This overview of management's discussion and analysis highlights selected information in this document and may not contain all of the information that is important to you. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources and critical accounting estimates, you should carefully read this entire document. These have an impact on the Corporation’s financial condition and results of operations.

     Net income for 2003 was $3.5 billion, or $3.11 per diluted share, an increase of $240 million, or 7%, compared to $3.3 billion, or $2.80 per diluted share. The Corporation experienced growth across many of its operating businesses with growth in deposit accounts, core deposits, consumer lending, capital markets, credit card activity and assets under management. In addition, the Corporation benefited from improvements in Commercial Banking credit quality.

Home equity loans of $4.1 billion were subsequently transferred to held for sale, resulting in a $415 million pretax charge ($264 million after-tax) comprised of a $652 million charge-off, of which $237 million was absorbed by existing reserves. The non-core portfolios are liquidating at a steady pace, down 44% to $8.6 billion. The Corporation does not anticipate that the non-core portfolios will have a negative impact on net income in the future.

     The improvement in credit quality is evidenced by the decline in Commercial Banking net charge-offs and nonperforming loans of 60% and 45%, respectively. During the year, $420 million of the corporate banking allowance for credit losses was released, partially offset by mark-to-market adjustments on credit derivatives used to hedge risk in the commercial loan portfolios, negatively impacting trading income by $283 million. The Corporation remains cautious given the influence of the competitive credit market on recent originations and the continued uncertainty existing in the economic and geopolitical environment.

     Prior to 2003, the Corporation positioned its balance sheet for a rising rate environment. In 2003, actions were taken to reduce asset sensitivity although a defensive posture against rising rates was maintained and margin was negatively impacted. In addition, the Corporation repaid certain floating rate debt and unwound related hedges leading to a $162 million loss, which improved funding costs beginning in the fourth quarter of 2003. While a rising rate environment will generally be beneficial given the Corporation’s asset sensitive position, the Corporation continuously reviews its asset and liability position to adjust for changes in the outlook.

     Card Services continues to operate in a competitive pricing environment that has resulted in margin pressure. As Card Services became more successful at pricing its portfolio for the underlying risks, margin began to improve during the second half of 2003. In a rising rate environment, margin could be compressed.

     The Corporation continued to rationalize existing businesses and fill product gaps. Corporate trust services, an extremely volume driven business, was sold given the Corporation’s market position. The Corporation expanded its market presence in credit cards as the Sony portfolio was purchased and several significant partnerships were established with brands such as Disney, Starbucks, and AARP. Additional product capabilities were also added to Investment Management Group, as the Corporation acquired Zurich Life, a significant underwriter of term life and variable annuity products, and Security Capital Research & Management Incorporated (“Security Capital”), a recognized expert in developing and providing real estate investment products, with approximately $3.9 billion in assets under management as of year-end 2003. Both Zurich Life and Security Capital bring strong market presence and distribution capabilities. As their products begin to be sold through the Corporation’s existing distribution channels, earnings should benefit.

     The private equity investments held by the Corporation increased by approximately $1 billion as additional direct investments were made through One Equity Partners, a consolidated wholly-owned subsidiary. Overall market improvements drove an increase in the portfolio’s performance in 2003.

     The Corporation’s capital and reserve ratios are among the strongest of any bank, with Tier 1 Capital of 10% and allowance for loan losses to period end loans of 2.75%. Strong capital position and sound liquidity management remain important factors in maintaining the Corporation’s credit ratings. Effective December 31, 2003, the Corporation consolidated $39.6 billion of assets and liabilities related to its asset-backed conduit business as a result of the adoption of FASB Interpretation No. 46 (FIN No. 46). These assets and liabilities are included in the Commercial Banking line of business. This action did not have a material impact on earnings, Tier 1 or Total Capital.

On January 14, 2004, the Corporation announced an agreement to merge with J.P. Morgan Chase & Co. (“JPMorgan Chase”) in a strategic business combination establishing the second largest banking franchise in the United States, based on core deposits. The combined entity will have assets of approximately $1.1 trillion. The agreement provides for a stock-for-stock merger in which each share of the Corporation’s common stock will be exchanged, on a tax-free basis, for 1.32 shares of JPMorgan Chase common stock. This transaction is expected to close in mid-2004 pending regulatory and shareholder approvals.

     On January 20, 2004, the Corporation announced an agreement to buy Circuit City’s private-label credit card operation, including both its private-label credit card accounts and its co-branded Circuit City Plus Visa credit card accounts. This strategic acquisition provides Card Services with the platform to provide a more complete product offering.

 
Generally accepted accounting principles are complex and require management to apply significant judgment to various accounting, reporting and disclosure matters. Management must use assumptions and estimates to apply these principles where actual measurement is not possible or practical.

     For a complete discussion of the Corporation’s significant accounting policies, see the footnotes to the Consolidated Financial Statements (pages 82-111) and discussion throughout this financial review document. Below is a plain-English discussion of the Corporation’s critical accounting policies. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements. The impact of changes in key assumptions may not be linear. Management has reviewed the application of these policies with the Audit and Risk Management Committee of the Corporation’s Board of Directors.

The allowance for credit losses represents management’s estimate of probable losses inherent in the Corporation’s credit portfolios. In determining an adequate allowance, management makes numerous assumptions, estimates and assessments. At the end of 2003, the allowance for loan losses was $3.5 billion, representing

2.75% of loans at year-end. The allowance for credit losses was $4.0 billion and included the allowance for loan losses and the reserve for unfunded lending commitments and standby letters of credit, representing 3.14% of loans at year-end.

     The Corporation’s allowance for credit losses consists of three components: asset-specific reserves, reserves based on expected loss estimates, and reserves based on stress test analysis. The Corporation’s methodology for determining each component is more fully described on pages 55-56 and 70-71.

     The asset-specific component applies to loans evaluated individually for impairment and is based on management’s best estimate of discounted cash repayments and proceeds from liquidating collateral. The actual timing and amount of repayments and the ultimate realizable value of the collateral may differ from management’s estimates.

     The expected loss component for commercial credits utilizes internal risk ratings that are applied to individual credits based on the probability and amount of loss in the event of a default. These expected loss estimates are sensitive to changes in the risk profile of a customer, realizable value of collateral, other risk factors and actual loss experience.

     The expected loss component for consumer credits is generally determined by applying statistical loss factors and other risk indicators to pools of loans by asset type. These expected loss estimates are sensitive to changes in delinquency status, credit bureau scores, the realizable value of collateral, and other risk factors.

     The stress component represents the effect of probable economic deterioration above and beyond what is reflected in the asset-specific and expected loss components. This amount is determined based on the results of a series of tests that stress the credit portfolios. The Corporation’s stress testing methodology is more fully described on pages 70-71.

     The underlying assumptions, estimates and assessments used by management to determine these components are continually evaluated and updated to reflect management’s current view of overall economic conditions and relevant factors impacting credit quality and inherent losses. Changes in such estimates could significantly impact the allowance and provision for credit losses in each business segment. The Corporation could experience credit losses that are different from the current estimates made by management.

     Reserves related to unfunded lending commitments and standby letters of credit were reclassified from the allowance for loan losses to other liabilities during the fourth quarter. Prior period amounts have been reclassified to conform to the current presentation.

Through the process of securitization, the Corporation packages loans, primarily credit card loans, into securities that are sold to investors or retained on the balance sheet. By applying detailed accounting guidelines, the Corporation determines if a securitization transaction results in a sale or a secured borrowing, the amount of any gain or loss on such sale, and the value of retained interests in the securitized assets. During 2003, Card Services

recognized $79 million in gains from the securitization of $11.5 billion in credit card receivables.

     Management utilizes certain estimates and assumptions to determine the value of retained interests. These estimates and assumptions are generally based on projections of finance charges and fees related to the securitized assets, net credit losses, average life, the contractual fee to service the loans, a discount rate commensurate with the risk and contractual interest paid to third party investors. See page 93 for a pretax sensitivity analysis of the assumptions used to determine the fair values assigned to the Corporation’s retained interests.

     Changes in the estimates and assumptions used may have a significant impact on Card Services’ valuation of retained interests and the initial gain or loss on sale. See “Loan Securitizations and Off-Balance Sheet Activities” beginning on page 73 and Note 11 “Credit Card Securitizations” beginning on page 92 for further information on the Corporation’s securitization activities.

The majority of the Corporation’s financial instruments that require fair value measurements are determined based on quoted market prices. The fair value of a publicly traded investment is determined using quoted market prices when the investment is unrestricted, otherwise fair value is estimated using quoted market prices adjusted for market liquidity, position size and sales restrictions other than time. The Corporation must, however, estimate the fair value of certain financial instruments, such as some principal investments, which are not publicly traded or are traded in limited markets. While the fair value of a publicly-traded investment is determined using quoted market prices, the fair value of some investments must be estimated based on the investees’ financial results, conditions and prospects, values of comparable public companies, market liquidity and sale restrictions. For credit derivatives, amounts represent the estimated values at which financial instruments could be currently exchanged or settled between willing parties.

     Other investments require the use of a discounted cash flow model or other modeling techniques utilizing observable market information to the extent available to estimate fair value. These fair value estimates are most sensitive to the timing and amount of actual cash flows and market liquidity.

     Changes in these estimates may have a significant impact on the carrying amount and the related valuation gains and losses on these financial instruments in the Commercial Banking and Corporate lines of business.

Insurance policy and claims reserves for the insurance business acquired were initially recognized in purchase accounting at fair value. Fair value was calculated using management’s judgment of mortality, morbidity, expenses, persistency and interest rates. The carrying value of the liabilities is adjusted for actual experience, and changes are reflected in current period earnings.

     Liabilities for future policy benefits for new annuity, universal life and other deposit type contracts are generally based on account value. The liability for new traditional life insurance poli-

cies is calculated using management’s judgment of mortality, morbidity, expenses, persistency and interest rates, including a provision for unfavorable deviation. See (q) “Insurance Policy and Claims Reserves” in Note 1, “Summary of Significant Accounting Policies” for specific assumptions used.

     If the Corporation experiences either a 10% increase in the mortality rate or 910 basis point (“bp”) decrease in interest spread, the negative impact on pretax income would be approximately $5 million.

Prior to 2002, the Corporation did not record compensation expense for stock option awards. In 2002, the Corporation began recognizing the expense associated with stock options granted during 2002 using the fair value method. Compensation cost is calculated based on the fair value of the award at the grant date, and is recognized as an expense over the vesting period of the grant. The Corporation uses the Black-Scholes option pricing model to estimate the value of granted options. This model takes into account the option exercise price, the expected life, expected forfeitures, the current price of the underlying stock, the expected volatility of the Corporation’s stock, expected dividends on the stock and a discount rate.

     Since compensation cost is measured at the grant date, the only variable, whose change would impact expected compensation expense recognized in future periods for 2002 and 2003 grants, is actual forfeitures (except for the accelerated vesting of certain stock options as a result of the pending merger — see Note 20 “Stock-Based Compensation,” beginning on page 101 for more information). For example, if the Corporation experiences a 50% lower forfeiture rate than estimated, compensation expense in the period of change would increase by $7 million. See Note 20 “Stock-Based Compensation” beginning on page 101 for the specific assumptions used to calculate the fair value of options granted.

The Corporation provides pension benefits to its employees. At the end of 2003, the fair value of the qualified pension plan assets was $3.2 billion and the plan was overfunded. In accordance with applicable accounting rules, the Corporation does not consolidate the assets and liabilities associated with the pension plan. Instead, the Corporation recognizes a prepaid asset for contributions the Corporation has made to the pension plan in excess of pension expense. The measurement of the prepaid asset and the annual pension expense involves actuarial and economic assumptions.

     The assumptions used in pension accounting relate to the expected rate of return on plan assets, the rate of increase in salaries, the interest-crediting rate, the discount rate and other assumptions. See Note 19 “Employee Benefits” beginning on page 99 for the specific assumptions used by the Corporation.

     The annual pension expense for the Corporation is currently most sensitive to the return on asset assumption. For example, each 25 bp reduction in the 2004 expected rate of return of 7.5% would increase the Corporation’s 2004 pension expense by approximately $8 million. In addition, each 25 bp reduction in the 2004 discount rate of 6.0% would increase the Corporation’s 2004 pension expense by approximately $3 million.

Effective December 31, 2003, the Corporation adopted FIN No. 46. FIN No. 46 prescribes a new consolidation model for entities that exercise control in ways other than through voting interests. The Corporation conducted a comprehensive review of its interests to assess whether consolidation was required. The review included the assessment of qualitative and quantitative factors to determine whether a variable interest or voting interest entity exists. FIN No. 46 requires significant judgment to be used when evaluating each entity (excluding entities exempted from FIN No. 46 such as qualifying special purpose entities (“QSPE”) or investment companies governed by specialized industry accounting) in making the determination of whether that entity is a variable interest entity or a voting interest entity. A variable interest entity exists either when the entity does not have sufficient equity at risk or lacks any one of three characteristics normally associated with a controlling financial interest. If an entity is considered a variable interest entity, significant judgment and quantitative analysis typically is required to assess whether the Corporation should consolidate the entity as the primary beneficiary. The Corporation is considered the primary beneficiary when it has a variable interest that will absorb a majority of an entity’s expected losses, receive a majority of an entity’s expected residual returns, or both. Calculating the majority of expected losses or expected residual returns is highly subjective. As discussed beginning on page 74, as of December 31, 2003, the Corporation consolidated $39.6 billion of assets and liabilities associated with its asset-backed conduit business. This consolidation did not have a material impact on earnings, Tier 1 or Total Capital. The consolidation will negatively impact the Leverage Ratio in the first quarter of 2004 by approximately 108 basis points (“bps”).

     The Corporation is involved in Special Purpose Entities (“SPEs”) as the transferor. In such cases, the SPE must represent a qualifying SPE (“QSPE”) or the Corporation consolidates the transferred financial assets. QSPE status is achieved when all conditions specified in SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS No. 140”) are met. Those conditions focus on whether the SPE is demonstrably distinct from the Corporation, limited to only permitted activities, limited on what assets the QSPE may hold, and limited on sales or other disposition of assets. The Corporation has determined that its credit card trusts are QSPEs and has obtained supporting legal opinions as applicable.

 
(All comparisons are to the prior year unless otherwise specified. Factors that are primarily related to a single business segment are discussed in more detail within that business segment than this consolidated section.)

     Service charges on deposits of $1.7 billion increased $84 million, or 5%, primarily due to higher Retail and global treasury services (“GTS”) deposit service charges.

     Fiduciary and investment management fees of $656 million increased $11 million, or 2%, as a result of improved market conditions and a continued shift towards long-term assets under management.

     Investment securities gains were $122 million, a decrease of $43 million. The decline is primarily the result of net losses in the treasury portfolio reflecting additional balance sheet positioning given the expectation for future increases in interest rates. Offsetting these losses were net gains in the principal investments portfolio primarily driven by the sale of Ability One and an increase in fund investment valuations.

     Trading losses of $26 million reflect a decrease of $250 million from trading gains of $224 million. This decrease was primarily the result of losses on the credit derivatives portfolio used to hedge the commercial loan portfolio, partially offset by greater interest rate derivatives trading revenue.

     Other income of $91 million reflects an increase of $152 million from other losses of $61 million, primarily the result of gains on loan sales, partially offset by losses related to the termination of debt and related hedges.

Banking fees and commissions of $1.8 billion increased $58 million, or 3%. This increase was primarily the result of increased

annuity and mutual fund sales, as well as from growth in asset-backed finance and other underwriting fees in capital markets, partially offset by lower mortgage-related revenue.

     Credit card revenue of $3.8 billion increased $1.1 billion, or 38%. This increase was due to the addition of the Wachovia credit card business, consolidation of Paymentech, Inc., higher volume-related revenue and higher income earned on securitized loans.

     Service charges on deposits of $1.6 billion increased $128 million, or 9%. This increase primarily reflected improvement in global treasury services as clients shifted their payment method to fees due to the lower value of their compensating deposit balances.

     Investment gains were $165 million compared to losses of $66 million. Included in 2002 results was the $261 million gain on sale of the GE Monogram joint venture, partially offset by net losses in the investment portfolios.

     Trading gains were $224 million, an increase of $4 million, or 2%. This slight increase was primarily the result of an increase in the fair value of credit derivatives used to hedge the commercial loan portfolio and limit exposures for specific credits, partially offset by lower results across multiple trading products.

     Other income decreased $419 million. This decrease was primarily due to higher losses on tax-oriented investments, mortgage-related losses, valuation adjustments on other investments, various asset write-downs and the consolidation of Paymentech, Inc. and Anexsys, LLC. Gains on the sale of ownership interests in EquiServe Limited Partnership and Star Systems recognized in the prior year also contributed to the decrease.

Salaries and employee benefits of $4.8 billion increased $341 million, or 8%. Despite a reduction in overall headcount, base and incentive compensation and benefits expense increased primarily as a result of a full year of salaries and benefits related to technology insourcing, the acquisition of Zurich Life and rising benefit costs. The expense related to the fair value method of accounting for stock option and stock purchase plans for the year ended 2003 and 2002 amounted to $83 million and $45 million, respectively. The Corporation adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” in 2002.

     Occupancy expense of $679 million increased $36 million, or 6%, primarily due to higher rent, operating costs and real estate taxes.

     Equipment expense of $473 million increased $50 million, or 12%, as additional depreciation expense was incurred on fixed assets acquired in the Corporation’s system conversion efforts.

     Outside service fees and processing expense of $1.2 billion decreased $138 million, or 11%. The Corporation experienced operational efficiencies resulting from renegotiated vendor contracts, the Corporation’s system conversion efforts and technology insourcing.

     Marketing and development expense of $957 million decreased $112 million, or 10%. This decrease was primarily due to lower advertising expenditures for Card Services, partially offset by an increase in Retail’s marketing spend.

     Telecommunication expense of $213 million decreased $151 million, or 41%, as the Corporation realized cost savings as a result of terminated and renegotiated vendor contracts.

     Other intangible amortization of $137 million increased $12 million, or 10%, primarily due to portfolio acquisitions such as Sony.

     Other expense of $1.4 billion increased by $130 million, or 10%. This was primarily a result of insurance benefits and operational expenses for Zurich Life, an addition of $100 million to litigation reserves for a variety of pending legal matters, as well as the continued reinvestment in the Corporation’s infrastructure. These increases were partially offset by reduced fraud and other operating losses. Other expense includes freight and postage expense of $246 million and $258 million for 2003 and 2002, respectively.

     The prior year contained a benefit of $63 million for restructuring charge reversals.

Salaries and employee benefits of $4.4 billion increased $268 million, or 6%. This increase was due to insourcing activities previously performed by outside vendors, increased incentive compensation, the consolidation of Paymentech, Inc. and Anexsys, LLC, and also included $45 million related to the adoption of the fair value method of accounting for stock option and stock purchase plans.

     Outside service fees and processing expense of $1.3 billion increased $117 million, or 10%, due to the increase in contract programming charges related to the Corporation’s systems conversion efforts and the one-time charge of $89 million related to termination and renegotiation of certain vendor contracts.

     Marketing and development expense of $1.1 billion increased $207 million, or 24%, primarily due to increased advertising expenditures for Card Services and certain Retail products.

     Telecommunication expense of $364 million decreased $42 million, or 10%, primarily due to lower servicing expenses resulting from the termination and renegotiation of certain vendor contracts.

     Other intangible amortization of $125 million increased $28 million, or 29%, primarily due to the amortization of purchased credit card relationships associated with the addition of the Wachovia credit card business. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Corporation no longer amortizes goodwill and thus did not incur any goodwill amortization expense during 2002.

     Other expense of $1.3 billion increased by $29 million primarily due to systems conversion costs. The Corporation successfully completed the Michigan, Florida and Illinois conversions during 2002.

Provision for credit losses, which reflects provision for loan losses and losses on unfunded commitments and standby letters of credit, was $2.0 billion for the year ended December 31, 2003, a decrease of $442 million. The decrease in provision is due to the reduction of the overall loan portfolio from $148.1 billion to $138.1 billion and the overall improvement in credit quality as evidenced by the allowance release and the decline in net charge-offs.

     The allowance for credit losses was $4.0 billion as of December 31, 2003, down $563 million from December 31, 2002. As a percentage of period-end loans, the allowance for credit losses decreased to 3.14% from 3.20%. The allowance for loan losses was $3.5 billion as of December 31, 2003, down $451 million from December 31, 2002. As a percentage of period-end loans, the allowance for loan losses decreased to 2.75% from 2.78%.

Provision for credit losses was $2.5 billion for the year ended December 31, 2002, a decrease of $23 million. The allowance for credit losses was $4.5 billion as of December 31, 2002, unchanged from December 31, 2001. As a percentage of period end loans, the allowance increased to 3.20% from 2.97%. This is due to the reduction of the overall loan portfolio from $156.7 billion to $148.1 billion.

The Corporation’s income before income taxes and cumulative effect of change in accounting principle, as well as applicable income tax expense and effective tax rate for each of the past three years follows:

For the Year Ended December 31,			2003				2002				2001
(Dollars in millions)
Income from continuing operations before income taxes and cumulative effect of change in accounting principle		$	4,390			$	4,702			$	3,748
Applicable income taxes			1,265				1,446				1,099
Effective tax rate			28.8	%			30.8	%			29.3	%
Income from discontinued operations before income taxes		$	643			$	61			$	52
Applicable income taxes			233				22				19
Effective tax rate			36.2	%			36.1	%			36.5	%
Income before income taxes and cumulative effect of change in accounting principle		$	5,033			$	4,763			$	3,800
Applicable income taxes			1,498				1,468				1,118
Effective tax rate			29.8	%			30.8	%			29.4	%

     Applicable income tax expense for all three years included benefits for tax-exempt income, tax-advantaged investments and general business tax credits offset by the effect of nondeductible expenses. More detail on income taxes can be found in Note 21, “Income Taxes,” on page 103.

For the Year Ended December 31,			2003	(2)			2002				2001
(In millions)
Retail		$	1,558			$	1,451			$	1,046
Commercial Banking			1,197				617				700
Card Services			1,159				1,166				907
Investment Management Group			345				324				293
Corporate			(1,134	)			(302	)			(297	)
Income from continuing operations before cumulative effect of change in accounting principle			3,125				3,256				2,649
Cumulative effect of change in accounting principle, net of taxes of ($25)			—				—				(44	)
Income from continuing operations(1)		$	3,125			$	3,256			$	2,605

The results of the business segments are intended to reflect each segment as if it were a stand-alone business. The management reporting process that derives these results allocates income and expenses using market-based methodologies. Funds transfer pricing is used to allocate interest income and expense to each line of business. A portion of the Corporation’s interest rate risk position is currently included in Corporate. For each line of business, the amount of equity reported is derived from an internal economic capital allocation model which assigns capital based on the inherent risks of the business over a period of time. See the “Capital Management” section on page 76 for a discussion of the economic capital framework. However, unlike economic capital, reported equity is intended to remain constant unless there is a significant change in the risk profile of a business segment. Management may periodically adjust the level of equity reported for a particular line of business to reflect a significantly new business environment.

     The costs of certain support units are allocated to the lines of business based on actual cost or the lower of actual or market cost and usage of services provided and is consistently applied to all lines of business.

     The information provided in the line of business tables beginning with the caption entitled “Financial Performance” is included herein for analytical purposes only and is based on management information systems, assumptions and methodologies that are under continual review by management.

     The financial information and supplemental data presented in the tables below for the respective lines of business are reported on an actual basis.

     During 2003, the Corporation ceased origination of wholesale first mortgage and broker home equity loans to focus on direct lending. In order to more clearly report the results of the core Retail businesses separate from the non-core businesses, these portfolios, along with the auto lease portfolio, were transferred to the Corporate line of business. In addition, the Corporation sold the corporate trust services business. The sale included corporate, municipal, structured finance and escrow businesses as well as the document custody and London corporate trust operations. In anticipation of the sale, corporate trust services was transferred from the Investment Management Group line of business to the Corporate line of business where it is reported as discontinued operations. All prior period data for Retail, Investment Management Group and Corporate lines of business has been adjusted to reflect these transfers.

Retail provides a broad range of financial products and services, including deposits, investments, loans, insurance and online banking to nearly 7 million households.

     Products and services are delivered to customers through approximately 31,000 employees, 1,841 banking centers in 14 states, a network of over 4,300 ATMs, bankone.com and 24-hour telephone banking. THE ONE^® Card, issued by Retail, is one of the country’s leading debit cards for individuals and small businesses, with 5.2 million cards issued.

     Retail originates consumer credit nationwide through its banking centers, the Internet and the telephone. Retail offers real estate, education, tax refund anticipation, consumer installment and vehicle loans to individuals. Retail is also a leading lender to small businesses.

Retail produced solid financial results in 2003. Net income increased 8% to $1.6 billion (excluding the $11 million after-tax benefit from the restructuring charge reversal in the prior year), and ROE was up 3% to 33%. The growth in net income was a result of strong home equity loan originations of $17 billion, resulting in a 34% increase in average home equity balances, as well as 8% growth in average core deposits, higher deposit service charges and stronger investment sales. These achievements, the result of a continued focus on expanding core businesses, were partially offset by continued investments in the franchise.

     In 2003, as part of Retail’s efforts to improve the overall customer experience, branch hours were extended, 58 new branches were opened, over 250 banking center interiors were upgraded, 25% of the ATMs were replaced with upgraded functionality and 434 new ATMs were added to the distribution network. These investments contributed in part to the increase in expenses in 2003.

     Retail also continued to strengthen the sales force by increasing the number of relationship bankers by 761, investment sales representatives by 128 and branch business bankers by 125. Despite these increases total headcount was reduced by 1,667.

     Total revenue, net of interest expense, increased $230 million, or 4%, to $6.3 billion. Net interest income increased to $4.4 billion for the year, up $136 million, or 3%, primarily the result of growth in home equity loan balances and core deposits. This increase was partially offset by spread compression and lower time deposits.

     Noninterest income was $1.9 billion, an increase of $94 million, or 5%, driven by higher deposit service charges, mortgage origination activity, investment sales and debit card revenue. Partially offsetting these increases were the impact of the Visa interchange rate settlement and the elimination of various service fees such as teller and online bill payment.

     Noninterest expense was $3.3 billion, an increase of $42 million, or 1% (excluding the $18 million pretax benefit from the restructuring charge reversal in the prior year), primarily due to increased marketing expense, benefits costs and continued investments in the sales force and branch network. This increase was partially offset by lower fraud and operating losses as well as increased efficiency in other expenses.

     The provision for credit losses was $505 million, up $13 million, or 3%, driven primarily by continued growth in home equity loan balances which grew almost $5.6 billion to $26.4 billion. This increase was partially offset by improvements in small business and vehicle portfolios. As a percentage of average loans, the net charge-off ratio was 0.94%, down from 1.01%.

     The allowance for credit losses of $677 million represented 1.26% of period-end loans, a decrease from 1.37% driven by improving credit quality trends in the portfolios. These improvements were realized due to enhancements in credit underwriting criteria and better account management practices implemented over the last several years. Nonperforming assets were down $141 million to $617 million, or 19%, with related improvements in delinquency trends.

Retail reported net income of $1.4 billion, up $328 million, or 29% (excluding the $11 million after-tax restructuring charge reversal in 2002 and the $66 million after-tax restructuring charge in 2001).

     Total revenue, net of interest expense increased $236 million, or 4%, to $6.1 billion. Net interest income was $4.3 billion, up $170 million, or 4%, primarily from growth in home equity loans and core deposits partially offset by lower time deposits.

     Noninterest income was $1.8 billion, up $66 million, or 4%, primarily driven by higher deposit service charges, higher debit card revenue and investment sales. The increase was partially offset by lower mortgage-related revenue and lower revenue related to the reduction of nonbranded ATMs.

     Noninterest expense was $3.3 billion, a decrease of $103 million, or 3% (excluding the $18 million pretax restructuring charge reversal in 2002 and the $104 million pretax restructuring charge in 2001). These improvements were driven by lower staffing, the absence of goodwill amortization, lower fraud and operating losses, as well as lower ATM expenses. The decline was partially offset by increased marketing and benefits costs.

     The provision for credit losses was $492 million, down $152 million, or 24%, due to the absence of reserve increases, partially offset by higher charge-offs in home equity and vehicle loans.

     The allowance for loan losses of $679 million represented 1.37% of period-end loans, a decrease from 1.49% in the prior year. Nonperforming assets were $758 million, up $58 million, or 8%, from the prior year.

Commercial Banking offers a broad array of products, including global cash management, treasury services, capital markets, commercial cards, lending and other noncredit products and services to corporate banking and middle market banking customers.

     Corporate banking serves primarily large corporations, financial institutions and commercial real estate entities. The Corporation’s capital markets business is engaged in the origination, trading and distribution of asset-backed, investment grade, tax-exempt and high yield securities, derivatives, foreign exchange, government bonds and tax-oriented investments. Capital markets is also actively engaged in loan syndications, market research, advisory services and private placements.

     Middle market banking serves the customer segment with annual revenues from approximately $10 million to $500 million, which includes corporations, municipalities and not-for-profit entities. These customers use a wide variety of services, with a significant portion using the Corporation exclusively for financial needs. The loan portfolio is diversified across a broad range of industries and geographic locations. In addition to credit, this customer segment actively uses the Corporation’s cash management, international, capital markets and investment management products and services.

Commercial Banking reported net income of $1.2 billion, up $580 million, or 94%. The current year included a $420 million pretax reduction in the allowance for credit losses and a $283 million pretax loss on the credit derivatives hedge portfolio. The prior year includes $42 million of pretax income on the credit derivatives hedge portfolio. Excluding the impact of these items, net income was $1.1 billion compared to $590 million, an increase of 88%. This improvement was primarily driven by lower net charge-offs and strength in capital markets, partially offset by the impact of declining loan volumes.

     Net interest income was $2.3 billion, down $160 million, or 6%, primarily reflecting a 14% reduction in average loan balances and compressed deposit spreads in the low interest rate environment. Average loans decreased $4.4 billion, or 13%, in corporate banking and $4.9 billion, or 15%, in middle market. These decreases were driven by both tightened underwriting standards and relatively weak demand for bank financing.

     Noninterest income (excluding the impact of the credit derivatives hedge portfolio) was $2.0 billion, an increase of $388 million, or 24%. Banking fees and commissions increased $28 million, or 4%, due to increased capital markets revenue from asset-backed and fixed-income originations offset by lower fees in global treasury services. Credit card revenue increased $28 million, or 36%, due to growth in the commercial card business. Service charges on deposits increased $20 million, or 3%, reflecting the continued shift in the method of payment for services in the low interest rate environment. Investment securities gains (losses) increased to a $35 million gain from a $13 million loss. These gains and losses were primarily attributable to sales of securities acquired in satisfaction of debt. Excluding the impact of the credit derivatives hedge portfolio, trading increased $81 million, or 39%. This increase was driven by strength in derivatives trading, led by interest rate derivatives. Other income increased by $183 million, primarily driven by gains on loan sales in 2003 as compared to losses on both loan sales and tax-oriented investments in 2002.

     Ongoing expense management efforts held noninterest expense fairly flat at $2.4 billion, despite higher compensation-related expenses.

     The effective tax rate (on a FTE basis) of 27.9% in 2003 increased from 20.8% in 2002, primarily due to an increase in pretax income in 2003 as well as a decrease in tax credits generated from tax-oriented investments. Credit quality improved significantly from 2002. Net charge-offs were $398 million, down $596 million, or 60% from the prior year. This decline was comprised of a $411 million, or 64%, decrease in corporate banking, and a $185 million, or 52%, reduction in middle market net charge-offs. For additional detail on Commercial Banking net charge-offs, see pages 66-67.

     Nonperforming loans also declined, comprised of a $552 million, or 63%, decline in corporate banking and a $286 million, or 29% decline in middle market. The provision for credit losses was $(22) million in 2003, reflecting both the decline in net charge-offs and a $420 million reduction in the allowance for credit losses. $490 million of reserves related to unfunded lending commitments and standby letters of credit were reclassified from

the allowance for loan losses to other liabilities at the end of the year. All prior periods were reclassified to conform to the current presentation. For additional information about nonperforming assets and the allowance for loan losses, see the tables on page 65 and 68, respectively.

     Effective December 31, 2003, the Corporation consolidated $39.6 billion of assets and liabilities related to its asset-backed conduit business as a result of implementing certain requirements of FIN No. 46. See “Asset-Backed Finance Programs” beginning on page 74.

Commercial Banking reported net income of $617 million for 2002, down $83 million, or 12%, from 2001, due to lower net interest income offset by lower income taxes, lower provision for credit losses and the absence of restructuring charges in 2002.

     Net interest income was $2.5 billion, down $298 million, or 11%, reflecting a reduction in average loans of $14.3 billion or 18%. Average loans decreased $10.5 billion, or 24%, in corporate banking and $3.8 billion, or 10%, in middle market.

     Mark-to-market adjustments on the credit derivatives portfolio positively impacted 2002 by $42 million and 2001 by $6 million. Excluding the impact of the gain in each period, noninterest income increased $26 million, or 2%, primarily as a result of the following items: banking fees and commissions increased $62 million, or 9%, due to growth in asset-backed finance underwriting and other capital markets products; service charges on deposits increased $96 million, or 16%, reflecting a shift in payment for services to fees due to the lower value of customers’ compensating deposit balances; trading revenue decreased by $57 million, or 22%, primarily reflecting a decrease in fixed income trading revenues; and other income decreased by $63 million primarily due to higher losses in tax-oriented investments and various asset write-downs.

     Noninterest expense was $2.3 billion, up $15 million, or 1%, from 2001, including a $77 million reduction in restructuring-related charges. Excluding restructuring costs, noninterest expense increased by $92 million, or 4%, as a result of the $65 million impact from the consolidation of Anexsys, LLC, as well as higher incentive compensation and systems conversion-related expenses.

     The effective tax rate (on a FTE basis) of 20.8% in 2002 decreased from 26.4% in 2001 primarily due to an increase in tax credits generated from tax-oriented investments combined with a decrease in pretax income in 2002.

     The provision for credit losses was $994 million, down $79 million, or 7%, from 2001. Net charge-offs were $994 million, down $48 million, or 5%, and represented 1.51% of average loans, up from 1.30% in 2001. Corporate banking net charge-offs were $639 million, or 1.94% of average loans, up from 1.47% in 2001. Middle market net charge-offs were $355 million, or 1.08% of average loans, down slightly from 1.09% of average loans in the prior year.

     The allowance for credit losses at December 31, 2002, was $3.1 billion, down $8 million from the prior year. This represented 4.98% of year-end loans and 166% of nonperforming loans compared with 4.25% and 145%, respectively, at December 31, 2001. Nonperforming loans were $1.9 billion, down $253 million, or 12%, from year-end 2001. Corporate banking nonperforming loans at year-end were $873 million, down $281 million, or 24%,

from the prior year. Middle market nonperforming loans were $1.0 billion at December 31, 2002, up $28 million, or 3%, from the prior year.

Card Services offers co-brand, affinity and other cards to its consumer and small business customer base. These cards represent relationships with some of the leading corporations, financial institutions, universities, sports franchises and other affinity organizations. All of these cards carry the respective Visa or MasterCard^® brand names.

     With approximately 51 million cards in circulation, Card Services is the third largest credit card provider in the United States and the largest Visa credit card issuer in the world. Card Services is also a leader in online card marketing and customer service, with more than 5 million registered users of its Web site.

     Through securitization the Corporation transforms a substantial portion of its credit card receivables into securities, which

are sold to investors or retained on the balance sheet. Securitization impacts the Corporation’s consolidated balance sheet by removing those credit card receivables that have been sold, and by reclassifying, from loans to investment securities, those credit card receivables that have been transformed into certificate form (referred to as “Seller’s Interest”). Gain or loss on the sale of credit card receivables, net of amortization of transaction costs and amortization from securitization repayments, is reported in other income. Securitization also impacts the Corporation’s consolidated income statement by reclassifying as credit card revenue interest income and fees, interchange income, credit losses and recoveries related to securitized receivables. Credit card interest income and fees, credit losses and recoveries related to the Seller’s Interest are reclassified in net interest income.

     The following table presents Card Services information on a reported basis:

Card Services net income remained relatively constant at $1.2 billion, as the benefit from higher average total receivables and lower noninterest expense was offset by a higher provision for credit losses and a reduction in noninterest income.

     Total revenue increased 2% to $4.9 billion, as net interest income increased $198 million while total noninterest income decreased $124 million. The increase in net interest income is primarily a result of a $4.8 billion increase in average total receivables. The decrease in total noninterest income is a result of a decline in the net interest margin earned on average securitized loans partially offset by an increase in average securitized loans. In addition, charge volume increased $11.7 billion, or 8%, which generated higher interchange income partially offset by higher volume-driven payments to partners. Paymentech, Inc., the Corporation’s merchant card processor, also had an increase in bank card volume of 24% to $155.0 billion.

     Noninterest expense (excluding a $19 million pretax benefit from a restructuring charge reversal in the prior year) was $2.3 billion, a decline of 6% due to reduced marketing expenses and operational efficiencies, offset by higher operating expenses of Paymentech, Inc.

     Provision for credit losses increased $226 million, or 43% to $757 million, which was driven by higher net charge-off activity resulting from the significant growth in average owned loans. The net charge-off ratio decreased to 5.03% from 5.19%. The 30-day delinquency ratio increased to 3.31% from 2.95%.

     Securitization gains were $79 million resulting from the securitization of $11.5 billion in credit card receivables. This compares with securitization gains of $55 million resulting from the securitization of $6.8 billion in credit card receivables in 2002.

     The Corporation believes that it is more meaningful to discuss credit performance on a managed basis since the on-balance sheet portfolio has a greater percentage of new originations and, therefore, is less seasoned and credit risk inherent in Seller’s Interest is the same risk as the off-balance sheet portfolio. See the Managed Basis section beginning on page 43 for this information.

     Card Services has a significant co-branding relationship with United Airlines, the Mileage Plus^® award program. Given United Airlines’ 2002 bankruptcy announcement, Card Services net income would be negatively impacted in the event a reorganization is unsuccessful.

Card Services reported net income of $1.2 billion, up $259 million, or 29%. 2002 results reflected twelve months of earnings from the acquisition of the Wachovia credit card business while 2001 results reflected five months of Wachovia earnings.

     Total reported revenue was $4.9 billion, up $843 million or 21%. Net interest income was $1.3 billion, down $9 million, or 1%, reflecting lower spreads due to competitive pricing partially offset by higher volumes. Excluding the $322 million impact of the Paymentech, Inc. consolidation effective January 1, 2002, noninterest income was $3.3 billion, an increase of $530 million, or 19%, primarily driven by higher volume-related revenue and higher income earned on securitized loans.

     Excluding the $285 million impact from the consolidation of Paymentech, Inc., noninterest expense was $2.1 billion, a decrease of $39 million, or 2%, resulting from continued expense management and the impact of restructuring-related charges (reversals) partially offset by higher marketing expense.

     Provision for credit losses was $531 million, an increase of $139 million, or 35%, as a result of portfolio growth.

     Securitization gains were $55 million resulting from the securitization of $6.8 billion in credit card receivables. This compares with securitization gains of $28 million resulting from the

securitization of $3.8 billion in credit card receivables in the previous year.

The Corporation evaluates its Card Services line of business trends on a managed basis, which treats the securitization of credit card receivables as a financing transaction. Gains recognized as a result of securitization continue to be reflected in other income. The Corporation manages its Card Services operations on a managed basis because the receivables that are securitized are subject to underwriting standards comparable to the owned portfolio and are serviced by operating personnel without regard to ownership. The Corporation believes that investors should be informed, and often request information, about the credit performance of the entire managed portfolio in order to understand the quality of the Card Services originations and the related credit risks inherent in the owned portfolio and retained interests in securitizations. In addition, the Corporation funds its Card Services operations, reviews operating results and makes decisions about allocating resources, such as employees and capital, on a managed basis. See “Loan Securitizations” on page 73 and Note 11 “Credit Card Securitizations,” beginning on page 92 for additional information related to the Corporation’s securitization activity.