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BANK ONE CORPORATION
INDEX TO FINANCIAL REVIEW

1   Five Quarter Summary of Selected Financial Information  
2   Application of Critical Accounting Policies 
2   Summary of Results 
6   Business Segment Results 
6   Business Segment Results and Other Data 
27   Balance Sheet Analysis 
27   Risk Management 
28       Liquidity Risk Management 
28       Market Risk Management 
30   Credit Portfolio Composition 
34   Asset Quality 
37   Allowance for Credit Losses 
40   Derivative Financial Instruments 
41   Loan Securitizations and Off-Balance Sheet Activities 
44   Capital Management 
46   Forward-Looking Statements 
47   Consolidated Financial Statements 
51   Notes to Consolidated Financial Statements 
62   Selected Statistical Information 
65   Report of Management 
66   Review Report of Independent Public Accountants 
67   Form 10-Q 

FIVE QUARTER SUMMARY OF SELECTED FINANCIAL INFORMATION
Bank One Corporation and Subsidiaries

Three Months Ended
(In millions, except per share data, ratios, and headcount)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

INCOME STATEMENT DATA:                        
Total revenue, net of interest expense   $ 4,108   $ 3,977   $ 4,232   $ 4,185   $ 4,280  
Net interest income    1,981    1,992    2,156    2,197    2,042  
Net interest income-  
  fully taxable-equivalent basis ("FTE") (1)    2,020    2,029    2,192    2,235    2,078  
Noninterest income    2,127    1,985    2,076    1,988    2,238  
Provision for credit losses    461    496    628    587    607  
Noninterest expense    2,425    2,320    2,390    2,420    2,444  
Net income    856    818    842    823    843  
PER COMMON SHARE DATA:  
Net income:  
      Basic   $ 0.76   $ 0.71   $ 0.73   $ 0.71   $ 0.72  
      Diluted    0.75    0.71    0.72    0.70    0.71  
Cash dividends declared    0.21    0.21    0.21    0.21    0.21  
Book value    19.70    19.44    19.28    18.79    18.37  
BALANCE SHEET DATA - ENDING BALANCES:  
Loans   $ 144,583   $ 144,747   $ 148,125   $ 150,389   $ 147,728  
Total assets    299,463    287,864    277,383    274,187    270,343  
Deposits    172,015    167,075    170,008    164,036    157,518  
Long-term debt (2)    46,070    44,950    43,234    42,481    43,756  
Common stockholders' equity    22,257    22,316    22,440    21,925    21,563  
Total stockholders' equity    22,257    22,316    22,440    21,925    21,563  
CREDIT QUALITY RATIOS:  
Annualized net charge-offs to average loans    1.35 %  1.35 %  1.65 %  1.55 %  1.62 %
Allowance to period end loans    3.35    3.31    3.20    3.17    3.19  
Nonperforming assets to related assets (3)    2.28    2.38    2.38    2.48    2.65  
FINANCIAL PERFORMANCE:  
Return on average assets    1.24 %  1.22 %  1.24 %  1.24 %  1.32 %
Return on average common equity    15.3    14.7    15.0    14.8    15.7  
Net interest margin    3.38    3.46    3.67    3.84    3.69  
Efficiency ratio    58.5    57.8    56.0    57.3    56.6  
CAPITAL RATIOS:  
Risk-based capital:  
     Tier 1    9.7 %  10.0 %  9.9 %  9.5 %  9.4 %
     Total    13.6    13.8    13.7    13.0    13.0  
Leverage    8.7    8.9    8.9    9.0    9.1  
COMMON STOCK DATA:  
Average shares outstanding:  
      Basic    1,132    1,148    1,157    1,162    1,174  
      Diluted    1,140    1,156    1,166    1,171    1,184  
Stock price, quarter-end   $ 37.18   $ 34.62   $ 36.55   $ 37.40   $ 38.48  
Headcount    72,323    74,077    73,685    73,535    73,579  

  (1) Net interest income-FTE includes tax equivalent adjustments of $39 million, $37 million, $36 million, $38 million and $36 million for the quarters ended June 30, 2003, March 31, 2003, December 31, 2002, September 30, 2002 and June 30, 2002, respectively.
  (2) Includes trust preferred capital securities.
  (3) Related assets consist of loans outstanding, including loans held for sale, and other real estate owned.

1


APPLICATION OF CRITICAL ACCOUNTING POLICIES

Generally accepted accounting principles are complex and require management to apply significant judgments to various accounting, reporting and disclosure matters. Management of Bank One Corporation and its subsidiaries (the “Corporation”) 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 “Notes to the Consolidated Financial Statements” in the Corporation’s 2002 Annual Report on pages 84-108. Certain policies are considered 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. Management has reviewed the application of these policies with the Audit and Risk Management Committee of the Corporation’s Board of Directors. For a discussion of applying critical accounting policies, see “Application of Critical Accounting Policies” beginning on page 35 in the Corporation’s 2002 Annual Report.

SUMMARY OF RESULTS
(All comparisons are to the same period in the prior year unless otherwise specified.)

Net income was $856 million, or $0.75 per diluted share. This compares to net income of $803 million, or $0.68 per diluted share, excluding the $40 million after-tax benefit from a restructuring charge reversal in the second quarter of 2002. Including this benefit, the prior year’s net income was $843 million, or $0.71 per diluted share. For the first half of 2003, net income totaled $1.7 billion, or $1.46 per diluted share. This compares to net income of $1.6 billion, or $1.35 per diluted share, excluding the $40 million after-tax benefit from a restructuring charge reversal in the second quarter of 2002. Including this benefit, the prior year’s net income for the first half of the year was $1.6 billion, or $1.38 per diluted share.

Net Interest Income

Net interest income represents the spread on interest earning assets over interest bearing liabilities, as well as loan fees, cash interest collections on problem loans, dividend income, interest reversals, and income or expense on derivatives used to manage interest rate risk. Net interest income was $2.0 billion, a decrease of $61 million, or 3%. Net interest margin decreased to 3.38% from 3.69%. For the first six months of 2003, net interest income was $4.0 billion, a decrease of $269 million, or 6%. Net interest margin for the same period decreased to 3.42% from 3.80%. For both the second quarter and the first half of 2003, approximately half of the decline in net interest income and margin resulted from actions taken in 2002 to position the Corporation more defensively against the possibility of rising interest rates. In 2002, the Corporation extended the duration of liabilities and repositioned the treasury investment portfolio, which reduced net interest income in 2003 due to the lower rate environment. Also contributing to the decreases were intentional reductions during 2002 in the Commercial Banking loan portfolio and throughout the period in certain Retail loan portfolios, with a modest impact due to yield compression in Card Services. See Note 7 for further details of the components of net interest income.

Noninterest Income

Noninterest income of $2.1 billion decreased $111 million, and as a percentage of total revenue decreased to 51.8% from 52.3%. For the first half of 2003, noninterest income of $4.1 billion decreased $95 million. For both periods, these decreases were primarily due to losses on the credit derivatives hedge portfolio and lower income derived from securitized loans. Partially offsetting the losses and lower income were net investment securities gains. The components of noninterest income for the periods indicated were:

Three Months Ended June 30
Six Months Ended June 30
  Change
  Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
Banking fees and commissions     $ 458   $ 493   $ (35 )  (7 )% $ 898   $ 951   $ (53 )  (6 )%
Credit card revenue    911    962    (51 )  (5 )  1,762    1,871    (109 )  (6 )
Service charges on deposits    413    376    37    10    796    769    27    4  
Fiduciary and investment management fees    186    188    (2 )  (1 )  372    377    (5 )  (1 )
Investment securities gains    152    96    56    58    221    78    143    N/M  
Trading gains (losses)    (76 )  74    (150 )  N/M    (72 )  91    (163 )  N/M  
Other income    83    49    34    69    135    70    65    93  

  Total noninterest income   $ 2,127   $ 2,238   $ (111 )  (5 ) $ 4,112   $ 4,207   $ (95 )  (2 )
Noninterest income to total revenue    51.8 %  52.3 %  (0.5) %    50.9 %  49.8 %   1.1 %    

2


Quarterly Results

Banking fees and commissions of $458 million decreased $35 million, or 7%. Lower premiums from credit insurance products, lower fees resulting from the intentional reduction of non-branded ATM machines and the elimination of the teller service fee were the primary drivers of this decrease. Partially offsetting the decrease was an increase in fixed income and asset-backed origination fees.

        Credit card revenue of $911 million decreased $51 million, or 5%, primarily driven by lower yields earned on securitized loans, partially offset by higher interchange fees from increased card usage and increased securitization activity.

        Service charges on deposits of $413 million increased $37 million, or 10%. This increase resulted from higher Retail deposit service charges and higher global treasury services revenue.

        Net securities gains from treasury activities and the investment portfolios were $152 million, compared to net securities gains of $96 million. The prior year included the $261 million gain on the sale of the GE Monogram joint venture. Valuation adjustments included in each period’s net securities gains were primarily a result of changes in the value of the publicly traded equity market, the interest rate environment and economic conditions.

        In the second quarter, trading produced losses of $76 million, a decrease of $150 million. This decrease resulted from the fair value decline in credit derivatives used to hedge the commercial loan portfolio and limit exposures to specific credits, partially offset by increased derivatives trading revenue.

        Other income increased by $34 million, or 69%. The primary driver of this increase was gains on sales of loans totaling $14 million in the current quarter compared to losses of $22 million in the year ago quarter.

Year-to-Date Results

Banking fees and commissions of $898 million decreased $53 million, or 6%. This decrease was the result of lower premiums from credit insurance products and lower fees from the intentional reduction of non-branded ATM machines, partially offset by an increase in fixed income and asset-backed origination fees and higher syndication fees.

        Credit card revenue of $1.8 billion decreased $109 million, or 6%. This decrease was primarily driven by lower income earned on securitized loans, modestly offset by higher interchange fees from increased card usage volume.

        Service charges on deposits of $796 million increased $27 million, or 4%. This increase stemmed from higher Retail deposit service charges.

        Net securities gains from treasury activities and the investment portfolios were $221 million, compared to net securities gains of $78 million. The prior year included the $261 million gain on the sale of the GE Monogram joint venture. Valuation adjustments included in each period’s net securities gains were primarily a result of changes in the value of the publicly traded equity market, the interest rate environment and economic conditions.

        Trading losses of $72 million decreased $163 million. This decrease was primarily the result of losses on credit derivatives used to hedge the commercial loan portfolio and limit exposures to specific credits, partially offset by greater derivatives and foreign exchange trading revenue.

        Other income of $135 million increased $65 million, or 93%, primarily the result of an increase in new securitization deals and gains associated with the sale of commercial loans and other assets.

3


Noninterest Expense

Total noninterest expense of $2.4 billion decreased $19 million, including a $63 million benefit from a restructuring charge reversal in the year ago quarter. Excluding this benefit, noninterest expense decreased $82 million, or 3%. The components of noninterest expense for the periods indicated were:

Three Months Ended June 30
Six Months Ended June 30
  Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
Salaries and employee benefits:                                    
  Salaries   $ 1,048   $ 941   $ 107    11 % $ 2,040   $ 1,861   $ 179    10 %
  Employee benefits    176    160    16    10    367    336    31    9  

    Total salaries and employee benefits    1,224    1,101    123    11    2,407    2,197    210    10  
Occupancy    166    170    (4 )  (2 )  331    328    3    1  
Equipment    118    99    19    19    229    202    27    13  
Outside service fees and processing    289    372    (83 )  (22 )  566    672    (106 )  (16 )
Marketing and development    215    265    (50 )  (19 )  441    536    (95 )  (18 )
Telecommunication    55    134    (79 )  (59 )  103    235    (132 )  (56 )
Other intangible amortization    32    29    3    10    64    62    2    3  
Other expense    326    337    (11 )  (3 )  604    637    (33 )  (5 )

  Total noninterest expense before  
    restructuring-related charges (reversals)    2,425    2,507    (82 )  (3 )  4,745    4,869    (124 )  (3 )
Restructuring-related charges (reversals)    -    (63 )  63    N/M    -    (63 )  63    N/M  

    Total noninterest expense   $ 2,425   $ 2,444   $ (19 )  (1 ) $ 4,745   $ 4,806   $ (61 )  (1 )

Headcount    72,323    73,579    (1,256 )  (2 )
Efficiency ratio    58.5 %  56.6 %  1.9 %    58.1 %  56.4 %  1.7 %

Quarterly Results

Salaries and employee benefits increased $123 million, or 11%. This increase was due to higher base and incentive compensation, as well as higher benefit expenses, partially offset by a 2% reduction in headcount.

        Equipment expense increased $19 million, or 19%, primarily due to increased depreciation expense on fixed assets acquired in the Corporation’s systems conversion efforts.

        Outside service fees and processing expense decreased $83 million, or 22%. The prior year period included termination and renegotiation fees for certain vendor contracts and various servicing and contract programming charges for the Corporation’s systems conversion efforts.

        Marketing and development expense decreased $50 million, or 19%, primarily due to decreased advertising expenditures for Card Services.

        Telecommunications expense decreased $79 million, or 59%, due to the absence of servicing expenses resulting from terminating and renegotiating certain vendor contracts.

        Other expense decreased $11 million, primarily related to lower operating and fraud expenses. Other expense includes freight and postage expense of $61 million and $63 million for 2003 and 2002, respectively.

Year-to-Date Results

Salaries and employee benefits increased $210 million, or 10%, due to higher base and incentive compensation and benefit expenses, partially offset by a reduction in headcount. The expense related to the fair value method of accounting for stock option and stock purchase plans for the six months ended 2003 and 2002 was $29 million and $12 million, respectively. The Corporation adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” in 2002.

        Equipment expense increased $27 million, or 13%, primarily due to higher depreciation expense on fixed assets acquired in the Corporation’s systems conversion efforts.

        Outside service fees and processing expense decreased $106 million, or 16%, as the Corporation continued to experience operational efficiencies resulting from renegotiated vendor contracts and the Corporation’s systems conversion efforts.

4


        Marketing and development expense decreased $95 million, or 18%, primarily due to lower advertising expenditures related to Card Services.

        Telecommunications expense decreased $132 million, or 56%, as a result of cost savings incurred through terminated and renegotiated vendor contracts.

        Other expense decreased $33 million, or 5%, despite continued reinvestment in the Corporation’s infrastructure. This was a result of lower operating and fraud expenses. Other expense includes freight and postage expense of $123 million and $131 million for 2003 and 2002, respectively.

Provision for Credit Losses

Provision for credit losses was $461 million for the second quarter and $957 million for the first six months of 2003, compared to $607 million and $1.3 billion, respectively, for 2002. These decreases were mainly a result of improving credit quality. During the quarter, Commercial Banking also experienced a continued reduction in the size of its loan portfolio. This, along with improved credit quality, led to the decision to reduce Commercial Banking’s allowance for credit losses by $95 million. This decrease in the allowance for credit losses was partially offset by an increase of $85 million in the Corporate line of business related to the change in the overall risk profile of the non-core portfolios. These portfolios are discussed on pages 6 and 23-26.

Applicable Income Taxes

The Corporation’s income before income taxes, as well as applicable income tax expense and effective tax rate for each of the periods indicated were:

Three Months Ended June 30
Six Months Ended June 30
(Dollars in millions)
2003
2002
2003
2002
Income before income taxes   $1,222   $1,229   $2,383   $2,371  
Applicable income taxes  366   386   709   741  
Effective tax rate  30 % 31 % 30 % 31 %

        Applicable income tax expense for all periods included the benefit from tax-exempt income, tax-advantaged investments and general business tax credits, partially offset by the effect of nondeductible expenses.

5


BUSINESS SEGMENT RESULTS

The Corporation is managed on a line of business basis. The business segments’ financial results presented reflect the current organization of the Corporation. For a detailed discussion of the various business activities of the Corporation’s business segments, see pages 38-51 of the Corporation’s 2002 Annual Report.

        The following table summarizes net income (loss) by line of business for the periods indicated:

Three Months Ended June 30
Six Months Ended June 30
(In millions)
2003
2002
2003
2002
Retail   $ 373   $ 371   $    768   $    735  
Commercial Banking  249   147   466   290  
Card Services  279   308   527   547  
Investment Management  85   103   165   204  
Corporate  (130 ) (86 ) (252 ) (146 )

  Net income  $ 856   $ 843   $ 1,674   $ 1,630  

BUSINESS SEGMENT RESULTS AND OTHER DATA

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

        In the second quarter of 2003, the Corporation ceased origination of wholesale first mortgage and brokered 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, the following portfolios were transferred to the Corporate line of business:

(In millions)
June 30
2003

Brokered home equity:    
  Previously reported as discontinued  $  2,467  
  Remaining portfolio  6,618  
Auto lease (and related portfolios)  2,906  

Total transferred portfolios  $11,991  

        The Corporation is currently evaluating its alternatives with respect to these portfolios. All prior period data for the Retail and Corporate lines of business has been adjusted to reflect the transfer of these portfolios. See page 26 for a supplemental table of the transferred portfolios included in the Corporate line of business.

6


Retail
Retail provides a broad range of financial products and services, including deposits, investments, loans, insurance, and online banking to consumers and small business customers.

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002 (1)
Amount
Percent
2003
2002 (1)
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (2) (3)   $1,077 $1,048 $29  3 % $2,199   $2,141 $ 58    3 %
  Banking fees and commissions (4)    175    187    (12 )  (6 )  364    392    (28 )  (7 )
  Credit card revenue (5)    59    49    10    20    112    92    20    22  
  Service charges on deposits (6)    225    196    29    15    429    397    32    8  
  Other income    2    13    (11 )  (85 )  15    24    (9 )  (38 )

    Total noninterest income    461    445    16    4    920    905    15    2  

      Total revenue, net of interest expense    1,538    1,493    45    3    3,119    3,046    73    2  
Provision for credit losses    108    107    1    1    224    246    (22 )  (9 )
Salaries and employee benefits    407    379    28    7    793    763    30    4  
Other expense    435    437    (2 )  -  892  891  1   -

Total noninterest expense before                                  
  restructuring-related charges (reversals)    842    816    26    3    1,685    1,654    31    2  
Restructuring-related charges (reversals)    -  (18 )  18    N/M    -  (18 )  18    N/M  

  Total noninterest expense    842    798    44    6    1,685    1,636    49    3  

Income before income taxes    588    588    -  -  1,210  1,164  46   4
Applicable income taxes    215    217    (2 )  (1 )  442    429    13    3  

  Net income (7)   $ 373   $ 371   $ 2    1 % $ 768   $ 735   $ 33    4 %

FINANCIAL PERFORMANCE:  
Return on average common equity    31 %  31 %  0 %    32 %  31 %  1 %
Efficiency ratio    55    53    2        54    54    -  
Headcount    31,812    33,160    (1,348 )  (4 )%

ENDING BALANCES:  
  Small business commercial   $9,775 $9,568 $207  2 %
  Home equity    23,715    16,825    6,890    41  
  Vehicle    13,313    13,583    (270 )  (2 )
  Other personal    6,902    7,733    (831 )  (11 )

      Total loans (8)    53,705    47,709    5,996    13  
Assets    56,900    51,408    5,492    11  
Demand deposits    29,280    26,224    3,056    12  
Savings    40,066    37,865    2,201    6  

  Core deposits    69,346    64,089    5,257    8  
Time    19,486    24,623    (5,137 )  (21 )

  Total deposits    88,832    88,712    120    -  
Equity    4,774    4,774    -    -  

AVERAGE BALANCES:  
  Small business commercial   $9,724 $9,534 $190  2 % $9,695   $9,489 $ 206    2 %
  Home equity    22,659    16,459    6,200    38    21,857    16,201    5,656    35  
  Vehicle    13,402    13,549    (147 )  (1 )  13,602  13,534    68    1  
  Other personal loans    7,108    7,904    (796 )  (10 )  7,596    8,616    (1,020 )  (12 )

      Total loans    52,893    47,446    5,447    11    52,750    47,840    4,910    10  
Assets    56,261    51,063    5,198    10    55,929    51,040    4,889    10  
Demand deposits    28,809    25,921    2,888    11    28,206    25,544    2,662    10  
Savings    40,107    37,806    2,301    6    39,842    37,464    2,378    6  

  Core deposits    68,916    63,727    5,189    8    68,048    63,008    5,040    8  
Time    20,095    24,822    (4,727 )  (19 )  20,635  25,092    (4,457 )  (18 )

  Total deposits    89,011    88,549    462    1    88,683    88,100    583    1  
Equity    4,774    4,774    -    -    4,774    4,774    -    -  

7


Retail – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002 (1)
Amount
Percent
2003
2002 (1)
   Amount
Percent
CREDIT QUALITY                                    
Net charge-offs:  
  Small business commercial   $ 16   $ 18   $ (2 )  (11 )% $ 27   $ 32   $ (5 )  (16 )%
  Home equity    27    19    8    42    53    50    3    6  
  Vehicle    46    41    5    12    93    106    (13 )  (12 )
  Other personal loans    24    29    (5 )  (17 )  42    55    (13 )  (24 )

      Total net charge-offs    113    107    6    6    215    243    (28 )  (12 )

Annualized net charge-off ratios:  
  Small business commercial    0.66 %  0.76 %  (0.10 )%    0.56 %  0.67 %  (0.11 )%
  Home equity    0.48  0.46  0.02    0.48  0.62  (0.14 )
  Vehicle    1.37  1.21  0.16    1.37  1.57  (0.20 )
  Other personal loans    1.35  1.47  (0.12 )    1.11  1.28  (0.17 )
      Total net charge-offs    0.85  0.90  (0.05 )    0.82  1.02  (0.20 )

Nonperforming assets:  
  Commercial   $ 255   $ 251   $ 4    2 %
  Consumer (9)    315    289    26    9  

Total nonperforming loans (9) (10)    570    540    30    6  
    Other, including other real estate owned ("OREO")    218    168    50    30  

      Total nonperforming assets    788    708    80    11  
Allowance for credit losses   $ 688   $ 684   $ 4    1  
Allowance to period end loans (8)    1.33 %  1.48 %  (0.15 )%
Allowance to nonperforming loans (9) (10)    121    127    (6 )
Nonperforming assets to related assets (11)    1.46  1.48  (0.02 )

DISTRIBUTION:  
Number of:  
  Banking centers    1,803    1,773    30    2  
  ATMs    4,093    4,956    (863 )  (17 )
  Relationship bankers    2,823    2,333    490    21  
  On-line customers (in thousands)    1,922    1,269    653    51  
  Personal demand accounts (in thousands)    4,541    4,304    237    6  
  Business demand accounts (in thousands)    501    492    9    2  
  Debit cards issued (in thousands)    4,946    4,492    454    10  

RETAIL BROKERAGE:  
Mutual fund sales   $ 774   $ 637   $ 137    22 $1,351 $1,217 $ 134    11  
Annuity sales    759    814    (55 )  (7 )  1,525    1,611    (86 )  (5 )

  Total investment sales volume    1,533    1,451    82    6    2,876    2,828    48    2  
Market value customer assets - end of period (in billions)    $30.5 $26.4 $4.1  16 %  
Number of customers - end of period (in thousands)    694    667    27    4  
Number of dedicated investment sales representatives    874    761    113    15  

             N/M–Not meaningful.

  (1) Prior period data has been adjusted for the transfer of the non-core portfolios from the Retail line of business to the Corporate line of business.
  (2) Net interest income is presented rather than gross interest income and gross interest expense because the Corporation relies primarily on net interest income to assess the performance of the segment and make resource allocations.
  (3) Net interest income-FTE includes tax equivalent adjustments of $6 million and $5 million for the three months ended June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002, tax equivalent adjustments were $11 million and $10 million, respectively.
  (4) Banking fees and commissions include insurance fees, documentary fees, commitment fees, annuity and mutual fund commissions, leasing fees, safe deposit fees, official check fees, ATM interchange and miscellaneous other fee revenue.
  (5) Credit card revenue includes credit card fees in both the Card Services and Commercial lines of business, debit card fees, merchant fees and interchange fees.
  (6) Service charges on deposits include deficient balance fees, non-sufficient funds/overdraft fees and other service related fees.
  (7) Net income before restructuring-related reversals, net of $7 million tax, was $360 million and $724 million for the three and six months ended June 30, 2002, respectively.
  (8) Loans include loans held for sale of $2,067 million and $1,572 million at June 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (9) Includes consumer balances that are placed on nonaccrual status when the collection of contractual principal or interest becomes 90 days past due.
  (10) Nonperforming loans includes loans held for sale of $2 million and $3 million at June 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (11) Related assets consist of loans outstanding, including loans held for sale, and other real estate owned.

8


Retail – continued

Quarterly Results

Retail net income was $373 million, up $13 million, or 4% (excluding the $11 million after-tax benefit from a restructuring charge reversal in the prior year).

        Total revenue, net of interest expense increased 3% to $1.5 billion. Net interest income was $1.1 billion, up 3%, primarily from growth in home equity loans and core deposits, partially offset by lower time deposits and spread compression. Noninterest income was $461 million, up 4%, as higher deposit service charges, debit card revenue, and investment sales were partially offset by the intentional reduction of non-branded ATM machines and the elimination of the teller service fee.

        Noninterest expense was $842 million, up 3% (excluding the $18 million pre-tax benefit from the restructuring charge reversal in the prior year), primarily due to increased incentive compensation and commissions, as well as higher benefit costs. This increase was partially offset by lower fraud and other operating expenses.

        The provision for credit losses of $108 million was relatively unchanged as higher net charge-offs in the real estate and vehicle portfolios were offset by lower net charge-offs in tax-refund anticipation and small business loans. As a percentage of average loans, net charge-offs were 0.85%, down from 0.90%.

        The allowance for credit losses of $688 million represented 1.33% of period-end loans. Nonperforming assets were $788 million, up 11% from the prior year.

Year-To-Date Results

Retail year-to-date net income was $768 million, up $44 million, or 6% (excluding the $11 million after-tax benefit from a restructuring charge reversal in the prior year).

        Total revenue, net of interest expense increased 2% to $3.1 billion. Net interest income was $2.2 billion, up 3%, primarily from growth in home equity loans and core deposits, partially offset by lower time deposits and spread compression. Noninterest income was $920 million, up 2%, as higher deposit service charges, debit card revenue, and revenues generated from the sale of student loans were partially offset by the intentional reduction of non-branded ATM machines.

        Noninterest expense increased $31 million, or 2% (excluding the $18 million pre-tax benefit from the restructuring charge reversal in the prior year), primarily due to increased collections expenses, benefit costs, incentive compensation and production related expenses. This increase was partially offset by lower fraud and other operating expenses as well as other expense improvements.

        The provision for credit losses was $224 million, down $22 million, or 9%, due primarily to net charge-off improvements in the vehicle, small business commercial, and tax related portfolios, partially offset by increases in home equity. As a percentage of average loans, net charge-offs were 0.82%, down from 1.02%.

9


Commercial Banking
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.

Three Months Ended June 30
Six Months Ended June 30
    Change
  Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (3) (12)   $ 574   $ 598   $ (24 )  (4 )% $ 1,143   $ 1,253   $ (110 )  (9 )%
  Banking fees and commissions (4)    234    224    10    4    425    399    26    7  
  Credit card revenue (5)    27    20    7    35    50    34    16    47  
  Service charges on deposits (6)    185    173    12    7    360    357    3    1  
  Fiduciary and investment  
   management fees (13)    (1 )  -    (1 )  -    -    (1 )  1    N/M  
  Investment securities losses    (2 )  (1 )  (1 )  N/M  (2 )  (1 )  (1 )  N/M  
  Trading gains (losses) (14)    (75 )  81    (156 )  N/M  (58 )  107  (165 )  N/M  
  Other income (loss)    8    (43 )  51    N/M    18    (70 )  88    N/M  

    Total noninterest income    376    454    (78 )  (17 )  793    825    (32 )  (4 )

      Total revenue, net of interest expense    950    1,052    (102 )  (10 )  1,936    2,078    (142 )  (7 )
Provision for credit losses    10    274    (264 )  (96 )  138    555    (417 )  (75 )
Salaries and employee benefits    295    261    34    13    572    520    52    10  
Other expense    305    331    (26 )  (8 )  595    632    (37 )  (6 )

Total noninterest expense before  
  restructuring-related charges (reversals)    600    592    8    1    1,167    1,152    15    1  
Restructuring-related charges (reversals)    -    (4 )  4    N/M    -    (4 )  4    N/M  

  Total noninterest expense    600    588    12    2    1,167    1,148    19    2  

Income before income taxes    340    190    150    79    631    375    256    68  
Applicable income taxes    91    43    48    N/M    165    85    80    94  

  Net income (15)   $ 249   $ 147   $ 102    69   $ 466   $ 290   $ 176    61  

Memo-Revenue by activity:  
  Lending-related revenue   $ 434   $ 404   $ 30    7 % $ 864   $ 849   $ 15    2 %
  Credit derivative hedge portfolio    (143 )  33    (176 )  N/M    (197 )  -    (197 )  -  
  Global treasury services    395    399    (4 )  (1 )  785    828    (43 )  (5 )
  Capital markets (16)    253    196    57    29    454    364    90    25  
  Other    11    20    (9 )  (45 )  30    37    (7 )  (19 )

FINANCIAL PERFORMANCE:  
Return on average common equity    13 %  8 %  5 %  13 %  8 %  5 %
Efficiency ratio    63    56    7    60    55    5  
Efficiency ratio excluding credit hedge portfolio    55    58    (3 )  55    55    -  
Headcount:  
  Corporate banking  
    (including capital markets)    2,615    2,315    300    13 %
  Middle market    2,491    3,023    (532 )  (18 )
  Global treasury services    3,239    3,299    (60 )  (2 )
  Operations, technology, and other administration    2,048    2,270    (222 )  (10 )

    Total headcount    10,393    10,907    (514 )  (5 )

ENDING BALANCES:  
Loans (17)   $57,775 $64,874 $(7,099 )  (11) %  
Assets    108,226    94,348    13,878    15  
Demand deposits    30,324    24,209    6,115    25  
Savings (18)    9,332    7,496    1,836    24  
Time (18)    9,110    4,019    5,091    N/M
Foreign offices    10,838    8,409    2,429    29  

  Total deposits    59,604    44,133    15,471    35  
Equity    7,409    7,365    44    1  

AVERAGE BALANCES:  
Loans   $58,046 $67,011 $(8,965 )  (13 )% $58,996 $69,046 $(10,050 )  (15) %
Assets    98,325    94,423    3,902    4    95,696    96,794    (1,098 )  (1 )
Demand deposits    24,402    22,430    1,972    9    23,496    22,556    940    4  
Savings (18)    10,005    7,416    2,589    35    9,659    2,900    6,759    N/M  
Time (18)    3,529    5,083    (1,554 )  (31 )  5,783    13,404    (7,621 )  (57 )
Foreign offices    10,443    8,299    2,144    26    9,729    8,230    1,499    18  

  Total deposits    48,379    43,228    5,151    12    48,667    47,090    1,577    3  
Equity    7,409    7,365    44    1    7,409    7,365    44    1  

10


Commercial Banking – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
CREDIT QUALITY                                    
Net charge-offs   $ 105   $ 274   $ (169 )  (62 )% $ 233   $ 555   $ (322 )  (58 )%
Annualized net charge-off ratio    0.72 %  1.64 %  (0.92) %    0.79 %  1.61% (0.82) %  
Nonperforming assets:  
  Nonperforming loans (19)   $ 1,693   $ 2,297   $ (604 )  (26 )%
  Other, including OREO    22    30    (8 )  (27 )

Total nonperforming assets    1,715    2,327    (612 )  (26 )
Allowance for credit losses    2,976    3,071    (95 )  (3 )
Allowance to period end loans (17)    5.18 %  4.74 %  0.44 %
Allowance to nonperforming loans (19)    176    140    36  
Nonperforming assets to related assets (11)    2.97  3.58  (0.61)

CORPORATE BANKING:  
Loans-ending balance   $ 29,319   $ 31,773   $ (2,454 )  (8 )%
          -average balance    29,222    33,322    (4,100 )  (12 ) $ 29,809   $ 34,600   $ (4,791 )  (14 )
Deposits-ending balance    32,730    22,929    9,801    43  
              -average balance    24,251    21,729    2,522    12    25,514    25,394    120    -  
Credit quality:  
  Net charge-offs    63    168    (105 )  (63 )  144    331    (187 )  (56 )
  Annualized net charge-off ratio    0.86 %  2.02 %  (1.16) %    0.97 %  1.91 %  (0.95) %  
  Nonperforming loans   $ 705   $ 1,161   $ (456 )  (39 )
  Nonperforming loans to total loans    2.40 %  3.65 %  (1.25) %

SYNDICATIONS:  
Lead arranger deals:  
  Volume (in billions)   $ 15.9   $ 18.1   $ (2.2 )  (12 )% $ 30.7   $ 33.0   $ (2.3 )  (7 )%
  Number of transactions    95    70    25    36    141    115    26    23  
  League table standing-rank    4    4    -    -    4    4    -    -  
  League table standing-market share    6 %  5 %  1 %       6 %  5 %  1 %

MIDDLE MARKET BANKING:  
Loans-ending balance   $ 28,456   $ 33,101   $ (4,645 )  (14 )%
          -average balance    28,824    33,689    (4,865 )  (14 ) $ 29,187   $ 34,446   $ (5,259 )  (15 )
Deposits-ending balance    26,874    21,204    5,670    27  
              -average balance    24,128    21,499    2,629    12    23,153    21,696    1,457    7  
Credit quality:  
  Net charge-offs    42    106    (64 )  (60 )%  89    224    (135 )  (60 )%
  Annualized net charge-off ratio    0.58 %  1.26 %  (0.68) %    0.61 %  1.30 %  (0.69) %
  Nonperforming loans   $ 988   $ 1,136   $ (148 )  (13 )%
  Nonperforming loans to total loans    3.47 %  3.43 %  0.04 %

             For additional footnote detail see page 8.

  (12) Net interest income-FTE includes tax equivalent adjustments of $25 million and $23 million for the three months ended June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002, tax equivalent adjustments were $48 million and $44 million, respectively.
  (13) Fiduciary and investment management fees include asset management fees, personal trust fees, other trust fees and advisory fees.
  (14) Trading gains (losses) primarily includes realized and unrealized mark-to-market changes from trading assets, derivative financial instruments and foreign exchange products.
  (15) Net income before restructuring-related reversals, net of $1 million tax, was $144 million and $287 million for the three and six months ended June 30, 2002, respectively.
  (16) Capital markets includes trading income and underwriting, syndicated lending and advisory fees.
  (17) Loans include loans held for sale of $327 million and $202 million at June 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (18) Prior period amounts have been reclassified to conform to the current presentation.
  (19) Nonperforming loans include loans held for sale of $6 million and $103 million at June 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.

Quarterly Results

Commercial Banking net income was $249 million, an increase of $105 million, or 73% (excluding the $3 million after-tax benefit from a restructuring charge reversal in the prior year).

11


Commercial Banking – continued

        The current period included a $143 million pre-tax loss on the credit derivatives hedge portfolio and the $95 million pre-tax reduction in allowance for credit losses. The prior year included a $33 million pre-tax gain on the credit derivatives hedge portfolio. Excluding the impact of the credit derivatives hedge portfolio and the allowance for credit losses release, net income was $280 million, an increase of $154 million. The improvement was driven by improved credit quality and strength in capital markets, partially offset by declining loan volumes and deposit margin compression.

        Net interest income decreased 4% to $574 million, reflecting compressed deposit spreads from falling interest rates and a 13% reduction in average loan volume, partially offset by continued improvement in corporate banking and middle market loan spreads. In the corporate bank, loan volumes declined, reflecting decreased demand for financing as well as customers supporting their funding needs through public debt issuance.

        Losses on the credit derivatives hedge portfolio negatively impacted trading income by $143 million in the current quarter, compared to a $33 million positive impact to trading income in the year-ago quarter. The current net notional amount of the credit derivatives hedge portfolio was $5.3 billion.

        Noninterest income (excluding the impact of the credit derivatives hedge portfolio) was $519 million, an increase of $98 million, or 23%. This increase was primarily due to higher capital markets revenue, including fixed income and asset-backed originations and derivatives trading, gains on loan sales in the current quarter compared to losses in the prior year, and higher revenue from global treasury services.

        Noninterest expense of $600 million was relatively flat. Expense management efforts during the past year held operating expenses relatively stable, despite higher compensation related expenses.

        Credit quality continued to improve, as indicated by a $169 million, or 62%, decline in net charge-offs, as corporate banking gross charge-offs declined and middle market recoveries were higher than normal.

        The improvement in credit quality and reduced size of the loan portfolio led to a $95 million reduction in the allowance for credit losses to $3.0 billion. Nonperforming loans declined 26% to $1.7 billion, reflecting declines of 39% in corporate banking and 13% in middle market banking.

Year-To-Date Results

Commercial Banking reported net income of $466 million, up $176 million, or 61%. The current year included a $197 million pre-tax loss on the credit derivatives hedge portfolio and a $95 million pre-tax reduction in the allowance for credit losses. Excluding the impact of the credit derivatives hedge portfolio and the allowance for credit losses release, net income was $531 million, an increase of $241 million. This improvement was primarily driven by improved credit quality and strength in capital markets, partially offset by the impact of declining loan volumes and deposit margin compression.

        Net interest income was $1.1 billion, down $110 million, or 9%, reflecting a 15% reduction in average loan volume and compressed deposit spreads due to falling interest rates, partially offset by improved loan spreads.

        Noninterest income (excluding the impact of the credit derivatives hedge portfolio) was $990 million, an increase of $165 million, or 20%, from the first half of 2002. This increase was primarily driven by higher revenue from a number of capital markets activities, gains on loan sales in the current year compared to losses in the prior year, gains in tax-oriented investments and increased revenue from global treasury services.

        Ongoing expense management efforts held noninterest expense fairly flat at $1.2 billion, despite higher compensation related expenses.

        Credit quality improved significantly from 2002, as demonstrated by a $322 million, or 58%, reduction in net charge-offs. The provision for credit losses was $138 million in 2003, and included a $95 million reduction in the allowance for credit losses.

12


Card Services
Card Services offers customers co-brand, affinity and other credit cards, including leading corporations, financial institutions, universities, sports franchises and affinity organizations. All of these cards carry the respective VISA® or MasterCard® brand names.

        With more than 52 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 4.2 million registered users of its website.

Reported Basis

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (3) (20) (21)   $ 332   $ 268   $ 64    24 % $ 641   $ 519   $ 122    24 %
  Banking fees and commissions (4)    9    17    (8 )  (47 )  20    42    (22 )  (52 )
  Credit card revenue (5) (20)    825    891    (66 )  (7 )  1,599    1,744    (145 )  (8 )
  Other income    34    28    6    21    30    10    20    N/M  

    Total noninterest income    868    936    (68 )  (7 )  1,649    1,796    (147 )  (8 )

      Total revenue, net of interest expense    1,200    1,204    (4 )  -    2,290    2,315    (25 )  (1 )
Provision for credit losses    182    118    64    54    343    215    128    60  
Salaries and employee benefits    156    142    14    10    309    288    21    7  
Other expense    408    462    (54 )  (12 )  782    937    (155 )  (17 )

Total noninterest expense before  
  restructuring-related charges (reversals)    564    604    (40 )  (7 )  1,091    1,225    (134 )  (11 )
Restructuring-related charges (reversals)    -    (19 )  19    N/M    -    (19 )  19    N/M  

  Total noninterest expense    564    585    (21 )  (4 )  1,091    1,206    (115 )  (10 )

Income before income taxes    454    501    (47 )  (9 )  856    894    (38 )  (4 )
Applicable income taxes    175    193    (18 )  (9 )  329    347    (18 )  (5 )

  Net income (22)   $ 279   $ 308   $ (29 )  (9 ) $ 527   $ 547   $ (20 )  (4 )

Memo-Net securitization gains  
   (amortization)   $ 17   $ (13 ) $ 30    N/M    18   $ (44 ) $ 62    N/M  

FINANCIAL PERFORMANCE:  
Return on average common equity    18 %  19 %  (1 )%    17 %  17 %  0 %
Efficiency ratio    47    49    (2 )      48    52  (4 )
Headcount    10,751    10,298    453    4 %

ENDING BALANCES:  
Owned loans:  
  Held in portfolio   $ 6,308   $ 5,115   $ 1,193    23 %
  Held for sale (23)    7,782    4,000    3,782    95  

     Total owned loans    14,090    9,115    4,975    55  
Seller's interest and accrued interest receivable    24,414    21,897    2,517    11  

  Total receivables    38,504    31,012    7,492    24  
Assets    43,597    34,002    9,595    28  
Equity    6,361    6,361    -    -  

AVERAGE BALANCES:  
Owned loans:  
  Held in portfolio   $ 7,085   $ 5,393   $ 1,692    31 % $ 7,435   $ 5,186   $ 2,249    43 %
  Held for sale (23)    7,005    3,066    3,939    N/M    5,796    2,654    3,142    N/M  

    Total owned loans    14,090    8,459    5,631    67    13,231    7,840    5,391    69  
Seller's interest and accrued interest receivable    23,281    21,916    1,365    6    24,861    22,216    2,645    12  

  Total receivables    37,371    30,375    6,996    23    38,092    30,056    8,036    27  
Assets    42,886    34,467    8,419    24    43,529    34,610    8,919    26  
Equity    6,361    6,361    -    -    6,361    6,361    -    -  

13


Card Services – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs   $ 182   $ 118   $ 64    54 % $ 343   $ 215   $ 128    60 %
Annualized net charge-off ratio    5.17 %  5.58 %  (0.41 )%    5.18 %  5.48 %  (0.30 )%
Delinquency ratio:  
  30+ days    3.22    2.72    0.50      
  90+ days    1.49    1.23    0.26  
Allowance for credit losses   $396 $396  -  -
Allowance to period end loans held in portfolio    6.28 %  7.74 %  (1.46 )%

OTHER DATA:  
Charge volume (in billions)   $ 40.5   $ 38.4   $ 2.1    5 % $ 78.8   $ 72.4   $ 6.4    9 %
New accounts opened (in thousands) (24)    1,823    983    840    85    2,798    1,924    874    45  
Credit cards issued (in thousands)    52,073  48,788  3,285  7
Number of CardmemberServices.com  
  customers (in millions)    4.2    2.6    1.6    62  
Paymentech (in millions):            
  Bank card volume   $ 37,258   $ 30,076   $ 7,182    24   $ 71,702   $ 58,037   $ 13,665    24  
  Total transactions    1,342    1,016    326    32    2,560    1,956    604    31  

Quarterly Results – Reported

Card Services’ net income decreased 6% to $279 million (excluding the $12 million after-tax benefit from a restructuring charge reversal in the prior year), primarily resulting from the continued competitive pricing environment.

        Total revenue, net of interest expense remained flat at $1.2 billion. Net interest income increased 24% to $332 million, reflecting higher owned loan balances, partially offset by the impact of lower, more competitive yields. Average owned loan balances were $14.1 billion, an increase of $5.6 billion, or 67%, due to a lower percentage of securitized loans to managed loans in the current period. End of period owned loans increased $5.0 billion, or 55%, from the prior year.

        Noninterest income declined 7% to $868 million, primarily driven by lower yields earned on securitized loans partially offset by increased securitization activity and higher charge volume. Noninterest income in both the current and prior year included modest gains from the sale of small portfolios.

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 19% to $149 million, resulting from a 32% increase in total transactions and a 24% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter of 2002.

        Noninterest expense was $564 million, a decline of 7% (excluding the $19 million pre-tax benefit from a restructuring charge reversal in the prior year), due to reduced marketing expenses. The Corporation reduced direct mail marketing expense but increased spending for existing customers.

        Reported net charge-offs were $182 million, an increase of $64 million, or 54%. The reported net charge-off ratio was 5.17%, down from 5.58%. The reported 30-day delinquency ratio increased to 3.22% from 2.72% in the prior year.

        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. See the Managed Basis section below for this information.

Year-to-Date Results – Reported

Card Services’ year-to-date net income decreased 2% to $527 million (excluding the $12 million after-tax benefit from a restructuring charge reversal in the prior year), primarily resulting from the continued competitive pricing environment partially offset by reduced marketing expenses and expense management.

        Total revenue, net of interest expense decreased 1% to $2.3 billion. Net interest income increased 24% to $641 million, reflecting higher owned loan balances, partially offset by the impact of lower, more competitive yields. Average owned loan balances were $13.2 billion, an increase of $5.4 billion, or 69%, due to a lower percentage of securitized loans to managed loans in the current period.

14


Card Services – continued

        Noninterest income declined 8% to $1.6 billion, primarily driven by lower yields earned on securitized loans and lower securitized loan balances partially offset by increased securitization activity and higher charge volume. Noninterest income in both the current and prior year included modest gains from the sale of small portfolios.

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 16% to $283 million, resulting from a 31% increase in total transactions and a 24% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter of 2002.

        Noninterest expense was $1.1 billion, a decline of 11% (excluding the $19 million pre-tax benefit from a restructuring charge reversal in the prior year), due to reduced marketing expenses and operational efficiencies.

        Reported net charge-offs were $343 million, an increase of $128 million, or 60%. The reported net charge-off ratio was 5.18%, down from 5.48%.

        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. See the Managed Basis section below for this information.

Managed Basis

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

        The Corporation evaluates its Card Services line of business trends on a managed basis, which treats the securitization as a secured financing transaction and assumes that receivables are still on the balance sheet. 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 41 and Note 9, “Credit Card Securitizations,” on pages 94-95 of the Corporation’s 2002 Annual Report for additional information related to the Corporation’s securitization activity.

15

Card Services – continued

        The following table presents Card Services information on a managed basis.

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (3) (20) (21)   $ 1,488   $ 1,526   $ (38 )  (2 )% $2,965   $3,081 $(116 ) $(4 )
                                     
  Banking fees and commissions (4)    9    17    (8 )  (47 )  20    42    (22 )  (52 )
  Credit card revenue (5)    438    441    (3 )  (1 )  854    836    18    2  
  Other loss    34    28    6    21    30    10    20    N/M  

    Total noninterest income (21)    481    486    (5 )  (1 )  904    888    16    2  

      Total revenue, net of interest expense    1,969    2,012    (43 )  (2 )  3,869    3,969    (100 )  (3 )
                                     
Provision for credit losses (21)    951    926    25    3    1,922    1,869    53    3  
                                     
Salaries and employee benefits    156    142    14    10    309    288    21    7  
Other expense    408    462    (54 )  (12 )  782    937    (155 )  (17 )

Total noninterest expense before  
  restructuring-related charges (reversals)    564    604    (40 )  (7 )  1,091    1,225    (134 )  (11 )
Restructuring-related charges (reversals)    -    (19 )  19    N/M    -    (19 )  19    N/M  

  Total noninterest expense    564    585    (21 )  (4 )  1,091    1,206    (115 )  (10 )

Income before income taxes    454    501    (47 )  (9 )  856    894    (38 )  (4 )
Applicable income taxes    175    193    (18 )  (9 )  329    347    (18 )  (5 )

  Net income (22)   $ 279   $ 308   $ (29 )  (9 )% $ 527   $ 547   $ (20 )  (4 )%

Memo-Net securitization gains                    
 (amortization)   $ 17   $ (13 ) $ 30    N/M   $18   $ (44 ) $ 62    N/M  

FINANCIAL PERFORMANCE:  
Percentage of average outstandings:  
  Net interest income - FTE    8.17 %  9.29 %  (1.12 )%    8.17 %  9.40 %  (1.23 )%
  Provision for credit losses    5.22  5.64  (0.42 )    5.29  5.70  (0.41 )
  Noninterest income    2.64  2.96  (0.32 )    2.49  2.71  (0.22 )
  Risk adjusted margin    5.59  6.61  (1.02 )    5.37  6.41  (1.04 )
  Noninterest expense    3.10  3.56  (0.46 )    3.01  3.68  (0.67 )
  Pretax income - FTE    2.49  3.05  (0.56 )    2.36  2.73  (0.37 )
  Net income    1.53  1.87  (0.34 )    1.45  1.67  (0.22 )
                                     
Return on average common equity    18    19    (1 )    17    17    -  
Efficiency ratio    29    29    -        28    31    (3 )
Headcount    10,751    10,298    453    4 %

ENDING BALANCES:  
  Held in portfolio   $ 6,308   $ 5,115   $ 1,193    23 %
  Held for sale (23)    7,782    4,000    3,782    95  
  Securitized    35,832    35,797    35    -  
  Seller's interest and accrued interest receivable    24,414    21,897    2,517    11  

    Total loans    74,336    66,809    7,527    11  
                                     
Assets    79,429    69,799    9,630    14  
Equity    6,361    6,361    -    -  

AVERAGE BALANCES:  
  Held in portfolio   $ 7,085   $ 5,393   $ 1,692    31 % $ 7,435   $ 5,186   $ 2,249    43 %
  Held for sale (23)    7,005    3,066    3,939    N/M    5,796    2,654    3,142    N/M  
  Securitized    35,664    35,555    109    -    35,116    36,070    (954 )  (3 )
  Seller's interest and accrued interest receivable    23,281    21,916    1,365    6    24,861    22,216    2,645    12  

    Total loans    73,035    65,930    7,105    11    73,208    66,126    7,082    11  
                                     
Assets    78,550    70,022    8,528    12    78,645    70,679    7,966    11  
Equity    6,361    6,361    -    -    6,361    6,361    -    -  

16


Card Services – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs   $ 951   $ 926   $ 25    3 % $ 1,922   $ 1,869   $ 53    3 %
                                     
Annualized net charge-off ratio    5.21 %  5.62 % (0.41 )% 5.25 % 5.66 %  (0.41 )%
12 month lagged (25)    5.77    5.86    (0.09 )    5.81  5.81  -
                                     
Delinquency ratio:  
  30+ days    3.95    3.83    0.12      
  90+ days    1.85    1.72    0.13  
                                     
Allowance for credit losses   $396 $396 -  -
                                     
Allowance to period end loans held in portfolio    6.28 %  7.74 %  (1.46 )%

OTHER DATA:  
Charge volume (in billions)   $ 40.5   $ 38.4   $ 2.1    5 % $ 78.8   $ 72.4   $ 6.4    9 %
New accounts opened (in thousands) (24)    1,823    983    840    85    2,798    1,924    874    45  
Credit cards issued (in thousands)    52,073  48,788  3,285  7
Number of CardmemberServices.com  
  customers (in millions)    4.2    2.6    1.6    62  
Paymentech (in millions):      
  Bank card volume   $37,258 $30,076 $7,182  24 % $71,702 $58,037 $13,665  24 %
  Total transactions    1,342    1,016    326    32    2,560    1,956    604    31  

            For additional footnote detail see pages 8 and 11.

  (20) Net interest income-FTE did not have tax equivalent adjustments for the three and six months ended June 30, 2003 and 2002, respectively.
  (21) On a reported basis, income earned on securitized loans is reported in credit card revenue and income earned on seller’s interest is reported in net interest income. On a managed basis, net interest income, noninterest income and provision for credit losses are reported in their respective income statement lines.
  (22) Net income before restructuring-related reversals, net of $7 million tax, was $296 million and $535 million for the three and six months ended June 30, 2002, respectively.
  (23) On a reported basis, these amounts are not included in allowance for credit losses coverage statistics.
  (24) Net accounts opened includes originations, purchases and sales.
  (25) 2002 ratio includes Wachovia net charge-offs but excludes Wachovia loans.

Quarterly Results – Managed

Card Services’ net income decreased 6% to $279 million (excluding the $12 million after-tax benefit from a restructuring charge reversal in the prior year), primarily resulting from the continued competitive pricing environment.

        Total revenue, net of interest expense decreased 2% to $2.0 billion. Net interest income declined 2% to $1.5 billion, reflecting lower, more competitive yields, partially offset by the effect of higher managed loan balances. Average managed loans were $73.0 billion, an increase of $7.1 billion, or 11%. End of period loans increased $7.5 billion, or 11%, from the prior year.

        Noninterest income of $481 million was essentially flat. The benefit of increased securitization activity and interchange revenue due to higher charge volume was offset by higher revenue sharing paid to partners (a deduction from revenue). Noninterest income in both the current and prior year included modest gains from the sale of small portfolios.

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 19% to $149 million, resulting from a 32% increase in total transactions and a 24% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter of 2002.

        Noninterest expense was $564 million, a decline of 7% (excluding the $19 million pre-tax benefit from a restructuring charge reversal in the prior year), due to reduced marketing expenses. The Corporation reduced direct mail marketing expense but increased spending for existing customers.

        Managed net charge-offs increased $25 million, or 3%, to $951 million primarily driven by higher managed loan balances. The managed net charge-off ratio improved to 5.21% from 5.62%, aided in part by slightly higher than normal recoveries. The managed 30-day delinquency ratio, however, increased to 3.95% from 3.83% in the prior year.

17


Card Services – continued

Year-To-Date Results – Managed

Card Services’ year-to-date net income decreased 2% to $527 million (excluding the $12 million after-tax benefit from a restructuring charge reversal in the prior year), primarily resulting from the continued competitive pricing environment partially offset by reduced marketing expenses and expense management.

        Total revenue, net of interest expense decreased 3% to $3.9 billion. Net interest income decreased 4% to $3.0 billion, reflecting lower, more competitive yields partially offset by the effect of higher managed loan balances. Average managed loan balances were $73.2 billion, an increase of $7.1 billion, or 11%.

        Noninterest income increased 2% to $904 million, primarily driven by increased securitization activity and interchange revenue due to higher charge volume partially offset by higher revenue sharing paid to partners (a deduction from revenue). Noninterest income in both the current and prior year included modest gains from the sale of small portfolios.

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 16% to $283 million, resulting from a 31% increase in total transactions and a 24% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter of 2002.

        Noninterest expense was $1.1 billion, a decline of 11% (excluding the $19 million pre-tax benefit from a restructuring charge reversal in the prior year), due to reduced marketing expenses and operational efficiencies.

        Managed net charge-offs were $1.9 billion, an increase of $53 million, or 3%, primarily driven by higher managed loan balances partially offset by slightly higher than normal recoveries. The managed net charge-off ratio was 5.25%, down from 5.66%.

18


Card Services – continued

        The following table reconciles line items presented on a reported basis with those presented on a managed basis:

Three Months Ended June 30
Six Months Ended June 30
(in millions):
2003
2002
2003
2002
INCOME STATEMENT DATA:          
Net interest income - FTE (3) (21) 
  Reported data for the period  $      332   $      268   $      641   $      519  
  Securitization adjustments  1,156   1,258   2,324   2,562  

    Managed net interest income  1,488   1,526   2,965   3,081  
           
Credit card revenue: 
  Reported data for the period  $      825   $      891   $   1,599   $   1,744  
  Securitization adjustments  (387 ) (450 ) (745 ) (908 )

    Managed credit card revenue  438   441   854   836  
           
Noninterest income: 
  Reported data for the period  $      868   $      936   $   1,649   $   1,796  
  Securitization adjustments  (387 ) (450 ) (745 ) (908 )

    Managed noninterest income  481   486   904   888  
           
Total revenue, net of interest expense: 
  Reported data for the period  $   1,200   $   1,204   $   2,290   $   2,315  
  Securitization adjustments  769   808   1,579   1,654  

    Managed total revenue, net of interest expense  1,969   2,012   3,869   3,969  
           
 Provision for credit losses 
  Reported data for the period  $      182   $      118   $      343   $      215  
  Securitization adjustments  769   808   1,579   1,654  

    Managed provision for credit losses  951   926   1,922   1,869  

ENDING BALANCES: 
Owned loans: 
  Held in portfolio  $   6,308   $   5,115  
  Held for sale (23)  7,782   4,000  

    Total owned loans  14,090   9,115  
Seller's interest and accrued interest receivable  24,414   21,897  

    Total receivables  38,504   31,012  
Securitized loans  35,832   35,797  

    Total managed loans  74,336   66,809  
           
Assets: 
  Reported  43,597   $ 34,002  
  Securitization adjustments  35,832   35,797  

    Managed assets  79,429   69,799  

AVERAGE BALANCES: 
Owned loans: 
  Held in portfolio  $   7,085   $   5,393   $   7,435   $   5,186  
  Held for sale (23)  7,005   3,066   5,796   2,654  

    Total owned loans  14,090   8,459   13,231   7,840  
Seller's interest and accrued interest receivable  23,281   21,916   24,861   22,216  

    Total receivables  37,371   30,375   38,092   30,056  
Securitized loans  35,664   35,555   35,116   36,070  

    Total managed loans  73,035   65,930   73,208   66,126  
           
Total assets: 
  Reported  $ 42,886   $ 34,467   $ 43,529   $ 34,610  
  Securitization adjustments  35,664   35,555   35,116   36,069  

    Managed assets  78,550   70,022   78,645   70,679  

CREDIT QUALITY: 
Net charge-offs 
  Reported  $      182   $      118   $      343   $      215  
  Securitization adjustments  769   808   1,579   1,654  

    Managed net charge-offs  951   926   1,922   1,869  

19


Investment Management
The Investment Management Group (IMG) provides investment, insurance, trust and private banking services to individuals. IMG also provides investment and investment-related services, including retirement and custody services, securities lending and corporate trust services to institutions. On July 24, 2003, the Corporation announced an agreement to sell the Corporate Trust Services business, part of the Investment Management line of business. The sale price is $720 million, of which approximately 10% is contingent upon business retention. The sale includes corporate, municipal, structured finance and escrow businesses as well as the document custody and London corporate trust operations. The closing of the transaction, pending regulatory approvals, is expected to occur later this year.

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (3) (26)   $ 100   $ 105   $ (5 )  (5 )% $ 198   $ 219   $ (21 )  (10 )%
           
  Banking fees and commissions (4)    70    71    (1 )  (1 )  136    131    5    4  
  Service charges on deposits (6)    5    4    1    25    10    9    1    11  
  Fiduciary and investment  
   management fees    179    184    (5 )  (3 )  356    372    (16 )  (4 )
  Other income    2    8    (6 )  (75 )  2    9    (7 )  (78 )

    Total noninterest income    256    267    (11 )  (4 )  504    521    (17 )  (3 )

      Total revenue, net of interest expense    356    372    (16 )  (4 )  702    740    (38 )  (5 )
           
Provision for credit losses    6    -    6    -    8    5    3    60  
           
Salaries and employee benefits    120    111    9    8    237    227    10    4  
Other expense    95    99    (4 )  (4 )  194    186    8    4  

Total noninterest expense before  
  restructuring-related charges (reversals)    215    210    5    2    431    413    18    4  
Restructuring-related charges (reversals)    -    (1 )  1    N/M    -    (1 )  1    N/M  

  Total noninterest expense    215    209    6    3    431    412    19    5  

Income before income taxes    135    163    (28 )  (17 )  263    323    (60 )  (19 )
Applicable income taxes    50    60    (10 )  (17 )  98    119    (21 )  (18 )

  Net income (27)   $ 85   $ 103   $ (18 )  (17 )% $ 165   $ 204   $ (39 )  (19 )%

Memo-Consolidated gross insurance related revenues (28)   $ 118   $ 116   $ 2    2 % $ 235   $ 239   $ (4 )  (2 )%

FINANCIAL PERFORMANCE:  
Return on average common equity    34 %  41 %  (7 )%       34    41 %  (7 )%
Efficiency ratio    60    56    4         61    56    5  
Headcount    4,605    4,924    (319 )  (6 )%  4,605    4,924    (319 )  (6 )%

ENDING BALANCES:  
Loans   $ 6,842   $ 7,088   $ (246 )  (3 )%
  Commercial    3,277    3,378    (101 )  (3 )
  Consumer    3,565    3,710    (145 )  (4 )
           
Assets    8,504    8,475    29    -  
           
Demand deposits    3,015    2,398    617    26  
Savings    5,143    3,887    1,256    32  
Time    3,726    3,279    447    14  
Foreign offices    256    282    (26 )  (9 )

  Total deposits    12,140    9,846    2,294    23  
           
Equity    992    992    -    -  

AVERAGE BALANCES:  
Loans   $ 6,605   $ 6,997   $ (392 )  (6 )% $ 6,680   $ 6,990   $ (310 )  (4 )%
  Commercial    3,049    3,294    (245 )  (7 )  3,099    3,294    (195 )  (6 )
  Consumer    3,556    3,703    (147 )  (4 )  3,581    3,696    (115 )  (3 )
           
Assets    8,360    8,458    (98 )  (1 )  8,400    8,380    20    -  
           
Demand deposits    2,199    2,003    196    10    2,127    2,035    92    5  
Savings    5,122    4,044    1,078    27    5,010    3,897    1,113    29  
Time    3,575    3,298    277    8    3,536    3,295    241    7  
Foreign offices    184    222    (38 )  (17 )  171    208    (37 )  (18 )

  Total deposits    11,080    9,567    1,513    16    10,844    9,435    1,409    15  
           
Equity    992    992    -    -    992    992    -    -  

20


Investment Management – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs:  
  Commercial   $ 4   $ (1 ) $ 5    N/M   $ 5   $ 1   $ 4    N/M  
  Consumer    2    1    1    N/M    3    4    (1 )  (25 )

Total net charge-offs    6    -    6    -    8    5    3    60  
           
Annualized net charge-off ratios:  
  Commercial    0.52 %  (0.12) %  0.64 %    0.32 %  0.06 %  0.26 %
  Consumer    0.22  0.11  0.11    0.17  0.22  (0.05)
    Total net charge-off ratio    0.36  -  0.36    0.24  0.14  0.10
           
Nonperforming assets:  
  Commercial   $ 67   $ 33   $ 34    N/M
  Consumer    13    5    8    N/M

    Total nonperforming loans    80    38    42    N/M
  Other, including OREO    2    1    1    N/M

  Total nonperforming assets    82    39    43    N/M
           
Allowance for credit losses    40    25    15    60  
Allowance to period end loans    0.58 %  0.35 %  0.23 %
Allowance to nonperforming loans    50    66    (16 )
Nonperforming assets to related assets (11)    1.20  0.55  0.65

ASSETS UNDER MANAGEMENT  
  ENDING BALANCES:  
Mutual funds   $ 102,494   $ 90,220   $ 12,274    14 %
Other    68,395    55,767    12,628    23  

  Total assets    170,889    145,987    24,902    17  
           
By type:  
Money market    78,457    62,763    15,694    25  
Equity    40,584    42,165    (1,581 )  (4 )
Fixed income    51,848    41,059    10,789    26  

  Total assets    170,889    145,987    24,902    17  
           
By channel:  
Private client services    43,236    46,414    (3,178 )  (7 )
Retail brokerage    7,924    7,184    740    10  
Institutional    88,087    63,420    24,667    39  
Commercial cash sweep    7,949    9,199    (1,250 )  (14 )
Capital markets    3,049    3,736    (687 )  (18 )
External (29)    11,601    7,492    4,109    55  
All other direct (30)    9,043    8,542    501    6  

  Total assets    170,889    145,987    24,902    17  
           
Morningstar® Rankings:  
% of 4 and 5 ranked funds    53 %  51 %  2 %
% of 3+ ranked funds    91    91    -  

CORPORATE TRUST SECURITIES  
 ENDING BALANCES (in billions):  
Corporate trust securities  
  under administration   $ 1,013   $ 998   $ 15    2 %

PRIVATE CLIENT SERVICES:  
Number of private client advisors    634    668    (34 )  (5 )%
Number of private client offices    89    97    (8 )  (8 )
           
Total client assets-end of  
  period (31)   $ 64,270   $ 66,362   $ (2,092 )  (3 )
           
Ending balances  
  Loans    6,483    6,955    (472 )  (7 )
  Deposits    10,071    8,226    1,845    22  
           
Average balances  
  Loans    6,543    6,931    (388 )  (6 ) $ 6,629   $ 6,921   $ (292 )  (4 )%
  Deposits    9,752    8,361    1,391    17    9,549    8,181    1,368    17  

             For additional footnote detail see pages 8, 11 and 17.

  (26) Net interest income-FTE did not have material tax equivalent adjustments for the three or six months ended June 30, 2003 and 2002.
  (27) Net income before restructuring-related reversals was $102 million and $203 million for the three and six months ended June 30, 2002, respectively.
  (28) Includes insurance related revenues recorded in other lines of business.
  (29) Includes broker/dealers, trust companies, and registered investment advisors that sell, or offer, One Group funds.
  (30) One Group funds invested in other One Group funds and other mutual funds sub-advised.
  (31) Fiduciary, brokerage and other related assets (managed and non-managed).

21


Investment Management – continued

Quarterly Results

Investment Management net income totaled $85 million, a decline of $18 million, or 17%, reflecting a shift in mix of assets under management, deposit spread compression and higher operating costs.

        Assets under management increased $24.9 billion, or 17%, to $170.9 billion, reflecting strong money market and fixed income asset growth. Assets under management through the institutional and external channels increased $28.8 billion, or 41%, partially offset by a decline in Private Client Services’ assets under management of $3.2 billion, or 7%. One Group mutual funds assets increased 14% to $102.5 billion.

        Net interest income decreased 5% to $100 million. Deposit spread compression offset the continued strong average deposit growth of $1.5 billion, or 16%.

        Noninterest income declined 4% to $256 million. Despite positive overall net fund inflows, noninterest income was negatively impacted by the continued shift in assets under management from equities to money market and fixed income. Net outflows in Private Client Services and weak equity markets contributed to the shift in asset mix.

        Noninterest expense increased 3% to $215 million, reflecting higher compensation expense. Salaries and benefits increased despite an overall decline in headcount, due to higher benefit costs and a change in the skill mix of the employee base.

        The provision for credit losses was $6 million, up $6 million from a year ago, reflecting deterioration in credit quality of certain large loans and the absence of recoveries that occurred in the second quarter 2002.

Year-to-Date Results

Investment Management reported year-to-date net income of $165 million, down $39 million, or 19%, driven by lower revenue, higher provision for credit losses, and increased operating expenses.

        Year-to-date total revenue, net of interest expense decreased $38 million, or 5%, to $702 million, primarily due to deposit spread compression, and a shift in asset mix from equities to money market and fixed income.

        Non-interest expense was $431 million, an increase of $19 million, or 5%, reflecting higher operating costs, and higher salary-related costs due to a change in the skill mix of the employee base.

        The provision for credit losses was $8 million, an increase of $3 million, or 60%, reflecting deterioration in credit quality of certain large loans, and the absence of recoveries which occurred in the second quarter of 2002.

22


Corporate
Corporate includes treasury activities, investment portfolios, non-core portfolios transferred from the Retail line of business, other unallocated corporate expenses, and any gains or losses from corporate transactions. Information related to the non-core portfolios is included in the table below. See page 26 for financial information for the non-core portfolios on a stand-alone basis.

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002 (1)
Amount
Percent
2003
2002 (1)
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income (expense)-FTE (3) (32) (33)   $ (63 ) $ 59   $ (122 )  N/M   $ (132 ) $ 181   $ (313 )  N/M  
  Banking fees and commissions (4)    (30 )  (6 )  (24 )  N/M    (47 )  (13 )  (34 )  N/M  
  Credit card revenue (5)    -    2    (2 )  N/M    1    1    -    -  
  Service charges on deposits (6)    (2 )  3    (5 )  N/M    (3 )  6    (9 )  N/M  
  Fiduciary and investment management fees    8    4    4    N/M    16    6    10    N/M  
  Investment securities gains    154    97    57    59    223    79    144    N/M  
  Trading (losses)    (1 )  (7 )  6    86    (14 )  (16 )  2    13  
  Other income    37    43    (6 )  (14 )  70    97    (27 )  (28 )

    Total noninterest income (34)    166    136    30    22    246    160    86    54  

      Total revenue, net of interest expense    103    195    (92 )  (47 )  114    341    (227 )  (67 )
                                           
Provision for credit losses    155    108    47    44    244    251    (7 )  (3 )
                                           
Salaries and employee benefits    246    208    38    18    496    399    97    24  
Other expense    (42 )  77    (119 )  N/M    (125 )  26    (151 )  N/M  

Total noninterest expense before  
  restructuring-related charges (reversals)    204    285    (81 )  (28 )  371    425    (54 )  (13 )
Restructuring-related charges (reversals)    -    (21 )  21    N/M    -    (21 )  21    N/M  

  Total noninterest expense (35)    204    264    (60 )  (23 )  371    404    (33 )  (8 )

Loss before income tax benefit    (256 )  (177 )  (79 )  (45 )  (501 )  (314 )  (187 )  (60 )
Applicable income tax benefit    (126 )  (91 )  (35 )  (38 )  (249 )  (168 )  (81 )  (48 )

  Net loss (36)   $ (130 ) $ (86 ) $ (44 )  (51 )% $ (252 ) $ (146 ) $ (106 )  (73 )%

FINANCIAL PERFORMANCE:  
Headcount    14,762    14,290    472    3 %

ENDING BALANCES:  
Non-core portfolios   $ 11,991   $ 18,483   $ (6,492 )  (35 )%
Other loans    180    459    (279 )  (61 )

  Total loans (37)    12,171    18,942    (6,771 )  (36 )
                                           
Assets    82,236    82,110    126    -  
Memo-  
  Treasury investments (38)    45,258    38,381    6,877    18  
  Principal investments (39)    2,602    2,437    165    7  
                                           
Deposits    11,439    14,827    (3,388 )  (23 )
                                           
Equity    2,721    2,071    650    31  

AVERAGE BALANCES:  
Non-core portfolios   $ 12,758   $ 19,294   $ (6,536 )  (34 )% $ 13,600   $ 20,093   $ (6,493 )  (32 )%
Other loans    243    467    (224 )  (48 )  265    484    (219 )  (45 )

  Loans    13,001    19,761    (6,760 )  (34 )  13,865    20,577    (6,712 )  (33 )
                                           
Assets    70,441    67,456    2,985    4    70,539    68,766    1,773    3  
                                           
Deposits    11,837    14,287    (2,450 )  (17 )  12,388    15,035    (2,647 )  (18 )
                                           
Equity    2,926    2,098    828    39    3,005    1,736    1,269    73  

23


Corporate – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002 (1)
Amount
Percent
2003
2002 (1)
Amount
Percent
CREDIT QUALITY:                                    
Net Charge-offs:  
Non-core portfolios   $ 83   $ 108   $ (25 )  (23 )% $ 185   $ 237   $ (52 )  (22 )%
Other loans    -    -    -    -    -    15    (15 )  N/M  

  Total loans    83    108    (25 )  (23 )  185    252    (67 )  (27 )
                                           
Non-core portfolios net charge-off ratio    2.60 %  2.24 %  0.36 %    2.72 %  2.36 %  0.36 %
                                           
Nonperforming assets:  
Non-core portfolios   $ 712   $ 803   $ (91 )  (11 )%
Other loans    7    42    (35 )  (83 )

  Total loans    719    845    (126 )  (15 )
  Other including OREO    3    5    (2 )  (40 )

    Total nonperforming assets (40)    722    850    (128 )  (15 )
                                           
Allowance for credit losses    398    345    53    15  
Allowance to period end loans (37)    3.27 %  1.82 %  1.45 %
Allowance to nonperforming loans (40)    56    41    15  
Nonperforming assets to related assets    5.93  4.49  1.44

             For additional footnote detail see pages 8, 11, 17 and 21.

  (32) Net interest income (expense)-FTE includes tax equivalent adjustments of $9 million and $8 million for the three months ended June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002, tax equivalent adjustments were $17 million.
  (33) Net interest income (expense)-FTE primarily includes treasury results and interest spread on investment related activities.
  (34) Noninterest income primarily includes the gains and losses from investment activities and other corporate transactions.
  (35) Noninterest expense primarily includes corporate expenses not allocated to the lines of business.
  (36) Net loss before merger and restructuring-related reversals, net of $8 million tax, was $99 million and $159 million for the three and six months ended June 30, 2002, respectively.
  (37) Loans include loans held for sale of $18 million and $26 million at June 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (38) Treasury investments may include U.S. government and agency debt securities, mortgage and other asset-backed securities and other fixed income investments.
  (39) Principal investments include primarily private equity investments and venture capital fund investments.
  (40) Nonperforming loans include loans held for sale of $3 million and $1 million at June 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.

Quarterly Results

Including Non-core Portfolios

Corporate net loss totaled $130 million, compared with a net loss of $99 million (excluding the $13 million after-tax benefit from a restructuring charge reversal in the prior year).

Excluding Non-core Portfolios

Net interest expense was $166 million, an increase of $68 million over the prior year. In 2002, the Corporation extended liability duration and repositioned the treasury investment portfolio in order to position the balance sheet more defensively for rising interest rates.

        Net securities gains from treasury activities and the investment portfolios were $154 million, compared to net securities gains of $97 million. The prior year included the $261 million gain on the sale of the GE Monogram joint venture. Valuation adjustments included in each period’s net securities gains were primarily a result of changes in the value of the publicly traded equity market, the interest rate environment and economic conditions.

        Corporate expenses were $154 million, compared to $236 million (excluding the $21 million pre-tax benefit from a restructuring charge reversal in the prior year). Corporate expenses for the second quarter of 2002 include $89 million of expenses for the termination of certain vendor contracts, renegotiation of others and the bringing in-house of various network, technology and programming functions.

24


Corporate – continued

Non-core Portfolios

Net interest income related to the non-core portfolios was $103 million, down $54 million from the prior year, primarily due to the continued liquidation of these portfolios. Provision for credit losses was $156 million, including $85 million that was added to the allowance for credit losses. The provision for credit losses increased $48 million, primarily reflecting the change in the overall risk profile of these portfolios. The net charge-off ratio increased to 2.60% from 2.24%.

        Noninterest expense for the non-core portfolios remained relatively unchanged at $50 million.

Year-to-Date Results

Including Non-core Portfolios

Corporate net loss totaled $252 million, compared with a net loss of $159 million (excluding the $13 million after-tax benefit from a restructuring charge reversal in the prior year).

Excluding Non-core Portfolios

Net interest expense was $349 million, an increase of $208 million. In 2002, the Corporation extended liability duration and repositioned the treasury investment portfolio in order to position the balance sheet more defensively for rising interest rates.

        Net securities gains from Treasury activities and the investment portfolios were $223 million, compared to net securities gains of $79 million. The prior year included the $261 million gain on the sale of the GE Monogram joint venture. Valuation adjustments included in each period’s net securities gains were primarily a result of changes in the value of the publicly traded equity market, the interest rate environment and economic conditions.

        Corporate expenses were $274 million, compared to $323 million (excluding the $21 million pre-tax benefit from a restructuring charge reversal). Corporate expenses for the second quarter of 2002 included $89 million of expenses for the termination of certain vendor contracts, renegotiation of others and the bringing in-house of various network, technology and programming functions.

Non-core Portfolios

Net interest income related to the non-core portfolios was $217 million, down $105 million, primarily due to the continued liquidation of these portfolios. Provision for credit losses for the six-month period was $245 million, including $85 million that was added to the allowance for credit losses. The increase primarily reflects the change in the overall risk profile of these portfolios.

        Noninterest expense for the non-core portfolios was $97 million compared to $102 million, remaining relatively unchanged.

25


Non-core Portfolios
The following table presents financial information for the non-core portfolios which were transferred from the Retail line of business to the Corporate line of business. This information is reflected in the Corporate line of business financial information.

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002 (26)
Amount
Percent
2003
2002 (26)
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (3)   $ 103   $ 157   $ (54 )  (34 )% $ 217   $ 322   $ (105 )  (33 )%
Noninterest income (loss)    (5 )  -    (5 )  -    (5 )  -    (5 )  -  

  Total revenue, net of interest expense    98    157    (59 )  (38 )  212    322    (110 )  (34 )
                                           
Provision for credit losses    156    108    48    44    245    236    9    4  
                                           
Salaries and employee benefits    4    4    -    -    9    9    -    -  
Other expense    46    45    1    2    88    93    (5 )  (5 )

  Total noninterest expense    50    49    1    2    97    102    (5 )  (5 )

Loss before income tax benefit    (108 )  -    (108 )  -    (130 )  (16 )  (114 )  N/M  
Applicable income tax benefit    (39 )  -    (39 )  -    (47 )  (5 )  (42 )  N/M  

  Net loss   $ (69 ) $ -   $ (69 )  - % $ (83 ) $ (11 ) $ (72 )  N/M  

FINANCIAL PERFORMANCE:  
Return on equity    (20 )%  0 %  (20 )%    (12 )%  (2 )%  (10 )%
Efficiency ratio    51    31    20      46  32  14
Headcount    107    359    (252 )  (70 )%

ENDING BALANCES:  
Small business commercial   $ 39   $ 391   $ (352 )  (90 )%
Home equity    9,085    12,874    (3,789 )  (29 )
Vehicle loans and leases    2,433    4,723    (2,290 )  (48 )
Other personal loans    434    495    (61 )  (12 )

  Total Loans (1)    11,991    18,483    (6,492 )  (35 )
                                           
Equity    1,415    1,415    -    -  

AVERAGE BALANCES:  
Small business commercial   $ 54   $ 429   $ (375 )  (87 )% $ 76   $ 443   $ (367 )  (83 )%
Home equity    9,575    13,330    (3,755 )  (28 )  10,077    13,742    (3,665 )  (27 )
Vehicle loans and leases    2,652    4,999    (2,347 )  (47 )  2,945    5,367    (2,422 )  (45 )
Other personal loans    477    536    (59 )  (11 )  502    541    (39 )  (7 )

  Total Loans (1)    12,758    19,294    (6,536 )  (34 )  13,600    20,093    (6,493 )  (32 )
Equity    1,415    1,415    -    -    1,415    1,415    -    -  

CREDIT QUALITY:  
Net charge-offs  
  Small business commercial   $ 12   $ 5   $ 7    N/M   $ 25   $ 5   $ 20    N/M  
  Home equity    60    83    (23 )  (28 )  133    182    (49 )  (27 )
  Vehicle loans and leases    11    15    (4 )  (27 )  27    45    (18 )  (40 )
  Other personal loans    -    5    (5 )  N/M    -    5    (5 )  N/M  

    Total net charge-offs    83    108    (25 )  (23 )  185    237    (52 )  (22 )
                                           
Annualized net charge-off ratios:  
  Small business commercial    88.89 %  4.66 %  84.23 %    65.79 %  2.26 %  63.53 %
  Home equity    2.51  2.49  0.02    2.26  1.98  0.28
  Vehicle loans and leases    1.66  1.20  0.46    -  -  -
  Other personal loans    -    3.73  (3.73)    -  1.85  (1.85)

    Total net charge-offs    2.60  2.24  0.36    2.72  2.36  0.36

Nonperforming assets:  
  Commercial   $ 73   $ 30   $ 43    N/M
  Consumer    639    773    (134 )  (17 )

    Total nonperforming loans    712    803    (91 )  (11 )
                                           
Allowance for credit losses    395    341    54    16  
Allowance to period end loans    3.30 %  1.85 %  1.45 %
Allowance to nonperforming loans    56    43    13  
Nonperforming assets to related assets    5.94  4.34  1.60

26


BALANCE SHEET ANALYSIS
(All comparisons are to December 31, 2002, unless otherwise specified.)

Investment securities totaled $75.2 billion compared with $67.6 billion. This increase of $7.6 billion, or 11%, was driven by an increase of $8.5 billion, or 24%, in U.S. government agencies and an increase of $2.5 billion, or 65%, in U.S. Treasuries. These increases reflected the repositioning of the treasury investment portfolio in order to position the balance sheet more defensively for rising interest rates. Partially offsetting these increases was a decrease of $4.1 billion, or 17%, in retained interests in securitized credit card receivables.

        The Corporation’s loan portfolio was $144.6 billion compared with $148.1 billion, a decrease of $3.5 billion. Commercial Banking loans totaled $57.8 billion compared to $61.9 billion, a decrease of $4.1 billion, or 7%. Commercial Banking loan volume declines reflected decreased demand for financing as well as certain customers supporting their funding through public debt issuance. The non-core portfolios included in the Corporate line of business totaled $12.2 billion, a decrease of $3.2 billion, or 21%. This decrease reflected the run off of the non-core portfolios. Partially offsetting these decreases were higher loan balances in Card Services and Retail. Card Services loans totaled $14.1 billion compared to $11.6 billion, an increase of $2.5 billion, or 22%. During the quarter, 1.8 million net credit card accounts were opened, which includes originations, acquisitions and sales. Retail loans totaled $53.7 billion compared with $52.3 billion, an increase of $1.4 billion, or 3%, due primarily to growth in home equity loans.

        Total deposits were $172 billion compared to $170 billion, an increase of $2 billion. Savings deposits totaled $95.2 billion compared to $88.9 billion, an increase of $6.3 billion, or 7%. Offsetting this increase was a decrease in time deposits of $4.5 billion, or 15%, primarily resulting from the reduced interest rate environment.

        Other liabilities increased $5 billion, to $16 billion, due to an increase in accounts payable resulting from unsettled investment securities trades made as part of the continuing repositioning of the treasury investment portfolio.

        Treasury stock increased $1.2 billion, reflecting the impact of repurchasing over 39 million shares of the Corporation’s stock under the previous $2 billion stock repurchase program. See page 45 for additional information on the stock repurchase program.

RISK MANAGEMENT

Risk is an inherent part of the Corporation’s business activity. The Corporation’s ability to properly and effectively identify, measure, monitor, and report risk in its business activities is critical to its soundness and profitability. The diversity of the Corporation’s lines of business helps reduce the impact of volatility in any particular area on its operating results as a whole.

Risk Types
There are seven major risk types identified by the Corporation:

The following discussion of the Corporation’s risk management process focuses primarily on developments since December 31, 2002. The Corporation’s risk management processes for credit, liquidity, market and operational risks have not

27


substantially changed from year-end and are described in detail in the Corporation’s 2002 Annual Report, beginning on page 56.

LIQUIDITY RISK MANAGEMENT

At June 30, 2003, the Corporation and its principal banks had the following long- and short-term debt ratings:


Short-Term Debt
Senior Long-Term Debt
S & P
Moody's
Fitch
S & P
Moody's
Fitch
The Corporation (parent)   A-1   P-1   F-1     A     Aa3   A+  
Principal banks  A-1  P-1  F-1+  A+  Aa2  AA- 

MARKET RISK MANAGEMENT

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices and credit spreads in market risk sensitive instruments. Market risk arises in both trading and non-trading portfolios. The section on “Market Risk Management-Nontrading Activities” in the Corporation’s 2002 Annual Report on pages 61-62 provides an overview of our approach to managing market risks arising from non-trading portfolios. In these asset and liability management activities, policies are in place to closely manage structural interest rate risk. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Note 23, “Fair Value of Financial Instruments” in the Corporation’s 2002 Annual Report on pages 103-105.

Market Risk Management — Trading Activities
Through its trading activities, the Corporation strives to take advantage of profit opportunities due to changes in interest rates, exchange rates, equity prices, commodity prices and credit spreads. The Corporation’s trading activities are primarily customer-oriented. For example, cash instruments are bought and sold to satisfy customers’ investment needs. Derivative contracts are initially entered into to meet the risk management needs of customers. The Corporation enters into subsequent transactions to manage the level of risk in accordance with approved limits. In order to accommodate customers, an inventory of capital markets instruments is carried, and access to market liquidity is maintained by providing bid-offer prices to other market makers. The Corporation may also take proprietary trading positions in various capital markets cash instruments and derivatives, and these positions are designed to profit from anticipated changes in market factors. Activity is focused in OECD (Organisation for Economic Cooperation and Development) markets, with very little activity in emerging markets.

        Many trading positions are kept open for brief periods of time, often less than one day. Other positions may be held for longer periods. Trading positions are carried at estimated fair value, with realized and unrealized gains and losses included in noninterest income as trading income.

Value-At-Risk

        For trading portfolios, value-at-risk measures the maximum fair value the Corporation could be reasonably expected to lose on a trading position, given a specified confidence level and time horizon. Value-at-risk limits and exposure are monitored daily for each significant trading portfolio. Value-at-risk is not calculated for credit derivatives used to hedge specific credits in the loan portfolio. However, stress testing is regularly performed for these credit derivative positions. See discussion of credit derivatives under the “Trading Derivative Instruments” section in the Corporation’s 2002 Annual Report on page 72. Likewise, value-at-risk calculations do not include the principal investments portfolio, which is carried at fair value with realized and unrealized gains and losses primarily reported in income. However, foreign exchange exposures that arise from the principal investments portfolio are included in the value-at-risk calculations.

        The Corporation applies a statistical model to its portfolios of cash and derivative positions, including options, to calculate value-at-risk. The variance-covariance model estimates the volatility of returns on individual assets, as well as the correlation of changes of asset price pairs. These volatility and correlation estimates are made on the basis of one-year, equally-weighted historical observations of market variables. The model then computes the volatility of changes in the market values of the portfolios (i.e., the value-at-risk results) by applying each portfolio’s statistical sensitivities to the correlations.

        The Corporation’s value-at-risk calculation measures potential losses in fair value using a 99% confidence level and a one-day time horizon. This equates to 2.33 standard deviations from the mean under a normal distribution. This means that, on average, daily profits and losses are expected to exceed value-at-risk one out of every one hundred overnight trading days.

28


        The value-at-risk in the Corporation’s trading portfolio was as follows (excluding credit derivatives used to hedge specific credits in the loan portfolio with a net notional amount of $5.3 billion and $7.7 billion at June 30, 2003 and March 31, 2003, respectively):

Second Quarter 2003
(In millions)
June 30, 2003
Average
High
Low
March 31, 2003
High Volume Capital Markets Trading                        
  Portfolios and Mortgage Pipeline (1)  
Risk type:  
  Interest rate   $ 9   $ 7   $ 11   $ 4   $ 6  
  Commodity price    -    -    -    -    -  
  Currency exchange rate    -    -    1    -    -  
  Equity    1    -    1    -    -  
  Diversification benefit    -    -    -    -    -  




 




         


    Total    10    7    11    4    6  
   
Other Trading Portfolios  
Risk type:  
  Interest rate    6    6    6    6    4  
  Currency exchange rate    4    4    4    4    N/A *









         


Aggregate trading portfolio market risk   $ 20   $ 17   $ 21   $ 15   $ 10  

  (1)      Subject to backtesting.
  *      Not previously captured in value-at-risk calculation.

        Interest rate risk was the predominant type of market risk to which the Corporation was exposed during the second quarter of 2003. At June 30, 2003, approximately 75% of primary market risk exposures were related to interest rate risk. Currency exchange rate and equity risks accounted for 20% and 5%, respectively, of primary market risk exposures. Commodity risk exposure was immaterial.

        At June 30, 2003, aggregate portfolio market risk exposures were 100% higher than at March 31, 2003. Sixty percent of the increase was due to increased aggregate market risk exposures in trading books that were included in the March 31, 2003 value-at-risk calculation. Forty percent of the increase was due to the inclusion of foreign exchange exposures in the principal investments portfolio that had not previously been captured in the value-at-risk calculation.

        Value-at-risk levels are regularly backtested to validate the model by comparing predictions with actual results. For the three months ended June 30, 2003, backtesting results for the high volume capital markets portfolios and the mortgage pipeline appear in the following graph:

Value at Risk Table

29


        These backtesting results reflect only the higher-volume trading portfolios that are actively managed and marked-to-market on a daily basis (i.e., the capital markets trading portfolios and the mortgage pipeline in the consumer lending business). Based on a 99% confidence interval in predicting actual profit or loss, the Corporation would expect actual profit or loss to exceed value-at-risk one day for every one hundred days. As shown in the graph above, there were no days during the second quarter where the actual loss exceeded the calculated value-at-risk. The Corporation’s value-at-risk measure provides a conservative measure of the level of market risk.

Market Risk Management — Non-Trading Activities
Interest rate risk exposure in the Corporation’s core non-trading business activities, (i.e., asset/liability management (“ALM”) position), is a result of reprice, option, and basis risks associated with on- and off-balance sheet positions. Reprice risk represents timing mismatches in the Corporation’s ability to alter contractual rates earned on financial assets or paid on liabilities in response to changes in market interest rates. Basis risk refers to the potential for change in the underlying relationship between market rates or indices, which subsequently result in a narrowing of the spread earned on a loan or investment relative to its cost of funds. Option risk arises from “embedded options” present in many financial instruments such as interest rate options, loan prepayment options and deposit early withdrawal options. These provide customers and investors opportunities to take advantage of directional changes in rates, which could have an adverse impact on the Corporation’s margin performance. Embedded options are complex risk positions that are difficult to predict and offset, and are a significant component of the interest rate risk exposure for the Corporation.

        Based on immediate parallel shocks, the Corporation’s earnings at-risk to falling interest rates, versus base-case, was relatively unchanged in comparison to the first quarter. The measured benefit to rising rates has declined. The Corporation’s 12-month pretax earnings sensitivity profile was as follows:

Immediate Change in Rates
(In millions)
+200 bp
+100 bp
-50 bp
June 30, 2003     $ 110   $ 142   $ (234 )

March 31, 2003    281    242    (227 )

        The decrease in measured benefit from rising interest rates reflects management’s decision to position the balance sheet for a more prolonged period of stable rates, while maintaining a defensive bias against an increase in interest rates. The change in risk was accomplished by repositioning the investment portfolio and shortening the duration of certain wholesale liabilities. At June 30, 2003, given the current rate environment, a –100 bp interest rate change could result in negative or near zero interest rates, as a result the –100 bp change has not been included. At March 31, 2003, a –100 bp change in rates resulted in a 12-month pretax earnings sensitivity of ($450) million.

CREDIT PORTFOLIO COMPOSITION

Selected Statistical Information
The significant components of creditrisk and the related ratios for the periods indicated were as follows:

(Dollars in millions)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

Loans outstanding     $ 144,583   $ 144,747   $ 148,125   $ 150,389   $ 147,728  
Average loans    144,635    146,419    150,531    148,152    149,674  
                            
Nonperforming loans (1)    3,062    3,199    3,276    3,521    3,720  
Other, including other real estate owned    245    254    251    214    204  

  Nonperforming assets    3,307    3,453    3,527    3,735    3,924  
                            
Allowance for credit losses    4,498    4,526    4,525    4,518    4,521  
Net charge-offs    489    495    622    573    607  
Nonperforming assets to related assets (2)    2.28 %  2.38 %  2.38 %  2.48 %  2.65 %
Allowance to period end loans    3.35    3.31    3.20    3.17    3.19  
Allowance to nonperforming loans    147    142    139    132    125  
Annualized net charge-offs to average loans    1.35    1.35    1.65    1.55    1.62  
Allowance to annualized net charge-offs    230    229    182    197    186  

  (1) Includes loans held for sale of $11 million, $22 million, $22 million, $93 million and $107 million at June 30, 2003, March 31, 2003, December 31, 2002, September 30, 2002 and June 30, 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (2) Related assets consist of loans outstanding, including loans held for sale, and other real estate owned.

30


Loan Composition
The Corporation’s loan portfolios at the periods indicated were as follows:

June 30, 2003
March 31, 2003
December 31, 2002
September 30, 2002
June 30, 2002
(Dollars in millions)
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Retail: (1)                                            
  Small business commercial   $ 9,775    7 % $ 9,672    7 % $ 9,634    7 % $ 9,565    6 % $ 9,568    6 %
  Home equity    23,715    16    21,543    15    20,702    14    18,549    12    16,825    11  
  Vehicle    13,313    9    13,627    9    14,012    9    14,295    10    13,583    9  
  Other personal    6,902    5    7,393    5    7,956    5    8,305    6    7,733    6  

    Total Retail    53,705    37    52,235    36    52,304    35    50,714    34    47,709    32  
Commercial Banking:  
 Corporate banking:  
  Commercial and industrial    15,309    11    16,679    12    17,866    12    17,388    12    17,912    12  
  Commercial real estate    8,228    6    8,414    6    8,321    6    8,557    6    8,433    6  
  Lease financing    4,177    3    4,250    3    4,358    3    4,693    3    4,758    3  
  Other    1,605    -    553    -    1,014    -    514    -    670    -  

    Total corporate  
     banking    29,319    20    29,896    21    31,559    21    31,152    21    31,773    21  
 Middle market:  
  Commercial and industrial    25,346    18    26,199    18    26,983    18    28,086    18    29,337    20  
  Commercial real estate    2,128    1    2,150    1    2,318    2    2,353    2    2,421    2  
  Lease financing    923    1    943    1    1,008    1    1,039    1    1,092    1  
  Other    59    -    269    -    27    -    361    -    251    -  

    Total middle market    28,456    20    29,561    20    30,336    21    31,839    21    33,101    23  

      Total Commercial  
       Banking    57,775    40    59,457    41    61,895    42    62,991    42    64,874    44  
Card Services    14,090    10    12,387    9    11,581    8    11,924    8    9,115    6  
IMG    6,842    5    6,718    5    6,946    5    7,131    5    7,088    5  
Corporate (1)    12,171    8    13,950    9    15,399    10    17,629    11    18,942    13  

  Total loans   $ 144,583    100 % $ 144,747    100 % $ 148,125    100 % $ 150,389    100 % $ 147,728    100 %


  (1) Prior period amounts have been reclassified for the transfer of the non-core portfolios from the Retail line of business to the Corporate line of business. See page 6 for a discussion of this transfer.

        Loans held for sale, which are classified as loans, are carried at lower of cost or fair value, totaled $10.2 billion, $7.9 billion, $6.9 billion, $7.9 billion and $5.8 billion at June 30, 2003, March 31, 2003, December 31, 2002, September 30, 2002 and June 30, 2002, respectively. At June 30, 2003, loans held for sale included Card Services loans of $7.8 billion, Retail loans of $2.1 billion and Commercial Banking loans of $327 million (of which approximately $6 million were included in nonperforming loans).

31


Commercial and Industrial Loans
At June 30, 2003, commercial and industrial loans totaled $40.7 billion, which represents 70% of the Commercial Banking portfolio.

        The more significant borrower industry concentrations of the Commercial Banking commercial and industrial portfolio for the periods indicated were as follows:

June 30, 2003
March 31, 2003
December 31, 2002
(Dollars in millions)
Outstanding
Percent (1)
Outstanding
Percent (1)
Outstanding
Percent (1)
Motor vehicles and parts/auto related     $ 3,499    8.6 % $ 4,025    9.4 % $ 3,990    8.9 %
Wholesale trade    2,955    7.3    3,499    8.2    3,558    7.9  
Oil and gas    2,219    5.5    2,738    6.4    3,069    6.8  
Industrial materials    1,945    4.8    2,338    5.4    2,471    5.5  
Business finance and leasing    1,934    4.7    2,132    5.0    2,222    5.0  
Other (2)    28,103    69.1    28,146    65.6    29,539    65.9  

Total   $ 40,655    100 % $ 42,878    100 % $ 44,849    100 %

  (1)     Total outstanding by industry concentration as a percentage of total commercial and industrial loans.
  (2)     Presented for informational purposes and includes 36 industry concentrations.

32


Commercial Real Estate
Commercial real estate loans represent credit extended for real estate related purposes to borrowers or counterparties who are primarily in the real estate development or investment business and for which the primary source of repayment of the loan is from the sale, lease, rental, management, operations or refinancing of the property. At June 30, 2003, commercial real estate loans totaled $10.4 billion, which represented 18% of the Commercial Banking portfolio.

        Commercial real estate lending is conducted in several lines of business with the majority of these loans originated by corporate banking primarily through its specialized National Commercial Real Estate Group. This group’s focus is lending to targeted regional and national real estate developers and homebuilders. As of June 30, 2003, National Commercial Real Estate Group’s loan outstandings totaled $8.1 billion, or 79% of the commercial real estate portfolio.

        The commercial real estate loan portfolio by both collateral location and property type for the periods indicated were as follows:

(Dollars in millions)
June 30, 2003
March 31, 2003
December 31, 2002
By Collateral Location:
Amount
Percent of
Portfolio

Amount
Percent of
Portfolio

Amount
Percent of
Portfolio

California     $ 1,072    10 % $ 1,047    10 % $ 1,109    10 %
Michigan    1,062    10    1,147    11    1,118    11  
Illinois    897    9    943    9    1,088    10  
Texas    856    8    845    8    824    8  
Ohio    813    8    839    8    848    8  
Arizona    598    6    709    7    741    7  
Kentucky    350    3    347    3    369    3  
Louisiana    342    3    363    3    376    3  
Indiana    324    3    349    3    363    3  
Colorado    257    3    260    3    288    3  
Other areas    1,465    14    1,530    14    1,563    15  
Unsecured    1,544    15    1,363    13    1,341    13  
Secured by other than  
  commercial real estate    776    8    822    8    611    6  

    Total commercial real estate   $ 10,356    100 % $ 10,564    100 % $ 10,639    100 %

By Property Type:  
Apartment   $ 1,754    17 % $ 1,845    18 % $ 1,854    17 %
Retail    1,591    15    1,798    17    1,762    17  
Office    1,737    17    1,658    16    1,738    16  
Industrial/warehouse    1,100    11    1,192    11    1,161    11  
Single family residential  
  development    1,253    12    1,184    11    1,137    11  
Residential lots    579    6    539    5    543    5  
Hotels    517    5    517    5    560    5  
Other commercial  
  income producing    1,664    16    1,696    16    1,758    17  
Other residential  
  developments    161    1    135    1    126    1  

    Total commercial real estate   $ 10,356    100 % $ 10,564    100 % $ 10,639    100 %

33


ASSET QUALITY

Nonperforming Assets
The Corporation places loans on nonaccrual status as follows:

              The Corporation’s nonperforming assets for the periods indicated were as follows:

(Dollars in millions)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

Nonperforming loans:                        
  Retail (1)   $ 570   $ 558   $ 535   $ 577   $ 540  
  Commercial Banking:  
    Corporate banking    705    814    873    1,010    1,161  
    Middle market banking    988    947    1,001    1,030    1,136  

      Total Commercial Banking    1,693    1,761    1,874    2,040    2,297  
  IMG    80    81    71    47    38  
  Corporate (1)    719    799    796    857    845  

    Total nonperforming loans (2)    3,062    3,199    3,276    3,521    3,720  
Other, including other real estate owned    245    254    251    214    204  

  Total nonperforming assets   $ 3,307   $ 3,453   $ 3,527   $ 3,735   $ 3,924  

Nonperforming assets to related assets (3)    2.28 %  2.38 %  2.38 %  2.48 %  2.65 %
Loans 90-days or more past due and  
  accruing interest:  
    Card Services   $ 209   $ 161   $ 160   $ 132   $ 112  
    Other    -    -    1    -    -  

      Total loans   $ 209   $ 161   $ 161   $ 132   $ 112  


  (1) Prior period amounts have been reclassified for the transfer of the non-core portfolios from the Retail line of business to the Corporate line of business. See page 6 for a discussion of this transfer.
  (2) Nonperforming loans include loans held for sale of $11 million, $22 million, $22 million, $93 million and $107 million at June 30, 2003, March 31, 2003, December 31, 2002, September 30, 2002 and June 30, 2002, respectively.
  (3) Related assets consist of loans outstanding, including loans held for sale, and other real estate owned.

        In general, credit quality continued to improve during the second quarter as nonperforming loans declined $137 million from the prior quarter, driven primarily by a $109 million decline in corporate banking nonperforming loans. The 13% decline in corporate banking was a result of both an improving economic environment and risk management actions, including loan sales and management of individual credits, which has led to pay-offs, pay-downs and restructurings. Middle market nonperforming loans increased 4%, but this increase was not attributable to any particular industry or segment.

        The Corporation has established processes for identifying potential problem areas of the portfolio, which currently include commercial exposure to auto-related, airlines and the risk profile of non-core portfolios. The Corporation will continue to monitor and manage these potential risks. Concern remains for rising bankruptcy trends and the potential effect on the consumer portfolios.

        Nonperforming loans within Retail at June 30, 2003 were $570 million, an increase of $12 million from the prior quarter. This increase was primarily driven by increases in small business commercial loans, reflecting continued general economic weakness. Overall residential real estate nonperforming loans continue to improve as foreclosure inventories continue to decline. Home equity loans are written down to net realizable value once a loan reaches 120 days delinquency. Due to the time necessary to complete foreclosure and acquire title, real estate loans remain in nonperforming status for an extended period. Corporate line of business nonperforming loans at June 30, 2003 totaled $719 million and included $712 million of nonperforming loans from the non-core portfolio.

34


Charge-offs
The Corporation records charge-offs as follows:

             The Corporation’s net charge-offs for the quarterly periods indicated were as follows:


June 30, 2003
March 31, 2003
December 31, 2002
(Dollars in millions)
Net charge-offs
Average balance
Annualized net charge-off rate
Net charge-offs
Average balance
Annualized net charge-off rate
Net charge-offs
Average balance
Annualized net charge-off rate
Retail (1)     $ 113   $ 52,893    0.85 % $ 102   $ 52,610    0.78 % $ 134   $ 51,683    1.04 %
Commercial Banking:  
  Corporate banking    63    29,222    0.86    81    30,405    1.07    148    31,508    1.88  
  Middle market banking    42    28,824    0.58    47    29,551    0.64    54    30,693    0.70  

    Total Commercial                                      
    Banking    105    58,046    0.72    128    59,956    0.85    202    62,201    1.30  
Card Services    182    14,090    5.17    161    12,364    5.24    168    13,325    5.05  
IMG    6    6,605    0.36    2    6,755    0.12    13    7,005    0.74  
Corporate (1)    83    13,001    2.55    102    14,734    2.77    105    16,317    2.57  

    Total   $ 489   $ 144,635    1.35 % $ 495   $ 146,419    1.35 % $ 622   $ 150,531    1.65 %

September 30, 2002
June 30, 2002
(Dollars in millions)



Net charge-offs
Average balance
Annualized net charge-off rate
Net charge-offs
Average balance
Annualized net charge-off rate
Retail (1)           $ 117   $ 49,110    0.95 % $ 107   $ 47,446    0.90 %
Commercial Banking:  
  Corporate banking                160    31,600    2.03    168    33,322    2.02  
  Middle market banking                77    32,084    0.96    106    33,689    1.26  

    Total Commercial                                      
Banking                237    63,684    1.49    274    67,011    1.64  
Card Services                131    10,523    4.99    118    8,459    5.58  
IMG                2    6,955    0.12    -    6,997    -  
Corporate (1)                86    17,880    1.92    108    19,761    2.19  

    Total         $ 573   $ 148,152    1.55 % $ 607   $ 149,674    1.62 %

  (1) Prior period amounts have been reclassified for the transfer of the non-core portfolios from the Retail line of business to the Corporate line of business. See page 6 for a discussion of this transfer.

        Net charge-offs decreased 1% during the second quarter of 2003 to $489 million. The net charge-off ratio remained unchanged at 1.35% in the second quarter of 2003 from the first quarter of 2003.

        Retail net charge-offs in the second quarter of 2003 totaled $113 million, up from $102 million in the first quarter of 2003. This increase reflected higher net charge-offs primarily in tax-refund anticipation and small business loans.

        Commercial Banking net charge-offs in the second quarter of 2003 totaled $105 million, down from $128 million in the first quarter of 2003, reflecting continued benefits from managements’ actions taken during 2001 and 2002. Continuing efforts to effectively control, manage and underwrite risk in a consistent and disciplined manner led to the improvements in credit quality. The net charge-off ratio was 0.72%, down from 0.85%, resulting from improvements in both corporate banking gross charge-offs and higher than normal middle market recoveries. In spite of this improvement, future charge-offs and credit quality in the Commercial Banking portfolio are subject to uncertainties that

35


may cause actual results to differ from historical experience or forecasted results, including the state of the economy and its impact on individual industries and portfolio mix, among other things.

        On a reported basis, Card Services net charge-offs for the second quarter of 2003 totaled $182 million, an increase of $21 million from the first quarter, primarily resulting from growth of the portfolio from $12.4 billion to $14.1 billion.

        Net charge-offs of the non-core portfolio totaled $83 million in the second quarter of 2003 compared to $102 million in the first quarter.

        On a managed basis, Card Services second quarter 2003 net charge-off ratio of 5.21% decreased from the previous quarter ratio of 5.29%, reflecting management’s continued emphasis on prudent credit risk management including disciplined underwriting and account management practices targeted to the prime and super-prime credit sectors. Credit risk management tools used to manage the level and volatility of losses for credit card accounts have been continually updated, and, where appropriate, these tools are adjusted to reduce credit risk. The managed credit card portfolio continued to reflect a well-seasoned portfolio that has good national geographic diversification.

        Future charge-offs and overall credit quality are subject to uncertainties, which may cause actual results to differ from current and historic performance. This could include the direction and level of loan delinquencies, changes in consumer behavior, bankruptcy trends, portfolio seasoning, interest rate movements, regulatory requirements and portfolio mix, among other things. While current economic and credit data suggests that credit quality will not significantly deteriorate, significant deterioration in the general economy could materially change these expectations.

Loan Sales
A summary of the Corporation’s Commercial Banking loan sales, excluding trading, syndications, syndication-related activity and trade finance transactions, for the quarters indicated were as follows:

(In millions)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

Loans sold and loans transferred                        
  to loans held for sale: (1)  
   Nonperforming loans   $ 28   $ 75   $ 43   $ 129   $ 198  
   Other loans with credit related losses    217    84    47    65    143  
   Other loans    41    73    69    108    193  

     Total   $ 286   $ 232   $ 159   $ 302   $ 534  

Impact of sales, transfers to loans held  
  for sale and valuation adjustments  
  on held for sale:  
   Charge-offs on loans sold and  
    transferred to held for sale:  
     Nonperforming loans   $ 1   $ 10   $ -   $ 5   $ 39  
     Other loans with credit related losses    21    10    5    6    12  

       Total charge-offs to allowance    22    20    5    11    51  
   Losses (gains) on loans sold and held for sale    (14 )  (8 )  (3 )  12    22  

     Total   $ 8   $ 12   $ 2   $ 23   $ 73  

  (1)      Prior periods have been restated to conform to the current presentation.

        The Corporation sells Commercial Banking loans in the normal course of its business activities and as one alternative to manage credit risk. These loans are subject to the Corporation’s overall risk management practices. When a loan is sold or transferred to held for sale, any loss is evaluated to determine whether it resulted from credit deterioration or other conditions. Based upon this evaluation, losses resulting from credit deterioration are recorded as charge-offs. Losses on loan sales deemed to be from other than credit deterioration, gains on loan sales, and subsequent fair value adjustments on loans held for sale are reported as other noninterest income.

        Loans classified as held for sale are carried at the lower of cost or market value. Accordingly, these loans are no longer included in the evaluation of the adequacy of the allowance for credit losses.

36


ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses is maintained at a level that in management’s judgment is adequate to provide for estimated probable credit losses inherent in various on- and off-balance sheet financial instruments. This process includes deriving probable loss estimates based on historical loss ratios, portfolio stress testing and management’s judgment.

        The changes in the Corporation’s allowance for credit losses for the quarters indicated were as follows:

(In millions)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

Balance, beginning of period     $ 4,526   $ 4,525   $ 4,518   $ 4,521   $ 4,520  
Charge-offs:  
  Retail: (1)  
   Small business commercial    21    18    32    20    23  
   Home equity    32    29    19    27    24  
   Vehicle    62    61    83    67    56  
   Other personal    28    29    27    29    33  

       Total Retail    143    137    161    143    136  

  Commercial Banking:  
   Corporate banking:  
     Commercial and industrial    75    55    74    133    152  
     Commercial real estate    3    6    6    8    19  
     Lease financing    4    40    77    31    25  

       Total corporate banking    82    101    157    172    196  
   Middle market:  
     Commercial and industrial    78    65    67    71    113  
     Commercial real estate    3    3    -    15    2  
     Lease financing    2    1    2    4    19  

       Total middle market    83    69    69    90    134  

     Total Commercial Banking    165    170    226    262    330  
  Card Services    208    175    183    142    129  
  IMG    8    3    15    4    2  
  Corporate (1)    94    112    115    97    117  

     Total charge-offs    618    597    700    648    714  

  (1) Prior period amounts have been reclassified for the transfer of the non-core portfolios from the Retail line of business to the Corporate line of business. See page 6 for a discussion of this transfer.

37


Allowance for Credit Losses table continued:

(In millions)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

Recoveries:                        
  Retail: (1)  
    Small business commercial   $ 5   $ 7   $ 5   $ 6   $ 5  
    Home equity    5    3    4    3    5  
   Vehicle    16    14    14    14    15  
    Other personal    4    11    4    3    4  

      Total Retail    30    35    27    26    29  

 Commercial Banking:  
  Corporate banking:  
    Commercial and industrial    17    20    8    11    26  
    Commercial real estate    1    -    1    1    2  
    Lease financing    1    -    -    -    -  

      Total corporate banking    19    20    9    12    28  
  Middle market:  
    Commercial and industrial    39    20    15    12    24  
    Commercial real estate    1    1    -    1    1  
    Lease financing    1    1    -    -    3  

      Total middle market    41    22    15    13    28  

    Total Commercial Banking    60    42    24    25    56  
  Card Services    26    14    15    11    11  
  IMG    2    1    2    2    2  
  Corporate (1)    11    10    10    11    9  

    Total recoveries    129    102    78    75    107  

Net charge-offs:  
  Retail (1)    113    102    134    117    107  
  Commercial Banking    105    128    202    237    274  
  Card Services    182    161    168    131    118  
  IMG    6    2    13    2    -  
  Corporate (1)    83    102    105    86    108  

    Total net charge-offs    489    495    622    573    607  

Provision for credit losses    461    496    628    587    607  
Transfers    -    -    1    (17 )  1  

Balance, end of period   $ 4,498   $ 4,526   $ 4,525   $ 4,518   $ 4,521  

  (1) Prior period amounts have been reclassified for the transfer of the non-core portfolios from the Retail line of business to the Corporate line of business. See page 6 for a discussion of this transfer.

38


Composition of Allowance for Credit Losses
While the allowance for credit losses is available to absorb credit losses in the entire portfolio, allocations of the allowance for credit losses by line of business as of the dates indicated were as follows:

June 30,
2003

March 31,
2003

December 31,
2002

September 30, 2002
June 30,
2002

(Dollars in millions)
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Retail (1)     $ 688    15 % $ 693    15 % $ 679    15 % $ 681    15 % $ 684    15 %
Commercial Banking:  
    Corporate banking    1,611    36    1,706    38    1,706    38    1,706    38    1,706    38  
    Middle market    1,365    30    1,365    30    1,365    30    1,365    30    1,365    30  

       Total Commercial Banking    2,976    66    3,071    68    3,071    68    3,071    68    3,071    68  
Card Services    396    9    396    9    396    9    396    9    396    9  
IMG    40    1    40    1    40    1    25    -    25    -  
Corporate (1)    398    9    326    7    339    7    345    8    345    8  

        Total composition   $ 4,498    100 % $ 4,526    100 % $ 4,525    100 % $ 4,518    100 % $ 4,521    100 %


  (1) Prior period amounts have been reclassified for the transfer of the non-core portfolios from the Retail line of business to the Corporate line of business. See page 6 for a discussion of this transfer.

Components of Allowance for Credit Losses
The Corporation determines allowance for credit losses levels based upon the probable losses in the credit portfolios. Several methodologies are employed for estimating probable losses. A detailed discussion of the process is presented in the Corporation’s 2002 Annual Report beginning on page 57.

        The table below presents the components of the probable loss estimate as of the dates indicated:

(In millions)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

Asset specific     $ 591   $ 692   $ 678   $ 756   $ 828  
Expected loss    2,713    2,850    2,810    2,862    3,051  
Stress    1,194    984    1,037    900    642  

    Total components (1)   $ 4,498   $ 4,526   $ 4,525   $ 4,518   $ 4,521  


  (1) The underlying assumptions, estimates and assessments made by management to determine the components of the allowance for credit losses are continually evaluated by management and updated to reflect management’s judgments regarding economic conditions and various relevant factors impacting credit quality and inherent losses.

        The June 30, 2003 allowance for credit losses remained relatively unchanged; however, due to decreases in nonperforming loans and asset levels, coverage ratios improved. The allowance for credit losses at June 30, 2003 represented 3.35% of period-end loans and 147% of nonperforming loans, compared to 3.20% and 139%, respectively, at December 31, 2002. The asset-specific and expected loss components of the allowance for credit losses decreased from the prior quarter reflecting overall credit quality improvement in the Commercial loan portfolio. This was offset by an increase in the stress component of the allowance for credit losses reflecting management’s ongoing assessment of the probable losses inherent in the portfolio. The allowance for credit losses established for specifically identified off-balance sheet lending exposures was not material at June 30, 2003.

39


DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business, the Corporation uses a variety of derivative financial instruments in its trading activity, asset and liability management, to a lesser extent in its mortgage operations, and to manage certain currency translation exposures of foreign entities. These instruments include interest rate, currency, equity and commodity swaps, forwards, spot, futures, options, caps, floors, forward rate agreements, credit derivatives and other conditional or exchange contracts, and include both exchange-traded and over-the-counter contracts. A detailed discussion of accounting policies for trading and hedging derivative instruments is presented in the Corporation’s 2002 Annual Report beginning on page 72.

Trading Derivative Instruments
Derivative financial instruments used in trading include swaps, forwards, futures, options, and other conditional or exchange contracts in the interest rate, foreign exchange, credit, equity and commodity markets. The estimated fair values are based on quoted market prices or valuation models using current market information. Realized and unrealized gains and losses, including any interest income or expense on derivative instruments, are recorded in noninterest income as trading.

        The Corporation also uses credit derivatives (primarily single name credit default swaps) and short bond positions, as protection against the deterioration of credit quality on commercial loans and loan commitments. The change in fair value of credit derivative instruments is included in trading results in the Corporation’s financial statements, while any credit assessment change in the underlying credit exposure is reflected in the allocated credit reserves. At June 30, 2003, the net notional amount of credit derivatives economically hedging commercial credit exposure totaled $5.3 billion, and the related trading loss was $143 million for the second quarter of 2003.

Asset and Liability Management Hedging Derivative Instruments
Derivatives are an integral component of the Corporation’s asset/liability management activities and associated management of interest rate risk. In general, the assets and liabilities generated through the ordinary course of business activities do not naturally create offsetting positions with respect to repricing, basis or maturity characteristics. Using derivative instruments, principally plain vanilla interest rate swaps (ALM swaps), interest rate sensitivity is adjusted to maintain the desired interest rate risk profile.

Cash Flow Hedges
Cash flow hedges primarily represent hedges of variable rate interest-bearing instruments. The effective portion of the change in fair value of the hedging derivative is recorded in Accumulated Other Adjustments to Stockholders’ Equity, which is reclassified into earnings in a manner consistent with the earnings pattern of the underlying hedged instrument or transaction. At June 30, 2003, the projected total amount of such reclassification into earnings over the next twelve months would be a decrease in net income of $319 million after-tax ($501 million pre-tax). This decrease, along with the contractual interest on the underlying variable rate debt, achieves the overall intended result of converting the variable rate to a specified fixed rate and is included in the Corporation’s analysis of interest rate exposure. These projections involve the use of currently forecasted interest rates over the next twelve months. These rates, and the resulting classification into earnings, are subject to change. The maximum length of time for which exposure to the variability of future cash flows for forecasted transactions is hedged is 21 months. No events have occurred in 2003 that impacted earnings from the discontinuance of cash flow hedges due to the determination that a forecasted transaction is no longer likely to occur.

        The amount of hedge ineffectiveness recognized for cash flow and fair value hedges for the six months ended June 30, 2003 was a loss of $2 million recognized in noninterest income. No component of a hedging derivative instrument’s gain or loss is excluded from the assessment of hedge effectiveness. The Corporation has no non-derivative instruments designated as hedges.

Credit Exposure Resulting from Derivative Financial Instruments
Credit exposure from derivative financial instruments arises from the risk of a counterparty default on the derivative contract. The amount of loss created by the default is the replacement cost or current fair value of the defaulted contract. The Corporation utilizes master netting agreements whenever possible to reduce its credit exposure from counterparty defaults. These agreements allow the netting of contracts with unrealized losses against contracts with unrealized gains to the same counterparty, in the event of a counterparty default.

40


        The impact of these master netting agreements for the periods indicated was as follows:

(In millions)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

Gross replacement cost     $ 27,967   $ 22,454   $ 22,066   $ 20,806   $ 15,494  
  Less: Adjustment due to master  
    netting agreements    22,624    17,897    17,793    16,601    12,498  

      Balance sheet credit exposure   $ 5,343   $ 4,557   $ 4,273   $ 4,205   $ 2,996  

        The credit risk associated with exchange-traded derivative financial instruments is limited to the relevant clearinghouse. Written options do not expose the Corporation to credit risk, except to the extent of the underlying risk in a financial instrument that the Corporation may be obligated to acquire under certain written put options. Written caps and floors do not expose the Corporation to credit risk.

LOAN SECURITIZATIONS AND OFF-BALANCE SHEET ACTIVITIES

Loan Securitizations
Investors in the beneficial interests of the securitized loans have no recourse against the Corporation if cash flows generated from the securitized loans are inadequate to service the obligations of the qualified special purpose entity (“QSPE”) that issues the securitized loans. To help ensure that adequate funds are available in the event of a shortfall, the Corporation is required to deposit funds into cash spread accounts if the excess spread falls below certain minimum levels. Spread accounts are funded from excess spread that would normally be returned to the Corporation. In addition, various forms of other credit enhancements are provided to protect more senior investor interests from loss. Credit enhancements associated with credit card securitizations, such as cash collateral or spread accounts, totaled $43 million and $145 million at June 30, 2003 and December 31, 2002, respectively, and are classified on the balance sheet as other assets at amounts approximating fair value.

        The following comprised the Corporation’s managed credit card loans for the periods indicated:

(In millions)
June 30
2003

December 31
2002

Owned credit card loans - held in portfolio     $ 6,308   $ 7,592  
Owned credit card loans - held for sale    7,782    3,989  
Seller's interest in credit card loans and accrued interest receivable    24,414    28,526  

  Total credit card receivables reflected on balance sheet    38,504    40,107  
Securities sold to investors and removed from balance sheet    35,832    33,889  

  Managed credit card loans   $ 74,336   $ 73,996  

        For further discussion of the Corporation’s loan securitization process and other related disclosures, see pages 74-77 and 94-95 of the Corporation’s 2002 Annual Report.

Off-Balance Sheet Activities
In the normal course of business, the Corporation is a party to a number of activities that contain credit, market and operational risk that are not reflected in whole or in part in the Corporation’s consolidated financial statements. Such activities include: traditional off-balance sheet credit-related financial instruments; commitments under capital and operating leases and long-term debt; credit enhancement and liquidity facilities associated with the commercial paper conduit programs; joint venture activities; and other contractual obligations.

41


Credit-Related Financial Instruments
The Corporation provides customers with off-balance sheet credit support through loan commitments, standby letters of credit and guarantees, as well as commercial letters of credit. Summarized credit-related financial instruments at June 30, 2003 were as follows:

Amount of Commitment Expiration Per Period
(In millions)
Total
Less Than 1
Year

1 - 3
Years

3 - 5
Years

Over 5
Years

Unused credit card lines     $ 348,673   $ 348,673   $ -   $ -   $ -  
Unused loan commitments    132,204    98,101    24,394    9,438    271  
Standby letters of credit and foreign office guarantees    26,209    18,314    6,128    1,453    314  
Commercial letters of credit    578    578    -    -    -  

        Since many of the unused commitments are expected to expire unused or be only partially used, the total amount of unused commitments in the preceding table does not necessarily represent future cash requirements.

Lease Commitments, Long-Term Debt and Other
The Corporation has entered into a number of long-term leasing arrangements of banking facilities to support the ongoing activities of the Corporation. The required payments under such commitments and long-term debt at June 30, 2003 were as follows:

(In millions)
2003
2004
2005
2006
2007
2008
and After

Total
Long-term debt, including capital leases     $ 3,438   $ 6,546   $ 7,289   $ 9,130   $ 4,621   $ 11,731   $ 42,755  
Trust preferred capital securities    -    -    -    -    -    3,315    3,315  
Operating leases    103    226    211    193    170    927    1,830  

Total   $ 3,541   $ 6,772   $ 7,500   $ 9,323   $ 4,791   $ 15,973   $ 47,900  

Asset-Backed Finance Programs
The Corporation is an active participant in the asset-backed securities business where it helps meet customers’ financing needs by providing access to the commercial paper markets through special purpose entities, known as multi-seller conduits. These entities are separate bankruptcy-remote corporations in the business of purchasing interests in, and making loans secured by, receivables pools and other financial assets pursuant to agreements with customers. The multi-seller conduits fund their purchases and loans through the issuance of highly rated commercial paper. The primary source of repayment of the commercial paper is the cash flow from the pools of assets. Investors in the commercial paper have no recourse to the general assets of the Corporation. Customers benefit from such structured financing transactions as these transactions provide an ongoing source of asset liquidity, access to the capital markets, and a potentially favorable cost of financing.

        As of June 30, 2003, the Corporation administered multi-seller conduits with a total program limit of $70.0 billion and with $34.3 billion in commercial paper outstanding. The multi-seller conduits were rated at least A-1 by S&P, P-1 by Moody’s and F-1 by Fitch.

        These multi-seller conduits are a type of variable interest entity (“VIE”), as defined by Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”). These entities historically have met all of the requirements to be accounted for as independent entities, and, prior to the issuance of FIN No. 46, were not required to be consolidated with the Corporation. See pages 51-52 for additional discussion. Each of the multi-seller conduits administered by the Corporation prepares stand-alone financial statements, which are independently audited on an annual basis.

        As administrator of the multi-seller conduits, the Corporation provides deal origination services, asset portfolio monitoring, treasury and financial administration services for these entities. The Corporation structures financing transactions for customers such that the receivables and other financial instruments financed through the multi-seller conduits are appropriately diversified and credit enhanced to support the conduits’ commercial paper issuances. As of the date hereof, the Corporation does not service these assets and does not transfer receivables originated by the Corporation into the multi-seller conduits it administers. Each conduit has program documents and investment policies, which govern the types of assets and structures permitted by the conduit. Three of the multi-seller conduits principally purchase interests in, or make loans secured by, trade receivables, auto loans and leases and credit card receivables. One conduit makes loans secured by portfolios of publicly rated marketable investment securities.

42


        The commercial paper issued by the conduits is supported by deal specific credit enhancement, which is structured to cover more than the expected losses on the pool of assets. The deal specific credit enhancement is typically in the form of over-collateralization, but may also include any combination of the following: recourse to the seller or originator, cash collateral accounts, letters of credit, excess spread, retention of subordinated interests or third-party guarantees. In a limited number of cases, the Corporation provides the deal specific credit enhancements as a financial arrangement for the customer. As of June 30, 2003 and December 31, 2002, the Corporation provided such deal specific enhancements to customers in the form of subordinated interests totaling $152 million and $203 million, respectively. These subordinated interest positions were included in loans on the Corporation’s balance sheets as of June 30, 2003 and December 31, 2002.

        For three of the multi-seller conduits, the commercial paper investors have access to a second loss credit protection in the form of program-wide credit enhancement. The program-wide credit enhancement consists of a subordinated term loan from the Corporation and a surety bond from an AAA rated monoline insurance company. The subordinated term loans from the Corporation to these conduits totaled $1.0 billion as of June 30, 2003 and December 31, 2002, respectively. One conduit has only deal specific credit enhancements provided by other financial institutions.

        As a means of ensuring timely repayment of the commercial paper, each asset pool financed by the conduits has a minimum of 100% deal specific liquidity facility associated with it. In the unlikely event of a disruption in the commercial paper market or in the event an asset pool is removed from the conduit, the administrator may draw on the liquidity facility to repay the maturing commercial paper. The liquidity facilities are typically in the form of asset purchase agreements and are generally structured such that the bank liquidity is provided by purchasing, or lending against, a pool of non-defaulted, performing assets. Additionally, program-wide liquidity facilities and lines of credit are provided by the Corporation and other financial institutions to the multi-seller conduits to facilitate access to the commercial paper markets.

        The following table summarizes the total amount of deal specific and program-wide liquidity facilities, as well as the share of these facilities provided by the Corporation, of the multi-seller conduits for the periods indicated:

June 30, 2003
December 31, 2002
(Dollars in millions)
Total
Liquidity
Facility

Liquidity
Facility
provided by
the Corporation

Percent
Total
Liquidity
Facility

Liquidity
Facility
provided by
the Corporation

Percent
Total multi-seller conduits     $ 47,628   $ 40,005    84 % $ 50,551   $ 41,382    82 %

        The Corporation also provides deal specific and program-wide liquidity facilities to conduits administered by other financial institutions totaling approximately $7.3 billion as of June 30, 2003.

        With the implementation of FIN No. 46, the multi-seller conduits administered by the Corporation and an investment vehicle administered by the Corporation were required to be consolidated with the Corporation effective July 1, 2003. Investors in the consolidated multi-seller conduits and the investment vehicle have no recourse to the general assets of the Corporation.

        Effective July 1, 2003, the Corporation consolidated $38.0 billion of the incremental assets and liabilities related to its asset-backed conduit business as a result of implementing FIN 46. This is not expected to have a material impact to Tier 1 Capital and Total Capital. These assets and liabilities will appear in the Commercial Banking line of business upon consolidation. Management has estimated its maximum loss exposure to be $129 million.

Principal Investments and Joint Ventures
In the normal course of business, the Corporation invests in principal investments, comprised of direct and indirect investments in private equity, venture capital and other equity and debt assets. The investment strategy for the portfolio, primarily executed by One Equity Partners (a wholly-owned consolidated subsidiary), is to focus on direct investments in high potential entities. Investments made include interests in Howaldtswerke-Deutsche Werft (HDW), the global leader in the design and manufacture of non-nuclear submarines, and in Polaroid, a leader in the instant imaging industry. Commitments to fund such investments at June 30, 2003 totaled $1.0 billion.

        At June 30, 2003, the Corporation was not party to any material joint venture arrangements which were not consolidated.

43


Loans Sold with Recourse
The Corporation occasionally sells or securitizes loans with limited recourse. The amount of outstanding loans sold with recourse totaled $3.5 billion and $4.7 billion at June 30, 2003 and December 31, 2002, respectively. The recourse provisions require the Corporation to repurchase loans at par plus accrued interest upon a credit-related triggering event. Exposure to credit losses from these arrangements has been reduced with the purchase of credit insurance contracts that cover the majority of expected losses.

CAPITAL MANAGEMENT

The capital position of the Corporation is managed to achieve management’s external debt rating objectives, comply with regulatory requirements and reflect the underlying risks of the Corporation’s business activities. The Corporation employs an economic capital framework (described further on page 45) to facilitate a standard measure of risk and return across all business units, as well as to provide a measure of capital adequacy consistent with internal risk evaluation practices. This serves as the basis for capital planning and related management activities.

Selected Capital Ratios
The Corporation aims to maintain regulatory capital ratios, including those of the principal banking subsidiaries, in excess of the well-capitalized guidelines under federal banking regulations. The Corporation maintains a well-capitalized regulatory position.

The Corporation’s capital ratios were as follows:

June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

Well-Capitalized
Regulatory
Guidelines

Risk-based capital ratios:                            
  Tier 1    9.7 %  10.0 %  9.9 %  9.5 %  9.4 %  6.0 %
  Total    13.6    13.8    13.7    13.0    13.0    10.0  
Leverage ratio (1)    8.7    8.9    8.9    9.0    9.1    N/A  
Common equity/assets    7.4    7.8    8.1    8.0    8.0    -  
Tangible common equity/tangible  
  reported assets    6.6    6.9    7.2    7.2    7.1    -  
Tangible common equity/tangible  
  managed assets    5.9    6.2    6.4    6.4    6.3    -  
Double leverage ratio    106    107    103    104    103    -  
Dividend payout ratio    29    30    30    30    30    -  

(1)     The minimum regulatory guideline is 3%.

44


        The components of the Corporation’s regulatory risk-based capital and risk-weighted assets were as follows:

(In millions)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

Regulatory risk-based capital:                        
  Tier 1 capital   $ 23,721   $ 23,832   $ 23,918   $ 23,428   $ 23,039  
  Tier 2 capital    9,316    9,035    9,201    8,650    8,924  

    Total capital    33,037    32,867    33,119    32,078    31,963  

Total risk-weighted assets   $ 243,779   $ 238,529   $ 241,468   $ 247,050   $ 246,032  

        In deriving Tier 1 and Total Capital, goodwill and other nonqualifying intangible assets were deducted for the periods indicated:

(In millions)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

Goodwill     $ 1,893   $ 1,894   $ 1,882   $ 1,829   $ 1,829  
Other nonqualifying intangibles    303    239    256    215    237  

  Subtotal    2,196    2,133    2,138    2,044    2,066  
Qualifying intangibles    474    402    415    421    405  

  Total intangibles   $ 2,670   $ 2,535   $ 2,553   $ 2,465   $ 2,471  

        See page 43 for a discussion of the impact of consolidation of certain multi-seller conduits to the Corporation’s risk-based capital ratios under FIN No. 46.

Dividend Policy
The Corporation’s common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain an adequate capital level and alternative investment opportunities. The common stock dividend payout ratio is targeted in the range of 25% 30% of earnings over time. On April 15, 2003, the Corporation declared its quarterly common cash dividend of $0.21 per share, payable on July 1, 2003. The quarterly cash dividend on outstanding common stock was increased 19%, or $0.04 per share, to $0.25 per share, payable October 1, 2003, to shareholders of record on September 12, 2003.

Double Leverage
Double leverage is the extent to which the Corporation’s resources are used to finance investments in subsidiaries. Double leverage was 106% and 103% at June 30, 2003 and December 31, 2002, respectively. Trust Preferred Capital Securities of $3.3 billion at June 30, 2003 and December 31, 2002 were included in capital for purposes of this calculation.

Stock Repurchase Program
On July 16, 2003, a new $3.0 billion stock buyback program was approved and replaced amounts unused under the previous $2.0 billion program. The timing of the purchases and the exact number of shares to be purchased will depend on market conditions. The buyback program does not include specific price targets or timetables and may be suspended at any time. In the second quarter 2003, the Corporation purchased more than 19 million shares of common stock at an average price of $37.12 per share pursuant to the previous buyback program. For the first six months of 2003, the Corporation purchased more than 39 million shares of common stock at an average price of $36.41 per share.

Economic Capital
An important aspect of risk management and performance measurement is the ability to evaluate the risk and return of a business unit, product or customer consistently across all lines of business. The Corporation’s economic capital framework facilitates this standard measure of risk and return. Business units are assigned capital consistent with the underlying risks of their product set, customer base and delivery channels.

The following principles are inherent in the capital allocation methodology employed:


45


FORWARD-LOOKING STATEMENTS

Management’s Discussion and Analysis included herein contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, the Corporation may make or approve certain statements in future filings with the Securities and Exchange Commission (the “Commission”), in press releases, and in oral and written statements made by or with the Corporation’s approval that are not statements of historical fact and may constitute forward-looking statements. Forward-looking statements may relate to, without limitation, the Corporation’s financial condition, results of operations, plans, objectives, future performance or business.

        Words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “estimates,” “targeted” and similar expressions are intended to identify forward-looking statements but are not the only means to identify these statements.

        Forward-looking statements involve risks and uncertainties. Actual conditions, events or results may differ materially from those contemplated by a forward-looking statement. Factors that could cause this difference–many of which are beyond the Corporation’s control–include the following, without limitation:

        Forward-looking statements speak only as of the date they are made. The Corporation undertakes no obligation to update any forward-looking statement to reflect subsequent circumstances or events.

46


CONSOLIDATED BALANCE SHEETS
Bank One Corporation and Subsidiaries

(Dollars in millions)
June 30
2003

December 31
2002

June 30
2002

Assets                
Cash and due from banks   $ 19,529   $ 17,920   $ 17,120  
Interest-bearing due from banks    5,909    1,503    3,041  
Federal funds sold and securities purchased under resale agreements    21,639    17,356    9,538  
Trading assets    11,478    7,190    6,269  
Derivative product assets    5,343    4,273    2,996  
Investment securities    75,177    67,643    65,685  
Loans (1)    144,583    148,125    147,728  
Allowance for credit losses    (4,498 )  (4,525 )  (4,521 )

  Loans, net    140,085    143,600    143,207  
Other assets    20,303    17,898    22,487  

  Total assets   $ 299,463   $ 277,383   $ 270,343  

  
Liabilities  
Deposits:  
  Demand   $ 34,361   $ 34,325   $ 26,841  
  Savings    95,221    88,934    81,477  
  Time:  
    Under $100,000    15,008    16,767    19,403  
    $100,000 and over    10,969    13,745    15,255  
  Foreign offices    16,456    16,237    14,542  

    Total deposits    172,015    170,008    157,518  
Federal funds purchased and securities sold under repurchase agreements    25,382    14,578    16,728  
Other short-term borrowings    13,526    12,306    9,809  
Long-term debt    42,755    39,919    40,441  
Guaranteed preferred beneficial interest in the Corporation's  
  junior subordinated debt    3,315    3,315    3,315  
Derivative product liabilities    4,188    3,838    2,632  
Other liabilities    16,025    10,979    18,337  

  Total liabilities    277,206    254,943    248,780  
  
Stockholders' Equity  
Common stock ($0.01 par value; authorized 4,000,000,000;  
  issued 1,181,382,304)    12    12    12  
Surplus    10,240    10,239    10,177  
Retained earnings    14,213    13,020    11,845  
Accumulated other adjustments to stockholders' equity    (76 )  (8 )  46  
Deferred compensation    (245 )  (157 )  (195 )
Treasury stock, at cost (51,032,621, 17,340,948 and 7,843,692  
  shares, respectively)    (1,887 )  (666 )  (322 )

  Total stockholders' equity    22,257    22,440    21,563  

    Total liabilities and stockholders' equity   $ 299,463   $ 277,383   $ 270,343  

  (1) Includes loans held for sale of $10.2 billion, $6.9 billion and $5.8 billion at June 30, 2003, December 31, 2002 and June 30, 2002, respectively.

The accompanying notes are an integral part of this statement.

47


CONSOLIDATED INCOME STATEMENTS
Bank One Corporation and Subsidiaries

Three Months Ended June 30
Six Months Ended June 30
(In millions, except per share data)
2003
2002
2003
2002
Net Interest Income:                    
Interest income   $ 3,142   $ 3,411   $ 6,339   $ 6,951  
Interest expense    1,161    1,369    2,366    2,709  




     Total net interest income    1,981    2,042    3,973    4,242  
  
Noninterest Income:  
Banking fees and commissions    458    493    898    951  
Credit card revenue    911    962    1,762    1,871  
Service charges on deposits    413    376    796    769  
Fiduciary and investment management fees    186    188    372    377  
Investment securities gains    152    96    221    78  
Trading gains (losses)    (76 )  74    (72 )  91  
Other income    83    49    135    70  




     Total noninterest income    2,127    2,238    4,112    4,207  




      Total revenue, net of interest expense    4,108    4,280    8,085    8,449  
  
Provision for credit losses    461    607    957    1,272  
  
Noninterest Expense:  
Salaries and employee benefits    1,224    1,101    2,407    2,197  
Occupancy    166    170    331    328  
Equipment    118    99    229    202  
Outside service fees and processing    289    372    566    672  
Marketing and development    215    265    441    536  
Telecommunication    55    134    103    235  
Intangible amortization    32    29    64    62  
Other expense    326    337    604    637  




 Total noninterest expense before                    
 restructuring-related charges (reversals)    2,425    2,507    4,745    4,869  
Restructuring-related charges (reversals)    -    (63 )  -    (63 )




     Total noninterest expense    2,425    2,444    4,745    4,806  
  
Income before income taxes    1,222    1,229    2,383    2,371  
Applicable income taxes    366    386    709    741  




Net income   $ 856   $ 843   $ 1,674   $ 1,630  




Net income attributable to common stockholders' equity   $856   $843   $1,674   $1,630  




  
Earnings per share:  
   Basic   $ 0.76   $ 0.72   $ 1.47   $ 1.39  
   Diluted    0.75    0.71    1.46    1.38  

The accompanying notes are an integral part of this statement.

48


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Bank One Corporation and Subsidiaries

(In millions)
Common
Stock

Surplus
Retained
Earnings

Accumulated
Other
Adjustments to
Stockholders'
Equity

Deferred
Compensation

Treasury
Stock

Total
Stockholders'
Equity

Balance-December 31, 2001     $ 12   $10,311   $ 10,707   $ (65 ) $ (121 ) $ (618 ) $ 20,226  

Net income            1,630                1,630  
Change in fair value, investment  
  securities-available for sale,  
  net of taxes                204            204  
Change in fair value of cash flow  
  hedge derivatives,  
  net of taxes                (92 )          (92 )
Translation loss,  
  net of hedge results and taxes            

 
 
(1
)
         
(1
)
Net income and changes in  
  accumulated other adjustments  
  to stockholders' equity            1,630    111            1,741  
Common stock cash dividends declared            (492 )              (492 )
Net issuance of common stock        (151 )              296    145  
Restricted stock awards granted,  
  net of forfeitures and amortization                    (74 )      (74 )
Other        17                    17  

Balance-June 30, 2002   $ 12   $10,177   $ 11,845   $ 46   $ (195 ) $ (322 ) $ 21,563  

Balance-December 31, 2002   $ 12   $10,239   $ 13,020   $ (8 ) $ (157 ) $ (666 ) $ 22,440  

Net income            1,674                1,674  
Change in fair value, investment  
  securities-available for sale,  
  net of taxes                (51 )          (51 )
Change in fair value of cash-flow  
  hedge derivatives,  
  net of taxes                (21 )          (21 )
Minimum pension liability                (2 )          (2 )
Translation gain,  
 net of hedge results and taxes            

 
 
6
 
         
6
 
Net income and changes in  
  accumulated other adjustments  
  to stockholders' equity            1,674    (68 )          1,606  
Common stock cash dividends declared            (481)        (481)
Net purchases of common stock        (27 )              (1,221 )  (1,248 )
Restricted stock awards granted,  
  net of forfeitures and amortization                    (88 )      (88 )
Stock option grants        29                    29  
Other        (1 )                  (1 )

Balance-June 30, 2003   $ 12   $10,240   $ 14,213   $ (76 ) $ (245 ) $ (1,887 ) $ 22,257  

        The accompanying notes are an integral part of this statement.

49


CONSOLIDATED STATEMENTS OF CASH FLOWS
Bank One Corporation and Subsidiaries

Six Months Ended June 30
(In millions)
2003
2002
Cash Flows from Operating Activities:            
Net income   $ 1,674   $ 1,630  
Adjustments to reconcile net income to net cash  
  provided by operating activities:  
    Depreciation and amortization    275    251  
    Provision for credit losses    957    1,272  
    Investment securities (gains), net    (221 )  (78 )
    Net (increase) decrease in net derivative product assets and liabilities    (518 )  47  
    Net (increase) in trading assets    (4,288 )  (100 )
    Net (increase) in other assets    (2,145 )  (2,957 )
    Net increase in other liabilities    5,217    6,376  
    Restructuring (reversals)    -    (63 )
    All other operating adjustments, net    (297 )  171  


Net cash provided by operating activities    654    6,549  
  
Cash Flows from Investing Activities:  
Net increase in federal funds sold and      
  securities under resale agreements    (4,283 )  (191 )
Securities available for sale:  
  Purchases    (46,740 )  (29,611 )
  Maturities    9,061    2,797  
  Sales    25,717    20,448  
Credit card receivables securitized    7,375    2,750  
Net (increase) decrease in loans    (808 )  6,824  
Loan recoveries    231    211  
Additions to premises and equipment    (577 )  (135 )
Proceeds from sales of premises and equipment    65    34  
All other investing activities, net    431    (322 )


Net cash (used in) provided by investing activities    (9,528 )  2,805  
  
Cash Flows from Financing Activities:  
Net increase (decrease) in deposits    1,924    (9,976 )
Net increase in federal funds purchased and  
  securities sold under repurchase agreements    10,804    3,000  
Net increase (decrease) in other short-term borrowings    1,219    (437 )
Proceeds from issuance of long-term debt    8,483    4,433  
Repayment of long-term debt    (5,738 )  (4,198 )
Repurchase of treasury stock    (1,435 )  (181 )
Cash dividends paid    (487 )  (491 )
Proceeds from issuance of common and treasury stock    61    227  
All other financing activities, net    29    18  


Net cash provided by (used in) financing activities    14,860    (7,605 )
Effect of exchange rate changes on cash and cash equivalents    29    (1 )


Net increase in cash and cash equivalents    6,015    1,748  
Cash and cash equivalents at beginning of period    19,423    18,413  


Cash and cash equivalents at end of period   $ 25,438   $ 20,161  


The accompanying notes are an integral part of this statement.

50


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bank One Corporation and Subsidiaries

Note 1–Summary of Significant Accounting Policies
The consolidated financial statements of the Corporation have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain prior-period financial statement information has been reclassified to conform to the current quarter presentation. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported and disclosures of contingent assets and liabilities. Actual results could differ from those estimates.

        Certain assets and liabilities, primarily derivative assets and liabilities as well as resale and repurchase agreements, are reported on a net basis by counterparty if legally enforceable master netting arrangements are in place.

        Although the interim amounts are unaudited, they do reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods. All such adjustments are of a normal, recurring nature. Because the results from commercial banking operations are so closely related and responsive to changes in economic conditions, fiscal policy and monetary policy, and because the results for the investment securities and trading portfolios are largely market-driven, the results for any interim period are not necessarily indicative of the results that can be expected for the entire year.

        These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Corporation’s 2002 Annual Report.

Note 2–New Accounting Pronouncements
Costs Associated with Exit or Disposal Activities

In 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”), which supercedes Emerging Issues Task Force No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a company commits to such an activity and also establishes fair value as the objective for initial measurement of the liability. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The impact of adoption was not material to the Corporation’s results of operations, financial position or cash flows.

Accounting and Disclosure Requirements for Guarantees
In 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN No. 45”), which requires additional disclosures by a guarantor about its obligations under certain guarantees that it has issued. FIN No. 45 also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The most significant instruments impacted for the Corporation are financial and performance standby letters of credit. The required FIN No. 45 disclosure has been incorporated into Note 12, “Financial Guarantees”. The accounting requirements of FIN No. 45 became effective for the Corporation on January 1, 2003, on a prospective basis. The impact of adoption was not material to the Corporation’s results of operations, financial position or cash flows.

Consolidation of Variable Interest Entities (“VIE”)
In 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”), which provides new accounting guidance on when to consolidate a VIE. A VIE exists when either the total equity investment at risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack one of three characteristics associated with owning a controlling financial interest. Those characteristics are the direct or indirect ability to make decisions about an entity’s activities through voting rights or similar rights, the obligation to absorb the expected losses of an entity if they occur, and the right to receive the expected residual returns of the entity if they occur.

        FIN No. 46 was effective immediately for new entities that were created or acquired after January 31, 2003, and became effective on July 1, 2003 for entities in which the Corporation had a variable interest prior to February 1, 2003. The Corporation adopted FIN No. 46 on a prospective basis and, accordingly, will not restate prior periods. FIN No. 46

51


affects the Corporation’s accounting and reporting for certain VIEs in which the Corporation holds one or more variable interests.

       The Corporation’s retained interests in its credit card securitizations and its investments in commercial mortgage-backed securities are exempt from the requirements of FIN No. 46.

        As discussed on pages 42-43, the Corporation is an active participant in the asset-backed securities business where it helps to meet customers’ financing needs by providing access to the commercial paper markets through special purpose entities, known as multi-seller conduits. These multi-seller conduits are a type of VIE, as defined by FIN No. 46. These entities historically have met the requirements to be treated as independent entities, and, prior to the issuance of FIN No. 46, were not required to be consolidated with the Corporation. With the implementation of FIN No. 46, the multi-seller conduits administered by the Corporation and an investment vehicle were required to be consolidated with the Corporation effective July 1, 2003. Investors in the consolidated multi-seller conduits and the investment vehicle have no recourse to the Corporation.

        Effective July 1, 2003, the Corporation consolidated $38.0 billion of the incremental assets and liabilities related to its asset-backed conduit business as a result of implementing FIN 46. This is not expected to have a material impact to Tier 1 Capital and Total Capital. These assets and liabilities will appear in the Commercial Banking line of business upon consolidation. Management has estimated its maximum loss exposure to be $129 million.

Derivative Instruments and Hedging Activities
In April 2003, FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The Corporation adopted SFAS No. 149 on July 1, 2003. This adoption had an immaterial impact on the Corporation’s operating results and financial position.

Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity
In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement modifies the accounting for certain financial instruments with characteristics of both liabilities and equity.

        The Corporation adopted SFAS No. 150 and FIN No. 46 effective July 1, 2003. Previously, guaranteed preferred beneficial interests in the Corporation’s junior subordinated debt were classified as a separate liability, with distributions on these securities included in interest expense on long-term debt. Under SFAS No. 150 and FIN No. 46, guaranteed preferred beneficial interest will be included as a component of long-term debt, with no change in the reporting of distributions.

Note 3–Acquisition
On May 30, 2003, the Corporation announced an agreement to acquire, for approximately $500 million in cash, key business components of Zurich Life, a U.S. life and annuity operation of Zurich Financial Services Group. The transaction is expected to close in the third quarter of 2003, pending regulatory approvals.

        Zurich Life, based in Schaumburg, Illinois, is a leading underwriter of term life insurance serving consumers through both a national network of 40,000 licensed brokers/insurance agents and the direct marketing platform of its Zurich Direct agency. It is also a significant underwriter of fixed and variable annuities, with a recognized expertise in the teachers’ annuity market. It underwrites universal life and participates in the business-owned life insurance market. Zurich Life has regulatory and operating insurance authority in all 50 states.

        Zurich Life is comprised of Federal Kemper Life Assurance Company, Kemper Investors Life Insurance Company, Zurich Life Insurance Company of America, Zurich Life Insurance Company of New York and their subsidiaries. In addition, Federal Kemper Life Assurance Company provides management services to Fidelity Life Association, a Mutual Legal Reserve Company.

52


Note 4–Earnings per Share
Basic EPS is computed by dividing income available to common stockholders by the average number of common shares outstanding for the period. Except when the effect would be antidilutive, the diluted EPS calculation includes shares that could be issued under outstanding stock options and the employee stock purchase plan.

Three Months Ended June 30
Six Months Ended June 30
(In millions, except per share data)
2003
2002
2003
2002
Net income available to common stockholders for basic and diluted EPS     $ 856   $ 843   $ 1,674   $1,630  




Average shares outstanding    1,132    1,174    1,142    1,172  
Stock options    8    10    8    9  




Average shares outstanding assuming full dilution    1,140    1,184    1,150    1,181  
  
Earnings per share:  
  Basic   $ 0.76   $ 0.72   $ 1.47   $ 1.39  
  Diluted    0.75    0.71    1.46    1.38  

Note 5–Restructuring-Related Activity
Actions under the fourth quarter 2001 and the second quarter 2000 restructuring plans have been completed with only payments of identified obligations remaining, which consist primarily of lease obligations. Unpaid amounts at June 30, 2003 totaled $77 million and $37 million for these plans, respectively. These amounts will be paid as required over the remaining contractual obligation periods.


53


Note 6–Business Segments
The information below is consistent with the content of business segment data provided to the Corporation’s management, which does not use product group revenues to assess consolidated results. Aside from investment management and insurance products, product offerings are tailored to specific customer segments. As a result, the aggregation of product revenues and related profit measures across lines of business is not available.

        Aside from the United States of America, no single country or geographic region generates a significant portion of the Corporation’s revenues or assets. In addition, there are no single customer concentrations of revenue or profitability.

        For additional disclosures regarding the Corporation’s segments see the “Business Segment Results” section beginning on page 6.

        The following table summarizes certain financial information by line of business for the periods indicated:

Three Months Ended June 30
June 30
2003
2002
2003
2002
2003
2002
2003
2002
(In millions)
Total Revenues-FTE (1)
Provision for
(Benefit of)
Income Taxes (1)

Net Income (Loss)
Total Assets
Retail (2)     $ 1,538   $ 1,493   $ 215   $ 217   $ 373   $ 371   $ 56,900   $ 51,408  
Commercial Banking    950    1,052    91    43    249    147    108,226    94,348  
Card Services    1,200    1,204    175    193    279    308    43,597    34,002  
Investment Management    356    372    50    60    85    103    8,504    8,475  
Corporate (2)    103    195    (126 )  (91 )  (130 )  (86 )  82,236    82,110  

  Total   $ 4,147   $ 4,316   $ 405   $ 422   $ 856   $ 843   $ 299,463   $ 270,343  

Six Months Ended June 30
2003
2002
2003
2002
2003
2002
(In millions)
Total Revenues-FTE (1)
Provision for
(Benefit of)
Income Taxes (1)

Net Income (Loss)
Retail (2)     $ 3,119   $ 3,046   $ 442   $ 429   $ 768   $ 735  
Commercial Banking    1,936    2,078    165    85    466    290  
Card Services    2,290    2,315    329    347    527    547  
Investment Management    702    740    98    119    165    204  
Corporate (2)    114    341    (249 )  (168 )  (252 )  (146 )

  Total   $ 8,161   $ 8,520   $ 785   $ 812   $ 1,674   $ 1,630  

  (1) Total revenue-FTE and provision for (benefit of) income taxes include tax equivalent adjustments of $39 million and $36 million for three months ended June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002, tax equivalent adjustments were $76 million and $71 million, respectively.
  (2) Prior period amounts have been reclassified for the transfer of the non-core portfolios from the Retail line of business to the Corporate line of business. See page 6 for a discussion of this transfer.

54


Note 7–Interest Income and Interest Expense
Details of interest income and interest expense were as follows:

Three Months Ended June 30
Six Months Ended June 30
(In millions)
2003
2002
2003
2002
Interest Income:                    
  Loans, including fees   $ 2,218   $ 2,450   $ 4,520   $ 5,019  
  Bank balances    19    12    39    27  
  Federal funds sold and securities purchased under resale agreements    43    38    86    81  
  Trading assets    86    64    160    124  
  Investment securities    776    847    1,534    1,700  





    Total interest income    3,142    3,411    6,339    6,951  
  
Interest Expense:  
  Deposits    525    696    1,082    1,420  
  Federal funds purchased and securities sold under repurchase agreements    73    73    135    135  
  Other short-term borrowings    90    55    177    95  
  Long-term debt    473    545    972    1,059  





    Total interest expense    1,161    1,369    2,366    2,709  
  
Net interest income    1,981    2,042    3,973    4,242  
  Provision for credit losses    461    607    957    1,272  





    Net interest income after provision for credit losses   $ 1,520   $ 1,435   $ 3,016   $ 2,970  





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Note 8–Investment Securities
The summary of the Corporation’s investment portfolio follows:

At June 30, 2003
(In millions)
Amortized Cost
Gross Unrealized
Gains

Gross Unrealized
Losses

Fair Value
(Book Value)

U.S. Treasury     $ 3,799   $ 35   $ 35   $ 3,799  
U.S. government agencies    34,959    571    27    35,503  
States and political subdivisions    1,267    74    2    1,339  
Interests in credit card securitized receivables (1)    24,073    128    -    24,201  
Other debt securities    4,789    66    17    4,838  
Equity securities (1)    3,458    15    1    3,472  

  Total available for sale securities   $ 72,345   $ 889   $ 82    73,152  

Principal and other investments (2)                2,025  

    Total investment securities               $ 75,177  

At December 31, 2002
(In millions)
Amortized Cost
Gross Unrealized
Gains

Gross Unrealized
Losses

Fair Value
(Book Value)

U.S. Treasury     $ 1,310   $ 25   $ -   $ 1,335  
U.S. government agencies    26,419    635    14    27,040  
States and political subdivisions    1,116    54    1    1,169  
Interests in credit card securitized receivables (1)    28,202    147    -    28,349  
Other debt securities    4,719    40    14    4,745  
Equity securities (1)    3,406    4    1    3,409  

  Total available for sale securities   $ 65,172   $ 905   $ 30    66,047  

Principal and other investments (2)                1,596  

    Total investment securities               $ 67,643  

At June 30, 2002
(In millions)
Amortized Cost
Gross Unrealized
Gains

Gross Unrealized
Losses

Fair Value
(Book Value)

U.S. Treasury     $ 1,577   $ 29   $ 2   $ 1,604  
U.S. government agencies    29,082    356    104    29,334  
States and political subdivisions    1,145    40    1    1,184  
Interests in credit card securitized receivables (1)    21,853    90    -    21,943  
Other debt securities    6,521    39    10    6,550  
Equity securities (1)    3,404    16    -    3,420  

  Total available for sale securities   $ 63,582   $ 570   $ 117    64,035  

Principal and other investments (2)                1,650  

    Total investment securities               $ 65,685  

  (1) The fair values of certain securities for which market quotations were not available were estimated.
  (2) The fair values of certain securities reflect liquidity and other market-related factors, and include investments accounted for at fair value consistent with specialized industry practice.

        For the three months ended June 30, 2003, gross recognized gains and losses on available-for-sale investment securities were $106 million and $12 million, respectively. For the three months ended June 30, 2002, gross recognized gains and losses on available-for-sale investment securities were $375 million and $177 million, respectively.

        For the six months ended June 30, 2003, gross recognized gains and losses on available-for-sale investment securities were $198 million and $44 million, respectively. For the six months ended June 30, 2002, gross recognized gains and losses on available-for-sale investment securities were $466 million and $231 million, respectively.

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Note 9–Guaranteed Preferred Beneficial Interest in the Corporation’s Junior Subordinated Debt
The Corporation has sponsored ten trusts with a total aggregate issuance outstanding of $3.3 billion at June 30, 2003 in trust preferred securities as follows:

Trust Preferred
Junior Subordinated Debt Owned by Trust
(Dollars in millions)
Issuance Date
Initial Liquidation Value
Distribution
Rate

Initial Principal Amount
Maturity
Redeemable
Beginning

Capital VI      September 28, 2001   $ 525    7.20 % $ 541.2    October 15, 2031    October 15, 2006  
Capital V    January 30, 2001    300    8.00 %  309.3    January 30, 2031    January 30, 2006  
Capital IV    August 30, 2000    160   3-mo LIBOR  164.9     September 1, 2030    September 1, 2005  
           plus 1.50 %            
Capital III    August 30, 2000    475    8.75 %  489.7    September 1, 2030    See (1) below.  
Capital II    August 8, 2000    280    8.50 %  288.7    August 15, 2030    August 15, 2005  
Capital I    September 20, 1999    575    8.00 %  592.8    September 15, 2029    September 20, 2004  
First Chicago
  NBD Capital 1
    January 31, 1997    250    3-mo LIBOR  257.7    February 1, 2027    February 1, 2007  
            plus 0.55
%            
First USA
  Capital Trust I (2)
    December 20, 1996    200    9.33 %  206.2    January 15, 2027    January 15, 2007  
First Chicago
  NBD Institutional
  Capital A
    December 3, 1996    500    7.95 %  515.5    December 1, 2026    December 1, 2006  
First Chicago  
  NBD Institutional  
  Capital B    December 5, 1996    250    7.75 %  257.7    December 1, 2026    December 1, 2006  







  (1)      Redeemable at any time subject to approval by the Federal Reserve Board.
  (2)      The Corporation paid a premium of $36 million to repurchase $193 million of these securities in 1997.

        These trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment. Distributions on these securities are included in interest expense on long-term debt. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of the Corporation, the sole asset of each trust. The preferred trust securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of each trust are wholly-owned by the Corporation. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Corporation making payment on the related junior subordinated debentures. The Corporation’s obligations under the junior subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Corporation of each respective trust’s obligations under the trust securities issued by such trust.

57


Note 10Supplemental Disclosures for Accumulated Other Adjustments to Stockholders’ Equity
Accumulated other adjustments to stockholders’ equity were as follows:

Six Months Ended June 30
(In millions)
2003
2002
Fair value adjustment on investment securities-available for sale:            
Balance, beginning of period   $ 552   $ 78  
Change in fair value, net of taxes of $23 and $202 for the  
  six months ended June 30, 2003 and 2002, respectively    46    353  
Reclassification adjustment, net of tax benefits of $55 and $86 for the  
  six months ended June 30, 2003 and 2002, respectively    (97 )  (149 )

    Balance, end of period    501    282  
  
Fair value adjustment on derivative instruments-cash flow type hedges:  
Balance, beginning of period    (560 )  (146 )
Net change in fair value associated with current period hedging  
  activities, net of tax benefits of $111 and $148 for the six  
  months ended June 30, 2003 and 2002, respectively    (192 )  (222 )
Reclassification into earnings, net of taxes of $99 and $87 for  
  the six months ended June 30, 2003 and 2002, respectively    171    130  

    Balance, end of period    (581 )  (238 )
  
Accumulated translation adjustment:  
Balance, beginning of period    -    3  
Translation gain (loss), net of hedge results and taxes    6    (1 )

    Balance, end of period    6    2  

Minimum pension liability:  
Balance, beginning of period    -    -  
Minimum pension liability (loss), net of taxes    (2 )  -  

    Balance, end of period    (2 )  -  

      Total accumulated other adjustments to stockholders' equity   $ (76 ) $ 46  

58


Note 11–Stock-Based Compensation
The Corporation utilizes stock-based awards, including restricted shares and stock options, as part of its overall compensation program. In addition, the Corporation provides employees the opportunity to purchase its shares through an Employee Stock Purchase Plan.

        Effective January 1, 2002, the Corporation adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment to FASB Statement No. 123” (“SFAS No. 148”), and selected the prospective method of transition and began recognizing compensation expense based on the fair value method on newly granted stock awards. Under this method, compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period of the grant. Pursuant to the requirements of SFAS No. 123, as amended by SFAS No. 148, options granted prior to January 1, 2002, continue to be accounted for under APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). Under APB No. 25, no compensation expense is recognized when the exercise price is greater than or equal to the market price of the underlying common stock on the date of grant.

        Awards under the Corporation’s stock compensation plans vest over periods ranging primarily from three to five years. Therefore, the expense related to stock option compensation included in the determination of net income for 2003 and 2002 was less than that which would have been recognized if the fair value method had been applied to all awards since the original effective date of SFAS No. 123. The net income and earnings per share implications if the fair value method had been applied to all awards vesting during the three and six months ended June 30, 2003 and 2002 would have been as follows:

Three Months Ended June 30
Six Months Ended June 30
(In millions, except per share data)
2003
2002
2003
200
Net income attributable to common stockholders' equity     $ 856   $ 843   $ 1,674   $ 1,630  
Add: Stock-based employee compensation expense  
        included in reported net income, net of related tax effects    26    19    53    32  
Deduct: Total stock-based employee compensation expense  
            determined under the fair value method for all awards  
            vesting during the period, net of related tax effects    34    32    69    79  

Pro forma net income attributable to common stockholders' equity   $ 848   $ 830   $ 1,658   $ 1,583  
Earnings per share:  
  Basic - as reported   $ 0.76   $ 0.72   $ 1.47   $ 1.39  
  Basic - pro forma    0.75    0.71    1.45    1.35  
  
  Diluted - as reported    0.75    0.71    1.46    1.38  
  Diluted - pro forma    0.74    0.70    1.44    1.34  

        Other disclosures related to stock options have not materially changed from the disclosure provided in Note 19, “Stock-Based Compensation” of the Corporation’s 2002 Annual Report on pages 100-101.

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Note 12-Financial Guarantees
In the normal course of business, the Corporation is a party to financial instruments containing credit and/or market risks. These financial instruments are primarily credit-related instruments. The Corporation has risk management policies to identify, monitor and limit exposure to credit, liquidity and market risks. To mitigate credit risk for financial guarantees, the Corporation generally determines the need for specific covenant, guarantee and collateral requirements on a case-by-case basis, depending on the nature of the financial instrument and the customer’s creditworthiness.

        The following is a summary of financial instruments that are considered guarantees in accordance with FIN No. 45:

June 30, 2003
December 31, 2002
(In millions)
Contract
Amount

Carrying
Value (3)

Contract
Amount

Carrying
Value (3)

Standby letters of credit and                    
  foreign office guarantees (1) (2)   $ 26,209   $ 298   $ 23,979   $ 218  
Loans sold with recourse    3,549    10    4,742    10  
Swap guarantees    276    9    222    9  
Asset purchase agreements (4)    2,133    -    2,453    -  

  (1) The contract amount of financial standby letters of credit and foreign office guarantees and performance standby letters of credit and foreign guarantees totaled $22.1 billion and $4.1 billion and $20.4 billion and $3.6 billion at June 30, 2003 and December 31, 2002, respectively.
  (2) Includes $8.5 billion and $7.1 billion at June 30, 2003 and December 31, 2002, respectively, participated to other institutions.
  (3) The carrying value of financial guarantees includes amounts deferred and recognized in income over the life of the contract and amounts for inherent losses in accordance with FASB Statement No. 5, “Accounting for Contingencies” (“SFAS No. 5”). These amounts are generally reported in other liabilities except the SFAS No. 5 component related to standby letters of credit that is reported in the allowance for credit losses.
  (4) Certain asset purchase agreements entered into in conjunction with the Corporation’s asset-backed conduit program qualify as financial guarantees under this new accounting guidance due to the specific structure of certain of these agreements. For additional discussion of the asset purchase agreements and the related off-balance sheet exposure, see page 42.

        For a discussion of these types of agreements, see “Financial Guarantees” in the Corporation’s 2002 Annual Report on page 103.

        The Corporation also sells put options that are considered a form of financial guarantee when the counterparties that purchase the contracts actually own the reference financial instrument (generally loans, commodities and equities). A put option sold by the Corporation provides the counterparty the right to sell (i.e., “put”) the reference asset to the Corporation at a pre-determined price.

        The following table summarizes the Corporation inventory of sold put options as of June 30, 2003, in which it was probable that the counterparty owns the reference financial instrument:

(In millions)
Contract
Amount

Carrying
Value

Loans     $ 5,097   $ 68  
Commodities    303    (6 )
Equities    97    (20 )

60


Note 13–Collateral Policy Related to Certain Asset Transfer Activity
The maximum outstanding amount of securities under resale agreements at June 30, 2003 and 2002 was $15.4 billion and $8.1 billion, respectively. The average outstanding amount of securities under resale agreements during the quarters ended June 30, 2003 and 2002 was $9.5 billion and $6.2 billion, respectively.

Note 14–Contingent Liabilities
The Corporation and certain of its subsidiaries have been named as defendants in various legal proceedings, including certain class actions, arising out of the normal course of business or operations. In certain of these proceedings, which are based on alleged violations of consumer protection, securities, banking, insurance and other laws, rules or principles, substantial money damages may be asserted against the Corporation and its subsidiaries. Since the Corporation and certain of its subsidiaries, which are regulated by one or more federal and state regulatory authorities, are the subject of numerous examinations and reviews by such authorities, the Corporation also is and will be, from time to time, normally engaged in various disagreements with regulators, related primarily to its financial services businesses. The Corporation also receives tax deficiency assessments from various taxing jurisdictions.

        In view of the inherent difficulty of predicting the outcome of such matters, the Corporation cannot state what the eventual outcome of pending matters will be; however, based on current knowledge and after consultation with counsel, management does not believe that liabilities arising from these matters, if any, will have a material adverse effect on the consolidated financial position or results of operations of the Corporation.

Note 15–Subsequent Event
On July 24, 2003, the Corporation announced an agreement to sell the Corporate Trust Services business, part of the Investment Management line of business. The sale price is $720 million, of which approximately 10% is contingent upon business retention. The sale includes the corporate, municipal, structured finance and escrow businesses as well as the document custody and London corporate trust operations. The closing of the transaction, pending regulatory approvals, is expected to occur later this year.

61


SELECTED STATISTICAL INFORMATION
Bank One Corporation and Subsidiaries

Average Balances/Net Interest Margin/Rates

Three Months Ended
June 30, 2003
  March 31, 2003
(Dollars in millions)
Average
Balance

Interest
Average
Rate

Average
Balance

Interest
Average
Rate

Assets                            
Short-term investments   $ 17,775   $ 62    1.40 % $ 17,672   $ 63    1.45 %
Trading assets (1)    10,211    87    3.42    8,414    74    3.57  
Investment securities: (1)  
  U.S. government and federal agency    33,356    336    4.04    29,030    280    3.91  
  States and political subdivisions    1,237    21    6.81    1,169    20    6.94  
  Other    32,142    444    5.54    34,851    482    5.61  

    Total investment securities    66,735    801    4.81    65,050    782    4.88  
Loans (1) (2)    144,635    2,231    6.19    146,419    2,315    6.41  

  Total earning assets    239,356    3,181    5.33    237,555    3,234    5.52  
Allowance for credit losses    (4,535 )          (4,558 )        
Other assets - nonearning    41,452            38,892          

    Total assets   $ 276,273           $ 271,889          

Liabilities and Stockholders' Equity  
Interest-bearing deposits: (3)  
  Savings   $ 10,260   $ 14    0.55 % $ 9,662   $ 14    0.59 %
  Money market    62,881    172    1.10    60,886    175    1.17  
  Time    27,104    274    4.05    29,401    307    4.23  
  Foreign offices (4)    15,985    65    1.63    14,513    61    1.70  

    Total deposits - interest-bearing    116,230    525    1.81    114,462    557    1.97  
Federal funds purchased and securities  
  under repurchase agreements    20,383    73    1.44    16,866    62    1.49  
Other short-term borrowings    13,413    90    2.69    12,433    87    2.84  
Long-term debt (5)    45,014    473    4.21    44,630    499    4.53  

    Total interest-bearing liabilities    195,040    1,161    2.39    188,391    1,205    2.59  

Noninterest-bearing deposits    44,077            46,397          
Other liabilities    14,694            14,480          
Preferred stock  
Common stockholders' equity    22,462            22,621          

    Total liabilities and equity   $ 276,273           $ 271,889          

Interest income/earning assets       $ 3,181    5.33 %     $ 3,234    5.52 %
Interest expense/earning assets        1,161    1.95        1,205    2.06  

Net interest income/margin       $ 2,020    3.38 %     $ 2,029    3.46 %

  (1) Includes tax-equivalent adjustments based on federal income tax rate of 35%.
  (2) Nonperforming loans are included in average balances used to determine average rate.
  (3) On a consolidated basis, demand deposit balances are routinely swept overnight into money market deposits. On a line of business basis, balances are presented without the impact of sweeps. Certain prior period data has been adjusted to conform with current period presentation.
  (4) Includes international banking facilities’ deposit balances in domestic offices and balances of Edge Act and overseas offices.
  (5) Includes trust preferred capital securities.

62


SELECTED STATISTICAL INFORMATION
Bank One Corporation and Subsidiaries

Average Balances/Net Interest Margin/Rates

Three Months Ended
December 31, 2002
  September 30, 2002
  June 30, 2002
Average
Balance

Interest
Average
Rate

Average
Balance

Interest
Average
Rate

Average
Balance

Interest
Average
Rate

                                                  
$ 15,338   $ 62    1.60 % $ 9,484   $ 49    2.05 % $ 10,300   $ 49    1.91 %
 6,995    67    3.80    6,426    66    4.07    6,941    65    3.76  
                                                  
 28,549    338    4.70    30,331    401    5.25    26,655    364    5.48  
 1,177    20    6.74    1,171    21    7.11    1,178    22    7.49  
 34,350    521    6.02    35,230    558    6.28    31,257    484    6.21  

 64,076    879    5.44    66,732    980    5.83    59,090    870    5.91  
 150,531    2,477    6.53    148,152    2,478    6.64    149,674    2,463    6.60  

 236,940    3,485    5.84    230,794    3,573    6.14    226,005    3,447    6.12  
 (4,566 )          (4,533 )          (4,521 )        
 37,888            36,277            34,383          

$ 270,262           $ 262,538           $ 255,867          

                                                  
                                                  
$ 10,076   $ 20    0.79 % $ 9,953   $ 17    0.68 % $ 10,997   $ 23    0.84 %
 58,003    204    1.40    54,537    201    1.46    55,818    188    1.35  
 31,483    342    4.31    33,340    374    4.45    35,529    414    4.67  
 14,776    66    1.77    14,634    75    2.03    14,293    71    1.99  

 114,338    632    2.19    112,464    667    2.35    116,637    696    2.39  
                                                  
 14,950    63    1.67    15,115    73    1.92    15,188    73    1.93  
 12,270    90    2.91    9,802    77    3.12    6,031    55    3.66  
 43,180    508    4.67    43,229    521    4.78    43,870    545    4.98  

 184,738    1,293    2.78    180,610    1,338    2.94    181,726    1,369    3.02  

 48,521            45,201            38,994          
 14,760            14,646            13,557          
                                                  
 22,243            22,081            21,590          

$ 270,262           $ 262,538           $ 255,867          

    $ 3,485    5.84 %     $ 3,573    6.14 %     $ 3,447    6.12 %
     1,293    2.17        1,338    2.30        1,369    2.43  

    $ 2,192    3.67 %     $ 2,235    3.84 %     $ 2,078    3.69 %

        For footnote detail see page 62.

63


SELECTED STATISTICAL INFORMATION
Bank One Corporation and Subsidiaries

Average Balances/Net Interest Margin/Rates

Six Months Ended June 30
2003
2002
(Dollars in millions)
Average
Balance

Interest
Average
Rate

Average
Balance

Interest
Average
Rate

Assets                            
Short-term investments   $ 17,723   $ 125    1.42 % $ 11,424   $ 107    1.89 %
Trading assets (1)    9,318    161    3.48    6,592    125    3.82  
Investment securities: (1)  
  U.S. government and federal agency    31,206    616    3.98    26,271    716    5.50  
  States and political subdivisions    1,203    41    6.87    1,232    45    7.37  
  Other    33,489    926    5.58    31,082    985    6.39  

    Total investment securities    65,898    1,583    4.84    58,585    1,746    6.01  
Loans (1) (2)    145,522    4,546    6.30    152,293    5,044    6.68  

  Total earning assets    238,461    6,415    5.42    228,894    7,022    6.19  
Allowance for credit losses    (4,547 )          (4,542 )        
Other assets - nonearning    40,179            35,238          

    Total assets    274,093            259,590          

Liabilities and Stockholders' Equity  
Interest-bearing deposits: (3)  
  Savings   $ 9,963   $ 28    0.57   $ 11,859   $ 48    0.82  
  Money market    60,409    347    1.16    56,917    374    1.33  
  Time    28,246    581    4.15    36,453    859    4.75  
  Foreign offices (4)    15,149    126    1.68    14,179    139    1.98  

    Total deposits - interest-bearing    113,767    1,082    1.92    119,408    1,420    2.40  
Federal funds purchased and securities  
  under repurchase agreements    18,634    135    1.46    14,861    135    1.83  
Other short-term borrowings    12,925    177    2.76    6,699    95    2.86  
Long-term debt (5)    44,823    972    4.37    43,449    1,059    4.92  

    Total interest-bearing liabilities    190,149    2,366    2.51    184,417    2,709    2.96  

Noninterest-bearing deposits    46,815            40,252          
Other liabilities    14,588            13,693          
Preferred stock  
Common stockholders' equity    22,541            21,228          

    Total liabilities and equity   $ 274,093       $ 259,590        

Interest income/earning assets       $ 6,415    5.42 %     $ 7,022    6.19 %
Interest expense/earning assets        2,366    2.00        2,709    2.39  

Net interest income/margin       $ 4,049    3.42 %     $ 4,313    3.80 %


(1) Includes tax-equivalent adjustments based on federal income tax rate of 35%.
(2) Nonperforming loans are included in average balances used to determine average rate.
(3) On a consolidated basis, demand deposit balances are routinely swept overnight into money market deposits. On a line of business basis, balances are presented without the impact of sweeps. Certain prior period data has been adjusted to conform with current period presentation.
(4) Includes international banking facilities’ deposit balances in domestic offices and balances of Edge Act and overseas offices.
(5) Includes trust preferred capital securities.

64


REPORT OF MANAGEMENT

        Management of Bank One Corporation and its subsidiaries (the “Corporation”) is responsible for the preparation, integrity and fair presentation of its published financial reports. These reports include consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America, using management’s best judgment and all information available.

        The condensed consolidated financial statements of the Corporation have been reviewed by KPMG LLP, independent public accountants. Their accompanying report is based upon a review conducted in accordance with standards established by the American Institute of Certified Public Accountants. The Audit and Risk Management Committee of the Board of Directors, which consists solely of outside directors, meets at least quarterly with the independent auditors, Corporate Audit and representatives of management to discuss, among other things, accounting and financial reporting matters.

        Management of the Corporation is responsible for establishing and maintaining disclosure controls and procedures to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. In addition to disclosure controls and procedures, management of the Corporation is responsible for establishing and maintaining an effective process for internal control over financial reporting, which provides reasonable, but not absolute, assurance of the safeguarding of assets against unauthorized acquisition, use or disposition. The Corporation maintains systems of controls that it believes are reasonably designed to provide management with timely and accurate information about the operations of the Corporation. This process is supported by an internal audit function along with the ongoing appraisal of controls by the Audit and Risk Management Committee. Both the Corporation’s independent accountants and the internal audit function directly provide reports on significant matters to the Audit and Risk Management Committee. The Corporation’s independent accountants, the internal audit function and the Audit and Risk Management Committee have free access to each other. Disclosure controls and procedures, internal controls, systems and corporate-wide processes and procedures are continually evaluated and enhanced.

        Management of the Corporation evaluated its disclosure controls and procedures as of June 30, 2003. Based on this evaluation, the Principal Executive Officer and Principal Financial Officer each concludes that as of June 30, 2003, the Corporation maintained effective disclosure controls and procedures in all material respects, including those to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate to allow for timely decisions regarding required disclosure. There has been no change in the Corporation’s internal control over financial reporting that occurred during the Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

        The Corporation is dedicated to maintaining a culture that reflects the highest standards of integrity and ethical conduct when engaging in its business activities. Management of the Corporation is responsible for compliance with various federal and state laws and regulations, and the Corporation has established procedures that are designed to ensure that management’s policies relating to conduct, ethics and business practices are followed on a uniform basis.




BANK ONE CORPORATION

August 8, 2003




/s/ James Dimon
——————————————
James Dimon
Principal Executive Officer



/s/ Heidi Miller
——————————————
Heidi Miller
Principal Financial Officer

65


REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
Bank One Corporation:

        We have reviewed the accompanying consolidated balance sheets of Bank One Corporation and subsidiaries (the “Corporation”) as of June 30, 2003 and 2002, the related consolidated income statements for the three and six month periods ended June 30, 2003 and 2002, and the related consolidated statements of stockholders’ equity and cash flows for the six-month periods ended June 30, 2003 and 2002. These condensed consolidated financial statements are the responsibility of the Corporation’s management.

        We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

        Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

Chicago, Illinois
August 7, 2003




/s/ KPMG LLP
——————————————
KPMG LLP

66


FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

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

        For the quarterly period ended June 30, 2003

OR

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

For the transition period from _____________ to _____________

Commission file number 001-15323




BANK ONE CORPORATION
————————————————————————————
(exact name of registrant as specified in its charter)



DELAWARE                          31-0738296
————————————————————————————
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                    Identification No.)



1 BANK ONE PLAZA CHICAGO, ILLINOIS             60670
————————————————————————————
(Address of principal executive offices)                 (Zip Code)



312-732-4000
————————————————————————————
(Registrant's telephone number, including area code)




————————————————————————————
(Former name, former address and former fiscal year, if changed since last report)

        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 Rule 12b-2 of the Exchange Act).

Yes  X   No    

        Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of July 31, 2003.




Class
—————————————
Common Stock $0.01 par value



Number of Shares Outstanding
———————————————————
1,126,832,973

67


Form 10-Q Cross-Reference Index

PART I–FINANCIAL INFORMATION

ITEM 1. Financial Statements    
Page
            Consolidated Balance Sheets-
            June 30, 2003 and 2002, and December 31, 2002
47 
            Consolidated Income Statements-
            Three and six months ended June 30, 2003 and 2002
48 
            Consolidated Statements of Stockholders' Equity-
            Six months ended June 30, 2003 and 2002
49 
            Consolidated Statements of Cash Flows-
            Six months ended June 30, 2003 and 2002
50 
            Notes to Consolidated Financial Statements 51 
             Selected Statistical Information 62 
ITEM 2. Management's Discussion and Analysis of Financial
            Condition and Results of Operations
2-46
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 27-30
ITEM 4. Controls and Procedures 65

PART II–OTHER INFORMATION

ITEM 1. Legal Proceedings 69  
ITEM 2. Changes in Securities and Use of Proceeds 69
ITEM 3. Defaults Upon Senior Securities 69
ITEM 4. Submission of Matters to a Vote of Security Holders 69
ITEM 5. Other Information 69
ITEM 6. Exhibits and Reports on Form 8-K 70
Signatures 71

68


PART II–OTHER INFORMATION

ITEM 1. Legal Proceedings
               None

ITEM 2. Changes in Securities and Use of Proceeds
               None

ITEM 3. Defaults Upon Senior Securities
               Not applicable

ITEM  4.  Submission of Matters to a Vote of Security Holders
Bank One Corporation held its Annual Meeting of Stockholders on Tuesday, April 15, 2003. A total of 996,181,626 shares were represented in person or by proxy, or more than 85% of the total shares outstanding. The results of shareholder voting on the two proposals presented were as follows:

1.     Proposal 1—Stockholders elected the 13 Director nominees named in the Proxy Statement:

Name For Withheld
John H. Bryan 981,817,971  14,363,655 
Stephen B. Burke 981,663,814  14,517,812 
James S. Crown 953,042,765  43,138,861 
James Dimon 979,825,022  16,356,604 
Maureen A. Fay 952,168,249  44,013,377 
John R. Hall 951,836,359  44,345,267 
Laban P. Jackson, Jr. 981,745,987  14,435,639 
John W. Kessler 952,214,791  43,966,835 
Robert I. Lipp 981,766,644  14,414,982 
Richard A. Manoogian 952,624,038  43,557,588 
David C. Novak 982,023,720  14,157,906 
John W. Rogers, Jr. 982,388,488  13,793,138 
Frederick P. Stratton, Jr. 982,122,508  14,059,118 

2.     Proposal 2—Stockholders ratified the appointment of KPMG LLP as Bank One’s independent auditor for 2003:



For Against Abstain
966,915,442 22,159,653 7,105,679


ITEM 5. Other Information
               None

69


ITEM 6. Exhibits and Reports on Form 8-K

(a)   Exhibit 12Statement regarding computation of ratios.

Exhibit   15–Letter of independent public accountants regarding unaudited interim financial information.

Exhibit   31 (a)–Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31 (b)Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32 (a)–Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32 (b)–Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)   The Registrant filed the following Current Reports on Form 8-K during the quarter ended June 30, 2003.

  Date                    Item Reported

  April 15, 2003    Registrant’s April 15, 2003 news release announcing its 2003 first quarter earnings.

  May 30, 2003    Registrant’s May 30, 2003 news release announcing its agreement to purchase key                   business components of Zurich Life Zurich Financial Services Group.

70


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



BANK ONE CORPORATION



Date                  August 8, 2003
——————————————
/s/ James Dimon
——————————————
James Dimon
Principal Executive Officer


Date                  August 8, 2003
——————————————
/s/ Heidi Miller
——————————————
Heidi Miller
Principal Financial Officer


Date                  August 8, 2003
——————————————
/s/ Melissa J. Moore
——————————————
Melissa J. Moore
Principal Accounting Officer

71


BANK ONE CORPORATION

EXHIBIT INDEX

Exhibit Number               Description of Exhibit

         12                   Statement regarding computation of ratios.

         15                   Letter of independent public accountants regarding unaudited interim financial information.

        31 (a)           Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        31 (b)           Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        32 (a)–           Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

        32 (b)–           Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

72


EXHIBIT 12

Statement Regarding Computation of Ratios

        The ratios of income to fixed charges have been computed on the basis of the total enterprise (as defined by the Commission) by dividing income before fixed charges and income taxes by fixed charges. Fixed charges consist of interest expense on all long-term and short-term borrowings, excluding or including interest on deposits as indicated below. The computations of other ratios are evident from the information presented in this Form 10-Q and the Corporation’s 2002 Annual Report.


Bank One Corporation and Subsidiaries
COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES

(In millions, except ratios)
Six Months Ended
June 30, 2003

Year Ended
2002

Year Ended
2001

Year Ended
2000 (1)

Year Ended
1999

EXCLUDING INTEREST ON DEPOSITS:                        
  Pretax income (loss) from continuing operations   $ 2,383   $ 4,763   $ 3,800   $ (1,080 ) $ 4,974  
  Earnings (loss) from unconsolidated entities  
    under the equity method of accounting    61    91    (80 )  (129 )  (47 )
  Fixed charges, excluding capitalized interest    1,336    2,720    3,868    5,198    3,719  






    Adjusted pretax earnings base    3,780    7,574    7,588    3,989    8,646  
  
  Interest, excluding interest on deposits    1,284    2,621    3,771    5,105    3,622  
    Rental factor    52    99    96    93    97  
    Capitalized interest    1    1    4    9    2  






      Fixed charges    1,337    2,721    3,871    5,207    3,721  
Consolidated ratios of earnings to fixed charges,  
  excluding interest on deposits    2.8x    2.8x    2.0x    0.8x    2.3x  
  
INCLUDING INTEREST ON DEPOSITS:  
  Pretax income (loss) from continuing operations   $ 2,383   $ 4,763   $ 3,800   $ (1,080 ) $ 4,974  
  Earnings (loss) from unconsolidated entities  
    under the equity method of accounting    61    91    (80 )  (129 )  (47 )
  Fixed charges, excluding capitalized interest    2,418    5,439    8,763    11,335    8,370  






    Adjusted pretax earnings base    4,862    10,293    12,483    10,126    13,297  
  
  Interest, including interest on deposits    2,366    5,340    8,666    11,242    8,273  
    Rental factor    52    99    96    93    97  
    Capitalized interest    1    1    4    9    2  






      Fixed charges    2,419    5,440    8,766    11,344    8,372  
Consolidated ratios of earnings to fixed charges,  
  including interest on deposits    2.0x    1.9x    1.4x    0.9x    1.6x  






  (1) Results for the year ended December 31, 2000 were insufficient to cover fixed charges. The coverage deficiency was approximately $1.2 billion.

73


EXHIBIT 15

Bank One Corporation
1 Bank One Plaza
Chicago, Illinois 60670

        Re: Quarterly Report Pursuant to Section 13 of the Securities Act of 1934 for the quarterly period ended June 30, 2003 as filed on Form 10-Q on August 8, 2003

        With respect to the subject quarterly report pursuant to Section 13 of the Securities Act of 1934 for the quarterly period ended June 30, 2003 as filed on Form 10-Q on August 8, 2003, we acknowledge our awareness of the use therein of our report dated August 7, 2003, related to our review of interim financial information.

        Pursuant to Rule 436 under the Securities Act of 1933 (the “Act”), such report is not considered part of a registration statement prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act.

      Chicago, Illinois
      August 8, 2003




/s/ KPMG LLP
——————————————
KPMG LLP

74


EXHIBIT 31 (a)



                    I, James Dimon, certify that:

  1. I have reviewed this quarterly report on Form 10-Q of Bank One Corporation;

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  (b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  (c) Disclosed inthis report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

                    August 8, 2003




/s/ James Dimon
——————————————
James Dimon
Principal Executive Officer

75


EXHIBIT 31 (b)

                    I, Heidi Miller, certify that:

  1. I have reviewed this quarterly report on Form 10-Q of Bank One Corporation;

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  (b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  (c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

                    August 8, 2003




/s/ Heidi Miller
——————————————
Heidi Miller
Principal Financial Officer

76


EXHIBIT 32 (a)

        I hereby certify that this Form 10-Q, containing Bank One Corporation’s consolidated financial statements as of and for the three and six months ended June 30, 2003, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and the information contained in this Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

August 8, 2003




/s/ James Dimon
——————————————
James Dimon
Chief Executive Officer

77


EXHIBIT 32 (b)

        I hereby certify that this Form 10-Q, containing Bank One Corporation’s consolidated financial statements as of and for the three and six months ended June 30, 2003, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and the information contained in this Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

August 8, 2003




/s/ Heidi Miller
——————————————
Heidi Miller
Chief Financial Officer

78