan obligations (“CLOs”) that are backed by leveraged loans. Subordinated and residual interests and CLOs for which there are no quoted market prices are valued using discounted cash flow analyses with credit losses, prepayments and discount rates as assumptions.

Principal Investments

With the adoption of SFAS 157, the valuation methodology for investments in the Company’s principal investing business, included in other assets, changed significantly. Prior to adoption, for public equity investments, fair value was based on quoted market prices, net of applicable blockage discounts and other discounts relating to trading restrictions and liquidity. Public equity investments are now valued using quoted market prices and discounts will only be applied when there are trading restrictions that are an attribute of the investment. Accordingly, the Company recorded gains of $28 million after-tax ($45 million pre-tax) as a cumulative effect adjustment to beginning 2008 retained earnings, related to removal of blockage discounts previously applied in determining the fair value of certain public equity investments. These public equity investments are classified within Level 1 of the fair value hierarchy unless adjustments for restrictions are applied, which would result in a classification as either Level 2 or 3.

Prior to adoption of SFAS 157, investments in non-public securities, both private direct investments and investments in funds, were recorded at the Company’s estimate of fair value, which was generally the original cost basis unless either the investee had raised additional debt or equity capital and the Company believed the transaction, taking into consideration differences in the terms of securities, was a better indicator of fair value; or the Company believed the fair value was less than the carrying amount. Under SFAS 157, private direct investments are valued using metrics such as security prices of comparable public companies, acquisition prices for similar companies and original investment purchase price multiples, while also incorporating a portfolio company’s financial performance and specific risk factors. For certain fund investments, where the best estimates of fair value were primarily determined based upon fund sponsor data, the Company now uses net asset value (“NAV”) provided by the fund sponsor as an appropriate measure of fair value. In some cases, such NAVs require adjustments based on certain unobservable inputs. Due to the absence of quoted market prices and the inherent lack of liquidity for these investments, significant management judgment is required, and as such, non-public securities are classified within Level 3 of the hierarchy. These changes in valuation methodology to reflect an estimated exit price, versus the prior methodology that was based primarily upon initial fair value and fund sponsor data, led to the Company’s recognition of a $466 million pre-tax gain related to adoption of SFAS 157 on January 1, 2008.

107

Mortgage Servicing Rights

With the adoption of SFAS 156, the Company elected to record a class of originated residential mortgage servicing assets at fair value on an ongoing basis. Mortgage servicing rights (“MSRs”), which are classified in other assets, do not trade in active markets with readily observable prices. Valuations of originated residential MSRs recorded at fair value are estimated using discounted cash flows with prepayment speeds and discount rates as significant assumptions. Accordingly, MSRs are included within Level 3 of the fair value hierarchy. See Note 4 for additional information on MSRs.

Loans and Loans Held For Sale

The market value of loans and loans held for sale is determined based on quoted market prices for the same or similar loans when such information is available; otherwise the Company uses outstanding investor commitments, discounted cash flow analyses with market assumptions or the fair value of the collateral if the loan is collateral dependent. Loans held for sale are aggregated for purposes of calculating the market value, consistent with the strategy for sale of the loans. Such loans are classified within either Level 2 or Level 3 of the fair value hierarchy. Where assumptions are made using significant unobservable inputs, such loans held for sale are classified as Level 3.

ITEMS MEASURED AT FAIR VALUE ON A RECURRING BASIS

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2008, for each of the fair value hierarchy levels.

June 30, 2008

(In millions)

Level 1

Level 2

Level 3

Netting (b)

Total

ASSETS

Cash trading instruments

3,109

29,784

6,209

39,102

Derivatives

207

74,461

10,336

(61,517

)

23,487

Total trading account assets

3,316

104,245

16,545

(61,517

)

62,589

Securities

1,305

103,979

8,177

113,461

Loans

Loans held for sale

3,307

3,350

Other assets (a)

700

2,154

3,491

(2,977

)

3,368

Total assets at fair value

5,321

213,685

28,274

(64,494

)

182,786

LIABILITIES

Cash trading instruments

4,457

2,878

7,378

Derivatives

1,113

70,710

11,556

(64,452

)

18,927

Total trading account liabilities

5,570

73,588

11,599

(64,452

)

26,305

Other liabilities (a)

1,023

(2,977

)

(1,862

)

Total liabilities at fair value

5,586

74,611

11,675

(67,429

)

24,443

(a) Other assets and other liabilities include accounting hedges and economic hedges that are entered into for certain risk management purposes. Other assets also include principal investments and mortgage servicing assets carried at fair value.

(b) Derivatives are reported net of cash collateral received and paid, and to the extent the criteria of FIN 39 are met, positions with the same counterparty are netted as a part of a legally enforceable master netting agreement between the Company and the derivative counterparty.

LEVEL 3 ITEMS MEASURED AT FAIR VALUE ON A RECURRING BASIS

The determination to classify a financial instrument within Level 3 of the fair value hierarchy is based on the significance of the unobservable inputs to the overall fair value measurement. However, in addition to unobservable inputs, the valuation of Level 3 instruments typically includes observable inputs as well. Thus, the gains and losses reflected in the rollforward of balances in the table on the following page include changes in fair value that are due at least partially to observable factors that are part of the valuation methodology. Additionally, the Company uses derivatives classified within Level 1 or 2 of the fair value hierarchy to manage certain risk characteristics of Level 3 financial instruments. Because Level 1 and 2 instruments are not included in this discussion or in the rollforward, gains and losses may appear to reflect a certain degree of volatility when presented exclusive of related Level 1 and 2 derivatives that may be used to offset risk in Level 3 instruments.

Additionally, certain instruments within Level 3 assets include derivatives related to private label RMBS and certain commercial mortgage-backed securities transactions. Included in derivative assets and liabilities is activity associated with the intermediation of ABS and commercial real estate (“CRE”) CDO securitizations, where the Company purchases credit default protection related to the securitization of specific RMBS and CRE reference obligations and then sells protection on the same exposure to various market participants, resulting in a significant amount of credit default exposure being economically hedged. Of the $10.3 billion of Level 3 derivative assets, $7.8 billion represents credit default exposure that is economically hedged with derivative liabilities on the same reference obligation. The remaining Level 3 derivative assets and liabilities are also subject to the Company’s established risk management practices.

108

Total Level 3 assets were 4 percent of the Company’s total assets at March 31, 2008, and 3 percent of total assets at June 30, 2008. During the six months ended June 30, 2008, the Company purchased $2.6 billion of RMBS, which were partially offset by transfer of certain securities available for sale from Level 3 to Level 2, as significant inputs to the valuation of such securities became observable.

The following tables present the changes in the Level 3 assets and liabilities for the three and six months ended June 30, 2008.


	*Three Months Ended June 30, 2008*
																	*Change in*
																	*unrealized gains*
						*Included in*			*Purchases,*								*(losses) relating*
						*other*			*issuances and*			*Transfers in*					*to instruments*
	*Beginning*		*Included in*			*comprehensive*			*settlements,*			*and/or out*			*Ending*		*still held at the*
(In millions)	*balance*		*earnings*			*income (loss)*			*net*			*of Level 3*			*balance*		*reporting date*

ASSETS
Cash trading instruments	$	6,825		(180	)		-			(392	)		(44	)		6,209		(76	)
Securities		9,038		(499	)		(144	)		(243	)		25			8,177		(329	)
Loans		3		(3	)		-			-			18			18		(3	)
Loans held for sale		106		-			-			(63	)		-			43		-
Other assets	$	3,324		99			-			68			-			3,491		144

LIABILITIES
Cash trading instruments	$	55		2			-			(33	)		19			43		1
Derivatives, net (a)		974		160			-			127			(41	)		1,220		(157	)
Other liabilities	$	61		15			-			-			-			76		(14	)

(a) Total Level 3 derivative exposures are netted for presentation purposes.


	*Six Months Ended June 30, 2008*
																	*Change in*
																	*unrealized gains*
						*Included in*			*Purchases,*								*(losses) relating*
						*other*			*issuances and*			*Transfers in*					*to instruments*
	*Beginning*		*Included in*			*comprehensive*			*settlements,*			*and/or out*			*Ending*		*still held at the*
(In millions)	*balance*		*earnings*			*income (loss)*			*net*			*of Level 3*			*balance*		*reporting date*

ASSETS
Cash trading instruments	$	6,494		(574	)		-			(54	)		343			6,209		(315	)
Securities		9,575		(1,043	)		(434	)		2,314			(2,235	)		8,177		(387	)
Loans		-		(3	)		-			-			21			18		(3	)
Loans held for sale		106		-			-			(63	)		-			43		(1	)
Other assets	$	2,737		723			-			31			-			3,491		697

LIABILITIES
Cash trading instruments	$	29		4			-			(33	)		43			43		1
Derivatives, net (a)		605		65			-			567			(17	)		1,220		(14	)
Other liabilities	$	32		44			-			-			-			76		(39	)

(a) Total Level 3 derivative exposures are netted for presentation purposes.

109

Gains and losses (realized and unrealized) included in earnings for the three and six months ended June 30, 2008, for Level 3 assets and liabilities reported in net interest income, trading account profits (losses), principal investing, securities gains (losses) and other income are presented in the tables below.

Three Months Ended June 30, 2008

Trading

Net

Account

Securities

Interest

Profits

Principal

Gains

Other

(In millions)

Income

(Losses)

Investing

(Losses)

Income

Total gains (losses)

(349

)

(501

)

Change in unrealized gains (losses) relating to

assets still held at June 30, 2008

(240

)

(328

)

100

Six Months Ended June 30, 2008

Trading

Net

Account

Securities

Interest

Profits

Principal

Gains

Other

(In millions)

Income

(Losses)

Investing

(Losses)

Income

Total gains (losses)

(673

)

561

(1,042

)

136

Change in unrealized gains (losses) relating to

assets still held at June 30, 2008

(357

)

422

(387

)

261

ITEMS MEASURED AT FAIR VALUE ON A NONRECURRING BASIS

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value measurement in certain circumstances, for example, when there is evidence of impairment. These instruments are measured at fair value on a nonrecurring basis and include assets such as certain loans held for sale, which are measured at the lower of cost or market value (“LOCOM”), and certain loans that have been deemed impaired.

Recoveries of previous declines in fair value for certain loans held for sale resulted in a net gain of $183 million, which was included in results of operations for the six months ended June 30, 2008, as the carrying amount increased from $1.5 billion to $1.7 billion. Certain of these positions are economically hedged with derivatives classified as trading account assets.

When a loan held for investment is deemed impaired, a creditor measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, impairment may be measured based on the fair value of the loan or on the fair value of the underlying collateral if the loan is collateral dependent. Loans deemed to be impaired based on a fair value measurement totaled $3.8 billion with the portion deemed to be impaired included in the allowance for loan losses.

The Company recorded a $6.1 billion goodwill impairment charge in the second quarter of 2008, which was primarily driven by the decline in the Company’s market capitalization. The decline was a function of both financial services industry-wide and company-specific factors. See Note 3 for additional information on goodwill impairment.

110

The following table presents financial instruments still held on the balance sheet at June 30, 2008, by level within the fair value hierarchy for which a nonrecurring change in fair value was recorded during the three and six months ended June 30, 2008. Because certain items, such as loans held for sale, are not measured at fair value on a recurring basis, certain carrying amounts may reflect fair value measurements at an earlier interim period and may no longer represent the fair value at June 30, 2008. Additionally, the carrying amount of any loans fully charged off is zero. Other assets include foreclosed properties, and related losses include charge-offs on loans prior to reclassification as foreclosed properties.

Total gains (losses)

June 30, 2008

Fair Value Measurements

Three

Six

Months

(In millions)

Level 1

Level 2

Level 3

Total

Ended

ASSETS

Loans

2,277

1,505

3,782

(972

)

(1,385

)

Loans held for sale

1,409

310

1,719

369

183

Goodwill

4,557

(6,060

)

(6,060

)

Other assets

304

405

(78

)

(192

)

LIABILITIES

Other liabilities

FAIR VALUE OPTION

The Company adopted SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” on January 1, 2008. 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. On January 1, 2008, the Company recorded a cumulative effect adjustment of $60 million ($38 million after-tax) as a charge to beginning retained earnings as a result of the adoption of SFAS 159.

The instruments for which the Company elected fair value and the resulting transition adjustment are presented below.

As of

January 1,

2008, prior to

Transition

2008, after

adoption of

adjustment

adoption of

(In millions)

SFAS 159

gain (loss)

SFAS 159

Trading account assets

6,807

(60

)

6,747

Loans held for sale

Pretax cumulative effect of adoption of fair value option

(60

)

Income taxes

Cumulative effect of adoption of fair value option

(38

)

The total transition adjustment is attributable to certain securities available for sale elected for fair value option and represents the unrealized loss at December 31, 2007, reclassified from accumulated other comprehensive income to retained earnings effective January 1, 2008. The intent of the Company’s election was to provide an alternative to hedge accounting. Following election of the fair value option, these securities available for sale were reclassified to trading account assets as required by SFAS 159. Election of fair value and the consequent move to trading account assets did not change the intent of the Company to hold the elected securities as originally intended when they were reported as securities available for sale. The securities carried at fair value continue to be managed as they had been managed within securities available for sale.

On January 1, 2008, certain purchased distressed nonperforming residential real estate loans held for sale were also elected to be carried at fair value with corresponding changes in fair value reported in the results of operations. As these loans held for sale were carried at LOCOM prior to adoption and were in a loss position, no transition adjustment was required. This election was intended to decrease earnings volatility.

As the adoption of SFAS 159 provides the Company with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without the need to apply complex hedge accounting provisions, the Company has chosen to elect fair value option for certain financial assets and liabilities on a prospective basis and will continue to evaluate opportunities for election going forward.

111

In the first half of 2008, the Company elected fair value for certain newly originated residential mortgage loans held for sale. These elections were made due to the short holding period of such loans, and accordingly, the Company still owns certain loans held for sale originated prior to adoption of SFAS 159 that are not carried at fair value under the fair value option. Securities elected upon adoption included certain seasoned mortgage-backed securities and were elected due to their predictable price risk as interest rates change, in connection with the Company’s risk management strategy.

During the second quarter of 2008, the Company elected fair value for certain letters of credit that are hedged with derivative instruments to better reflect the economics of the transactions. These letters of credit are included in trading account assets or liabilities. Additionally, certain residential mortgage loans held for sale carried at fair value were transferred to the loan portfolio, where they continue to be carried at fair value with unrealized gains and losses reported in the results of operations.

Prospectively, the Company plans to elect fair value for certain newly originated loans and loans held for sale, certain purchased securities and certain debt issuances with related unrealized gains and losses reported in the results of operations.

The following tables present gains and losses due to changes in fair value for items measured at fair value pursuant to election of the fair value option for the three and six months ended June 30, 2008.


	*Three Months Ended June 30, 2008*

	*Trading*
	*Profits*			*Other*
(In millions)	*(Losses)*			*Income*			*Total*

Trading account assets	$	(67	)		-			(67	)
Loans		-			(3	)		(3	)
Loans held for sale	$	-			(49	)		(49	)


	*Six Months Ended June 30, 2008*

	*Trading*
	*Profits*			*Other*
(In millions)	*(Losses)*			*Income*			*Total*

Trading account assets	$	(14	)		-			(14	)
Loans		-			(3	)		(3	)
Loans held for sale	$	-			(5	)		(5	)

The above amounts do not include interest and dividends earned during the period. Such interest and dividends are recorded in interest income or interest expense on an accrual basis. Additionally, amounts do not reflect associated hedges.

For the six months ended June 30, 2008, the estimated change in fair value of loans and other receivables for which the fair value option was elected that was attributable to changes in instrument-specific credit risk was insignificant.

As of June 30, 2008, the aggregate fair value of loans and long-term receivables for which the fair value option was elected was exceeded by the aggregate unpaid contractual principal amount by $26 million. The aggregate fair value of loans carried at fair value that are 90 days or more past due as of June 30, 2008, was $5 million, and the contractual principal amount of such loans exceeded the fair value by $20 million. The aggregate fair value of loans that were in nonaccrual status as of June 30, 2008, was $8 million and the contractual principal amount of such loans exceeded the fair value by an insignificant amount.

The aggregate carrying amount of items not eligible for the fair value option is $24.6 billion, which represents the Company’s lease financing receivables, which are included in loans on the balance sheet.

112


	PAGE

Financial Highlights		1

Management’s Discussion and Analysis		2

Explanation of Our Use of Non-GAAP Financial Measures		42

Selected Statistical Data		43

Summaries of Income, Per Common Share and Balance Sheet Data		44

Merger-Related and Restructuring Expenses		45

Business Segments		46

Net Trading Revenue — Investment Banking		62

Selected Ratios		63

Trading Account Assets and Liabilities		64

Loans — On-Balance Sheet, and Managed and Servicing Portfolios		65

Loans Held for Sale		66

Allowance for Credit Losses		67

Allowance and Charge-Off Ratios		68

Nonperforming Assets		69

Nonaccrual Loan Activity		70

Goodwill and Other Intangible Assets		71

Deposits		72

Time Deposits in Amounts of $100,000 or More		72

Long-Term Debt		73

Changes in Stockholders’ Equity		74

Capital Ratios		75

Net Interest Income Summaries — Five Quarters Ended June 30, 2008		76

Net Interest Income Summaries — Six Months Ended June 30, 2008 and 2007		78

Consolidated Balance Sheets — Five Quarters Ended June 30, 2008		79

Consolidated Statements of Income — Five Quarters Ended June 30, 2008		80

Wachovia Corporation and Subsidiaries — Consolidated Financial Statements		81


(In millions)	*June 30,2008*

MATURITY OF
3 months or less	$	23,585
Over 3 months through 6 months		9,024
Over 6 months through 12 months		16,285
Over 12 months		11,888

Total time deposits in amounts of $100,000 or more	$	60,782


Consolidated Balance Sheets — June 30, 2008 and December 31, 2007 (Unaudited)			82

Consolidated Statements of Income — Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)			83

Consolidated Statements of Cash Flows — Six Months Ended June 30, 2008 and 2007 (Unaudited)			84

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Summary of Significant Accounting Policies and Other Matters			85

Note 2: Securities			88

Note 3: Goodwill Impairment			90

Note 4: Variable Interest Entities and Servicing Assets			91

Note 5: Share-Based Payments			93

Note 6: Comprehensive Income (Loss)			95

Note 7: Business Segments			96

Note 8: Basic and Diluted Earnings Per Common Share			99

Note 9: Income Taxes			100

Note 10: Derivatives			101

Note 11: Guarantees			105

Note 12: Fair Value Measurements and Fair Value Option			106


	*Six Months Ended June 30, 2008*

	*Fair Value*			*Amortized Cost*

				*Fixed Rate*
	*Originated*			*Commercial*
	*Residential*			*Mortgage-*
(In millions)	*Mortgages*			*Backed*			*Other*			*Total*

Balance, December 31, 2007	$	437			771			240			1,448
Fair value of servicing assets purchased, assumed or originated, or retained from securitizations		184			21			38			243
Servicing sold or otherwise disposed of		(9	)		-			-			(9	)
Change in fair value due to changes in model inputs and/or assumptions		35			-			-			35
Other changes in fair value, primarily from fees earned		(46	)		-			-			(46	)
Amortization of servicing assets		-			(72	)		(26	)		(98	)
Impairment		-			(1	)		-			(1	)

Balance, June 30, 2008	$	601			719			252			1,572

FAIR VALUE
June 30, 2008	$	601			949			289			1,839
December 31, 2007	$	437			991			261			1,689


	*June 30, 2008*

				*Weighted-*
				*Average*
(Options and shares in thousands)	*Number*			*Price (a)*

STOCK OPTIONS
Options outstanding, beginning of period		128,971		$	41.09
Granted		10,653			35.65
Exercised		(3,003	)		22.10
Expired		(5,803	)		53.35
Forfeited		(482	)		43.50

Options outstanding, end of period		130,336		$	40.52

Options vested and expected to vest, end of period		128,484		$	40.46

Options exercisable, end of period		105,567		$	39.17

RESTRICTED STOCK
Unvested shares, beginning of period		19,914		$	54.18
Granted		11,473			34.48
Vested		(8,247	)		53.35
Forfeited		(539	)		47.10

Unvested shares, end of period		22,601		$	44.23


	*June 30, 2008*				December 31, 2007

			*Maximum*				Maximum
	*Carrying*		*Risk of*		Carrying		Risk of
(In millions)	*Amount*		*Loss*		Amount		Loss

Securities and other lending indemnifications	$	-		48,041		-		59,238
Standby letters of credit		118		32,423		124		29,295
Liquidity agreements		360		29,773		14		36,926
Loans sold with recourse		45		6,111		44		6,710
Residual value guarantees		-		1,315		-		1,220
Written put options		2,373		14,892		2,001		15,273
Contingent consideration		-		14		-		101

Total guarantees	$	2,896		132,569		2,183		148,763