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BANK ONE CORPORATION
INDEX TO FINANCIAL REVIEW

1   Five Quarter Summary of Selected Financial Information  
2   Forward-Looking Statements 
2   Application of Critical Accounting Policies 
2   Summary of Results 
7   Business Segment Results 
7   Business Segment Results and Other Data 
30   Balance Sheet Analysis 
30   Risk Management 
31       Liquidity Risk Management 
31       Market Risk Management 
34   Credit Portfolio Composition 
37   Asset Quality 
39   Allowance for Credit Losses 
42   Derivative Financial Instruments 
43   Loan Securitizations and Off-Balance Sheet Activities 
46   Capital Management 
50   Consolidated Financial Statements 
54   Notes to Consolidated Financial Statements 
64   Selected Statistical Information 
67   Report of Management 
68   Review Report of Independent Public Accountants 
69   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)
September 30
2003

June 30
2003

March 31
2003

December 31
2002

September 30
2002

INCOME STATEMENT DATA:                        
Total revenue, net of interest expense   $ 4,084   $ 4,072   $ 3,943   $ 4,197   $ 4,154  
Net interest income    2,086    1,970    1,984    2,144    2,188  
Net interest income-  
  fully taxable-equivalent basis ("FTE") (1)    2,127    2,009    2,021    2,180    2,226  
Noninterest income    1,998    2,102    1,959    2,053    1,966  
Provision for credit losses    416    461    496    628    587  
Noninterest expense    2,421    2,403    2,297    2,371    2,404  
                      
Income from continuing operations, net of taxes    874    847    811    832    813  
                      
Income from discontinued operations, net of taxes (2)    9    9    7    10    10  
                      
     Net income    883    856    818    842    823  
PER COMMON SHARE DATA:  
Basic earnings per share  
Income from continuing operations, net   $ 0.78   $ 0.75   $ 0.70   $ 0.72   $ 0.70  
Income from discontinued operations, net    0.01    0.01    0.01    0.01    0.01  

Net income   $ 0.79   $ 0.76   $ 0.71   $ 0.73   $ 0.71  
                      
Diluted earnings per share  
Income from continuing operations, net    0.78    0.74    0.70    0.71    0.69  
Income from discontinued operations, net    0.01    0.01    0.01    0.01    0.01  

Net income   $ 0.79   $ 0.75   $ 0.71   $ 0.72   $ 0.70  
                      
Cash dividends declared    0.25    0.21    0.21    0.21    0.21  
Book value    20.05    19.70    19.44    19.28    18.79  
BALANCE SHEET DATA - ENDING BALANCES:  
Loans   $ 141,710   $ 144,583   $ 144,747   $ 148,125   $ 150,389  
Total assets    290,006    299,463    287,864    277,383    274,187  
Deposits    163,411    172,015    167,075    170,008    164,036  
Long-term debt (3)    44,225    46,070    44,950    43,234    42,481  
Common stockholders' equity    22,411    22,257    22,316    22,440    21,925  
Total stockholders' equity    22,411    22,257    22,316    22,440    21,925  
CREDIT QUALITY RATIOS:  
Annualized net charge-offs to average loans    1.50 %  1.35 %  1.35 %  1.65 %  1.55 %
Allowance to period end loans    3.34    3.35    3.31    3.20    3.17  
Nonperforming assets to related assets (4)    2.06    2.28    2.38    2.38    2.48  
FINANCIAL PERFORMANCE:  
Return on average assets    1.24 %  1.24 %  1.22 %  1.24 %  1.24 %
Return on average common equity    15.8    15.3    14.7    15.0    14.8  
Net interest margin    3.45    3.37    3.45    3.65    3.83  
Efficiency ratio (5)    58.7    58.5    57.7    56.0    57.3  
CAPITAL RATIOS:  
Risk-based capital:  
     Tier 1    9.8 %  9.7 %  10.0 %  9.9 %  9.5 %
     Total    13.5    13.6    13.8    13.7    13.0  
Leverage    8.4    8.7    8.9    8.9    9.0  
COMMON STOCK DATA:  
Average shares outstanding:  
      Basic    1,115    1,132    1,148    1,157    1,162  
      Diluted    1,124    1,140    1,156    1,166    1,171  
Stock price, quarter-end   $ 38.65   $ 37.18   $ 34.62   $ 36.55   $ 37.40  
Headcount    71,240    72,323    74,077    73,685    73,535  

  (1) Net interest income-FTE includes tax equivalent adjustments of $41 million, $39 million, $37 million, $36 million and $38 million for the quarters ended September 30, 2003, June 30, 2003, March 31, 2003, December 31, 2002 and September 30, 2002, respectively.
  (2) As a result of the Corporation’s announced agreement to sell its corporate trust services business, the results of these operations are reported as discontinued.
  (3) Includes trust preferred securities.
  (4) Related assets consist of loans outstanding, including loans held for sale, and other real estate owned.
  (5) The efficiency ratio is based on income from continuing operations. Prior periods have been recalculated to conform with the current period presentation.

1


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, Bank One Corporation and its subsidiaries (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.

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 the Corporation must use assumptions and estimates to apply these principles where actual measurement is not possible or practical. Changes in such estimates may have a significant impact on the financial statements. 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. 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 the assumptions used to value the August 2003 stock option grant see Note 12, “Stock-Based Compensation.” 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.)

This quarter the Corporation purchased key business components of Zurich Life, a U.S. life and annuity operation of Zurich Financial Services Group. For a discussion of this purchase, see page 56. The results of operations for Zurich Life from September 1 to September 30, 2003 are included in the Corporation’s consolidated financial statements for the three and nine months ended September 30, 2003.

2


        Net income was $883 million, or $0.79 per diluted share. This compares to net income of $823 million, or $0.70 per diluted share. For the nine months ended September 30, 2003, net income totaled $2.6 billion, or $2.25 per diluted share. This compares to net income of $2.5 billion, or $2.08 per diluted share.

Net Interest Income

Net interest income represents the spread on interest earning assets over interest bearing liabilities, including loan fees, cash interest collections on nonaccrual loans, dividend income, interest reversals, and income or expense on derivatives used to manage interest rate risk. Net interest income was $2.1 billion, a decrease of $102 million, or 5%. Net interest margin decreased to 3.45% from 3.83%. For the first nine months of 2003, net interest income was $6.0 billion, a decrease of $371 million, or 6%. Net interest margin for the same period decreased to 3.42% from 3.80%. For both the third quarter and the first nine months of 2003, the decline in net interest income and margin generally resulted from actions taken in 2002 to position the balance sheet more defensively for 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. See Note 8, “Interest Income and Interest Expense,” for further details of the components of net interest income.

Noninterest Income

Noninterest income of $2.0 billion increased $32 million, and as a percentage of total revenue increased to 48.9% from 47.3%. This increase was primarily due to net gains in the investment portfolio, higher capital markets revenue and higher deposit service charges, offset by losses on the credit derivatives hedge portfolio.

        For the first nine months of 2003, noninterest income of $6.1 billion was essentially flat. Losses on the credit derivatives hedge portfolio and lower income derived from securitized loans, were mostly offset by the net gains from investment securities. The components of noninterest income for the periods indicated were:

Three Months Ended September 30
Nine Months Ended September 30
  Change
  Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
Banking fees and commissions     $ 441   $ 410   $ 31    8 % $ 1,339   $ 1,363   $ (24 )  (2 )%
Credit card revenue    974    976    (2 )  -    2,736    2,847    (111 )  (4 )
Service charges on deposits    433    409    24    6    1,229    1,178    51    4  
Fiduciary and investment management fees    164    159    5    3    485    488    (3 )  (1 )
Investment securities gains (losses)    68    (29 )  97    N/M    289    49    240    N/M  
Trading gains (losses)    23    143    (120 )  (84 )  (49 )  234    (283 )  N/M  
Other income (loss)    (105 )  (102 )  (3 )  (3 )  30    (32 )  62    N/M  

  Total noninterest income   $ 1,998   $ 1,966   $ 32    2   $ 6,059   $ 6,127   $ (68 )  (1 )
Noninterest income to total revenue    48.9 %  47.3 %  1.6 %    50.1 %  48.9 %   1.2 %    

Quarterly Results

Banking fees and commissions of $441 million increased $31 million, or 8%. Increased asset-backed, syndication and fixed income origination fees, premiums and commissions on insurance products related to the Zurich Life acquisition, and improved investment sales in the Retail line of business were the primary drivers of this increase. Partially offsetting these were lower fees resulting from the elimination of teller service fees.

        Service charges on deposits of $433 million increased $24 million, or 6%, resulting from higher Retail deposit service charges.

        Net securities gains from the investment portfolios were $68 million, compared to net securities losses of $29 million, an increase of $97 million. This increase primarily arose from the sale by One Equity Partners LLC of its controlling interest in Ability One Products Corp. and the overall performance of the principal investments portfolio, partially offset by security losses in the treasury investment portfolio.

3


        In the third quarter, trading produced gains of $23 million, a decrease of $120 million, or 84%, from trading gains of $143 million. This decrease resulted from the decline in the fair value of the credit derivatives portfolio, which is used to hedge the commercial loan portfolio and limit exposures to specific credits, partially offset by increased derivatives trading revenue.

Year-to-Date Results

Banking fees and commissions of $1.3 billion decreased $24 million, or 2%. This decrease was the result of lower fees from the intentional reduction of non-branded ATM machines and elimination of the teller service fee, partially offset by the increase in asset-backed origination fees.

        Credit card revenue of $2.7 billion decreased by $111 million, or 4%, driven by a lower margin on securitized loans, offset by higher interchange fees from increased card usage volume.

        Service charges on deposits of $1.2 billion increased by $51 million, or 4%. This increase stemmed from higher Retail deposit service charges.

        Net investment securities gains from treasury activities and the principal investment portfolios were $289 million, an increase of $240 million. This increase was primarily a result of a gain on the sale of an investment held in the principal investment portfolio. Valuation adjustments included in each period’s net securities gains were a result of changes in the value of principal investments, the interest rate environment and economic conditions.

        Trading losses of $49 million decreased $283 million from trading gains of $234 million. This decrease was primarily the result of losses on the credit derivatives portfolio used to hedge the commercial loan portfolio and limit exposures for specific credits, partially offset by greater interest rate derivatives and foreign exchange trading revenue.

        Other income of $30 million increased $62 million, primarily the result of gains associated with the sale of commercial loans and securities acquired in satisfaction of debt, and an increase in securitization activity.

4


Noninterest Expense

Total noninterest expense of $2.4 billion increased $17 million. The components of noninterest expense for the periods indicated were:

Three Months Ended September 30
Nine Months Ended September 30
  Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
Salaries and employee benefits:                                    
  Salaries   $ 1,031   $962   $69    7 % $3,053   $2,806   $247    9 %
  Employee benefits    162    159    3    2    526    491    35    7  

    Total salaries and employee benefits    1,193    1,121    72    6    3,579    3,297    282    9  
Occupancy    175    158    17  11  505    485    20    4  
Equipment    119    107    12    11    347    308    39    13  
Outside service fees and processing    290    302    (12 )  (4 )  838    969    (131 )  (14 )
Marketing and development    253    292    (39 )  (13 )  694    828    (134 )  (16 )
Telecommunication    58    74    (16 )  (22 )  160    308    (148 )  (48 )
Intangible amortization    34    32    2    6    98    94    4    4  
Other expense    299    318    (19 )  (6 )  900    949    (49 )  (5 )

  Total noninterest expense before  
    restructuring-related reversals    2,421    2,404    17  1  7,121    7,238    (117 )  (2 )
Restructuring-related reversals    -    -  -    -    -    (63 )  63    N/M  

    Total noninterest expense   $ 2,421   $2,404   $17  1 $7,121   $7,175   $(54 )  (1 )

Headcount    71,240    73,535    (2,295 )  (3 )
Efficiency ratio    58.7 %  57.3 %  1.4 %    58.3 %  56.7 %  1.6 %

Quarterly Results

Salaries and employee benefits increased $72 million, or 6%. Higher volume-based commissions incurred by Retail and increased stock option expense for the Corporation contributed to increased compensation levels. Stock option expense includes a new grant for 2003 as well as the amortization expense of the 2002 grant. Overall employee benefits expense also increased. These increases were partially offset by a reduction in headcount.

        Occupancy expense increased $17 million, or 11%. A combination of increased rent and other occupancy expenses, as well as branch expansion costs incurred by Retail, were the main contributing factors.

        Equipment expense increased $12 million, or 11%, as additional depreciation expense was incurred on fixed assets acquired in the Corporation’s systems conversion efforts.

        Marketing and development expense decreased $39 million, or 13%. This decrease was primarily the result of lower advertising expenditures for Card Services, partially offset by an increase in Retail’s marketing spend.

        Telecommunications expense decreased $16 million, or 22%, as the Corporation realized cost savings related to terminated and renegotiated vendor contracts.

        Other expense decreased $19 million, or 6%. Lower operating and fraud costs were the main drivers of this decrease, partially offset by increased expenses related to the acquisition of Zurich Life. Other expense includes freight and postage expense of $62 million and $63 million for 2003 and 2002, respectively.

Year-to-Date Results

Salaries and employee benefits increased $282 million, or 9%. This increase resulted from higher base and incentive compensation and benefits expense, 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 nine months ended 2003 and 2002 amounted to $50 million and $28 million, respectively. The Corporation adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” in 2002.

        Occupancy expense increased $20 million, or 4%. A combination of increased rent and other occupancy expenses, as well as branch expansion costs incurred by Retail, were the main contributing factors.

5


        Equipment expense increased $39 million, or 13%, as additional depreciation expense was incurred on fixed assets acquired in the Corporation’s systems conversion efforts.

        Outside service fees and processing expense decreased $131 million, or 14%. The Corporation continued to experience operational efficiencies resulting from renegotiated vendor contracts and the Corporation’s systems conversion efforts.

        Marketing and development expense decreased $134 million, or 16%. This decrease was primarily the result of lower advertising expenditures for Card Services, partially offset by an increase in Retail’s marketing spend.

        Telecommunications expense decreased $148 million, or 48%, as the Corporation realized cost savings as a result of the terminated and renegotiated vendor contracts.

        Other expense decreased $49 million, or 5%, while reinvestment in the Corporation’s infrastructure continued. This decrease was a result of lower operating and fraud expenses, partially offset by increased expenses related to the acquisition of Zurich Life. Other expense includes freight and postage expense of $186 million and $193 million for 2003 and 2002, respectively.

        The year-ago period contained a benefit of $63 million for restructuring charge reversals.

Provision for Credit Losses

Provision for credit losses was $416 million for the third quarter and $1.4 billion for the first nine months of 2003, compared to $587 million and $1.9 billion for 2002, respectively. These decreases were mainly the result of improving credit quality. For the three- and nine-month periods ended September 30, 2003, Commercial Banking continued to experience a reduction in the size of its loan portfolio. This, along with continued improvement in credit quality, led to the decision to release $150 million and $245 million of corporate banking credit loss reserves through the provision for credit losses for the three and nine-month periods, respectively. These reserve releases were partially offset by an increased provision in the current quarter in Card Services resulting from slightly higher losses, and an increase in provision of $85 million in the second quarter of 2003 in the Corporate line of business related to the change in the overall risk profile of the non-core portfolios.

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 September 30 Nine Months Ended September 30
(Dollars in millions) 2003 2002 2003 2002

Income from continuing operations before income taxes     $ 1,247   $ 1,163   $ 3,605   $ 3,504  
Applicable income taxes    373    350    1,073    1,080  
Effective tax rate    30 %  30 %  30 %  31 %

Income from discontinued operations before income taxes   $ 14   $ 15   $ 39   $ 45  
Applicable income taxes    5    5    14    16  
Effective tax rate    36 %  33 %  36 %  36 %

Income before income taxes   $ 1,261   $ 1,178   $ 3,644   $ 3,549  
Applicable income taxes    378    355    1,087    1,096  
Effective tax rate    30 %  30 %  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.

6


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.

        As a result of the Corporation’s announced agreement to sell its corporate trust services business, the results of these operations have been transferred from the Investment Management line of business to the Corporate line of business and are reported as discontinued operations for the current and prior periods.

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

Three Months Ended September 30
Nine Months Ended September 30
(In millions)
    2003
    2002
    2003
    2002
Retail   $           392   $           361   $           1,160   $           1,096  
Commercial Banking  361   179   827   469  
Card Services  285   298   812   845  
Investment Management (1)  91   79   240   264  
Corporate   (255 ) (104 ) (507 ) (250 )

  Income from continuing operations  $           874   $           813   $           2,532   $           2,424  

  (1) Prior period data has been adjusted for the transfer of corporate trust services from Investment Management to the Corporate line of business where it is now reported as discontinued operations (see page 27).

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.

7


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 September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (1) (2)   $1,102 $1,067 $35  3 % $3,301   $3,208 $ 93    3 %
  Banking fees and commissions (3)    170    170    -    -    534    562    (28 )  (5 )
  Credit card revenue (4)    53    51    2    4    165    143    22    15  
  Service charges on deposits (5)    242    213    29    14    671    610    61    10  
  Other income    28    2    26    N/M    43    26    17    65  

    Total noninterest income    493    436    57    13    1,413    1,341    72    5  

      Total revenue, net of interest expense    1,595    1,503    92    6    4,714    4,549    165    4  
                                  
Provision for credit losses    139    114    25    22    363    360    3    1  
                                  
Salaries and employee benefits    390    377    13    3    1,183    1,140    43    4  
Other expense    449    439    10    2  1,341  1,330  11   1

Total noninterest expense before                                  
  restructuring-related reversals    839    816    23    3    2,524    2,470    54    2  
Restructuring-related reversals    -  -    -    -    -  (18 )  18    N/M  

  Total noninterest expense    839    816    23    3    2,524    2,452    72    3  

Income before income taxes    617    573    44  8  1,827  1,737  90   5
Applicable income taxes    225    212    13    6    667    641    26    4  

  Net income (6)   $ 392   $ 361   $ 31    9 % $ 1,160   $ 1,096   $ 64    6 %

FINANCIAL PERFORMANCE:  
Return on average common equity    33 %  30 %  3 %    32 %  31 %  1 %
Efficiency ratio    53    54    (1 )      54    54    -      
Headcount    30,867    32,753    (1,886 )  (6 )%

ENDING BALANCES:  
  Small business commercial   $10,122 $9,899 $223  2 %
  Home equity    25,252    18,696    6,556    35  
  Vehicle    13,841    15,001    (1,160 )  (8 )
  Other personal loans    6,199    7,118    (919 )  (13 )

      Total loans (7) (8)    55,414    50,714    4,700    9  
                                  
Assets    58,080    54,174    3,906    7                  
                                  
Demand deposits    29,642    26,607    3,035    11  
Savings    40,581    38,130    2,451    6  

  Core deposits    70,223    64,737    5,486    8  
Time    18,616    23,000    (4,384 )  (19 )

  Total deposits    88,839    87,737    1,102    1  
                                  
Equity    4,774    4,774    -    -                  

AVERAGE BALANCES:  
  Small business commercial   $10,126 $9,891 $235  2 % $10,031   $9,846 $ 185    2 %
  Home equity    24,499    17,872    6,627    37    22,847    16,836    6,011    36  
  Vehicle    13,962    14,574    (612 )  (4 )  14,125  14,404    (279 )  (2 )
  Other personal loans    6,147    6,773    (626 )  (9 )  6,415    7,184    (769 )  (11 )

      Total loans (7)    54,734    49,110    5,624    11    53,418    48,270    5,148    11  
                                  
Assets    57,467    52,688    4,779    9    56,263    51,948    4,315    8  
                                  
Demand deposits    29,632    26,085    3,547    14    28,686    25,726    2,960    12  
Savings    40,354    38,095    2,259    6    40,015    37,677    2,338    6  

  Core deposits    69,986    64,180    5,806    9    68,701    63,403    5,298    8  
Time    18,985    23,759    (4,774 )  (20 )  20,079  24,643    (4,564 )  (19 )

  Total deposits    88,971    87,939    1,032    1    88,780    88,046    734    1  
                                  
Equity    4,774    4,774    -    -    4,774    4,774    -    -  

8


Retail – continued

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs:  
  Small business commercial   $ 14   $ 14   $ -    0 % $ 41   $ 46   $ (5 )  (11 )%
  Home equity    47    24    23    96    100    74    26    35  
  Vehicle    56    53    3    6    149    159    (10 )  (6 )
  Other personal loans    27    26    1    4    69    81    (12 )  (15 )

      Total net charge-offs    144    117    27    23    359    360    (1 )  -  

Annualized net charge-off ratios:  
  Small business commercial    0.55 %  0.57 %  (0.02 )%    0.54 %  0.62 %  (0.08 )%
  Home equity    0.77  0.54  0.23    0.58  0.59  (0.01 )
  Vehicle    1.60  1.45  0.15    1.41  1.47  (0.06 )
  Other personal loans    1.76  1.54  0.22      1.43  1.50  (0.07 )
      Total net charge-offs    1.05  0.95  0.10      0.90  0.99  (0.09 )

Nonperforming assets:  
  Commercial   $ 268   $ 273   $ (5 )  (2 )%
  Consumer (9)    305    304    1    -  

Total nonperforming loans (9) (10)    573    577    (4 )  (1 )
    Other, including other real estate owned ("OREO")    117    180    (63 )  (35 )

      Total nonperforming assets    690    757    (67 )  (9 )
                                  
Allowance for credit losses   $ 683   $ 681   $ 2    -  
Allowance to period end loans (8)    1.29 %  1.41 %  (0.12 )%
Allowance to nonperforming loans (9) (10)    120    119    1  
Nonperforming assets to related assets (11)    1.24  1.49  (0.25 )

DISTRIBUTION:  
Number of:  
  Banking centers    1,810    1,779    31    2 %
  ATMs    4,350    4,122    228    6  
  Relationship bankers    3,139    2,591    548    21  
  On-line customers (in thousands)    2,184    1,326    858    65  
  Personal demand accounts (in thousands)    4,684    4,339    345    8  
  Business demand accounts (in thousands)    508    491    17    3  
  Debit cards issued (in thousands)    5,104    4,609    495    11  

RETAIL BROKERAGE:  
Mutual fund sales   $ 671   $ 575   $ 96    17% $2,022 $1,792 $ 230    13%
Annuity sales    895    752    143    19    2,420    2,363    57    2  

  Total investment sales volume    1,566    1,327    239    18    4,442    4,155    287    7  
                                  
Market value customer assets - end of period (in billions)    $31.9 $26.7 $5.2  19 %              
                                  
Number of customers - end of period (in thousands)    707    676    31    5  
Number of dedicated investment sales representatives    902    828    74    9  

  N/M–Not meaningful.
  (1) 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.
  (2) Net interest income-FTE includes tax equivalent adjustments of $6 million for the three months ended September 30, 2003 and 2002, respectively. For the nine months ended September 30, 2003 and 2002, tax equivalent adjustments were $17 million and $16 million, respectively.
  (3) Banking fees and commissions include insurance premiums, documentary fees, commitment fees, annuity and mutual fund commissions, leasing fees, safe deposit fees, official check fees, ATM interchange and miscellaneous other fee revenue.
  (4) 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.
  (5) Service charges on deposits include deficient balance fees, non-sufficient funds/overdraft fees and other service-related fees.
  (6) Net income before restructuring-related reversals, net of $7 million tax, was $1,085 million for the nine months ended September 30, 2002.
  (7) Certain loans, previously classified as other personal loans, were reclassified into loan categories which are more reflective of management’s view of the underlying loan characteristics. Prior period balances have been adjusted to conform to the current period presentation.
  (8) Loans include loans held for sale of $2,480 million and $2,517 million at September 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 September 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.

9


Retail – continued

Quarterly Results

Retail net income was $392 million, up $31 million, or 9%.

        Total revenue, net of interest expense increased $92 million, or 6%, to $1.6 billion. Net interest income was $1.1 billion, up $35 million, or 3%, primarily from growth in home equity loans and core deposits, partially offset by spread compression and lower time deposits. Noninterest income was $493 million, up $57 million, or 13%, driven by higher mortgage-related revenue, deposit service charges, and investment sales. Partially offsetting these increases were the impact of the VISA® card interchange rate settlement and the elimination of the teller service and online bill-pay fees.

        Noninterest expense was $839 million, up 3%, or $23 million, primarily due to increased marketing spend and volume-based commissions, as well as branch expansion costs, partially offset by improved efficiencies in operating expenses.

        The provision for credit losses was $139 million, up 22%, or $25 million, driven primarily by continued growth in the loan portfolios. As a percentage of average loans, net charge-offs were 1.05%, up from 0.95%, primarily due to the sale of a small non-relationship portfolio.

        The allowance for credit losses of $683 million represented 1.29% of period-end loans. Nonperforming assets were $690 million, down 9%, driven by a decrease in other real estate owned.

Year-To-Date Results

Retail year-to-date net income was $1.2 billion, up $75 million, or 7% (excluding the $11 million after-tax benefit from a restructuring charge reversal in the prior year).

        Total revenue, net of interest expense increased 4% to $4.7 billion. Net interest income was $3.3 billion, up 3%, primarily from growth in home equity loans and core deposits, partially offset by spread compression and lower time deposits. Noninterest income was $1.4 billion, up 5%, as a result of higher deposit service charges, debit card revenue, and mortgage-related activity. Partially offsetting these increases were the intentional reduction of non-branded ATM machines and the elimination of the teller service and online bill-pay fees as well as the impact of the VISA interchange settlement.

        Noninterest expense increased $54 million, or 2% (excluding the $18 million pre-tax benefit from the restructuring charge reversal in the prior year), primarily due to increased collection expenses, marketing spend, benefit costs, volume-based commissions and incentive compensation. This increase was partially offset by lower fraud and operating expenses as well as other expense improvements.

        The provision for credit losses was $363 million, up $3 million, or 1%, driven by continued growth in the loan portfolios, partially offset by credit quality improvements in the vehicle and small business commercial portfolios. As a percentage of average loans, net charge-offs were 0.90%, down from 0.99%.

10


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, middle market banking and governmental customers.

Three Months Ended September 30
Nine Months Ended September 30
    Change
  Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (1) (12)   $ 576   $ 605   $ (29 )  (5 )% $ 1,719   $ 1,858   $ (139 )  (7 )%
  Banking fees and commissions (3)    198    175    23    13    623    574    49    9  
  Credit card revenue (4)    27    21    6    29    77    55    22    40  
  Service charges on deposits (5)    186    188    (2 )  (1 )  546    545    1    -  
  Fiduciary and investment  
   management fees (13)    -    -    -    -    -    (1 )  1    N/M  
  Investment securities gains (losses)     31     (12 )   43     N/M   29     (13 )   42     N/M  
  Trading gains (losses) (14)     30     143     (113 )   (79 )   (28 )   250   (278 )   N/M  
  Other income (loss)    (11 )  (78 )  67    86    7    (148 )  155    N/M  

    Total noninterest income    461    437    24    5    1,254    1,262    (8 )  (1 )

      Total revenue, net of interest expense    1,037    1,042    (5 )  -    2,973    3,120    (147 )  (5 )
Provision for credit losses    (51 )  237    (288 )  N/M    87    792    (705 )  (89 )
Salaries and employee benefits    296    269    27    10    868    789    79    10  
Other expense    286    315    (29 )  (9 )  881    947    (66 )  (7 )

Total noninterest expense before  
  restructuring-related reversals    582    584    (2 )  -    1,749    1,736    13    1  
Restructuring-related reversals    -    -    -    -    -    (4 )  4    N/M  

  Total noninterest expense    582    584    (2 )  -    1,749    1,732    17    1  

Income before income taxes    506    221    285    N/M    1,137    596    541    91  
Applicable income taxes    145    42    103    N/M    310    127    183    N/M  

  Net income (15)   $ 361   $ 179   $ 182    N/M   $ 827   $ 469   $ 358    76  

Memo-Revenue by activity:  
  Lending-related revenue   $ 454   $ 390   $ 64    16 % $ 1,318   $ 1,239   $ 79    6 %
  Credit derivative hedge portfolio    (51 )  101    (152 )  N/M    (248 )  101    (349 )  N/M  
  Global treasury services    405    426    (21 )  (5 )  1,190    1,254    (64 )  (5 )
  Capital markets (16)    234    154    80    52    688    518    170    33  
  Other    (5 )  (29 )  24    83    25    8    17    N/M  

FINANCIAL PERFORMANCE:  
Return on average common equity    19 %  10 %  9 %  15 %  8 %  7 %
Efficiency ratio    56    56    -    59    56    3  
Efficiency ratio excluding credit hedge portfolio    53    62    (9 )  54    57    (3 )
Headcount:  
  Corporate banking  
    (including capital markets)    2,624    2,306    318    14 %
  Middle market    2,551    2,942    (391 )  (13 )
  Global treasury services    3,234    3,403    (169 )  (5 )
  Operations, technology, and other administration    1,930    1,967    (37 )  (2 )

    Total headcount    10,339    10,618    (279 )  (3 )

ENDING BALANCES:  
Loans (17)   $54,493 $62,991 $(8,498 )  (13) %  
Assets    102,410    95,649    6,761    7  
Demand deposits    27,287    24,514    2,773    11  
Savings    11,269    7,981    3,288    41  
Time    1,024    9,678    (8,654 )  (89 )
Foreign offices    11,619    9,400    2,219    24  

  Total deposits    51,199    51,573    (374 )  (1 )
Equity    7,409    7,365    44    1  

AVERAGE BALANCES:  
Loans   $55,090 $63,684 $(8,594 )  (13 )% $57,681 $67,238 $(9,557 )  (14) %
Assets    100,545    92,709    7,836    8    97,340    95,423    1,917    2  
Demand deposits    25,929    21,728    4,201    19    24,315    22,281    2,034    9  
Savings    10,983    7,636    3,347    44    10,106    2,859    7,247    N/M  
Time    2,968    8,787    (5,819 )  (66 )  4,834    13,484    (8,650 )  (64 )
Foreign offices    10,413    8,932    1,481    17    9,960    8,467    1,493    18  

  Total deposits    50,293    47,083    3,210    7    49,215    47,091    2,124    5  
Equity    7,409    7,365    44    1    7,409    7,365    44    1  

11


Commercial Banking – continued

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs   $ 99   $ 237   $ (138 )  (58 )% $ 332   $ 792   $ (460 )  (58 )%
Annualized net charge-off ratio    0.72 %  1.49 %  (0.77) %    0.77 %  1.57% (0.80) %  
Nonperforming assets:  
  Nonperforming loans (18)   $ 1,387   $ 2,040   $ (653 )  (32 )%
  Other, including OREO    40    27    13    48  

Total nonperforming assets    1,427    2,067    (640 )  (31 )
Allowance for credit losses    2,826    3,071    (245 )  (8 )
Allowance to period end loans (17)    5.23 %  4.89 %  0.34 %
Allowance to nonperforming loans (18)    204    157    47  
Nonperforming assets to related assets (11)    2.62  3.28  (0.66)

CORPORATE BANKING:  
Loans-ending balance   $ 27,375   $ 31,152   $ (3,777 )  (12 )%
          -average balance    27,544    31,600    (4,056 )  (13 ) $ 29,047   $ 33,484   $ (4,437 )  (13 )
Deposits-ending balance    24,414    28,803    (4,389 )  (15 )
              -average balance    25,221    25,871    (650 )  (3 )  25,415    25,406    9    -  
Credit quality:  
  Net charge-offs    56    160    (104 )  (65 )  200    491    (291 )  (59 )
  Annualized net charge-off ratio    0.81 %  2.03 %  (1.22) %    0.92 %  1.95 %  (1.03) %  
  Nonperforming loans   $ 526   $ 1,010   $ (484 )  (48 )
  Nonperforming loans to total loans    1.92 %  3.24 %  (1.32) %

SYNDICATIONS:  
Lead arranger deals:  
  Volume (in billions)   $ 15.3   $ 11.6   $ 3.7    32 % $ 46.0   $ 44.6   $ 1.4    3 %
  Number of transactions    76    69    7    10    217    184    33    18  
  League table standing-rank    4    4    -    -                      
  League table standing-market share    7 %  6 %  1 %       7 %  6 %  1 %

MIDDLE MARKET BANKING:  
Loans-ending balance   $ 27,118   $ 31,839   $ (4,721 )  (15 )%
          -average balance    27,546    32,084    (4,538 )  (14 ) $ 28,634   $ 33,754   $ (5,120 )  (15 )
Deposits-ending balance    26,785    22,770    4,015    18  
              -average balance    25,072    21,212    3,860    18    23,800    21,685    2,115    10  
Credit quality:  
  Net charge-offs    43    77    (34 )  (44 )%  132    301    (169 )  (56 )%
  Annualized net charge-off ratio    0.62 %  0.96 %  (0.34) %    0.61 %  1.19 %  (0.58) %
  Nonperforming loans   $ 861   $ 1,030   $ (169 )  (16 )%
  Nonperforming loans to total loans    3.18 %  3.24 %  (0.06 )%

  For additional footnote detail see page 9.
  (12) Net interest income-FTE includes tax equivalent adjustments of $28 million and $24 million for the three months ended September 30, 2003 and 2002, respectively. For the nine months ended September 30, 2003 and 2002, tax equivalent adjustments were $76 million and $68 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 $466 million for the nine months ended September 30, 2002.
  (16) Capital markets includes trading income and underwriting, syndicated lending and advisory fees.
  (17) Loans include loans held for sale of $471 million and $230 million at September 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (18) Nonperforming loans include loans held for sale of $3 million and $90 million at September 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.

Quarterly Results

Commercial Banking net income increased $182 million to $361 million. Excluding the $95 million after-tax reduction in the allowance for credit losses, net income was $266 million, up 49% from $179 million, driven by substantially improved credit quality and significant growth in capital markets. These improvements were partially offset by declining loan volumes and deposit margin compression.

12


Commercial Banking – continued

Net interest income decreased 5% to $576 million, reflecting a 13% reduction in average loan volume and compression in deposit spreads in the low interest rate environment. These decreases were partially offset by improvement in loan spreads, particularly in corporate banking. Loan balances continued to decline, reflecting decreased demand for financing. Despite declines in corporate banking loan balances, investment grade commitments increased in the current quarter. Middle market loan demand, however, lagged due to lower utilization and tightened credit standards.

        Noninterest income was $461 million, which included the $51 million negative impact of the credit derivatives hedge portfolio and the offsetting positive impact of $51 million from the sale of loans and securities primarily acquired in satisfaction of debt. Noninterest income of $437 million in the prior year included a $101 million positive impact from the credit derivatives hedge portfolio and a $23 million loss on the sale of loans and securities acquired in satisfaction of debt. Excluding these items, the dramatic improvement was $102 million, or 28%, driven by strong capital markets results, including greater derivatives trading revenue and higher asset-backed, syndication and fixed income origination fees.

        Continued expense management efforts held noninterest expense relatively flat at $582 million despite increased expenses related to stock options and employee benefits.

        Credit quality continued to improve, as indicated by a $138 million, or 58%, decline in net charge-offs.

        The reduced size of the loan portfolio and the continued improvement in credit quality led to a $245 million reduction in the allowance for credit losses. Nonperforming loans declined 32% to $1.4 billion, reflecting declines of 48% in corporate banking and 16% in middle market banking.

Year-To-Date Results

Commercial Banking reported net income of $827 million, up $358 million, or 76%. The current year included a $156 million after-tax reduction in the allowance for credit losses and a $158 million after-tax loss on the credit derivatives hedge portfolio. The prior year includes $64 million of after-tax income on the credit derivatives hedge portfolio. Excluding the impact of these items in both periods, net income was $829 million compared to $405 million, an increase of 105%. 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 $1.7 billion, down $139 million, or 7%, reflecting a 14% reduction in average loan volume and compressed deposit spreads due to falling interest rates, partially offset by improved loan spreads, particularly in corporate banking.

        Noninterest income (excluding the impact of the credit derivatives hedge portfolio) was $1.5 billion, an increase of $341 million, or 29%, from the first three quarters of 2002. This increase was primarily driven by higher revenue from a number of capital markets activities, gains on sales of loans and securities acquired in satisfaction of debt 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 $1.7 billion, despite higher compensation-related expenses.

        Credit quality improved significantly from 2002, as demonstrated by a $460 million, or 58%, reduction in net charge-offs. The provision for credit losses of $87 million also reflected a $245 million reduction in the allowance for credit losses.

13


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

        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 4.7 million registered users of its website.

Reported Basis

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (1) (19) (20)   $414   $359   $55    15 % $1,055   $878   $177    20 %
  Banking fees and commissions (3)    5    13    (8 )  (62 )  25    55    (30 )  (55 )
  Credit card revenue (4) (20)    895    903    (8 )  (1 )  2,494    2,647    (153 )  (6 )
  Other income/(loss)    (12 )  (24 )  12    50    18    (14 )  32    N/M  

    Total noninterest income    888    892    (4 )  -  2,537    2,688    (151 )  (6 )

      Total revenue, net of interest expense    1,302    1,251    51  4    3,592    3,566    26  1
Provision for credit losses    246    148    98    66    589    363    226    62  
Salaries and employee benefits    157    151    6    4    466    439    27    6  
Other expense    436    464    (28 )  (6 )  1,218    1,401    (183 )  (13 )

Total noninterest expense before  
  restructuring-related reversals    593    615    (22 )  (4 )  1,684    1,840    (156 )  (8 )
Restructuring-related reversals    -    -  -    -    -    (19 )  19    N/M  

  Total noninterest expense    593    615    (22 )  (4 )  1,684    1,821    (137 )  (8 )

Income before income taxes    463    488    (25 )  (5 )  1,319    1,382    (63 )  (5 )
Applicable income taxes    178    190    (12 )  (6 )  507    537    (30 )  (6 )

  Net income (21)   $285   $298   $(13 )  (4 )% $812   $845   $(33 )  (4 )%

Memo-Net securitization gains  
   (amortization)   $(13 ) $(11 ) $(2 )  (18 )%  5   $(55 ) $60    N/M  

FINANCIAL PERFORMANCE:  
Return on average common equity    18 %  18 %  - %    17 %  18 %  (1 )%
Efficiency ratio    46    49    (3 )      47    51  (4 )
Headcount    10,366    10,508    (142 )  (1 )%

ENDING BALANCES:  
Owned loans:  
  Held in portfolio   $ 6,449   $ 6,751   $ (302 )  (4 )%
  Held for sale (22)    7,729    5,173    2,556    49  

     Total owned loans    14,178    11,924    2,254    19  
Seller's interest and accrued interest receivable    23,285    24,387    (1,102 )  (5 )

  Total receivables    37,463    36,311    1,152    3  
Assets    42,768    40,567    2,201    5  
Equity    6,361    6,361    -    -  

AVERAGE BALANCES:  
Owned loans:  
  Held in portfolio   $ 6,440   $5,883   $557    9 % $7,100   $5,421   $1,679    31 %
  Held for sale    10,001    4,640    5,361    N/M    7,213    3,323    3,890    N/M  

    Total owned loans    16,441    10,523    5,918    56    14,313    8,744    5,569    64  
Seller's interest and accrued interest receivable    21,829    24,236    (2,407 )  (10 )  23,839    22,897    942    4  

  Total receivables    38,270    34,759    3,511    10    38,152    31,641    6,511    21  
Assets    43,105    38,804    4,301    11    43,390    36,023    7,367    20  
Equity    6,361    6,361    -    -    6,361    6,361    -    -  

14


Card Services – continued

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs   $211   $131   $80    61 % $554   $346   $208    60 %
Annualized net charge-off ratio    5.13 %  4.99 %  0.14 %    5.16 %  5.30 %  (0.14 )%
Delinquency ratio:  
  30+ days    3.82    2.74    1.08      
  90+ days    1.78    1.11    0.67  
Allowance for credit losses   $431 $396  35  9
Allowance to period end loans held in portfolio    6.68 %  5.87 %  0.81 %

OTHER DATA:  
Charge volume (in billions)   $42.8   $39.5   $3.3    8 % $121.6   $111.9   $9.7    9 %
New accounts opened (in thousands) (23)    895    2,005    (1,110 )  (55 )  3,693    3,929    (236 )  (6 )
Credit cards issued (in thousands)    51,500  48,952  2,548  5
Number of CardmemberServices.com  
  customers (in millions)    4.7    3.0    1.7    57  
Paymentech (in millions):            
  Bank card volume   $ 39,271   $ 30,711   $ 8,560    28 % $ 110,973   $ 88,748   $ 22,225    25 %
  Total transactions    1,417    1,063    354    33    3,977    3,019    958    32  

  For additional footnote detail see pages 9 and 12.
  (19) Net interest income-FTE did not have tax equivalent adjustments for the three and nine months ended September 30, 2003 and 2002, respectively.
  (20) 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.
  (21) Net income before restructuring-related reversals, net of $7 million tax, was $833 million for the nine months ended September 30, 2002.
  (22) On a reported basis, loans held for sale are not included in allowance for credit losses coverage statistics.
  (23) Net accounts opened includes originations, purchases and sales.

Quarterly Results – Reported

Card Services net income was $285 million, down 4%, as continued margin compression and the higher provision for credit losses offset the benefit of higher loan volume.

        Total revenue increased 4% to $1.3 billion. Net interest income increased 15% to $414 million, reflecting higher owned loan balances, partially offset by modest margin compression. Average owned loan balances were $16.4 billion, an increase of $5.9 billion, or 56%, due to a lower percentage of seller’s interest and accrued interest receivable to managed loans in the current period. End-of-period owned loans increased $2.3 billion, or 19%. Noninterest income remained relatively flat at $888 million, primarily driven by higher securitized and owned loans offset by lower margin earned on securitized loans.

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 18% to $148 million, resulting from a 33% increase in total transactions and a 28% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter 2002.

        Noninterest expense was $593 million, a decline of 4%, due to reduced marketing expenses partially offset by higher Paymentech expenses.

        Provision for credit losses was $246 million, an increase of $98 million, or 66%, which included a $35 million increase in the allowance for credit losses. The net charge-off ratio was 5.13%, up from 4.99%. The 30-day delinquency ratio increased to 3.82% from 2.74%.

        The Corporation believes that it is more meaningful to discuss credit performance on a managed basis as 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.

15


Card Services – continued

Year-to-Date Results – Reported

Card Services’ year-to-date net income was $812 million, down 3% (excluding the $12 million after-tax benefit from a restructuring charge reversal in the prior year) as continued margin compression and the higher provision for credit losses offset the benefit of higher loan volume and lower noninterest expense.

        Total revenue increased 1% to $3.6 billion. Net interest income increased 20% to $1.1 billion, reflecting higher owned loan balances, partially offset by margin compression. Average owned loan balances were $14.3 billion, an increase of $5.6 billion, or 64%, due to a lower percentage of average securitized loans to average managed loans. Noninterest income decreased 6% to $2.5 billion, primarily driven by lower margin earned on securitized loans partially offset by higher interchange fees from increased card usage volume and increased securitization activity. 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 17% to $431 million, resulting from a 32% increase in total transactions and a 25% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter 2002.

        Noninterest expense was $1.7 billion, a decline of 8% (excluding the $19 million pre-tax benefit from a restructuring charge reversal in the prior year) due to reduced marketing expenses and operational efficiencies partially offset by higher Paymentech expenses.

        Provision for credit losses was $589 million, an increase of $226 million, or 62%. The net charge-off ratio was 5.16%, down from 5.30%.

         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 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 included in credit card revenue. Credit card interest income and fees, 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 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 43 of this report 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.

16


Card Services – continued

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

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (1) (19) (20)   $ 1,605   $ 1,524   $ 81  5 % $4,570   $4,605 $(35 ) (1 )%
                                     
  Banking fees and commissions (3)    5    13    (8 )  (62 )  25    55    (30 )  (55 )
  Credit card revenue (4) (20)    477    460    17  4  1,331    1,296    35    3  
  Other income/(loss)    (12 )  (24 )  12    50    18    (14 )  32    N/M  

    Total noninterest income    470    449    21  5  1,374    1,337    37    3  

      Total revenue, net of interest expense    2,075    1,973    102  5  5,944    5,942    2  -
                                     
Provision for credit losses (20)    1,019    870    149    17    2,941    2,739    202    7  
                                     
Salaries and employee benefits    157    151    6    4    466    439    27    6  
Other expense    436    464    (28 )  (6 )  1,218    1,401    (183 )  (13 )

Total noninterest expense before  
  restructuring-related reversals    593    615    (22 )  (4 )  1,684    1,840    (156 )  (8 )
Restructuring-related reversals    -    -  -    -    -    (19 )  19    N/M  

  Total noninterest expense    593    615    (22 )  (4 )  1,684    1,821    (137 )  (8 )

Income before income taxes    463    488    (25 )  (5 )  1,319    1,382    (63 )  (5 )
Applicable income taxes    178    190    (12 )  (6 )  507    537    (30 )  (6 )

  Net income (21)   $285   $298   $(13 )  (4 )% $812   $845   $(33 )  (4 )%

Memo-Net securitization gains                    
 (amortization)   $(13 ) $(11 ) $(2 )  (18 ) $5   $(55 ) $60    N/M  

FINANCIAL PERFORMANCE:  
Percentage of average outstandings:  
  Net interest income - FTE    8.57 %  8.87 %  (0.30 )%    8.30 %  9.21 %  (0.91 )%
  Provision for credit losses    5.44  5.06  .38    5.34  5.48  (0.14 )
  Noninterest income    2.51  2.61  (0.10 )    2.50  2.67  (0.17 )
  Risk adjusted margin    5.64  6.42  (0.78 )    5.46  6.40  (0.94 )
  Noninterest expense    3.17  3.58  (0.41 )    3.06  3.64  (0.58 )
  Pretax income - FTE    2.47  2.84  (0.37 )    2.40  2.77  (0.37 )
  Net income    1.52  1.73  (0.21 )    1.48  1.69  (0.21 )
                                     
Return on average common equity    18    18    -    17    18    (1 )
Efficiency ratio    29    31    (2 )      28    31    (3 )
Headcount    10,366    10,508    (142 )  (1 )%

ENDING BALANCES:  
  Held in portfolio   $ 6,449   $6,751   $(302 )  (4 )%
  Held for sale (22)    7,729    5,173    2,556    49  
  Securitized    36,763    32,858    3,905    12  
  Seller's interest and accrued interest receivable    23,285    24,387    (1,102 )  (5 )

    Total loans    74,226    69,169    5,057    7  
                                     
Assets    79,531    73,425    6,106    8  
Equity    6,361    6,361    -    -  

AVERAGE BALANCES:  
  Held in portfolio   $ 6,440   $ 5,883   $ 557    9 % $ 7,100   $ 5,421   $ 1,679    31 %
  Held for sale    10,001    4,640    5,361    N/M    7,213    3,323    3,890    N/M  
  Securitized    36,029    33,442    2,587    8    35,424    35,184    240  1
  Seller's interest and accrued interest receivable    21,829    24,236    (2,407 )  (10 )  23,839    22,897    942    4  

    Total loans    74,299    68,201    6,098    9    73,576    66,825    6,751    10  
                                     
Assets    79,134    72,246    6,888    10    78,814    71,207    7,607    11  
Equity    6,361    6,361    -    -    6,361    6,361    -    -  

17


Card Services – continued

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs   $ 984   $ 853   $ 131    15 % $ 2,906   $ 2,722   $ 184    7 %
                                     
Annualized net charge-off ratio    5.30 %  5.00 % 0.30 % 5.27 % 5.43 %  (0.16 )%
12 month lagged (24)    5.77    5.12    0.65    5.80  5.58  .22
                                     
Delinquency ratio:  
  30+ days    3.98    4.05    (0.07 )    
  90+ days    1.85    1.68    0.17  
                                     
Allowance for credit losses   $431 $396 35  9
                                     
Allowance to period end loans held in portfolio    6.68 %  5.87 %  0.81 %

OTHER DATA:  
Charge volume (in billions)   $ 42.8   $ 39.5   $ 3.3    8 % $ 121.6   $ 111.9   $ 9.7    9 %
New accounts opened (in thousands) (23)    895    2,005    (1,110 )  (55 )  3,693    3,929    (236 )  (6 )
Credit cards issued (in thousands)    51,500  48,952  2,548  5
Number of CardmemberServices.com  
  customers (in millions)    4.7    3.0    1.7    57  
Paymentech (in millions):      
  Bank card volume   $39,271 $30,711 $8,560  28 % $110,973 $88,748 $22,225  25 %
  Total transactions    1,417    1,063    354    33    3,977    3,019    958    32  

  For additional footnote detail see pages 9, 12 and 15.
  (24) 2002 ratio includes Wachovia net charge-offs but excludes Wachovia loans.

Quarterly Results – Managed

Card Services net income was $285 million, down 4%, as margin compression and the higher provision for credit losses offset the benefits of higher loan volume.

        Total revenue increased 5% to $2.1 billion. Net interest income increased 5% to $1.6 billion, reflecting the effect of higher average loan balances, partially offset by modest margin compression. Average managed loans were $74.3 billion, an increase of $6.1 billion, or 9%. End-of-period loans increased $5.1 billion, or 7%. Noninterest income increased 5% to $470 million, primarily resulting from the benefit of increased charge volume. Charge volume increased 8% to $42.8 billion.

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 18% to $148 million, resulting from a 33% increase in total transactions and a 28% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter 2002.

        Noninterest expense was $593 million, a decline of 4%, due to reduced marketing expenses partially offset by higher Paymentech expenses.

        Provision for credit losses increased $149 million, or 17%, to $1.0 billion, primarily driven by higher managed loan balances, higher non-bankruptcy losses and a $35 million increase in the allowance for credit losses. Credit ratios remained strong despite the increase in the managed net charge-off rate to 5.30% from the lower rate of 5.00%. The 30-day delinquency ratio decreased to 3.98% from 4.05%.

Year-To-Date Results – Managed

Card Services’ year-to-date net income was $812 million, down 3% (excluding the $12 million after-tax benefit from a restructuring charge reversal in the prior year) as margin compression and the higher provision for credit losses offset the benefit of higher loan volume and lower noninterest expense.

Total revenue remained relatively flat at $5.9 billion. Net interest income decreased 1% to $4.6 billion, reflecting the impact of margin compression partially offset by higher average loan balances. Average managed loans were $73.6 billion, an increase of $6.8 billion, or 10%. Noninterest income increased 3% to $1.4 billion primarily resulting from the benefit of increased charge volume and increased securitization activity. Charge volume increased 9% to $121.6 billion. Noninterest income in both the current and prior year included modest gains from the sale of small portfolios.

18


Card Services – continued

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 17% to $431 million, resulting from a 32% increase in total transactions and a 25% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter 2002.

        Noninterest expense was $1.7 billion, a decline of 8% (excluding the $19 million pre-tax benefit from a restructuring charge reversal in the prior year) due to reduced marketing expenses and operational efficiencies partially offset by higher Paymentech expenses.

        Provision for credit losses increased $202 million, or 7%, to $2.9 billion primarily driven by higher managed loan balances and an increase in the allowance for credit losses. The net charge-off rate was 5.27%, down from 5.43%.

19


Card Services – continued

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

Three Months Ended September 30
Nine Months Ended September 30
(in millions):
2003
2002
2003
2002
INCOME STATEMENT DATA:          
Net interest income - FTE (1) 
  Reported data for the period  $      414   $      359   $      1,055   $      878  
  Securitization adjustments  1,191   1,165   3,515   3,727  

    Managed net interest income  1,605   1,524   4,570   4,605  
           
Credit card revenue: 
  Reported data for the period  $      895   $      903   $   2,494   $   2.647  
  Securitization adjustments  (418 ) (443 ) (1,163 ) (1,351 )

    Managed credit card revenue  477   460   1,331   1,296  
           
Noninterest income: 
  Reported data for the period  $      888   $      892   $   2,537   $   2,688  
  Securitization adjustments  (418 ) (443 ) (1,163 ) (1,351 )

    Managed noninterest income  470   449   1,374   1,337  
           
Total revenue, net of interest expense: 
  Reported data for the period  $   1,302   $   1,251   $   3,592   $   3,566  
  Securitization adjustments  773   722   2,352   2,376  

    Managed total revenue, net of interest expense  2,075   1,973   5,944   5,942  
           
 Provision for credit losses: 
  Reported data for the period  $      246   $      148   $      589   $      363  
  Securitization adjustments  773   722   2,352   2,376  

    Managed provision for credit losses  1,019   870   2,941   2,739  

ENDING BALANCES: 
Owned loans: 
  Held in portfolio  $   6,449   $   6,751  
  Held for sale (22)  7,729   5,173  

    Total owned loans  14,178   11,924  
Seller's interest and accrued interest receivable  23,285   24,387  

    Total receivables  37,463   36,311  
Securitized loans  36,763   32,858  

    Total managed loans  74,226   69,169  
           
Assets: 
  Reported  42,768   $ 40,567  
  Securitization adjustments  36,763   32,858  

    Managed assets  79,531   73,425  

AVERAGE BALANCES: 
Owned loans: 
  Held in portfolio  $   6,440   $   5,883   $   7,100   $   5,421  
  Held for sale  10,001   4,640   7,213   3,323  

    Total owned loans  16,441   10,523   14,313   8,744  
Seller's interest and accrued interest receivable  21,829   24,236   23,839   22,897  

    Total receivables  38,270   34,759   38,152   31,641  
Securitized loans  36,029   33,442   35,424   35,184  

    Total managed loans  74,299   68,201   73,576   66,825  
           
Total assets: 
  Reported  $ 43,105   $ 38,804   $ 43,390   $ 36,023  
  Securitization adjustments  36,029   33,442   35,424   35,184  

    Managed assets  79,134   72,246   78,814   71,207  

CREDIT QUALITY: 
Net charge-offs: 
  Reported  $      211   $      131   $      554   $      346  
  Securitization adjustments  773   722   2,352   2,376  

    Managed net charge-offs  984   853   2,906   2,722  

20


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. As discussed in Note 3, “Acquisitions,” the Corporation acquired Zurich Life, a U.S. life and annuity operation. 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 approximately $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 is expected in the fourth quarter. As a result, corporate trust services was transferred to the Corporate line of business where it is reported as discontinued operations.

        On September 17, 2003, the Corporation announced an agreement to purchase Security Capital Research & Management Incorporated, a recognized expert in developing real estate investment products, with approximately $3.5 billion in assets under management. The transaction is expected to close in the fourth quarter.

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002 (25)
Amount
Percent
2003
2002 (25)
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (1) (26)   $ 115   $ 89   $ 26    29 % $ 294   $ 290   $ 4    1 %
           
  Banking fees and commissions (3)    88    63    25    40    224    195    29    15  
  Service charges on deposits (5)    5    5            15    14    1    7  
  Fiduciary and investment  
   management fees (13)    156    156            461    481    (20 )  (4 )
  Other income    8        8  N/M    10    9    1    11  

    Total noninterest income    257    224    33    15    710    699    11    2  

      Total revenue, net of interest expense    372    313    59    19    1,004    989    15    2  
           
Provision for credit losses    4    2    2    N/M    12    7    5    71  
           
Salaries and employee benefits    114    107    7    7    330    313    17    5  
Other expense    110    77    33    43    280    250    30    12  

Total noninterest expense before  
  restructuring-related reversals    224    184    40    22    610    563    47    8  
Restructuring-related reversals                        (1 )  1    N/M  

  Total noninterest expense    224    184    40    22    610    562    48    9  

Income before income taxes    144    127    17    13    382    420    (38 )  (9 )
Applicable income taxes    53    48    5    10    142    156    (14 )  (9 )

  Net income (27)   $ 91   $ 79   $ 12    15 % $ 240   $ 264   $ (24 )  (9 )%

FINANCIAL PERFORMANCE:  
Return on average common equity    31 %  33 %  (2 )%       31 %  37 %  (6 )%
Efficiency ratio    60    59    1         61    57    4  
Headcount    4,949    4,300    649    15 %                    

ENDING BALANCES:  
Loans   $ 7,155   $ 7,087   $ 68    1 %
  Commercial    3,153    3,160    (7 )    
  Consumer    4,002    3,927    75    2  
           
Assets    15,656    8,494    7,162    84  
           
Demand deposits    971    1,744    (773 )  (44 )
Savings    8,327    6,068    2,259    37  
Time    621    783    (162 )  (21 )
Foreign offices    219    239    (20 )  (8 )

  Total deposits    10,138    8,834    1,304    15  
           
Equity    1,553    954    599    63  

AVERAGE BALANCES:  
Loans   $ 6,665   $ 6,941   $ (276 )  (4 )% $ 6,666   $ 6,963   $ (297 )  (4 )%
  Commercial    2,996    3,177    (181 )  (6 )  3,056    3,244    (188 )  (6 )
  Consumer    3,669    3,764    (95 )  (3 )  3,610    3,719    (109 )  (3 )
           
Assets    10,700    8,312    2,388    29    9,119    8,287    832    10  
           
Demand deposits    2,019    1,604    415    26    1,843    1,641    202    12  
Savings    8,032    5,913    2,119    36    7,664    5,859    1,805    31  
Time    633    818    (185 )  (23 )  689    893    (204 )  (23 )
Foreign offices    165    211    (46 )  (22 )  169    209    (40 )  (19 )

  Total deposits    10,849    8,546    2,303    27    10,365    8,602    1,763    20  
           
Equity    1,149    954    195    20    1,020    954    66    7  

21


Investment Management – continued

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002 (25)
Amount
Percent
2003
2002 (25)
Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs:
  Commercial   $ 5   $ 1   $ 4    N/M   $ 10   $ 2   $ 8    N/M  
  Consumer    (1 )  1    (2 )  N/M    2    5    (3 )  (60 )

Total net charge-offs    4    2    2    N/M    12    7    5    71  
           
Annualized net charge-off ratios:  
  Commercial    0.67 %  0.13 %  0.54 %    0.44 %  0.08 %  0.36 %
  Consumer    (0.11 )  0.11  (0.22 )    0.07  0.18  (0.11 )
    Total net charge-off ratio    0.24  0.12  0.12    0.24  0.13  0.11
           
Nonperforming assets:  
  Commercial   $ 60   $ 39   $ 21    54
  Consumer    14    8    6    75

    Total nonperforming loans    74    47    27    57
  Other, including OREO    1    1        

  Total nonperforming assets    75    48    27    56
           
Allowance for credit losses    40    25    15    60  
Allowance to period end loans    0.56 %  0.35 %  0.21 %
Allowance to nonperforming loans    54    53    1  
Nonperforming assets to related assets (11)    1.05  0.68  0.37

ASSETS UNDER MANAGEMENT  
  ENDING BALANCES:  
Mutual funds   $ 100,646   $ 91,534   $ 9,112    10 %
Other    74,902    57,462    17,440    30  

  Total assets    175,548    148,996    26,552    18  
           
By type:  
Money market    70,820    68,632    2,188    3  
Equity    42,150    35,394    6,756    19  
Fixed income    62,578    44,970    17,608    39  

  Total assets    175,548    148,996    26,552    18  
           
By channel:  
Private client services    42,970    42,390    580    1  
Retail brokerage    8,139    6,716    1,423    21  
Institutional    93,367    70,196    23,171    33  
Commercial cash sweep    8,581    8,579    2      
Capital markets    2,935    4,724    (1,789 )  (38 )
External (28)    9,492    8,417    1,075    13  
All other direct (29)    10,064    7,974    2,090    26  

  Total assets    175,548    148,996    26,552    18  
           
Morningstar® Rankings:  
% of 4 and 5 ranked funds    54 %  48 %  6 %
% of 3+ ranked funds    88    93    (5 )

PRIVATE CLIENT SERVICES:  
Number of private client advisors    622    675    (53 )  (8 )%
Number of private client offices    89    96    (7 )  (7 )
           
Total client assets-end of  
  period (30)   $ 64,307   $ 61,659   $ 2,648    4  
           
Ending balances  
  Loans    6,604    7,036    (432 )  (6 )
  Deposits    10,548    8,312    2,236    27  
           
Average balances  
  Loans    6,492    6,898    (406 )  (6 ) $ 6,582   $ 6,913   $ (331 )  (5 )%
  Deposits    10,125    8,155    1,970    24    9,743    8,172    1,571    19  

22


Investment Management – continued

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002 (25)
Amount
Percent
2003
2002 (25)
Amount
Percent
INSURANCE GROUP  
Gross revenue (31)   $ 160   $ 111   $ 49    44 % $ 395   $ 350   $ 45    13 %
                                                 
Ending Balances:                                                
  Invested assets     6,000     387     5,613    N/M                         
  Policy loans     415         415    N/M                         
                                                 
Policies inforce - direct/assumed (in thousands)     2,331     1,232     1,099    89                         
                                                 
Policies inforce - direct/assumed   $ 228,095   $ 13,527   $ 214,568    N/M                         
Policies inforce - retained     42,984     13,526     29,458    N/M                         
                                                 
Insurance policy and claims reserves   $ 6,496   $ 212   $ 6,284    N/M                         
                                                 
A.M. Best rating (32)     A         N/M    N/M                         

  For additional footnote detail see pages 9, 12 and 15.
  (25) Prior period data has been adjusted for the transfer of corporate trust services from Investment Management to the Corporate line of business where it is now reported as discontinued operations.
  (26) Net interest income-FTE did not have material tax equivalent adjustments for the three or nine months ended September 30, 2003 and 2002.
  (27) Net income before restructuring-related reversals was $263 million for the nine months ended September 30, 2002.
  (28) Includes broker/dealers, trust companies, and registered investment advisors that sell, or offer, One Group funds.
  (29) One Group funds invested in other One Group funds and other mutual funds sub-advised.
  (30) Fiduciary, brokerage and other related assets (managed and non-managed).
  (31) Includes insurance-related revenues recorded in other lines of business.
  (32) A.M. Best maintained A ratings with developing implications.

Quarterly Results

Investment Management net income totaled $91 million, an increase of $12 million, or 15%, driven by the acquisition of Zurich Life, strong asset growth, and an improved market. Since Zurich Life closed effective September 1, only one month of earnings is included.

        Assets under management increased $26.6 billion, or 18%, to $175.5 billion. Money market, equity, and fixed income assets increased 3%, 19%, and 39%, respectively. A significant portion of the increase was driven by the institutional and external channels, which collectively increased $24.2 billion, or 31%. The Zurich Life acquisition represented $5.4 billion of the fixed income and institutional increases. One Group mutual fund assets increased $9.1 billion, or 10%, to $100.6 billion.

        Net interest income increased $26 million, or 29%, to $115 million, primarily attributable to Zurich Life. Additionally, continued strong average deposit growth of $2.3 billion, or 27%, tempered by compressed margins, contributed to the increase.

        Noninterest income increased $33 million, or 15%, to $257 million, primarily driven by the acquisition of Zurich Life. In addition, positive overall net fund flows, improved market conditions, and a more favorable mix toward long-term assets under management contributed to the increase.

        Noninterest expense increased $40 million, or 22%, to $224 million, due also to Zurich Life. Additionally, slightly higher compensation costs and higher legal costs contributed to the overall increase.

        The provision for credit losses was $4 million, an increase of $2 million, reflecting the deterioration in the credit quality of certain large loans.

        On September 3, the New York Attorney General simultaneously filed and settled a complaint against a hedge fund alleging that the hedge fund had engaged in improper trading practices with certain mutual funds, including the One Group Funds. The Corporation is cooperating fully with the Attorney General, the Securities and Exchange Commission and other regulators in connection with inquiries into these practices, and is reviewing its mutual fund practices. To date, the Corporation has found no systemic problems. The Corporation continues to work towards assessing any financial impact to One Group investors from such practices and will make full restitution to One Group investors harmed as a result of improper conduct by any Bank One employee.

23


Investment Management – continued

Year-to-Date Results

Investment Management reported year-to-date net income of $240 million, down $24 million, or 9%, driven by higher revenue offset by higher expenses and increased provision for credit losses.

        Year-to-date total revenue, net of interest expense, increased $15 million, or 2%, to $1 billion. The increase reflects a strong third quarter driven by the acquisition of Zurich Life, an improved market, and a more favorable mix toward long-term assets under management. The higher revenue was partially offset by a weaker market and mix in assets under management in the first and second quarters.

        Noninterest expense was $610 million, an increase of $48 million, or 9%, principally driven by the acquisition of Zurich Life and higher legal and operating costs.

        The provision for credit losses was $12 million, an increase of $5 million, reflecting deterioration in credit quality of certain large loans, and the absence of recoveries which occurred in the second quarter of 2002.

24


Corporate
Corporate includes treasury activities, Corporate’s investment portfolios, non-core portfolios transferred from the Retail line of business, corporate trust services transferred from the Investment Management line of business (reported as discontinued operations), 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 29 for financial information for the non-core portfolios on a stand-alone basis.

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002 (25)
Amount
Percent
2003
2002 (25)
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income (expense)-FTE (1) (33) (34)   $ (80 ) $ 106   $ (186 )  N/M   $ (212 ) $ 286   $ (498 )  N/M  
                                           
  Banking fees and commissions (3)    (20 )  (11 )  (9 )  (82 )%  (67 )  (23 )  (44 )  N/M  
  Credit card revenue (4)    (1 )  1    (2 )  N/M    -    2    (2 )  N/M  
  Service charges on deposits (5)    -  3    (3 )  N/M    (3 )  9    (12 )  N/M  
  Fiduciary and investment management fees (13)    8    3    5    N/M    24    8    16    N/M  
  Investment securities gains    37    (17 )  54    N/M    260    62    198    N/M  
  Trading (losses)    (7 )  -  (7 )  -    (21 )  (16 )  (5 )  (31 )
  Other income/(losses)    (118 )  (2 )  (116 )  N/M  (48 )  95    (143 )  N/M

    Total noninterest income (35)    (101 )  (23 )  (78 )  N/M    145    137    8    6  

      Total revenue, net of interest expense    (181 )  83    (264 )  N/M  (67 )  423    (490 )  N/M
                                           
Provision for credit losses    78    86    (8 )  (9 )  322    337    (15 )  (4 )
                                           
Salaries and employee benefits    236    217    19    9    732    616    116    19  
Other expense    (53 )  (12 )  (41 )  N/M    (178 )  13    (191 )  N/M  

Total noninterest expense before  
  restructuring-related reversals    183    205    (22 )  (11 )  554    629    (75 )  (12 )
Restructuring-related reversals    -    -    -    -    -    (21 )  21    N/M  

  Total noninterest expense (36)    183    205    (22 )  (11 )  554    608    (54 )  (9 )

Loss before income tax benefit    (442 )  (208 )  (234 )  N/M  (943 )  (522 )  (421 )  (81 )
Applicable income tax benefit    (187 )  (104 )  (83 )  (80 )  (436 )  (272 )  (164 )  (60 )

  Loss from continuing operations, net of tax benefit (37)   (255 ) (104 ) (151 )  N/M (507 ) (250 ) (257 )  N/M
                                           
Discontinued operations  
Income from discontinued operations    14    15    (1 )  (7 )  39    45    (6 )  (13 )
Applicable income taxes    5    5    -    -    14    16  (2 )  (13 )

  Income from discontinued operations, net of taxes    9    10    (1 )  (10 )%  25    29  (4 )  (14 )%
                                           
    Net loss (37)   $(246 ) $(94 ) $(152 )  N/M   $(482 ) $(221 ) $(261 )  N/M  

FINANCIAL PERFORMANCE:  
Headcount    14,719    15,356    (637 )  (4 )%

ENDING BALANCES:  
Non-core portfolios   $ 10,403   $ 16,873   $ (6,470 )  (38 )%
Other loans    67    800    (733 )  (92 )

  Total loans (38)    10,470    17,673    (7,203 )  (41 )
                                           
Assets    71,092    75,303    (4,211 )  (6 )
Memo-  
  Treasury investments (39)    40,545    36,021    4,524    13  
  Principal investments (40)    2,913    2,371    542    23  
                                           
Deposits    13,235    15,892    (2,657 )  (17 )
                                           
Equity    2,314    2,471    (157 )  (6 )

AVERAGE BALANCES:  
Non-core portfolios   $ 11,146   $ 17,644   $ (6,498 )  (37 )% $ 12,775   $ 19,268   $ (6,493 )  (34 )%
Other loans    86    250    (164 )  (66 )  211    414    (203 )  (49 )

  Total Loans    11,232    17,894    (6,662 )  (37 )  12,986    19,682    (6,696 )  (34 )
                                           
Assets    71,392    70,025    1,367    2    71,053    68,902    2,151    3  
                                           
Deposits    12,321    14,097    (1,776 )  (13 )  12,846    15,249    (2,403 )  (16 )
                                           
Equity    2,519    2,627    (108 )  (4 )  2,886    2,062    824    40  

25


Corporate – continued

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002 (25)
Amount
Percent
2003
2002 (25)
Amount
Percent
CREDIT QUALITY:                                    
Net Charge-offs:  
Non-core portfolios   $ 79   $ 84   $ (5 )  (6 )% $ 264   $ 321   $ (57 )  (18 )%
Other loans    3    2    1    50    3    17    (14 )  (82 )

  Total loans    82    86    (4 )  (5 )  267    338    (71 )  (21 )
                                           
Non-core portfolios net charge-off ratio    2.84 %  1.90 %  0.94 %    2.76 %  2.22 %  0.54 %
                                           
Nonperforming assets:  
Non-core portfolios   $ 669   $ 849   $ (180 )  (21 )%
Other loans    4    8    (4 )  (50 )

  Total loans (41)    673    857    (184 )  (21 )
  Other including OREO    56    6    50  N/M

    Total nonperforming assets    729    863    (134 )  (16 )
                                           
Allowance for credit losses    394    345    49    14  
Allowance to period end loans (38)    3.77 %  1.95 %  1.82 %
Allowance to nonperforming loans (41)    59    40    19  
Nonperforming assets to related assets    6.93  4.88  2.05

  For additional footnote detail see pages 9, 12, 15 and 23.
  (33) Net interest income (expense)-FTE includes tax equivalent adjustments of $7 million and $8 million for the three months ended September 30, 2003 and 2002, respectively. For the nine months ended September 30, 2003 and 2002, tax equivalent adjustments were $24 million and $25 million.
  (34) Net interest income (expense)-FTE primarily includes treasury results and interest spread on investment-related activities.
  (35) Noninterest income primarily includes the gains and losses from investment activities and other corporate transactions.
  (36) Noninterest expense primarily includes corporate expenses not allocated to the lines of business.
  (37) Net loss before restructuring-related reversals, net of $8 million tax, was $234 million for the nine months ended September 30, 2002.
  (38) Loans include loans held for sale of $18 million and $24 million at September 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (39) Treasury investments may include U.S. government and agency debt securities, mortgage and other asset-backed securities and other fixed income investments.
  (40) Principal investments include primarily private equity investments and venture capital fund investments.
  (41) Nonperforming loans include loans held for sale of $5 million at September 30, 2003. There were no loans held for sale included in nonperforming loans at September 30, 2002. This amount is not included in allowance for credit losses coverage statistics.

Corporate net loss for the third quarter and for the nine months ended September 30, 2003, included the following pre-tax components:

(In millions)
Three months ended September 30, 2003 
Nine months ended September 30, 2003 
Treasury net interest expense     $ (85 ) $ (260 )
Net gain on Corporate investment activity       37     260  
Losses related to termination of debt       (162 )   (162 )
Corporate unallocated expenses       (146 )   (420 )

Quarterly Results

Corporate net loss totaled $246 million, compared with a net loss of $94 million.

Excluding Non-core Portfolios and Discontinued Operations

Treasury net interest expense was $85 million, an increase of $124 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.

26


Corporate – continued

        Net securities gains were $37 million, as a result of both net gains in principal investments and net losses in the treasury investment portfolio. The principal investment portfolio gains were primarily driven by the sale of Ability One. This compares to net securities losses of $17 million.

        The Corporation repaid certain floating rate debt and unwound related hedges leading to a $162 million loss, which was recognized in other income.

        Corporate expenses were $146 million, compared to $162 million.

Non-core Portfolios

Net loss from the non-core portfolios was $12 million compared with net income of $11 million. See page 29 for financial information for the non-core portfolios on a stand-alone basis.

        Average loan balances were $11.1 billion, down 37%, as the portfolios continued to liquidate at a steady pace. Net interest income was $91 million, down $53 million, primarily due to this liquidation.

        Provision for credit losses was $74 million, down $10 million. The net charge-off ratio increased to 2.84% from 1.90%.

Discontinued Operations

As a result of the Corporation’s announced agreement to sell its corporate trust services business to J.P. Morgan Chase & Co., the results of these operations have been transferred from the Investment Management Group to the Corporate line of business and reported as discontinued operations. The following table provides details of the impact of this business:

Three Months Ended September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
Total revenues   $ 35   $ 31   $ 4    13 % $ 105   $ 96   $ 9    9 %
Total expenses (excl. taxes)     21     16     5    31     66     51     15    29  

Pre-tax income     14     15     (1 )  (7 )   39     45     (6 )  (13 )
Net income     9     10     (1 )  (10 )   25     29     (4    (14 )
Total assets     92     119     (27 )  (23 )                       

Year-to-Date Results

Corporate net loss totaled $482 million, compared with a net loss of $234 million (excluding the $13 million after-tax benefit from a restructuring charge reversal in the prior year).

Excluding Non-core Portfolios and Discontinued Operations

Treasury net interest expense was $260 million, an increase of $319 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 were $260 million, as a result of net gains in principal investments and the treasury investment portfolio. This compares to net securities gains of $62 million. The principal investment portfolio gains in the current year were primarily driven by the sale of Ability One. 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 principal investments, the interest rate environment and economic conditions.

        The Corporation repaid certain floating rate debt and unwound related hedges leading to a $162 million loss, which was recognized in other income.

27


Corporate – continued

        Corporate expenses were $554 million, compared to $629 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 loss from the non-core portfolios was $95 million, including the impact of an increase in the allowance for credit losses of $85 million, down $95 million. See page 29 for financial information for the non-core portfolios on a stand-alone basis.

        Average loan balances were $12.8 billion, down 34% as the portfolios continued to liquidate at a steady pace. Net interest income related to the non-core portfolios was $308 million, down $158 million, primarily due to this liquidation.

        Provision for credit losses was $319 million, relatively unchanged. Excluding the $85 million that was added to the allowance for credit losses in the second quarter of 2003, provision for credit losses decreased $84 million. The net charge-off ratio increased to 2.76% from 2.22%.

        Noninterest expense for the non-core portfolios was $134 million compared to $145 million.

28


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 September 30
Nine Months Ended September 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (1)   $ 91   $ 144   $ (53 )  (37 )% $ 308   $ 466   $ (158 )  (34 )%
Noninterest income (loss)    1  -    1  -    (4 )  -    (4 )  -  

  Total revenue, net of interest expense    92    144    (52 )  (36 )  304    466    (162 )  (35 )
                                           
Provision for credit losses    74    84    (10 )  (12 )  319    320    (1 )  -  
                                           
Salaries and employee benefits    -    4    (4 )  N/M    9    13    (4 )  (31 )
Other expense    37    39    (2 )  (5 )  125    132    (7 )  (5 )

    Total noninterest expense    37    43    (6 )  (14 )  134    145    (11 )  (8 )

Income (loss) before income taxes (benefits)    (19 )  17    (36 )  N/M    (149 )  1  (150 )  N/M  
Applicable income taxes (benefits)    (7 )  6    (13 )  N/M    (54 )  1  (55 )  N/M  

  Net income (loss)   $ (12 ) $ 11   $ (23 )  N/M $ (95 ) $ - $ (95 )  -  

FINANCIAL PERFORMANCE:  
Return on average common equity    (3 )%  3 %  (6 )%    (9 )%  0 %  (9 )%
Efficiency ratio    40    30    10      44  31  13
Headcount    -    300    (300 )  N/M  -    300    (300 )  N/M

ENDING BALANCES:  
Home equity   $8,266   $11,856   $(3,590 )  (30 )%
Vehicle leases and other loans    2,137    5,017    (2,880 )  (57 )
  Total Loans (42)    10,403    16,873    (6,470 )  (38 )
                                           
Equity    1,415    1,415    -    -  

AVERAGE BALANCES:  
Home equity   $8,817   $12,301   $(3,484 )  (28 )% $9,886   $13,256   $(3,370 )  (25 )%
Vehicle leases and other loans    2,329    5,343    (3,014 )  (56 )  2,889    6,012    (3,123 )  (52 )

  Total Loans    11,146    17,644    (6,498 )  (37 )  12,775    19,268    (6,493 )  (34 )
Equity    1,415    1,415    -    -    1,415    1,415    -    -  

CREDIT QUALITY:  
Net charge-offs  
  Home equity   $62   $68   $(6 )  (9 )% $195   $250   $(55 ) $(22 )
  Vehicle leases and other loans    17    16    1  6  69    71    (2 )  (3 )

    Total net charge-offs    79    84    (5 )  (6 )  264    321    (57 )  (18 )
                                           
Annualized net charge-off ratios:  
  Home equity    2.81  2.21  0.60    2.63  2.51  0.12
  Vehicle leases and other loans    2.92  1.20  1.72    3.18  1.57  1.61

    Total net charge-offs    2.84  1.90  0.94    2.76  2.22  0.54

Nonperforming assets:  
  Nonperforming loans   $ 669   $ 849   $ (180 )  (21 )
  Other, including other real estate owned    56    -    56  -

    Total nonperforming loans (43)    725    849    (124 )  (15 )
                                           
Allowance for credit losses    391    341    50    15  
Allowance to period end loans (42)    3.77 %  2.02 %  1.75 %
Allowance to nonperforming loans (43)    59    40    19  
Nonperforming assets to related assets    6.93  5.03  1.90

  For additional footnote detail see pages 9, 12, 15, 23 and 26.
  (42) Loans include loans held for sale of $18 million and $24 million at September 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (43) Nonperforming loans include loans held for sale of $5 million at September 30, 2003. This amount is not included in allowance for credit losses coverage statistics. There were no loans held for sale included in nonperforming loans at September 30, 2002.

29


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

Trading assets increased by $6.4 billion to $13.6 billion which was largely driven by an increase in purchased government securities. Additionally, overall volume in capital markets trading activity has increased.

        Investment securities totaled $76.1 billion compared with $67.6 billion. This increase of $8.5 billion, or 13%, was driven by increases of $5.2 billion in other debt securities, $4.1 billion in U.S. government agencies and $2.8 billion in U.S. Treasuries. The completion of the Zurich Life acquisition in the third quarter added $5.4 billion in investment securities. These increases also reflected the continued 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 $5.3 billion, or 19%, in retained interests in securitized credit card receivables.

        The Corporation’s loan portfolio was $141.7 billion compared with $148.1 billion, a decrease of $6.4 billion, or 4%. Commercial Banking loans totaled $54.5 billion compared to $61.9 billion, a decrease of $7.4 billion, or 12%. The non-core portfolios included in the Corporate line of business totaled $10.4 billion, a decrease of $4.9 billion, or 32%. This decrease reflected the continued run off of the non-core portfolios. Partially offsetting these decreases were higher loan balances in Retail and Card Services. Retail loans totaled $55.4 billion compared with $52.3 billion, an increase of $3.1 billion, or 6%. The increase was due primarily to a $4.4 billion, or 21%, growth in home equity loans, offset by a combined $1.5 billion decrease in vehicle and other personal loans. Card Services loans totaled $14.2 billion compared to $11.6 billion, an increase of $2.6 billion, or 22%.

        Total deposits were $163.4 billion compared to $170.0 billion, a decrease of $6.6 billion. During the third quarter the U.S. Treasury began to compensate the Corporation for services provided using special issue securities. Under this program, U.S. Treasury deposits and the securities are netted under a legal right of offset, resulting in reduced reported deposits. The balance of these deposits at December 31, 2002 was $10.4 billion.

        Insurance policy and claims reserves increased $6.3 billion, to $6.5 billion, as a result of the Zurich Life acquisition in the third quarter.

        Treasury stock increased $1.7 billion, reflecting the impact of the repurchase of over 53 million shares of the Corporation’s stock under the stock repurchase programs. See page 48 for additional information on the stock repurchase program.

        See page 46 for a discussion of expected adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities, and related FASB Staff Positions” (“FIN No. 46”) as of December 31, 2003.

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:

30


        Additionally, as a result of the acquisition of Zurich Life, the Corporation assumed risk associated with insurance policy and claims reserves, which represent liabilities for insurance and annuity benefits expected to be paid. Such benefits are estimated based on a number of assumptions including mortality, morbidity, persistency and interest rates, and other assumptions based on the Corporation’s experience.

        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 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 September 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 F1   A   Aa3 A+
Principal banks  A-1 P-1 F1+ A+ Aa2 AA-

At September 30, 2003, the Corporation’s principal insurance subsidiaries had the following financial strength ratings:

 
 
 
S & P (1)
Moody's
A.M. Best (2)
Principal Insurance Companies         A+   A2 A

  (1) S&P rating is currently on negative outlook which indicates the potential direction of the principal insurance companies’ ratings.
  (2) A.M. Best maintained A ratings with developing implications.

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 the Corporation’s 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.

31


        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 economically 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 reported in noninterest 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.

        The value-at-risk in the Corporation’s trading portfolio was as follows (excluding credit derivatives used to economically hedge specific credits in the loan portfolio with a net notional amount of $4.1 billion and $5.3 billion at September 30, 2003 and June 30, 2003, respectively):

Third Quarter 2003
(In millions)
September 30, 2003
Average
High
Low
June 30, 2003
High Volume Capital Markets Trading                        
  Portfolios and Mortgage Pipeline (1)  
Risk type:  
  Interest rate   $ 9   $ 8   $ 10   $ 7   $ 9  
  Commodity price                      
  Currency exchange rate    1        1          
  Equity            1        1  
  Diversification benefit        1                




 




         


    Total    10    9    10    7    10  
   
Other Trading Portfolios  
Risk type:  
  Interest rate    6    6    6    6    6  
  Currency exchange rate    4    4    4    4    4  









         


Aggregate trading portfolio market risk   $ 20   $ 19   $ 20   $ 17   $ 20  

(1)     Subject to backtesting.

        Interest rate risk was the predominant type of market risk to which the Corporation was exposed during the third quarter of 2003. At September 30, 2003, approximately 75% of primary market risk exposures were related to interest rate risk. Currency exchange rate risk accounted for 25% of primary market risk exposures. Commodity and equity risk exposures were immaterial at quarter-end.

        At September 30, 2003, aggregate portfolio market risk exposures were equal to those at June 30, 2003.

32


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

        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 third 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 measured benefit to rising rates and exposure to falling rates have declined in comparison to the second quarter. The Corporation’s 12-month pretax earnings sensitivity profile was as follows:

Immediate Change in Rates
(In millions)
+200 bp
+100 bp
              -50 bp
September 30, 2003     $ 40   $ 86   $ (118 )

June 30, 2003   $110   $142   $(234 )

33


        The drop in the measured benefit from rising interest rates reflects management’s positioning of the balance sheet for a more prolonged period of stable rates, while maintaining a defensive bias against an unanticipated increase in interest rates. The change in risk reflects both an increase in long-term interest rates and the repositioning of the investment portfolio. The impact of the recent Zurich Life acquisition resulted in an insignificant change to the overall Corporate risk position.

CREDIT PORTFOLIO COMPOSITION

Selected Statistical Information
The significant components of credit risk and the related ratios for the quarters indicated were as follows:

(Dollars in millions)
September 30
            2003

June 30
     2003

March 31
      2002

December 31
            2002

September 30
            2002

Loans outstanding (1)     $141,710   $144,583   $ 144,747   $ 148,125   $ 150,389  
Average loans    144,162    144,635    146,419    150,531    148,152  
                            
Nonperforming loans (2)    2,707    3,062    3,199    3,276    3,521  
Other, including other real estate owned    214    245    254    251    214  

  Nonperforming assets    2,921    3,307    3,453    3,527    3,735  
                            
Allowance for credit losses    4,374    4,498    4,526    4,525    4,518  
Net charge-offs    540    489    495    622    573  
Nonperforming assets to related assets (3)     2.06 %   2.28 %  2.38 %  2.38 %  2.48 %
Allowance to period end loans (1)    3.34    3.35    3.31    3.20    3.17  
Allowance to nonperforming loans (2)    162    147    142    139    132  
Annualized net charge-off ratio    1.50    1.35    1.35    1.65    1.55  
Allowance to annualized net charge-offs    203    230    229    182    197  

  (1) Loans include loans held for sale of $10.7 billion, $10.2 billion, $7.9 billion, $6.9 billion, and $7.9 billion at September 30, 2003, June 30, 2003, March 31, 2003, December 31, 2002 and September 30, 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (2) Nonperforming loans include loans held for sale of $10 million, $11 million, $22 million, $22 million and $93 million at September 30, 2003, June 30, 2003, March 31, 2003, December 31, 2002 and September 30, 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (3) Related assets consist of loans outstanding, including loans held for sale, and other real estate owned.

34


Loan Composition
The following indicates the Corporation’s loan portfolios:

September 30, 2003
June 30, 2003
March 31, 2003
December 31, 2002
September 30, 2002
(Dollars in millions)
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Retail: (1)                                            
  Small business commercial   $ 10,122    7 % $ 10,050    7 % $ 9,946    7 % $ 9,921    7 % $ 9,899    7 %
  Home equity    25,252    18    23,863    16    21,688    15    20,853    14    18,696    12  
  Vehicle    13,841    10    13,873    10    14,223    10    14,661    10    15,001    10  
  Other personal    6,199    4    5,919    4    6,378    4    6,869    4    7,118    5  

    Total Retail    55,414    39    53,705    37    52,235    36    52,304    35    50,714    34  
Commercial Banking:  
 Corporate banking:  
  Commercial and industrial    13,956    10    15,309    11    16,679    12    17,866    12    17,388    12  
  Commercial real estate    8,487    6    8,228    6    8,414    6    8,321    6    8,557    6  
  Lease financing    4,145    3    4,177    3    4,250    3    4,358    3    4,693    3  
  Other    787    1    1,605    -    553    -    1,014    -    514    -  

    Total corporate  
     banking    27,375    20    29,319    20    29,896    21    31,559    21    31,152    21  
 Middle market:  
  Commercial and industrial    23,889    17    25,346    18    26,199    18    26,983    18    28,086    18  
  Commercial real estate    2,028    1    2,128    1    2,150    1    2,318    2    2,353    2  
  Lease financing    869    1    923    1    943    1    1,008    1    1,039    1  
  Other    332    -    59    -    269    -    27    -    361    -  

    Total middle market    27,118    19    28,456    20    29,561    20    30,336    21    31,839    21  

      Total Commercial  
       Banking    54,493    39    57,775    40    59,457    41    61,895    42    62,991    42  
Card Services    14,178    10    14,090    10    12,387    9    11,581    8    11,924    8  
IMG (2)    7,155    5    6,579    5    6,663    5    6,942    5    7,087    5  
Corporate (2)    10,470    7    12,434    8    14,005    9    15,403    10    17,673    11  

  Total loans   $ 141,710    100 % $ 144,583    100 % $ 144,747    100 % $ 148,125    100 % $ 150,389    100 %

  (1) Certain loans, previously classified as other personal loans, were reclassified into loan categories which are more reflective of management’s view of the underlying loan characteristics. Prior period balances have been adjusted to conform to the current period presentation.
  (2) Prior period data has been adjusted for the transfer of corporate trust services from Investment Management to the Corporate line of business.

        Loans held for sale, which are classified as loans, are carried at lower of cost or fair value, totaled $10.7 billion, $10.2 billion, $7.9 billion, $6.9 billion and $7.9 billion at September 30, 2003, June 30, 2003, March 31, 2003, December 31, 2002 and September 30, 2002, respectively. At September 30, 2003, loans held for sale included Card Services loans of $7.7 billion, Retail loans of $2.5 billion, Commercial Banking loans of $471 million and Corporate loans of $18 million.

Commercial and Industrial Loans
At September 30, 2003, commercial and industrial loans totaled $37.8 billion, and represented 69% of the Commercial Banking portfolio.

        The following indicates the more significant borrower industry concentrations of the Commercial Banking commercial and industrial portfolio at:

  September 30, 2003 June 30, 2003 March 31, 2003 December 31, 2002

(Dollars in millions) Outstanding Percent (1) Outstanding Percent (1) Outstanding Percent (1) Outstanding Percent (1)

Motor vehicles and parts/auto related     $3,064    8.1 % $ 3,499    8.6 % $ 4,025    9.4 % $ 3,990    8.9 %
Wholesale trade    2,754    7.3    2,955    7.3    3,499    8.2    3,558    7.9  
Oil and gas    2,064    5.4    2,219    5.5    2,738    6.4    3,069    6.8  
Business finance and leasing    1,956    5.2    1,934    4.7    2,132    5.0    2,222    5.0  
Industrial materials    1,784    4.7    1,945    4.8    2,338    5.4    2,471    5.5  
Other (2)    26,223    69.3    28,103    69.1    28,146    65.6    29,539    65.9  

  Total   $ 37,845    100 % $ 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.

35


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 September 30, 2003, commercial real estate loans totaled $10.5 billion, or 19%, of the Commercial Banking portfolio.

        The majority of Commercial Real Estate loans are 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 September 30, 2003, National Commercial Real Estate Group’s loan outstandings totaled $8.5 billion, or 81%, of the commercial real estate portfolio.

        The following indicates the commercial real estate loan portfolio by both collateral location and property type at:

(Dollars in millions) September 30, 2003 June 30, 2003 March 31, 2003 December 31, 2002

By Collateral Location: Amount Percent of Portfolio Amount Percent of Portfolio Amount Percent of Portfolio Amount Percent of Portfolio

California     $1,150    11 % $ 1,072    10 % $ 1,047    10 % $ 1,109    10 %
Michigan    961    9    1,062    10    1,147    11    1,118    11  
Illinois    902    9    897    9    943    9    1,088    10  
Texas    891    8    856    8    845    8    824    8  
Ohio    794    8    813    8    839    8    848    8  
Arizona    609    6    598    6    709    7    741    7  
Louisiana    337    3    342    3    363    3    376    3  
Indiana    332    3    324    3    349    3    363    3  
Kentucky    326    3    350    3    347    3    369    3  
Colorado    281    3    257    3    260    3    288    3  
Other areas    1,294    12    1,465    14    1,530    14    1,563    15  
Unsecured    1,921    18    1,544    15    1,363    13    1,341    13  
Secured by other than      
  commercial real estate    717    7    776    8    822    8    611    6  

    Total commercial real estate   $ 10,515    100 % $ 10,356    100 % $ 10,564    100 % $ 10,639    100 %

By Property Type:  
Office   $1,818    17 % $1,737    17 % $1,658    16 % $1,738    16 %
Apartment     1,741    17     1,754    17     1,845    18     1,854    17  
Retail    1,716    16    1,591    15    1,798    17    1,762    17  
Single family residential  
  development    1,293    12    1,253    12    1,184    11    1,137    11  
Industrial/warehouse    1,116    11    1,100    11    1,192    11    1,161    11  
Residential lots    500    5    579    6    539    5    543    5  
Hotels    452    4    517    5    517    5    560    5  
Other commercial  
  income producing    1,722    17    1,664    16    1,696    16    1,758    17  
Other residential  
  developments    157    1    161    1    135    1    126    1  

    Total commercial real estate   $ 10,515    100 % $ 10,356    100 % $ 10,564    100 % $ 10,639    100 %

36


ASSET QUALITY

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

        The following indicates the Corporation’s nonperforming assets at:

(Dollars in millions)
September 30
2003

June 30
2003

March 31
2003

December 31
2002

September 30
2002

Nonperforming loans:                        
  Retail   $ 573   $ 570   $ 558   $ 535   $ 577  
  Commercial Banking:  
    Corporate banking     526    705    814    873    1,010  
    Middle market banking    861   988    947    1,001    1,030  

      Total Commercial Banking    1,387    1,693    1,761    1,874    2,040  
  IMG    74   80    81    71    47  
  Corporate    673   719    799    796    857  

    Total nonperforming loans (1)    2,707    3,062    3,199    3,276    3,521  
Other, including other real estate owned    214   245    254    251    214  

  Total nonperforming assets   $ 2,921   $ 3,307   $ 3,453   $ 3,527   $ 3,735  

Nonperforming assets to related assets (2)     2.06%   2.28 %  2.38 %  2.38 %  2.48 %
Loans 90-days or more past due and  
  accruing interest:  
    Card Services   $ 252   $ 209   $ 161   $ 160   $ 132  
    Other    -    -    -   1    -  

      Total loans   $ 252   $ 209   $ 161   $ 161   $ 132  

  (1) Nonperforming loans include loans held for sale of $10 million, $11 million, $22 million, $22 million and $93 million at September 30, 2003, June 30, 2003, March 31, 2003, December 31, 2002 and September 30, 2002, respectively.
  (2) Related assets consist of loans outstanding, including loans held for sale, and other real estate owned.

        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.

        In general, credit quality continued to improve during the third quarter as nonperforming loans declined $355 million from the prior quarter, driven primarily by a $306 million decline in Commercial Banking nonperforming loans. The 18% decline in Commercial 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.

        Nonperforming loans within Retail at September 30, 2003 were $573 million, an increase of $3 million from the prior quarter. 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 of the collateral 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 September 30, 2003 totaled $673 million and included $669 million of nonperforming loans from the non-core portfolio.

37


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

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


September 30, 2003
June 30, 2003
March 31, 2003
(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     $ 144   $ 54,734    1.05 % $ 113   $ 52,893    0.85 % $ 102   $ 52,610    0.78 %
Commercial Banking:  
  Corporate banking    56    27,544    0.81    63    29,222    0.86    81    30,405    1.07  
  Middle market banking    43    27,546    0.62    42    28,824    0.58    47    29,551    0.64  

    Total Commercial                                      
    Banking    99    55,090    0.72    105    58,046    0.72    128    59,956    0.85  
Card Services    211    16,441    5.13    182    14,090    5.17    161    12,364    5.24  
IMG (1)    4    6,665    0.24    6    6,590    0.36    2    6,744    0.12  
Corporate (1)    82    11,232    2.92    83    13,016    2.55    102    14,745    2.77  

    Total   $ 540   $ 144,162    1.50 % $ 489   $ 144,635    1.35 % $ 495   $ 146,419    1.35 %

December 31, 2002
September 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           $ 134   $ 51,683    1.04 % $ 117   $ 49,110    0.95 %
Commercial Banking:  
  Corporate banking                148    31,508    1.88    160    31,600    2.03  
  Middle market banking                54    30,693    0.70    77    32,084    0.96  

    Total Commercial                                      
Banking                202    62,201    1.30    237    63,684    1.49  
Card Services                168    13,325    5.05    131    10,523    4.99  
IMG (1)                13    6,986    0.74    2    6,941    0.12  
Corporate (1)                105    16,336    2.57    86    17,894    1.92  

    Total         $ 622   $ 150,531    1.65 % $ 573   $ 148,152    1.55 %

  (1) Prior period data has been adjusted for the transfer of the corporate trust services business from Investment Management to the Corporate line of business where it is now reported as discontinued operations.

        Net charge-offs increased 10% during the third quarter of 2003 to $540 million. The net charge-off ratio increased to 1.50% in the third quarter of 2003 from 1.35% in the second quarter of 2003.

        Retail net charge-offs in the third quarter of 2003 totaled $144 million, up from $113 million in the second quarter of 2003. This increase reflected higher net charge-offs primarily due to the sale of a small non-relationship portfolio.

        Commercial Banking net charge-offs in the third quarter of 2003 totaled $99 million, down from $105 million in the second quarter of 2003, reflecting both an improving economy and continued benefits from managements’ actions taken during 2001 and 2002. The net charge-off ratio was 0.72%, unchanged from the prior quarter. In spite of continuing improvement in credit quality, future charge-offs and credit quality in the Commercial Banking portfolio are subject to uncertainties that 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.

38


        On a reported basis, Card Services net charge-offs for the third quarter of 2003 totaled $211 million, an increase of $29 million from the second quarter, primarily resulting from growth of average total owned loans to $16.4 billion from $14.1 billion.

        On a managed basis, Card Services’ third quarter of 2003 net charge-off ratio of 5.30% increased slightly from the previous quarter ratio of 5.21% due to slightly lower recoveries. 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.

        Net charge-offs of the non-core portfolio totaled $79 million in the third quarter compared to $83 million in the second quarter.

        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)
September 30
2003

June 30
2003

March 31
2002

December 31
2002

September 30
2002

Loans sold and loans transferred                        
  to loans held for sale:  
   Nonperforming loans   $ 132   $ 28   $ 75   $ 43   $ 129  
   Other loans with credit related losses    121    217    84    47    65  
   Other loans    4    41    73    69    108  

     Total   $ 257   $ 286   $ 232   $ 159   $ 302  

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   $ 22   $ 1   $ 10   $ -   $ 5  
     Other loans with credit related losses    11    21    10    5    6  

       Total charge-offs to allowance    33    22    20    5    11  
   Losses (gains) on loans sold and held for sale    (25 )  (14 )  (8 )  (3 )  12  

     Total   $ 8   $ 8   $ 12   $ 2   $ 23  

        The Corporation sells Commercial Banking loans in the normal course of its business activities 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 excluded from the evaluation of the adequacy of the allowance for credit losses.

39


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)
September 30
2003

June 30
2003

March 31
2003

December 31
2002

September 30
2002

Balance, beginning of period     $ 4,498   $ 4,526   $ 4,525   $ 4,518   $ 4,521  
Charge-offs:  
  Retail:   
   Small business commercial    19    21    18    32    20  
   Home equity    52    32    29    19    27  
   Vehicle    68    62    61    83    67  
   Other personal    33    28    29    27    29  

       Total Retail    172    143    137    161    143  

  Commercial Banking:  
   Corporate banking:  
     Commercial and industrial    67    75    55    74    133  
     Commercial real estate    3    3    6    6    8  
     Lease financing    6    4    40    77    31  

       Total corporate banking    76    82    101    157    172  
   Middle market:  
     Commercial and industrial    49    78    65    67    71  
     Commercial real estate    5    3    3    -    15  
     Lease financing    4    2    1    2    4  

       Total middle market    58    83    69    69    90  

     Total Commercial Banking    134    165    170    226    262  
  Card Services    234    208    175    183    142  
  IMG    9    8    3    15    4  
  Corporate     93    94    112    115    97  

     Total charge-offs    642    618    597    700    648  

40


(In millions)
September 30
2003

June 30
2003

March 31
2003

December 31
2002

September 30
2002

Recoveries:                        
  Retail:   
    Small business commercial    $ 5   $ 5   $ 7   $ 5   $ 6  
    Home equity    5    5    3    4   3 
   Vehicle    12    16    14    14    14  
    Other personal    6    4    11    4    3  

      Total Retail    28    30    35    27    26  

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

      Total corporate banking    20    19    20    9    12  
  Middle market:  
    Commercial and industrial    14    39    20    15    12  
    Commercial real estate    -    1    1    -    1  
    Lease financing    1    1    1    -    -  

      Total middle market    15    41    22    15    13  

    Total Commercial Banking    35    60    42    24    25  
  Card Services    23    26    14    15    11  
  IMG    5    2    1    2    2  
  Corporate     11    11    10    10    11  

    Total recoveries    102    129    102    78    75  

Net charge-offs:  
  Retail     144    113    102    134    117  
  Commercial Banking    99    105    128    202    237  
  Card Services    211    182    161    168    131  
  IMG    4    6    2    13    2  
  Corporate     82    83    102    105    86  

    Total net charge-offs    540    489    495    622    573  

Provision for credit losses    416    461    496    628    587  
Transfers    -    -    -    1    (17 )

Balance, end of period   $ 4,374   $ 4,498   $ 4,526   $ 4,525   $ 4,518  

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:

September 30,
2003

June 30,
2003

March 31,
2003

December 31,
2002

September 30,
2002

(Dollars in millions)
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Retail     $ 683    16 % $ 688    15 % $ 693    15 % $ 679    15 % $ 681    15 %
Commercial Banking:  
    Corporate banking    1,461    33    1,611    36    1,706    38    1,706    38    1,706    38  
    Middle market    1,365    31    1,365    30    1,365    30    1,365    30    1,365    30  

      Total Commercial Banking    2,826    64    2,976    66    3,071    68    3,071    68    3,071    68  
Card Services    431    10    396    9    396    9    396    9    396    9  
IMG    40    1    40    1    40    1    40    1    25    -  
Corporate     394    9    398    9    326    7    339    7    345    8  

        Total composition   $ 4,374    100 % $4,498    100 % $ 4,526    100 % $ 4,525    100 % $ 4,518    100 %

41


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 at:

(In millions)
September 30
2003

June 30
2003

March 31
2003

December 31
2002

September 30
2002

Asset specific     $ 469   $ 591   $ 692   $ 678   $ 756  
Expected loss    2,526    2,713    2,850    2,810    2,862  
Stress    1,379    1,194    984    1,037    900  

    Total components (1)   $ 4,374   $ 4,498   $ 4,526   $ 4,525   $ 4,518  

  (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 allowance for credit losses at September 30, 2003 totaled $4.4 billion compared to $4.5 billion at December 31, 2002. The reduction in the allowance reflects both the reduced size of the loan portfolio and the continued improvement in credit quality. The allowance for credit losses at September 30, 2003 represented 3.34% of period-end loans and 162% 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 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 September 30, 2003.

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 September 30, 2003, the net notional amount of credit derivatives economically hedging commercial credit exposure totaled $4.1 billion, and the related loss reported in trading was $51 million for the third 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.

42


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 September 30, 2003, the projected total amount of such reclassification into earnings over the next twelve months would be a decrease in net income of $270 million after-tax ($423 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 18 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 nine months ended September 30, 2003 was a gain of $23 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.

         The following indicates the impact of these master netting agreements at:

(In millions)
September 30
2003

June 30
2003

March 31
2003

December 31
2002

September 30
2002

Gross replacement cost     $24,920   $27,967   $ 22,454   $ 22,066   $ 20,806  
  Less: Adjustment due to master  
    netting agreements    19,317    22,624    17,897    17,793    16,601  

      Balance sheet credit exposure   $5,603   $ 5,343   $ 4,557   $ 4,273   $ 4,205  

        The credit risk associated with exchange-traded derivative financial instruments is limited to the relevant clearinghouse. Written options, including caps and floors, 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.

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 $33 million and $145 million at September 30, 2003 and December 31, 2002, respectively, and are classified on the balance sheet as other assets at amounts approximating fair value.

43


        The following comprised the Corporation’s managed credit card loans at:

(In millions)
September 30
            2003

 December 31
            2002

Owned credit card loans - held in portfolio     $ 6,449   $ 7,592  
Owned credit card loans - held for sale    7,729    3,989  
Seller's interest in credit card loans and accrued interest receivable    23,285    28,526  

  Total credit card receivables reflected on balance sheet    37,463    40,107  
Securities sold to investors and removed from balance sheet    36,763    33,889  

  Managed credit card loans   $ 74,226   $ 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.

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 September 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     $ 351,649   $ 351,649   $ -   $ -   $ -  
Unused loan commitments    139,250    103,056    26,373    9,472    349  
Standby letters of credit and foreign office guarantees    25,149    18,049    5,608    1,226    266  
Commercial letters of credit    595    595    -    -    -  

        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 September 30, 2003 were as follows:

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

Total
Long-term debt     $ 693   $ 6,434   $ 7,318   $ 8,576   $ 6,130   $ 15,021   $ 44,172  
Capital leases    2    8    8    9    10    16    53  
Operating leases    63    229    206    187    163    914    1,762  

Total   $ 758   $ 6,671   $ 7,532   $ 8,772   $ 6,303   $ 15,951   $ 45,987  

44


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 September 30, 2003, the Corporation administered multi-seller conduits with a total program limit of $70 billion and with $34 billion in commercial paper outstanding. The multi-seller conduits were rated at least A-1 by S&P, P-1 by Moody’s and F1 by Fitch.

        These multi-seller conduits are a type of variable interest entity (“VIE”), as defined by 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. 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.

        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 September 30, 2003 and December 31, 2002, the Corporation provided such deal-specific enhancements to customers in the form of subordinated interests totaling $154 million and $203 million, respectively. These subordinated interest positions were included in loans on the Corporation’s balance sheets as of September 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 both September 30, 2003 and December 31, 2002. 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 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.

45


        The total amount of deal-specific and program-wide liquidity facilities available to the multi-seller conduits, as well as the share of these facilities provided by the Corporation, are as follows at:

September 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     $ 49,865   $ 45,083    90 % $ 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 $4.9 billion as of September 30, 2003.

        In accordance with FIN No. 46, the Corporation had been prepared to consolidate the assets, liabilities, and earnings associated with its asset-backed conduit business as of July 1, 2003. As a result of FASB’s recent delay in the implementation date of FIN No. 46, the Corporation did not consolidate these entities, but expects to adopt FIN No. 46 as of December 31, 2003. Investors in the multi-seller conduits and investment vehicle anticipated to be consolidated have no recourse to the general assets of the Corporation. Refer to Note 2, "New Accounting Pronouncements," regarding the expected impact to the Corporation of consolidating certain asset-backed conduits under FIN No. 46, as currently drafted.

        During the third quarter, banking regulators issued interim regulations that provide risk-based capital relief for certain assets that would be consolidated under FIN No. 46. Assuming the Corporation had adopted FIN 46 as it is currently written and consolidated certain asset-backed conduit entities, the balance sheet and earnings, and regulatory capital impact would have been as follows:

Consolidated Results
(Dollars in millions)
Incremental    
Consolidation    
Effect    

Reported    
September 30    
2003    

Proforma    
Total assets     $ 37,666   $ 290,006   $ 327,672  
Total net interest income-FTE    7    2,127    2,134  
Noninterest income    4    1,998    2,002  
Noninterest expense    7    2,421    2,428  
Net Income    3    883    886  
Tier 1 Capital     %  9.8 %  9.8 %
Total Capital        13.5    13.5  
Leverage    (1.0 )  8.4    7.4  

Principal Investments and Joint Ventures
In the normal course of business, the Corporation makes 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 LLC (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. At September 30, 2003, the principal investments portfolio totaled $2.3 billion and commitments to fund additional investments totaled $1.0 billion.

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

Loans Sold with Recourse
The Corporation occasionally sells or securitizes loans with limited recourse. The amount of outstanding loans sold with recourse totaled $3.0 billion and $4.7 billion at September 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.

46


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 48) 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 and related ratios were as follows at:

September 30   
2003   

June 30   
2003   

March 31   
2003   

December 31   
2002   

September 30   
2002   

Well-Capitalized   
Regulatory   
Guidelines   

Risk-based capital ratios:                            
  Tier 1     9.8 %   9.7 %   10.0 %   9.9 %   9.5 %   6.0 %
  Total     13.5     13.6     13.8     13.7     13.0     10.0  
Leverage ratio (1)     8.4     8.7     8.9     8.9     9.0     N/A  
Common equity/assets       7.7     7.4     7.8     8.1     8.0     N/A  
Tangible common equity/tangible  
  reported assets      6.8     6.6     6.9     7.2     7.2     N/A  
Tangible common equity/tangible  
  managed assets      6.1     5.9     6.2     6.4     6.4     N/A  
Double leverage ratio      108     106     107     103     104     N/A  
Dividend payout ratio     30     29     30     30     30     N/A  

  (1) The minimum regulatory guideline is 3%.

47


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

(In millions)
September 30
2003

June 30
2003

March 31
2003

December 31
2002

September 30
2002

Regulatory risk-based capital:                        
  Tier 1 capital   $ 23,708   $ 23,721   $ 23,832   $ 23,918   $ 23,428  
  Tier 2 capital     9,180     9,316     9,035     9,201     8,650  

    Total capital     32,888     33,037     32,867     33,119     32,078  

Total risk-weighted assets   $ 243,130   $ 243,779   $ 238,529   $ 241,468   $ 247,050  

        In deriving Tier 1 and Total Capital, goodwill and other nonqualifying intangible assets were deducted at:

(In millions)
September 30
2003

June 30
2003

March 31
2003

December 31
2002

September 30
2002

Goodwill     $ 2,005   $ 1,893   $ 1,894   $ 1,882   $ 1,829  
Other nonqualifying intangibles     302     303     239     256     215  

  Subtotal     2,307     2,196     2,133     2,138     2,044  
Qualifying intangibles     502     474     402     415     421  

  Total intangibles   $ 2,809   $ 2,670   $ 2,535   $ 2,553   $ 2,465  

        The insurance subsidiaries of the Corporation are subject to Risk-Based Capital (“RBC”) guidelines as established by the National Association of Insurance Commissioners (“NAIC”). The RBC requirements establish minimum levels of capital to be maintained and are used by the NAIC and states to identify companies subject to remedial action. At September 30, 2003, the statutory capital of all insurance subsidiaries was in excess of amounts that would require regulatory action.

        See page 46 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 October 21, 2003, the Corporation declared its quarterly common cash dividend of $0.25 per share, payable on January 1, 2004.

Double Leverage
Double leverage is the extent to which the Corporation’s resources are used to finance investments in subsidiaries. Double leverage was 108% and 103% at September 30, 2003 and December 31, 2002, respectively. Trust Preferred Capital Securities of $3.3 billion at September 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 third quarter of 2003, the Corporation purchased more than 13 million shares of common stock at an average cost of $38.86 per share. For the first nine months of 2003, the Corporation purchased more than 53 million shares of common stock at an average cost of $37.05 per share.

48


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:

49


CONSOLIDATED BALANCE SHEETS
Bank One Corporation and Subsidiaries

(Dollars in millions)
September 30
2003

December 31
2002

September 30
2002

Assets                
Cash and due from banks   $ 16,814   $ 17,920   $ 21.699  
Interest-bearing due from banks    3,486    1,503    2,960  
Federal funds sold and securities purchased under resale agreements    13,786    17,356    8,062  
Trading assets    13,626    7,190    6,367  
Derivative product assets    5,603    4,273    4,205  
Investment securities    76,145    67,643    66,129  
Loans (1)    141,710    148,125    150,389  
Allowance for credit losses    (4,374 )  (4,525 )  (4,518 )

  Loans, net    137,336    143,600    145,871  
Other assets    23,210    17,898    18,894  

  Total assets   $ 290,006   $ 277,383   $ 274,187  

  
Liabilities  
Deposits:  
  Demand   $ 25,191   $ 34,325   $ 30,870  
  Savings    96,170    88,934    85,245  
  Time:  
    Under $100,000    14,312    16,767    17,747  
    $100,000 and over    9,951    13,745    14,518  
  Foreign offices    17,787    16,237    15,656  

    Total deposits    163,411    170,008    164,036  
Federal funds purchased and securities sold under repurchase agreements    24,464    14,578    15,499  
Other short-term borrowings    11,098    12,306    12,810  
Long-term debt    44,225    43,234    42,481  
Insurance policy and claims reserves    6,496    226    212  
Derivative product liabilities    4,688    3,838    3,886  
Other liabilities    13,213    10,753    13,338  

  Total liabilities    267,595    254,943    252,262  
  
Stockholders' Equity  
Common stock ($0.01 par value; authorized 4,000,000,000;  
  issued 1,181,382,304)    12    12    12  
Surplus    10,254    10,239    10,224  
Retained earnings    14,816    13,020    12,423  
Accumulated other adjustments to stockholders' equity    (75 )  (8 )  26  
Deferred compensation    (220 )  (157 )  (177 )
Treasury stock, at cost (63,458,348, 17,340,948 and 14,865,928  
  shares, respectively)    (2,376 )  (666 )  (583 )

  Total stockholders' equity    22,411    22,440    21,925  

    Total liabilities and stockholders' equity   $ 290,006   $ 277,383   $ 274,187  

  (1) Includes loans held for sale of $10.7 billion, $6.9 billion and $7.9 billion at September 30, 2003, December 31, 2002 and September 30, 2002, respectively.

The accompanying notes are an integral part of these consolidated statements.

50


CONSOLIDATED INCOME STATEMENTS
Bank One Corporation and Subsidiaries

Three Months Ended September 30
Six Months Ended September 30
(In millions, except per share data)
2003
2002
2003
2002
Net Interest Income:                    
Interest income   $ 3,172   $ 3,524   $ 9,489   $10,452  
Interest expense    1,086    1,336    3,449    4,041  




     Total net interest income    2,086    2,188    6,040    6,411  
  
Noninterest Income:  
Banking fees and commissions    441    410    1,339    1,363  
Credit card revenue    974    976    2,736    2,847  
Service charges on deposits    433    409    1,229    1,178  
Fiduciary and investment management fees    164    159    485    488  
Investment securities gains (losses)    68  (29 )  289  49  
Trading gains (losses)    23  143  (49 )  234  
Other income (loss)    (105 )  (102 )  30    (32 )




     Total noninterest income    1,998    1,966    6,059    6,127  




      Total revenue, net of interest expense    4,084    4,154    12,099    12,538  
  
Provision for credit losses    416    587    1,373    1,859  
  
Noninterest Expense:  
Salaries and employee benefits    1,193    1,121    3,579    3,297  
Occupancy    175    158    505    485  
Equipment    119    107    347    308  
Outside service fees and processing    290    302    838    969  
Marketing and development    253    292    694    828  
Telecommunication    58    74    160    308  
Intangible amortization    34    32    98    94  
Other expense    299    318    900    949  




     Total noninterest expense before                    
     restructuring-related reversals    2,421    2,404    7,121    7,238  
Restructuring-related reversals    -    -  -    (63 )




     Total noninterest expense    2,421    2,404    7,121    7,175  
  
Income before income taxes    1,247    1,163    3,605    3,504  
Applicable income taxes    373    350    1,073    1,080  




     Income from continuing operations, net of taxes   874   813   2,532   2,424  
  
Discontinued Operations:  
Income from discontinued operations    14    15    39    45  
Applicable income taxes    5    5    14    16  




     Income from discontinued operations, net of taxes   9   10   25   29  
  
Net Income   $883   $823   $2,557   $2,453  




Net income attributable to common stockholders' equity   $883   $823   $2,557   $2,453  




  
Basic earnings per share:  
   Income from continuing operations   $ 0.78   $ 0.70   $ 2.24   $ 2.08  
   Income from discontinued operations, net    0.01    0.01    .02    .02  




     Net income   0.79   0.71   2.26   2.10  
  
Diluted earnings per share:  
   Income from continuing operations   $ 0.78   $ 0.69   $ 2.23   $ 2.06  
   Income from discontinued operations, net    0.01    0.01    .02    .02  




     Net income   0.79   0.70   2.25   2.08  

The accompanying notes are an integral part of these consolidated statements.

51


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            2,453                2,453  
Change in fair value, investment  
  securities-available for sale,  
  net of taxes                491            491  
Change in fair value of cash flow  
  hedge derivatives,  
  net of taxes                (399 )          (399 )
Translation loss,  
  net of hedge results and taxes            

 
 
(1
)
         
(1
)
Net income and changes in  
  accumulated other adjustments  
  to stockholders' equity            2,453    91            2,544  
Common stock cash dividends declared            (737 )              (737 )
Net issuance of common stock        (132 )              35    (97 )
Restricted stock awards granted,  
  net of forfeitures and amortization                    (56 )      (56 )
Stock option grants        28                    28  
Other        17                    17  

Balance-September 30, 2002   $ 12   $10,224   $ 12,423   $ 26   $ (177 ) $ (583 ) $ 21,925  

            

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

Net income            2,557                2,557  
Change in fair value, investment  
  securities-available for sale,  
  net of taxes                (240 )          (240 )
Change in fair value of cash-flow  
  hedge derivatives,  
  net of taxes                198            198  
Minimum pension liability (1)                (30 )          (30 )
Translation gain,  
 net of hedge results and taxes            

 
 
5
 
         
5
 
Net income and changes in  
  accumulated other adjustments  
  to stockholders' equity            2,557    (67 )          2,490  
Common stock cash dividends declared            (761 )          (761 )
Net purchases of common stock        (34 )              (1,710 )  (1,744 )
Restricted stock awards granted,  
  net of forfeitures and amortization                    (63 )      (63 )
Stock option grants        50                    50  
Other        (1 )                  (1 )

Balance-September 30, 2003   $ 12   $10,254   $ 14,816   $ (75 ) $ (220 ) $ (2,376 ) $ 22,411  

  (1) Relates to the nonqualified pension plan.

The accompanying notes are an integral part of these consolidated statements.

52


CONSOLIDATED STATEMENTS OF CASH FLOWS
Bank One Corporation and Subsidiaries

Nine Months Ended September 30
(In millions)
2003
2002
Cash Flows from Operating Activities:            
Net income   $ 2,557   $ 2,453  
Adjustments to reconcile net income to net cash  
  provided by operating activities:  
    Depreciation and amortization    421    388  
    Provision for credit losses    1,373    1,859  
    Investment securities (gains), net    (289 )  (49 )
    Change in net derivative product assets and liabilities    (231 )  (96 )
    Change in trading assets    (6,436 )  (198 )
    Change in other assets    (3,762 )  742
    Change in other liabilities    2,531    1,650  
    Restructuring reversals        (63 )
    All other operating adjustments, net    (312 )  283  


Net cash (used in) provided by operating activities    (4,148 )  6,969  
  
Cash Flows from Investing Activities:  
Change in federal funds sold and      
  securities under resale agreements    3,571  1,285
Securities available for sale:  
  Purchases    (56,853 )  (45,746 )
  Maturities    12,430    4,989
  Sales    35,828    36,390  
Credit card receivables securitized    9,800    3,500  
Change in loans    620  212  
Loan recoveries    334    286  
Additions to premises and equipment    (953 )  (369 )
Proceeds from sales of premises and equipment    55    39  
Business acquisitions    (352 )  -
All other investing activities, net    (78 )  140


Net cash provided by investing activities    4,402  726  
  
Cash Flows from Financing Activities:  
Change in deposits    (6,681 )  (3,424 )
Change in federal funds purchased and  
  securities sold under repurchase agreements    9,886    1,772  
Change in other short-term borrowings    (1,209 )  2,564
Proceeds from issuance of long-term debt    13,346    6,321  
Repayment of long-term debt    (12,134 )  (7,754 )
Repurchase of treasury stock    (1,974 )  (494 )
Cash dividends paid    (725 )  (737 )
Proceeds from issuance of common and treasury stock    90    265  
All other financing activities, net    (11 )  55  


Net cash provided by (used in) financing activities    588    (1,432 )
Effect of exchange rate changes on cash and cash equivalents    35    (17 )


Net increase in cash and cash equivalents    877  6,246  
Cash and cash equivalents at beginning of period    19,423    18,413  


Cash and cash equivalents at end of period   $ 20,300   $ 24,659  


Other cash flow disclosures:            
Interest paid   $ 3,778   $ 4,588  
Income taxes paid    903    664  

The accompanying notes are an integral part of these consolidated statements.

53


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.

        As described further in Note 3, “Acquisitions,” the Corporation purchased a life insurance and annuity company during the quarter and has adopted the following significant accounting policies relating to insurance activities:

Insurance Policy and Claims Reserves
Insurance policy and claims reserves for the insurance business acquired were initially recognized in purchase accounting at fair value. Fair value was determined based upon a number of assumptions including mortality, morbidity, expenses, persistency and interest rates (ranging from 3.0% to 6.2% with a weighted average of 4.6% for life insurance products and ranging from 2.5% to 6.5% with a weighted average of 4.3% for annuity products). On an on-going basis, the carrying value of the liabilities is adjusted for actual experience, with these changes reported in non-interest expense.

        For new insurance policies written, life insurance policy liabilities represent the present value of future benefits and related expenses less the present value of future net premiums to be paid to, or on behalf of, policyholders. These liabilities are calculated using assumptions such as mortality, morbidity, expenses, persistency and interest rates, including a provision for unfavorable deviation. The assumptions are regularly reviewed, compared to actual experience and revised, as appropriate. Changes in life insurance reserves are included in non-interest expense in the period of change.

        Annuity contract liabilities represent deposits received, net of withdrawals, and interest credited, net of expense charges.

Insurance Revenues
The Corporation recognizes fee revenue for issuing and administering annuity and other investment-type contracts, based upon contractual terms, when earned. Insurance premiums from long-duration contracts, principally life insurance, are recognized when due from policyholders. Premiums from short-duration insurance contracts are recognized over the contract term.

54


Separate Accounts
Separate account assets and liabilities represent funds maintained in accounts to meet specific investment objectives of contract holders who bear the investment risk. Separate account assets and liabilities are carried at fair value and presented on a net basis in the Corporation’s balance sheet, in accordance with FASB interpretation No. 39, Offsetting of Amounts Related to Certain Contracts (An interpretation of APB Opinion No. 10 and FASB Statement No. 105), if applicable netting criteria are met. Net income or loss accrues to, or is borne by the contract holders and is excluded from the Corporation’s earnings. The Corporation recognizes fee income for administering separate accounts, when earned.

Note 2–New Accounting Pronouncements
Consolidation of Variable Interest Entities (“VIEs”)

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 was to be effective on July 1, 2003 for entities in which the Corporation had a variable interest prior to February 1, 2003. On October 9, 2003, the FASB issued a deferral to December 31, 2003 of the implementation of FIN No. 46 for VIEs in existence prior to February 1, 2003. FIN No. 46 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 44-46, 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. The Corporation had previously announced its intent to consolidate certain VIEs related to its asset-backed conduit business in conjunction with the implementation of FIN No. 46. As a result of the Financial Accounting Standards Board’s (“FASB”) deferral, the Corporation expects to consolidate or restructure these entities in accordance with FIN No. 46 in the fourth quarter. During the third quarter, banking regulators issued interim regulations that provide risk-based capital relief for certain assets that would be consolidated under FIN No. 46.

        Management has estimated the Corporation’s maximum loss exposure to be $141 million as of September 30, 2003. For a discussion of the potential balance sheet and earnings impact of consolidating certain asset-backed conduit entities in accordance with FIN No. 46, as it is currently written, see page 46.

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 impacting the Corporation are financial and performance standby letters of credit. The required FIN No. 45 disclosure has been incorporated into Note 13, “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.

55


Costs Associated with Exit or Disposal Activities
In 2002, the FASB issued Statement of Financial Accounting Standards (“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.

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, financial position and statement of cash flows.

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 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, guaranteed preferred beneficial interest will be included as a component of long-term debt, with no change in the reporting of distributions.

Note 3–Acquisitions
On May 30, 2003, the Corporation announced an agreement to acquire for cash, key business components of Zurich Life, a U.S. life and annuity operation of Zurich Financial Services Group. The transaction closed effective September 1, 2003.

        Zurich Life, based in Schaumburg, Illinois, is a leading underwriter of term life insurance serving consumers through both a national network of 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.

        Prior to the acquisition, Zurich Life was 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, Zurich Direct and their subsidiaries. In addition, Federal Kemper Life Assurance Company provides management services to Fidelity Life Association, a Mutual Legal Reserve Company.

        The results of operations of Zurich Life from September 1 to September 30, 2003 are reflected in the Corporation’s consolidated financial statements for the three and nine months ended September 30, 2003. The acquisition expands the Corporation’s existing insurance product offering.

        At the date of acquisition, the Corporation recorded the assets acquired and liabilities assumed, including insurance policy and claims reserves, at fair value. The Corporation acquired total assets of approximately $6.7 billion, consisting primarily of fixed income investment securities, and $6.3 billion of insurance policy and claims reserves, and recorded approximately $110 million in goodwill. In conjunction with the acquisition, the Corporation reinsured separate accounts of the seller, Zurich Financial Services Group, that are netted in the Corporation’s balance sheet in accordance with FASB interpretation No. 39, Offsetting of Amounts Related to Certain Contracts (An interpretation of APB Opinion No. 10 and FASB Statement No. 105).

56


        On September 17, 2003, the Corporation announced an agreement to purchase Security Capital Research & Management Incorporated,  a recognized expert in developing real estate investment products, with approximately $3.5 billion in assets under management. The transaction is expected to close in the fourth quarter.

Note 4–Discontinued Operations
On July 24, 2003, the Corporation announced an agreement to sell the corporate trust services business. The sale price is approximately $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 is expected to occur in the fourth quarter of this year.

        Following the July 24, 2003 agreement to sell, the results of the corporate trust services business were reported in the Corporation’s Consolidated Income Statements and Consolidated Statements of Cash Flows separately as discontinued operations. In addition, the results of these operations have been transferred from the Investment Management to the Corporate line of business where they are also reported separately as discontinued operations.

        The following is summarized financial information for discontinued operations:

Three Months Ended September 30
Nine Months Ended September 30
(In millions)
2003       
2002       
2003       
2002       
Total revenues     $ 35   $ 31   $ 105   $ 96  
Total expenses (excluding taxes)    21    16    66    51  

     Income before income taxes    14    15    39    45  
Applicable income taxes    5    5    14    16  

       Net Income   $ 9   $ 10   $ 25   $ 29  

Total assets   $ 92   $ 119              

Note 5–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 September 30
Nine Months Ended September 30
(In millions, except per share data)
2003
2002
2003
2002
Net income available to common stockholders for basic and diluted EPS     $ 883   $ 823   $ 2,557   $ 2,453  




Average shares outstanding       1,115     1,162     1,131     1,163  
Stock options       9     9     7     11  




Average shares outstanding assuming full dilution       1,124     1,171     1,138     1,174  
   
Earnings per share:    
Basic earnings per share      
  Income from continuing operations     $ 0.78   $ 0.70   $ 2.24   $ 2.08  
  Income from discontinued operations, net       0.01     0.01     0.02     0.02  

   Net income       0.79     0.71     2.26     2.10  
Diluted earnings per share:     
  Income from continuing operations       0.78     0.69     2.23     2.06  
  Income from discontinued operations, net       0.01     0.01     0.02     0.02  

   Net income       0.79     0.70     2.25     2.08  

Note 6–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 September 30, 2003 totaled $67 million and $36 million for these plans, respectively. These amounts will be paid as required over the remaining contractual obligation periods.

57


Note 7–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 7.

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

Three Months Ended September 30
September 30
2003
2002
2003
2002
2003
2002
2003
2002
(In millions)
Total Revenues-FTE from continuing operations (1)
Income Taxes on continuing operations Provision (Benefit) (1)
Income (Loss) from continuing operations, net
Total Assets
Retail     $ 1,595   $ 1,503   $ 225   $ 212   $ 392   $ 361   $ 58,080   $ 54,174  
Commercial Banking    1,037    1,042    145    42    361    179    102,410    95,649  
Card Services    1,302    1,251    178    190    285    298    42,768    40,567  
Investment Management (2)    372    313    53    48    91    79    15,656    8,494  
Corporate (2)    (181 )  83    (187 )  (104 )  (255 )  (104 )  71,092    75,303  

  Total   $ 4,125   $ 4,192   $ 414   $ 388   $ 874   $ 813   $ 290,006   $ 274,187  

Nine Months Ended September 30
2003
2002
2003
2002
2003
2002
(In millions)
Total Revenues-FTE from continuing operations (1)
Income Taxes on continuing operations Provision (Benefit) (1)
Income (Loss) from continuing operations, net
Retail     $ 4,714   $ 4,549   $ 667   $ 641   $ 1,160   $ 1,096  
Commercial Banking    2,973    3,120    310    127    827    469  
Card Services    3,592    3,566    507    537    812    845  
Investment Management (2)    1,004    989    142    156    240    264  
Corporate (2)    (67 )  423    (436 )  (272 )  (507 )  (250 )

  Total   $ 12,216   $ 12,647   $ 1,190   $ 1,189   $ 2,532   $ 2,424  

  (1) Total revenue-FTE and provision for (benefit of) income taxes include tax equivalent adjustments of $41 million and $38 million for three months ended September 30, 2003 and 2002, respectively. For the nine months ended September 30, 2003 and 2002, tax equivalent adjustments were $117 million and $109 million, respectively.
  (2) Amounts presented are for continuing operations. Refer to Note 4, “Discontinued Operations,” for information related to corporate trust services.

Note 8–Interest Income and Interest Expense
Details of interest income and interest expense for the periods indicated were as follows:

Three Months Ended September30
Nine Months Ended September30
(In millions)
2003
2002
2003
2002
Interest Income:                    
  Loans, including fees   $ 2,207   $ 2,453   $ 6,727   $ 7,482  
  Bank balances    6    13    23    6  
  Federal funds sold and securities purchased under resale agreements    35    36    121    116  
  Trading assets    99    65    259    190  
  Investment securities    825    957    2,359    2,658  





    Total interest income    3,172    3,524    9,489    10,452  
  
Interest Expense:  
  Deposits    483    666    1,562    2,081  
  Federal funds purchased and securities sold under repurchase agreements    70    73    205    208  
  Other short-term borrowings    81    76    258    172  
  Long-term debt    452    521    1,424    1,580  





    Total interest expense    1,086    1,336    3,449    4,041  
  
Net interest income    2,086    2,188    6,040    6,411  
  Provision for credit losses    416    587    1,373    1,859  





    Net interest income after provision for credit losses   $ 1,670   $ 1,601   $ 4,667   $ 4,552  





58


Note 9–Investment Securities
The summary of the Corporation’s investment portfolio follows:

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

Gross Unrealized
Losses

Fair Value
(Book Value)

U.S. Treasury     $ 4,194   $ 27   $ 61   $ 4,160  
U.S. government agencies       30,962     390     194     31,158  
States and political subdivisions       1,249     63     8     1,304  
Interests in credit card securitized receivables (1)       22,906     155     -     23,061  
Other debt securities       9,802     151     29     9,924  
Equity securities (1)       4,216     8     6     4,218  

  Total available for sale securities     $ 73,329   $ 794   $ 298     78,825  

Principal and other investments (2)                   2,320  

    Total investment securities                 $ 76,145  

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

Gross Unrealized
Losses

Fair Value
(Book Value)

U.S. Treasury     $ 1,275   $ 31   $ -   $ 1,306  
U.S. government agencies       28,140     697     34     28,803  
States and political subdivisions       1,152     60     -     1,212  
Interests in credit card securitized receivables (1)       24,576     108     -     24,684  
Other debt securities       5,491     55     12     5,534  
Equity securities (1)       2,942     1     1     2,942  

  Total available for sale securities     $ 63,576   $ 952   $ 47     64,481  

Principal and other investments (2)                   1,648  

    Total investment securities                 $ 66,129  

  (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 September 30, 2003, gross recognized gains and losses on available-for-sale investment securities were $60 million and $142 million, respectively. For the three months ended September 30, 2002, gross recognized gains and losses on available-for-sale investment securities were $295 million and $198 million, respectively.

        For the nine months ended September 30, 2003, gross recognized gains and losses on available-for-sale investment securities were $258 million and $186 million, respectively. For the nine months ended September 30, 2002, gross recognized gains and losses on available-for-sale investment securities were $761 million and $429 million, respectively.

59


Note 10–Guaranteed Preferred Beneficial Interest in the Corporation’s Junior Subordinated Debt included in Long-Term Debt
The Corporation has sponsored ten trusts with a total aggregate issuance outstanding of $3.3 billion at September 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 B
    December 5, 1996    250    7.75 %  257.7    December 1, 2026    December 1, 2006  
First Chicago  
  NBD Institutional  
  Capital A    December 3, 1996    500    7.95 %  515.5    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 trust preferred 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.

60


Note 11Supplemental Disclosures for Accumulated Other Adjustments to Stockholders’ Equity
Accumulated other adjustments to stockholders’ equity were as follows:

Nine Months Ended September 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 $(116) and $307 for the  
  nine months ended September 30, 2003 and 2002, respectively    (195 )  532  
Reclassification adjustment, net of tax benefits of $26 and $26 for the  
  nine months ended September 30, 2003 and 2002, respectively    (45 )  (41 )

    Balance, end of period    312    569  
  
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 $97 and $368 for the nine  
  months ended September 30, 2003 and 2002, respectively    (164 )  (614 )
Reclassification into earnings, net of taxes of $210 and $129 for  
  the nine months ended September 30, 2003 and 2002, respectively    362    215  

    Balance, end of period    (362 )  (545 )
  
Accumulated translation adjustment:  
Balance, beginning of period    -    3  
Translation gain (loss), net of hedge results and taxes    5    (1 )

    Balance, end of period    5    2  

Minimum pension liability (1):  
Balance, beginning of period    -    -  
Minimum pension loss, net of taxes    (30 )  -  

    Balance, end of period    (30 )  -  

      Total accumulated other adjustments to stockholders' equity   $ (75 ) $ 26  

  (1) Relates to nonqualified pension plan.

Note 12–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 terms of the Corporation’s August 2003 stock option grant differ from prior year grants. The contractual life of 2003 options granted is six years, the vesting period is three years with a two-year restriction on selling shares acquired through the exercise of the options granted.

        The grant date fair values of stock options granted under the Corporation’s stock option plan and the Employee Stock Purchase Plan were determined using the Black-Scholes option pricing model. The fair value estimate for the August 2003 stock option grant was $6.91 per share.

        The fair value for the August 2003 stock option grant was estimated using the following assumptions: expected dividend yield of 2.53%, expected volatility of 33.23%, risk-free interest rate of 2.49% and expected life of 3.3 years.

61


        The net income and earnings per share implications if the fair value method had been applied to all awards vesting during the three and nine months ended September 30, 2003 and 2002 would have been as follows:

Three Months Ended September 30
Nine Months Ended September 30
(In millions, except per share data)
2003
2002
2003
2002
Net income attributable to common stockholders' equity     $ 883   $ 823   $ 2,557   $ 2,453  
Add: Stock-based employee compensation expense  
        included in reported net income, net of related tax effects    27    21    80    53  
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    35    30    104    109  

Pro forma net income attributable to common stockholders' equity   $ 875   $ 814   $ 2,533   $ 2,397  
Earnings per share:  
  Basic - as reported     0.79     0.71     2.26     2.10  
  Basic - pro forma    0.78    0.70    2.24    2.06  
  
  Diluted - as reported    0.79    0.70    2.25    2.08  
  Diluted - pro forma    0.78    0.70    2.23    2.04  

        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.

Note 13-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 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:

September 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)   $ 25,149   $ 281   $ 23,979   $ 218  
Loans sold with recourse    2,975    9    4,742    10  
Swap guarantees    278    7    222    9  
Asset purchase agreements (4)    2,262    -    2,453    -  

  (1) The contract amount of financial standby letters of credit and foreign office guarantees and performance standby letters of credit and foreign office guarantees totaled $21.8 billion and $3.3 billion and $20.4 billion and $3.6 billion at September 30, 2003 and December 31, 2002, respectively.
  (2) Includes $8.4 billion and $7.1 billion at September 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 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 44.
'

        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.

62


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

(In millions)
Contract
Amount

Carrying
Value

Loans     $ 7,188   $ 113  
Commodities    198    (8 )
Equities    81    (11 )
Other    2,035    -  

Note 14-Collateral Policy Related to Certain Asset Transfer Activity
The maximum outstanding amount of securities under resale agreements at any month end during the nine months ended September 30, 2003 and 2002 was $15.4 billion and $8.1 billion, respectively. The average outstanding amount of securities under resale agreements through September 30, 2003 and 2002 was $10.2 billion and $6.3 billion, respectively.

Note 15–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.

63


SELECTED STATISTICAL INFORMATION
Bank One Corporation and Subsidiaries

Average Balances/Net Interest Margin/Rates

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

Interest
Average
Rate

Average
Balance

Interest
Average
Rate

Assets                            
Short-term investments   $ 17,029   $ 41    0.96 % $ 17,775   $ 50    1.13 %
Trading assets (1)    11,669    100    3.40    10,211    87    3.42  
Investment securities: (1)  
  U.S. government agencies    36,937    366    3.93    33,356    336    4.04  
  States and political subdivisions    1,278    21    6.52    1,237    21    6.81  
  Other    33,523    466    5.52    32,142    444    5.54  

    Total investment securities    71,738    853    4.72    66,735    801    4.81  
Loans (1) (2)    144,162    2,219    6.11    144,635    2,231    6.19  

  Total earning assets    244,598    3,213    5.21    239,356    3,169    5.31  
Allowance for credit losses    (4,479 )          (4,535 )        
Other assets - nonearning    43,090            41,452          

    Total assets   $ 283,209           $ 276,273          

Liabilities and Stockholders' Equity  
Interest-bearing deposits: (3)  
  Savings   $ 10,453   $ 19    0.72 % $ 10,260   $ 14    0.55 %
  Money market    64,728    154    0.94    62,881    171    1.09  
  Time    25,014    251    3.98    27,104    274    4.05  
  Foreign offices (4)    16,244    59    1.44    15,985    65    1.63  

    Total deposits - interest-bearing    116,439    483    1.65    116,230    524    1.81  
Federal funds purchased and securities  
  under repurchase agreements    23,003    70    1.21    20,383    73    1.44  
Other short-term borrowings    11,216    81    2.87    13,413    90    2.69  
Long-term debt (5)    45,248    452    3.96    45,014    473    4.21  

    Total interest-bearing liabilities    195,906    1,086    2.20    195,040    1,160    2.39  

Noninterest-bearing deposits    45,995            44,077          
Other liabilities    19,096            14,694          
Preferred stock  
Common stockholders' equity    22,212            22,462          

    Total liabilities and equity   $ 283,209           $ 276,273          

Interest income/earning assets       $ 3,213    5.21 %     $ 3,169    5.31 %
Interest expense/earning assets        1,086    1.76        1,160    1.94  

Net interest income/margin       $ 2,127    3.45 %     $ 2,009    3.37 %

  (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 securities.

64


SELECTED STATISTICAL INFORMATION
Bank One Corporation and Subsidiaries

Average Balances/Net Interest Margin/Rates

Three Months Ended
March 31, 2003
  December 31, 2002
  September 30, 2002
Average
Balance

Interest
Average
Rate

Average
Balance

Interest
Average
Rate

Average
Balance

Interest
Average
Rate

                                                  
$ 17,672   $ 54    1.24 % $ 15,338   $ 48    1.24 % $ 9,484   $ 38    1.59 %
 8,414    74    3.57    6,995    67    3.80    6,426    66    4.07  
                                                  
 29,030    280    3.91    28,549    338    4.70    30,331    401    5.25  
 1,169    20    6.94    1,177    20    6.74    1,171    21    7.11  
 34,851    481    5.60    34,350    521    6.02    35,230    558    6.28  

 65,050    781    4.87    64,076    879    5.44    66,732    980    5.83  
 146,419    2,315    6.41    150,531    2,477    6.53    148,152    2,478    6.64  

 237,555    3,224    5.50    236,940    3,471    5.81    230,794    3,562    6.12  
 (4,558 )          (4,566 )          (4,533 )        
 38,892            37,888            36,277          

$ 271,889           $ 270,262           $ 262,538          

                                                  
                                                  
$ 9,662   $ 14    0.59 % $ 10,076   $ 20    0.79 % $ 9,953   $ 17    0.68 %
 60,886    174    1.16    58,003    202    1.38    54,537    199    1.45  
 29,401    306    4.22    31,483    342    4.31    33,340    374    4.45  
 14,513    61    1.70    14,776    66    1.77    14,634    75    2.03  

 114,462    555    1.97    114,338    630    2.19    112,464    665    2.35  
                                                  
 16,866    62    1.49    14,950    63    1.67    15,115    73    1.92  
 12,433    87    2.84    12,270    90    2.91    9,802    77    3.12  
 44,630    499    4.53    43,180    508    4.67    43,229    521    4.78  

 188,391    1,203    2.59    184,738    1,291    2.77    180,610    1,336    2.93  

 46,397            48,521            45,201          
 14,480            14,760            14,646          
                                                  
 22,621            22,243            22,081          

$ 271,889           $ 270,262           $ 262,538          

    $ 3,224    5.50 %     $ 3,471    5.81 %     $ 3,562    6.12 %
     1,203    2.05        1,291    2.16        1,336    2.29  

    $ 2,021    3.45 %     $ 2,180    3.65 %     $ 2,226    3.83 %

65


SELECTED STATISTICAL INFORMATION
BANK ONE CORPORATION AND SUBSIDIARIES

Average Balances/Net Interest Margin/Rates

Nine Months Ended September 30
2003
2002
(Dollars in millions)
Average
Balance

Interest
Average
Rate

Average
Balance

Interest
Average
Rate

Assets                            
Short-term investments   $ 17,490   $ 145    1.11 % $ 10,770   $ 122    1.51 %
Trading assets (1)    10,110    261    3.45    6,536    191    3.91  
Investment securities: (1)  
  U.S. government agencies    33,137    982    3.96    27,640    1,117    5.40  
  States and political subdivisions    1,228    62    6.75    1,212    66    7.28  
  Other    33,500    1,391    5.55    32,478    1,543    6.35  

    Total investment securities    67,865    2,435    4.80    61,330    2,726    5.94  
Loans (1) (2)    145,064    6,765    6.24    150,898    7,522    6.66  

  Total earning assets    240,529    9,606    5.34    229,534    10,561    6.15  
Allowance for credit losses    (4,524 )          (4,539 )        
Other assets - nonearning    41,160            35,588          

    Total assets    277,165            260,583          

Liabilities and Stockholders' Equity  
Interest-bearing deposits: (3)  
  Savings   $ 10,128   $ 47    0.62   $ 11,217   $ 65    0.77  
  Money market    58,319    499    1.14    56,127    569    1.36  
  Time    27,157    831    4.09    35,404    1,233    4.66  
  Foreign offices (4)    15,517    185    1.59    14,332    214    2.00  

    Total deposits - interest-bearing    111,121    1,562    1.88    117,080    2,081    2.38  
Federal funds purchased and securities  
  under repurchase agreements    20,106    205    1.36    14,947    208    1.86  
Other short-term borrowings    12,349    258    2.79    7,745    172    2.97  
Long-term debt (5)    44,966    1,424    4.23    43,374    1,580    4.87  

    Total interest-bearing liabilities    188,542    3,449    2.45    183,146    4,041    2.95  

Noninterest-bearing deposits    50,085            41,908          
Other liabilities    16,108            14,013          
Preferred stock  
Common stockholders' equity    22,430            21,516          

    Total liabilities and equity   $ 277,165       $ 260,583        

Interest income/earning assets       $ 9,606    5.34 %     $ 10,561    6.15 %
Interest expense/earning assets        3,449    1.92        4,041    2.35  

Net interest income/margin       $ 6,157    3.42 %     $ 6,520    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 securities.

66


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 September 30, 2003. Based on this evaluation, the Principal Executive Officer and Principal Financial Officer each concludes that as of September 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

November 6, 2003




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



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

67


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 September 30, 2003 and 2002, the related consolidated income statements for the three and nine month periods ended September 30, 2003 and 2002, and the related consolidated statements of stockholders’ equity and cash flows for the nine-month periods ended September 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
November 6, 2003




/s/ KPMG LLP
——————————————
KPMG LLP

68


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 September 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 October 31, 2003.




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



Number of Shares Outstanding
———————————————————
1,117,904,788

69


Form 10-Q Cross-Reference Index

PART I–FINANCIAL INFORMATION

ITEM 1. Financial Statements    
Page
            Consolidated Balance Sheets-
            September 30, 2003 and 2002, and December 31, 2002
50 
            Consolidated Income Statements-
            Three and nine months ended September 30, 2003 and 2002
51 
            Consolidated Statements of Stockholders' Equity-
            Nine months ended September 30, 2003 and 2002
52 
            Consolidated Statements of Cash Flows-
            Nine months ended September 30, 2003 and 2002
53 
            Notes to Consolidated Financial Statements 54 
             Selected Statistical Information 64 
ITEM 2. Management's Discussion and Analysis of Financial
            Condition and Results of Operations
1-49
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 31-34
ITEM 4. Controls and Procedures 67

PART II–OTHER INFORMATION

ITEM 1. Legal Proceedings 71  
ITEM 2. Changes in Securities and Use of Proceeds 71
ITEM 3. Defaults Upon Senior Securities 71
ITEM 4. Submission of Matters to a Vote of Security Holders 71
ITEM 5. Other Information 71
ITEM 6. Exhibits and Reports on Form 8-K 71
Signatures 72

70


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
None

ITEM 5. Other Information
               None

ITEM 6. Exhibits and Reports on Form 8-K

(a)  Exhibit   12–Statement 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 September 30, 2003.

         Date                    Item Reported

         July  16, 2003     Registrant’s July 16, 2003 news release announcing its 2003 second quarter earnings.

         July  18, 2003     Transcript of Registrant’s July 16, 2003 analyst’s conference call discussing its 2003
                    second quarter earnings.

         July  24,2003    Registrant’s July 24, 2003 joint news release with J.P. Morgan Chase & Co. announcing
                   its agreement to sell its Corporate Trust Services business to JPMorgan Institutional
                   Trust Services.

71


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                  November 6, 2003
——————————————
/s/ James Dimon
——————————————
James Dimon
Principal Executive Officer


Date                  November 6, 2003
——————————————
/s/ Heidi Miller
——————————————
Heidi Miller
Principal Financial Officer


Date                  November 6, 2003
——————————————
/s/ Melissa J. Moore
——————————————
Melissa J. Moore
Principal Accounting Officer

72


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.

73