SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~March 3031, ~~2012~~2013

¨	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 x 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 x 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 x

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 x

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~~April 3130, ~~2012~~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	25
	Consolidated Balance Sheet	26
	Consolidated Statement of Changes in Stockholders’ Equity	27
	Consolidated Statement of Cash Flows	28
	Notes to Financial Statements
	1 - Summary of Significant Accounting Policies	29
	2 - Loans and Allowance for Credit Losses	3130
	3 - Derivatives	45
	3 - Fair Values of Assets and Liabilities	43
	4 - Fair Values of Assets and Liabilities	46
	4 - Common and Preferred Stock	44
	5 - Common and Preferred Stock	48
	5 - Transactions with Related Parties	46
	6 - Transactions with Related Parties	50
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	7
	Risk Management	8
	Critical Accounting Policy	21
	Current Accounting Developments	21
	Forward-Looking Statements	22
	Risk Factors	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	24
PART II	Other Information
Item 1.	Legal Proceedings	5247
Item 1A.	Risk Factors	5247
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5247
Item 6.	Exhibits	5247
Signature		5348
Exhibit Index		5247

PART I – FINANCIAL INFORMATION

Summary Financial Data
	Quarter ended							% ~~ChangeSept.~~ChangeMarch 3031, ~~2012~~2013 from						~~Nine months ended~~
(in thousands, except per share data)	~~Sept~~Mar. 3031, ~~2012~~2013			~~June~~Dec. 3031,2012		~~Sept~~Mar. 3031,~~2011~~2012		~~June~~Dec. 3031,2012			~~Sept~~Mar. 3031,~~2011~~2012			~~Sept. 30, 2012~~			~~Sept. 30,2011~~		~~%Change~~
For the period
Net income	$	~~138~~171,~~990~~440			~~181~~110,~~987~~916		~~192~~150,~~848~~015		~~(24~~55	) %		~~(28~~14	)	$	~~470,992~~			~~654,051~~		~~(28~~	~~) %~~
Net income available to common stockholders		90125,~~980~~426			~~133~~64,~~839~~180		~~147~~100,~~650~~429		~~(32~~95	)		~~(38~~25	)		~~325,248~~			~~516,900~~		~~(37~~	)
Diluted earnings per common share		01.9125			10.3464		1.4800		~~(32~~95	)		~~(39~~25	)		~~3.25~~			~~5.17~~		~~(37~~	)
Profitability ratios (annualized)
Return on average assets		45.0605	%		53.3814		54.5640		~~(25~~61	)		~~(27~~15	)		~~4.61~~	%		~~5.78~~		~~(20~~	)
Return on average stockholders’ equity		45.0923			53.4028		54.5845		~~(24~~59	)		~~(27~~18	)		~~4.65~~			~~5.81~~		~~(20~~	)
Average stockholders’ equity to assets		9996.2944			9995.5973		9998.7170		-1			-(2	)		~~99.13~~			~~99.45~~		-
Dividend payout ratio		154.69			110.53		109.52		40			41			130.73			106.28		23
Common dividend payout ratio (1)		163.44			194.76		150.00		(16	)		9
Total revenue	$	213,378			225,993		238,471		(6	)		(11	)	$	656,647			762,351		(14	)
Dividend coverage ratio (2)		905.20			576.50		766.30		57			18
Average loans		12,090,692			12,262,259		13,165,428		(1	)		(8	)		12,203,841			13,963,475		(13	)
Total revenue	$	200,017			213,677		217,276		(6	)		(8	)
Average assets		13,610,250			13,598,650		13,756,016		-			(1	)		13,645,041			15,133,480		(10	)
Average loans		13,000,913			12,695,521		12,259,816		2			6
Net interest margin		6.19	%		6.57		6.80		(6	)		(9	)		6.35	%		6.68		(5	)
Average assets		13,775,883			14,035,717		13,726,605		(2	)		-
Net loan charge-offs	$	69,800			43,127		47,193		62			48		$	166,100			164,011		1
Net interest margin		5.89	%		6.05		6.26		(3	)		(6	)
As a percentage of average total loans (annualized)		2.30	%		1.41		1.42		63			62			1.82	%		1.57		16
Net loan charge-offs	$	38,584			55,168		53,173		(30	)		(27	)
At period end
As a percentage of average total loans (annualized)		1.20	%		1.73		1.74		(31	)		(31	)
Loans, net of unearned	$	12,032,760			12,163,049		12,761,864		(1	)		(6	)	$	12,032,760			12,761,864		(6	)
At period end
Allowance for loan losses		278,056			292,780		292,746		(5	)		(5	)		278,056			292,746		(5	)
Loans, net of unearned income	$	12,510,908			13,550,474		12,639,638		(8	)		(1	)
As a percentage of total loans		2.31	%		2.41		2.29		(4	)		1			2.31	%		2.29		1
Allowance for loan losses		281,548			309,220		309,913		(9	)		(9	)
Assets	$	13,432,409			13,511,538		13,645,052		(1	)		(2	)	$	13,432,409			13,645,052		(2	)
As a percentage of total loans		2.25	%		2.28		2.45		(1	)		(8	)
Total stockholders’ equity		13,357,691			13,433,711		13,580,773		(1	)		(2	)		13,357,691			13,580,773		(2	)
Assets	$	13,315,128			14,068,785		13,679,834		(5	)		(3	)
Total nonaccrual loans and foreclosed assets		490,621			403,461		348,904		22			41			490,621			348,904		41
Total stockholders’ equity		13,217,297			13,296,871		13,452,872		-			(2	)
As a percentage of total loans		4.08	%		3.32		2.73		23			49			4.08	%		2.73		49
Total nonaccrual loans and foreclosed assets		467,041			460,235		414,133		1			13
Loans 90 days or more past due and still accruing (1)	$	22,315			21,670		35,690		3			(37	)	$	22,315			35,690		(37	)
As a percentage of total loans		3.73	%		3.40		3.28		10			14
Loans 90 days or more past due and still accruing (3)	$	24,019			29,777		21,771		(19	)		10

(1) ~~The~~Dividends ~~carrying~~declared ~~value~~per ofcommon ~~PCI~~share ~~loans~~as ~~contractually~~a 90percentage ~~days or more past due is excluded. These PCI loans are considered to be accruing due to the existence~~ of ~~the~~earnings ~~accretable~~per ~~yield~~common ~~and not based on consideration given to contractual interest payments~~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 Bank lines of credit 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.

This ~~Quarterly~~ Report on Form 10-Q for the quarter ended March 31, 2013, including the Financial Statements and related Notes, has 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 actual results to differ materially from our forward -looking statements are ~~discussed~~described in this Report, including in the “Forward-Looking Statements” ~~and~~section ~~“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 ~~this Report and to the “Risk Factors” section in~~ our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012 (~~2011~~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 ~~real~~mortgage ~~estate-related~~ assets and ~~other~~ 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~~March 3031, ~~2012~~2013, we had $13.43 billion in assets, which included $12.0 5 billion in loans.

We are a direct subsidiary of Wachovia Preferred Holding and an indirect subsidiary of Wells Fargo and the Bank. At ~~September~~March 3031, ~~2012~~2013, the Bank was considered “well-capitalized” under risk-based capital guidelines issued by federal banking regulators.

REIT Tax Status

For the tax year ~~ending~~ended December 31, 2012, we ~~intend~~complied ~~to comply~~ with ~~the~~ 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 ~~the~~at least ~~majority~~90% of our ~~earnings~~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. ~~We currently~~For the period ended March 31, 2013, we believe that we ~~continue~~continued to satisfy each of these requirements and therefore ~~continue~~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 ~~maximum~~qualified ~~15%~~dividend tax rate applicable to ~~qualified dividends received by~~ non-corporate taxpayers. If we were not a REIT, dividends we pay generally would qualify for the dividends received deduction ~~and~~for ~~the~~corporate ~~favorable~~shareholders ~~tax~~and ~~rate~~the ~~applicable to non-corporate taxpayers.~~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 $~~139~~171.04 million in ~~third~~first quarter ~~2012~~2013, or $01.9125 diluted earnings per common share, compared with $~~192~~150.80 million, or $1.4800 per common share, in ~~third~~first quarter ~~2011. For the first nine months of~~ 2012~~, our net income was $471~~.0 ~~million, or $3.25 per common share, compared with $654.1 million, or $5.17 per common share a year ago.~~ The ~~third~~2013 ~~quarter~~increase ~~and first nine months decrease~~ in ~~year over year~~ net income was primarily attributable to a ~~decline~~lower ~~in interest income and a higher~~ provision for credit losses, partially offset by a decrease in ~~2012~~interest income.

Loans

Total loans, which consist of loan participation interests, were $12.05 billion at ~~September~~March 3031, ~~2012~~2013, compared with $1213.56 billion at December 31, ~~2011~~2012. Loans represented approximately 9094% and 9396% of assets at ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, respectively. WeAnnualized ~~reinvested~~ loan pay-downs byand ~~purchasing~~pay-offs $2represented 29.08% ~~billion~~and 25.6% of ~~loans~~loan ~~from~~balances ~~the~~during ~~Bank in the~~ first ~~nine~~quarter ~~months~~2013 ofand 2012, ~~which consisted of $751~~respectively.8 ~~million~~We ofdid ~~commercial~~not ~~loans~~purchase ~~in third quarter 2012 and $1.3 billion of consumer~~ loans in ~~the~~ first ~~half of 2012~~quarter 2013. In ~~the~~ first ~~nine~~quarter ~~months~~2012, ~~of 2011~~ we ~~did~~purchased ~~not purchase loans from the Bank. Our board of directors declared special capital distributions of~~ $4943.5 ~~billion~~million ~~to holders~~ of ~~our~~consumer ~~common~~loans ~~stock in the first nine months of 2011 that reduced elevated levels of cash on our balance sheet, in order to continue to qualify for the exemption~~ from ~~registration under~~ the ~~Investment Company Act~~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 ~~an additional~~ a return of capital to holders of our common stock. ~~For 2012, however, we expect loan purchases to exceed proceeds received from loan pay-downs.~~

Purchased credit-impaired (PCI) loans represented less than 1 percent of total loans at both March 31, 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.

~~Purchased~~Credit ~~credit-impaired~~quality ~~(PCI)~~continued ~~loans~~to ~~were~~improve ~~less~~during ~~than~~first 1quarter ~~percent~~2013 ofreflecting ~~total~~the ~~loans~~benefit atof ~~both~~a ~~September 30,~~slowly ~~2012~~improving ~~and~~economy: ~~December 31, 2011. See Note 1 (Summary of Significant Accounting Policies - Loans) in our 2011 Form 10-K for additional information.~~

~~Our~~• ~~reported~~net ~~credit~~charge-offs ~~metrics in third quarter 2012~~ were ~~affected~~$38.6 bymillion ~~implementation of the guidance~~ in ~~the~~first ~~Office of the Comptroller of the Currency (OCC) update to the Bank Accounting Advisory Series (OCC guidance) issued in third~~ quarter ~~2012,~~2013 ~~which requires consumer loans discharged in bankruptcy to be written down to net realizable collateral value and classified as nonaccrual troubled debt restructurings~~ (~~TDRs), regardless of their delinquency status~~1. ~~As of September 30, 2012, only 9~~20% of ~~the~~average ~~performing~~ loans), ~~placed~~compared onwith ~~nonaccrual status as a result of the OCC guidance were 30 days or more past due~~$53.2 ~~Implementation~~million ~~of the OCC guidance~~ in ~~third~~first quarter 2012 ~~resulted~~(1.74% inof ~~the~~average ~~following:~~ loans);

• nonperforming assets were $87467.70 million ~~reclassification~~at ofMarch ~~performing~~31, ~~consumer~~2013, ~~loans~~compared towith ~~nonaccrual~~$460.2 ~~status~~million at December 31, 2012; and

• loans 90 days or more past due and still accruing were $2824.60 million ~~increase~~at inMarch ~~loan~~31, ~~charge-offs;~~2013, ~~and~~compared with $29.8 million at December 31, 2012.

•Our $~~120~~13.71 million ofprovision ~~loans~~for ~~classified~~credit aslosses ~~TDRs~~in first quarter 2013 was $38.2 million less than first quarter 2012. See “– Risk Management – Credit Risk Management” section in this Report for more information.

Our nonaccrual loans totaled $480.3 million at September 30, 2012, up from $349.1 million at December 31, 2011. The increase was primarily the result of $87.7 million from the OCC guidance and reclassifying $55.2 million of real estate 1-4 family junior lien mortgages to nonaccrual status in first quarter 2012 in accordance with junior lien mortgage industry guidance issued by bank regulators during that quarter. See the “Risk Management – Credit Risk Management – Nonperforming Assets” section in this report for more information.

During the last week of October 2012, Hurricane Sandy and related storms caused destruction along the East Coast, including in Connecticut, New Jersey, New York, Pennsylvania, Delaware, Maryland, Virginia and Washington D.C., and resulted in, among other things, property damage for our customers and the closing of many businesses and financial markets. We are currently assessing the impact to our business as a result of Hurricane Sandy. The financial impact to us is expected to primarily relate to our consumer and commercial real estate loan portfolios and will depend on a number of factors, including, as to our consumer and commercial loan portfolios, the types of loans most affected by the storms, the extent of damage to our collateral, the extent of available insurance coverage, the availability of government assistance for our borrowers, and whether our borrowers’ ability

to repay their loans has been diminished. We are actively reviewing our exposure but are currently unable to reasonably estimate the extent of losses we may incur as a result of these storms.

Capital Distributions

Dividends declared to holders of our preferred securities totaled $4846.0 million ~~and~~in ~~$145.7~~first ~~million for the third~~ quarter ~~and first nine months of 2012~~2013, which included $13.6 million ~~and $40.8 million, respectively,~~ in dividends on our Series A preferred securities held by non-affiliated investors. ~~Distributions~~Dividends ~~made~~declared to holders of our preferred securities were $4549.26 million ~~and~~in ~~$137.2~~first ~~million for the third~~ quarter ~~and first nine months of 2011~~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 $~~167~~205.0 million ~~and~~in ~~$470.0~~first ~~million for the third~~ quarter ~~and first nine months of 2012~~2013. Distributions made to holders of our common stock ~~totaled $166.0~~in ~~million~~first ~~and $5.1 billion for third~~ quarter ~~and~~2012 ~~first~~totaled ~~nine months of 2011, which included~~ $~~166~~150.0 million ~~and $558~~.0 ~~million, respectively, in dividends. Distributions for the first nine months of 2011 also included $4.5 billion of special capital distributions.~~

Regulatory Capital

In June 2012, federal banking agencies, including the Board of Governors of the Federal Reserve System (FRB), jointly published notices of proposed rulemaking, which would substantially amend the risk-based capital rules for banks. The proposed capital rules are intended to implement in the U.S. the Basel III regulatory capital reforms (Basel III NPR), comply with changes required by the Dodd-Frank Act, and replace the existing Basel I-based capital requirements. Based on our current interpretation, we believe the Wachovia Funding Series A preferred securities would no longer constitute Tier 1 capital for Wells Fargo or the Bank under the Basel III NPR. ~~However~~Although the proposed rules contemplated an effective date of January 1, ~~following~~2013, ~~the~~with ~~comment~~phased ~~period~~in compliance requirements, the rules have not yet been finalized by the U.S. banking regulators due to the volume of comments received and concerns expressed during the comment period. The FRB may not adopt the Basel III NPR as proposed or may make additional changes to the applicable Tier 1 capital rules prior to final adoption. In the event the FRB’s applicable final rules regarding Tier 1 capital treatment are the same as the Basel III NPR or otherwise result in the Series A preferred securities no longer constituting Tier 1 capital for Wells Fargo or the Bank, Wachovia Funding may determine to redeem the Wachovia Funding Series A preferred securities due to a Regulatory Capital Event. See also “Risk Factors” and “Note 5:4 (Common and Preferred Stock)”. to Financial Statements in this Report.

Earnings Performance

Net Income ~~Available to Common Stockholders~~

We earned net income ~~available to common stockholders~~ of $91171.0 4 million and $~~147~~150.70 million in ~~third~~first quarter ~~2012~~2013 and ~~2011~~2012, respectively. ~~For the first nine months of 2012, net income available to common stockholders was $325.2 million compared with $516.9 million in the first nine months of 2011.~~ The ~~third~~2013 ~~quarter~~increase ~~and nine months decrease~~ in ~~period over period~~ net income was primarily attributable to a ~~decline~~lower inprovision ~~interest~~for ~~income~~credit ~~and a~~losses, ~~higher~~partially ~~provision~~offset ~~for~~by ~~credit~~a ~~losses~~decrease in ~~2012~~interest income.

Interest Income

Interest income ofwas $~~212~~200.82 million in ~~third~~first quarter ~~2012 decreased $25.3 million~~2013, ~~or 10.6%,~~ compared with ~~third quarter 2011. Interest income was~~ $~~655~~216.29 million ~~in the first nine months of 2012 compared with $761.4 million~~ a year ago. The decrease ~~from~~was ~~2011 related~~ primarily todriven ~~lower~~by ~~average~~a ~~interest-earning~~decrease ~~assets~~in ~~coupled~~the ~~with~~yield ~~changes~~on intotal ~~average~~interest-earning ~~yield~~assets.

The average yield on total interest-earning assets was 65.1989% in ~~third~~first quarter ~~2012~~2013, compared with 6.8026% ina ~~third~~year ~~quarter 2011~~ago. The decrease in the average yield ~~was~~partially ~~due~~resulted tofrom ~~lower~~continued declines in discount accretion on purchased consumer loans. ~~and~~Interest anincome ~~increase~~included innet ~~lower~~discount ~~yielding~~accretion ~~assets~~of ~~that~~$23.1 ~~resulted~~million ~~from~~and ~~pay-downs~~$38.7 ofmillion ~~higher~~in ~~yielding~~first ~~real~~quarter ~~estate~~2013 ~~1-4~~and ~~family~~2012, respectively. ~~loans~~The ~~being~~decrease ~~reinvested~~in ~~into~~discount ~~commercial~~accretion ~~loans~~was orprimarily ~~held~~driven asby ~~interest-bearing~~a ~~deposits.~~decrease Inin ~~third~~loan ~~quarter~~pay-downs ~~2012~~ and ~~2011,~~ ~~interest~~pay-offs ~~income~~on ~~included~~those loans purchased with a discount ~~accretion~~as ofwell ~~$35.5~~as ~~million~~an ~~and~~increase ~~$44.4~~in ~~million,~~amortization ~~respectively.~~of purchase premiums

~~The average yield on~~ ~~total~~associated ~~interest-earning assets was 6.35% in the first nine months of 2012 compared~~ with ~~6.68%~~recent inloan ~~the first nine months of 2011~~purchases. ~~The~~Moreover, ~~overall decline in~~ the ~~average~~reinvestment ~~yield on the combined consumer and commercial loan portfolio was primarily attributable to a lower level~~ of ~~accretion~~higher ofyielding ~~discounts on purchased~~ consumer loans. In the first nine months of 2012 and 2011, interest income included discount accretion of $118.1 million and $153.0 million, respectively. The decrease in discount accretion was primarily driven by lower loan pay-downs and pay-offs ininto ~~the~~lower ~~first~~yielding ~~nine months of 2012 compared with the first nine months of 2011. Real estate 1-4 family loans as a percentage of total~~ assets ~~were~~also ~~lower~~contributed ~~during~~to the ~~first nine months of 2012 as compared with the first nine months of 2011. The~~ decrease ~~resulted from the reinvestment of real estate 1-4 family pay-downs into commercial loans~~ in ~~2012 and a distribution of cash in the form of special capital distributions to common shareholders in 2011. We expect continued pressure on our~~ average yield ~~on total interest-earning assets as we reinvest loan pay-down proceeds in the current low interest rate environment and we recognize lower discount accretion~~. While Wachovia Funding believes it has the ability to increase net interest income over time, net interest income in any one period can be impacted by a variety of factors, including mix and size of the earning asset portfolio and outstanding borrowings from our lines of credit.

~~Average~~We ~~consumer~~expect ~~loans~~continued indownward ~~third~~pressure ~~quarter~~on ~~declined~~our ~~$1.1~~average ~~billion~~yield ~~compared~~on ~~with~~total ~~third~~interest-earning ~~quarter 2011~~assets ~~and~~as ~~average~~we ~~commercial~~reinvest ~~loans~~proceeds from ~~declined~~loan ~~$16.7~~payments ~~million~~in ~~compared with~~ the ~~same~~low ~~period~~interest ofrate ~~2011.~~environment ~~Average~~and ~~consumer~~we ~~loans~~also ~~decreased~~expect ~~$1.6~~to ~~billion~~recognize toless ~~$10.9~~discount ~~billion~~accretion ~~compared~~due ~~with~~to the ~~first~~passage ~~nine months~~ of ~~2011~~time ~~while~~from ~~average~~when ~~commercial~~the loans ~~decreased $182.2~~purchased ~~million~~at toa $1discount were acquired.3 ~~billion~~Wachovia inFunding has the ~~same~~ability ~~period~~to ~~due~~increase interest toincome ~~pay-downs,~~over ~~charge-offs~~time ~~and~~by reinvesting loan ~~sales.~~payments Toin ~~the~~real ~~extent~~estate we1-4 ~~reinvest~~family ~~loan~~loans, ~~pay~~commercial loans and other REIT-~~downs~~eligible orassets; ~~make~~however ~~purchases,~~interest weincome ~~anticipate~~in ~~that~~any weone ~~will~~period ~~acquire~~can ~~consumer~~be ~~and~~impacted ~~commercial~~by ~~real-estate~~a ~~secured~~variety ~~loans~~of factors, including mix and size of the ~~other~~earning ~~REIT-eligible~~asset ~~assets~~portfolio. See the ~~interest~~“Risk ~~rate~~Management—Asset/Liability ~~risk~~Management—Interest ~~management~~Rate Risk” section ~~under~~in ~~“Risk~~this ~~Management”~~Report for more information on interest rates and interest income.

Table 1 presents the components of earning assets and related average yield to provide an analysis of ~~period~~year-over-~~period~~year changes that influenced interest income.


Table 1: Interest Income


	Quarter ended March 31,
					2013							2012

(in thousands)	Average balance		Interest income		Yields			Average balance		Interest income		Yields

Commercial loans (1)	$	2,497,626		15,518		2.52	%	$	1,294,510		7,771		2.41	%
Real estate 1-4 family		10,503,287		184,202		7.08			10,965,306		208,523		7.62
Interest-bearing deposits in banks and other interest-earning assets		742,148		464		0.25			1,631,314		624		0.15

Total interest-earning assets	$	13,743,061		200,184		5.89	%	$	13,891,130		216,918		6.26	%

Table 1: Interest Income
	Quarter ended September 30,
					2012							2011
(in thousands)	Averagebalance		Interestincome		Yields			Averagebalance		Interestincome		Yields
Commercial loans (1)	$	1,435,440		8,797		2.44	%	$	1,452,165		8,821		2.41	%
Real estate 1-4 family		10,655,252		202,980		7.59			11,713,263		229,230		7.78
Interest-bearing deposits in banks and other interest-earning assets		1,613,019		1,031		0.25			756,030		97		0.05
Total interest-earning assets	$	13,703,711		212,808		6.19	%	$	13,921,458		238,148		6.80	%

	Nine months ended September 30,
					2012							2011
(in thousands)	Averagebalance		Interestincome		Yields			Averagebalance		Interestincome		Yields
Commercial loans (1)	$	1,310,089		23,649		2.41	%	$	1,492,247		26,361		2.36	%
Real estate 1-4 family		10,893,752		628,986		7.71			12,471,228		734,534		7.87
Interest-bearing deposits in banks and other interest-earning assets		1,581,122		2,602		0.22			1,264,163		479		0.05
Total interest-earning assets	$	13,784,963		655,237		6.35	%	$	15,227,638		761,374		6.68	%

(1)	Includes taxable-equivalent adjustments.

Interest Expense

Wachovia Funding and its subsidiaries have $2.2 billion of lines of credit with the Bank. ~~Based~~At onMarch 31, ~~sufficient~~2013, ~~levels~~the outstanding balance under the Bank lines of ~~cash~~credit ~~and~~was ~~cash~~$27.2 ~~equivalents~~million. During first quarter 2013, we ~~did~~applied ~~not~~a ~~borrow~~portion of loan pay-downs and pay-offs to reduce the amount borrowed on our lines of credit. Interest expense related to borrowings on the lines of credit was $353 thousand in ~~third~~first quarter 2013 on average borrowings of or$376.1 ~~the~~million ~~first~~at ~~nine~~an ~~months~~annualized weighted average rate of ~~2012~~0.38%. orDuring ~~2011;~~first ~~accordingly~~quarter 2012, weWachovia Funding had no amount outstanding on its lines and therefore did not incur interest expense ~~during these periods~~.

Provision for Credit Losses

The provision for credit losses was $5713.21 million ~~for~~in ~~third~~first quarter ~~2012~~2013, compared with $3051.3 million ina ~~third~~year ~~quarter 2011~~ago. ~~For~~Primary ~~the~~drivers ~~first nine months~~ of ~~2012,~~ the ~~provision~~lower ~~for credit losses was $136.4 million, compared with $57.8 million for the same period of 2011. The higher level of~~ provision inwere ~~2012~~decreased ~~primarily reflected a slower rate of delinquency improvement. Additionally, implementation of OCC guidance resulted in increased~~ net-charge-offs inand ~~third~~improvement ~~quarter~~in ~~2012.~~the ~~Please~~credit ~~refer~~quality toof the ~~“—Balance~~portfolios ~~Sheet Analysis”~~ and ~~“Risk~~related loss ~~Management—Allowance~~estimates ~~for~~as ~~Credit~~seen ~~Losses”~~in ~~sections~~lower inloss ~~this~~trends. ~~Report~~For ~~for~~ additional information on the allowance for credit ~~losses.~~

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 Income

Noninterest income ~~for~~in ~~third~~first quarter ~~2012~~2013 was $~~572~~ 187 thousand, compared with $~~325~~360 thousand ~~for~~a ~~third~~year ~~quarter 2011~~ago. ~~Noninterest~~In ~~income totaled $1.4 million in the~~ first ~~nine~~quarter ~~months~~2013 ofand 2012, ~~compared with~~noninterest ~~$983~~income ~~thousand~~consisted inprimarily ~~the first nine months~~ of ~~2011,~~fees ~~which~~related ~~included a $128 thousand net loss on loan sales~~ to ~~affiliates~~loans.

Noninterest Expense

Noninterest expense ~~for~~in ~~third~~first quarter ~~2012~~2013 was $1715.03 million, compared with $15.39 million in ~~third~~first quarter ~~2011~~2012. Noninterest expense primarily consists of loan servicing costs, management fees, and foreclosed assets expense.

~~Noninterest~~Loan ~~expense~~servicing ~~totaled~~costs were $~~48.~~9.7 million inand ~~the first nine months of 2012, compared with~~ $5010.38 million in ~~the~~first ~~same~~quarter ~~period~~2013 aand ~~year ago~~2012 respectively. ~~Noninterest~~The ~~expense~~decrease ~~primarily~~in ~~consists~~these ~~of loan servicing~~ costs, ~~and~~reflected toan aincreased ~~lesser~~percentage ~~extent,~~of ~~management~~commercial ~~fees,~~loans ~~foreclosed~~with ~~assets~~lower ~~expense~~servicing ~~and~~rates ~~other~~than ~~expenses.~~residential loans.

~~Loan~~5 servicing costs decreased $4.9 million to $31.9 million in the first nine months of 2012, which reflected a decrease in the average commercial and consumer loan portfolios. These costs are driven by the size and mix of our loan portfolio.

ManagementTable fees were $5.8 million in the first nine months of 2012, compared with $4.8 million in the first nine months of 2011. The increase in management fees related to an increase in the rates of certain technology system and support expenses. Management fees represent reimbursements made to the Bank for general overhead expenses incurred on our behalf. Contents

~~Foreclosed~~Management ~~assets~~fees ~~expense~~were ~~was~~ $81.7 million in ~~the~~ first ~~nine~~quarter ~~months~~2013, ofcompared ~~2012~~with ~~and~~ $61.39 million ina year ago. Management fees represent reimbursements made to the ~~first~~Bank ~~nine~~for ~~months~~general ofoverhead ~~2011. Substantially~~expenses ~~all~~incurred ofon our ~~real~~behalf. ~~estate~~The ~~owned~~decrease ~~consists~~in management fees related to a decrease in the rates of ~~residential~~certain ~~1-4~~technology ~~family~~system ~~real~~and ~~estate~~support ~~assets~~expenses.

Foreclosed assets expense was $3.4 million in first quarter 2013 and $2.3 million a year ago. Substantially all of our foreclosed assets consist of residential 1-4 family real estate assets.

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 $~~135~~128 thousand ~~and $34 thousand~~ in ~~third~~ first quarter ~~2012 and 2011~~2013, ~~respectively.~~compared ~~Income~~with ~~tax expense was~~ $~~363~~ 89 thousand ~~and~~a ~~$192~~year ~~thousand in the first nine months of 2012 and 2011, respectively~~ago. WPR ~~increase~~holds incertain ~~net income for the first nine months of 2012 resulted primarily from increased yields on~~ cash investments. ~~WPR~~and previously held ~~our~~certain interest rate swaps ~~and holds certain cash investments~~.

Balance Sheet Analysis

Total Assets

Our assets ~~primarily~~predominantly consist of ~~commercial~~consumer and ~~consumer~~commercial loans, although we have the authority to hold assets other than loans. Total assets were $13.43 billion at ~~September~~March 3031, ~~2012~~2013, and $1314.51 billion at December 31, ~~2011~~2012.

Cash and Cash Equivalents

Cash and cash equivalents were $1918.51 ~~billion~~million at ~~September~~March 3031, ~~2012~~2013, and $1642.29 ~~billion~~million at December 31, ~~2011. We reinvested loan pay-downs by purchasing $2.0 billion of loans from the Bank in the first nine months of~~ 2012~~, which consisted of $751~~.8 ~~million of commercial loans in third quarter 2012 and $1.3 billion of consumer loans in the first half of 2012.~~

Loans

Loans, net of unearned income decreased $~~511~~1.01 ~~million~~billion to $12.05 billion at ~~September~~March 3031, ~~2012~~2013, compared with $1213.56 billion at December 31, ~~2011~~2012, primarily reflecting pay-downs, and charge-offs ~~and loan sales~~ across the entire portfolio ~~partially offset by loan purchases~~. ~~In the first nine months of 2012, we purchased $751.8 million commercial and $1.3 billion consumer loans from the Bank at their estimated fair value.~~ We did not purchase loans in ~~the~~ first ~~nine~~quarter ~~months of 2011~~2013. At ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~ 2012, consumer loans represented 8681% ~~and~~ ~~89%~~ of total loans, ~~respectively,~~ 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 $3527.7 million to $~~278~~281.15 million at ~~September~~March 3031, ~~2012~~2013, from $~~313~~309.82 million at December 31, ~~2011~~2012. The decrease in the allowance was primarily due to lower levels of inherent credit loss in the portfolio compared with levels existing at December 31, ~~2011. The decrease also reflected the implementation of OCC guidance issued in third quarter~~ 2012, which requires consumer loans discharged in bankruptcy to be written down to net realizable collateral value and classified as nonaccrual troubled debt restructurings (TDRs), regardless of their delinquency status.

At ~~September~~March 3031, ~~2012~~ 2013, the allowance for loan losses included $~~253~~260.92 million for consumer loans and $2421.23 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 ~~The~~ “Risk Management—Credit Risk Management—Allowance for Credit Losses” section in this Report ~~describes~~ for a description of how management estimates the allowance for loan losses and the allowance for unfunded credit commitments.

Interest Rate Swaps

Interest rate swaps were carried at fair value, which resulted in a net asset position of $1.0 million at December 31, 2011. The interest rate swaps expired in June 2012 and were not renewed.

Accounts Receivable/Payable—Affiliates, Net

The accounts payable and receivable 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 drew upon our lines of credit to finance certain loan purchases in 2012. At March 31, 2013, we had $2.2 billion of lines of credit with the Bank, of which $27.2 million was outstanding.

Dividends Payable—Affiliates

Dividends payable to affiliates was $3432.4 million at ~~September~~March 3031, ~~2012~~2013, and represented ~~third~~dividends ~~quarter~~declared ~~2012~~during ~~dividends~~first quarter 2013, payable primarily to Wachovia Preferred Holding., ~~These~~but ~~amounts~~not ~~were~~ paid ~~on October~~until April 1, ~~2012~~2013.

Risk Management

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

For more information about how we manage these risks, see the “Risk Management” section in our 2011 Form 10-K. The discussion that follows is intended to provide an update on these risks.

Loans represent the largest component of our balance sheet and their related credit risk is among the most

significant risks 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.

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
	Sept. 30,		Dec. 31,		Sept. 30,		Dec. 31,
	Mar. 31,		Dec. 31,		Mar. 31,		Dec. 31,
(in thousands)	~~2012~~2013		~~2011~~2012		~~2012~~2013		~~2011~~2012
Commercial:
Commercial and industrial	$	~~176~~83,~~086~~456		~~287~~99,~~174~~207		1.29		1.46
Real estate mortgage		1,523,040		1,015,087		3.1		3.8
Secured by real estate		2,333,974		2,534,064		3.4		3.5
Real estate construction		28,058		45,887		5.3		5.0
Total commercial		2,417,430		2,633,271		3.4		3.5
Total commercial		1,727,184		1,348,148		3.0		3.3
Consumer:
Real estate 1-4 family first mortgage		7,~~341~~484,~~748~~604		78,~~945~~137,~~746~~597		1920.21		20.02
Real estate 1-4 family junior lien mortgage		2,~~963~~608,~~828~~874		32,~~249~~779,~~882~~606		17.20		17.91
Total consumer		10,~~305~~093,~~576~~478		1110,~~195~~917,~~628~~203		1819.63		19.4
Total loans	$	12,~~032~~510,~~760~~908		1213,~~543~~550,~~776~~474		16.32		1716.73

The discussion that follows provides analysis of the risk elements of our ~~various~~ loan ~~portfolios~~ portfolios and ~~updates to~~ 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.

In order 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.

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, 2012

March 31, 2013

Real estate

1-4 family

% of

first

junior lien

total

(in thousands)

Commercial

mortgage

Total

loans

Florida

~~280~~249,~~043~~652

~~948~~919,~~154~~560

~~381~~336,~~766~~915

1,~~609~~506,~~963~~127

1312

New Jersey

~~224~~189,~~738~~342

~~780~~707,~~974~~586

~~567~~497,~~387~~573

1,~~573~~394,~~099~~501

1311

Pennsylvania

4437,~~455~~536

~~943~~902,~~773~~512

~~458~~404,~~934~~520

1,~~447~~344,~~162~~568

1211

North Carolina

~~201~~226,~~527~~239

~~794~~750,~~126~~730

~~224~~197,~~536~~929

1,~~220~~174,~~189~~898

109

Virginia

113,234

569,345

295,170

977,749

California

539,017

576,238

40,090

1,155,345

All other states

~~863~~1,~~187~~175,644

3,~~305~~627,~~376~~978

1,~~036~~131,~~035~~847

5,~~204~~935,~~598~~469

4448

Total loans

12,~~727~~417,~~184~~430

7,~~341~~484,~~748~~604

2,~~963~~608,~~828~~874

12,~~032~~510,~~760~~908

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 a ~~customer~~customers’s ability to repay the loan through

their cash ~~flow~~flows. A ~~majority~~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, 2012
	March 31, 2013
			% of
			total
(in thousands)	Total		C&I loans
Management of companies and enterprises	$	81,523		46	%
Real estate lessor	$	22,858		27	%
Other services (except public administration)		33,231		19
Public administration		15,421		19
Real estate-other (1)		29,494		17
Food and beverage		15,147		18
Manufacturing		18,319		10
Healthcare		4,067		5
Healthcare and social assistance		5,661		3
Textiles/apparel		3,247		4
Wholesale trade		3,362		2
Industrial equipment		2,542		3
Arts, entertainment and recreation		1,805		1
Investors		2,500		3
Administrative and support		952		1
Leasing		1,723		2
Other		115,~~739~~951		119
Total loans	$	~~176~~83,~~086~~456		100	%

(1) Includes lessors, building operators and real estate agents.

COMMERCIAL ~~REAL~~SECURED BY REAL ESTATE (~~CRE~~CSRE) The ~~CRE~~ CSRE portfolio consists of both ~~CRE~~ mortgage loans and ~~CRE~~ construction loans. Table 5 summarizes ~~CRE~~CSRE loans by state and property type. To identify and manage newly emerging problem ~~CRE~~ 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. Wachovia Funding last acquired~~

~~CRE~~regular ~~loans~~customer ininteraction ~~2002.~~to Inunderstand ~~third~~and ~~quarter~~manage ~~2012,~~the werisks ~~purchased~~associated ~~CRE~~with these loans, ~~primarily~~including toregular ~~diversify~~loan ~~the~~reviews ~~composition~~and ofappraisal ~~our loan portfolio~~updates. We consider the creditworthiness of the customers and collateral valuations when selecting ~~CRE~~CSRE loans for purchase. ~~In future periods, we expect to consider purchases of CRE loans in addition to other REIT qualifying assets such as 1-4 family residential mortgage loans.~~

Table 5: CRE Loans by State and Property Type
Table 5: CSRE Loans by State and Property Type
	September 30, 2012
	March 31, 2013
			% of					~~% of~~
	Real estate		Real estate			Total		total
			total
(in thousands)	~~mortgage~~CSRE loans		~~construction~~CSRE loans			~~CRE loans~~		~~CRE loans~~
By state:
California	$	~~288~~539,~~228~~064		-23	%		~~288,228~~		19	%
Florida		243,451		8,742			252,193		16
North Carolina		222,701		10
North Carolina		182,913		11,621			194,534		13
Florida		219,904		9
New Jersey		176,439		-			176,439		11
Texas		164,551		7
Georgia		~~151~~153,~~512~~679		~~1,125~~7			~~152,637~~		10
All other states		~~480~~1,~~497~~034,075		~~6,570~~44			~~487,067~~		31
Total loans	$	12,~~523~~333,~~040~~974		~~28,058~~100	%		~~1,551,098~~		~~100~~	%
By property:
By property type:
Industrial/warehouse	$	457,714		-			457,714		30	%
Office buildings	$	858,801		37	%
Office buildings		447,854		5,039			452,893		29
Warehouse		375,078		16
Shopping center		~~155~~249,~~421~~966		-11			~~155,421~~		10
Retail (excluding shopping center)		130,785		1,773			132,558		9
Retail establishment (restaurant, stores)		227,047		10
Apartments		92,684		733			93,417		6
5+ multifamily residence		150,967		6
Hotel/motel		75,742		-			75,742		5
Manufacturing plant		145,831		6
Real estate—other		59,958		6,765			66,723		4
Real estate collateral pool		83,625		4
Institutional		43,682		-			43,682		3
Motels/hotels		75,315		3
Manufacturing plant		40,244		-			40,244		2
Institutional		49,239		2
Land (excluding 1-4 family)		9,344		10,359			19,703		1
Commercial/industrial (non-residential)		30,242		1
Other		9,612		3,389			13,001		1
Churches, synagogues, mosques and temples		20,677		1
Total loans	$	1,523,040		28,058			1,551,098		100	%
Research and development		19,376		1
Other		47,810		2
Total loans	$	2,333,974		100	%

REAL ESTATE 1-4 FAMILY MORTGAGE LOANS The ~~concentrations~~distribution of real estate 1-4 family mortgages 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 ~~2011~~2012 Form 10-K.

We continue to modify real estate 1-4 family mortgage loans to assist homeowners and other borrowers in the current difficult economic cycle. 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 ~~2011~~2012 Form 10-K.

WeThe ~~also~~Bank ~~monitor changes in real estate values~~ and ~~underlying economic~~ /or ~~market~~other ~~conditions for~~Wells ~~all~~Fargo ~~geographic~~affiliates ~~areas~~act ofas servicer ~~our~~for ~~real~~predominantly ~~estate~~all ~~1-4 family mortgage portfolio as part~~ of our ~~credit~~loan ~~risk management process~~portfolio.

~~The~~ ~~Bank~~Additional ~~and/or~~information ~~other~~about Wells Fargo ~~affiliates~~mortgage ~~act~~and asforeclosure ~~servicer~~settlements ~~for~~can be found in the “Risk Management – Credit Risk Management – Real Estate 1-4 Family Mortgage Loans” section in our ~~loan~~2012 ~~portfolio,~~Form ~~including~~10-K. We believe these settlements will not have a material impact on our ~~consumer~~consolidated ~~real~~ financial statements.

~~estate~~We ~~loans.~~monitor ~~See~~the credit performance of our junior lien mortgage portfolio for trends and factors that influence the ~~“Risk~~frequency ~~Management~~and –severity ~~Credit~~of ~~Risk~~loss. ~~Management”~~In ~~section~~first inquarter 2012, we aligned our ~~2011~~nonaccrual ~~Form~~reporting so ~~10-K~~that ~~for~~a ~~discussion~~junior lien is reported as a nonaccrual loan if the related first lien is 120 days past due or is in the process of foreclosure regardless of the ~~Bank’s~~junior ~~settlement~~lien delinquency status in accordance with ~~various~~Interagency ~~banking~~Guidance ~~regulators’~~issued by bank ~~involving~~regulators. ~~mortgage~~Also, ~~loan~~in ~~servicing~~third quarter 2012 we aligned our nonaccrual and ~~foreclosure~~troubled ~~practices.~~debt Wereclassification ~~believe~~policies ~~this~~in ~~settlement~~accordance ~~will~~with ~~not~~guidance ~~have~~in athe ~~material~~Office ~~impact~~of onthe ~~our~~Comptroller ~~financial~~of ~~statements.~~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.

Credit metrics for third quarter 2012 real estate 1-4 family mortgage loans were affected by the implementation of 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. As of September 30, 2012, only 9% of the performing loans placed on nonaccrual status as a result of the OCC guidance were 30 days or more past due. Implementation of the OCC guidance in third quarter 2012 resulted in the following:


Table 6: Real Estate 1-4 Family Mortgage Loans by State and CLTV


	March 31, 2013
	Real estate		Current
	1-4 family		CLTV
(in thousands)	mortgage		ratio (1)

Pennsylvania	$	1,307,032		71	%
Florida		1,256,475		78
New Jersey		1,205,159		72
North Carolina		948,659		70
Virginia		828,664		69
All other states		4,547,489		69

Total loans	$	10,093,478

• $87.7 million reclassification of performing loans to nonaccrual status;

• $28.6 million increase in loan charge-offs; and

• $120.7 million of loans classified as TDRs.

Table 6: Real Estate 1-4 Family Mortgage Loans by State and CLTV
	September 30, 2012
	Real estate		Current
	1-4 family		CLTV
(in thousands)	mortgage		ratio (1)
Pennsylvania	$	1,402,707		68	%
New Jersey		1,348,361		73
Florida		1,329,920		82
North Carolina		1,018,662		71
Virginia		864,515		70
All other states		4,341,411		72
Total loans	$	10,305,576

(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.

HOME EQUITY PORTFOLIOS Our home equity portfolio includes real estate 1-4 family junior lien mortgages secured by real estate. ~~The~~Predominantly ~~majority~~all of our junior lien loans are amortizing payment loans with fixed interest rates and repayment periods between 5 to 30 years. Junior lien loans ~~with~~ with balloon payments at the end of the repayment term represent aless ~~small~~than ~~portion~~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~~ severity of loss.

In ~~first~~accordance ~~quarter~~with ~~2012, we implemented~~ Interagency ~~Supervisory~~ Guidance, onjunior ~~Allowance~~lien ~~for~~loans ~~Loan~~are ~~and~~reported ~~Lease~~as ~~Losses Estimation~~nonaccrual ~~Practices~~if ~~for~~the ~~Loans~~related ~~and~~first lien ~~Lines of Credit~~is

~~Secured by Junior Liens on 1-4 Family Residential Properties issued January 31, 2012 (Interagency Guidance). Junior lien loans are now reported as a nonaccrual loan if the related first lien is~~ 120 days past due or is in the process of foreclosure. This action had minimal financial impact as the expected loss content of these loans was already considered in the loan loss allowance. See ~~the~~ “Risk Management – Credit Risk Management – Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)” section in this ~~report~~Report for more information.

Table 7 summarizes ~~quarterly~~ 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)
					% of loanstwo payments					Loss rate (annualized)
	Outstanding balance				or more past due					Quarter ended
	Sept. 30,		Dec. 31,		Sept. 30,			Dec. 31,		Sept. 30,		June 30,		Mar. 31,		Dec. 31,		Sept. 30,
	Mar. 31,		Dec. 31,		Mar. 31,			Dec. 31,		Mar. 31,		Dec. 31,		Sept. 30,		June 30,		Mar. 31,
(in thousands)	~~2012~~2013		~~2011~~2012		~~2012~~2013			~~2011~~2012		~~2012 (2)~~2013		2012 (2)		2012 (2)		~~2011~~2012		~~2011~~2012
New Jersey	$	~~564~~495,~~333~~964		~~668~~531,~~234~~622		5.2108	%		5.6938		73.6878		3.2199		37.6768		43.0121		3.8667
Pennsylvania		~~456~~402,~~366~~202		~~534~~428,~~996~~841		3.5946			3.9088		41.4770		23.6250		14.3647		2.3862		1.8036
Florida		~~380~~336,~~835~~116		~~453~~357,~~952~~586		4.7866			5.6615		86.2648		65.5484		78.0326		76.5254		57.3503
Virginia		~~293~~259,~~484~~857		~~332~~277,~~236~~294		3.5629			3.1240		43.9715		3.1540		24.5097		23.0515		2.5150
North Carolina		~~222~~196,~~537~~728		~~257~~208,~~958~~315		34.7032			34.8317		61.5394		34.4671		36.6053		23.4346		3.0560
Other		1907,~~030,782~~003		~~985~~963,~~059~~944		3.5148			43.8661		62.7069		34.4348		46.2770		3.8443		34.7827
Total	$	2,~~948~~597,~~337~~870		32,~~232~~767,~~435~~602		43.0398			4.7321		63.5622		34.6432		36.8256		3.8664		3.5082

(1) Consists of real estate 1-4 family junior lien mortgages, excluding PCI loans of $1511,~~491~~004 thousand at ~~September~~March 3031, ~~2012~~2013 and $1712,~~447~~004 thousand at December 31, ~~2011~~2012.

(2) Reflects the ~~implementation 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. Excluding the impact of OCC guidance, the total loss rate for third quarter 2012 was 3.06%. We believe that the presentation of certain information in this Report excluding the impact of the OCC guidance provides useful disclosure regarding the underlying credit quality of our loan portfolios.

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;~~

•interest ~~part~~or ofprincipal, ~~the~~unless ~~principal~~both ~~balance~~well-secured ~~has~~and ~~been~~in ~~charged~~the ~~off;~~process orof collection;

• ~~effective~~part ~~first~~of ~~quarter 2012, for junior lien mortgages, we have evidence that~~ the ~~related~~principal ~~first~~balance ~~lien~~has ~~mortgage~~been ~~may~~charged ~~be 120 days past due or in the process of foreclosure regardless of the junior lien delinquency status.~~off;

In• effective first quarter 2012, ~~the~~for ~~implementation~~junior oflien ~~Interagency Guidance~~mortgages, ~~which~~we ~~requires~~have usevidence ~~to place~~that ~~junior~~the ~~liens~~related onfirst ~~nonaccrual~~lien ~~status~~mortgage ifmay ~~the~~be ~~related~~120 ~~first~~days ~~lien~~past isdue ~~nonaccrual,~~or ~~increased~~in ~~our~~the ~~nonperforming~~process ~~assets~~of byforeclosure ~~$55.2~~regardless ~~million.~~of the junior lien delinquency status; or

In• effective third quarter 2012, ~~the~~performing ~~implementation of OCC guidance, which requires~~ consumer loans are discharged in bankruptcy ~~to be placed on nonaccrual status and written down to net realizable collateral value~~, regardless of their delinquency status~~, increased our nonperforming assets by $87~~.~~7 million. We charged off $28.6 million for these loans and they had the following characteristics:~~

• 91% of the loans were current or less than 30 days past due;

• 100% of the loans are currently paying principal, in addition to interest payments; and

• customers had an average current FICO of 682 and an average current CLTV of 84%.

Table 8 provides the comparative data for nonaccrual loans and foreclosed assets.

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

	Sept. 30,			June 30,		Mar. 31,		Dec. 31,		Sept. 30,
	Mar. 31,			Dec. 31,		Sept. 30,		June 30,		Mar. 31,
(in thousands)	~~2012~~2013			2012		2012		~~2011~~2012		~~2011~~2012
Nonaccrual loans:
Commercial:
Real estate mortgage		24,054			22,324		18,623		21,132		25,834
Commercial and industrial	$	-			-		-		-		-
Real estate construction		-			29		180		251		263
Secured by real estate		18,856			16,270		24,054		22,353		18,803
Total commercial		2418,~~054~~856			2216,~~353~~270		1824,~~803~~054		2122,~~383~~353		2618,~~097~~803
Consumer:
Real estate 1-4 family first mortgage		~~313~~320,~~389~~508			~~233~~306,~~500~~922		~~235~~313,~~737~~389		~~228~~233,~~363~~500		~~212~~235,~~626~~737
Real estate 1-4 family junior lien mortgage (1)		142,896			136,609		152,824		99,347		102,763
Real estate 1-4 family junior lien mortgage		120,276			129,251		142,896		136,609		152,824
Total consumer (2)		456,285			370,109		388,561		327,710		315,389
Total consumer (1)		440,784			436,173		456,285		370,109		388,561
Total nonaccrual loans		~~480~~459,~~339~~640			~~392~~452,~~462~~443		~~407~~480,~~364~~339		~~349~~392,~~093~~462		~~341~~407,~~486~~364
Foreclosed assets		107,~~282~~401			107,~~999~~792		610,~~769~~282		610,~~926~~999		76,~~418~~769
Total nonperforming assets	$	~~490~~467,~~621~~041			~~403~~460,~~461~~235		~~414~~490,~~133~~621		~~356~~403,~~019~~461		~~348~~414,~~904~~133
As a percentage of total loans		43.0873	%		3.3240		34.2808		23.8432		23.7328

(1) Includes $55108.24 million, $77.8 million and $87.7 million at March 31, ~~2012~~2013, ~~resulting~~December ~~from~~31 ~~implementation~~and ofSeptember ~~the~~30, ~~Interagency~~2012, ~~Guidance~~respectively, ~~issued~~resulting onfrom ~~January~~the ~~31,~~OCC ~~2012.~~guidance ~~This~~issued ~~guidance~~in ~~accelerated~~third ~~the~~quarter ~~timing~~2012, ofwhich ~~placing~~requires ~~these~~performing consumer loans ondischarged ~~nonaccrual~~in bankruptcy to ~~coincide~~be ~~with~~placed ~~the~~on ~~timing~~nonaccrual ofstatus ~~placing~~and ~~the~~written ~~related~~down ~~real~~to ~~estate~~net ~~1-4~~realizable ~~family~~collateral ~~first~~value, ~~mortgage~~regardless ~~loans~~of ontheir ~~nonaccrual~~delinquency status.

(2) Includes $87.7 million of performing loans at September 30, 2012, consisting of $69.3 million of first mortgages and $18.4 million of junior liens, 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 9: Analysis of Changes in Nonaccrual Loans
		Quarter ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
(in thousands)	2012			2012			2012			2011			2011
Commercial nonaccrual loans
Balance, beginning of quarter	$	22,353			18,803			21,383			26,097			23,262
Inflows		3,714			4,796			1,871			1,469			3,268
Outflows		(2,013	)		(1,246	)		(4,451	)		(6,183	)		(433	)
Balance, end of quarter		24,054			22,353			18,803			21,383			26,097
Consumer nonaccrual loans
Balance, beginning of quarter		370,109			388,561			327,710			315,389			339,934
Inflows (1)		174,193			89,718			154,618			109,847			87,055
Outflows:
Returned to accruing		(44,316	)		(53,016	)		(42,556	)		(51,317	)		(67,175	)
Foreclosures		(3,921	)		(7,696	)		(4,897	)		(1,946	)		(2,233	)
Charge-offs		(36,052	)		(38,171	)		(42,903	)		(37,660	)		(29,594	)
Payment, sales and other		(3,728	)		(9,287	)		(3,411	)		(6,603	)		(12,598	)
Total outflows		(88,017	)		(108,170	)		(93,767	)		(97,526	)		(111,600	)
Balance, end of quarter		456,285			370,109			388,561			327,710			315,389
Total nonaccrual loans	$	480,339			392,462			407,364			349,093			341,486

Total NPAs were $467.0 million (3.73% of total loans) at March 31, 2013, and included $459.6 million of nonaccrual loans and $7.4 million of foreclosed assets. Nonaccrual loans increased $7.2 million in first quarter 2013.

~~(1)~~Changes ~~Quarter ended September 30, 2012, includes $87.7 million of performing loans moved~~ to nonaccrual ~~status~~loans asperiod-over-period arepresent ~~result~~inflows offor ~~the implementation of OCC guidance issued in third quarter 2012, which requires consumer~~ loans ~~discharged~~that inare ~~bankruptcy to be~~ placed on nonaccrual status ~~and~~in ~~written~~accordance ~~down~~with toour ~~net realizable collateral value~~policy, ~~regardless~~offset ofby ~~their~~reductions ~~delinquency~~for ~~status. Quarter ended March 31, 2012, includes $55.2 million of~~ loans ~~moved to nonaccrual status as a result of implementing Interagency Guidance issued January 31, 2012.~~that

~~Typically,~~ are ~~changes~~paid todown, ~~nonaccrual~~charged ~~loans~~off, ~~period-over-period~~sold, ~~represent~~transferred ~~inflows~~to ~~for~~foreclosed ~~loans that~~properties, or are ~~placed~~no onlonger classified as nonaccrual ~~status~~as ~~per~~a ~~our~~result ~~policy,~~of ~~offset~~continued byperformance ~~reductions~~and ~~for~~an ~~loans~~improvement ~~that~~in ~~are~~the ~~charged~~borrower’s financial ~~off,~~condition ~~sold,~~and ~~transferred~~loan torepayment ~~foreclosed~~capabilities. ~~assets~~Also, orreductions ~~are~~can nocome ~~longer~~from ~~classified~~borrower asrepayments even if the loan stays on nonaccrual asstatus. aTable ~~result~~9 provides an analysis of the changes in nonaccrual loans.

continued performance and an improvement in the borrower’s financial condition and loan repayment capabilities. In certain instances in 2012, clarifying regulatory guidance required additional inflows as described in Table 9.


Table 9: Analysis of Changes in Nonaccrual Loans

		Quarter ended
	Mar. 31,			Dec. 31,			Sept. 30,			June 30,			Mar. 31,
(in thousands)	2013			2012			2012			2012			2012

Commercial nonaccrual loans
Balance, beginning of quarter	$	16,270			24,054			22,353			18,803			21,383
Inflows		5,653			167			3,714			4,796			1,871
Outflows		(3,067	)		(7,951	)		(2,013	)		(1,246	)		(4,451	)

Balance, end of quarter		18,856			16,270			24,054			22,353			18,803

Consumer nonaccrual loans
Balance, beginning of quarter		436,173			456,285			370,109			388,561			327,710
Inflows (1)		96,821			81,122			174,193			89,718			154,618
Outflows:
Returned to accruing		(49,077	)		(42,561	)		(44,316	)		(53,016	)		(42,556	)
Foreclosures		(2,730	)		(3,747	)		(3,921	)		(7,696	)		(4,897	)
Charge-offs		(30,371	)		(53,227	)		(36,052	)		(38,171	)		(42,903	)
Payment, sales and other		(10,032	)		(1,699	)		(3,728	)		(9,287	)		(3,411	)

Total outflows		(92,210	)		(101,234	)		(88,017	)		(108,170	)		(93,767	)

Balance, end of quarter		440,784			436,173			456,285			370,109			388,561

Total nonaccrual loans	$	459,640			452,443			480,339			392,462			407,364

(1)

Quarter ended September 30, 2012, includes $87.7 million of performing loans moved to nonaccrual status as a result 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. Quarter ended March 31, 2012, includes $55.2 million of loans moved to nonaccrual status as a result of implementing Interagency Guidance issued January 31, 2012.

TROUBLED DEBT RESTRUCTURINGS (TDRs)


Table 10: Troubled Debt Restructurings (TDRs)


	Mar. 31,		Dec. 31,		Sept. 30,		June 30,		Mar. 31,
(in thousands)	2013		2012		2012		2012		2012

Commercial TDRs:
Commercial and industrial	$	-		-		-		-		-
Secured by real estate		3,632		3,593		3,696		5,134		2,664


Total commercial TDRs		3,632		3,593		3,696		5,134		2,664

Consumer TDRs:
Real estate 1-4 family first mortgage		367,005		345,640		320,821		206,720		198,756
Real estate 1-4 family junior lien mortgage		138,508		135,029		136,316		108,726		110,441
Trial modifications		21,654		20,183		22,300		22,875		23,681


Total consumer TDRs (1)		527,167		500,852		479,437		338,321		332,878

Total TDRs	$	530,799		504,445		483,133		343,455		335,542


TDRs on nonaccrual status	$	230,913		222,448		234,310		96,465		97,942

TDRs on accrual status		299,886		281,997		248,823		246,990		237,600

Total TDRs	$	530,799		504,445		483,133		343,455		335,542

(1)

Includes $146.2 million, $132.0 million and $120.7 million at March 31, 2013, December 31 and September 30, 2012, respectively, resulting from 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.

TROUBLED DEBT RESTRUCTURINGS (TDRs)



Table 11: Analysis of Changes in TDRs

	Quarter ended
	Mar. 31,			Dec. 31,			Sept. 30,			June 30,			Mar. 31,
(in thousands)	2013			2012			2012			2012			2012


Commercial TDRs:
Balance, beginning of quarter	$	3,593			3,696			5,134			2,664			2,470
Inflows		366			-			74			2,505			1,377
Outflows		(327	)		(103	)		(1,512	)		(35	)		(1,183	)


Balance, end of quarter		3,632			3,593			3,696			5,134			2,664


Consumer TDRs:
Balance, beginning of quarter		500,852			479,437			338,321			332,878			324,605
Inflows (1)		47,574			61,212			155,557			19,722			19,648
Outflows:
Charge-offs (2)		(10,695	)		(28,094	)		(5,161	)		(7,693	)		(7,223	)
Foreclosures (2)		(1,040	)		(386	)		-			(749	)		(141	)
Payments, sales and other (3)		(10,995	)		(9,200	)		(8,705	)		(5,031	)		(6,323	)
Net change in trial modifications (4)		1,471			(2,117	)		(575	)		(806	)		2,312

Total outflows		(21,259	)		(39,797	)		(14,441	)		(14,279	)		(11,375	)

Balance, end of quarter		527,167			500,852			479,437			338,321			332,878


Total TDRs	$	530,799			504,445			483,133			343,455			335,542

Table 10: Troubled Debt Restructurings (TDRs) (1)
	Sept. 30,		June 30,		Mar. 31,		Dec. 31,		Sept. 30,
(in thousands)	2012		2012		2012		2011		2011
Commercial TDRs:
Commercial and industrial	$	-		-		-		-		-
Real estate mortgage		3,696		5,134		2,664		2,470		2,582
Real estate construction		-		-		-		-		-
Total commercial TDRs		3,696		5,134		2,664		2,470		2,582
Consumer TDRs:
Real estate 1-4 family first mortgage		320,821		206,720		198,756		191,773		179,694
Real estate 1-4 family junior lien mortgage		136,316		108,726		110,441		111,463		109,645
Trial modifications (1)		22,300		22,875		23,681		21,369		20,373
Total consumer TDRs (2)		479,437		338,321		332,878		324,605		309,712
Total TDRs	$	483,133		343,455		335,542		327,075		312,294
TDRs on nonaccrual status	$	234,310		96,465		97,942		85,733		87,368
TDRs on accrual status		248,823		246,990		237,600		241,342		224,926
Total TDRs	$	483,133		343,455		335,542		327,075		312,294

(1)

Includes $16.1 million, $6.8 million and $120.7 million of loans for the quarters ended March 31, 2013, December 31 and September 30, 2012, respectively, resulting from 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.

(12) ~~Based~~Fourth onquarter ~~clarifying~~2012 ~~guidance~~outflows ~~from~~reflect the ~~SEC~~impact ~~received in December 2011, we classify trial modifications as TDRs at the beginning~~ of ~~the~~loans ~~trial~~discharged ~~period.~~in ~~For~~bankruptcy ~~many~~being ofreported our consumer real estate modification programs, we may require a borrower to make trial payments generally for a period of three to four months. Prior to the SEC clarification, we classified trial modifications as TDRs ~~once~~in aaccordance ~~borrower~~with ~~successfully completed~~ the ~~trial~~OCC ~~period~~guidance starting in ~~accordance~~third ~~with~~quarter ~~the terms~~2012.

(23) ~~September~~Other ~~30,~~outflows ~~2012,~~include ~~includes~~normal ~~$120.7~~amortization/accretion ~~million~~ of ~~loans,~~loan ~~consisting~~basis ~~of $91~~adjustments.8 million of first mortgages and $28.9 million of junior liens, resulting from the implementation of OCC guidance issued in third quarter 2012, which requires consumer loans discharged in bankruptcy to be classified as TDRs.

Table 11: Analysis of Changes in TDRs
	Quarter ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
(in thousands)	2012			2012			2012			2011			2011
Commercial TDRs:
Balance, beginning of quarter	$	5,134			2,664			2,470			2,582			2,426
Inflows		74			2,505			1,377			-			156
Outflows		(1,512	)		(35	)		(1,183	)		(112	)		-
Balance, end of quarter		3,696			5,134			2,664			2,470			2,582
Consumer TDRs:
Balance, beginning of quarter		338,321			332,878			324,605			309,712			294,483
Inflows (1)		155,557			19,722			19,648			27,840			42,219
Outflows:
Charge-offs		(5,161	)		(7,693	)		(7,223	)		(6,618	)		(5,621	)
Foreclosures		-			(749	)		(141	)		-			(36	)
Payments, sales and other (2)		(8,705	)		(5,031	)		(6,323	)		(7,325	)		(13,447	)
Net change in trial modifications (3)		(575	)		(806	)		2,312			996			(7,886	)
Total outflows		(14,441	)		(14,279	)		(11,375	)		(12,947	)		(26,990	)
Balance, end of quarter		479,437			338,321			332,878			324,605			309,712
Total TDRs	$	483,133			343,455			335,542			327,075			312,294

(4)

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 recent experience is that most of the mortgages that enter a trial payment period program are successful in completing the program requirements.

~~(1)~~Recorded ~~Quarter~~investment ~~ended~~of ~~September~~loans ~~30,~~modified ~~2012,~~in ~~includes~~TDRs ~~$120~~is provided in Table 10.7 ~~million~~Table of11 ~~loans,~~provides ~~resulting~~an ~~from~~analysis of the changes ~~implementation~~in ofTDRs. ~~OCC~~Loans ~~guidance~~that ~~issued~~may be modified more than once are reported as TDR inflows only in ~~third~~the ~~quarter~~period they are first modified. The allowance for loan losses for TDRs was $113.1 million and $103.5 million at March 31, 2013 and December 31, 2012, ~~which~~respectively. ~~requires~~See ~~consumer~~Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more information. Those loans discharged in bankruptcy toand bereported ~~classified~~ 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 (2principal forbearance) ~~Other~~and ~~outflows~~charge ~~include~~off ~~normal~~the ~~amortization/accretion~~amount of ~~loan~~forbearance ~~basis~~if ~~adjustments~~that amount is not considered fully collectible.

(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 recent experience is that a majority of the mortgages that enter a trial payment period program are successful in completing the program requirements.

~~Table~~LOANS 1090 ~~provides~~DAYS ~~information~~OR ~~regarding~~MORE ~~the~~PAST DUE ~~recorded~~AND ~~investment~~STILL ofACCRUING Certain loans ~~modified~~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 ~~TDRs.~~collection ~~Table~~or 11(2) real ~~provides~~estate an1-4 family ~~analysis~~mortgage ofloans ~~the~~exempt ~~changes~~under inregulatory ~~TDRs.~~rules ~~The~~from ~~allowance~~being ~~for~~classified ~~loan~~as ~~losses~~nonaccrual ~~for~~until ~~TDRs~~later ~~was~~delinquency, usually 120 days past due. PCI loans of $~~102~~6.58 million, $7.0 million, $6.6 million, $8.4 million, and $~~104~~7.31 million at ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~ September 30, June 30 ~~respectively. See Note 2 (Loans~~ and ~~Allowance~~March 31, ~~for~~2012, ~~Credit Losses)~~respectively, toare ~~Financial~~excluded ~~Statements~~from in this ~~Report~~disclosure ~~for~~even ~~more~~though ~~information.~~they ~~Those~~are ~~loans~~90 ~~discharged~~days inor ~~bankruptcy~~more ~~and~~contractually ~~reported~~past asdue. These ~~TDRs~~PCI ~~this~~loans ~~quarter~~are ~~have~~considered ~~been~~to ~~written~~be ~~down~~accruing due to ~~net~~the ~~realizable~~existence ~~collateral~~of ~~value.~~ the

In accretable ~~those~~yield ~~situations~~and ~~where~~not ~~principal~~based ison ~~forgiven,~~consideration ~~the~~given ~~entire~~to ~~amount~~contractual ofinterest ~~such~~payments. ~~principal forgiveness is immediately charged~~

~~off~~Loans to90 ~~the~~days ~~extent~~or ~~not~~more ~~done~~past sodue ~~prior~~and tostill ~~the~~accruing ~~modification.~~at WeMarch 31, ~~sometimes~~2013, ~~delay~~were ~~the~~down ~~timing~~$5.8 onmillion ~~the~~from ~~repayment~~December 31, of2012, predominantly due to a ~~portion~~CSRE ofloan ~~principal~~moving ~~(principal~~into ~~forbearance)~~nonaccrual status, as well as loss mitigation activities including modifications and ~~charge~~continued ~~off~~credit quality improvement during first quarter 2013 as the ~~amount~~overall financial condition of ~~forbearance~~businesses and consumers strengthened and the housing market in many areas of the nation ifimproved. ~~that~~Table ~~amount~~12 isreflects ~~not~~non-PCI ~~considered~~loans ~~fully~~90 ~~collectible~~days or more past due and still accruing.

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 $6.6 million at September 30, 2012, and $7.6 million at December 31, 2011, are excluded from this disclosure even though they are 90 days or more


Table 12: Loans 90 Days or More Past Due and Still Accruing

	Mar. 31,		Dec. 31,		Sept. 30,		June 30,		Mar. 31,
(in thousands)	2013		2012		2012		2012		2012


Commercial:
Commercial and industrial	$	-		-		-		-		-
Secured by real estate		-		4,455		-		-		-


Total commercial		-		4,455		-		-		-

Consumer:
Real estate 1-4 family first mortgage		18,665		18,382		14,502		16,343		16,211
Real estate 1-4 family junior lien mortgage		5,354		6,940		7,813		5,327		5,560


Total consumer		24,019		25,322		22,315		21,670		21,771


Total	$	24,019		29,777		22,315		21,670		21,771

contractually past due. 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.

Loans 90 days or more past due and still accruing at September 30, 2012, were down $15.8 million, from December 31, 2011, predominantly due to loss mitigation activities including modifications, seasonality, and credit stabilization. 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)	2012		2012		2012		2011		2011
Commercial:
Commercial and industrial	$	-		-		-		-		-
Real estate mortgage		-		-		-		1,596		1,483
Real estate construction		-		-		-		-		-
Total commercial		-		-		-		1,596		1,483
Consumer:
Real estate 1-4 family first mortgage		14,502		16,343		16,211		21,008		20,519
Real estate 1-4 family junior lien mortgage (1)		7,813		5,327		5,560		15,492		13,688
Total consumer		22,315		21,670		21,771		36,500		34,207
Total	$	22,315		21,670		21,771		38,096		35,690

(1) During first quarter 2012, $2.7 million of 1-4 family junior lien mortgages were transferred to nonaccrual upon implementation of the Interagency Guidance issued on January 31, 2012.

NET CHARGE-OFFS

Table 13: Net Charge-offs
	Quarter ended
	September 30,					June 30,						March 31,					December 31,					September 30,
	March 31,					December 31,						September 30,					June 30,					March 31,
	2012					2012						2012					2011					2011
	2013					2012						2012					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	$	~~1,461~~237		0.4004	%	$	~~187~~(1,337	)		(0.0621	)%	$	~~248~~1,461		0.0840	%	$	~~586~~187		0.1706	%	$	85248		0.0208	%
Consumer:
Real estate 1-4 family first mortgage		17,~~791~~008		0.9388			1425,~~327~~395			01.7338			2217,~~865~~791		10.1893			1714,~~959~~327		0.9273			1622,~~324~~865		01.7918
Real estate 1-4 family junior lien mortgage		5021,~~548~~339		63.5221			2831,~~613~~110			34.6230			3050,~~060~~548		36.8052			3228,~~162~~613		3.8562			30,~~784~~060		3.4980
Total consumer (2)		6838,~~339~~347		21.5548			4256,~~940~~505			12.5621			5268,~~925~~339		12.9455			5042,~~121~~940		1.7956			4752,~~108~~925		1.6094
Total	$	6938,~~800~~584		21.3020	%	$	4355,~~127~~168			1.4173	%	$	5369,~~173~~800		12.7430	%	$	5043,~~707~~127		1.6141	%	$	4753,~~193~~173		1.4274	%

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

(2) ~~Quarter~~The quarters ended December 31, 2012 and September 30, 2012, ~~includes~~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. ~~Excluding this impact, net charge offs were $41.2 million (1.36% of average total loans outstanding).~~

Table 13 presents net charge-offs for the current and previous four quarters. Net charge-offs in ~~third~~first quarter ~~2012~~2013 were $6938.86 million (21.3020% of average total loans outstanding~~, annualized~~) compared with $4753.2 million (1.4274%) in ~~third~~first quarter ~~2011. Current quarter net charge-offs included $28.6 million 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~~. Excluding the impact of this guidance, net charge-offs were $41.2 million (1.36% of average total loans outstanding, annualized), a decrease from third quarter 2011 in part due to lower average loan balances and as a result of continued modest improvement in economic conditions and aggressive loss mitigation activities aimed at working with our customers through their financial challenges. The majority of net losses were in consumer real estate.

~~Net~~Due ~~charge-offs~~to in the ~~1-4~~larger ~~family~~dollar ~~first~~amounts ~~mortgage~~associated ~~portfolio~~with ~~totaled~~individual ~~$17.8 million~~commercial inloans, ~~third~~loss ~~quarter~~recognition ~~2012~~tends ~~compared~~to ~~with~~be ~~$16.3~~irregular ~~million in~~and ~~third~~varies ~~quarter~~more ~~2011.~~than with consumer loan portfolios.

Net charge-offs in the real estate 1-4 family junior lien portfolio totaled $50.5 million in third quarter 2012 compared with $30.8 million in third quarter 2011. Excluding the $27.0 million impact of the OCC guidance, net charge-offs declined. More information about the home equity portfolio is available in Table 7 in this Report.

Commercial and industrial and CRE net charge-offs in third quarter 2012 and 2011 were not significant. Although economic stress and decreased CRE values have resulted in the deterioration of our commercial and industrial and CRE credit portfolios, there have been relatively small net losses. Due to the larger dollar amounts associated with individual commercial and industrial and CRE loans, loss recognition tends to be irregular and exhibits more variation than consumer loan portfolios.

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. 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.

We ~~employ~~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 asand ~~well as~~ complex judgments. In addition, we review a variety of credit metrics and trends. ~~However,~~These ~~these~~credit metrics and trends, however, do not solely determine the ~~appropriate~~amount ~~level~~ of the allowance as we use several analytical tools ~~for such evaluation~~. For additional information on our allowance for credit losses, see the “Critical Accounting Policies – Allowance for Credit Losses” section and Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in our 2011 Form 10-K.

AtThe ~~September 30,~~ratio ~~2012,~~of the allowance for credit losses ~~totaled~~to ~~$278.6~~total ~~million,~~nonaccrual ~~compared~~loans ~~with~~may ~~$313.9~~fluctuate ~~million,~~significantly atfrom ~~December 31, 2011.~~period Weto ~~believe~~period ~~the~~due ~~allowance~~to ~~for~~such factors ~~credit~~as ~~losses~~the mix of ~~$278.6~~loan ~~million~~types ~~at September 30, 2012, was appropriate to cover credit losses inherent~~ in the ~~loan~~ portfolio, ~~including~~the ~~unfunded~~amount ~~credit~~of ~~commitments.~~nonaccrual ~~The~~loans ~~allowance~~that ~~for~~have ~~credit~~been ~~losses~~written isdown ~~subject~~ to ~~change~~current ~~and~~collateral ~~considers~~value, ~~existing~~borrower ~~factors~~credit ~~at the time~~strength, ~~including~~foreclosure ~~economic~~process ortimeframes ~~market conditions~~ and ~~ongoing~~the ~~internal~~value and ~~external~~marketability ~~examination~~of ~~processes~~collateral.

The ~~ratio~~provision offor credit losses was $13.1 million in first quarter 2013 and $51.3 million in first quarter 2012. The first quarter 2013 provision was $25.5 million less than net charge-offs. In first quarter 2012 the ~~allowance~~provision ~~for~~was ~~credit~~lower ~~losses~~than tonet ~~total~~charge-offs ~~nonaccrual~~by ~~loans~~$1.9 ~~may~~million. ~~fluctuate~~Primary ~~from~~drivers ~~period~~of tothe ~~period~~lower ~~due~~provision towere decreased loss estimates supported by lower loss trends and improvement in the credit quality of the portfolios.

~~such~~In ~~factors~~determining as the ~~mix~~appropriate ofallowance ~~loan~~attributable ~~types in the portfolio, the amount of nonaccrual loans that have been written down~~ to ~~current~~our residential ~~collateral~~real ~~value~~estate portfolios, ~~borrower~~our ~~credit~~process ~~strength and the value and~~considers ~~marketability of collateral.~~

~~Charge-offs exceeded~~ the ~~provision~~associated ~~for~~ credit ~~losses by $12.6 million and $29.7 million in third quarter and the first nine months of 2012~~cost, ~~respectively.~~including ~~Charge~~re-~~offs~~defaults ~~exceeded~~of ~~the~~modified ~~provision~~loans ~~for credit losses by $16.9 million~~ and ~~$106.2~~projected ~~million~~loss inseverity ~~third~~for ~~quarter~~loan ~~and~~modifications ~~the~~that ~~first~~occur ~~nine~~or ~~months~~are ofprobable ~~2011,~~to ~~respectively~~occur. ~~The~~In ~~higher~~addition, ~~level~~our ofprocess ~~provision~~incorporates ~~expense in 2012 primarily reflected a slower rate of delinquency improvement. Implementation of~~ the ~~OCC~~estimated ~~guidance~~allowance ~~resulted~~associated ~~in increased charge-offs for third quarter 2012. Although provision expense increased for the third quarter and first nine months of 2012 when compared~~ with ~~the~~high ~~same~~risk ~~periods~~portfolios indefined ~~2011, Wachovia Funding experienced a reduction~~ in the ~~allowance~~Interagency ~~for~~Guidance ~~credit~~relating ~~losses in 2012 due~~ to ~~continued~~junior ~~improvement~~lien ~~portfolio delinquency and overall loss trends~~mortgages.

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 recent events including the Wells Fargo/Bank settlement regarding mortgage servicing and foreclosure practices and high risk portfolios defined in the Interagency Guidance.

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 $282.1 million at March 31, 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~~Mar. 3031,~~2012~~2013

~~June~~Dec. 3031,2012

~~Mar~~Sep. 3130,2012

~~Dec.~~June 3130,~~2011~~2012

~~Sept~~Mar. 3031,~~2011~~2012

Components:

Allowance for loan losses

~~278~~281,~~056~~548

~~292~~309,~~780~~220

~~309~~278,~~913~~056

~~313~~292,~~762~~780

~~292~~309,~~746~~913

Allowance for unfunded credit commitments

~~582~~508

~~258~~384

~~200~~582

~~166~~258

~~167~~200

Allowance for credit losses

~~278~~282,~~638~~056

~~293~~309,~~038~~604

~~310~~278,~~113~~638

~~313~~293,~~928~~038

~~292~~310,~~913~~113

Allowance for loan losses as a percentage of total loans

2.3125

2.4128

2.4531

2.5041

2.2945

Allowance for loan losses as a percentage of annualized net charge-offs

~~100~~179.1393

~~168~~140.7989

~~144~~100.9113

~~155~~168.9779

~~156~~144.3591

Allowance for credit losses as a percentage of total loans

2.3225

2.4128

2.4532

2.5041

2.3045

Allowance for credit losses as a percentage of total nonaccrual loans

5861.0136

7468.6743

7658.1301

8974.9367

8576.7813

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 1922% of our loan portfolio consisted of variable rate loans at ~~September~~March 3031, ~~2012~~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~~March 3031, ~~2012~~2013, approximately 8178% of our loans had fixed interest rates. Such loans ~~increase~~ 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~~March 3031, ~~2012~~2013, $3.87 billion, or 28% of our assets, had variable interest rates and could be expected to reprice with changes in interest rates. At ~~September~~March 3031, ~~2012~~2013, our liabilities were $7497.7 8 million, or 1% of our assets, while stockholders’ equity was $13.42 billion, or 99% 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 Bank lines of credit ~~we have with the Bank~~ as a short-term liquidity source. At ~~September~~March 3031, ~~2012~~2013, there ~~were~~was no$27.2 ~~borrowings~~million outstanding on our Bank lines of credit ~~with the Bank~~.

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. ~~In the first nine months of 2012, we purchased $2.0 billion of loan participations from the Bank.~~ If in future periods we do not reinvest loan pay-downs at sufficient levels, management may request our board of directors to consider an additional 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 in some periods 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 do not have and do not anticipate having any material capital expenditures in the foreseeable future. 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 which requires the distribution by a REIT of at least 90% of its REIT taxable income, excluding capital gains, and must take into account taxes that would be imposed on undistributed income.

~~Except~~At inMarch 31, ~~certain circumstances~~2013, our ~~Series~~liabilities Aconsisted ~~preferred~~of the ~~securities~~lines ~~may~~of ~~not~~credit, bedividends ~~redeemed~~payable ~~prior~~ to ~~December 31,~~affiliates ~~2022~~and other liabilities. ~~Prior~~Our tocertificate ~~that~~of ~~date~~incorporation does not contain any limitation on the amount or percentage of debt, ~~among~~funded ~~other~~or ~~things~~otherwise, ifwe ~~regulators~~may ~~adopt~~incur, ~~capital~~except ~~standards~~the ~~that~~incurrence of debt for doborrowed ~~not~~money ~~permit~~or ~~Wells~~our ~~Fargo~~guarantee of debt for borrowed money in excess of amounts borrowed or guaranteed. However, the ~~Bank~~certificate toof ~~treat~~designation for our Series A preferred securities ascontains ~~Tier~~a 1covenant ~~capital,~~in which we ~~may~~agree ~~determine~~not to ~~redeem~~incur indebtedness over 20% of our stockholders’ equity unless approved by two-thirds of the Series A preferred securities, voting as ~~provided~~a inseparate ~~our certificate of incorporation~~class.

In June 2012, federal banking agencies, including the FRB, jointly published notices of proposed rulemaking,

~~which~~Except ~~would substantially amend the risk-based capital rules for banks. The proposed capital rules are intended to implement~~ in ~~the~~certain ~~U.S. the Basel III regulatory capital reforms~~circumstances, ~~comply with changes required by the Dodd-Frank Act, and replace the existing Basel I-based capital requirements. Based on~~ our ~~current interpretation, we believe the Wachovia Funding~~ Series A preferred securities ~~would no longer constitute Tier 1 capital for Wells Fargo or the Bank under the Basel III NPR. However, following the comment period, the FRB~~ may not ~~adopt~~be ~~the Basel III NPR as proposed or may make additional changes to the applicable Tier 1 capital rules~~ redeemed prior to ~~final~~December 31, ~~adoption~~2022. InPrior ~~the~~to ~~event the~~that ~~FRB’s~~date, ~~applicable~~among ~~final~~other ~~rules~~things, ~~regarding~~if ~~Tier~~regulators 1adopt capital ~~treatment~~standards ~~are~~that ~~the~~do ~~same~~not aspermit ~~the~~Wells ~~Basel~~Fargo ~~III NPR~~ or ~~otherwise~~the ~~result~~Bank into ~~the~~treat our Series A preferred securities noas ~~longer constituting~~ Tier 1 capital ~~for Wells Fargo or the Bank~~, ~~Wachovia~~we ~~Funding~~ may determine to redeem the ~~Wachovia Funding~~ Series A preferred securities, ~~due~~as toprovided ~~a Regulatory Capital Event. Although any such redemption must be~~ in ~~whole~~our ~~for~~certificate ~~a redemption price~~ of ~~$25~~incorporation.00 per Series A security, plus all authorized, declared but unpaid dividends to the date of redemption, such event may have an adverse effect on the trading price of the Series A preferred securities. We continue to monitor and evaluate the potential impact on regulatory capital and liquidity management of regulatory proposals, including Basel III and those required under the Dodd-Frank Act, including the Basel III NPR, throughout the rule-making process.

AtIn ~~September 30,~~June 2012, ~~our~~federal ~~liabilities~~banking ~~principally~~agencies, including ~~consisted~~the FRB, jointly published notices of ~~dividends~~proposed ~~payable~~rulemaking, towhich ~~affiliates~~would ~~and~~substantially ~~other~~amend ~~liabilities~~the risk-based capital rules for banks. ~~Our~~The ~~certificate~~proposed ofcapital ~~incorporation~~rules ~~does~~are ~~not~~intended ~~contain~~to ~~any~~implement ~~limitation~~in onthe U.S. the ~~amount or~~Basel ~~percentage~~III ofregulatory ~~debt~~capital reforms, comply ~~funded~~with orchanges ~~otherwise~~required by the Dodd-Frank Act, weand ~~may~~replace ~~incur~~the existing Basel I-based capital requirements. Based on our current interpretation, ~~except~~we believe the ~~incurrence~~Wachovia ofFunding ~~debt~~Series A preferred securities would no longer constitute Tier 1 capital for ~~borrowed~~Wells ~~money~~Fargo or ~~our~~the ~~guarantee~~Bank under the Basel III NPR. Although the proposed rules contemplated an effective date of ~~debt~~January 1, ~~for~~2013, ~~borrowed~~with ~~money~~phased in ~~excess~~compliance ofrequirements, ~~amounts~~the ~~borrowed~~rules orhave ~~guaranteed~~not yet been finalized by the U.S. ~~However,~~banking regulators due to the ~~certificate~~volume of ~~designation~~comments ~~for~~received ~~our~~and concerns expressed during the comment period. The FRB may not adopt the Basel III NPR as proposed or may make additional changes to the applicable Tier 1 capital rules prior to final adoption. In the event the FRB’s applicable final rules regarding Tier 1 capital treatment are the same as the Basel III NPR or otherwise result in the Series A preferred securities ~~contains~~no alonger ~~covenant~~constituting inTier ~~which~~1 wecapital ~~agree~~for ~~not~~Wells Fargo or the Bank, Wachovia Funding may determine to ~~incur~~redeem ~~indebtedness~~the ~~over~~Wachovia ~~20%~~Funding ofSeries ~~our~~A ~~stockholders’~~preferred ~~equity~~securities ~~unless~~due ~~approved~~to bya ~~two-thirds~~Regulatory Capital Event. Although any such redemption must be in whole for a redemption price of ~~the~~$25.00 per Series A preferred ~~securities~~security, ~~voting~~plus asall authorized, adeclared ~~separate~~but ~~class~~unpaid dividends to the date of redemption, such event may have an adverse effect on the trading price of the Series A preferred securities.

Critical Accounting Policy

Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our ~~2011~~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~~

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 ~~has reviewed~~ and ~~approved this critical accounting policy and has discussed this policy with~~ the Audit Committee of Wachovia Preferred Funding’s ~~board~~have ofreviewed ~~directors~~and approved this critical accounting policy. This policy is described in the “Critical Accounting Policy” section in our ~~2011~~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 ~~Preferred~~ Funding.

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 credit loss allowance to cover future credit losses; our net interest income, including our expectation that we expect continued pressure on average yield on total interest-earning assets; expectations regarding loan purchases and pay downs; future capital expenditures; ~~possible~~future capital distributions; the expected outcome and impact of proposed regulatory capital standards, including the Basel III NPR, the possibility of the Series A preferred securities no longer constituting Tier 1 capital of Wells Fargo or the Bank, and the possibility of a Regulatory Capital Event; the expected outcome and impact of legal, regulatory and legislative developments, including the effects to Wachovia Funding of the Bank’s settlement with certain regulatory authorities related to mortgage servicing and foreclosure practices; 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 ~~Hurricane~~natural disasters such as Super Storm Sandy and related storms, 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 ~~as well as the credit ratings assigned to our debt instruments~~;

•

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, ~~including capital standards~~ applicable to us, the Bank or Wells Fargo, (including the ~~proposed~~Dodd-Frank Act and related regulations and the Basel III NPR);

•

changes in accounting standards, rules and interpretations;

• mergers and acquisitions, and our ability to integrate them;

•

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

• ~~financial~~the ~~services reform and~~ other ~~current,~~factors ~~pending~~described orin ~~future~~“Risk ~~legislation~~Factors” orin ~~regulation that could have a negative effect on our revenue and businesses, including~~ the ~~Dodd-Frank~~2012 ~~Wall~~Form ~~Street Reform and Consumer Protection Act (the Dodd~~10-~~Frank Act) and legislation; and~~K.

•In addition to the ~~other~~above factors, ~~described~~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 ~~“Risk~~loan ~~Factors”~~charge-offs or in ~~this~~the ~~Report~~allowance for credit losses and related provision expense could materially adversely affect our financial results and condition.

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, unemployment worsens or losses from Hurricane Sandy are significant. 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.

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. WeFor ~~discuss~~a ~~previously~~discussion ~~under~~of ~~“Forward-Looking Statements” and elsewhere in this Report, as well as in other documents we file with the SEC,~~ risk factors that could adversely affect our financial results and condition and the value of, and return on, an investment in Wachovia Funding., Wewe refer you to the ~~Financial Review section and Financial Statements (and related Notes) in this Report for more information about credit, interest rate, market, and litigation risks and to the~~ “Risk Factors” ~~sections~~section in our ~~2011~~2012 Form 10-K ~~for more information about risks~~. ~~Any factor described below or elsewhere in this~~ Report or in our 2011 Form 10-K could by itself, or together with other factors, adversely affect our financial results and condition, or the value of an investment in Wachovia Funding. There are factors not described below or elsewhere in this Report that could adversely affect our financial results and condition.

The following risk factor supplements the risk factors set forth in our 2011 Form 10-K, 2012 First Quarter Report on Form 10-Q and 2012 Second Quarter Report on Form 10-Q and should be read in conjunction with the other risk factors described in those reports.

Changes to regulatory capital standards if adopted, may cause our Series A preferred securities to be redeemed early. Except in certain circumstances, our Series A preferred securities may not be redeemed prior to December 31, 2022. Prior to that date, among other things, if regulators adopt capital standards such that the Series A preferred securities no longer constitute Tier 1 capital for Wells Fargo or the Bank, we may determine to redeem the Series A preferred securities, as provided in our certificate of incorporation. In June 2012, federal banking agencies, including the FRB, jointly published notices of proposed rulemaking, which would substantially amend the risk-based capital rules for banks. The proposed capital rules are intended to implement in the U.S. the Basel III regulatory capital reforms, comply with changes required by the Dodd-Frank Act, and replace the existing Basel I-based capital requirements. If the FRB adopts the Basel III NPR in its current proposed form, it is possible that Wachovia Funding may be able to redeem the Series A preferred securities because the Series A preferred securities may no longer constitute Tier 1 capital for Wells Fargo or the Bank. However, following the comment period, the FRB may not adopt the Basel III NPR in the proposed form or may make additional changes to the Tier 1 capital regulations affecting the Series A preferred securities. We will continue to monitor the proposed capital standards and whether such capital standards would result in our determination that a Regulatory Capital Event as defined in our certificate of incorporation has occurred and therefore cause the Series A preferred securities to become redeemable under their terms. Although any such

redemption must be in whole for a redemption price of $25.00 per Series A preferred security, plus all authorized, declared but unpaid dividends to the date of redemption, such event may have an adverse effect on the trading price for the Series A preferred securities.

Unexpected rates of loan prepayments may cause us to violate the Investment Company Act of 1940 or cause a decrease in our net income. We generally reinvest the cash from loan pay-downs and prepayments in purchasing new loan participations. In the event we are unable to purchase new loan participations, determine not to purchase loan participations, or if actual prepayment rates exceed the expected rates, excess cash may accumulate on our balance sheet. If we have cash on our balance sheet greater than permitted pursuant to exemptions from registration under the Investment Company Act of 1940, we may violate such act. In order to avoid any such violation, we may request our board of directors to consider a return of capital to holders of our common stock.

Additionally, we earn interest income on our loan participation portfolio. Excessive loan prepayments may cause our loan participation portfolio balances to decline and may decrease our net income.

Controls and Procedures

Disclosure Controls and Procedures

~~As required by SEC rules,~~ Wachovia Funding’s management evaluated the effectiveness, as of ~~September~~March 3031, ~~2012~~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~~March 3031, ~~2012~~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 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~~first quarter ~~2012~~2013 that has materially affected, or is reasonably likely to materially affect, Wachovia Funding’s internal control over financial reporting.

Financial Statements

Wachovia Preferred Funding Corp. and Subsidiaries

Consolidated Statement of Income (Unaudited)

	Quarter ended Sept. 30,			Nine months ended Sept.30,
	Quarter ended March 31,
(in thousands, except per share amounts)		~~2012~~2013	~~2011~~2012		~~2012~~	~~2011~~
Interest income	$	~~212~~200,~~806~~183	~~238~~216,~~146~~916		~~655,232~~	~~761,368~~
Interest expense		-353	-		-	-
Net interest income		~~212~~199,~~806~~830	~~238~~216,~~146~~916		~~655,232~~	~~761,368~~
Provision for credit losses		5713,~~228~~127	3051,~~280~~259		~~136,402~~	~~57,793~~
Net interest income after provision for credit losses		~~155~~186,~~578~~703	~~207~~165,~~866~~657		~~518,830~~	~~703,575~~
Noninterest income
Gain on interest rate swaps		-	1156		82	~~264~~
Loss on loan sales to affiliate		-	-		-	(128	)
Other		187	304
Other		572	314		1,333	847
Total noninterest income		187	360
Total noninterest income		572	325		1,415	983
Noninterest expense
Noninterest expense
Loan servicing costs		9,708	10,804
Loan servicing costs		10,332	11,602		31,880	36,756
Management fees		1,696	1,932
Management fees		1,985	1,636		5,837	4,806
Foreclosed assets		3,427	2,340
Foreclosed assets		4,069	1,521		8,740	6,343
Other		491	837
Other		639	550		2,433	2,410
Total noninterest expense		15,322	15,913
Total noninterest expense		17,025	15,309		48,890	50,315
Income before income tax expense		171,568	150,104
Income before income tax expense		139,125	192,882		471,355	654,243
Income tax expense		128	89
Income tax expense		135	34		363	192
Net income		171,440	150,015
Net income		138,990	192,848		470,992	654,051
Comprehensive income		171,440	150,015
Comprehensive income		138,990	192,848		470,992	654,051
Dividends on preferred stock		46,014	49,586
Dividends on preferred stock		48,010	45,198		145,744	137,151
Net income applicable to common stock	$	125,426	100,429
Net income applicable to common stock	$	90,980	147,650		325,248	516,900
Per common share information
Per common share information
Earnings per common share	$	1.25	1.00
Earnings per common share	$	0.91	1.48		3.25	5.17
Diluted earnings per common share		1.25	1.00
Diluted earnings per common share		0.91	1.48		3.25	5.17
Dividends declared per common share	$	2.05	1.50
Dividends declared per common share	$	1.67	1.66		4.70	5.58
Average common shares outstanding		99,999.9	99,999.9
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
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.

Financial Statements

Wachovia Preferred Funding Corp. and Subsidiaries

Consolidated Balance Sheet (Unaudited)

	September 30,			December 31,
	Mar. 31,			Dec. 31,
(in thousands, except shares)	~~2012~~	2013		~~2011~~	2012
Assets
Cash and cash equivalents	$	1918,~~530,309~~102			1642,~~186,165~~946
Loans, net of unearned income		12,~~032~~510,~~760~~908			1213,~~543~~550,~~776~~474
Allowance for loan losses		(~~278~~281,~~056~~548	)		(~~313~~309,~~762~~220	)
Net loans		1112,~~754~~229,~~704~~360			1213,~~230~~241,~~014~~254
Interest rate swaps, net		-			963
Accounts receivable - affiliates, net		116,653			131,216
Accounts receivable - affiliates, net		94,090			64,235
Other assets		51,013			53,369
Other assets		53,306			53,018
Total assets	$	13,315,128			14,068,785
Total assets	$	13,432,409			13,534,395
Liabilities
Dividends payable - affiliates	$	34,417			-
Lines of credit with Bank	$	27,152			745,016
Deferred income taxes		-			9,327
Dividends payable - affiliates		32,420			-
Other liabilities		4038,~~301~~259			2226,~~625~~898
Total liabilities		7497,~~718~~831			31771,~~952~~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
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		14,026,608			14,026,608
Retained earnings (deficit)		(~~670~~811,~~660~~054	)		(~~525~~731,~~908~~480	)
Total stockholders’ equity		13,~~357~~217,~~691~~297			13,~~502~~296,~~443~~871
Total liabilities and stockholders’ equity	$	13,~~432~~315,~~409~~128			1314,~~534~~068,~~395~~785

The accompanying notes are an integral part of these statements.

Financial Statements

Wachovia Preferred Funding Corp. and Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

(in thousands, except per share data)	Preferred stock	~~Preferredstock~~	Common stock	~~Commonstock~~	Additional paid-in capital	~~Additionalpaid-incapital~~		Retained earnings (deficit)	~~Retainedearnings(deficit)~~		Total stockholders’ equity	~~Totalstockholders’equity~~
Balance, December 31, 2010	$	743		1,000		18,526,608			(406,478	)		18,121,873
Net income		-		-		-			654,051			654,051
Cash dividends
Series A preferred securities at $1.36 per share		-		-		-			(40,781	)		(40,781	)
Series B preferred securities at $0.40 per share		-		-		-			(15,858	)		(15,858	)
Series C preferred securities at $19.01 per share		-		-		-			(80,473	)		(80,473	)
Series D preferred securities at $42.50 per share		-		-		-			(39	)		(39	)
Common stock at $5.58 per share		-		-		-			(558,000	)		(558,000	)
Common stock special capital distribution		-		-		(4,500,000	)		-			(4,500,000	)
Balance, September 30, 2011	$	743		1,000		14,026,608			(447,578	)		13,580,773
Balance, December 31, 2011	$	743		1,000		14,026,608			(525,908	)		13,502,443
Net income		-		-		-			~~470~~150,~~992~~015			~~470~~150,~~992~~015
Cash dividends
Series A preferred securities at $1.36 per share		-		-		-			(40,781	)		(40,781	)
Series A preferred securities at $0.45 per share		-		-		-			(13,594	)		(13,594	)
Series B preferred securities at $0.44 per share		-		-		-			(17,500	)		(17,500	)
Series B preferred securities at $0.15 per share		-		-		-			(6,028	)		(6,028	)
Series C preferred securities at $20.65 per share		-		-		-			(87,424	)		(87,424	)
Series C preferred securities at $7.08 per share		-		-		-			(29,964	)		(29,964	)
Series D preferred securities at $42.50 per share		-		-		-			(39	)		(39	)
Common stock at $1.50 per share		-		-		-			(150,000	)		(150,000	)
Common stock at $4.70 per share		-		-		-			(470,000	)		(470,000	)
Balance, March 31, 2012	$	743		1,000		14,026,608			(575,479	)		13,452,872
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		-		-		-			171,440			171,440
Cash dividends
Series A preferred securities at $0.45 per share		-		-		-			(13,594	)		(13,594	)
Series B preferred securities at $0.13 per share		-		-		-			(5,345	)		(5,345	)
Series C preferred securities at $6.40 per share		-		-		-			(27,075	)		(27,075	)
Common stock at $2.05 per share		-		-		-			(205,000	)		(205,000	)
Balance, March 31, 2013	$	743		1,000		14,026,608			(811,054	)		13,217,297

The accompanying notes are an integral part of these statements.

Financial Statements

Wachovia Preferred Funding Corp. and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)

	Nine months ended September 30,
	Quarter ended March 31,
(in thousands)	~~2012~~	2013		~~2011~~	2012
Cash flows from operating activities:
Net income	$	~~470~~171,~~992~~440			~~654~~150,~~051~~015
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of discounts on loans		(~~107~~20,~~916~~150	)		(~~153~~34,~~970~~674	)
Provision for credit losses		~~136~~13,~~402~~127			5751,~~793~~259
Deferred income tax benefits		~~(9,327~~-	)		(154,~~493~~879	)
Other operating activities, net		(63,~~328~~224	)		61,~~304~~119
Net cash provided by operating activities		~~483~~167,~~823~~641			~~548~~162,~~685~~840
Cash flows from investing activities:
Increase (decrease) in cash realized from
Increase (decrease) in cash realized from:
Loans:
Purchases		~~(2,045,150~~-	)		-(943,508	)
Proceeds from payments and sales		21,~~472~~030,~~139~~379			2843,~~992,754~~563
Interest rate swaps		35,326			36,360
Net cash provided (used) by investing activities		1,030,379			(99,945	)
Net cash provided by investing activities		462,315			3,029,114
Cash flows from financing activities:
Decrease in cash realized from
Increase (decrease) in cash realized from:
Collateral held on interest rate swaps		(34,260	)		(35,184	)
Draws on line of credit with Bank		27,848			-
Common stock special capital distributions		-			(4,500,000	)
Repayments of line of credit with Bank		(745,712	)		-
Cash dividends paid		(~~567~~205,~~734~~000	)		(~~695~~13,~~151~~594	)
Net cash used by financing activities		(~~601~~922,~~994~~864	)		(513,~~230,335~~594	)
Net change in cash and cash equivalents		~~344~~275,~~144~~156			(149,~~652,536~~301	)
Cash and cash equivalents at beginning of period		1642,~~186,165~~946			21,~~774~~186,~~299~~165
Cash and cash equivalents at end of period	$	1918,~~530,309~~102			1,~~121~~235,~~763~~466
Supplemental cash flow disclosures:
Cash paid for income taxes	$	~~10,500~~-			145,~~000~~500
Change in non cash items:
Transfers from loans to foreclosed assets		163,~~350~~591			124,~~361~~897

The accompanying notes are an integral part of these statements.

Note 1: Summary of Significant Accounting Policies

Wachovia Preferred Funding Corp. (Wachovia Funding, we or us) is a direct subsidiary of Wachovia Preferred ~~Funding~~ 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~~ income tax purposes.

The accounting and reporting policies of Wachovia Funding are in accordance with U.S. generally ~~accepted~~ accepted accounting principles (GAAP). Our significant accounting policies are discussed in our Form 10-K for the year ended December 31, ~~2011~~2012 (~~2011~~2012 Form 10-K). 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 and 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~~ 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 ~~2011~~2012 Form 10-K.

Accounting Standards Adopted in 2012

In first quarter 2012, we adopted Accounting Standards Update (ASU or Update) ASU 2011-4, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.

ASU 2011-04 modifies accounting guidance and expands existing disclosure requirements for fair value measurements. This Update clarifies how fair values should be measured for instruments classified in stockholders’ equity and under what circumstances premiums and discounts should be applied in fair value measurements. This Update also permits entities to measure fair value on a net basis for financial instruments that are managed based on net exposure to market risks and/or counterparty credit risk. ASU 2011-04 requires new disclosures for financial instruments classified as Level 3, including: 1) quantitative information about unobservable inputs used in measuring fair value, 2) qualitative discussion of the sensitivity of fair value measurements to changes in unobservable inputs, and 3) a description of valuation processes used. This Update also requires disclosure of fair value levels for financial instruments that are not recorded at fair value but for which fair

value is required to be disclosed. We adopted this guidance in first quarter 2012 with prospective application, resulting in expanded fair value disclosures. The measurement clarifications of this Update did not have a material effect on our consolidated financial statements.

Significant Accounting Policy Update

In first quarter 2012, we implemented the Interagency Supervisory Guidance on Allowance for Loan and Lease Losses Estimation Practices for Loans and Lines of Credit Secured by Junior Liens on 1-4 Family Residential Properties (Interagency Guidance), which was issued on January 31, 2012. As a result, we aligned our nonaccrual accounting policy with this guidance to accelerate the timing of placing junior lien loans on nonaccrual to coincide with the timing of placing the related real estate 1-4 family first mortgage loans on nonaccrual.

We implemented the guidance in the Office of the Comptroller of the Currency (OCC) update to Bank Accounting Advisory Series (OCC guidance) issued in third quarter 2012, which requires consumer loans discharged in bankruptcy to be written down to net realizable collateral value and classified as nonaccrual troubled debt restructurings (TDRs), regardless of their delinquency status.

Our updated nonaccrual policy is as follows:

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; or

• effective first quarter 2012, 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.

There have been no other material changes to our significant accounting policies, as discussed in Note 1 in our 2011 Form 10-K.

Subsequent Events

We have evaluated the effects of ~~subsequent~~ events that have occurred subsequent to period end ~~September~~March 3031, ~~2012~~2013, and there have been no material events that would require recognition in our ~~third~~first quarter ~~2012~~2013 consolidated financial statements or disclosure in the Notes to the financial statements. ~~During the last week of October 2012, Hurricane Sandy and related storms caused destruction~~ along the East Coast, including in Connecticut, New Jersey, New York, Pennsylvania, Delaware, Maryland, Virginia and Washington D.C., and resulted in, among other things, property damage for our customers and the closing of many businesses and financial markets. We are currently assessing the impact to our customers and our business as a result of Hurricane Sandy. The financial

impact to us is expected to primarily relate to our consumer and commercial real estate loan portfolios and will depend on a number of factors, including, as to our consumer and commercial loan portfolios, the types of loans most affected by the storms, the extent of damage to our collateral, the extent of available insurance coverage, the availability of government assistance for our borrowers, and whether our borrowers’ ability to repay their loans has been diminished. We are actively reviewing our exposure but are currently unable to reasonably estimate the extent of losses we may incur as a result of these storms.

Note 2: Loans and Allowance for Credit Losses

Wachovia Funding ~~obtains~~acquires participation interests in loans originated or purchased by the Bank. In order 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 Florida, New Jersey, Pennsylvania, North Carolina and ~~Virginia~~California. These markets include

approximately 5652% of Wachovia Funding’s total loan ~~balance~~portfolio at ~~September~~March 3031, ~~2012~~2013.

The following table presents total loans outstanding by ~~segments~~portfolio segment and ~~classes~~class of financing receivable. Outstanding balances include a total net reduction ~~for unearned discounts~~ of $~~500~~441.52 million and $~~604~~472.49 million at ~~September~~ March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, respectively., for unearned income, net deferred loan fees, and unamortized discounts and premiums.

(in thousands)	~~September~~March 3031,~~2012~~ 2013		December 31,~~2011~~ 2012
Commercial:
Commercial and industrial	$	~~176~~83,~~086~~456		~~287~~99,~~174~~207
Real estate mortgage		1,523,040		1,015,087
Secured by real estate		2,333,974		2,534,064
Real estate construction		28,058		45,887
Total commercial		2,417,430		2,633,271
Total commercial		1,727,184		1,348,148
Consumer:
Real estate 1-4 family first mortgage		7,~~341~~484,~~748~~604		78,~~945~~137,~~746~~597
Real estate 1-4 family junior lien mortgage		2,~~963~~608,~~828~~874		32,~~249~~779,~~882~~606
Total consumer		10,~~305~~093,~~576~~478		1110,~~195~~917,~~628~~203
Total loans	$	12,~~032~~510,~~760~~908		1213,~~543~~550,~~776~~474

The following table summarizes the proceeds paid (including accrued interest receivable of $12.09 million ~~and $5.1 million~~ in ~~the third quarter and~~ first ~~nine months of 2012,~~

~~respectively~~quarter 2012) or received from the Bank for purchases and sales of loans, respectively.

	2012									2011
	2013									2012
(in thousands)	Commercial			Consumer			Total			Commercial			Consumer			Total
Quarter ended September 30,
Quarter ended March 31,
Purchases	$	~~751,764~~-			-			~~751,764~~-			-			-943,508			-943,508
Sales		-			(195,~~641~~573	)		(195,~~641~~573	)		(86900	)		(16,~~727~~312	)		(1617,~~813~~212	)
Nine months ended September 30,
Purchases	$	751,764			1,293,386			2,045,150			-			-			-
Sales		(900	)		(47,706	)		(48,606	)		(1,005	)		(67,721	)		(68,726	)

Commitments to Lend

The contract or notional amount of commercial loan commitments to extend credit at ~~September~~March 3031, ~~2012 and~~2013 and December 31, ~~2011~~2012 was $~~499~~371.81 million and $~~329~~312.65 million, respectively.

3130

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 endedSeptember 30,					Nine months endedSeptember 30,
	Quarter ended March 31,
(in thousands)		~~2012~~2013		~~2011~~2012			~~2012~~		~~2011~~
Balance, beginning of period	$	293,038		311,714			313,928		403,555
Balance, beginning of quarter	$	309,604		313,928
Provision (reversal of provision) for credit losses		57,228		30,280			136,402		57,793
Provision for credit losses		13,127		51,259
Interest income on certain impaired loans (1)		(12,~~828~~091	)	(1,~~888~~901	)		~~(5,592~~	)	~~(4,424~~	)
Loan charge-offs:
Commercial:
Commercial and industrial		-		-			-		-
Real estate mortgage		(1,432	)	(88	)		(1,697	)	(224	)
Secured by real estate		(253	)	(252	)
Real estate construction		(29	)	(3	)		(209	)	(212	)
Total commercial		(253	)	(252	)
Total commercial		(1,461	)	(91	)		(1,906	)	(436	)
Consumer:
Consumer:
Real estate 1-4 family first mortgage		(17,825	)	(23,324	)
Real estate 1-4 family first mortgage		(18,322	)	(17,525	)		(56,814	)	(60,804	)
Real estate 1-4 family junior lien mortgage		(24,127	)	(32,422	)
Real estate 1-4 family junior lien mortgage		(52,501	)	(33,350	)		(116,372	)	(112,117	)
Total consumer		(41,952	)	(55,746	)
Total consumer (2)		(70,823	)	(50,875	)		(173,186	)	(172,921	)
Total loan charge-offs		(42,205	)	(55,998	)
Total loan charge-offs		(72,284	)	(50,966	)		(175,092	)	(173,357	)
Loan recoveries:
Loan recoveries:
Commercial:
Commercial:
Commercial and industrial		-		-
Commercial and industrial		-		-			-		166
Secured by real estate		16		4
Real estate mortgage		-		1			4		106
Total commercial		16		4
Real estate construction		-		5			6		5
Consumer:
Total commercial		-		6			10		277
Real estate 1-4 family first mortgage		817		459
Consumer:
Real estate 1-4 family junior lien mortgage		2,788		2,362
Real estate 1-4 family first mortgage		531		1,201			1,831		2,239
Total consumer		3,605		2,821
Real estate 1-4 family junior lien mortgage		1,953		2,566			7,151		6,830
Total loan recoveries		3,621		2,825
Total consumer		2,484		3,767			8,982		9,069
Net loan charge-offs		(38,584	)	(53,173	)
Total loan recoveries		2,484		3,773			8,992		9,346
Balance, end of quarter	$	282,056		310,113
Net loan charge-offs		(69,800	)	(47,193	)		(166,100	)	(164,011	)
Components:
Balance, end of period	$	278,638		292,913			278,638		292,913
Allowance for loan losses	$	281,548		309,913
Components:
Allowance for unfunded credit commitments		508		200
Allowance for loan losses	$	278,056		292,746			278,056		292,746
Allowance for credit losses	$	282,056		310,113
Allowance for unfunded credit commitments		582		167			582		167
Net loan charge-offs (annualized) as a percentage of average total loans		1.20	%	1.74
Allowance for credit losses	$	278,638		292,913			278,638		292,913
Allowance for loan losses as a percentage of total loans		2.25		2.45
Net loan charge-offs (annualized) as a percentage of average total loans (2)		2.30	%	1.42			1.82		1.57
Allowance for credit losses as a percentage of total loans		2.25		2.45
Allowance for loan losses as a percentage of total loans		2.31		2.29			2.31		2.29
Allowance for credit losses as a percentage of total loans		2.32		2.30			2.32		2.30

(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.

~~(2)~~31 Quarter and nine months ended September 30, 2012, include $28.6 million 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.

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

		2012									2011
		Quarter ended March 31,
		2013									2012
(in thousands)		Commercial			Consumer			Total			Commercial			Consumer			Total
Quarter ended September 30,
Balance, beginning of quarter	$		26,046			283,558			309,604			23,091			290,837			313,928
Balance, beginning of period	$		21,257			271,781			293,038			27,347			284,367			311,714
Provision (reversal of provision) for credit losses			(3,956	)		17,083			13,127			(2,886	)		54,145			51,259
Provision (reversal of provision) for credit losses			4,922			52,306			57,228			(3,457	)		33,737			30,280
Interest income on certain impaired loans			-			(2,091	)		(2,091	)		-			(1,901	)		(1,901	)
Interest income on certain impaired loans			-			(1,828	)		(1,828	)		-			(1,888	)		(1,888	)
Loan charge-offs			(253	)		(41,952	)		(42,205	)		(252	)		(55,746	)		(55,998	)
Loan charge-offs			(1,461	)		(70,823	)		(72,284	)		(91	)		(50,875	)		(50,966	)
Loan recoveries			16			3,605			3,621			4			2,821			2,825
Loan recoveries			-			2,484			2,484			6			3,767			3,773
Net loan charge-offs			(237	)		(38,347	)		(38,584	)		(248	)		(52,925	)		(53,173	)
Net loan charge-offs			(1,461	)		(68,339	)		(69,800	)		(85	)		(47,108	)		(47,193	)
Balance, end of quarter	$		21,853			260,203			282,056			19,957			290,156			310,113
Balance, end of period	$		24,718			253,920			278,638			23,805			269,108			292,913
Nine months ended September 30,
Balance, beginning of period	$		23,091			290,837			313,928			26,413			377,142			403,555
Provision (reversal of provision) for credit losses			3,523			132,879			136,402			(2,449	)		60,242			57,793
Interest income on certain impaired loans			-			(5,592	)		(5,592	)		-			(4,424	)		(4,424	)
Loan charge-offs			(1,906	)		(173,186	)		(175,092	)		(436	)		(172,921	)		(173,357	)
Loan recoveries			10			8,982			8,992			277			9,069			9,346
Net loan charge-offs			(1,896	)		(164,204	)		(166,100	)		(159	)		(163,852	)		(164,011	)
Balance, end of period	$		24,718			253,920			278,638			23,805			269,108			292,913

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, 2012

March 31, 2013

Collectively evaluated (1)

1416,~~458~~031

~~153~~149,~~494~~999

~~167~~166,~~952~~030

12,~~697~~398,~~642~~544

9,~~776~~520,~~293~~571

11,~~473~~919,~~935~~115

Individually evaluated (2)

105,~~232~~822

~~100~~110,~~426~~204

~~110~~116,~~658~~026

2313,~~079~~706

~~479~~527,~~437~~168

~~502~~540,~~516~~874

Purchased credit-impaired (PCI) (3)

28-

65,~~463~~180

4945,~~846~~739

5650,~~309~~919

Total

2421,~~718~~853

~~253~~260,~~920~~203

~~278~~282,~~638~~056

12,~~727~~417,~~184~~430

10,~~305~~093,~~576~~478

12,~~032~~510,~~760~~908

December 31, 2011

December 31, 2012

Collectively evaluated (1)

1216,~~487~~219

~~188~~181,~~604~~107

~~201~~197,~~091~~326

12,~~320~~611,~~845~~746

10,~~815~~368,~~112~~082

12,~~135~~979,~~957~~828

Individually evaluated (2)

109,~~436~~827

102,~~233~~451

112,~~669~~278

2015,~~198~~434

~~324~~500,~~605~~852

~~344~~516,~~803~~286

PCI (3)

~~168~~-

76,~~105~~091

5548,~~911~~269

6354,~~016~~360

Total

2326,~~091~~046

~~290~~283,~~837~~558

~~313~~309,~~928~~604

12,~~348~~633,~~148~~271

1110,~~195~~917,~~628~~203

1213,~~543~~550,~~776~~474

(1)	Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies (formerly FAS 5), and pursuant to amendments by 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 SOP 03-3) and pursuant to amendments by ASU 2010-20 regarding allowance for PCI loans.

3332

Credit Quality

We monitor credit quality ~~as indicated~~ by evaluating various attributes and ~~utilize~~use such information in our evaluation of the ~~adequacy~~appropriateness of the allowance for credit losses. The following sections provide the credit quality indicators we most closely monitor. The majority of credit quality indicators are based on ~~September 30~~March 31, ~~2012~~2013, information, 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~~December 3031, 2012.

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)

~~Commercialandindustrial~~Commercial and industrial

~~Real~~Secured ~~estatemortgage~~by real estate

~~Real estateconstruction~~Total

~~Total~~

September 30, 2012

March 31, 2013

By risk category:

Pass

~~175~~83,~~247~~456

12,~~396~~225,~~937~~922

192,~~286~~309,378

~~1,591,470~~

Criticized

~~839~~-

~~126~~108,~~103~~052

8108,~~772~~052

~~135,714~~

Total commercial loans

~~176~~83,~~086~~456

12,~~523~~333,~~040~~974

282,~~058~~417,430

~~1,727,184~~

December 31, 2011

December 31, 2012

By risk category:

Pass

~~286~~98,~~228~~395

~~852~~2,~~464~~412,569

352,~~705~~510,964

~~1,174,397~~

Criticized

~~946~~812

~~162~~121,~~623~~495

10122,~~182~~307

~~173,751~~

Total commercial loans

~~287~~99,~~174~~207

12,~~015~~534,~~087~~064

452,~~887~~633,271

~~1,348,148~~

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)

~~Commercialandindustrial~~Commercial and industrial

~~Real~~Secured ~~estatemortgage~~by real estate

~~Real estateconstruction~~Total

~~Total~~

September 30, 2012

March 31, 2013

By delinquency status:

Current-29 days past due (DPD) and still accruing

~~176~~83,~~086~~456

12,~~495~~304,~~817~~546

272,~~989~~388,002

~~1,699,892~~

30-89 DPD and still accruing

310,~~169~~572

6910,572

~~3,238~~

90+ DPD and still accruing

Nonaccrual loans

2418,~~054~~856

-18,856

~~24,054~~

Total commercial loans

~~176~~83,~~086~~456

12,~~523~~333,~~040~~974

282,~~058~~417,430

~~1,727,184~~

December 31, 2011

December 31, 2012

By delinquency status:

Current-29 DPD and still accruing

~~282~~99,~~703~~207

~~943~~2,~~712~~512,524

452,~~636~~611,731

~~1,272,051~~

30-89 DPD and still accruing

~~4,471~~-

~~48,320~~815

-815

~~52,791~~

90+ DPD and still accruing

14,~~923~~455

-4,455

~~1,923~~

Nonaccrual loans

2116,~~132~~270

~~251~~16,270

~~21,383~~

Total commercial loans

~~287~~99,~~174~~207

12,~~015~~534,~~087~~064

452,~~887~~633,271

~~1,348,148~~

3433

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 ~~adequacy~~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 ~~estate1~~estate 1-4 ~~familyjunior~~family ~~lienmortgage~~junior lien mortgage

Total

September 30, 2012

March 31, 2013

By delinquency status:

Current - 29 DPD

7,~~039~~174,~~638~~778

2,~~845~~504,~~315~~651

9,~~884~~679,~~953~~429

30-59 DPD

7876,~~414~~263

4034,~~455~~525

~~118~~110,~~869~~788

60-89 DPD

3935,~~906~~191

2215,~~131~~159

6250,~~037~~350

90-119 DPD

2227,~~700~~509

1513,~~929~~277

3840,~~629~~786

120-179 DPD

4034,~~091~~560

1917,~~779~~238

5951,~~870~~798

180+ DPD

~~137~~146,~~114~~462

2225,~~998~~145

~~160~~171,~~112~~607

Remaining PCI accounting adjustments

(1610,~~115~~159

)

(21,~~779~~121

)

(1811,~~894~~280

)

Total consumer loans

7,~~341~~484,~~748~~604

2,~~963~~608,~~828~~874

10,~~305~~093,~~576~~478

December 31, 2011

December 31, 2012

By delinquency status:

Current - 29 DPD

7,~~645~~828,~~674~~564

32,~~098~~661,~~012~~528

10,~~743~~490,~~686~~092

30-59 DPD

8071,~~409~~969

4836,~~886~~427

~~129~~108,~~295~~396

60-89 DPD

4240,~~387~~411

2722,~~824~~331

7062,~~211~~742

90-119 DPD

3429,~~471~~805

2114,~~434~~476

5544,~~905~~281

120-179 DPD

3930,~~314~~645

2822,~~939~~085

6852,~~253~~730

180+ DPD

~~120~~146,~~819~~293

2823,~~874~~517

~~149~~169,~~693~~810

Remaining PCI accounting adjustments

(1710,~~328~~090

)

(~~4,087~~758

)

(2110,~~415~~848

)

Total consumer loans

78,~~945~~137,~~746~~597

32,~~249~~779,~~882~~606

1110,~~195~~917,~~628~~203

3534

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 ~~estate1~~estate 1-4 ~~familyjunior~~family ~~lienmortgage~~junior lien mortgage

Total

September 30, 2012

March 31, 2013

By updated FICO:

< 600

~~495~~494,~~671~~126

~~319~~299,~~975~~074

~~815~~793,~~646~~200

600-639

~~332~~324,~~944~~735

~~178~~171,~~179~~137

~~511~~495,~~123~~872

640-679

~~604~~601,~~022~~789

~~310~~286,~~619~~535

~~914~~888,~~641~~324

680-719

1,~~111~~130,~~650~~793

~~485~~426,~~629~~368

1,~~597~~557,~~279~~161

720-759

1,~~500~~493,~~908~~578

~~620~~541,~~268~~357

2,~~121~~034,~~176~~935

760-799

2,~~005~~156,~~054~~367

~~680~~581,~~549~~719

2,~~685~~738,~~603~~086

800+

1,~~137~~160,~~193~~326

~~350~~288,~~960~~385

1,~~488~~448,~~153~~711

No FICO available

~~170~~133,~~421~~049

2015,~~428~~420

~~190~~148,~~849~~469

Remaining PCI accounting adjustments

(1610,~~115~~159

)

(21,~~779~~121

)

(1811,~~894~~280

)

Total consumer loans

7,~~341~~484,~~748~~604

2,~~963~~608,~~828~~874

10,~~305~~093,~~576~~478

December 31, 2011

December 31, 2012

By updated FICO:

< 600

~~537~~491,~~949~~057

~~387~~313,~~232~~648

~~925~~804,~~181~~705

600-639

~~321~~325,~~284~~524

~~195~~173,~~122~~130

~~516~~498,~~406~~654

640-679

~~572~~611,~~899~~895

~~331~~302,~~988~~895

~~904~~914,~~887~~790

680-719

1,~~128~~221,~~538~~513

~~514~~452,~~089~~768

1,~~642~~674,~~627~~281

720-759

1,~~542~~630,~~772~~309

~~634~~575,~~491~~418

2,~~177~~205,~~263~~727

760-799

2,~~324~~446,~~799~~778

~~757~~636,~~186~~079

3,~~081~~082,~~985~~857

800+

1,~~338~~271,~~881~~774

~~384~~310,~~579~~009

1,~~723~~581,~~460~~783

No FICO available

~~195~~148,~~952~~837

4916,~~282~~417

~~245~~165,~~234~~254

Remaining PCI accounting adjustments

(1710,~~328~~090

)

(~~4,087~~758

)

(2110,~~415~~848

)

Total consumer loans

78,~~945~~137,~~746~~597

32,~~249~~779,~~882~~606

1110,~~195~~917,~~628~~203

3635

LTV refers to the ratio comparing the loan’s ~~balance~~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. ~~The~~In recent years, the residential real estate markets ~~remain~~experienced ~~weak~~significant declines in property values and ~~continue~~several tomarkets, ~~experience~~particularly ~~declines~~California inand ~~property~~Florida, experienced ~~values~~more insignificant ~~some~~declines ~~states~~than the national decline. These trends are considered in the way that 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 ~~estate1~~estate 1-4 ~~familyfirst~~family ~~mortgageby~~first mortgage by LTV

Real ~~estate1~~estate 1-4 ~~familyjunior~~family ~~lienmortgageby~~junior lien mortgage by CLTV

Total

September 30, 2012

March 31, 2013

By LTV/CLTV:

0-60%

3,~~302~~097,~~435~~387

~~626~~549,~~910~~840

3,~~929~~647,~~345~~227

60.01-80%

2,~~108~~448,~~200~~313

~~632~~546,~~027~~943

2,~~740~~995,~~227~~256

80.01-100%

1,~~190~~239,~~023~~279

~~708~~610,~~217~~719

1,~~898~~849,~~240~~998

100.01-120% (1)

~~447~~442,~~775~~596

~~532~~492,~~884~~453

~~980~~935,~~659~~049

> 120% (1)

~~247~~208,~~414~~251

~~462~~406,~~850~~995

~~710~~615,~~264~~246

No LTV/CLTV available

6258,~~016~~937

3,~~719~~045

6561,~~735~~982

Remaining PCI accounting adjustments

(1610,~~115~~159

)

(21,~~779~~121

)

(1811,~~894~~280

)

Total consumer loans

7,~~341~~484,~~748~~604

2,~~963~~608,~~828~~874

10,~~305~~093,~~576~~478

December 31, 2011

December 31, 2012

By LTV/CLTV:

0-60%

3,~~764~~420,~~740~~971

~~676~~579,~~585~~292

4,~~441~~000,~~325~~263

60.01-80%

2,~~273~~642,~~111~~888

~~599~~591,~~394~~307

23,~~872~~234,~~505~~195

80.01-100%

1,~~098~~338,~~818~~223

~~812~~639,~~647~~891

1,~~911~~978,~~465~~114

100.01-120% (1)

~~473~~441,~~691~~791

~~614~~498,~~633~~614

1940,~~088,324~~405

> 120% (1)

~~303~~244,~~808~~398

~~545~~434,~~323~~238

~~849~~678,~~131~~636

No LTV/CLTV available

4859,~~906~~416

537,~~387~~022

5496,~~293~~438

Remaining PCI accounting adjustments

(1710,~~328~~090

)

(~~4,087~~758

)

(2110,~~415~~848

)

Total consumer loans

78,~~945~~137,~~746~~597

32,~~249~~779,~~882~~606

1110,~~195~~917,~~628~~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.

3736

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~~Mar. 3031,~~2012~~ 2013		Dec. 31,~~2011~~ 2012
Commercial:
Commercial and industrial	$	-		-
Real estate mortgage		24,054		21,132
Secured by real estate		18,856		16,270
Real estate construction		-		251
Total commercial		18,856		16,270
Total commercial		24,054		21,383
Consumer:
Real estate 1-4 family first mortgage		~~313~~320,~~389~~508		~~228~~306,~~363~~922
Real estate 1-4 family junior lien mortgage (1)		142,896		99,347
Real estate 1-4 family junior lien mortgage		120,276		129,251
Total consumer (2)		456,285		327,710
Total consumer		440,784		436,173
Total nonaccrual loans
(excluding PCI)	$	~~480~~459,~~339~~640		~~349~~452,~~093~~443

~~(1)~~LOANS ~~The~~90 ~~balance~~DAYS atOR ~~September~~MORE 30PAST DUE AND STILL ACCRUING Certain loans 90 days or more past due as to interest or principal are still accruing, ~~2012~~because ~~reflects~~they ~~the~~are ~~impact~~(1) well-secured ~~from~~and in the ~~transfer~~process of collection or (2) real estate 1-4 family ~~junior~~mortgage ~~lien~~loans ~~mortgages~~exempt tounder regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans inof ~~accordance~~$6.8 ~~with~~million ~~the~~at ~~Interagency~~March 31, ~~Guidance~~2013, ~~issued~~and on$7.0 million ~~January~~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 due to the existence of the accretable yield and not based on consideration given to contractual interest payments.

(2) Includes $87.7 million at September 30, 2012, consisting of $69.3 million of first mortgages and $18.4 million of junior liens, 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.

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

(in thousands)	~~Sept~~Mar. ~~30,2012~~312013		Dec. ~~31,2011~~312012
Commercial:
Commercial and industrial	$	-		-
Real estate mortgage		-		1,596
Secured by real estate		-		4,455
Real estate construction		-		-
Total commercial		-		4,455
Total commercial		-		1,596
Consumer:
Real estate 1-4 family first mortgage		1418,~~502~~665		2118,~~008~~382
Real estate 1-4 family junior lien mortgage (1)		7,813		15,492
Real estate 1-4 family junior lien mortgage		5,354		6,940
Total consumer		2224,~~315~~019		3625,~~500~~322
Total past due (excluding PCI)	$	2224,~~315~~019		3829,~~096~~777

~~(1)~~37 ~~The balance at September 30, 2012 reflects the impact from the transfer of 1-4 family junior lien mortgages to nonaccrual loans in accordance with the Interagency Guidance issued on January 31, 2012.~~

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. Impaired loans exclude PCI loans. The table below includes trial modifications that totaled $21.7 million at March 31, 2013, and $20.2 million at December 31, 2012.



			Recorded investment
(in thousands)	Unpaid principal balance		Impaired loans		Impaired loans with related allowance for credit losses		Related allowance for credit losses

March 31, 2013

Commercial:
Commercial and industrial	$	-		-		-		-
Secured by real estate		21,411		13,706		13,706		5,822

Total commercial		21,411		13,706		13,706		5,822

Consumer:
Real estate 1-4 family first mortgage		467,122		383,072		295,163		58,472
Real estate 1-4 family junior lien mortgage		160,636		144,095		122,791		51,731

Total consumer		627,758		527,167		417,954		110,203

Total impaired loans (excluding PCI)	$	649,169		540,873		431,660		116,025

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

~~IMPAIRED LOANS~~ The following table ~~below~~provides ~~summarizes~~the ~~key information~~average ~~for~~recorded ~~impaired~~investment ~~loans.~~in ~~Our~~ impaired loans ~~predominately~~and ~~include loans on nonaccrual status in~~ the amount ~~commercial~~of ~~portfolio~~interest ~~segment~~income ~~and~~recognized ~~loans modified in a TDR, whether~~ on ~~accrual or nonaccrual status. These~~ impaired loans ~~may~~by ~~have~~portfolio ~~estimated loss~~segment ~~which~~and ~~is included in the allowance for credit losses~~class. ~~Impaired loans exclude PCI loans.~~

Based on clarifying guidance from the Securities and Exchange Commission (SEC) received in December 2011, we now classify trial modifications as TDRs at the beginning of the trial period. The table below includes trial modifications that totaled $22.3 million at September 30, 2012 and $21.4 million at December 31, 2011.



	Quarter ended March 31,
	2013				2012
(in thousands)	Average recorded investment		Recognized interest income		Average recorded investment		Recognized interest income
Commercial:
Commercial and industrial	$	-		-		-		-
Secured by real estate		14,330		212		18,953		47
Total commercial		14,330		212		18,953		47
Consumer:
Real estate 1-4 family first mortgage		368,436		6,587		203,327		2,809
Real estate 1-4 family junior lien mortgage		139,787		2,911		113,176		1,644

Total consumer (1)		508,223		9,498		316,503		4,453

Total impaired loans	$	522,553		9,710		335,456		4,500

Interest income:
Cash basis of accounting			$	4,331				59
Other (2)				5,379				4,441

Total interest income			$	9,710				4,500

			Recorded investment
(in thousands)	Unpaidprincipalbalance		Impairedloans (1)		Impaired loanswith relatedallowance forcredit losses		Relatedallowance forcredit losses
September 30, 2012
Commercial:
Commercial and industrial	$	-		-		-		-
Real estate mortgage		26,905		23,079		23,079		10,232
Real estate construction		-		-		-		-
Total commercial		26,905		23,079		23,079		10,232
Consumer:
Real estate 1-4 family first mortgage		406,108		337,323		245,803		48,544
Real estate 1-4 family junior lien mortgage		183,072		142,114		113,450		51,882
Total consumer		589,180		479,437		359,253		100,426
Total impaired loans (excluding PCI)	$	616,085		502,516		382,332		110,658
December 31, 2011
Commercial:
Commercial and industrial	$	-		-		-		-
Real estate mortgage		25,684		19,947		19,947		10,330
Real estate construction		264		251		251		106
Total commercial		25,948		20,198		20,198		10,436
Consumer:
Real estate 1-4 family first mortgage		245,837		207,447		207,447		50,853
Real estate 1-4 family junior lien mortgage		124,974		117,158		117,158		51,380
Total consumer		370,811		324,605		324,605		102,233
Total impaired loans (excluding PCI)	$	396,759		344,803		344,803		112,669

(1)	Quarter ended March 31, 2013, reflects 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.

(12) ~~The~~Includes ~~recorded~~interest ~~investment~~recognized ofon ~~impaired~~accruing ~~loans~~TDRs ~~balance~~and atinterest ~~September~~recognized ~~30,~~related ~~2012,~~to ~~includes~~the ~~$120.7~~passage ~~million~~ of ~~consumer~~time ~~loans,~~on ~~consisting~~certain ofimpaired ~~$91~~loans.8 ~~million~~See offootnote ~~first~~1 ~~mortgages~~to ~~and $28.9 million of junior liens, resulting from~~ the ~~implementation~~table of ~~OCC~~changes ~~guidance issued~~ in ~~third~~the ~~quarter~~allowance ~~2012,~~for ~~which~~credit ~~requires loans discharged in bankruptcy to be written down to net realizable collateral value and classified as TDRs~~losses.

~~The~~TROUBLED ~~following~~DEBT ~~table~~RESTUCTURINGS ~~provides~~(TDRs) ~~the~~When, for ~~average~~economic ~~recorded~~or ~~investment~~legal inreasons ~~impaired~~related ~~loans~~to ~~and~~a ~~the amount~~borrower’s financial difficulties, we grant a concession for other than an insignificant period of ~~interest~~time ~~income~~to ~~recognized~~a onborrower ~~impaired~~that we would not otherwise consider, the related loan is classified as a TDR. We do not consider any loans ~~after~~modified ~~impairment~~through bya ~~portfolio~~loan ~~segment~~resolution ~~and~~such ~~class~~as foreclosure or short sale to be a TDR.

	Quarter ended September 30,								Nine months ended September 30,
	2012				2011				2012				2011
(in thousands)	Averagerecordedinvestment		Recognizedinterestincome		Averagerecorded investment		Recognizedinterestincome		Averagerecordedinvestment		Recognizedinterestincome		Averagerecordedinvestment		Recognizedinterestincome
Commercial:
Commercial and industrial	$	-		-		-		-		-		-		92		-
Real estate mortgage		22,553		-		22,026		8		19,085		52		21,835		17
Real estate construction		-		-		529		-		16		-		480		4
Total commercial		22,553		-		22,555		8		19,101		52		22,407		21
Consumer:
Real estate 1-4 family first mortgage		221,919		3,298		177,942		2,654		224,880		9,497		154,633		6,296
Real estate 1-4 family junior lien mortgage		115,363		1,160		114,371		1,424		115,259		4,438		101,680		3,715
Total consumer		337,282		4,458		292,313		4,078		340,139		13,935		256,313		10,011
Total impaired loans	$	359,835		4,458		314,868		4,086		359,240		13,987		278,720		10,032
Interest income:
Cash basis of accounting			$	1,230				231				1,691				757
Other (1)				3,228				3,855				12,296				9,275
Total interest income			$	4,458				4,086				13,987				10,032

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 March 31, 2013, the loans in trial modification period were $8.7 million under HAMP, $2.1) ~~Includes~~million under ~~interest~~2MP ~~recognized~~and on$10.9 ~~accruing~~million ~~TDRs~~under proprietary programs, compared with $8.8 million, $2.2 million and ~~interest~~$9.2 ~~recognized~~million ~~related~~at toDecember 31, ~~the~~2012, ~~passage~~respectively. Trial modifications with a recorded investment of ~~time~~$9.8 onmillion ~~certain~~at ~~impaired~~March 31, 2013, and $9.2 million at December 31, 2012, were accruing loans and $11.9 ~~See~~million ~~footnote~~and 1$11.0 tomillion, ~~the~~respectively, ~~table~~were nonaccruing loans. Our recent experience is that most of ~~changes~~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. As previously discussed, our allowance ~~for~~process considers the impact of those modifications that are probable to occur including the associated credit ~~losses~~cost and related re-default risk.

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 may be modified more than once, the table reflects each modification.

TROUBLED DEBT RESRTUCTURINGS (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.


	Primary modification type (1)								Financial effects of modifications
(in thousands)	Principal (2)		Interest rate reduction		Other interest rate concessions (3)		Total		Charge- offs (4)		Weighted average interest rate reduction			Recorded investment related to interest rate reduction (5)

Quarter ended March 31, 2013

Commercial:
Commercial and industrial	$	-		-		-		-		-		-	%	$	-
Secured by real estate		-		161		206		367		-		0.80			161

Total commercial		-		161		206		367		-		0.80			161

Consumer:
Real estate 1-4 family first mortgage		5,783		10,370		32,565		48,718		2,311		3.22			14,524
Real estate 1-4 family junior lien mortgage		1,654		3,543		19,000		24,197		586		5.08			4,851
Trial modifications (6)		-		-		1,433		1,433		-		-			-

Total consumer		7,437		13,913		52,998		74,348		2,897		3.68			19,375

Total	$	7,437		14,074		53,204		74,715		2,897		3.66	%	$	19,536

Quarter ended March 31, 2012

Commercial:
Commercial and industrial	$	-		-		-		-		-		-	%	$	-
Secured by real estate		-		-		1,377		1,377		-		-			-

Total commercial		-		-		1,377		1,377		-		-			-

Consumer:
Real estate 1-4 family first mortgage		2,837		8,371		6,319		17,527		1,807		3.72			10,585
Real estate 1-4 family junior lien mortgage		492		4,997		1,451		6,940		73		6.08			5,489
Trial modifications (6)		-		-		16,124		16,124		-		-			-

Total consumer		3,329		13,368		23,894		40,591		1,880		4.53			16,074

Total	$	3,329		13,368		25,271		41,968		1,880		4.53	%	$	16,074

We(1) ~~may require~~Amounts ~~some~~represent ~~borrowers~~the ~~experiencing~~recorded ~~financial~~investment ~~difficulty~~in toloans ~~make~~after ~~trial~~recognizing ~~payments~~the ~~generally~~effects ~~for a period~~ of ~~three to four months, according to~~ the ~~terms of a planned permanent modification~~TDR, ~~to determine~~ if ~~they can perform according to those terms~~any. ~~Based~~ ~~on clarifying guidance from the SEC in December 2011, these arrangements represent trial modifications, which we classify and account for as~~ TDRs. ~~While~~with ~~loans~~multiple ~~are~~types inof 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~~presented ~~not~~only ~~finalized~~once ~~and~~in ~~do not take effect until~~ the ~~loan~~table ~~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~~category ~~(i.e.~~type ~~Home~~based ~~Affordable~~on ~~Modification Program – HAMP) and junior lien (i.e. Second Lien Modification Program – 2MP) mortgage loans. At September 30, 2012,~~ the ~~loans~~order ~~in trial modification period were $9~~presented.1 million under HAMP, $2.9 million under 2MP and $10.3 million under proprietary programs, compared with $8.7 million, $3.1 million and $9.6 million at December 31, 2011, respectively. Trial modifications with a recorded investment of $10.8 million at September 30, 2012, and $12.1 million at December 31, 2011, were accruing loans and $11.5 million and $9.3 million, respectively, were nonaccruing loans. Our recent 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. As previously discussed, our allowance process considers the impact of those modifications that are probable to occur including the associated credit cost and related re-default risk.

~~The~~(2) ~~following~~Principal ~~table~~modifications ~~summarizes~~include ~~our~~principal ~~TDR~~forgiveness ~~modifications~~at ~~for~~the time of the ~~periods~~modification, ~~presented~~contingent byprincipal ~~primary~~forgiveness ~~modification~~granted ~~type~~over the life of the loan based on borrower performance, and ~~includes~~principal that has been legally separated and deferred to the ~~financial effects~~end of ~~these~~the ~~modifications.~~loan, with a zero percent contractual interest rate.

(3)

Other interest rate concessions include loans modified to an interest rate that is not commensurate with the risk, even though the rate may have been increased. These modifications would include renewals, term extensions and other interest adjustments, but exclude modifications that also forgive principal and/or reduce the interest rate. Quarter ended March 31, 2013 includes $16.1 million of consumer loans, resulting from 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.

(4)

Charge-offs include write-downs of the investment in the loan in the period of modification. In some cases, the amount of charge off will differ from the modification terms if the loan has already been charged down based on our policies. Modifications resulted in forgiving principal (actual, contingent or deferred) of $2.0 million and $2.1 million at March 31, 2013 and 2012, respectively.

(5)	Reflects the effect of reduced interest rates to loans with 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 previously reported trial modifications that became permanent in the current period. Reflects revision of first quarter 2012 trial modification activity.

	Primary modification type (1)								Financial effects of modifications
(in thousands)	Principal (2)		Interestratereduction		Other Interest rate concessions (3)		Total		Charge-offs (4)		Weightedaverageinterestratereduction			Recordedinvestmentrelated tointerest ratereduction (5)
Quarter ended September 30, 2012
Commercial:
Commercial and industrial	$	-		-		-		-		-		-	%	$	-
Real estate mortgage		-		-		74		74		-		-			-
Real estate construction		-		-		-		-		-		-			-
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
Quarter ended September 30, 2011 (7)
Commercial:
Commercial and industrial	$	-		-		-		-		-		-	%	$	-
Real estate mortgage		-		-		156		156		-		-			-
Real estate construction		-		-		-		-		-		-			-
Total commercial		-		-		156		156		-		-			-
Consumer:
Real estate 1-4 family first mortgage		6,292		15,112		7,372		28,776		1,368		3.70			18,947
Real estate 1-4 family junior lien mortgage		899		9,401		3,143		13,443		82		5.72			9,853
Total consumer		7,191		24,513		10,515		42,219		1,450		4.39			28,800
Total	$	7,191		24,513		10,671		42,375		1,450		4.39	%	$	28,800

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.

(continued on the following page)


	Recorded investment of defaults
	Quarter ended March 31,
(in thousands)	2013		2012

Total commercial	$	-		-

Consumer:
Real estate 1-4 family first mortgage		875		1,999
Real estate 1-4 family junior lien mortgage		583		1,352

Total consumer		1,458		3,351

Total	$	1,458		3,351

~~(continued~~Note ~~from~~3: ~~previous~~Fair ~~page)~~Values of Assets and Liabilities

	Primary modification type (1)								Financial effects of modifications
(in thousands)	Principal (2)		Interestratereduction		Other Interest rateconcessions (3)		Total		Charge-offs (4)		Weightedaverageinterestratereduction			Recordedinvestmentrelated tointerest ratereduction (5)
Nine months ended September 30, 2012
Commercial:
Commercial and industrial	$	-		-		-		-		-		-	%	$	-
Real estate mortgage		-		-		3,811		3,811		-		-			-
Real estate construction		-		-		-		-		-		-			-
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
Nine months ended September 30, 2011 (7)
Commercial:
Commercial and industrial	$	-		-		-		-		-		-	%	$	-
Real estate mortgage		-		-		158		158		-		-			-
Real estate construction		-		-		-		-		-		-			-
Total commercial		-		-		158		158		-		-			-
Consumer:
Real estate 1-4 family first mortgage		14,082		45,490		24,574		84,146		4,094		3.68			55,590
Real estate 1-4 family junior lien mortgage		4,011		41,692		9,343		55,046		900		5.75			44,883
Total consumer		18,093		87,182		33,917		139,192		4,994		4.60			100,473
Total	$	18,093		87,182		34,075		139,350		4,994		4.60	%	$	100,473

As of March 31, 2013, assets and liabilities measured at fair value on a nonrecurring basis were insignificant. Additionally, we did not elect fair value option for any financial instruments as permitted in FASB 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.

~~(1)~~Disclosures ~~Amounts~~about ~~represent~~Fair ~~the~~Value ~~recorded~~of ~~investment~~Financial inInstruments ~~loans~~The ~~after~~table ~~recognizing~~below ~~the~~is ~~effects~~a summary of ~~the~~fair ~~TDR,~~value estimates ifby ~~any.~~level ~~TDRs~~for ~~with~~financial ~~multiple~~instruments. ~~types~~The ofcarrying ~~concessions~~amounts ~~are presented only once~~ in the following table are recorded in the ~~first~~balance ~~category~~sheet ~~type~~under ~~based on~~ the ~~order~~indicated ~~presented~~captions.

~~(2)~~We ~~Principal~~have ~~modifications~~not ~~include~~included ~~principal~~assets ~~forgiveness~~and atliabilities ~~the~~that ~~time~~are ofnot ~~the~~financial ~~modification~~instruments in our disclosure, ~~contingent~~such ~~principal~~as ~~forgiveness~~other ~~granted~~assets, ~~over~~deferred ~~the~~taxes ~~life~~and other liabilities. The total of the ~~loan~~fair ~~based~~value oncalculations presented ~~borrower~~does ~~performance~~not represent, and ~~principal~~should ~~that~~not ~~has~~be ~~been~~construed ~~legally~~to ~~separated~~represent, ~~and~~the ~~deferred~~underlying tovalue ~~the~~of ~~end~~Wachovia Funding. For descriptions of the ~~loan~~valuation methodologies we use for estimating fair value for financial instruments that are not recorded at fair value, ~~with~~see aNote ~~zero~~5 ~~percent~~in ~~contractual~~our ~~interest~~2012 ~~rate~~10-K.

(3) Other interest rate concessions include loans modified to an interest rate that is not commensurate with the credit risk, even though the rate may have been increased. These modifications would include renewals, term extensions and other interest adjustments, but exclude modifications that also forgive principal and/or reduce the interest rate. Quarter and nine months ended September 30, 2012, include $120.7 million of loans, consisting of $91.8 million of first mortgages and $28.9 million of junior liens, resulting from the implementation of OCC guidance issued in third quarter 2012, which requires consumer loans discharged in bankruptcy to be classified as TDRs.


	Carrying amount		Estimated fair value
(in thousands)	Carrying amount		Level 1		Level 2		Level 3		Total

March 31, 2013

Financial assets

Cash and cash equivalents	$	918,102		918,102		-		-		918,102
Loans, net (1)		12,229,360		-		-		13,533,504		13,533,504

December 31, 2012

Financial assets

Cash and cash equivalents	$	642,946		642,946		-		-		642,946
Loans, net (1)		13,241,254		-		-		14,575,463		14,575,463

(41) ~~Charge-offs~~Carrying ~~include write-downs of the investment in the loan in the period it is contractually modified. The~~ amount ofreflects ~~charge~~unearned ~~off~~income 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 $1441.82 million and $1472.49 million and allowance for ~~third~~loan ~~quarter~~losses of ~~2012 and 2011 and~~ $4281.85 million and $4309.2 million ~~for~~at ~~the~~March ~~first~~31, ~~nine~~2013 ~~months of 2012~~ and ~~2011.~~December ~~Quarter and nine months ended September 30~~31, 2012, ~~include $28~~respectively.~~6 million in charge-offs on consumer loans resulting from the implementation of OCC guidance discussed above.~~

(5) Reflects the effect of reduced interest rates to loans with 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 successfully complete the program requirements. Such successful modifications are included as an addition to the appropriate loan category in the period they successfully complete the program requirements. Reflects revision of first quarter 2012 trial modification activity to $16.1 million.

(7) Based on clarifying guidance from the Securities and Exchange Commission (SEC) received in December 2011, we classify trial modifications as TDRs at the beginning of the trial period. Prior to the SEC clarification, we classified trial modifications as TDRs once a borrower successfully completed the trial period in accordance with the terms.

~~The~~Note ~~table~~4: ~~below~~Common ~~summarizes~~and ~~permanent~~Preferred ~~modification~~Stock ~~TDRs that have defaulted in the current period within 12 months of their permanent modification date. We are reporting these defaulted TDRs based on a payment default~~

~~definition~~Wachovia ofFunding 90has ~~days~~authorized ~~past~~preferred ~~due~~and ~~for~~common ~~the~~stock. ~~commercial~~In ~~portfolio~~order ~~segment~~to ~~and~~remain 60qualified ~~days~~as ~~past~~a ~~due~~REIT, Wachovia ~~for~~Funding ~~the~~must ~~consumer~~distribute ~~portfolio~~annually ~~segment.~~at least 90% of taxable

	Recorded investment of defaults
	Quarter ended September 30,				Nine months ended September 30,
(in thousands)	2012		2011		2012		2011
Commercial:
Commercial and industrial	$	-		-		-		-
Real estate mortgage		950		2,426		950		2,426
Real estate construction		-		-		-		-
Total commercial		950		2,426		950		2,426
Consumer:
Real estate 1-4 family first mortgage		2,913		5,405		9,489		11,064
Real estate 1-4 family junior lien mortgage		562		3,643		2,929		5,737
Total consumer		3,475		9,048		12,418		16,801
Total	$	4,425		11,474		13,368		19,227

earnings. The following table provides detail of preferred stock.



	March 31, 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

~~Table~~In the event that Wachovia Funding is liquidated or dissolved, the holders of ~~Contents~~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 convertible into certain preferred stock of Wells Fargo.

Note 3: Derivatives

Our interest rate swap contracts expired in June 2012.

The total notional amounts and fair values for derivatives of which none are designated as hedging instruments were:

	September 30, 2012						December 31, 2011
	Notional or		Fair value				Notional or		Fair value
(in thousands)	contractualamount		Assetderivatives		Liabilityderivatives		contractualamount		Assetderivatives			Liabilityderivatives
Interest rate swaps	$	-		-		-		8,200,000		139,056			103,833
Netting (1)				-		-				(138,093	)		(103,833	)
Total			$	-		-				963			-

(1) Derivatives are reported net of cash collateral received and paid. Additionally, positions with the same counterparty are netted as part of a legally enforceable master netting agreement between Wachovia Funding and the derivative counterparty.

Note 4: Fair Values of Assets and Liabilities

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

We group our assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

• Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

• Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

In the determination of the classification of financial instruments in Level 2 or Level 3 of the fair value hierarchy, we consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs used. Based upon the specific facts and circumstances of each instrument or instrument category, judgments are made regarding the significance of the Level 3 inputs to the instruments’ fair value measurement in its entirety. If Level 3 inputs are considered significant, the instrument is classified as Level 3.

Determination of Fair Value We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and accordingly, do not determine fair value based upon a forced liquidation or distressed sale. Where necessary, we estimate fair value using other market observable data such as prices for synthetic or derivative instruments, market indices, and industry ratings of underlying collateral or models employing techniques such as discounted cash flow analyses. The assumptions we use in the models, which typically include assumptions for interest rates, credit losses and prepayments, are verified against market observable data where possible. We apply market observable real estate data in valuing instruments where the underlying collateral is real estate or where the fair value of an instrument being valued highly correlates to real estate prices. Where appropriate, we may use a combination of these valuation approaches.

Where the market price of the same or similar instruments is not available, the valuation of financial instruments becomes more subjective and involves a high

degree of judgment. Where modeling techniques are used, the models are subject to validation procedures by our internal valuation model validation group in accordance with risk management policies and procedures. Further, pricing data is subject to verification.

Derivatives Interest rate swap contracts expired in June 2012.

Loans We do not record loans at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for disclosing estimated fair values. However, from time to time, we record nonrecurring fair value adjustments to loans to primarily reflect partial write-downs that are based on the observable market price of the loan or current appraised value of the collateral.

The fair value estimates for disclosure purposes differentiate loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity. Prepayment and credit loss estimates are evaluated by product and loan rate.

The fair value of commercial loans is calculated by discounting contractual cash flows, adjusted for credit loss estimates, using discount rates that are appropriate for loans with similar characteristics and remaining maturity.

For real estate 1-4 family first and junior lien mortgages, fair value is calculated by discounting contractual cash flows, adjusted for prepayment and credit loss estimates, using discount rates based on current industry pricing (where readily available) or our own estimate of an appropriate risk-adjusted discount rate for loans of similar size, type, remaining maturity and repricing characteristics.

Items Measured at Fair Value on a Recurring Basis The following table presents assets and liabilities that are measured at fair value on a recurring basis at September

30, 2012 and December 31, 2011, for each of the fair value hierarchy levels.

(in thousands)	Level 1		Level 2		Level 3		Netting (1)			Total
Balance at September 30, 2012
Assets
Interest rate swaps	$	-		-		-		-			-
Total assets at fair value	$	-		-		-		-			-
Liabilities
Interest rate swaps	$	-		-		-		-			-
Total liabilities at fair value	$	-		-		-		-			-
Balance at December 31, 2011
Assets
Interest rate swaps	$	-		139,056		-		(138,093	)		963
Total assets at fair value	$	-		139,056		-		(138,093	)		963
Liabilities
Interest rate swaps	$	-		103,833		-		(103,833	)		-
Total liabilities at fair value	$	-		103,833		-		(103,833	)		-

(1) Derivatives are reported net of cash collateral received and paid. Additionally, positions with the same counterparty are netted as a part of a legally enforceable master netting agreement between Wachovia Funding and the derivative counterparty. See Note 3 for additional information on the treatment of master netting arrangements related to derivative contracts.

As of September 30, 2012, assets or liabilities measured at fair value on a nonrecurring basis were insignificant. Additionally, we did not elect fair value option for any financial instruments as permitted in FASB 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 excluding

financial instruments recorded at fair value on a recurring basis as they are disclosed within the Items Measured at Fair Value on a Recurring Basis in the previous table. 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.

	September 30, 2012										December 31, 2011
	Carrying amount		Estimated fair value								Carrying amount		Estimated fair value
(in thousands)			Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	1,530,309		1,530,309		-		-		1,530,309		1,186,165		1,186,165
Loans, net (1)		11,754,704		-		-		13,121,209		13,121,209		12,230,014		13,381,977

(1) Unearned income was $500.5 million and $604.4 million at September 30, 2012 and December 31, 2011, respectively. Allowance for loan losses was $278.1 million at September 30, 2012 and $313.8 million at December 31, 2011.

Note 5: Common and Preferred Stock

Wachovia Funding has authorized preferred and common stock. In order 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, 2012 and December 31, 2011
(in thousands, except shares and liquidation preference per share)	Liquidationpreferenceper share		Sharesauthorized		Sharesissued andoutstanding		Par value		Carryingvalue
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 or general unsecured creditors. 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 convertible into certain preferred stock of Wells Fargo.

Except upon the occurrence of a Special Event (as defined below), the Series A preferred securities are not redeemable prior to December 31, 2022. On or after such date, we may redeem these securities for cash, in whole or in part, with the prior approval of the Office of the Comptroller of the Currency (OCC), at the redemption price of $25 per security, plus authorized, declared, but unpaid dividends to the date of redemption. 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.

A Special Event, which allows redemption of the Series A preferred securities prior to December 31, 2022, means: a Tax Event; an Investment Company Act Event; or a Regulatory Capital Event.

Tax Event means our determination, based on the receipt by us of a legal opinion, that there is a significant risk that ~~dividends paid or to be paid by us with respect to our capital stock are not or will not be fully deductible by us for United~~

dividends paid or to be paid by us with respect to our capital stock are not or will not be fully deductible by us for United States Federal income tax purposes or that we are or will be subject to additional taxes, duties, or other governmental charges, in an amount we reasonably determine to be significant as a result of:

•

any amendment to, clarification of, or change in, the laws, treaties, or related regulations of the United States or any of its political subdivisions or their taxing authorities affecting taxation; or

•

any judicial decision, official administrative pronouncement, published or private ruling, technical advice memorandum, Chief Counsel Advice, as such term is defined in the Code, regulatory procedure, notice, or official announcement.

Investment Company Act Event means our determination, based on the receipt by us of a legal opinion, that there is a significant risk that we are or will be considered an “investment company” that is required to be registered under the Investment Company Act, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency, or regulatory authority.

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, 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.

4844

~~In June 2012, federal banking agencies, including the Board of Governors of the Federal~~ ~~Reserve~~official ~~System~~interpretations ~~(FRB)~~thereof, ~~jointly~~or ~~published~~any ~~notices~~official ofadministrative ~~proposed~~pronouncement ~~rulemaking,~~or ~~which~~judicial ~~would~~decision ~~substantially~~interpreting ~~amend~~or ~~the~~applying ~~risk-based~~such ~~capital~~laws rules for banks. The proposed capital rules are intended to implement in the U.S. the Basel III regulatory capital reforms (Basel III NPR), comply with changes required by the Dodd-Frank Act, and replace the existing Basel I-based capital requirements. Based on our current interpretation, we believe the Wachovia Funding Series A preferred securities would no longer constitute Tier 1 capital for Wells Fargo or ~~the~~related ~~Bank under the Basel III NPR. However~~regulations, ~~following the comment period~~guidelines, ~~the~~policies ~~FRB may not adopt the Basel III NPR as proposed~~ or ~~may make additional change to the applicable Tier 1 capital rules prior to~~official ~~final~~interpretations ~~adoption~~thereof. In the event the FRB’s applicable final rules regarding Tier 1 capital treatment are the same as the Basel III NPR or otherwise result in the Series A preferred securities no longer constituting Tier 1 capital for Wells Fargo or the Bank, Wachovia Funding may determine to redeem the Wachovia Funding Series A preferred securities due to a Regulatory Capital Event.

WeIn ~~continue~~June to2012, ~~monitor~~federal ~~and~~banking ~~evaluate~~agencies, including the ~~potential~~Board ~~impact~~of onGovernors ~~regulatory~~of ~~capital~~the ~~and~~Federal ~~liquidity~~Reserve System ~~management~~(FRB), jointly published notices of ~~regulatory~~proposed ~~proposals~~rulemaking, ~~including~~which would substantially amend the risk-based capital rules for banks. The proposed capital rules are intended to implement in the U.S. the Basel III ~~and~~regulatory ~~those~~capital reforms (Basel III NPR), comply with changes required ~~under~~by the Dodd-Frank Act, ~~including~~and replace the existing Basel I-based capital requirements. Based on our current interpretation, we believe the Wachovia Funding Series A preferred securities would no longer constitute Tier 1 capital for Wells Fargo or the Bank under the Basel III NPR. Although the proposed rules contemplated an effective date of January 1, ~~throughout~~2013, with phased in compliance requirements, the ~~rule-making~~rules ~~process~~have not yet been finalized by the U.S. banking regulators due to the volume of comments received and concerns expressed during the comment period. The FRB may not adopt the Basel III NPR as proposed or may make additional changes to the applicable Tier 1 capital rules prior to final adoption. In the event the FRB’s applicable final rules regarding Tier 1 capital treatment are the same as the Basel III NPR or otherwise result in the Series A preferred securities no longer constituting Tier 1 capital for Wells Fargo or the Bank, Wachovia Funding may determine to redeem the Wachovia Funding Series A preferred securities due to a Regulatory Capital Event.

4945

Note 65: 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,

Quarter ended March 31,

(in thousands)

~~2012~~2013

~~2011~~2012

~~2012~~

~~2011~~

Income statement data

Interest income:

Accretion of discounts on loans

3523,~~492~~134

4438,~~394~~271

~~118,106~~

~~153,000~~

Interest on deposit/Eurodollar deposits (1)

1,031

2,602

479

Interest on deposits (1)

464

624

Total interest income

3623,~~523~~598

4438,~~491~~895

~~120,708~~

~~153,479~~

Loss on loan sales to affiliate

(128

)

Interest expense

353

Loan servicing costs

109,~~310~~690

1110,~~575~~796

~~31,826~~

~~36,664~~

Management fees

1,~~985~~696

1,~~636~~932

~~5,837~~

~~4,806~~

Cash collateral fees

(1) ~~There~~Includes ~~was~~$221 nothousand ~~impact~~ from interest rate swaps infor ~~third~~ quarter ofended ~~2012.~~March ~~The third quarter of 2011 included $22 thousand and the first nine months of 2012 and 2011 included $626 thousand and $124 thousand~~31, ~~respectively, from interest rate swaps~~2012.

(in thousands)	~~Sept.~~March 3031,~~2012~~2013			Dec. 31,~~2011~~2012
Balance sheet related data
Loan purchases (year-to-date) (1)	$	2,045,150			648,845
Loans purchases (year-to-date data) (1)	$	-			4,397,812
Loan sales (year-to-date)		(48,606	)		(85,096	)
Loans sales (year-to-date data)		(5,573	)		(58,375	)
Real estate owned sales (year-to-date)		(8,162	)		(5,760	)
Foreclosed assets sales (year-to-date data)		(1,989	)		(12,438	)
Deposit/Eurodollar deposits (2)		1,530,309			1,182,541
Accounts receivable/payable—affiliates, net		116,653			131,216
Dividends payable—affiliates		34,417			-
Deposits		918,102			642,946
Accounts receivable—affiliates, net		94,090			64,235
Lines of credit with Bank		27,152			745,016
Dividends payable—affiliate		32,420			-

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

Loan Participations We purchase and sell loans and/or 100% interests in loan participations (2which are reflected as loans in the accompanying consolidated financial statements) ~~Includes~~to ~~$34~~and from the Bank or its affiliates.3 ~~million~~The ~~from~~purchases ~~cash~~and ~~collateral~~sales ~~investment~~are transacted at ~~December~~fair 31value resulting in purchase discounts and premiums or gains and losses on sales. The net purchase discount accretion is reported within interest income. In first quarter 2013, ~~2011~~we did not purchase loans, and sales were with the Bank or its affiliates.

Loan ~~Participations~~Servicing WeCosts ~~purchase~~The ~~and sell~~ loans ~~and/or 100% interests~~ in ~~loan~~our ~~participations~~portfolio ~~(which~~ are ~~both~~serviced ~~reflected~~by ~~as loans in~~ the ~~accompanying~~Bank ~~consolidated~~or ~~financial~~its ~~statements)~~affiliates pursuant to ~~and from~~ the ~~Bank.~~terms ~~The~~of ~~purchases~~participation and ~~sales~~servicing ~~are~~agreements. ~~transacted~~In atsome ~~fair~~instances, ~~value~~the ~~resulting~~Bank inhas ~~purchase~~delegated servicing ~~discounts~~responsibility ~~and~~to ~~premiums~~third orparties ~~gains~~that ~~and~~are ~~losses~~not onaffiliated ~~sales.~~with ~~The~~us ~~net~~or ~~purchase discount~~the ~~accretion~~Bank isor ~~reported~~its ~~within interest income~~affiliates. ~~The~~Depending ~~gains~~on orthe ~~losses~~loan ontype, ~~sales~~the ofmonthly ~~loan~~servicing ~~participations~~fee charges are ~~included~~based ~~within~~in ~~noninterest~~part ~~income.~~on In(a) outstanding ~~2012~~principal ~~and 2011~~balances, ~~all~~(b) a offlat ~~our~~fee per ~~purchases~~month, ~~and~~or ~~sales~~(c) a ~~were~~total ~~with~~loan ~~the~~commitment ~~Bank~~amount.

~~Loan~~Management ~~Servicing~~Fees ~~Costs~~We ~~The~~pay ~~loans currently in our portfolio are serviced by~~ the Bank ora ~~their~~management ~~affiliates~~fee ~~pursuant~~ to ~~the~~reimburse ~~terms~~for ofgeneral overhead ~~participation~~expenses ~~and servicing~~paid ~~agreements.~~on Inour ~~some~~behalf. ~~instances,~~Management ~~the~~fees ~~Bank~~for ~~has~~first ~~delegated~~quarter ~~servicing~~2013 ~~responsibility~~and to2012 ~~third~~were ~~parties~~calculated ~~that~~based ~~are~~on ~~not~~Wells ~~affiliated~~Fargo’s ~~with~~total usmonthly orallocable ~~the~~costs ~~Bank~~multiplied orby ~~its~~a ~~affiliates~~formula. ~~Depending~~The onformula ~~the~~is ~~loan~~based ~~type,~~on ~~the~~our ~~monthly~~proportion ~~servicing~~of ~~fee~~Wells ~~charges are based in part~~Fargo’s onconsolidated: (a1) ~~outstanding~~ ~~principal~~full-time ~~balances~~equivalent employees, (b2) a ~~flat~~total ~~fee~~average ~~per~~assets ~~month,~~and ~~or (c~~3) a total ~~loan commitment amount~~revenue.

~~Management~~Foreclosed ~~Fees~~ Assets We ~~pay~~sell ~~the~~foreclosed ~~Bank~~assets ~~a management fee~~ to ~~reimburse~~the ~~for~~Bank ~~general~~from ~~overhead~~time ~~expenses~~to ~~paid~~time onat ~~our~~estimated ~~behalf.~~fair ~~Management fees for 2012 and 2011 were calculated based on Wells Fargo’s total monthly allocated costs multiplied by a~~value.

~~formula.~~Accounts ~~The~~Receivable/Payable, ~~formula~~Net isAccounts ~~based~~receivable onfrom ~~our~~or ~~proportion~~payable ofto ~~Wells~~the ~~Fargo’s~~Bank ~~consolidated:~~or 1)its ~~full-time~~affiliates ~~equivalent~~result ~~employees~~from ~~(FTEs)~~intercompany transactions which include net loan pay-downs, 2)interest ~~total~~receipts, ~~average~~servicing ~~assets~~costs, management fees and 3)other ~~total~~transactions, ~~revenue~~including those transactions noted herein, which have not yet settled.

~~Deposit/Eurodollar~~ Deposits Our primary cash management vehicle ~~changed~~is to a deposit account with the Bank ~~during first quarter 2012~~. ~~In the prior year, we had Eurodollar deposits with the Bank.~~ Interest income earned on ~~deposit~~deposits ~~and Eurodollar deposit investments~~ is included in interest income. ~~The deposit account is based on a different interest rate benchmark and will yield a higher rate of return.~~

~~Interest~~Lines ~~Rate~~of ~~Swap~~Credit ~~Contracts~~Wachovia ~~These~~Funding ~~expired~~and inits ~~June~~subsidiaries ~~2012~~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%).

~~Lines~~Dividends ~~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~~Payable ~~federal~~– ~~funds~~Affiliates ~~rate. At September 30, 2012 and December 31, 2011, we had no borrowings outstanding under these facilities.~~

50Represents dividends declared in first quarter 2013, payable primarily to Wachovia Preferred Holding, but not paid until April 1, 2013.

Dividends Payable – Affiliates Dividends payable to affiliates represented third quarter 2012 accrued dividends payable primarily to Wachovia Preferred Holding. These amounts were paid on October 1, 2012.

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

Real Estate Owned We sell real estate owned assets back to the Bank from time to time at estimated fair value.

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 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(32)(b)

Certification 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).

(99101)~~(b)~~ ~~Form~~XBRL ofInstance Participation and Servicing Agreement between the Bank and WPFC Asset Funding, LLC related to commercial and commercial real estate loans (including the Form of Assignment Agreement between WPFC Asset Funding, LLC and Wachovia Funding).Document

(101) ~~Pursuant to Rule 405 of Regulation S-T, the following financial information from Wachovia Funding’s Quarterly Report on Form 10-Q for the period ended September 30, 2012, is formatted in~~ XBRL ~~interactive~~Taxonomy ~~data~~Extension ~~files:~~Schema (i) Consolidated Statement of Income for the three and nine months ended September 30, 2012 and 2011; (ii) Consolidated Balance Sheet at September 30, 2012, and December 31, 2011; (iii) Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2012 and 2011; (iv) Consolidated Statement of Cash Flows for the nine months ended September 30, 2012 and 2011; and (v) Notes to Financial Statements.Document

52(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

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, 2012						WACHOVIA PREFERRED FUNDING CORP.
Dated: May 9, 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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