Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-6523

Bank of America Corporation

(Exact name of registrant as specified in its charter)

Delaware		56-0906609
(State of incorporation)		(IRS Employer Identification Number)

Bank of America Corporate Center

100 N. Tryon Street

Charlotte, North Carolina 28255

(Address of principal executive offices)

(704) 386-8486

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨

On October 31, 2003, there were 1,485,804,534 shares of Bank of America Corporation Common Stock outstanding.

Bank of America Corporation

September 30, 2003 Form 10-Q

INDEX

			Page

Part I Financial Information	Item 1.	Financial Statements:
Part I Financial Information		Consolidated Statement of Income for the Three Months and Nine Months Ended September 30, 2003 and 2002	2

		Consolidated Balance Sheet at September 30, 2003 and December 31, 2002	3

		Consolidated Statement of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2003 and 2002	4

		Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2003 and 2002	5

		Notes to Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	21

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57

	Item 4.	Controls and Procedures	57

Part II Other Information	Item 1.	Legal Proceedings	57

	Item 2.	Changes in Securities and Use of Proceeds	59

	Item 6.	Exhibits and Reports on Form 8-K	59

	Signature		60

	Index to Exhibits		61

Part I. Financial Information

Item 1. Financial Statements

Bank of America Corporation and Subsidiaries

Consolidated Statement of Income

	Three Months Ended September 30					Nine Months Ended September 30
*(Dollars in millions, except per share information)*	2003		2002			2003		2002
Interest income
Interest and fees on loans and leases	$	5,328	$	5,553		$	16,088	$	16,528
Interest and dividends on securities		623		1,104			2,412		2,974
Federal funds sold and securities purchased under agreements to resell		480		177			867		662
Trading account assets		975		1,006			3,024		2,832
Other interest income		449		345			1,184		1,044

Total interest income		7,855		8,185			23,575		24,040

Interest expense
Deposits		1,278		1,414			3,730		4,142
Short-term borrowings		447		526			1,414		1,532
Trading account liabilities		345		342			969		971
Long-term debt		481		601			1,584		1,846

Total interest expense		2,551		2,883			7,697		8,491

Net interest income		5,304		5,302			15,878		15,549

Noninterest income
Consumer service charges		824		762			2,394		2,185
Corporate service charges		634		585			1,788		1,718

Total service charges		1,458		1,347			4,182		3,903

Consumer investment and brokerage services		367		374			1,146		1,175
Corporate investment and brokerage services		222		173			591		521

Total investment and brokerage services		589		547			1,737		1,696

Mortgage banking income		666		220			1,630		551
Investment banking income		412		318			1,278		1,123
Equity investment gains (losses)		25		(216	)		—		(226	)
Card income		794		687			2,237		1,885
Trading account profits		175		71			382		679
Other income⁽¹⁾		320		246			933		530

Total noninterest income		4,439		3,220			12,379		10,141

Total revenue		9,743		8,522			28,257		25,690

Provision for credit losses		651		804			2,256		2,532

Gains on sales of securities		233		189			802		326

Noninterest expense
Personnel		2,595		2,368			7,749		7,200
Occupancy		522		457			1,492		1,330
Equipment		252		291			789		832
Marketing		249		210			717		550
Professional fees		214		126			620		339
Amortization of intangibles		55		54			163		164
Data processing		275		295			803		726
Telecommunications		152		119			413		361
Other general operating		756		700			2,099		2,102

Total noninterest expense		5,070		4,620			14,845		13,604

Income before income taxes		4,255		3,287			11,958		9,880
Income tax expense		1,333		1,052			3,874		3,245

Net income	$	2,922	$	2,235		$	8,084	$	6,635

Net income available to common shareholders	$	2,921	$	2,233		$	8,081	$	6,631

Per common share information
Earnings	$	1.96	$	1.49		$	5.41	$	4.34

Diluted earnings	$	1.92	$	1.45		$	5.31	$	4.22

Dividends paid	$	0.80	$	0.60		$	2.08	$	1.80

Average common shares issued and outstanding (in thousands)		1,490,103		1,504,017			1,494,369		1,526,946

(1)

Other income includes whole mortgage loan sale gains totaling $197 and $186 for the three months ended September 30, 2003 and 2002, respectively, and $723 and $328 for the nine months ended September 30, 2003 and 2002, respectively.

See accompanying notes to consolidated financial statements.

Bank of America Corporation and Subsidiaries

Consolidated Balance Sheet

*(Dollars in millions)*	September 30 2003			December 31 2002
Assets
Cash and cash equivalents	$	22,142		$	24,973
Time deposits placed and other short-term investments		6,881			6,813
Federal funds sold and securities purchased under agreements to resell (includes $66,780 and $44,779 pledged as collateral)		67,729			44,878
Trading account assets (includes $29,112 and $35,515 pledged as collateral)		65,339			63,996
Derivative assets		36,810			34,310
Securities:
Available-for-sale (includes $29,846 and $32,919 pledged as collateral)		64,363			68,122
Held-to-maturity, at cost (market value - $531 and $1,001)		522			1,026

Total securities		64,885			69,148

Loans and leases		373,098			342,755
Allowance for credit losses		(6,716	)		(6,851	)

Loans and leases, net of allowance for credit losses		366,382			335,904

Premises and equipment, net		5,956			6,717
Mortgage banking assets		2,426			2,110
Goodwill		11,456			11,389
Core deposit intangibles and other intangibles		966			1,095
Other assets ⁽¹⁾		86,116			59,125

Total assets	$	737,088		$	660,458

Liabilities
Deposits in domestic offices:
Noninterest-bearing	$	122,669		$	122,686
Interest-bearing		257,586			232,320
Deposits in foreign offices:
Noninterest-bearing		2,650			1,673
Interest-bearing		25,605			29,779

Total deposits		408,510			386,458

Federal funds purchased and securities sold under agreements to repurchase		79,775			65,079
Trading account liabilities		29,744			25,574
Derivative liabilities		25,120			23,566
Commercial paper and other short-term borrowings		41,739			25,234
Accrued expenses and other liabilities		35,293			17,052
Long-term debt		66,462			61,145
Trust preferred securities		—			6,031

Total liabilities		686,643			610,139

Commitments and contingencies (Note 5)

Shareholders’ equity
Preferred stock, $0.01 par value; authorized - 100,000,000 shares; issued and outstanding - 1,281,600 and 1,356,749 shares		55			58
Common stock, $0.01 par value; authorized - 5,000,000,000 shares; issued and outstanding - 1,489,437,206 and 1,500,691,103 shares		15			496
Retained earnings		52,320			48,517
Accumulated other comprehensive income (loss)		(1,776	)		1,232
Other		(169	)		16

Total shareholders’ equity		50,445			50,319

Total liabilities and shareholders’ equity	$	737,088		$	660,458

(1)

Other assets includes loans held for sale totaling $12,129 and $13,833 at September 30, 2003 and December 31, 2002, respectively.

See accompanying notes to consolidated financial statements.

Bank of America Corporation and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

(Dollars in millions, shares in thousands)	Preferred Stock			Common Stock					Retained Earnings			Accumulated Other Comprehensive Income (Loss) ⁽¹⁾			Other			Total Share- holders’ Equity			Comprehensive Income
(Dollars in millions, shares in thousands)	Preferred Stock			Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income (Loss) ⁽¹⁾			Other			Total Share- holders’ Equity			Comprehensive Income
Balance, December 31, 2001	$	65		1,559,297		$	5,076		$	42,980		$	437		$	(38	)	$	48,520
Net income										6,635									6,635		$	6,635
Net unrealized gains on available-for-sale and marketable equity securities													1,256						1,256			1,256
Net unrealized gains on foreign currency translation adjustments													2						2			2
Net unrealized losses on derivatives													(1,082	)					(1,082	)		(1,082	)
Cash dividends paid:
Common										(2,744	)								(2,744	)
Preferred										(4	)								(4	)
Common stock issued under employee plans and related tax benefits				41,834			2,143									14			2,157
Common stock repurchased				(99,200	)		(6,798	)											(6,798	)
Conversion of preferred stock		(5	)	206			5												—
Other				25			248			3						46			297

Balance, September 30, 2002	$	60		1,502,162		$	674		$	46,870		$	613		$	22		$	48,239		$	6,811


Balance, December 31, 2002	$	58		1,500,691		$	496		$	48,517		$	1,232		$	16		$	50,319
Net income										8,084									8,084		$	8,084
Net unrealized losses on available-for-sale and marketable equity securities													(267	)					(267	)		(267	)
Net unrealized gains on foreign currency translation adjustments													15						15			15
Net unrealized losses on derivatives													(2,756	)					(2,756	)		(2,756	)
Cash dividends paid:
Common										(3,113	)								(3,113	)
Preferred										(3	)								(3	)
Common stock issued under employee plans and related tax benefits				62,435			3,797									(138	)		3,659
Common stock repurchased				(73,815	)		(4,403	)		(1,162	)								(5,565	)
Conversion of preferred stock		(3	)	126			3												—
Other				—			122			(3	)					(47	)		72

Balance, September 30, 2003	$	55		1,489,437		$	15		$	52,320		$	(1,776	)	$	(169	)	$	50,445		$	5,076

(1)

At September 30, 2003 and December 31, 2002, Accumulated Other Comprehensive Income (Loss) included net unrealized gains on available-for-sale and marketable equity securities of $227 and $494, respectively; foreign currency translation adjustments of $(153) and $(168), respectively; and net unrealized gains (losses) on derivatives of $(1,761) and $995, respectively.

See accompanying notes to consolidated financial statements.

Bank of America Corporation and Subsidiaries

Consolidated Statement of Cash Flows

	Nine Months Ended September 30
*(Dollars in millions)*	2003			2002
Operating activities
Net income	$	8,084		$	6,635
Reconciliation of net income to net cash provided by (used in) operating activities:
Provision for credit losses		2,256			2,532
Gains on sales of securities		(802	)		(326	)
Depreciation and premises improvements amortization		660			663
Amortization of intangibles		163			164
Deferred income tax (benefit) expense		(510	)		278
Net increase in trading and hedging instruments		(1,493	)		(5,049	)
Net increase in other assets		(3,456	)		(4,153	)
Net increase (decrease) in accrued expenses and other liabilities		20,616			(6,174	)
Other operating activities, net		3			2,700

Net cash provided by (used in) operating activities		25,521			(2,730	)

Investing activities
Net increase in time deposits placed and other short-term investments		(68	)		(465	)
Net increase in federal funds sold and securities purchased under agreements to resell		(22,851	)		(12,263	)
Proceeds from sales of available-for-sale securities		155,973			104,085
Proceeds from maturities of available-for-sale securities		25,875			17,191
Purchases of available-for-sale securities		(178,005	)		(123,058	)
Proceeds from maturities of held-to-maturity securities		768			39
Proceeds from sales of loans and leases		28,342			20,904
Other changes in loans and leases, net		(70,622	)		(24,581	)
Purchases and originations of mortgage banking assets		(1,300	)		(648	)
Net purchases of premises and equipment		101			(757	)
Proceeds from sales of foreclosed properties		48			117
Investment in unconsolidated subsidiary		(1,600	)		—
Acquisition of business activities, net		(141	)		(110	)
Other investing activities, net		914			2,405

Net cash used in investing activities		(62,566	)		(17,141	)

Financing activities
Net increase in deposits		22,052			3,920
Net increase in federal funds purchased and securities sold under agreements to repurchase		14,696			14,096
Net increase in commercial paper and other short-term borrowings		4,283			12,204
Proceeds from issuance of long-term debt		7,867			8,556
Retirement of long-term debt		(9,597	)		(13,824	)
Proceeds from issuance of common stock		3,524			2,143
Common stock repurchased		(5,565	)		(6,798	)
Cash dividends paid		(3,116	)		(2,748	)
Other financing activities, net		(60	)		(29	)

Net cash provided by financing activities		34,084			17,520

Effect of exchange rate changes on cash and cash equivalents		130			(17	)

Net decrease in cash and cash equivalents		(2,831	)		(2,368	)
Cash and cash equivalents at January 1		24,973			26,837

Cash and cash equivalents at September 30	$	22,142		$	24,469

Assets and liabilities of certain multi-seller asset-backed commercial paper conduits that were consolidated amounted to $12,222 and $0 for the nine months ended September 30, 2003 and 2002, respectively.

Net transfers of loans and leases from loans held for sale (included in other assets) to the loan portfolio for asset and liability management (ALM) purposes amounted to $9,556 and $11,022 for the nine months ended September 30, 2003 and 2002, respectively.

See accompanying notes to consolidated financial statements.

Bank of America Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Bank of America Corporation and its subsidiaries (the Corporation) through its banking and nonbanking subsidiaries, provide a diverse range of financial services and products throughout the United States and in selected international markets. At September 30, 2003, the Corporation operated its banking activities primarily under two charters: Bank of America, National Association (Bank of America, N.A.) and Bank of America, N.A. (USA).

Note 1 – Significant Accounting Principles

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Corporation and its majority-owned subsidiaries, and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.

The information contained in the consolidated financial statements is unaudited. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the interim period results have been made. Certain prior period amounts have been reclassified to conform to current period classifications.

Recently Issued Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 46 “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (FIN 46). FIN 46 provides a new framework for identifying VIEs and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements. FIN 46 was effective immediately for VIEs created after January 31, 2003. As of October 9, 2003, the FASB deferred compliance under FIN 46 from July 1, 2003 to the first period ending after December 15, 2003 for VIEs created prior to February 1, 2003. However, the Corporation adopted FIN 46 on July 1, 2003, as originally issued, and consolidated the assets and liabilities related to certain of its multi-seller asset-backed commercial paper conduits. As of September 30, 2003, these assets and liabilities were approximately $12.2 billion. Prior periods were not restated. Prior to FIN 46, trust preferred securities were classified as a separate liability with distributions on these securities included in interest expense on long-term debt. Upon adoption of FIN 46, $6.1 billion of trust preferred securities vehicles, that were deemed to be VIEs, were de-consolidated with the resulting liabilities to the trust companies included as a component of long-term debt with no change in the reporting of distributions. For additional information on VIEs, see Note 8 of the consolidated financial statements.

Statement of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123,” (SFAS 148) was adopted by the Corporation on January 1, 2003. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure requirements of SFAS 123, “Accounting for Stock-Based Compensation,” (SFAS 123) to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Under the provisions of SFAS 148, the Corporation transitioned to the fair value based method of accounting for stock-based employee compensation costs using the prospective method as of January 1, 2003. Under the prospective method, all stock options granted under plans before the adoption date will continue to be accounted for under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25) unless these stock options are modified or settled subsequent to adoption.

In accordance with SFAS 148, the Corporation provided disclosures as if the Corporation had adopted the fair value based method of measuring all outstanding employee stock options in 2003 and 2002 as indicated in the following table. The disclosure requirement of SFAS 123 recognizes the impact of all outstanding employee stock options. The prospective method that the Corporation has adopted, which is one of the prescribed methods of recognition under SFAS 148, recognizes the impact of only newly issued employee stock options. The following table presents the effect on net income and earnings per share had the fair value based method been applied to all outstanding and unvested awards for the three months and nine months ended September 30, 2003 and 2002.

	Three Months Ended September 30						Nine Months Ended September 30
*(Dollars in millions, except per share data)*	2003			2002			2003			2002
Net income	$	2,922		$	2,235		$	8,084		$	6,635
Stock-based employee compensation expense recognized during period, net of related tax effects		20			—			58			—
Stock-based employee compensation expense determined under fair value based method, net of related tax effects ⁽¹⁾		(61	)		(110	)		(201	)		(301	)

Pro forma net income	$	2,881		$	2,125		$	7,941		$	6,334

As reported
Earnings per common share	$	1.96		$	1.49		$	5.41		$	4.34
Diluted earnings per common share		1.92			1.45			5.31			4.22
Pro forma
Earnings per common share		1.93			1.41			5.31			4.15
Diluted earnings per common share		1.90			1.37			5.21			4.03

(1)

Includes all awards granted, modified or settled for which the fair value was required to be measured under SFAS 123, except restricted stock. Restricted stock expense, included in net income, for the three months ended September 30, 2003 and 2002 was $56 and $67, respectively, and for the nine months ended September 30, 2003 and 2002 was $225 and $175, respectively.

On May 15, 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” and was effective May 31, 2003 for all new and modified financial instruments and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. SFAS 150 changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS 150 requires that those instruments be classified as liabilities (or assets in some circumstances). The adoption of this rule did not have a material impact on the Corporation’s results of operations or financial condition.

For additional information on recently issued accounting pronouncements and other significant accounting principles, see Note 1 of the consolidated financial statements of the Corporation’s 2002 Annual Report and Note 1 of the consolidated financial statements of the Corporation’s Form 10-Q for the quarterly period ended March 31, 2003.

Note 2 – Trading Account Assets and Liabilities

The Corporation engages in a variety of trading–related activities that are either for clients or its own account. For a detailed discussion of trading account assets and liabilities, see page 30 of the Corporation’s 2002 Annual Report.

The fair values of the components of trading account assets and liabilities at September 30, 2003 and December 31, 2002 were:

*(Dollars in millions)*	September 30 2003		December 31 2002
Trading account assets
U.S. government and agency securities	$	13,229	$	19,875
Foreign sovereign debt		6,438		8,752
Corporate securities, trading loans, and other		25,577		21,286
Equity securities		11,207		5,380
Mortgage trading loans and asset-backed securities		8,888		8,703

Total	$	65,339	$	63,996

Trading account liabilities
U.S. government and agency securities	$	11,688	$	8,531
Foreign sovereign debt		4,622		3,465
Corporate securities, trading loans, and other		5,971		7,320
Equity securities		7,299		4,825
Mortgage trading loans and asset-backed securities		164		1,433

Total	$	29,744	$	25,574

Note 3 – Derivatives

Credit risk associated with derivatives is measured as the net replacement cost should the counterparties with contracts in a gain position to the Corporation completely fail to perform under the terms of those contracts assuming no recoveries of underlying collateral. A detailed discussion of derivative trading and ALM activities is presented in Note 5 of the consolidated financial statements of the Corporation’s 2002 Annual Report.

The following table presents the contract/notional and credit risk amounts at September 30, 2003 and December 31, 2002 of the Corporation’s derivative positions held for trading and hedging purposes. These derivative positions are primarily executed in the over-the-counter market. The credit risk amounts presented in the following table do not consider the value of any collateral held but take into consideration the effects of legally enforceable master netting agreements. The Corporation held $20.0 billion and $16.7 billion of collateral on derivative positions, of which $12.6 billion and $11.4 billion could be applied against credit risk at September 30, 2003 and December 31, 2002, respectively.

Derivatives ⁽¹⁾

	September 30, 2003				December 31, 2002
*(Dollars in millions)*	Contract/ Notional		Credit Risk		Contract/ Notional		Credit Risk
Interest rate contracts
Swaps	$	8,334,284	$	17,321	$	6,781,629	$	18,981
Futures and forwards		2,178,857		1,599		2,510,259		283
Written options		1,078,690		—		973,113		—
Purchased options		1,003,212		4,298		907,999		3,318
Foreign exchange contracts
Swaps		239,696		3,398		175,680		2,460
Spot, futures and forwards		859,760		3,263		724,039		2,535
Written options		135,703		—		81,263		—
Purchased options		132,651		531		80,395		452
Equity contracts
Swaps		28,951		474		16,830		679
Futures and forwards		2,592		—		48,470		—
Written options		23,749		—		19,794		—
Purchased options		22,471		3,826		23,756		2,885
Commodity contracts
Swaps		15,586		1,291		11,776		1,117
Futures and forwards		5,695		—		3,478		—
Written options		11,312		—		12,158		—
Purchased options		7,892		244		19,115		347
Credit derivatives		123,063		565		92,098		1,253

Total derivative assets			$	36,810			$	34,310

(1)

Includes both long and short derivative positions.

The average fair value of derivative assets for the nine months ended September 30, 2003 and 2002 was $34.8 billion and $23.6 billion, respectively. The average fair value of derivative liabilities for the nine months ended September 30, 2003 and 2002 was $23.9 billion and $15.8 billion, respectively.

Fair Value and Cash Flow Hedges

The Corporation uses various types of interest rate and foreign currency exchange rate derivative contracts to protect against changes in the fair value of its fixed-rate assets and liabilities due to fluctuations in interest rates and exchange rates. The Corporation also uses these contracts to protect against changes in the cash flows of its variable-rate assets and liabilities and anticipated transactions. For the nine months ended September 30, 2003, the Corporation recognized in the Consolidated Statement of Income a net loss of $94 million (included in interest income) related to fair value hedges. This loss represents the expected change in the forward values of forward contracts and is excluded from the assessment of hedge effectiveness. For the nine months ended September 30, 2002, there was no significant gain or loss recognized which represented the ineffective portion of fair value hedges. For the nine months ended September 30, 2003, the Corporation recognized in the Consolidated Statement of Income net gains of $15 million (included in mortgage banking income), which represented the ineffective portion of cash flow hedges. For the nine months ended September 30, 2002, the Corporation recognized in the Consolidated Statement of Income a net loss of $12 million (included in interest income and mortgage banking

income) which represented the ineffective portion of cash flow hedges. At September 30, 2003 and December 31, 2002, the Corporation has determined that there were no cash flow hedging positions where it was probable that certain forecasted transactions may not occur within the originally designated time period.

For cash flow hedges, gains and losses on derivative contracts reclassified from accumulated other comprehensive income to current period earnings are included in the line item in the Consolidated Statement of Income in which the hedged item is recorded and in the same period the hedged item affects earnings. During the next 12 months, losses on derivative instruments included in accumulated other comprehensive income, of approximately $226 million (pre-tax) are expected to be reclassified into earnings. These net losses reclassified into earnings are expected to decrease income or increase expense on the respective hedged items.

Hedges of Net Investments in Foreign Operations

The Corporation uses forward exchange contracts, currency swaps and nonderivative cash instruments that provide an economic hedge on portions of its net investments in foreign operations against adverse movements in foreign currency exchange rates. For the nine months ended September 30, 2003 and 2002, the Corporation experienced net unrealized foreign currency pre-tax gains of $170 million and $60 million, respectively, related to its net investments in foreign operations. These unrealized gains were partially offset by net unrealized pre-tax losses of $147 million and $59 million, respectively, related to derivative and nonderivative instruments designated as hedges of the foreign currency exposure during these same periods. These unrealized gains and losses were recorded as components of accumulated other comprehensive income.

Note 4 – Outstanding Loans and Leases

Outstanding loans and leases at September 30, 2003 and December 31, 2002 were:

*(Dollars in millions)*	September 30, 2003		December 31, 2002
Commercial - domestic	$	94,870	$	105,053
Commercial - foreign		17,097		19,912
Commercial real estate - domestic		19,377		19,910
Commercial real estate - foreign		305		295

Total commercial		131,649		145,170

Residential mortgage		146,424		108,197
Home equity lines		22,675		23,236
Direct/Indirect consumer		33,391		31,068
Consumer finance		6,020		8,384
Credit card		30,993		24,729
Foreign consumer		1,946		1,971

Total consumer		241,449		197,585

Total	$	373,098	$	342,755

The following table summarizes the changes in the allowance for credit losses for the three months and nine months ended September 30, 2003 and 2002:

	Three Months Ended September 30						Nine Months Ended September 30
*(Dollars in millions)*	2003			2002			2003			2002
Balance, beginning of period	$	6,841		$	6,873		$	6,851		$	6,875

Loans and leases charged off		(975	)		(1,002	)		(2,892	)		(3,147	)
Recoveries of loans and leases previously charged off		199			198			511			615

Net charge-offs		(776	)		(804	)		(2,381	)		(2,532	)

Provision for credit losses		651			804			2,256			2,532
Other, net		—			(12	)		(10	)		(14	)

Balance, September 30	$	6,716		$	6,861		$	6,716		$	6,861

The following table presents the recorded investment in specific loans, without consideration to specific reserves, that were considered individually impaired at September 30, 2003 and December 31, 2002 in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” as described in the Corporation’s 2002 Annual Report on page 80:

*(Dollars in millions)*	September 30, 2003		December 31, 2002
Commercial - domestic	$	1,698	$	2,553
Commercial - foreign		768		1,355
Commercial real estate - domestic		157		157
Commercial real estate - foreign		3		2

Total impaired loans	$	2,626	$	4,067

At September 30, 2003 and December 31, 2002, nonperforming loans, including certain loans that were considered impaired, totaled $3.4 billion and $5.0 billion, respectively. In addition, included in other assets was $82 million and $120 million of nonperforming assets at September 30, 2003 and December 31, 2002, respectively. Foreclosed properties amounted to $228 million and $225 million at September 30, 2003 and December 31, 2002, respectively.

Note 5 – Commitments and Contingencies

In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those recorded on the balance sheet.

Credit Extension Commitments

The Corporation enters into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of its customers. For additional information on credit extension commitments, see Note 13 of the consolidated financial statements of the Corporation’s 2002 Annual Report. The following table summarizes outstanding unfunded commitments to extend credit at September 30, 2003 and December 31, 2002. These unfunded commitments have been reduced by amounts participated to other financial institutions.

*(Dollars in millions)*	September 30 2003		December 31 2002
Loan commitments⁽¹⁾	$	214,303	$	212,704
Standby letters of credit and financial guarantees		29,431		30,837
Commercial letters of credit		3,745		3,109

Legally binding commitments		247,479		246,650
Credit card lines		92,522		85,801

Total commitments	$	340,001	$	332,451

(1)

Equity commitments of $1,962 and $2,197 primarily related to obligations to fund existing equity investments were included in loan commitments at September 30, 2003 and December 31, 2002, respectively.

Other Commitments

When-issued securities are commitments to purchase or sell securities during the time period between the announcement of a securities offering and the issuance of those securities. Changes in market price between commitment date and issuance are reflected in trading account profits. At September 30, 2003, the Corporation had commitments to purchase and sell when-issued securities of $145.3 billion and $142.4 billion, respectively. At December 31, 2002, the Corporation had commitments to purchase and sell when-issued securities of $166.1 billion and $164.5 billion, respectively.

As of September 30, 2003, charge cards (nonrevolving card lines) to individuals and government entities guaranteed by the U.S. government in the amount of $39.3 billion were not included in credit card line commitments in the table above. At September 30, 2003, the outstandings related to these charge cards were $284 million.

At September 30, 2003, the Corporation had forward whole mortgage loan purchase commitments of $704 million, which were settled in October 2003. At December 31, 2002, the Corporation had forward whole mortgage loan purchase commitments of $10.8 billion, all of which were settled in January 2003. At September 30, 2003 and December 31, 2002, the Corporation had no forward whole mortgage loan sale commitments. For further discussion on ALM activities, see Interest Rate and Foreign Exchange Derivative Contracts beginning on page 53.

Other Guarantees

The Corporation sells products that offer book value protection primarily to plan sponsors of ERISA-governed pension plans such as 401(k) plans, 457 plans, etc. The Corporation also sells products that guarantee the return of principal to investors at a preset future date. At September 30, 2003 and December 31, 2002, the notional amount of these guarantees totaled $30.9 billion and $23.8 billion, respectively. The increase was primarily due to new sales of stable value products for defined contribution plans. As of September 30, 2003 and December 31, 2002, the Corporation has not made a payment under these products, and management believes that the probability of payments under these guarantees is remote.

In the ordinary course of business, the Corporation enters into various agreements that contain indemnifications, such as tax indemnifications, whereupon payment may become due if certain external events occur, such as a change in tax law. The maximum potential future payment under indemnification agreements is difficult to assess for several reasons, including the inability to predict future changes in tax and other laws, the difficulty in determining how such laws would apply to parties in contracts, the absence of exposure limits contained in standard contract language and the timing of the early termination clause. Historically, any payments made under these guarantees have been de minimis. Management has assessed the probability of making such payments in the future as remote.

The Corporation has provided protection on a subset of one consumer finance securitization in the form of a guarantee with a maximum payment of $220 million that is only paid out if over-collateralization is not sufficient to absorb losses and certain other conditions are met. The Corporation anticipates no material payments will be due over the life of the contract, which is approximately three years.

The Corporation has entered into additional guarantee agreements, including lease end obligation agreements, partial credit guarantees on certain leases, sold risk participation swaps and sold put options that require gross settlement. The maximum potential future payment under these agreements was approximately $1.2 billion and $575 million at September 30, 2003 and December 31, 2002, respectively. As of September 30, 2003, the Corporation has made no material payments under these products.

For additional information on the guarantees discussed above, see Note 13 of the consolidated financial statements of the Corporation’s 2002 Annual Report.

Litigation and Regulatory Matters

Mutual Fund Operations

On September 3, 2003, the Office of the Attorney General for the State of New York (NYAG) simultaneously filed and settled a complaint against Canary Capital Partners, LLC, et al. (collectively, Canary). The complaint alleged, among other things, that Canary engaged in improper trading with certain mutual funds in the Nations Funds family (Nations Funds). Specifically, the NYAG alleged that Canary engaged in activities that it characterized as “market timing” and “late trading.” The Corporation is cooperating fully with the NYAG, the U.S. Securities and Exchange Commission (SEC) and other regulators in connection with these inquiries.

On September 16, 2003, the NYAG announced a criminal action, and the SEC announced a civil action, against a former employee of Banc of America Securities LLC (BAS). The complaints allege that this former employee played a key role in enabling Canary to engage in “late trading” of shares of Nations Funds and other mutual funds in violation of state and federal law.

The Corporation has announced that it will establish a restitution fund for shareholders of the Nations Funds who were harmed by Canary’s late trading and market timing practices. In addition, the Corporation announced that it will provide restitution for shareholders of third party mutual funds who were harmed by any late trading activities by Canary that are found to have occurred through the Corporation in the event restitution is not otherwise available from Canary, its affiliates, its investors or from any other third parties. The Corporation has also committed to return to the Nations Funds all funds management and advisory fees related to the Canary market timing agreement.

The Corporation has named several key leaders and advisors external to the Corporation to review mutual fund practices. These individuals will lead an independent review of the Corporation’s mutual fund policies and practices, conduct a complete legal and regulatory compliance review of the Corporation’s mutual fund business, and coordinate a detailed review of all technology, control, and compliance systems related to the mutual fund business, including all systems relating to sales, clearing, and derivative and brokerage operations.

The Corporation is developing new policies to eliminate all lending, derivatives, brokerage services or any other services relating to mutual fund trading activity by clients known to the Corporation to engage in active mutual fund market timing not permitted by the targeted funds. The Corporation has committed that the market timing policies being established will no longer permit special exceptions.

The independent trustees of the Board of Trustees of the Nations Funds have retained an independent firm to evaluate the extent of any adverse monetary impact to any Nations Fund in which the Nations Funds’ adviser permitted a discretionary market-timing agreement. They also announced that they would evaluate whether any additional steps are appropriate to assure Nations Funds shareholders that the Nations Funds are being managed in their best interests. In addition, the independent trustees announced that the Board of Trustees, with the assistance of the independent firm, will conduct a review of the issues relating to late trading in Nations Funds, consider the results of the review of these issues being conducted by the Corporation, and take action as appropriate.

As of the date hereof, a number of lawsuits have been filed against the Corporation, its affiliates and associates in connection with these circumstances, alleging, among other things, breaches of fiduciary duties, federal securities laws, the ERISA Act, and the Investment Advisers Act of 1940 as well as contractual and other common law claims. The Corporation has also received shareholder derivative actions purportedly brought on behalf of the Corporation alleging various claims, including breach of fiduciary duty, against the Board of Directors in connection with these matters. Additional lawsuits presenting similar or additional allegations and requests for relief arising out of these circumstances could be filed in the future against the Corporation and related parties.

During the quarter ended September 30, 2003, the Corporation recognized a $100 million charge to income in connection with these matters. The Corporation, however, cannot determine at this time the eventual outcome, timing or impact of these matters. Accordingly, it is possible that additional charges in the future may be required.

Enron Corporation (Enron) Securities Litigation

On September 29, 2003, plaintiffs in the Enron Securities Litigation and certain financial institution defendants, including the Corporation, participated in a nonbinding mediation of claims presented in both the Enron Securities Litigation and the Enron bankruptcy. The mediation failed to resolve any of the subject claims. A further session of the mediation is scheduled for January 8, 2004.

WorldCom, Inc. (WorldCom) Securities Litigation

The number of actions, in addition to WorldCom Securities Litigation, in which the Corporation or BAS has been named as a defendant arising out of alleged accounting irregularities in the books and records of WorldCom, has increased to approximately 69 actions. Of these actions, approximately 42 have been consolidated with WorldCom Securities Litigation pending in the United States District Court for the Southern District of New York.

On October 3, 2003, the parties to the WorldCom Securities Litigation were ordered to attend a mandatory settlement conference on October 16, 2003. No claims were resolved and further sessions are scheduled for November 2003.

On October 24, 2003, a class consisting of all persons and entities who purchased or otherwise acquired publicly traded securities of WorldCom during the period beginning April 29, 1999 through and including June 25, 2002 and who were injured thereby, was certified by the United States District Court in the WorldCom Securities Litigation.

Regulatory

In the ordinary course of business, the Corporation is routinely subject to regulatory examinations, information gathering requests, inquiries and investigations. One of the Corporation’s subsidiaries, BAS, is a registered broker/dealer under the federal securities laws and is subject to regulation by the SEC, the National Association of Securities Dealers, the New York Stock Exchange and state securities regulators. In connection with on-going investigations by those agencies, BAS has received numerous requests and orders for documents, testimony and information in connection with various aspects of its regulated activities. In each instance, BAS is cooperating with the requesting agency. BAS has not been advised that any enforcement action against BAS is currently contemplated. There can be no assurance, however, that the investigations will not in the future result in such action.

For a more detailed discussion on Litigation, see Note 13 of the consolidated financial statements of the Corporation’s 2002 Annual Report.

Note 6 – Shareholders’ Equity and Earnings Per Common Share

On January 22, 2003, the Board authorized a stock repurchase program of up to 130 million shares of the Corporation’s common stock at an aggregate cost of $12.5 billion. At September 30, 2003, the remaining buyback authority for common stock under this program totaled $8.6 billion, or 80 million shares. During the nine months ended September 30, 2003, the Corporation repurchased approximately 74 million shares of its common stock in

open market repurchases and as a result of put options exercised, at an average per-share price of $75.39, which reduced shareholders’ equity by $5.6 billion and increased earnings per share by approximately $0.11. These repurchases were partially offset by the issuance of 62 million shares of common stock under employee plans, which increased shareholders’ equity by $3.7 billion, net of $138 million of deferred compensation related to restricted stock awards, and decreased earnings per share by approximately $0.09 for the nine months ended September 30, 2003. For the nine months ended September 30, 2002, the Corporation repurchased approximately 99 million shares of its common stock in open market repurchases and under an accelerated repurchase program at an average per-share price of $68.52, which reduced shareholders’ equity by $6.8 billion and increased earnings per share by approximately $0.13. These repurchases were partially offset by the issuance of 42 million shares of common stock under employee plans, which increased shareholders’ equity by $2.2 billion and decreased earnings per share by approximately $0.06 for the nine months ended September 30, 2002. The Corporation will continue to repurchase shares, from time to time, in the open market or private transactions through its previously approved repurchase plan.

Accumulated other comprehensive income (OCI) includes pre-tax net unrealized gains (losses) related to available-for-sale and marketable equity securities, foreign currency translation adjustments, derivatives and other of $(3.5) billion and $1.4 billion for the nine months ended September 30, 2003 and 2002, respectively. The net change in accumulated OCI also includes adjustments for gains (losses) to net income during the current period that had been included in accumulated OCI in previous period ends. Pre-tax adjustments for gains included in the Consolidated Statement of Income for the nine months ended September 30, 2003 and 2002 were $1.1 billion and $531 million, respectively. The related income tax expense (benefit) was $(1.6) billion and $686 million for the nine months ended September 30, 2003 and 2002, respectively.

The Corporation has, from time to time, sold put options on its common stock to independent third parties. The put option program was designed to partially offset the cost of share repurchases. As of September 30, 2003, all put options under this program had matured and there were no remaining put options outstanding. For additional information on the put option program, see Note 14 of the consolidated financial statements of the Corporation’s 2002 Annual Report.

The calculation of earnings per common share and diluted earnings per common share for the three months and nine months ended September 30, 2003 and 2002 is presented below.

(Dollars in millions, except per share information; shares in thousands)	Three Months Ended September 30						Nine Months Ended September 30
	2003			2002			2003			2002
Earnings per common share
Net income	$	2,922		$	2,235		$	8,084		$	6,635
Preferred stock dividends		(1	)		(2	)		(3	)		(4	)

Net income available to common shareholders	$	2,921		$	2,233		$	8,081		$	6,631

Average common shares issued and outstanding		1,490,103			1,504,017			1,494,369			1,526,946

Earnings per common share	$	1.96		$	1.49		$	5.41		$	4.34

Diluted earnings per common share
Net income available to common shareholders	$	2,921		$	2,233		$	8,081		$	6,631
Preferred stock dividends		1			2			3			4

Net income available to common shareholders and assumed conversions	$	2,922		$	2,235		$	8,084		$	6,635

Average common shares issued and outstanding		1,490,103			1,504,017			1,494,369			1,526,946
Dilutive potential common shares ^(1,2)		29,538			42,330			29,154			46,257

Total diluted average common shares issued and outstanding		1,519,641			1,546,347			1,523,523			1,573,203

Diluted earnings per common share	$	1.92		$	1.45		$	5.31		$	4.22

(1)

For the three months and nine months ended September 30, 2003, average options to purchase 5 million and 9 million shares, respectively, were outstanding but not included in the computation of earnings per share because they were antidilutive. For the three months and nine months ended September 30, 2002, average options to purchase 23 million and 22 million shares, respectively, were outstanding but not included in the computation of earnings per share because they were antidilutive.

(2)

Includes incremental shares from assumed conversions of convertible preferred stock, restricted stock units and stock options.

Note 7 – Business Segment Information

The Corporation reports the results of its operations through four business segments: Consumer and Commercial Banking, Asset Management, Global Corporate and Investment Banking and Equity Investments. Certain operating segments have been aggregated into a single business segment.

Consumer and Commercial Banking provides a diversified range of products and services to individuals and small businesses through multiple delivery channels. The segment also includes commercial lending and treasury management services primarily to middle market companies with annual revenue between $10 million and $500 million. Asset Management offers investment, fiduciary and comprehensive banking and credit expertise; asset management services to institutional clients, high-net-worth individuals and retail customers; and investment, securities and financial planning services to affluent and high-net-worth individuals. Global Corporate and Investment Banking provides capital raising solutions, advisory services, derivatives capabilities, equity and debt sales and trading for our corporate, commercial and institutional clients as well as traditional bank deposit and loan products, cash management and payment services to large corporations and institutional clients. Equity Investments includes Principal Investing, which is comprised of a diversified portfolio of investments in privately held and publicly traded companies at all stages, from start-up to buyout.

Corporate Other consists primarily of certain amounts associated with ALM activities and certain consumer finance and commercial lending businesses that are being liquidated. Beginning in the first quarter of 2003, net interest income from certain additional ALM activities was allocated directly to the business units. Prior periods have been restated to reflect this change in methodology. In addition, compensation expense related to stock-based employee compensation plans is included in Corporate Other.

Total revenue includes net interest income on a fully taxable-equivalent basis and noninterest income. The net interest income of the business segments includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Net interest income also reflects an allocation of net interest income generated by assets and liabilities used in the Corporation’s ALM activities.

The following table presents results of operations, selected performance ratios and selected average balance sheet categories for the three months and nine months ended September 30, 2003 and 2002 for each business segment. Certain prior period amounts have been reclassified among segments to conform to the current period presentation.

Business Segment Summary

*For the three months ended September 30*
	Total Corporation						Consumer and Commercial Banking ⁽¹⁾						Asset Management ⁽¹⁾
*(Dollars in millions)*	2003			2002			2003			2002			2003			2002
Net interest income⁽²⁾	$	5,477		$	5,465		$	3,942		$	3,888		$	184		$	190
Noninterest income		4,439			3,220			2,952			2,163			431			381

Total revenue		9,916			8,685			6,894			6,051			615			571
Provision for credit losses		651			804			496			420			(2	)		118
Gains on sales of securities		233			189			1			13			—			—
Amortization of intangibles		55			54			45			43			1			1
Other noninterest expense		5,015			4,566			3,022			2,950			433			363

Income before income taxes		4,428			3,450			3,332			2,651			183			89
Income tax expense		1,506			1,215			1,187			973			60			26

Net income	$	2,922		$	2,235		$	2,145		$	1,678		$	123		$	63

Shareholder value added	$	1,624		$	880		$	1,633		$	1,144		$	48		$	(14	)
Net interest yield (fully taxable-equivalent basis)		3.22	%		3.75	%		4.51	%		5.39	%		3.04	%		3.12	%
Return on average equity		23.7			19.0			42.4			34.9			17.7			9.7
Efficiency ratio (fully taxable-equivalent basis)		51.1			53.2			44.5			49.4			70.5			63.7
Average:
Total loans and leases	$	357,288		$	340,484		$	188,500		$	182,142		$	23,205		$	23,637
Total assets		785,681			669,149			369,222			309,964			25,925			25,965
Total deposits		414,569			373,933			319,641			283,769			13,313			11,967
Common equity/Allocated equity		48,816			46,592			20,089			19,090			2,761			2,581

*For the three months ended September 30*
	Global Corporate and Investment Banking ⁽¹⁾						Equity Investments ⁽¹⁾						Corporate Other
*(Dollars in millions)*	2003			2002			2003			2002			2003			2002
Net interest income⁽²⁾	$	1,220		$	1,211		$	(45	)	$	(40	)	$	176		$	216
Noninterest income		1,033			790			(35	)		(193	)		58			79

Total revenue		2,253			2,001			(80	)		(233	)		234			295
Provision for credit losses		98			203			—			—			59			63
Gains (losses) on sales of securities		—			(25	)		—			—			232			201
Amortization of intangibles		7			8			1			1			1			1
Other noninterest expense		1,391			1,200			26			27			143			26

Income before income taxes		757			565			(107	)		(261	)		263			406
Income tax expense		244			179			(39	)		(100	)		54			137

Net income	$	513		$	386		$	(68	)	$	(161	)	$	209		$	269

Shareholder value added	$	262		$	63		$	(126	)	$	(223	)	$	(193	)	$	(90	)
Net interest yield (fully taxable-equivalent basis)		1.87	%		2.37	%		n/m			n/m			n/m			n/m
Return on average equity		21.9			14.0			(13.0	)%		(30.6	)%		n/m			n/m
Efficiency ratio (fully taxable-equivalent basis)		62.1			60.4			n/m			n/m			n/m			n/m
Average:
Total loans and leases	$	46,243		$	61,032		$	93		$	446		$	99,247		$	73,227
Total assets		311,829			244,019			6,335			6,093			72,370			83,108
Total deposits		67,456			66,163			—			—			14,159			12,034
Common equity/Allocated equity⁽³⁾		9,298			10,935			2,093			2,079			14,575			11,907

Business Segment Summary (continued)

*For the nine months ended September 30*
	Total Corporation						Consumer and Commercial Banking ⁽¹⁾						Asset Management ⁽¹⁾
*(Dollars in millions)*	2003			2002			2003			2002			2003			2002
Net interest income ⁽²⁾	$	16,362		$	15,974		$	11,642		$	11,284		$	552		$	562
Noninterest income		12,379			10,141			7,875			6,140			1,253			1,229

Total revenue		28,741			26,115			19,517			17,424			1,805			1,791
Provision for credit losses		2,256			2,532			1,506			1,295			(3	)		288
Gains on sale of securities		802			326			12			44			—			—
Amortization of intangibles		163			164			134			132			4			4
Other noninterest expense		14,682			13,440			9,052			8,402			1,182			1,096

Income before income taxes		12,442			10,305			8,837			7,639			622			403
Income tax expense		4,358			3,670			3,230			2,817			214			136

Net income	$	8,084		$	6,635		$	5,607		$	4,822		$	408		$	267

Shareholder value added	$	4,178		$	2,546		$	4,113		$	3,224		$	185		$	54
Net interest yield (fully taxable-equivalent basis)		3.35	%		3.78	%		4.63	%		5.38	%		3.10	%		3.02	%
Return on average equity		21.9			18.7			37.9			33.5			19.7			14.8
Efficiency ratio (fully taxable-equivalent basis)		51.7			52.1			47.1			49.0			65.7			61.4
Average:
Total loans and leases	$	351,119		$	334,703		$	187,366		$	181,863		$	22,920		$	24,242
Total assets		758,140			651,257			358,703			304,415			25,584			26,281
Total deposits		401,985			368,142			307,335			280,221			12,962			11,860
Common equity/Allocated equity		49,455			47,396			19,791			19,274			2,765			2,415

*For the nine months ended September 30*
	Global Corporate and Investment Banking ⁽¹⁾						Equity Investments ⁽¹⁾						Corporate Other
*(Dollars in millions)*	2003			2002			2003			2002			2003			2002
Net interest income ⁽²⁾	$	3,702		$	3,536		$	(118	)	$	(124	)	$	584		$	716
Noninterest income		3,156			3,056			(81	)		(222	)		176			(62	)

Total revenue		6,858			6,592			(199	)		(346	)		760			654
Provision for credit losses		542			684			4			—			207			265
Gains (losses) on sale of securities		(17	)		(67	)		—			—			807			349
Amortization of intangibles		21			24			2			2			2			2
Other noninterest expense		4,116			3,782			80			61			252			99

Income before income taxes		2,162			2,035			(285	)		(409	)		1,106			637
Income tax expense		726			681			(103	)		(161	)		291			197

Net income	$	1,436		$	1,354		$	(182	)	$	(248	)	$	815		$	440

Shareholder value added	$	642		$	370		$	(351	)	$	(437	)	$	(411	)	$	(665	)
Net interest yield (fully taxable-equivalent basis)		2.06	%		2.37	%		n/m			n/m			n/m			n/m
Return on average equity		19.4			16.1			(11.7	)%		(15.6	)%		n/m			n/m
Efficiency ratio (fully taxable-equivalent basis)		60.3			57.7			n/m			n/m			n/m			n/m
Average:
Total loans and leases	$	51,319		$	64,029		$	313		$	440		$	89,201		$	64,129
Total assets		289,516			238,115			6,201			6,200			78,136			76,246
Total deposits		67,224			64,392			—			—			14,464			11,669
Common equity/Allocated equity ⁽³⁾		9,904			11,229			2,074			2,132			14,921			12,346

n/m = not meaningful

(1)

There were no material intersegment revenues among the segments.

(2)

Net interest income is presented on a fully taxable-equivalent basis.

(3)

Equity in Corporate Other primarily represents equity of the Corporation not allocated to the business segments.

Reconciliations of the four business segments’ revenue and net income to consolidated totals follow:

	Three Months Ended September 30						Nine Months Ended September 30
*(Dollars in millions)*	2003			2002			2003			2002
Segments’ revenue	$	9,682		$	8,390		$	27,981		$	25,461
Adjustments:
Revenue associated with unassigned capital		154			160			496			504
Asset and liability management activities ⁽¹⁾		118			159			513			185
Liquidating businesses		83			87			235			367
Fully taxable-equivalent basis adjustment		(173	)		(163	)		(484	)		(425	)
Other		(121	)		(111	)		(484	)		(402	)

Consolidated revenue	$	9,743		$	8,522		$	28,257		$	25,690

Segments’ net income	$	2,713		$	1,966		$	7,269		$	6,195
Adjustments, net of taxes:
Gains on sales of securities		159			137			546			234
Earnings associated with unassigned capital		106			109			335			338
Asset and liability management activities ⁽¹⁾		81			57			349			64
Liquidating businesses		4			—			(26	)		22
Other		(141	)		(34	)		(389	)		(218	)

Consolidated net income	$	2,922		$	2,235		$	8,084		$	6,635

(1)

Includes whole mortgage loan sale gains.

The adjustments presented in the table above include consolidated income and expense amounts not specifically allocated to individual business segments.

Note 8 – Special Purpose Financing Entities

Securitizations

The Corporation securitizes assets and may retain a portion or all of the securities, subordinated tranches, interest only strips and, in some cases, a cash reserve account, all of which are considered retained interests in the securitized assets. Those assets may be serviced by the Corporation or by third parties to whom the servicing rights have been sold.

Variable Interest Entities

In January 2003, the FASB issued FIN 46 that addresses off-balance sheet financing entities. As of October 9, 2003, the FASB deferred compliance under FIN 46 from July 1, 2003 to the first period ending after December 15, 2003 for VIEs created prior to February 1, 2003. However, the Corporation adopted FIN 46 on July 1, 2003, as originally issued and consolidated the assets and liabilities related to certain of its multi-seller asset-backed commercial paper conduits. As of September 30, 2003, these assets and liabilities were approximately $12.2 billion. There was no material impact to Tier 1 Capital as a result of consolidation. Prior periods were not restated. Subsequent to September 30, 2003, the Corporation closed a transaction related to these conduits that resulted in the de-consolidation of approximately $8.0 billion of assets and liabilities. There was no impact to net income as a result of the de-consolidation. FIN 46 requires that when entities are consolidated, the assets should be initially recorded at their carrying amounts at the date the requirements of FIN 46 first apply. If determining carrying amounts as required is impractical, then the assets are to be measured at fair value on the first date FIN 46 applies. Any difference between the net amount added to the Corporation’s Consolidated Balance Sheet and the amount of any previously recognized interest in the newly consolidated entity shall be recognized as the cumulative effect of an

accounting change. There was no material impact to net income as a result of applying FIN 46 on July 1, 2003. At September 30, 2003, the consolidated assets and liabilities were reflected in other assets, and commercial paper and other short-term borrowings in the Global Corporate and Investment Banking business segment. The Corporation’s loss exposure associated with these entities including unfunded commitments was approximately $17.3 billion. Due to the legal isolation structure of these entities, general creditors and/or other beneficial interest holders of the VIEs have no recourse to the Corporation’s general credit. Management does not believe any losses resulting from its involvement with these entities will be material.

Additionally, the Corporation had significant involvement with other VIEs that it did not consolidate because it was not deemed to be the primary beneficiary. In such cases, the Corporation does not absorb the majority of the entities’ expected losses nor does it receive a majority of the entities’ expected residual returns, or both. These entities facilitate client transactions, and the Corporation functions as administrator for all of these and provides either liquidity and letters of credit or derivatives to the VIE. The Corporation typically obtains variable interests in these types of entities at the inception of the transaction. Total assets of these entities at September 30, 2003 were approximately $26.5 billion. At September 30, 2003, the Corporation’s loss exposure associated with these VIEs was approximately $15.8 billion, which is net of amounts syndicated. However, management does not believe any losses resulting from its involvement with these entities will be material.

Revenues from administration, liquidity, letters of credit and other services provided to the VIEs were approximately $123 million and $387 million for the nine months ended September 30, 2003 and 2002, respectively.

See Notes 1 and 8 of the consolidated financial statements of the Corporation’s 2002 Annual Report for a more detailed discussion of special purpose financing entities.

Note 9 – Subsequent Event – FleetBoston Financial Corporation Merger

On October 27, 2003, the Corporation and FleetBoston Financial Corporation (FleetBoston) announced a definitive agreement to merge. The merger will be a stock-for-stock transaction initially valued at approximately $47 billion. The acquisition will be accounted for using the purchase method of accounting and each share of FleetBoston common stock will be exchanged for 0.5553 shares of the Corporation’s common stock. The Corporation and FleetBoston have generated a combined $10 billion in earnings in the first nine months of 2003. The agreement has been approved by both boards of directors and is subject to customary regulatory and shareholder approvals. The closing is expected in the first half of 2004.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

This report on Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates,” other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Readers of Bank of America Corporation and its subsidiaries (the Corporation) Form 10-Q should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report as well as those discussed in the Corporation’s 2002 Annual Report. The statements are representative only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement.

Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include the following: changes in general economic conditions and economic conditions in the geographic regions and industries in which the Corporation operates which may affect, among other things, the level of nonperforming assets, charge-offs and provision expense; changes in the interest rate environment which may reduce interest margins and impact funding sources; changes in foreign exchange rates; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial products including securities, loans, deposits, debt and derivative financial instruments and other similar financial instruments; political conditions and related actions by the United States military abroad which may adversely affect the company’s businesses and economic conditions as a whole; litigation liabilities, including costs, expenses, settlements and judgments; changes in domestic or foreign tax laws, rules and regulations as well as Internal Revenue Service or other governmental agencies’ interpretations thereof; various monetary and fiscal policies and regulations, including those determined by the Federal Reserve Board, the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation and state regulators; competition with other local, regional and international banks, thrifts, credit unions and other nonbank financial institutions; ability to grow core businesses; ability to develop and introduce new banking-related products, services and enhancements and gain market acceptance of such products; mergers and acquisitions and their integration into the Corporation; decisions to downsize, sell or close units or otherwise change the business mix of the Corporation; and management’s ability to manage these and other risks.

The Corporation is headquartered in Charlotte, North Carolina, operates in 21 states and the District of Columbia and has offices located in 30 countries. The Corporation provides a diversified range of banking and certain nonbanking financial services and products both domestically and internationally through four business segments: Consumer and Commercial Banking, Asset Management, Global Corporate and Investment Banking and Equity Investments. At September 30, 2003, the Corporation had $737 billion in assets and approximately 133,000 full-time equivalent employees. Notes to the consolidated financial statements referred to in Management’s Discussion and Analysis of Results of Operations and Financial Condition are incorporated by reference into Management’s Discussion and Analysis of Results of Operations and Financial Condition.

Performance overview for the nine months ended September 30, 2003 compared to the same period in 2002:

Net income totaled $8.1 billion, or $5.31 per diluted common share, 22 percent and 26 percent increases, respectively, from $6.6 billion, or $4.22 per diluted common share. The return on average common shareholders’ equity was 22 percent compared to 19 percent.

For the nine months ended September 30, 2003, we saw increased net income for all three of our major businesses and continued to experience strong core business fundamentals in the areas of customer satisfaction and product/market performance resulting in momentum for the remainder of the year.

Customer satisfaction continued to increase, resulting in better retention and increased opportunities to deepen relationships with our customers. Delighted or highly satisfied customers, those who rate us a 9 or 10 on a 10-point scale, increased five percent.

We added over one million net new checking accounts for the nine months ended September 30, 2003, exceeding the full-year goal of one million and almost doubling last year’s full-year net new checking growth of 528,000.

Our active online banking customers reached 6.6 million, a 52 percent increase. Forty-one percent of consumer households that hold checking accounts use online banking. Active bill pay customers increased 88 percent to 2.8 million. Active bill pay users paid $33.5 billion of bills compared to $18.0 billion.

First mortgage originations increased $56.7 billion to $112.8 billion, resulting primarily from elevated refinancing levels and expanded market coverage from our deployment of LoanSolutions®, which was first rolled out in the second quarter of 2002. Total mortgages funded through LoanSolutions® totaled $33.1 billion.

We extended our lead as the No. 1 Small Business Administration (SBA) lender in the nation by issuing 9,406 SBA loans to entrepreneurs during the October 2002 to September 2003 SBA fiscal year. This is a 140 percent increase over the previous year’s 3,917 SBA loans.

Debit card purchase volumes grew 21 percent while credit card purchases increased 10 percent. Total managed consumer credit card revenue, including interest income, increased 24 percent. Managed average consumer credit card receivables grew 13 percent primarily due to new account growth from pre-approved direct mail programs and from the branch network.

Global Corporate and Investment Banking continued to maintain overall market share and gained in areas such as U.S. equities and convertibles, mortgage-backed securities and mergers and acquisitions.

Financial highlights for the nine months ended September 30, 2003 compared to the same period in 2002:

Net interest income on a fully taxable-equivalent basis increased $388 million to $16.4 billion. This increase was driven by the impact of credit card loan growth, higher trading-related net interest income, higher mortgage warehouse levels and higher core deposit funding levels, partially offset by reductions in the large corporate, foreign loans, exited consumer loan businesses and the negative impact of declining rates net of asset and liability management (ALM) portfolio repositioning. The net interest yield on a fully taxable-equivalent basis declined 43 basis points (bps) to 3.35 percent primarily due to higher trading-related assets and the negative impact of declining rates net of ALM portfolio repositioning.

Noninterest income increased $2.2 billion, primarily due to increases in mortgage banking income driven by gains from higher volumes of mortgage loans sold into the secondary market and improved profit margins, card income, consumer-based fee income, and gains recognized in our whole mortgage loan portfolio as we sold some whole mortgage loans to manage prepayment risk due to the longer than anticipated low interest rate environment. For the nine months ended September 30, 2003 and 2002, other noninterest income included gains from whole mortgage loan sales of $723 million and $328 million, respectively. Other noninterest income also included equity in the earnings of our investment in Grupo Financiero Santander Serfin (GFSS) of $85 million.

Gains on sales of securities were $802 million compared to $326 million as we continued to reposition the ALM portfolio in response to interest rate fluctuations.

The provision for credit losses declined $276 million to $2.3 billion primarily due to an improvement in the commercial portfolio. Net charge-offs were $2.4 billion and represented 0.91 percent of average loans and leases, a decrease of 10 bps. The decrease in net charge-offs in the commercial – domestic loan portfolio was partially offset by an increase in consumer credit card net charge-offs.

Nonperforming assets decreased $1.6 billion to $3.7 billion, or 0.98 percent of loans, leases and foreclosed properties at September 30, 2003 compared to 1.53 percent at December 31, 2002. This decline was primarily driven by reduced levels of inflows to nonperforming assets in Global Corporate and Investment Banking, together with loan sales and payoffs facilitated by higher levels of liquidity in the capital markets.

Noninterest expense increased $1.2 billion, primarily due to increases in personnel, professional fees, marketing and occupancy expense. Higher personnel costs resulted from increased costs of certain employee benefits, incentives, mortgage production related salaries and initiative related contract labor. Employee benefits expense increased as we began expensing stock options in the first quarter of 2003 and due to the impacts of a change in the expected long-term rate of return on plan assets to 8.5 percent for 2003 from 9.5 percent for 2002 and a change in the discount rate from 7.25 percent in 2002 to 6.75 percent in 2003 for the Bank of America Pension Plan. The increase in professional fees was driven by higher litigation accruals of $245 million associated with pending litigation principally related to securities matters. Marketing expense increased primarily due to higher advertising, as well as marketing investments in pre-approved direct mail for the credit card business. Higher occupancy costs were due to $90 million associated with vacating space in Tokyo and San Francisco related to exiting businesses and increased security and insurance expense. In addition, recorded in other expense during the third quarter was a $100 million charge related to issues surrounding our mutual funds practices.

Income tax expense was $3.9 billion reflecting an estimated effective tax rate of 32.4 percent compared to $3.2 billion and 32.8 percent, respectively. We revised our effective tax rate to 32.4 percent from 33 percent in the third quarter. The impact of this change was approximately $47 million.

Table 1

Selected Financial Data

	Three Months Ended September 30						Nine Months Ended September 30
*(Dollars in millions, except per share information)*	2003			2002			2003			2002
Income statement
Net interest income	$	5,304		$	5,302		$	15,878		$	15,549
Noninterest income		4,439			3,220			12,379			10,141
Total revenue		9,743			8,522			28,257			25,690
Provision for credit losses		651			804			2,256			2,532
Gains on sales of securities		233			189			802			326
Noninterest expense		5,070			4,620			14,845			13,604
Income before income taxes		4,255			3,287			11,958			9,880
Income tax expense		1,333			1,052			3,874			3,245
Net income		2,922			2,235			8,084			6,635
Average common shares issued and outstanding (in thousands)		1,490,103			1,504,017			1,494,369			1,526,946
Average diluted common shares issued and outstanding (in thousands)		1,519,641			1,546,347			1,523,523			1,573,203

Performance ratios
Return on average assets		1.48	%		1.33	%		1.43	%		1.36	%
Return on average common shareholders’ equity		23.74			19.02			21.85			18.71
Total equity to total assets (period end)		6.84			7.31			6.84			7.31
Total average equity to total average assets		6.22			6.97			6.53			7.29
Dividend payout		40.85			40.25			38.53			41.37

Per common share data
Earnings	$	1.96		$	1.49		$	5.41		$	4.34
Diluted earnings		1.92			1.45			5.31			4.22
Dividends paid		0.80			0.60			2.08			1.80
Book value		33.83			32.07			33.83			32.07

Average balance sheet
Total loans and leases	$	357,288		$	340,484		$	351,119		$	334,703
Total assets		785,681			669,149			758,140			651,257
Total deposits		414,569			373,933			401,985			368,142
Long-term debt ⁽¹⁾		66,788			64,880			67,702			66,161
Common shareholders’ equity		48,816			46,592			49,455			47,396
Total shareholders’ equity		48,871			46,652			49,512			47,457

Capital ratios (period end)
Risk-based capital:
Tier 1		8.25	%		8.13	%		8.25	%		8.13	%
Total		12.17			12.38			12.17			12.38
Leverage		5.96			6.35			5.96			6.35

Market price per share of common stock
Closing	$	78.04		$	63.80		$	78.04		$	63.80
High		84.90			71.94			84.90			77.08
Low		74.58			57.90			64.26			57.51

(1)

Includes long-term debt related to trust preferred securities.

Supplemental Financial Data

Shareholder value added (SVA) is a performance measure used in managing our growth strategy and is not defined in accounting principles generally accepted in the U.S. We also calculate certain measures, such as net interest income, core net interest income, net interest yield and efficiency ratio, on a fully taxable-equivalent basis. Other companies may define or calculate supplemental financial data differently. See Tables 2 and 3 for supplemental financial data for the three months and nine months ended September 30, 2003 and 2002.

SVA is a key measure of performance used in managing our growth strategy orientation and strengthening our focus on generating long-term growth and shareholder value. SVA is used in measuring performance of our different business units and is an integral component for allocating resources. Each business segment has a goal for growth in

SVA reflecting the individual segment’s business and customer strategy. Investment resources and initiatives are aligned with these SVA growth goals during the planning and forecasting process. Investment, relationship and profitability models all have SVA as a key measure to support the implementation of SVA growth goals. SVA is defined as cash basis earnings less a charge for the use of capital. Cash basis earnings is net income adjusted to exclude amortization of intangibles. The charge for the use of capital is calculated by multiplying 11 percent (management’s estimate of the shareholders’ minimum required rate of return on capital invested) by average total common shareholders’ equity at the corporate level and by average allocated equity at the business segment level. Equity is allocated to the business segments using a risk-adjusted methodology for each segment’s credit, market, country and operational risk. SVA increased 64 percent to $4.2 billion for the nine months ended September 30, 2003 from the comparable 2002 period, due to both the $1.4 billion increase in cash basis earnings and the decrease in capital charge, which was driven by the reduction in management’s estimate of the rate used to calculate the charge for the use of capital from 12 percent to 11 percent in the first quarter of 2003. See Table 2 for the calculation of SVA and Business Segment Operations beginning on page 31 for additional discussion on SVA.

We review net interest income on a fully taxable-equivalent basis, which is a performance measure used by management in operating the business, that we believe provides investors with a more accurate picture of the interest margin for comparative purposes. In this presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. For purposes of this calculation, we use the federal statutory tax rate. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a fully taxable-equivalent basis is also used in the calculation of the efficiency ratio and the net interest yield. The efficiency ratio, which is calculated by dividing noninterest expense by total revenue, measures how much it costs to produce one dollar of revenue. Net interest income on a fully taxable-equivalent basis is also used in our business segment reporting.

Table 2

Supplemental Financial Data

	Three Months Ended September 30						Nine Months Ended September 30
*(Dollars in millions)*	2003			2002			2003			2002
Shareholder value added
Net income	$	2,922		$	2,235		$	8,084		$	6,635
Amortization expense		55			54			163			164

Cash basis earnings		2,977			2,289			8,247			6,799
Capital charge		(1,353	)		(1,409	)		(4,069	)		(4,253	)

Shareholder value added	$	1,624		$	880		$	4,178		$	2,546

Fully taxable-equivalent basis data
Net interest income	$	5,477		$	5,465		$	16,362		$	15,974
Total revenue		9,916			8,685			28,741			26,115
Net interest yield		3.22	%		3.75	%		3.35	%		3.78	%
Efficiency ratio		51.13			53.19			51.65			52.09

Additionally, we review “core net interest income,” which adjusts reported net interest income on a fully taxable-equivalent basis for the impact of Global Corporate and Investment Banking’s trading-related activities and loans that we originated and sold into revolving credit card and commercial securitizations. Noninterest income, rather than net interest income and provision for credit losses, is recorded for assets that have been securitized as we take on the role of servicer and record servicing income and gains or losses on securitizations, where appropriate. We evaluate our trading results by combining trading-related net interest income with trading account profits, as discussed in the Global Corporate and Investment Banking business segment discussion beginning on page 34, as trading strategies are evaluated based on total revenue.

Table 3 below provides a reconciliation of net interest income on a fully taxable-equivalent basis presented in Tables 4 and 5 to core net interest income for the three months and nine months ended September 30, 2003 and 2002. Certain prior period amounts have been reclassified to conform to the current period presentation.

Table 3

Core Net Interest Income

	Three Months Ended September 30						Nine Months Ended September 30
*(Dollars in millions)*	2003			2002			2003			2002
Net interest income
As reported on a fully taxable-equivalent basis	$	5,477		$	5,465		$	16,362		$	15,974
Trading-related net interest income		(540	)		(487	)		(1,699	)		(1,388	)
Impact of revolving securitizations		78			112			265			412

Core net interest income	$	5,015		$	5,090		$	14,928		$	14,998

Average earning assets
As reported	$	677,308		$	580,248		$	651,535		$	563,964
Trading-related earning assets		(199,727	)		(126,280	)		(176,066	)		(121,295	)
Impact of revolving securitizations		3,112			5,277			3,778			6,682

Core average earning assets	$	480,693		$	459,245		$	479,247		$	449,351

Net interest yield on earning assets
As reported		3.22	%		3.75	%		3.35	%		3.78	%
Impact of trading-related activities		0.90			0.62			0.76			0.62
Impact of revolving securitizations		0.03			0.04			0.03			0.06

Core net interest yield on earning assets		4.15	%		4.41	%		4.14	%		4.46	%

Core net interest income was virtually unchanged for the nine months ended September 30, 2003 from the comparable 2002 period as credit card loan growth, higher mortgage warehouse levels and higher core funding levels were partially offset by reduced levels in large corporate, foreign and middle market loans, and exited consumer loan businesses and the negative impact of declining rates net of ALM repositioning.

Core average earning assets increased $29.9 billion for the nine months ended September 30, 2003 from the comparable 2002 period primarily due to higher levels of residential mortgages, mortgage warehouse, credit card loans, and securities, partially offset by reductions in the levels of large corporate, foreign and middle market loans, and exited consumer loan businesses.

The core net interest yield decreased 32 bps for the nine months ended September 30, 2003 from the comparable 2002 period mainly due to the negative impact of declining rates net of ALM repositioning, partially offset by credit card loan growth and the impact of higher levels of core deposit funding.

Table 4

Quarterly Average Balances and Interest Rates – Fully Taxable-Equivalent Basis

	Third Quarter 2003						Second Quarter 2003
*(Dollars in millions)*	Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
Earning assets
Time deposits placed and other short-term investments	$	10,062	$	41	1.63	%	$	7,888	$	39	1.99	%
Federal funds sold and securities purchased under agreements to resell		90,236		479	2.11			70,054		194	1.11
Trading account assets		96,105		991	4.11			99,129		1,022	4.13
Securities		65,024		639	3.93			95,614		1,028	4.30

Loans and leases ⁽¹⁾:
Commercial - domestic		96,086		1,719	7.10			100,721		1,746	6.95
Commercial - foreign		16,885		151	3.55			18,004		170	3.79
Commercial real estate - domestic		19,681		210	4.23			20,039		218	4.36
Commercial real estate - foreign		280		3	4.16			305		3	3.95

Total commercial		132,932		2,083	6.22			139,069		2,137	6.16

Residential mortgage		130,948		1,656	5.05			120,754		1,703	5.64
Home equity lines		22,539		255	4.48			22,763		263	4.64
Direct/Indirect consumer		33,278		488	5.82			32,248		495	6.17
Consumer finance		6,528		121	7.39			7,244		137	7.58
Credit card		29,113		742	10.11			26,211		690	10.56
Foreign consumer		1,950		17	3.43			1,990		17	3.47

Total consumer		224,356		3,279	5.82			211,210		3,305	6.27

Total loans and leases		357,288		5,362	5.97			350,279		5,442	6.23

Other earning assets		58,593		516	3.50			40,536		429	4.24

Total earning assets ⁽²⁾		677,308		8,028	4.72			663,500		8,154	4.92

Cash and cash equivalents		22,660						23,203
Other assets, less allowance for credit losses		85,713						87,941

Total assets	$	785,681					$	774,644

Interest-bearing liabilities
Domestic interest-bearing deposits:
Savings	$	25,285	$	20	0.31	%	$	24,420	$	35	0.58	%
NOW and money market deposit accounts		151,424		249	0.65			146,284		295	0.81
Consumer CDs and IRAs		71,216		872	4.85			69,506		742	4.28
Negotiable CDs, public funds and other time deposits		7,771		25	1.27			12,912		45	1.41

Total domestic interest-bearing deposits		255,696		1,166	1.81			253,122		1,117	1.77

Foreign interest-bearing deposits ⁽³⁾:
Banks located in foreign countries		12,273		59	1.90			16,150		87	2.16
Governments and official institutions		2,032		6	1.21			2,392		8	1.42
Time, savings and other		18,792		47	1.00			19,209		57	1.18

Total foreign interest-bearing deposits		33,097		112	1.35			37,751		152	1.61

Total interest-bearing deposits		288,793		1,278	1.76			290,873		1,269	1.75

Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings		162,080		447	1.09			152,722		514	1.35
Trading account liabilities		36,903		345	3.71			38,610		316	3.28
Long-term debt ⁽⁴⁾		66,788		481	2.88			68,927		531	3.08

Total interest-bearing liabilities ⁽²⁾		554,564		2,551	1.83			551,132		2,630	1.91

Noninterest-bearing sources:
Noninterest-bearing deposits		125,776						114,434
Other liabilities		56,470						58,809
Shareholders’ equity		48,871						50,269

Total liabilities and shareholders’ equity	$	785,681					$	774,644

Net interest spread					2.89						3.01
Impact of noninterest-bearing sources					0.33						0.32

Net interest income/yield on earning assets			$	5,477	3.22	%			$	5,524	3.33	%

(1)

Nonperforming loans are included in the respective average loan balances. Income on such nonperforming loans is recognized on a cash basis.

(2)

Interest income includes the impact of interest rate risk management contracts, which increased interest income on the underlying assets $925, $587 and $576 in the third, second and first quarters of 2003 and $517 and $397 in the fourth and third quarters of 2002, respectively. These amounts were substantially offset by corresponding decreases in the income earned on the underlying assets. Interest expense includes the impact of interest rate risk management contracts, which increased interest expense on the underlying liabilities $141, $28 and $46 in the third, second and first quarters of 2003 and $62 and $69 in the fourth and third quarters of 2002, respectively. These amounts were substantially offset by corresponding increases in the interest paid on the underlying liabilities. For further information on interest rate contracts, see “Interest Rate Risk Management” beginning on page 52.

(3)

Primarily consists of time deposits in denominations of $100,000 or more.

(4)

Includes long-term debt related to trust preferred securities.

	First Quarter 2003						Fourth Quarter 2002						Third Quarter 2002
*(Dollars in millions)*	Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
Earning assets
Time deposits placed and other short-term investments	$	6,987	$	43	2.49	%	$	8,853	$	56	2.49	%	$	10,396	$	63	2.41	%
Federal funds sold and securities purchased under agreements to resell		57,873		194	1.35			49,169		208	1.68			40,294		178	1.76
Trading account assets		99,085		1,053	4.27			84,181		994	4.71			85,129		1,017	4.76
Securities		67,784		793	4.69			83,751		1,078

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