SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2013

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 1-31557

Wachovia Preferred Funding Corp.

(Exact name of registrant as specified in its charter)

Delaware	56-1986430
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer     Identification No.)

90 South 7th Street, 13^th Floor

Minneapolis, Minnesota 55402

(Address of principal executive offices)

(Zip Code)

(855) 825-1437

(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 þ  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer  ¨	Accelerated filer ¨	Non-accelerated filer  þ	Smaller reporting company  ¨
		(Do not check if a smaller   reporting company.)

Indicate by check mark whether the registrant is a shell company (defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ¨  No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 31, 2013, there were 99,999,900 shares of the registrant’s common stock outstanding.

FORM 10-Q

CROSS-REFERENCE INDEX

PART I	Financial Information
Item 1.	Financial Statements	Page
	Consolidated Statement of Income	26
	Consolidated Balance Sheet	27
	Consolidated Statement of Changes in Stockholders’ Equity	28
	Consolidated Statement of Cash Flows	29
	Notes to Financial Statements
	1  -   Summary of Significant Accounting Policies	30
	2  -   Loans and Allowance for Credit Losses	31
	3  -   Fair Values of Assets and Liabilities	45
	4  -   Common and Preferred Stock	46
	5  -   Transactions with Related Parties	47
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data	2
	Overview	3
	Earnings Performance	5
	Balance Sheet Analysis	8
	Risk Management	9
	Critical Accounting Policy	22
	Current Accounting Developments	22
	Forward-Looking Statements	23
	Risk Factors	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	25
PART II	Other Information
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6.	Exhibits	49
Signature		50

1

PART I – FINANCIAL INFORMATION

Summary Financial Data
	Quarter ended							% Change Sept. 30, 2013 from						Nine months ended
(in thousands, except per share data)	Sept. 30  2013			June 30, 2013		Sept. 30 2012		June 30, 2013			Sept. 30 2012			Sept. 30  2013			Sept. 30 2012		% Change
For the period
Net income	$	192,423			134,834		138,990		43	%		38		$	498,697			470,992		6	%
Net income applicable to common stock		146,854			89,114		90,980		65			61			361,394			325,248		11
Diluted earnings per common share		1.47			0.89		0.91		65			62			3.61			3.25		11
Profitability ratios (annualized)
Return on average assets		5.47	%		3.90		4.06		40			35			4.81	%		4.61		4
Return on average stockholders’ equity		5.79			4.08		4.09		42			42			5.04			4.65		8
Average stockholders’ equity to average assets		94.49			95.43		99.29		(1	)		(5	)		95.44			99.13		(4	)
Common dividend payout ratio (1)		47.67			196.38		183.56		(76	)		(74	)		124.52			144.50		(14	)
Dividend coverage ratio (2)		1,020.22			713.74		718.05		43			42			879.58			807.79		9
Total revenue	$	197,723			196,279		213,378		1			(7	)	$	594,019			656,647		(10	)
Average loans		13,025,264			12,651,249		12,090,692		3			8			12,892,565			12,203,841		6
Average assets		13,958,772			13,874,576		13,610,250		1			3			13,870,413			13,645,041		2
Net interest margin		5.63	%		5.66		6.19		(1	)		(9	)		5.72	%		6.35		(10	)
Net loan charge-offs	$	24,123			33,775		69,800		(29	)		(65	)	$	96,482			166,100		(42	)
As a percentage of average total loans (annualized)		0.73	%		1.07		2.30		(32	)		(68	)		1.00	%		1.82		(45	)
At period end
Loans, net of unearned income	$	13,174,815			13,212,558		12,032,760		-			9		$	13,174,815			12,032,760		9
Allowance for loan losses		253,782			291,429		278,056		(13	)		(9	)		253,782			278,056		(9	)
As a percentage of total loans		1.93	%		2.21		2.31		(13	)		(16	)		1.93	%		2.31		(16	)
Assets	$	13,983,572			13,958,620		13,432,409		-			4		$	13,983,572			13,432,409		4
Total stockholders’ equity		13,225,469			13,148,615		13,357,691		1			(1	)		13,225,469			13,357,691		(1	)
Total nonaccrual loans and foreclosed assets		435,121			440,549		490,621		(1	)		(11	)		435,121			490,621		(11	)
As a percentage of total loans		3.30	%		3.33		4.08		(1	)		(19	)		3.30	%		4.08		(19	)
Loans 90 days or more past due and still accruing (3)	$	15,089			18,661		22,315		(19	)		(32	)	$	15,089			22,315		(32	)

(1) Dividends declared per common share as a percentage of earnings per common share.

(2) The dividend coverage ratio reflects the extent that funds from operations (defined as net income, as adjusted for depreciation of real or personal property used to generate income and gains and losses on the sale of real estate) exceed dividends on the Series A preferred securities and parity preferred securities. With respect to dividends, the Series A preferred securities rank on parity with the Series B and Series D preferred securities. The certificates of designation for these securities limit, among other matters, our ability to pay dividends on our common stock or other junior securities or make any payment of interest or principal on our lines of credit with the Bank if the dividend coverage ratio for the last four quarters is less than 150%.

(3) The carrying value of PCI loans contractually 90 days or more past due is excluded. These PCI loans are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.

2

This Quarterly Report on Form 10-Q, including the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results might differ materially from our forecasts and expectations due to several factors. Factors that could cause our results to differ materially from our forward looking statements are discussed in this Report, including in the “Forward-Looking Statements” and “Risk Factors” sections in this Report. Some of these factors are also described in the Financial Statements and related Notes. For a discussion of other important factors, refer to the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2012 (2012 Form 10-K), filed with the Securities and Exchange Commission (SEC) and available on the SEC’s website at www.sec.gov and on Wells Fargo’s website, www.wellsfargo.com/invest_relations/filings/preferred-funding.

“Wachovia Funding”, “we”, “our” and “us” refer to Wachovia Preferred Funding Corp. “Wachovia Preferred Holding” refers to Wachovia Preferred Funding Holding Corp., the “Bank” refers to Wells Fargo Bank, National Association including predecessor entities, “Wachovia” refers to Wachovia Corporation, a North Carolina corporation, and “Wells Fargo” refers to Wells Fargo & Company.

Financial Review

Overview

Wachovia Funding is engaged in acquiring, holding and managing domestic mortgage assets and other authorized investments that generate net income for distribution to our shareholders. We are classified as a real estate investment trust (REIT) for income tax purposes. As of September 30, 2013, we had $14.0 billion in assets, which included $13.2 billion in loans.

We are a direct subsidiary of Wachovia Preferred Holding and an indirect subsidiary of Wells Fargo and the Bank. At September 30, 2013, the Bank was considered “well-capitalized” under risk-based capital guidelines issued by federal banking regulators.

REIT Tax Status

For the tax year ended December 31, 2012, we complied with the relevant provisions of the Internal Revenue Code of 1986, as amended, to be taxed as a REIT. These provisions for qualifying as a REIT for federal income tax purposes are complex, involving many requirements, including among others, distributing at least 90% of our REIT taxable income to shareholders and satisfying certain asset, income and stock ownership tests. To the extent we meet those provisions, with the exception of the income of our taxable REIT subsidiary, we will not be subject to federal income tax on net income. For the period ended September 30, 2013, we believe that we continued to satisfy each of these requirements and therefore continued to qualify as a REIT. We continue to monitor each of these complex tests.

In the event we do not continue to qualify as a REIT, we believe there should be minimal adverse effect of that characterization to us or to our shareholders:

• From a shareholder’s perspective, the dividends we pay as a REIT are ordinary investment income not eligible for the dividends received deduction for corporate shareholders or for the favorable qualified dividend tax rate applicable to non-corporate taxpayers. If we were not a REIT, dividends we pay generally would qualify for the dividends received deduction for corporate shareholders and the favorable

qualified dividend tax rate applicable to non-corporate taxpayers.

• In addition, we would no longer be eligible for the dividends paid deduction, thereby creating a tax liability for us. Wells Fargo agreed to make, or cause its subsidiaries to make, a capital contribution to us equal in amount to any income taxes payable by us. Therefore, we believe a failure to qualify as a REIT would not result in any net capital impact to us.

Financial Performance

We earned $192.4 million in third quarter 2013, or $1.47 diluted earnings per common share, compared with $139.0 million, or $0.91 per common share, in third quarter 2012. For the first nine months of 2013, our net income was $498.7 million, or $3.61 per common share, compared with $471.0 million, or $3.25 per common share a year ago. The increase in net income for the third quarter and first nine months of 2013 compared with 2012 was primarily attributable to a lower provision for credit losses.

Loans

Total loans, which consist of loan participation interests, were $13.2 billion at September 30, 2013, compared with $13.6 billion at December 31, 2012. Loans represented approximately 94% and 96% of assets at September 30, 2013 and December 31, 2012, respectively. Annualized loan pay-downs and pay-offs represented 32.7% and 26.9% of loan balances during third quarter 2013 and 2012, respectively. We reinvested loan pay-downs by purchasing $1.1 billion and $2.9 billion of consumer loans in third quarter and the first nine months of 2013, respectively, from the Bank. In 2012 we reinvested loan pay-downs by purchasing $751.8 million of commercial loans in third quarter 2012, as well as $1.3 billion of consumer loans earlier that year from the Bank. If in future periods we do not reinvest loan pay-downs at sufficient levels by purchasing loans, management may request our board of directors to consider a return of capital to holders of our common stock.

3

Purchased credit-impaired (PCI) loans represented less than 1 percent of total loans at both September 30, 2013 and December 31, 2012. See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2012 Form 10-K for additional information.

Credit quality continued to improve during third quarter 2013 reflecting the benefit of an improving economy:

• net charge-offs were $24.1 million and $96.5 million in third quarter and first nine months 2013 (0.73% and 1.00% of average loans), compared with $69.8 million and $166.1 million in third quarter and first nine months 2012 (2.30% and 1.82% of average loans);

• nonperforming assets were $435.1 million at September 30, 2013, compared with $460.2 million at December 31, 2012; and

• loans 90 days or more past due and still accruing were $15.1 million at September 30, 2013, compared with $29.8 million at December 31, 2012.

See “– Risk Management – Credit Risk Management” section in this Report for more information.

Capital Distributions

Dividends declared to holders of our preferred securities totaled $45.6 million and $137.3 million for the third quarter and first nine months of 2013, which included $13.6 million and $40.8 million, respectively, in dividends paid on our Series A preferred securities held by non-affiliated investors.

Distributions on preferred stock were $48.0 million and $145.7 million for the third quarter and first nine months of 2012, which included $13.6 million and $40.8 million, respectively, in dividends on our Series A preferred securities.

Distributions made to holders of our common stock totaled $70.0 million and $450.0 million for the third quarter and first nine months of 2013. Distributions made to holders of our common stock totaled $167.0 million and $470.0 million for the third quarter and first nine months of 2012.

Regulatory Capital

On November 5, 2013, we issued a notice to the holders of the Series A preferred securities that we have elected to redeem the Series A preferred securities at the redemption price of $25 per security, plus authorized, declared, but unpaid dividends to the date of redemption, January 2, 2014. The Certificate of Designation for the Series A preferred securities permits the redemption because we have concluded, and received an opinion of counsel confirming, that the securities will no longer constitute Tier 1 capital for Wells Fargo or the Bank under the final rules approved by the Board of Governors of the Federal Reserve System (FRB) and the OCC that substantially amend the risk-based capital rules for banks. Wells Fargo and the Bank will be required to comply with the new rules beginning January 1, 2014. In accordance with the terms of the Series A preferred securities, we have obtained prior approval from the OCC to redeem the Series A preferred securities because Wachovia Funding is a subsidiary of the Bank. See also “Risk Factors” and “Note 4

(Common and Preferred Stock)” to Financial Statements in this Report.

4

Earnings Performance

Net Income

We earned net income of $192.4 million and $139.0 million in third quarter 2013 and 2012, respectively. For the first nine months of 2013, net income was $498.7 million, compared with $471.0 million a year ago. The increase in net income for the third quarter and first nine months of 2013 compared with 2012 was primarily due to a lower provision for credit losses.

Net Interest Income

Net interest income is the interest earned on loans and cash and cash equivalents less the interest paid on draws on our lines of credit with the Bank. Net interest margin is the average yield on earning assets less the average interest rate paid for funding. Net interest income was $197.5 million in third quarter 2013 compared with $212.8 million a year ago. Net interest income was $593.4 million in the first nine months of 2013 compared with $655.2 million a year ago. Net interest margin was 5.63% in third quarter 2013 compared with 6.19% a year ago. Net interest margin was 5.72% in the first nine months of 2013 compared with 6.35% a year ago. The decrease in net interest income and net interest margin was due primarily to lower yields on interest-earning assets.

The average yield on total interest-earning assets was 5.64% in third quarter 2013 compared with 6.19% a year ago. The average yield on total interest-earning assets for the first nine months of 2013 was 5.73% compared with 6.35% for the first nine months of 2012. The decrease in the average yield for both the third quarter and first nine months of 2013 resulted partially from continued declines in discount accretion on purchased consumer loans. Interest income included net discount accretion of $24.9 million and $35.5 million in third quarter 2013 and 2012, respectively, and $72.2 million and $118.1 million in the first nine months of 2013 and 2012, respectively. The decrease in net discount accretion was primarily driven by decreased loan pay-downs and pay-offs on those loans purchased at a discount as well as an increase in amortization of purchase premiums associated with recent loan purchases. Additionally, the reinvestment of higher yielding consumer loan pay-downs and pay-offs into lower yielding assets contributed to the decrease in average yield.

We expect continued downward pressure on our average yield on total interest-earning assets as we reinvest proceeds from loan payments in the low interest rate environment. We also expect to recognize less discount accretion due to the passage of time from when the loans purchased at a higher discount were acquired and recent purchases having premiums or lower purchase discounts. Wachovia Funding has the ability to increase interest income over time by reinvesting loan payments in real estate 1-4 family loans, commercial loans and other REIT-eligible assets; however interest income in any one period can be impacted by a variety of factors, including mix and size of the earning asset portfolio. See the “Risk Management—Asset/Liability

Management—Interest Rate Risk” section in this Report for more information on interest rates and interest income.

Wachovia Funding and its subsidiaries have $2.2 billion of lines of credit with the Bank. At September 30, 2013, the outstanding balance under the lines of credit was $749.5 million. We borrow on our lines of credit to fund loan purchases from time to time. Interest expense related to borrowings on the lines of credit was $396 thousand in third quarter 2013 and $794 thousand in the first nine months of 2013 on year-to-date average borrowings of $279.3 million at a weighted average rate of 0.38%. During the third quarter and first nine months of 2012, Wachovia Funding had no amount outstanding on its lines of credit and therefore did not incur interest expense.

Table 1 presents the components of interest-earning assets and interest-bearing liabilities and related average yields to provide an analysis of year-over-year changes that influenced net interest income.

5

Table 1: Net Interest Income
	Quarter ended Sept. 30,
	2013							2012
(in thousands)	Average balance		Interest income/ expense		Yields/ rates			Average balance		Interest income/ expense		Yields/ rates
Earning assets
Commercial loans	$	2,188,793		13,938		2.53	%	$	1,435,440		8,797		2.44	%
Real estate 1-4 family		10,836,471		183,342		6.73			10,655,252		202,980		7.59
Interest-bearing deposits in banks and other interest-earning assets		924,303		591		0.25			1,613,019		1,031		0.25
Total interest-earning assets	$	13,949,567		197,871		5.64	%	$	13,703,711		212,808		6.19	%
Funding sources
Lines of credit with Bank	$	413,444		396		0.38	%	$	-		-		-	%
Total interest-bearing liabilities	$	413,444		396		0.38	%	$	-		-		-	%
Net interest margin and net interest income on a tax-equivalent basis			$	197,475		5.63	%			$	212,808		6.19	%
	Nine months ended Sept. 30,
	2013							2012
Earning assets
Commercial loans	$	2,344,673		44,529		2.54	%	$	1,310,089		23,649		2.41	%
Real estate 1-4 family		10,547,892		547,882		6.94			10,893,752		628,986		7.71
Interest-bearing deposits in banks and other interest-earning assets		963,887		1,831		0.25			1,581,122		2,602		0.22
Total interest-earning assets	$	13,856,452		594,242		5.73	%	$	13,784,963		655,237		6.35	%
Funding sources
Lines of credit with Bank	$	279,344		794		0.38	%	$	-		-		-	%
Total interest-bearing liabilities	$	279,344		794		0.38	%	$	-		-		-	%
Net interest margin and net interest income on a tax-equivalent basis			$	593,448		5.72	%			$	655,237		-6.35	%

Provision for Credit Losses

Third quarter 2013 reversal of provision for credit losses was $11.9 million compared with provision for credit losses of $57.2 million a year ago. The provision for credit losses was $47.3 million and $136.4 million in the first nine months of 2013 and 2012, respectively. The lower level of provision in the third quarter and first nine months of 2013 primarily reflected an allowance release from decreased net charge-offs and continued improvement in delinquency and related loss estimates due to strong underlying credit performance and improving home prices and market fundamentals. For additional information on the allowance for credit losses, please see “Balance Sheet Analysis—Allowance for Loan Losses” and “Risk Management—Credit Risk Management—Allowance for Credit Losses” sections in this Report.

Noninterest Expense

Noninterest expense in third quarter 2013 was $17.1 million, compared with $17.0 million in third quarter 2012. Noninterest expense was $47.6 million and $48.9 million in the first nine months of 2013 and 2012, respectively. Noninterest expense primarily consisted of loan servicing costs, management fees, and foreclosed assets expense.

Loan servicing costs were $9.0 million in third quarter 2013 compared with $10.3 million in third quarter 2012.

Loan servicing costs were $28.0 million and $31.9 million for the first nine months of 2013 and 2012, respectively. The decrease in these costs reflected an increased percentage of commercial loans within our loan portfolio, as commercial loans have lower servicing rates than consumer loans. Additionally, servicing rates were lower on recent consumer loan purchases.

Management fees were $1.7 million in third quarter 2013, compared with $2.0 million in third quarter 2012. Management fees totaled $5.1 million and $5.8 million in the first nine months of 2013 and 2012, respectively. Management fees represent reimbursements made to the Bank for general overhead expenses incurred on our behalf. The decreases in management fees related to a decrease in the rates of certain technology system and support expenses.

Foreclosed assets expense was $5.7 million in third quarter 2013 compared with $4.1 million in third quarter 2012. Foreclosed assets expense was $12.8 million and $8.7 million in the first nine months of 2013 and 2012, respectively. The increases are due to higher costs of maintaining our foreclosed assets. Substantially all of our foreclosed assets consist of residential 1-4 family real estate assets.

6

Income Tax Expense

Income tax expense, which is based on the pre-tax income of Wachovia Preferred Realty, LLC (WPR), our taxable REIT subsidiary, was $131 thousand and $135 thousand in third quarter 2013 and 2012, respectively. Income tax expense was $389 thousand and $363 thousand in the first nine months of 2013 and 2012, respectively. WPR holds certain cash investments and previously held certain interest rate swaps.

7

Balance Sheet Analysis

Total Assets

Our assets predominantly consist of consumer and commercial loans, although we have the authority to hold assets other than loans. Total assets were $14.0 billion at September 30, 2013, and $14.1 billion at December 31, 2012.

Cash and Cash Equivalents

Cash and cash equivalents were $869.6 million at September 30, 2013, and $642.9 million at December 31, 2012. The 2013 increase reflected increased loan pay-downs and pay-offs, net of reinvestment in loans.

Loans

Loans, net of unearned income decreased to $13.2 billion at September 30, 2013, compared with $13.6 billion at December 31, 2012, primarily reflecting pay-downs and charge-offs across the entire portfolio. We reinvested loan pay-downs by purchasing $1.1 billion of consumer loans in third quarter 2013. At September 30, 2013 and December 31, 2012, consumer loans represented 84% and 81%, respectively, of total loans and commercial loans represented the balance of our loan portfolio. To the extent we reinvest loan pay-downs or make purchases, we anticipate that we will acquire consumer and commercial loans and other REIT-eligible assets.

Allowance for Loan Losses

The allowance for loan losses decreased $55.4 million to $253.8 million at September 30, 2013, from $309.2 million at December 31, 2012. The allowance for loan losses as a percentage of total loans decreased to 1.93% at September 30, 2013, from 2.28% at December 31, 2012. The decrease in the allowance as a percentage of total loans was primarily due to lower levels of inherent credit loss in the portfolio compared with levels existing at December 31, 2012.

At September 30, 2013, the allowance for loan losses included $232.0 million for consumer loans and $21.8 million for commercial loans. The total allowance reflects management’s estimate of credit losses inherent in the loan portfolio at the balance sheet date. See “Risk Management—Credit Risk Management—Allowance for Credit Losses” section in this Report for a description of how management estimates the allowance for loan losses and the allowance for unfunded credit commitments.

Accounts Receivable/Payable—Affiliates, Net

The accounts receivable/payable from affiliates result from intercompany transactions in the normal course of business related to net loan pay-downs, interest receipts, servicing costs, management fees and other transactions with the Bank.

Lines of Credit with Bank

We may draw upon our lines of credit from time to time to finance certain loan purchases. At September 30, 2013, we had $2.2 billion of lines of credit with the Bank, of which

$749.5 million was outstanding. At December 31, 2012, $745.0 million was outstanding under our lines of credit.

8

Risk Management

We use Wells Fargo’s risk management framework to manage our credit, interest rate, market and liquidity risks, and funding risks.

Credit Risk Management

Loans represent the largest component of assets on our balance sheet and their related credit risk is a significant

risk we manage. We define credit risk as the risk of loss associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms).

The table below represents loans by segment and class of financing receivable and the weighted average maturity for those loans calculated using contractual maturity dates.

Table 2: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable and Weighted Average Maturity

	Loans outstanding				Weighted average maturity in years
(in thousands)	Sept. 30, 2013		Dec. 31, 2012		Sept. 30, 2013		Dec. 31, 2012
Commercial:
Commercial and industrial	$	73,342		99,207		1.7		1.6
Secured by real estate		1,998,775		2,534,064		3.3		3.5
Total commercial		2,072,117		2,633,271		3.2		3.5
Consumer:
Real estate 1-4 family first mortgage		8,826,365		8,137,597		21.3		20.2
Real estate 1-4 family junior lien mortgage		2,276,333		2,779,606		16.9		17.1
Total consumer		11,102,698		10,917,203		20.4		19.4
Total loans	$	13,174,815		13,550,474		17.7		16.3

The discussion that follows provides analysis of the risk elements of our loan portfolios and our credit risk management and measurement practices. See Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information.

To maintain REIT status, the composition of the loans underlying the participation interests are highly concentrated in real estate.

We continually evaluate and modify our credit policies. Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, Fair Isaac Corporation (FICO) scores, economic trends by geographic areas, loan-level risk grading for certain portfolios (typically commercial) and other indications of credit risk. Our credit risk monitoring process is designed to enable early identification of developing risk and to support our determination of an appropriate allowance for credit losses.

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LOAN PORTFOLIO BY GEOGRAPHY The following table is a summary of the geographical distribution of our loan

portfolio for the top five states by loans outstanding.

Table 3: Loan Portfolio by Geography
	September 30, 2013
			Real estate		Real estate
			1-4 family		1-4 family				% of
	Total		first		junior lien				total
(in thousands)	commercial		mortgage		mortgage		Total		loans
California	$	505,967		942,158		31,917		1,480,042		11	%
Florida		204,425		960,431		297,144		1,462,000		11
New Jersey		176,686		636,061		439,548		1,252,295		10
Pennsylvania		20,338		867,407		348,422		1,236,167		9
North Carolina		202,025		731,534		171,139		1,104,698		8
All other states		962,676		4,688,774		988,163		6,639,613		51
Total loans	$	2,072,117		8,826,365		2,276,333		13,174,815		100	%

COMMERCIAL AND INDUSTRIAL LOANS (C&I) Table 4 summarizes C&I loans by industry. We believe the C&I loan portfolio is appropriately underwritten and diversified. Our credit risk management process for this portfolio primarily focuses on customers’ ability to repay the loan through their

cash flows. A portion of the loans in our C&I portfolio are unsecured with the remainder secured by short-term assets, such as accounts receivable, inventory and securities, as well as long-lived assets, such as equipment and other business assets. Generally, the collateral securing this portfolio represents a secondary source of repayment.

Table 4: Commercial and Industrial Loans by Industry
	September 30, 2013
			% of
			total
(in thousands)	C&I loans		C&I loans
Real estate lessor	$	25,488		35	%
Public administration		15,696		21
Food and beverage		12,011		16
Healthcare		4,088		6
Leasing		1,320		2
Other		14,739		20
Total	$	73,342		100	%

10

COMMERCIAL SECURED BY REAL ESTATE (CSRE) The CSRE portfolio consists of both mortgage loans and construction loans. Table 5 summarizes CSRE loans by state and property type. To identify and manage newly emerging problem loans, we employ a high level of monitoring and

regular customer interaction to understand and manage the risks associated with these loans, including regular loan reviews and appraisal updates. We consider the creditworthiness of the customers and collateral valuations when selecting CSRE loans for purchase.

Table 5: CSRE Loans by State and Property Type
	September 30, 2013
			% of
			total
(in thousands)	CSRE loans		CSRE loans
By state:
California	$	506,006		25	%
North Carolina		201,879		10
Florida		177,455		9
Georgia		145,471		7
New Jersey		133,185		7
All other states		834,779		42
Total	$	1,998,775		100	%
By property type:
Office buildings	$	741,731		37	%
Warehouses		280,394		14
Shopping centers		229,879		12
Retail establishments (restaurants, stores)		200,216		10
5+ multifamily residences		134,821		7
Manufacturing plants		134,630		7
Real estate collateral pool		84,516		4
Motels/hotels		58,275		3
Institutional		41,221		2
Commercial/industrial (non-residential)		21,574		1
Churches, synagogues, mosques and temples		19,185		1
Research and development		18,414		1
Other		33,919		1
Total	$	1,998,775		100	%

11

REAL ESTATE 1-4 FAMILY MORTGAGE LOANS The distribution of real estate 1-4 family mortgages, which includes first and junior liens, by state and the related combined loan-to-value (CLTV) ratio are presented in Table 6. Our underwriting and periodic review of loans collateralized by residential real property includes appraisals or estimates from automated valuation models (AVMs) to support property values. Additional information about AVMs and our policy for their use can be found in the “Risk Management – Credit Risk Management – Real Estate 1-4 Family Mortgage Loans” section in our 2012 Form 10-K.

We continue to modify real estate 1-4 family mortgage loans to assist homeowners and other borrowers experiencing financial difficulties. We monitor changes in real estate values and underlying economic or market conditions for all geographic areas of our real estate 1-4 family mortgage portfolio as part of our credit risk

management process. For more information on our participation in the U.S. Treasury’s Making Home Affordable (MHA) programs, see the “Risk Management – Credit Risk Management – Real Estate 1-4 Family Mortgage Loans” section in our 2012 Form 10-K.

The Bank and/or other Wells Fargo affiliates act as servicer for predominantly all of our loan portfolio.

We monitor the credit performance of our mortgage portfolio for trends and factors that influence the frequency and severity of loss. In third quarter 2012 we aligned our nonaccrual and troubled debt reclassification policies in accordance with guidance in the Office of the Comptroller of the Currency (OCC) update to the Bank Accounting Advisory Series (OCC guidance), which requires consumer loans discharged in bankruptcy to be written down to net realizable collateral value and classified as nonaccrual TDRs, regardless of their delinquency status.

Table 6: Real Estate 1-4 Family Mortgage Loans by State and CLTV
	September 30, 2013
	Real estate		Current
	1-4 family		CLTV
(in thousands)	mortgage		ratio (1)
Florida	$	1,257,574		71	%
Pennsylvania		1,215,829		67
New Jersey		1,075,609		70
California		974,076		53
North Carolina		902,673		66
All other states		5,676,937		66
Total	$	11,102,698

(1)  Collateral values are generally determined using AVMs and are updated quarterly. AVMs are computer-based tools used to estimate market values of homes based on processing large volumes of market data including market comparables and price trends for local market areas.

12

HOME EQUITY PORTFOLIOS Our home equity portfolio includes real estate 1-4 family junior lien mortgages secured by real estate. Predominantly all of our junior lien loans are amortizing payment loans with fixed interest rates and repayment periods between five to 30 years. Junior lien loans with balloon payments at the end of the repayment term represent less than 1% of our junior lien loans. We

frequently monitor the credit performance of our junior lien mortgage portfolio for trends and factors that influence the frequency and severity of loss.

Table 7 summarizes delinquency and loss rates by state for our home equity portfolio, which reflected the largest portion of our credit losses.

Table 7: Home Equity Portfolio (1)

					% of loans two payments					Loss rate (annualized)
	Outstanding balance				or more past due					Quarter ended
(in thousands)	Sept. 30, 2013		Dec. 31, 2012		Sept. 30, 2013			Dec. 31, 2012		Sept. 30, 2013		June 30, 2013		Mar. 31, 2013		Dec. 31, 2012 (2)		Sept. 30, 2012 (2)
New Jersey	$	437,986		531,622		5.64	%		5.38		2.60		3.54		3.78		3.99		7.68
Pennsylvania		346,865		428,841		4.01			3.88		1.80		1.85		1.70		3.50		4.47
Florida		296,523		357,586		4.28			5.15		3.05		4.99		6.48		5.84		8.26
Virginia		226,087		277,294		3.55			3.40		1.84		1.35		3.15		3.40		4.97
North Carolina		170,020		208,315		4.66			4.17		2.03		2.93		1.94		4.71		6.53
Other		789,451		963,944		3.48			3.61		2.22		2.66		2.69		4.48		6.70
Total	$	2,266,932		2,767,602		4.18			4.21		2.29		2.90		3.22		4.32		6.56

(1)  Consists of real estate 1-4 family junior lien mortgages, excluding PCI loans of $9,401 thousand at September 30, 2013 and $12,004 thousand at December 31, 2012.

(2)  Reflects the impact of OCC guidance issued in third quarter 2012, which requires consumer loans discharged in bankruptcy to be written down to net realizable collateral value, regardless of their delinquency status.

13

NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) Table 8 summarizes nonperforming assets (NPAs) for each of the last five quarters. We generally place loans on nonaccrual status when:

• the full and timely collection of interest or principal becomes uncertain (generally based on an assessment of the borrower’s financial condition and the adequacy of collateral, if any);

• they are 90 days (120 days with respect to real estate 1-4 family first and junior lien mortgages) past due for

interest or principal, unless both well-secured and in the process of collection;

• part of the principal balance has been charged off;

• for junior lien mortgages, we have evidence that the related first lien mortgage may be 120 days past due or in the process of foreclosure regardless of the junior lien delinquency status; or

• performing consumer loans are discharged in bankruptcy, regardless of their delinquency status.

Table 8: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)

	Sept. 30,			June 30,		Mar. 31,		Dec. 31,		Sept. 30,
(in thousands)	2013			2013		2013		2012		2012
Nonaccrual loans:
Commercial:
Commercial and industrial	$	-			-		-		-		-
Secured by real estate		9,279			10,263		18,856		16,270		24,054
Total commercial		9,279			10,263		18,856		16,270		24,054
Consumer:
Real estate 1-4 family first mortgage		308,941			312,821		320,508		306,922		313,389
Real estate 1-4 family junior lien mortgage		112,352			112,794		120,276		129,251		142,896
Total consumer		421,293			425,615		440,784		436,173		456,285
Total nonaccrual loans		430,572			435,878		459,640		452,443		480,339
Foreclosed assets		4,549			4,671		7,401		7,792		10,282
Total nonperforming assets	$	435,121			440,549		467,041		460,235		490,621
As a percentage of total loans		3.30	%		3.33		3.73		3.40		4.08

Total NPAs were $435.1 million (3.30% of total loans) at September 30, 2013, and decreased $5.4 million in third quarter 2013. Changes to nonaccrual loans period-over-period represent inflows for loans that are placed on nonaccrual status in accordance with our policy, offset by reductions for loans that are paid down, charged off, sold,

transferred to foreclosed properties, or are no longer classified as nonaccrual as a result of continued performance and an improvement in the borrower’s financial condition and loan repayment capabilities. Also, reductions can come from borrower repayments even if the loan stays on nonaccrual status. Table 9 provides an analysis of the changes in nonaccrual loans.

14

Table 9: Analysis of Changes in Nonaccrual Loans
	Quarter ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
(in thousands)	2013			2013			2013			2012			2012
Commercial nonaccrual loans
Balance, beginning of quarter	$	10,263			18,856			16,270			24,054			22,353
Inflows		899			-			5,653			167			3,714
Outflows		(1,883	)		(8,593	)		(3,067	)		(7,951	)		(2,013	)
Balance, end of quarter		9,279			10,263			18,856			16,270			24,054
Consumer nonaccrual loans
Balance, beginning of quarter		425,615			440,784			436,173			456,285			370,109
Inflows		74,118			79,215			96,821			81,122			174,193
Outflows:
Returned to accruing		(32,705	)		(35,020	)		(49,077	)		(42,561	)		(44,316	)
Foreclosures		(5,190	)		(3,396	)		(2,730	)		(3,747	)		(3,921	)
Charge-offs		(19,820	)		(30,276	)		(30,371	)		(53,227	)		(36,052	)
Payment, sales and other		(20,725	)		(25,692	)		(10,032	)		(1,699	)		(3,728	)
Total outflows		(78,440	)		(94,384	)		(92,210	)		(101,234	)		(88,017	)
Balance, end of quarter		421,293			425,615			440,784			436,173			456,285
Total nonaccrual loans	$	430,572			435,878			459,640			452,443			480,339

TROUBLED DEBT RESTRUCTURINGS (TDRs)

Table 10: Troubled Debt Restructurings (TDRs)
	Sept. 30,		June 30,		Mar. 31,		Dec. 31,		Sept. 30,
(in thousands)	2013		2013		2013		2012		2012
Commercial TDRs:
Commercial and industrial	$	-		-		-		-		-
Secured by real estate		5,721		3,580		3,632		3,593		3,696
Total commercial TDRs		5,721		3,580		3,632		3,593		3,696
Consumer TDRs:
Real estate 1-4 family first mortgage		380,858		371,457		367,005		345,640		320,821
Real estate 1-4 family junior lien mortgage		132,614		134,269		138,508		135,029		136,316
Trial modifications		25,777		23,976		21,654		20,183		22,300
Total consumer TDRs		539,249		529,702		527,167		500,852		479,437
Total TDRs	$	544,970		533,282		530,799		504,445		483,133
TDRs on nonaccrual status	$	235,958		233,814		230,913		222,448		234,310
TDRs on accrual status		309,012		299,468		299,886		281,997		248,823
Total TDRs	$	544,970		533,282		530,799		504,445		483,133

15

Table 11: Analysis of Changes in TDRs
	Quarter ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
(in thousands)	2013			2013			2013			2012			2012
Commercial TDRs:
Balance, beginning of quarter	$	3,580			3,632			3,593			3,696			5,134
Inflows		2,880			39			366			-			74
Outflows		(739	)		(91	)		(327	)		(103	)		(1,512	)
Balance, end of quarter		5,721			3,580			3,632			3,593			3,696
Consumer TDRs:
Balance, beginning of quarter		529,702			527,167			500,852			479,437			338,321
Inflows		28,922			26,039			47,574			61,212			155,557
Outflows:
Charge-offs (1)		(6,272	)		(13,365	)		(10,695	)		(28,094	)		(5,161	)
Foreclosures (1)		(542	)		(42	)		(1,040	)		(386	)		-
Payments, sales and other (2)		(14,362	)		(12,419	)		(10,995	)		(9,200	)		(8,705	)
Net change in trial modifications (3)		1,801			2,322			1,471			(2,117	)		(575	)
Total outflows		(19,375	)		(23,504	)		(21,259	)		(39,797	)		(14,441	)
Balance, end of quarter		539,249			529,702			527,167			500,852			479,437
Total TDRs	$	544,970			533,282			530,799			504,445			483,133

(1) Fourth quarter 2012 charge-off and foreclosure outflows reflect the resolution of certain loans discharged in bankruptcy that were initially reported as TDRs in accordance with the OCC guidance starting in third quarter 2012.

(2) Payments, sales, and other outflows reflect pay downs, sales and normal amortization/accretion of loan basis adjustments. No loans were removed from TDR classification for the quarters ended September 30, June 30 and March 31, 2013, and December 31 and September 30, 2012, as a result of being refinanced or restructured as new loans.

(3) Net change in trial modifications includes: inflows of new TDRs entering the trial payment period, net of outflows for modifications that either (i) successfully perform and enter into a permanent modification, or (ii) do not successfully perform according to the terms of the trial period plan and are subsequently charged-off, foreclosed upon or otherwise resolved. Our experience is that most of the mortgages that enter a trial payment period program are successful in completing the program requirements.

Recorded investment of loans modified in TDRs is provided in Table 10. Table 11 provides an analysis of the changes in TDRs. Loans that may be modified more than once are reported as TDR inflows only in the period they are first modified. We may remove loans held for investment from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan. The allowance for loan losses for TDRs was $138.9 million and $103.5 million at September 30, 2013 and December 31, 2012, respectively. See Note 2 (Loans and Allowance for Credit Losses) to Financial

Statements in this Report for more information. Those loans discharged in bankruptcy and reported as TDRs have been written down to net realizable collateral value.

In those situations where principal is forgiven, the entire amount of such principal forgiveness is immediately charged off to the extent not done so prior to the modification. We sometimes delay the timing on the repayment of a portion of principal (principal forbearance) and charge off the amount of forbearance if that amount is not considered fully collectible.

16

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Certain loans 90 days or more past due as to interest or principal are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $6.7 million, $5.8 million, $6.8 million, $7.0 million and $6.6 million at September 30, June 30 and March 31, 2013, December 31 and September 30, 2012, respectively, are excluded from this disclosure even though they are 90 days or more contractually past due.

These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

Loans 90 days or more past due and still accruing at September 30, 2013, were down $14.7 million from December 31, 2012, predominantly due to continued credit quality improvement during the nine months ended September 30, 2013 due to improving economic conditions, including home price appreciation. Table 12 reflects non-PCI loans 90 days or more past due and still accruing.

Table 12: Loans 90 Days or More Past Due and Still Accruing
	Sept. 30,		June 30,		Mar. 31,		Dec. 31,		Sept. 30,
(in thousands)	2013		2013		2013		2012		2012
Commercial:
Commercial and industrial	$	-		-		-		-		-
Secured by real estate		-		-		-		4,455		-
Total commercial		-		-		-		4,455		-
Consumer:
Real estate 1-4 family first mortgage		10,295		14,157		18,665		18,382		14,502
Real estate 1-4 family junior lien mortgage		4,794		4,504		5,354		6,940		7,813
Total consumer		15,089		18,661		24,019		25,322		22,315
Total	$	15,089		18,661		24,019		29,777		22,315

17

NET CHARGE-OFFS

Table 13: Net Charge-offs
	Quarter ended
	September 30,						June 30,					March 31,					December 31,						September 30,
	2013						2013					2013					2012						2012
	Net loan			% of			Net loan		% of			Net loan		% of			Net loan			% of			Net loan		% of
	charge-			avg.			charge-		avg.			charge-		avg.			charge-			avg.			charge-		avg.
($ in thousands)	offs			loans (1)			offs		loans (1)			offs		loans (1)			offs			loans (1)			offs		loans (1)
Total commercial	$	(252	)		(0.05	)%	$	565		0.10	%	$	237		0.04	%	$	(1,337	)		(0.21	)%	$	1,461		0.40	%
Consumer:
Real estate 1-4 family first mortgage		10,926			0.51			15,103		0.78			17,008		0.88			25,395			1.38			17,791		0.93
Real estate 1-4 family junior lien mortgage		13,449			2.28			18,107		2.88			21,339		3.21			31,110			4.30			50,548		6.52
Total consumer (2)		24,375			0.89			33,210		1.29			38,347		1.48			56,505			2.21			68,339		2.55
Total	$	24,123			0.73	%	$	33,775		1.07	%	$	38,584		1.20	%	$	55,168			1.73	%	$	69,800		2.30	%

(1) Quarterly net charge-offs (net recoveries) as a percentage of average loans are annualized.

(2) The quarters ended December 31, 2012 and September 30, 2012 include $17.5 million and $28.6 million, respectively, resulting from the implementation of OCC guidance issued in third quarter 2012, which requires consumer loans discharged in bankruptcy to be placed on nonaccrual status and written down to net realizable collateral value, regardless of their delinquency status.

Table 13 presents net charge-offs for the current and previous four quarters. Net charge-offs in third quarter 2013 were $24.1 million (0.73% of average total loans outstanding) compared with $69.8 million (2.30%) in third quarter 2012.

Due to the larger dollar amounts associated with individual commercial loans, loss recognition tends to be irregular and varies more than with consumer loan portfolios.

18

ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments, is management’s estimate of credit losses inherent in the loan portfolio and unfunded credit commitments at the balance sheet date.

We use a disciplined process and methodology to establish our allowance for credit losses each quarter. This process takes into consideration many factors, including historical and forecasted loss trends, loan-level credit quality ratings and loan grade-specific loss factors. The process involves subjective and complex judgments. In addition, we review a variety of credit metrics and trends. These credit metrics and trends, however, do not solely determine the amount of the allowance as we use several analytical tools.

The ratio of the allowance for credit losses to total nonaccrual loans may fluctuate significantly from period to period due to such factors as the mix of loan types in the portfolio, the amount of nonaccrual loans that have been written down to current collateral value, borrower credit strength, foreclosure process timeframes and the value and marketability of collateral.

Third quarter 2013 reversal of provision for credit losses was $11.9 million compared with provision for credit losses of $57.2 million in third quarter 2012. The third quarter 2013 provision reflected a $36.1 million allowance release (the amount by which net charge-offs exceeded the provision) compared with a $12.6 million allowance release for third quarter 2012. The first nine months of 2013 reflected a $49.2 million allowance release, compared with an allowance release of $29.7 million a year ago. The decline in the allowance for credit losses reflects continued improvement in consumer loss severity, delinquency trends and improved portfolio performance, particularly in residential real estate primarily as a result of continued improvement in the housing market.

In determining the appropriate allowance attributable to our residential real estate portfolios, our process considers the associated credit cost, including re-defaults of modified loans and projected loss severity for loan modifications that occur or are probable to occur. In addition, our process incorporates the estimated allowance associated with high risk portfolios defined in the Interagency Guidance relating to junior lien mortgages.

Changes in the allowance reflect changes in statistically derived loss estimates, historical loss experience, current trends in borrower risk and/or general economic activity on portfolio performance, and management’s estimate for imprecision and uncertainty.

We believe the allowance for credit losses of $254.2 million at September 30, 2013, was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date. The allowance for credit losses is subject to change and reflects existing factors as of the date of determination, including economic or market conditions and ongoing internal and external examinations processes. Due to the sensitivity of the allowance for credit losses to changes in the economy and business environment, it is possible that we will incur incremental credit losses not anticipated as of the balance sheet date. Our process for determining the allowance for credit losses is discussed in the “Critical Accounting Policy – Allowance for Credit Losses” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2012 Form 10-K. The detail of the changes in the allowance for credit losses by portfolio segment (including charge-offs and recoveries by loan class) is in Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 14 presents an analysis of the allowance for credit losses for the last five quarters.

Table 14: Allowance for Credit Losses

(in thousands)	Sept. 30, 2013			June 30, 2013		Mar. 31, 2013		Dec. 31, 2012		Sept. 30, 2012
Components:
Allowance for loan losses	$	253,782			291,429		281,548		309,220		278,056
Allowance for unfunded credit commitments		440			508		508		384		582
Allowance for credit losses	$	254,222			291,937		282,056		309,604		278,638
Allowance for loan losses as a percentage of total loans		1.93	%		2.21		2.25		2.28		2.31
Allowance for loan losses as a percentage of annualized net charge-offs		265.17			215.12		179.93		140.89		100.13
Allowance for credit losses as a percentage of total loans		1.93			2.21		2.25		2.28		2.32
Allowance for credit losses as a percentage of total nonaccrual loans		59.04			66.98		61.36		68.43		58.01

19

Asset/Liability Management

Asset/liability management involves the evaluation, monitoring and management of interest rate risk, market risk and liquidity and funding.

INTEREST RATE RISK Interest rate risk is the sensitivity of earnings to changes in interest rates. Approximately 27% of our loan portfolio consisted of variable rate loans at September 30, 2013. In a declining rate environment, we may experience a reduction in interest income on our loan portfolio and a corresponding decrease in funds available to be distributed to our shareholders. The reduction in interest income may result from downward adjustment of the indices upon which the interest rates on loans are based and from prepayments of loans with fixed interest rates, resulting in reinvestment of the proceeds in lower yielding assets.

At September 30, 2013, approximately 73% of our loans had fixed interest rates. Such loans increase our interest rate risk. We monitor the rate sensitivity of assets acquired. Our methods for evaluating interest rate risk include an analysis of interest-rate sensitivity “gap,” which is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds interest rate-sensitive assets.

During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively even if an institution is perfectly matched in each maturity category.

At September 30, 2013, 31% of our assets had variable interest rates and could be expected to reprice with changes in interest rates. At September 30, 2013, our liabilities were 5% of our assets, while stockholders’ equity was 95% of our assets. This positive gap between our assets and liabilities indicates that an increase in interest rates would result in an increase in net interest income and a decrease in interest rates would result in a decrease in net interest income.

MARKET RISK Market risk is the risk of loss from adverse changes in market prices and interest rates. Market risk arises primarily from interest rate risk inherent in lending and borrowing activities.

LIQUIDITY AND FUNDING The objective of effective liquidity management is to ensure that we can meet customer loan requests and other cash commitments

efficiently under both normal operating conditions and under unpredictable circumstances of industry or market stress. To achieve this objective, Wells Fargo’s Corporate Asset/Liability Management Committee establishes and monitors liquidity guidelines that require sufficient asset-based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets.

Proceeds received from pay-downs of loans are typically sufficient to fund existing lending commitments and loan purchases. Depending upon the timing of the loan purchases, we may draw on the lines of credit with the Bank as a short-term liquidity source. At September 30, 2013, there was $749.5 million outstanding on our lines of credit.

Wachovia Funding’s primary liquidity needs are to pay operating expenses, fund our lending commitments, purchase loans as the underlying loans mature or repay, and pay dividends. Operating expenses and dividends are expected to be funded through cash generated by operations or paid-in capital, while funding commitments and the acquisition of additional participation interests in loans are intended to be funded with the proceeds obtained from repayment of principal balances by individual borrowers. If in future periods we do not reinvest loan pay-downs at sufficient levels, management may request our board of directors to consider a return of capital to holders of our common stock. We expect to distribute annually an aggregate amount of dividends with respect to outstanding capital stock equal to approximately 100 percent of our REIT taxable income for federal tax purposes. Such distributions may exceed net income determined under generally accepted accounting principles.

To the extent that we determine that additional funding is required, we could issue additional common or preferred stock, subject to any pre-approval rights of our shareholders or raise funds through debt financings, retention of cash flows or a combination of these methods. We believe our existing sources of liquidity are sufficient to meet our funding needs. However, any cash flow retention must be consistent with the provisions of the Investment Company Act and the Code, and must take into account taxes that would be imposed on undistributed income.

At September 30, 2013, our liabilities consisted of the lines of credit with the Bank and other liabilities. Our certificate of incorporation does not contain any limitation on the amount or percentage of debt, funded or otherwise, we may incur, except the incurrence of debt for borrowed money or our guarantee of debt for borrowed money in excess of amounts borrowed or guaranteed. However, the Certificate of Designation for our Series A preferred securities contains a covenant in which we agree not to incur indebtedness over 20% of our stockholders’ equity unless approved by two-thirds of the Series A preferred securities, voting as a separate class.

On November 5, 2013, we issued a notice to the holders of the Series A preferred securities that we have elected to redeem the Series A preferred securities at the redemption price of $25 per security, plus authorized, declared, but

20

unpaid dividends to the date of redemption, January 2, 2014. The Certificate of Designation for the Series A preferred securities permits the redemption because we have concluded, and received an opinion of counsel confirming, that the securities will no longer constitute Tier 1 capital for Wells Fargo or the Bank under the final rules approved by the FRB and the OCC that substantially amend the risk-based capital rules for banks. Wells Fargo and the Bank will be required to comply with the new rules beginning January 1, 2014. In accordance with the terms of the Series A preferred securities, we have obtained prior approval from the OCC to redeem the Series A preferred securities because Wachovia Funding is a subsidiary of the Bank. See also “Risk Factors” and “Note 4 (Common and Preferred Stock)” to Financial Statements in this Report.

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Critical Accounting Policy

Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2012 Form 10-K) are fundamental to understanding our results of operations and financial condition because they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. One of these policies is critical because it requires management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely

that materially different amounts would be reported under different conditions or using different assumptions. We have identified the allowance for credit losses policy as being particularly sensitive in terms of judgments and the extent to which estimates are used.

Management and the Audit Committee of Wachovia Preferred Funding have reviewed and approved this critical accounting policy. This policy is described in the “Critical Accounting Policy” section in our 2012 Form 10-K.

Current Accounting Developments

There are no pending accounting pronouncements issued by the Financial Accounting Standards Board (FASB) that would impact Wachovia Funding.

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Forward-Looking Statements

This Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “target”, “projects,” “outlook,” “forecast,” “will,” “may,” “could,” “should,” “can” and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make about: future results of Wachovia Funding; expectations for consumer and commercial credit losses, life-of-loan losses, and the sufficiency of our allowance for credit losses to cover future credit losses; our net interest income, including our expectation for continued pressure on average yield on total interest-earning assets; expectations regarding loan purchases and pay downs; future capital expenditures; future capital distributions; the expected outcome and impact of legal, regulatory and legislative developments; and Wachovia Funding’s plans, objectives and strategies.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:

• the effect of political and economic conditions and geopolitical events;

• losses relating to natural disasters, including as to our consumer and commercial loan portfolios, the extent of damage or loss to our collateral for loans in our portfolios or the unavailability of adequate insurance coverage or government assistance for our borrowers;

• economic conditions that affect the general economy, housing prices, the job market, consumer confidence and spending habits, including our borrowers’ repayment of our loan participations;

• the level and volatility of the capital markets, interest rates, currency values and other market indices that affect the value of our assets and liabilities;

• the availability and cost of both credit and capital;

• investor sentiment and confidence in the financial markets;

• our reputation and the reputation of Wells Fargo and the Bank;

• the impact of current, pending and future legislation, regulation and legal actions applicable to us, the Bank or Wells Fargo, including the Dodd-Frank Act and related regulations and Basel III;

• changes in accounting standards, rules and interpretations;

• various monetary and fiscal policies and regulations of the U.S. and foreign governments;

• a failure in or breach of our, the Bank’s or Wells Fargo’s operational or security systems or infrastructure, or those of third party vendors and other security providers, including as a result of cyber attacks; and

• the other factors described in “Risk Factors” in the 2012 Form 10-K and this Report.

In addition to the above factors, we also caution that there is no assurance that our allowance for credit losses will be appropriate to cover future credit losses, especially if housing prices decline or unemployment worsens. Increases in loan charge-offs or in the allowance for credit losses and related provision expense could materially adversely affect our financial results and condition.

Any forward-looking statement made by us in this Report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

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Risk Factors

An investment in Wachovia Funding involves risk, including the possibility that the value of the investment could fall substantially and that dividends or other distributions on the investment could be reduced or eliminated. For a discussion of other risk factors that could adversely affect our financial results and condition and the value of, and return on, an investment in Wachovia Funding, we refer you to the “Risk Factors” section in our 2012 Form 10-K.

In addition, the following risk factor replaces the risk factor captioned “Changes to regulatory capital standards may cause our Series A preferred securities to be redeemed early” set forth on page 24 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, and should be read in conjunction with the other risk factors in our 2012 Form 10-K.

We have elected to redeem our Series A preferred securities early due to changes in regulatory capital standards, which may have an adverse effect on the trading price for the Series A preferred securities. On November 5, 2013, we issued a notice to the holders of the Series A preferred securities that we have elected to redeem the Series A preferred securities at the redemption price of $25 per security, plus authorized, declared, but unpaid dividends to the date of redemption, January 2, 2014. The Certificate of Designation for the Series A preferred securities permits the redemption because we have concluded, and received an opinion of counsel confirming, that the securities will no longer constitute Tier 1 capital for Wells Fargo or the Bank under the final rules approved by the FRB and the OCC that substantially amend the risk-based capital rules for banks. On and after the redemption date, the Series A preferred securities will no longer be outstanding, dividends will cease to accrue, and all rights of the Series A preferred securities shall terminate except for the right to receive the redemption price. See also “Note 4 (Common and Preferred Stock)” to Financial Statements in this Report.

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Controls and Procedures

Disclosure Controls and Procedures

Wachovia Funding’s management evaluated the effectiveness, as of September 30, 2013, of disclosure controls and procedures. Wachovia Funding’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the chief executive officer and chief financial officer concluded that Wachovia Funding’s disclosure controls and procedures were effective as of September 30, 2013.

Internal Control Over Financial Reporting

Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, Wachovia Funding’s principal executive and principal financial officers and effected by Wachovia Funding’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (GAAP) and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of Wachovia Funding;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of Wachovia Funding are being made only in accordance with authorizations of management and directors of Wachovia Funding; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Wachovia Funding’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during third quarter 2013 that has materially affected, or is reasonably likely to materially affect, Wachovia Funding’s internal control over financial reporting.

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Financial Statements

Wachovia Preferred Funding Corp. and Subsidiaries

Consolidated Statement of Income (Unaudited)

	Quarter ended September 30,				Nine months ended September 30,
(in thousands, except per share amounts)		2013		2012		2013	2012
Interest income	$	197,871		212,806		594,241	655,232
Interest expense		396		-		794	-
Net interest income		197,475		212,806		593,447	655,232
Provision (reversal of provision) for credit losses		(11,945	)	57,228		47,327	136,402
Net interest income after provision for credit losses		209,420		155,578		546,120	518,830
Noninterest income
Gain on interest rate swaps		-		-		-	82
Other		248		572		572	1,333
Total noninterest income		248		572		572	1,415
Noninterest expense
Loan servicing costs		9,016		10,332		28,008	31,880
Management fees		1,713		1,985		5,053	5,837
Foreclosed assets		5,713		4,069		12,752	8,740
Other		672		639		1,793	2,433
Total noninterest expense		17,114		17,025		47,606	48,890
Income before income tax expense		192,554		139,125		499,086	471,355
Income tax expense		131		135		389	363
Net income		192,423		138,990		498,697	470,992
Comprehensive income		192,423		138,990		498,697	470,992
Dividends on preferred stock		45,569		48,010		137,303	145,744
Net income applicable to common stock	$	146,854		90,980		361,394	325,248
Per common share information
Earnings per common share	$	1.47		0.91		3.61	3.25
Diluted earnings per common share		1.47		0.91		3.61	3.25
Dividends declared per common share	$	0.70		1.67		4.50	4.70
Average common shares outstanding		99,999.9		99,999.9		99,999.9	99,999.9
Diluted average common shares outstanding		99,999.9		99,999.9		99,999.9	99,999.9

The accompanying notes are an integral part of these statements.

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Financial Statements

Wachovia Preferred Funding Corp. and Subsidiaries

Consolidated Balance Sheet (Unaudited)

	Sept. 30,			Dec. 31,
(in thousands, except shares)		2013			2012
Assets
Cash and cash equivalents	$	869,563			642,946
Loans, net of unearned income		13,174,815			13,550,474
Allowance for loan losses		(253,782	)		(309,220	)
Net loans		12,921,033			13,241,254
Accounts receivable - affiliates, net		145,966			131,216
Other assets		47,010			53,369
Total assets	$	13,983,572			14,068,785
Liabilities
Lines of credit with Bank	$	749,548			745,016
Other liabilities		8,555			26,898
Total liabilities		758,103			771,914
Stockholders’ Equity
Preferred stock		743			743
Common stock - $0.01 par value, authorized 100,000,000 shares; issued and outstanding 99,999,900 shares		1,000			1,000
Additional paid-in capital		14,043,812			14,026,608
Retained earnings (deficit)		(820,086	)		(731,480	)
Total stockholders’ equity		13,225,469			13,296,871
Total liabilities and stockholders’ equity	$	13,983,572			14,068,785

The accompanying notes are an integral part of these statements.

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Financial Statements

Wachovia Preferred Funding Corp. and Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

(in thousands, except per share data)	Preferred stock		Common stock		Additional paid-in capital		Retained earnings (deficit)			Total stockholders’ equity
Balance, December 31, 2011	$	743		1,000		14,026,608		(525,908	)		13,502,443
Net income		-		-		-		470,992			470,992
Cash dividends
Series A preferred securities at $1.36 per share		-		-		-		(40,781	)		(40,781	)
Series B preferred securities at $0.44 per share		-		-		-		(17,500	)		(17,500	)
Series C preferred securities at $20.65 per share		-		-		-		(87,424	)		(87,424	)
Series D preferred securities at $42.50 per share		-		-		-		(39	)		(39	)
Common stock at $4.70 per share		-		-		-		(470,000	)		(470,000	)
Balance, September 30, 2012	$	743		1,000		14,026,608		(670,660	)		13,357,691
Balance, December 31, 2012	$	743		1,000		14,026,608		(731,480	)		13,296,871
Net income		-		-		-		498,697			498,697
Cash dividends
Series A preferred securities at $1.36 per share		-		-		-		(40,781	)		(40,781	)
Series B preferred securities at $0.40 per share		-		-		-		(15,887	)		(15,887	)
Series C preferred securities at $19.04 per share		-		-		-		(80,596	)		(80,596	)
Series D preferred securities at $42.50 per share		-		-		-		(39	)		(39	)
Common stock at $4.50 per share		-		-		-		(450,000	)		(450,000	)
Contribution of common shares		-		-		17,204		-			17,204
Balance, September 30, 2013	$	743		1,000		14,043,812		(820,086	)		13,225,469

The accompanying notes are an integral part of these statements.

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Financial Statements

Wachovia Preferred Funding Corp. and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)

	Nine months ended September 30,
(in thousands)		2013		2012
Cash flows from operating activities:
Net income	$	498,697		470,992
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of discounts and other valuation adjustments on loans		(64,292	)	(107,916	)
Provision for credit losses		47,327		136,402
Deferred income tax benefits		-		(9,327	)
Other operating activities, net		(5,689	)	(6,328	)
Net cash provided by operating activities		476,043		483,823
Cash flows from investing activities:
Increase (decrease) in cash realized from:
Loans:
Purchases		(2,887,878	)	(2,045,150	)
Proceeds from payments and sales		3,221,223		2,472,139
Interest rate swaps		-		35,326
Net cash provided by investing activities		333,345		462,315
Cash flows from financing activities:
Increase (decrease) in cash realized from:
Draws on line of credit with Bank		1,535,105		-
Repayments of line of credit with Bank		(1,530,573	)	-
Collateral held on interest rate swaps		-		(34,260	)
Cash dividends paid		(587,303	)	(567,734	)
Net cash used by financing activities		(582,771	)	(601,994	)
Net change in cash and cash equivalents		226,617		344,144
Cash and cash equivalents at beginning of period		642,946		1,186,165
Cash and cash equivalents at end of period	$	869,563		1,530,309
Supplemental cash flow disclosures:
Cash paid for income taxes	$	-		10,500
Change in non cash items:
Transfers from loans to foreclosed assets		10,696		16,350

The accompanying notes are an integral part of these statements.

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Note 1: Summary of Significant Accounting Policies

Wachovia Preferred Funding Corp. (Wachovia Funding, we or us) is a direct subsidiary of Wachovia Preferred Funding Holding Corp. (Wachovia Preferred Holding) and an indirect subsidiary of both Wells Fargo & Company (Wells Fargo) and Wells Fargo Bank, National Association (the Bank). Wachovia Funding is a real estate investment trust (REIT) for income tax purposes.

The accounting and reporting policies of Wachovia Funding are in accordance with U.S. generally accepted accounting principles (GAAP). For discussion of our significant accounting policies, see Note 1 in our Form 10-K for the year ended December 31, 2012 (2012 Form 10-K). There were no material changes to these policies in the first nine months of 2013. The preparation of the financial statements in accordance with GAAP requires management to make estimates based on assumptions about future economic and market conditions that affect the reported amounts of assets and liabilities at the date of the financial statements, income and expenses during the reporting period and the related disclosures. Although our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual future conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates related to the allowance for credit losses (Note 2). Actual results could differ from those estimates.

The information furnished in these unaudited interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The results of operations in the interim statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our 2012 Form 10-K.

Subsequent Events

We have evaluated the effects of events that have occurred subsequent to period end September 30, 2013, and there have been no material events that would require recognition in our third quarter 2013 consolidated financial statements. On November 5, 2013, we elected to redeem the Series A preferred securities and issued a redemption notice to the holders. See Note 4 to the financial statements for further discussion of this subsequent event.

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Note 2: Loans and Allowance for Credit Losses

Wachovia Funding acquires participation interests in loans originated or purchased by the Bank. To maintain Wachovia Funding’s status as a REIT, the composition of the loans underlying the participation interests are highly concentrated in real estate. Underlying loans are concentrated primarily in California, Florida, New Jersey, Pennsylvania and North Carolina. These markets include approximately 49% of

Wachovia Funding’s total loan portfolio at September 30, 2013.

The following table presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include a total net reduction of $395.6 million and $472.9 million at September 30, 2013 and December 31, 2012, respectively, which were substantially all unamortized discounts and premiums.

(in thousands)	Sept. 30, 2013		Dec. 31, 2012
Commercial:
Commercial and industrial	$	73,342		99,207
Secured by real estate		1,998,775		2,534,064
Total commercial		2,072,117		2,633,271
Consumer:
Real estate 1-4 family first mortgage		8,826,365		8,137,597
Real estate 1-4 family junior lien mortgage		2,276,333		2,779,606
Total consumer		11,102,698		10,917,203
Total loans	$	13,174,815		13,550,474

The following table summarizes the proceeds paid (including accrued interest receivable of $2.6 million and $7.9 million in the third quarter and first nine months of

2013, and $1.0 million and $5.1 million in the third quarter and first nine months of 2012, respectively) or received from the Bank for purchases and sales of loans, respectively.

	2013								2012
(in thousands)	Commercial		Consumer			Total			Commercial			Consumer			Total
Quarter ended September 30,
Purchases	$	-		1,060,521			1,060,521			751,764			-			751,764
Sales		-		(3,666	)		(3,666	)		-			(19,641	)		(19,641	)
Nine months ended September 30,
Purchases	$	-		2,887,878			2,887,878			751,764			1,293,386			2,045,150
Sales		-		(14,080	)		(14,080	)		(900	)		(47,706	)		(48,606	)

Commitments to Lend

The contract or notional amount of commercial loan commitments to extend credit at September 30, 2013 and December 31, 2012 was $467.3 million and $312.5 million, respectively.

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Allowance for Credit Losses (ACL)

The allowance for credit losses consists of the allowance for loan losses and the allowance for unfunded credit commitments. Changes in the allowance for credit losses were:

	Quarter ended Sept. 30,					Nine months ended Sept. 30,
(in thousands)		2013		2012			2013		2012
Balance, beginning of period	$	291,937		293,038			309,604		313,928
Provision (reversal of provision) for credit losses		(11,945	)	57,228			47,327		136,402
Interest income on certain impaired loans (1)		(1,647	)	(1,828	)		(6,227	)	(5,592	)
Loan charge-offs:
Commercial:
Commercial and industrial		-		-			-		-
Secured by real estate		(11	)	(1,461	)		(848	)	(1,906	)
Total commercial		(11	)	(1,461	)		(848	)	(1,906	)
Consumer:
Real estate 1-4 family first mortgage		(12,962	)	(18,322	)		(47,797	)	(56,814	)
Real estate 1-4 family junior lien mortgage		(16,741	)	(52,501	)		(62,573	)	(116,372	)
Total consumer		(29,703	)	(70,823	)		(110,370	)	(173,186	)
Total loan charge-offs		(29,714	)	(72,284	)		(111,218	)	(175,092	)
Loan recoveries:
Commercial:
Commercial and industrial		-		-			-		-
Secured by real estate		263		-			298		10
Total commercial		263		-			298		10
Consumer:
Real estate 1-4 family first mortgage		2,036		531			4,760		1,831
Real estate 1-4 family junior lien mortgage		3,292		1,953			9,678		7,151
Total consumer		5,328		2,484			14,438		8,982
Total loan recoveries		5,591		2,484			14,736		8,992
Net loan charge-offs		(24,123	)	(69,800	)		(96,482	)	(166,100	)
Balance, end of period	$	254,222		278,638			254,222		278,638
Components:
Allowance for loan losses	$	253,782		278,056			253,782		278,056
Allowance for unfunded credit commitments		440		582			440		582
Allowance for credit losses	$	254,222		278,638			254,222		278,638
Net loan charge-offs (annualized) as a percentage of average total loans		0.73	%	2.30			1.00		1.82
Allowance for loan losses as a percentage of total loans		1.93		2.31			1.93		2.31
Allowance for credit losses as a percentage of total loans		1.93		2.32			1.93		2.32

  (1) Certain impaired loans with an allowance calculated by discounting expected cash flows using the loan’s effective interest rate over the remaining life of the loan recognize reductions in allowance as interest income.

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The following table summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments.

		2013									2012
(in thousands)		Commercial			Consumer			Total			Commercial			Consumer			Total
Quarter ended September 30,
Balance, beginning of period	$		21,754			270,183			291,937			21,257			271,781			293,038
Provision (reversal of provision) for credit losses			179			(12,124	)		(11,945	)		4,922			52,306			57,228
Interest income on certain impaired loans			-			(1,647	)		(1,647	)		-			(1,828	)		(1,828	)
Loan charge-offs			(11	)		(29,703	)		(29,714	)		(1,461	)		(70,823	)		(72,284	)
Loan recoveries			263			5,328			5,591			-			2,484			2,484
Net loan charge-offs			252			(24,375	)		(24,123	)		(1,461	)		(68,339	)		(69,800	)
Balance, end of period	$		22,185			232,037			254,222			24,718			253,920			278,638
Nine months ended September 30,
Balance, beginning of period	$		26,046			283,558			309,604			23,091			290,837			313,928
Provision (reversal of provision) for credit losses			(3,311	)		50,638			47,327			3,523			132,879			136,402
Interest income on certain impaired loans			-			(6,227	)		(6,227	)		-			(5,592	)		(5,592	)
Loan charge-offs			(848	)		(110,370	)		(111,218	)		(1,906	)		(173,186	)		(175,092	)
Loan recoveries			298			14,438			14,736			10			8,982			8,992
Net loan charge-offs			(550	)		(95,932	)		(96,482	)		(1,896	)		(164,204	)		(166,100	)
Balance, end of period	$		22,185			232,037			254,222			24,718			253,920			278,638

The following table disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.

		Allowance for credit losses						Recorded investment in loans
(in thousands)		Commercial		Consumer		Total		Commercial		Consumer		Total
September 30, 2013
Collectively evaluated (1)	$		17,536		94,953		112,489		2,057,728		10,521,825		12,579,553
Individually evaluated (2)			4,649		137,084		141,733		11,788		539,249		551,037
Purchased credit-impaired (PCI) (3)			-		-		-		2,601		41,624		44,225
Total	$		22,185		232,037		254,222		2,072,117		11,102,698		13,174,815
December 31, 2012
Collectively evaluated (1)	$		16,219		181,107		197,326		2,611,746		10,368,082		12,979,828
Individually evaluated (2)			9,827		102,451		112,278		15,434		500,852		516,286
PCI (3)			-		-		-		6,091		48,269		54,360
Total	$		26,046		283,558		309,604		2,633,271		10,917,203		13,550,474

(1) Represents loans collectively evaluated for impairment in accordance with Accounting Standards Codification (ASC) 450-20, Loss Contingencies (formerly Statement of Financial Accounting Standards (FAS) 5), and pursuant to amendments by Accounting Standards Update (ASU) 2010-20 regarding allowance for unimpaired loans.

(2) Represents loans individually evaluated for impairment in accordance with ASC 310-10, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

(3) Represents the allowance and related loan carrying value determined in accordance with ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality (formerly Statement of Position 03-3) and pursuant to amendments by ASU 2010-20 regarding allowance for PCI loans.

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Credit Quality

We monitor credit quality by evaluating various attributes and use such information in our evaluation of the appropriateness of the allowance for credit losses. The following sections provide the credit quality indicators we most closely monitor. The credit quality indicators are generally based on information as of our financial statement date, with the exception of updated Fair Isaac Corporation (FICO) scores and updated loan-to-value (LTV)/combined LTV (CLTV), which are obtained at least quarterly. Generally, these indicators are updated in the second month of each quarter, with updates no older than June 30, 2013.

COMMERCIAL CREDIT QUALITY INDICATORS In addition to monitoring commercial loan concentration risk, we manage a consistent process for assessing commercial loan credit quality. Generally, commercial loans are subject to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to Pass and Criticized categories. The Criticized category includes Special Mention, Substandard, and Doubtful categories which are defined by bank regulatory agencies.

The table below provides a breakdown of outstanding commercial loans by risk category.

(in thousands)	Commercial and industrial		Secured by real estate		Total
September 30, 2013
By risk category:
Pass	$	73,342		1,903,792		1,977,134
Criticized		-		94,983		94,983
Total commercial loans	$	73,342		1,998,775		2,072,117
December 31, 2012
By risk category:
Pass	$	98,395		2,412,569		2,510,964
Criticized		812		121,495		122,307
Total commercial loans	$	99,207		2,534,064		2,633,271

In addition, while we monitor past due status, we do not consider it a key driver of our credit risk management practices for commercial loans. The following table provides past due information for commercial loans.

(in thousands)	Commercial and industrial		Secured by real estate		Total
September 30, 2013
By delinquency status:
Current-29 days past due (DPD) and still accruing	$	73,342		1,987,806		2,061,148
30-89 DPD and still accruing		-		1,684		1,684
90+ DPD and still accruing		-		6		6
Nonaccrual loans		-		9,279		9,279
Total commercial loans	$	73,342		1,998,775		2,072,117
December 31, 2012
By delinquency status:
Current-29 DPD and still accruing	$	99,207		2,512,524		2,611,731
30-89 DPD and still accruing		-		815		815
90+ DPD and still accruing		-		4,455		4,455
Nonaccrual loans		-		16,270		16,270
Total commercial loans	$	99,207		2,534,064		2,633,271

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CONSUMER CREDIT QUALITY INDICATORS We have various classes of consumer loans that present respective unique risks. Loan delinquency, FICO credit scores and LTV/CLTV for loan types are common credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the allowance for credit losses for the consumer portfolio segment.

The majority of our loss estimation techniques used for the allowance for credit losses rely on delinquency matrix models or delinquency roll rate models. Therefore, delinquency is an important indicator of credit quality and the establishment of our allowance for credit losses.

The following table provides the outstanding balances of our consumer portfolio by delinquency status.

(in thousands)	Real estate 1-4 family first mortgage			Real estate 1-4 family junior lien mortgage			Total
September 30, 2013
By delinquency status:
Current - 29 DPD	$	8,542,793			2,180,769			10,723,562
30-59 DPD		72,408			28,001			100,409
60-89 DPD		32,190			17,588			49,778
90-119 DPD		21,158			10,559			31,717
120-179 DPD		30,356			14,805			45,161
180+ DPD		137,164			25,871			163,035
Remaining PCI accounting adjustments		(9,704	)		(1,260	)		(10,964	)
Total consumer loans	$	8,826,365			2,276,333			11,102,698
December 31, 2012
By delinquency status:
Current - 29 DPD	$	7,828,564			2,661,528			10,490,092
30-59 DPD		71,969			36,427			108,396
60-89 DPD		40,411			22,331			62,742
90-119 DPD		29,805			14,476			44,281
120-179 DPD		30,645			22,085			52,730
180+ DPD		146,293			23,517			169,810
Remaining PCI accounting adjustments		(10,090	)		(758	)		(10,848	)
Total consumer loans	$	8,137,597			2,779,606			10,917,203

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The following table provides a breakdown of our consumer portfolio by updated FICO. We obtain FICO scores at loan origination and the scores are updated at least

quarterly. FICO is not available for certain loan types and may not be obtained if we deem it unnecessary due to strong collateral and other borrower attributes.

(in thousands)	Real estate 1-4 family first mortgage			Real estate 1-4 family junior lien mortgage			Total
September 30, 2013
By updated FICO:
< 600	$	470,518			268,399			738,917
600-639		316,118			159,612			475,730
640-679		597,667			259,975			857,642
680-719		1,248,992			388,343			1,637,335
720-759		1,738,451			460,050			2,198,501
760-799		3,022,697			500,776			3,523,473
800+		1,369,366			227,459			1,596,825
No FICO available		72,260			12,979			85,239
Remaining PCI accounting adjustments		(9,704	)		(1,260	)		(10,964	)
Total consumer loans	$	8,826,365			2,276,333			11,102,698
December 31, 2012
By updated FICO:
< 600	$	491,057			313,648			804,705
600-639		325,524			173,130			498,654
640-679		611,895			302,895			914,790
680-719		1,221,513			452,768			1,674,281
720-759		1,630,309			575,418			2,205,727
760-799		2,446,778			636,079			3,082,857
800+		1,271,774			310,009			1,581,783
No FICO available		148,837			16,417			165,254
Remaining PCI accounting adjustments		(10,090	)		(758	)		(10,848	)
Total consumer loans	$	8,137,597			2,779,606			10,917,203

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LTV refers to the ratio comparing the loan’s recorded investment to the property’s collateral value. CLTV refers to the combination of first mortgage and junior lien mortgage ratios. LTVs and CLTVs are updated quarterly using a cascade approach which first uses values provided by automated valuation models (AVMs) for the property. If an AVM is not available, then the value is estimated using the original appraised value adjusted by the change in Home Price Index (HPI) for the property location. If an HPI is not available, the original appraised value is used. The HPI value is normally the only method considered for high value properties, generally with an original value of $1 million or more, as the AVM values have proven less accurate for these properties.

The following table shows the most updated LTV and CLTV distribution of the real estate 1-4 family first and junior lien mortgage loan portfolios. We consider the trends in residential real estate markets as we monitor credit risk and establish our allowance for credit losses. LTV does not necessarily reflect the likelihood of performance of a given loan, but does provide an indication of collateral value. In the event of a default, any loss should be limited to the portion of the loan amount in excess of the net realizable value of the underlying real estate collateral value. Certain loans do not have an LTV or CLTV primarily due to industry data availability and portfolios acquired from or serviced by other institutions.

(in thousands)	Real estate 1-4 first family mortgage by LTV			Real estate 1-4 family junior lien mortgage by CLTV			Total
September 30, 2013
By LTV/CLTV:
0-60%	$	4,111,452			505,557			4,617,009
60.01-80%		3,127,261			506,657			3,633,918
80.01-100%		1,069,431			552,362			1,621,793
100.01-120% (1)		327,688			411,115			738,803
> 120% (1)		151,083			298,530			449,613
No LTV/CLTV available		49,154			3,372			52,526
Remaining PCI accounting adjustments		(9,704	)		(1,260	)		(10,964	)
Total consumer loans	$	8,826,365			2,276,333			11,102,698
December 31, 2012
By LTV/CLTV:
0-60%	$	3,420,971			579,292			4,000,263
60.01-80%		2,642,888			591,307			3,234,195
80.01-100%		1,338,223			639,891			1,978,114
100.01-120% (1)		441,791			498,614			940,405
> 120% (1)		244,398			434,238			678,636
No LTV/CLTV available		59,416			37,022			96,438
Remaining PCI accounting adjustments		(10,090	)		(758	)		(10,848	)
Total consumer loans	$	8,137,597			2,779,606			10,917,203

(1) Reflects total loan balances with LTV/CLTV amounts in excess of 100%. In the event of default, the loss content would generally be limited to only the amount in excess of 100% LTV/CLTV.

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NONACCRUAL LOANS The following table provides loans on nonaccrual status. PCI loans are excluded from this table due to the existence of the accretable yield.

(in thousands)	Sept. 30, 2013		Dec. 31, 2012
Commercial:
Commercial and industrial	$	-		-
Secured by real estate		9,279		16,270
Total commercial		9,279		16,270
Consumer:
Real estate 1-4 family first mortgage		308,941		306,922
Real estate 1-4 family junior lien mortgage		112,352		129,251
Total consumer		421,293		436,173
Total nonaccrual loans
(excluding PCI)	$	430,572		452,443

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Certain loans 90 days or more past due as to interest or principal are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $6.7 million at September 30, 2013, and $7.0 million at December 31, 2012, are excluded from this disclosure even though they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

The following table shows non-PCI loans 90 days or more past due and still accruing.

(in thousands)	Sept. 30, 2013		Dec. 31, 2012
Commercial:
Commercial and industrial	$	-		-
Secured by real estate		-		4,455
Total commercial		-		4,455
Consumer:
Real estate 1-4 family first mortgage		10,295		18,382
Real estate 1-4 family junior lien mortgage		4,794		6,940
Total consumer		15,089		25,322
Total past due (excluding PCI)	$	15,089		29,777

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IMPAIRED LOANS The table below summarizes key information for impaired loans. Our impaired loans predominantly include loans on nonaccrual status in the commercial portfolio segment and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans generally have estimated losses which are included in the allowance for credit losses. We have impaired loans with no allowance for credit losses when loss content has been previously recognized through charge-offs and we do not anticipate additional charge-offs or losses, or certain

loans are currently performing in accordance with their terms and for which no loss has been estimated. Impaired loans exclude PCI loans. The table below includes trial modifications that totaled $25.8 million at September 30, 2013, and $20.2 million at December 31, 2012.

For additional information on our impaired loans and allowance for credit losses, see Note 1 (Summary of Significant Accounting Policies) in our 2012 Form 10-K.

			Recorded investment
(in thousands)	Unpaid principal balance		Impaired loans		Impaired loans with related allowance for credit losses		Related allowance for credit losses
September 30, 2013
Commercial:
Commercial and industrial	$	-		-		-		-
Secured by real estate		14,450		11,788		11,788		4,649
Total commercial		14,450		11,788		11,788		4,649
Consumer:
Real estate 1-4 family first mortgage		486,377		401,233		304,137		79,985
Real estate 1-4 family junior lien mortgage		153,662		138,016		118,886		57,099
Total consumer		640,039		539,249		423,023		137,084
Total impaired loans (excluding PCI)	$	654,489		551,037		434,811		141,733
December 31, 2012
Commercial:
Commercial and industrial	$	-		-		-		-
Secured by real estate		18,697		15,434		15,434		9,827
Total commercial		18,697		15,434		15,434		9,827
Consumer:
Real estate 1-4 family first mortgage		439,213		361,162		262,803		53,539
Real estate 1-4 family junior lien mortgage		156,186		139,690		119,078		48,912
Total consumer		595,399		500,852		381,881		102,451
Total impaired loans (excluding PCI)	$	614,096		516,286		397,315		112,278

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The following table provides the average recorded investment in impaired loans and the amount of interest

income recognized on impaired loans by portfolio segment and class.

	Quarter ended September 30,								Nine months ended September 30,
	2013				2012				2013				2012
(in thousands)	Average recorded investment		Recognized interest income		Average recorded investment		Recognized interest income		Average recorded investment		Recognized interest income		Average recorded investment		Recognized interest income
Commercial:
Commercial and industrial	$	-		-		-		-		-		-		-		-
Secured by real estate		11,959		65		22,553		-		13,552		311		19,101		52
Total commercial		11,959		65		22,553		-		13,552		311		19,101		52
Consumer:
Real estate 1-4 family first mortgage		383,424		6,613		221,919		3,298		380,553		20,630		224,880		9,497
Real estate 1-4 family junior lien mortgage		135,586		2,597		115,363		1,160		138,693		8,043		115,259		4,438
Total consumer (1)		519,010		9,210		337,282		4,458		519,246		28,673		340,139		13,935
Total impaired loans	$	530,969		9,275		359,835		4,458		532,798		28,984		359,240		13,987
Interest income:
Cash basis of accounting			$	4,115				1,230				12,686				1,691
Other (2)				5,160				3,228				16,298				12,296
Total interest income			$	9,275				4,458				28,984				13,987

(1) Quarter and nine months ended September 30, 2013, reflects the impact of the OCC guidance issued in third quarter 2012, which requires consumer loans discharged in bankruptcy to be classified as TDRs, as well as written down to net realizable collateral value.

(2) Includes interest recognized on accruing TDRs and interest recognized related to the passage of time on certain impaired loans. See footnote 1 to the table of changes in the allowance for credit losses.

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TROUBLED DEBT RESTUCTURINGS (TDRS) When, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession for other than an insignificant period of time to a borrower that we would not otherwise consider, the related loan is classified as a TDR. We do not consider any loans modified through a loan resolution such as foreclosure or short sale to be a TDR.

We may require some borrowers experiencing financial difficulty to make trial payments generally for a period of three to four months, according to the terms of a planned permanent modification, to determine if they can perform according to those terms. These arrangements represent trial modifications, which we classify and account for as TDRs. While loans are in trial payment programs, their original terms are not considered modified and they continue to advance through delinquency status and accrue interest according to their original terms. The planned modifications for these arrangements predominantly involve interest rate reductions or other interest rate concessions; however, the exact concession type and resulting financial effect are usually not finalized and do not take effect until the loan is permanently modified. The trial period terms are developed in accordance with our proprietary programs or the U.S. Treasury’s Making Homes Affordable programs for real estate 1-4 family first lien (i.e. Home Affordable Modification Program – HAMP) and junior lien (i.e. Second Lien Modification Program – 2MP) mortgage loans.

At September 30, 2013, the loans in trial modification period were $8.4 million under HAMP, $2.1 million under 2MP and $15.3 million under proprietary programs, compared with $8.8 million, $2.2 million and $9.2 million at December 31, 2012, respectively. Trial modifications with a recorded investment of $12.5 million at September 30, 2013, and $9.2 million at December 31, 2012, were accruing loans and $13.3 million and $11.0 million, respectively, were nonaccruing loans. Our experience is that most of the mortgages that enter a trial payment period program are successful in completing the program requirements and are then permanently modified at the end of the trial period. Our allowance process considers the impact of those modifications that are probable to occur.

The following table summarizes our TDR modifications for the periods presented by primary modification type and includes the financial effects of these modifications. For those loans that modify more than once, the table reflects each modification that occurred during the period.

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	Primary modification type (1)								Financial effects of modifications
(in thousands)	Principal (2)		Interest rate reduction		Other concessions (3)		Total		Charge- offs (4)		Weighted average interest rate reduction			Recorded investment related to interest rate reduction (5)
Quarter ended September 30, 2013
Commercial:
Commercial and industrial	$	-		-		-		-		-		-	%	$	-
Secured by real estate		-		2,880		196		3,076		-		1.00			2,880
Total commercial		-		2,880		196		3,076		-		1.00			2,880
Consumer:
Real estate 1-4 family first mortgage		8,309		9,106		14,861		32,276		1,644		3.95			14,915
Real estate 1-4 family junior lien mortgage		1,165		3,351		5,163		9,679		536		5.23			4,484
Trial modifications (6)		-		-		3,378		3,378		-		-			-
Total consumer		9,474		12,457		23,402		45,333		2,180		4.24			19,399
Total	$	9,474		15,337		23,598		48,409		2,180		3.82	%	$	22,279
Quarter ended September 30, 2012
Commercial:
Commercial and industrial	$	-		-		-		-		-		-	%	$	-
Secured by real estate		-		-		74		74		-		-			-
Total commercial		-		-		74		74		-		-			-
Consumer:
Real estate 1-4 family first mortgage		4,725		18,818		103,935		127,478		5,557		2.83			22,974
Real estate 1-4 family junior lien mortgage		1,184		4,420		29,422		35,026		36,217		5.61			5,348
Trial modifications (6)		-		-		716		716		-		-			-
Total consumer		5,909		23,238		134,073		163,220		41,774		3.36			28,322
Total	$	5,909		23,238		134,147		163,294		41,774		3.36	%	$	28,322

(continued on the following page)

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(continued from previous page)

	Primary modification type (1)								Financial effects of modifications
(in thousands)	Principal (2)		Interest rate reduction		Other concessions (3)		Total		Charge- offs (4)		Weighted average interest rate reduction			Recorded investment related to interest rate reduction (5)
Nine months ended September 30, 2013
Commercial:
Commercial and industrial	$	-		-		-		-		-		-	%	$	-
Secured by real estate		-		3,080		402		3,482		-		1.00			3,080
Total commercial		-		3,080		402		3,482		-		1.00			3,080
Consumer:
Real estate 1-4 family first mortgage		19,795		27,672		60,356		107,823		5,880		3.52			41,893
Real estate 1-4 family junior lien mortgage		4,141		9,944		33,015		47,100		1,712		5.16			13,265
Trial modifications (6)		-		-		7,646		7,646		-		-			-
Total consumer		23,936		37,616		101,017		162,569		7,592		3.91			55,158
Total	$	23,936		40,696		101,419		166,051		7,592		3.76	%	$	58,238
Nine months ended September 30, 2012
Commercial:
Commercial and industrial	$	-		-		-		-		-		-	%	$	-
Secured by real estate		-		-		3,811		3,811		-		-			-
Total commercial		-		-		3,811		3,811		-		-			-
Consumer:
Real estate 1-4 family first mortgage		10,572		35,652		116,127		162,351		8,623		3.19			44,644
Real estate 1-4 family junior lien mortgage		2,438		14,194		32,130		48,762		36,383		5.64			16,306
Trial modifications (6)		-		-		17,946		17,946		-		-			-
Total consumer		13,010		49,846		166,203		229,059		45,006		3.85			60,950
Total	$	13,010		49,846		170,014		232,870		45,006		3.85	%	$	60,950

(1) Amounts represent the recorded investment in loans after recognizing the effects of the TDR, if any. TDRs with multiple types of concessions are presented only once in the table in the first category type based on the order presented. The reported amounts include loans remodified in the current reporting period, which total $14.1 million and $7.0 million for the third quarters of 2013 and 2012 and $57.0 million and $16.9 million for the nine months ended September 30, 2013 and 2012, respectively.

(2) Principal modifications include principal forgiveness at the time of the modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with a zero percent contractual interest rate.

(3) Other concessions include loans for which the interest rate is not commensurate with the credit risk that result from the modification. These modifications would include renewals, term extensions and other interest and noninterest adjustments, but exclude modifications that also forgive principal and/or reduce the interest rate. Includes $7.8 million and $34.8 million of consumer loans discharged in bankruptcy for the quarter and nine months ended September 30, 2013, respectively, and $120.7 million for the quarter and nine months ended September 30, 2012, as a result of the OCC guidance implementation. The OCC guidance issued in third quarter 2012 required consumer loans discharged in bankruptcy to be classified as TDRs, as well as written down to net realizable collateral value.

(4) Charge-offs include write-downs of the investment in the loan in the period it is contractually modified. The amount of charge-off will differ from the modification terms if the loan has been charged down prior to the modification based on our policies. In addition, there may be cases where we have a charge-off/down with no legal principal modification. Modifications resulted in legally forgiving principal (actual, contingent or deferred) of $2.7 million and $1.8 million for the third quarters of 2013 and 2012, and $6.9 million and $4.8 million for the nine months ended September 30, 2013 and 2012, respectively.

(5) Reflects the effect of reduced interest rates to loans with a principal or interest rate reduction primary modification type.

(6) Trial modifications are granted a delay in payments due under the original terms during the trial payment period. However, these loans continue to advance through delinquency status and accrue interest according to their original terms. Any subsequent permanent modification generally includes interest rate related concessions; however, the exact concession type and resulting financial effect are usually not known until the loan is permanently modified. Trial modifications for the period are presented net of any trial modifications that became permanent in the current period.

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The table below summarizes permanent modification TDRs that have defaulted in the current period within 12 months of their permanent modification date. We report

these defaulted TDRs based on a payment default definition of 90 days past due for the commercial portfolio segment and 60 days past due for the consumer portfolio segment.

	Recorded investment of defaults
	Quarter ended September 30,				Nine months ended September 30,
(in thousands)	2013		2012		2013		2012
Total commercial	$	-		950		-		950
Consumer:
Real estate 1-4 family first mortgage		951		2,913		4,577		9,489
Real estate 1-4 family junior lien mortgage		1,494		562		2,486		2,929
Total consumer		2,445		3,475		7,063		12,418
Total	$	2,445		4,425		7,063		13,368

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Note 3: Fair Values of Assets and Liabilities

As of September 30, 2013, assets and liabilities measured at fair value on a nonrecurring basis were insignificant. Additionally, we did not elect the fair value option for any financial instruments as permitted in ASC 825, Financial Instruments, which allows companies to elect to carry certain financial instruments at fair value with corresponding changes in fair value reported in the results of operations.

Disclosures about Fair Value of Financial Instruments The table below is a summary of fair value estimates by level for financial instruments. The carrying

amounts in the following table are recorded in the balance sheet under the indicated captions.

We have not included assets and liabilities that are not financial instruments in our disclosure, such as other assets, deferred taxes and other liabilities. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of Wachovia Funding. For descriptions of the valuation methodologies we use for estimating fair value for financial instruments that are not recorded at fair value, see Note 5 in our 2012 10-K.

	Carrying amount		Estimated fair value
(in thousands)			Level 1		Level 2		Level 3		Total
September 30, 2013
Financial assets:
Cash and cash equivalents (1)	$	869,563		869,563		-		-		869,563
Loans, net (2)		12,921,033		-		-		13,910,237		13,910,237
Financial liabilities:
Lines of credit with Bank (1)		749,548		-		749,548		-		749,548
December 31, 2012
Financial assets:
Cash and cash equivalents (1)	$	642,946		642,946		-		-		642,946
Loans, net (2)		13,241,254		-		-		14,575,463		14,575,463
Financial liabilities:
Lines of credit with Bank (1)		745,016		-		745,016		-		745,016

(1) Amounts consist of financial instruments in which carrying value approximates fair value.

(2) Carrying amount reflects net discount and allowance for loan losses.

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Note 4: Common and Preferred Stock

Wachovia Funding has authorized preferred and common stock. To remain qualified as a REIT, Wachovia Funding

must distribute annually at least 90% of taxable earnings. The following table provides detail of preferred stock.

	September 30, 2013 and December 31, 2012
(in thousands, except shares and liquidation preference per share)	Liquidation preference per share		Shares authorized		Shares issued and outstanding		Par value		Carrying value
Series A
7.25% Non-Cumulative Exchangeable, Perpetual Series A Preferred Securities	$	25		30,000,000		30,000,000	$	300		300
Series B
Floating rate (three-month LIBOR plus 1.83%) Non-Cumulative Exchangeable,
Perpetual Series B Preferred Securities		25		40,000,000		40,000,000		400		400
Series C
Floating rate (three-month LIBOR plus 2.25%) Cumulative,
Perpetual Series C Preferred Securities		1,000		5,000,000		4,233,754		43		43
Series D
8.50% Non-Cumulative, Perpetual Series D Preferred Securities		1,000		913		913		-		-
Total				75,000,913		74,234,667	$	743		743

In the event that Wachovia Funding is liquidated or dissolved, the holders of the preferred securities will be entitled to a liquidation preference for each security plus any authorized, declared and unpaid dividends that will be paid prior to any payments to common stockholders. With respect to the payment of dividends and liquidation preference, the Series A preferred securities rank on parity with Series B and Series D preferred securities and senior to the common stock and Series C preferred securities. In the event that a supervisory event occurs in which the Bank is placed into conservatorship or receivership, the Series A and Series B preferred securities are exchangeable into certain preferred stock of Wells Fargo.

On November 5, 2013, we issued a notice to the holders of the Series A preferred securities that we have elected to redeem the Series A preferred securities at the redemption price of $25 per security for a total of $750 million, plus authorized, declared, but unpaid dividends to the date of redemption, January 2, 2014. The Certificate of Designation for the Series A preferred securities permits this redemption due to the occurrence of a Regulatory Capital Event. A Regulatory Capital Event means our determination, based on the receipt by us of an opinion or letter of counsel, that there is a significant risk that the Series A preferred securities will no longer constitute Tier 1 capital of the Bank or Wells Fargo for purposes of the capital adequacy regulations or guidelines or policies of the OCC or the Federal Reserve Board (FRB), or their respective successor as the Bank’s and Wells Fargo’s, respectively, primary Federal banking regulator, as a result of any amendments to, clarification of, or change in applicable laws or related regulations, guidelines, policies or official interpretations thereof, or any official administrative pronouncement or judicial decision interpreting or applying such laws or related regulations, guidelines, policies or official interpretations thereof.

We have concluded, and received an opinion of counsel confirming, that the Series A preferred securities will no longer constitute Tier 1 capital for Wells Fargo or the Bank under the final rules approved by the FRB and the OCC in July 2013 that substantially amend the risk-based capital rules for banks. Wells Fargo and the Bank will be required to comply with the new rules beginning January 1, 2014. In accordance with the terms of the Series A preferred securities, we have obtained prior approval from the OCC to redeem the Series A preferred securities because Wachovia Funding is a subsidiary of the Bank.

The Series B and Series C preferred securities may be redeemed for cash, in whole or in part, with the prior approval of the OCC, at redemption prices of $25 and $1,000 per security, respectively, plus authorized, declared, but unpaid dividends to the date of redemption, including any accumulation of any unpaid dividends for the Series C preferred securities. We can redeem the Series D preferred securities in whole or in part at any time at $1,000 per security plus authorized, declared and unpaid dividends.

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Note 5: Transactions With Related Parties

Wachovia Funding engages in various transactions and agreements with affiliated parties. Due to the nature of common ownership of Wachovia Funding and the affiliated parties by Wells Fargo, these transactions and agreements could differ from those conducted with unaffiliated parties.

The principal items related to transactions with affiliated parties included in the accompanying consolidated statement of income and consolidated balance sheet are described in the table and narrative below.

	Quarter ended Sept. 30,				Nine months ended Sept. 30,
(in thousands)	2013		2012		2013		2012
Income statement data
Interest income:
Accretion of discounts on loans, net	$	24,893		35,492		72,200		118,106
Interest on deposits (1)		591		1,031		1,831		2,602
Total interest income		25,484		36,523		74,031		120,708
Interest expense		396		-		794		-
Loan servicing costs		9,003		10,310		27,960		31,826
Management fees		1,713		1,985		5,053		5,837

(1) The third quarter of 2012 had no impact from interest rate swaps. The first nine months of 2012 included $626 thousand from interest rate swaps.

(in thousands)	Sept.30, 2013			Dec. 31, 2012
Balance sheet related data
Loan purchases (year-to-date) (1)	$	2,887,878			4,397,812
Loan sales (year-to-date)		(14,080	)		(58,375	)
Foreclosed asset sales (year-to-date)		(9,406	)		(12,438	)
Deposits		869,563			642,946
Lines of credit with Bank		749,548			745,016
Accounts receivable—affiliates, net		145,966			131,216

(1) Includes accrued interest, see Note 2 for additional details.

Loan Participations We purchase and sell loans and/or 100% interests in loan participations (which are reflected as loans in the accompanying consolidated financial statements) to and from the Bank or its affiliates. The purchases and sales are transacted at fair value resulting in purchase discounts and premiums or gains and losses on sales. The net purchase discount accretion is reported within interest income. In third quarter 2013, we purchased $1.1 billion of consumer loans from the Bank or its affiliates.

Loan Servicing Costs The loans in our portfolio are serviced by the Bank or its affiliates pursuant to the terms of participation and servicing agreements. In some instances, the Bank has delegated servicing responsibility to third parties that are not affiliated with us or the Bank or its affiliates. Depending on the loan type, the monthly servicing fee charges are based in part on (a) outstanding principal balances, (b) a flat fee per month, or (c) a total loan commitment amount.

Management Fees We pay the Bank a management fee to reimburse for general overhead expenses paid on our behalf. Management fees are calculated based on Wells Fargo’s total monthly allocable costs multiplied by a formula. The formula is based on our proportion of Wells Fargo’s consolidated: 1) full-time equivalent employees, 2) total average assets and 3) total revenue.

Foreclosed Assets We sell foreclosed assets to the Bank from time to time at fair value.

Accounts Receivable/Payable, Net Accounts receivable from or payable to the Bank or its affiliates result from intercompany transactions which include net loan pay-downs, interest receipts, servicing costs, management fees and other transactions, including those transactions noted herein, which have not yet settled.

Deposits Our primary cash management vehicle is a deposit account with the Bank. Interest income earned on deposits is included in interest income.

Lines of Credit Wachovia Funding and its subsidiaries have revolving lines of credit with the Bank, pursuant to which we can borrow up to $2.2 billion at a rate of interest equal to the average federal funds rate plus 12.5 basis points (0.125%).

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Contribution of Common Shares During second quarter 2013, Wachovia Funding received a contribution of 1 share of the common stock of Wachovia Real Estate Investment Corp. (WREIC) and 18 shares of the common stock of Wachovia Preferred Realty, LLC (WPR) with a value of $17.2 million from Wachovia Preferred Holding. We did not pay Wachovia Preferred Holding for these contributed assets, nor did we issue additional shares; these contributions were recorded as an increase to additional paid-in-capital. Following the contribution, WREIC and WPR are wholly owned by Wachovia Funding.

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PART II – OTHER INFORMATION

Item 1.    Legal Proceedings

Wachovia Funding is not currently involved in nor, to our knowledge, currently threatened with any material litigation. From time to time we may become involved in routine litigation arising in the ordinary course of business. We do not believe that the eventual outcome of any such routine litigation will, in the aggregate, have a material adverse effect on our consolidated financial statements. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters, if unfavorable, could be material to our consolidated financial statements for any particular period.

Item 1A. Risk Factors

Information in response to this item can be found under the “Risk Factors” section in this Report which information is incorporated by reference into this item.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Information required by this Item 2 pursuant to Item 703 of Regulation S-K regarding issuer repurchases of equity securities is not applicable since we do not have a program providing for the repurchase of our securities.

Item 6.    Exhibits

(a)      Exhibits

Exhibit No.

(12)(a) Computation of Consolidated Ratios of Earnings to Fixed Charges.

(12)(b) Computation of Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock Dividends.

(31)(a) Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(31)(b) Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32)(a) Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(32)(b) Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(99)(a) Wells Fargo & Company Supplementary Consolidating Financial Information (Unaudited).

(101) XBRL Instance Document

(101) XBRL Taxonomy Extension Schema Document

(101) XBRL Taxonomy Extension Calculation Linkbase Document

(101) XBRL Taxonomy Extension Label Linkbase Document

(101) XBRL Taxonomy Extension Presentation Linkbase Document

(101) XBRL Taxonomy Extension Definitions Linkbase Document

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SIGNATURE

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.

Dated: November 7, 2013	WACHOVIA PREFERRED FUNDING CORP.
	By: /s/ RICHARD D. LEVY
	Richard D. Levy
	Executive Vice President and Controller
	(Principal Accounting Officer)

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