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FORM
10-K
(Annual Report)
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FORM 10-K
(Annual Report)
Address
Telephone
612-667-1234
CIK
0000072971
Industry
Regional Banks
Sector
Financial
Fiscal Year
12/31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2006
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes
No
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 and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act).
Yes
No
At June 30, 2006, the aggregate market value of common stock held by non-affiliates was approximately $110,981 million, based on a closing
price of $33.54*. At January 31, 2007, 3,378,619,486 shares of common stock were outstanding.
Documents Incorporated by Reference in Form 10-K
Incorporated Documents
1. Portions of the Companys Annual Report to Stockholders for the year ended December 31,
2006 (2006 Annual Report to Stockholders)
* Reflects the two-for-one stock split in the form of a 100% stock dividend distributed August 11, 2006.
ITEM 1.
BUSINESS
Wells Fargo & Company is a corporation organized under the laws of Delaware and a financial holding company and a
bank holding company registered under the Bank Holding Company Act of 1956, as amended (BHC Act). Its principal
business is to act as a holding company for its subsidiaries. References in this report to the Parent mean the holding
company. References to we, our, us or the Company mean the holding company and its subsidiaries that are
consolidated for financial reporting purposes.
We are the product of the merger of Norwest Corporation and the former Wells Fargo & Company, completed on
November 2, 1998. On completion of the merger, Norwest Corporation changed its name to Wells Fargo & Company.
In April 1996, the former Wells Fargo & Company acquired First Interstate Bancorp, a $55 billion bank holding
company in a transaction valued at $11 billion. In October 2000, we acquired First Security Corporation, a $23 billion
bank holding company in a transaction valued at $3 billion.
We expand our business, in part, by acquiring banking institutions and other companies engaged in activities that are
financial in nature. We continue to explore opportunities to acquire banking institutions and other financial services
companies, and discussions related to possible acquisitions may occur at any time. We cannot predict whether, or on
what terms, discussions will result in further acquisitions. As a matter of policy, we generally do not comment on any
discussions or possible acquisitions until a definitive acquisition agreement has been signed.
At December 31, 2006, we had assets of $482 billion, loans of $319 billion, deposits of $310 billion and stockholders
equity of $46 billion. Based on assets, we were the fifth largest bank holding company in the United States. At
December 31, 2006, Wells Fargo Bank, N.A. was the Companys principal subsidiary with assets of $399 billion, or
83% of the Companys assets. Our bank has the highest credit rating, Aaa, from Moodys Investors Service and, in
February 2007, was upgraded to AAA by Standard & Poors Ratings Services, its highest credit rating. Our bank is
now the only U.S. bank to have the highest possible credit rating from both Moodys and S&P.
At December 31, 2006, we had 158,000 active, full-time equivalent team members.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports, are available free at www.wellsfargo.com (select About Wells Fargo, then Investor Relations
More, then SEC Filings) as soon as reasonably practicable after they are electronically filed with or furnished to the
SEC. They are also available free on the SECs website at www.sec.gov.
DESCRIPTION OF BUSINESS
General
We are a diversified financial services company. We provide retail, commercial and corporate banking services through
banking stores located in 23 states: Alaska, Arizona, California,
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Colorado, Idaho, Illinois, Indiana, Iowa, Michigan, Minnesota, Montana, Nebraska, Nevada, New Mexico, North
Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Washington, Wisconsin and Wyoming. We provide other financial
services through subsidiaries engaged in various businesses, principally: wholesale banking, mortgage banking,
consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment
banking, insurance agency and brokerage services, computer and data processing services, trust services, investment
advisory services, mortgage-backed securities servicing and venture capital investment.
We have three operating segments for management reporting purposes: Community Banking, Wholesale Banking and
Wells Fargo Financial. The 2006 Annual Report to Stockholders includes financial information and descriptions of
these operating segments.
Competition
The financial services industry is highly competitive. Our subsidiaries compete with financial services providers, such
as banks, savings and loan associations, credit unions, finance companies, mortgage banking companies, insurance
companies, and money market and mutual fund companies. They also face increased competition from nonbank
institutions such as brokerage houses and insurance companies, as well as from financial services subsidiaries of
commercial and manufacturing companies. Many of these competitors enjoy fewer regulatory constraints and some
may have lower cost structures.
Securities firms and insurance companies that elect to become financial holding companies may acquire banks and
other financial institutions. Combinations of this type could significantly change the competitive environment in which
we conduct business. The financial services industry is also likely to become more competitive as further technological
advances enable more companies to provide financial services. These technological advances may diminish the
importance of depository institutions and other financial intermediaries in the transfer of funds between parties.
REGULATION AND SUPERVISION
We describe below, and in Notes 3 (Cash, Loan and Dividend Restrictions) and 25 (Regulatory and Agency Capital
Requirements) to Financial Statements included in the 2006 Annual Report to Stockholders, the material elements of
the regulatory framework applicable to us. The description is qualified in its entirety by reference to the full text of the
statutes, regulations and policies that are described. Banking statutes, regulations and policies are continually under
review by Congress and state legislatures and federal and state regulatory agencies, and a change in them, including
changes in how they are interpreted or implemented, could have a material effect on our business. The regulatory
framework applicable to bank holding companies is intended to protect depositors, federal deposit insurance funds,
consumers and the banking system as a whole, not investors in bank holding companies such as the Company.
Statutes, regulations and policies could restrict our ability to diversify into other areas of financial services, acquire
depository institutions, and pay dividends on our capital stock. They
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may also require us to provide financial support to one or more of our subsidiary banks, maintain capital balances in
excess of those desired by management, and pay higher deposit insurance premiums as a result of a general
deterioration in the financial condition of depository institutions.
General
Parent Bank Holding Company. As a bank holding company, the Parent is subject to regulation under the BHC Act
and to inspection, examination and supervision by its primary regulator, the Board of Governors of the Federal Reserve
System (Federal Reserve Board or FRB). The Parent is also subject to the disclosure and regulatory requirements of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the
Securities and Exchange Commission (SEC). As a listed company on the New York Stock Exchange (NYSE), the
Parent is subject to the rules of the NYSE for listed companies.
Subsidiary Banks. Our subsidiary national banks are subject to regulation and examination primarily by the Office of
the Comptroller of the Currency (OCC) and secondarily by the Federal Deposit Insurance Corporation (FDIC) and the
FRB. Our state-chartered banks are subject to primary federal regulation and examination by the FDIC and, in addition,
are regulated and examined by their respective state banking departments.
Nonbank Subsidiaries. Many of our nonbank subsidiaries are also subject to regulation by the FRB and other
applicable federal and state agencies. Our brokerage subsidiaries are regulated by the SEC, the National Association of
Securities Dealers, Inc. (NASD) and state securities regulators. Our insurance subsidiaries are subject to regulation by
applicable state insurance regulatory agencies, as well as the FRB. Our other nonbank subsidiaries may be subject to
the laws and regulations of the federal government and/or the various states in which they conduct business.
Parent Bank Holding Company Activities
Financial in Nature Requirement. As a bank holding company that has elected to become a financial holding
company pursuant to the BHC Act, we may affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature or incidental or complementary to activities that are financial in nature. Financial
in nature activities include securities underwriting, dealing and market making, sponsoring mutual funds and
investment companies, insurance underwriting and agency, merchant banking, and activities that the FRB, in
consultation with the Secretary of the U.S. Treasury, determines from time to time to be financial in nature or incidental
to such financial activity or is complementary to a financial activity and does not pose a safety and soundness risk.
FRB approval is not required for us to acquire a company (other than a bank holding company, bank or savings
association) engaged in activities that are financial in nature or incidental to activities that are financial in nature, as
determined by the FRB. Prior FRB approval is required before we may acquire the beneficial ownership or control of
more than 5% of the voting shares or substantially all of the assets of a bank holding company, bank or savings
association.
3
Because we are a financial holding company, if any of our subsidiary banks receives a rating under the Community
Reinvestment Act of 1977, as amended (CRA), of less than satisfactory, we will be prohibited, until the rating is raised
to satisfactory or better, from engaging in new activities or acquiring companies other than bank holding companies,
banks or savings associations, except that we could engage in new activities, or acquire companies engaged in activities
that are closely related to banking under the BHC Act. In addition, if the FRB finds that any of our subsidiary banks is
not well capitalized or well managed, we would be required to enter into an agreement with the FRB to comply with all
applicable capital and management requirements and which may contain additional limitations or conditions. Until
corrected, we would not be able to engage in any new activity or acquire companies engaged in activities that are not
closely related to banking under the BHC Act without prior FRB approval. If we fail to correct any such condition
within a prescribed period, the FRB could order us to divest our banking subsidiaries or, in the alternative, to cease
engaging in activities other than those closely related to banking under the BHC Act.
We became a financial holding company effective March 13, 2000. We continue to maintain our status as a bank
holding company for purposes of other FRB regulations.
Interstate Banking . Under the Riegle-Neal Interstate Banking and Branching Act (Riegle-Neal Act), a bank holding
company may acquire banks in states other than its home state, subject to any state requirement that the bank has been
organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank
holding company not control, prior to or following the proposed acquisition, more than 10% of the total amount of
deposits of insured depository institutions nationwide or, unless the acquisition is the bank holding companys initial
entry into the state, more than 30% of such deposits in the state (or such lesser or greater amount set by the state).
The Riegle-Neal Act also authorizes banks to merge across state lines, thereby creating interstate branches. Banks are
also permitted to acquire and to establish new branches in other states where authorized under the laws of those states.
Regulatory Approval. In determining whether to approve a proposed bank acquisition, federal bank regulators will
consider, among other factors, the effect of the acquisition on competition, financial condition, and future prospects
including current and projected capital ratios and levels, the competence, experience, and integrity of management and
record of compliance with laws and regulations, the convenience and needs of the communities to be served, including
the acquiring institutions record of compliance under the CRA, and the effectiveness of the acquiring institution in
combating money laundering activities.
Dividend Restrictions
The Parent is a legal entity separate and distinct from its subsidiary banks and other subsidiaries. A significant source
of funds to pay dividends on its common and preferred stock and principal and interest on its debt is dividends from its
subsidiaries. Various federal and state statutory provisions and regulations limit the amount of dividends the Parents
subsidiary banks and certain other subsidiaries may pay without regulatory approval. For information about the
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restrictions applicable to the Parents subsidiary banks, see Note 3 (Cash, Loan and Dividend Restrictions) to Financial
Statements included in the 2006 Annual Report to Stockholders.
Federal bank regulatory agencies have the authority to prohibit the Parents subsidiary banks from engaging in unsafe
or unsound practices in conducting their businesses. The payment of dividends, depending on the financial condition of
the bank in question, could be deemed an unsafe or unsound practice. The ability of the Parents subsidiary banks to
pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital
guidelines.
Holding Company Structure
Transfer of Funds from Subsidiary Banks. The Parents subsidiary banks are subject to restrictions under federal law
that limit the transfer of funds or other items of value from such subsidiaries to the Parent and its nonbank subsidiaries
(including affiliates) in so-called covered transactions. In general, covered transactions include loans and other
extensions of credit, investments and asset purchases, as well as certain other transactions involving the transfer of
value from a subsidiary bank to an affiliate or for the benefit of an affiliate. Unless an exemption applies, covered
transactions by a subsidiary bank with a single affiliate are limited to 10% of the subsidiary banks capital and surplus
and, with respect to all covered transactions with affiliates in the aggregate, to 20% of the subsidiary banks capital and
surplus. Also, loans and extensions of credit to affiliates generally are required to be secured in specified amounts. A
banks transactions with its nonbank affiliates are also generally required to be on arms length terms.
Source of Strength. The FRB has a policy that a bank holding company is expected to act as a source of financial and
managerial strength to each of its subsidiary banks and, under appropriate circumstances, to commit resources to
support each such subsidiary bank. This support may be required at times when the bank holding company may not
have the resources to provide the support.
The OCC may order an assessment of the Parent if the capital of one of its national bank subsidiaries were to become
impaired. If the Parent failed to pay the assessment within three months, the OCC could order the sale of the Parents
stock in the national bank to cover the deficiency.
Capital loans by the Parent to any of its subsidiary banks are subordinate in right of payment to deposits and certain
other indebtedness of the subsidiary bank. In addition, in the event of the Parents bankruptcy, any commitment by the
Parent to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Depositor Preference. The Federal Deposit Insurance Act (FDI Act) provides that, in the event of the liquidation or
other resolution of an insured depository institution, the claims of depositors of the institution (including the claims of
the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver
will have priority over other general unsecured claims against the institution. If an insured depository institution fails,
5
insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, nondeposit
creditors, including the Parent, with respect to any extensions of credit they have made to such insured depository
institution.
Liability of Commonly Controlled Institutions. All of the Companys subsidiary banks are insured by the FDIC. FDICinsured depository institutions can be held liable for any loss incurred, or reasonably expected to be incurred, by the
FDIC due to the default of an FDIC-insured depository institution controlled by the same bank holding company, and
for any assistance provided by the FDIC to an FDIC-insured depository institution that is in danger of default and that
is controlled by the same bank holding company. Default means generally the appointment of a conservator or
receiver. In danger of default means generally the existence of certain conditions indicating that a default is likely to
occur in the absence of regulatory assistance.
Capital Requirements
We are subject to regulatory capital requirements and guidelines imposed by the FRB, which are substantially similar
to those imposed by the OCC and the FDIC on depository institutions within their jurisdictions. For information about
these capital requirements and guidelines, see Note 25 (Regulatory and Agency Capital Requirements) to Financial
Statements included in the 2006 Annual Report to Stockholders.
The FRB may set higher capital requirements for holding companies whose circumstances warrant it. For example,
holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital
positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Also,
the FRB considers a tangible Tier 1 leverage ratio (deducting all intangibles) and other indications of capital strength
in evaluating proposals for expansion or engaging in new activities.
FRB, FDIC and OCC rules also require us to incorporate market and interest rate risk components into our regulatory
capital computations. Under the market risk requirements, capital is allocated to support the amount of market risk
related to a financial institutions ongoing trading activities.
The Basel Committee on Banking Supervision continues to evaluate certain aspects of the proposed New Basel Capital
Accord (Basel II). Basel II incorporates three pillars that address (a) capital adequacy, (b) supervisory review, which
relates to the computation of capital and internal assessment processes, and (c) market discipline, through increased
disclosure requirements. Embodied within these pillars are aspects of risk strategy, measurement and management that
relate to credit risk, market risk, and operational risk. Certain proposed approaches by the Basel Committee in Basel II
may be considered complex.
Basel II is an enterprise wide initiative in Wells Fargo. Under current guidance, the first opportunity for an institution
in the United States to conduct a parallel run of Basel II would be January 2008.
6
From time to time, the FRB and the Federal Financial Institutions Examination Council (FFIEC) propose changes and
amendments to, and issue interpretations of, risk-based capital guidelines and related reporting instructions. Such
proposals or interpretations could, if implemented in the future, affect our reported capital ratios and net risk-adjusted
assets.
As an additional means to identify problems in the financial management of depository institutions, the FDI Act
requires federal bank regulatory agencies to establish certain non-capital safety and soundness standards for institutions
for which they are the primary federal regulator. The standards relate generally to operations and management, asset
quality, interest rate exposure and executive compensation. The agencies are authorized to take action against
institutions that fail to meet such standards.
The FDI Act requires federal bank regulatory agencies to take prompt corrective action with respect to FDIC-insured
depository institutions that do not meet minimum capital requirements. A depository institutions treatment for
purposes of the prompt corrective action provisions will depend upon how its capital levels compare to various capital
measures and certain other factors, as established by regulation.
Deposit Insurance Assessments
Our bank subsidiaries, including Wells Fargo Bank, N.A., are members of the Deposit Insurance Fund
(DIF) maintained by the FDIC. Through the DIF, the FDIC insures the deposits of our banks up to prescribed limits for
each depositor. The DIF was formed March 31, 2006, upon the merger of the Bank Insurance Fund and the Savings
Insurance Fund in accordance with the Federal Deposit Insurance Reform Act of 2005. The Act established a range of
1.15% to 1.50% within which the FDIC Board of Directors may set the Designated Reserve Ratio (DRR). The current
target DRR is 1.25%. However, the Act has eliminated the restrictions on premium rates based on the DRR and grants
the FDIC Board the discretion to price deposit insurance according to risk for all insured institutions regardless of the
level of the reserve ratio.
To maintain the DIF, member institutions are assessed an insurance premium based on their deposits and their
institutional risk category. The FDIC determines an institutions risk category by combining its supervisory ratings
with its financial ratios and other risk measures. For large institutions (assets of $10 billion or more), the FDIC
generally determines risk by combining supervisory ratings with the institutions long-term debt issuer ratings. The
FDIC has established four risk categories, with assessment rates for 2007 ranging from a minimum of 5 cents per $100
of domestic deposits for well managed, well capitalized banks with the highest credit ratings, to 43 cents for institutions
posing the most risk to the DIF. The FDIC may increase or decrease the assessment rate schedule quarterly.
To offset assessments, a member institution may apply certain one time credits, based on the institutions (or its
successors) assessment base as of the end of 1996. An institution may apply available credits up to 100% of
assessments in 2007, and up to 90% of assessments in each of 2008, 2009 and 2010. Based on available credits, we do
not expect to incur a significant increase in total deposit insurance expense in 2007 under the new assessment schedule.
7
The FDIC may terminate a depository institutions deposit insurance upon a finding that the institutions financial
condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any
applicable rule, regulation, order or condition enacted or imposed by the institutions regulatory agency. The
termination of deposit insurance for one or more of our bank subsidiaries could have a material adverse effect on our
earnings, depending on the collective size of the particular banks involved.
All FDIC-insured depository institutions must also pay an annual assessment to interest payments on bonds issued by
the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board.
The bonds (commonly referred to as FICO bonds) were issued to capitalize the Federal Savings and Loan Insurance
Corporation. FDIC-insured depository institutions paid approximately 1.3 cents per $100 of BIF-assessable deposits in
2006. The FDIC established the FICO assessment rate effective for the first quarter of 2007 at approximately 1.2 cents
annually per $100 of assessable deposits. This separate FICO assessment cannot be offset with any one time credits.
Fiscal and Monetary Policies
Our business and earnings are affected significantly by the fiscal and monetary policies of the federal government and
its agencies. We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in
the United States. Among the instruments of monetary policy available to the FRB are (a) conducting open market
operations in United States government securities, (b) changing the discount rates of borrowings of depository
institutions, (c) imposing or changing reserve requirements against depository institutions deposits, and (d) imposing
or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in
varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest
rates charged on loans and paid on deposits. The policies of the FRB may have a material effect on our business, results
of operations and financial condition.
Privacy Provisions of the Gramm-Leach-Bliley Act
Federal banking regulators, as required under the Gramm-Leach-Bliley Act (the GLB Act), have adopted rules limiting
the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated
third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow
consumers to prevent disclosure of certain personal information to nonaffiliated third parties. The privacy provisions of
the GLB Act affect how consumer information is transmitted through diversified financial services companies and
conveyed to outside vendors.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) implemented a broad range of corporate governance and accounting
measures to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing
improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of
disclosures under federal securities laws. We are subject to Sarbanes-Oxley because we are required to file periodic
8
reports with the SEC under the Securities and Exchange Act of 1934. Among other things, Sarbanes-Oxley and/or its
implementing regulations have established new membership requirements and additional responsibilities for our audit
committee, imposed restrictions on the relationship between us and our outside auditors (including restrictions on the
types of non-audit services our auditors may provide to us), imposed additional responsibilities for our external
financial statements on our chief executive officer and chief financial officer, expanded the disclosure requirements for
our corporate insiders, required our management to evaluate our disclosure controls and procedures and our internal
control over financial reporting, and required our auditors to issue a report on our internal control over financial
reporting. The NYSE has imposed a number of new corporate governance requirements as well.
Patriot Act
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Act of 2001 (Patriot Act) is intended to strengthen the ability of U.S. law enforcement agencies and intelligence
communities to work together to combat terrorism on a variety of fronts. The Patriot Act has significant implications
for depository institutions, brokers, dealers and other businesses involved in the transfer of money. The Patriot Act
requires us to implement new or revised policies and procedures relating to anti-money laundering, compliance,
suspicious activities, and currency transaction reporting and due diligence on customers. The Patriot Act also requires
federal bank regulators to evaluate the effectiveness of an applicant in combating money laundering in determining
whether to approve a proposed bank acquisition.
Future Legislation
Various legislation, including proposals to change substantially the financial institution regulatory system, is from time
to time introduced in Congress. This legislation may change banking statutes and our operating environment in
substantial and unpredictable ways. If enacted, this legislation could increase or decrease the cost of doing business,
limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit
unions, and other financial institutions. We cannot predict whether any of this potential legislation will be enacted and,
if enacted, the effect that it, or any implementing regulations, would have on our business, results of operations or
financial condition.
ADDITIONAL INFORMATION
Additional information in response to this Item 1 can be found in the 2006 Annual Report to Stockholders under
Financial Review on pages 34-65 and under Financial Statements on pages 68-120. That information is
incorporated into this report by reference.
ITEM 1A.
RISK FACTORS
Information in response to this Item 1A can be found in this report on pages 1-9 and in the 2006 Annual Report to
Stockholders under Financial Review Risk Factors on pages 61-65. That information is incorporated into this report
by reference.
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ITEM 1B.
Not applicable.
ITEM 2.
PROPERTIES
We own our corporate headquarters building in San Francisco, California. We also own administrative facilities in
Anchorage, Alaska; Chandler, Phoenix, and Tempe, Arizona; San Francisco, California; Minneapolis and Shoreview,
Minnesota; Billings, Montana; Albuquerque, New Mexico; Portland, Oregon; Sioux Falls, South Dakota; and Salt Lake
City, Utah. In addition, we lease office space for various administrative departments in major locations in Arizona,
California, Colorado, Minnesota, Oregon, Texas, and Utah.
As of December 31, 2006, we provided banking, insurance, investments, mortgage banking and consumer finance
through more than 6,000 stores under various types of ownership and leasehold agreements. We own the Wells Fargo
Home Mortgage (Home Mortgage) headquarters in Des Moines, Iowa and operations/servicing centers in Springfield,
Illinois; Des Moines, Iowa; and Minneapolis, Minnesota. We lease administrative space for Home Mortgage in Tempe,
Arizona; Riverside and San Bernardino, California; Des Moines, Iowa; Frederick, Maryland; Minneapolis, Minnesota;
St. Louis, Missouri; Fort Mill, South Carolina; and all mortgage production offices nationwide. We own the Wells
Fargo Financial, Inc. (WFFI) headquarters and four administrative buildings in Des Moines, Iowa, and an operations
center in Sioux Falls, South Dakota. We lease administrative space for WFFI in Tempe, Arizona; Lake Mary, Florida;
Des Moines, Iowa; Kansas City, Kansas; Minneapolis, Minnesota; Mississauga, Ontario; Philadelphia, Pennsylvania;
San Juan, Puerto Rico; Aberdeen, South Dakota; and all store locations.
We are also a joint venture partner in an office building in downtown Minneapolis, Minnesota.
ADDITIONAL INFORMATION
Additional information in response to this Item 2 can be found in the 2006 Annual Report to Stockholders under
Financial Statements Notes to Financial Statements Note 7 (Premises, Equipment, Lease Commitments and Other
Assets) on page 85. That information is incorporated into this report by reference.
ITEM 3.
LEGAL PROCEEDINGS
Information in response to this Item 3 can be found in the 2006 Annual Report to Stockholders under Financial
Statements Notes to Financial Statements Note 23 (Legal Actions) on page 112. That information is incorporated
into this report by reference.
ITEM 4.
Not applicable.
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MARKET INFORMATION
The Companys common stock is listed on the New York Stock Exchange. The Quarterly Financial Data table on page
121 of the 2006 Annual Report to Stockholders provides the quarterly prices of, and quarterly dividends paid on, the
Companys common stock for the two-year period ended December 31, 2006, and is incorporated herein by reference.
Prices shown represent the daily high and low and the quarter-end sale prices of the Companys common stock as
reported on the New York Stock Exchange Composite Transaction Reporting System for the periods indicated. At
January 31, 2007, there were 90,752 holders of record of the Companys common stock.
DIVIDENDS
The dividend restrictions discussions on pages 4-5 of this report and in the 2006 Annual Report to Stockholders under
Financial Statements Notes to Financial Statements Note 3 (Cash, Loan and Dividend Restrictions) on page 78 are
incorporated into this report by reference.
REPURCHASES OF COMMON STOCK
The following table shows Companys repurchases of its common stock for each calendar month in the quarter ended
December 31, 2006.
Calendar month
Total number
of shares
repurchased (1)
Weighted-average
price paid per share
Maximum number of
shares that may yet
be repurchased under
the authorizations
October
1,650,202
$36.50
71,233,968
November
5,682,209
36.20
65,551,759
December
Total
3,713,053
11,045,464
35.60
61,838,706
(1)
All shares were repurchased under two authorizations each covering up to 50 million shares of common stock approved by the Board of Directors and
publicly announced by the Company on November 15, 2005, and June 27, 2006. The total shares under the authorizations reflect the two-for-one stock
split in the form of a 100% stock dividend distributed August 11, 2006. Unless modified or revoked by the Board, the authorizations do not expire.
11
ITEM 6.
Information in response to this Item 6 can be found in the 2006 Annual Report to Stockholders under Financial
Review in Table 2 on page 36. That information is incorporated into this report by reference.
ITEM 7.
Information in response to this Item 7 can be found in the 2006 Annual Report to Stockholders under Financial
Review on pages 34-65. That information is incorporated into this report by reference.
ITEM 7A.
Information in response to this Item 7A can be found in the 2006 Annual Report to Stockholders under Financial
Review Risk Management Asset/Liability and Market Risk Management on pages 55-59. That information is
incorporated into this report by reference.
ITEM 8.
Information in response to this Item 8 can be found in the 2006 Annual Report to Stockholders under Financial
Statements on pages 68-120 and under Quarterly Financial Data on page 121. That information is incorporated into
this report by reference.
ITEM 9.
Not applicable.
ITEM 9A.
Information in response to this Item 9A can be found in the 2006 Annual Report to Stockholders under Controls and
Procedures on pages 66-67. That information is incorporated into this report by reference.
ITEM 9B.
OTHER INFORMATION
Not applicable.
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PART III
ITEM 10.
EXECUTIVE COMPENSATION
Information in response to this Item 11 can be found in the 2007 Proxy Statement under Item 1 Election of Directors
Compensation Committee Interlocks and Insider Participation and Director Compensation, under Executive
Compensation (other than Human Resources Committee Executive Compensation Process and Procedures) and
under Information About Related Persons Related Person Transactions. That information is incorporated into this
report by reference.
ITEM 12.
Information in response to this Item 12 can be found in the 2007 Proxy Statement under Ownership of Our Common
Stock and under Equity Compensation Plan Information. That information is incorporated into this report by
reference.
15
ITEM 13.
Information in response to this Item 13 can be found in the 2007 Proxy Statement under Corporate Governance
Director Independence and under Information About Related Persons. That information is incorporated into this
report by reference.
ITEM 14.
Information in response to this Item 14 can be found in the 2007 Proxy Statement under Item 2 Appointment of
Independent Auditors KPMG Fees and Audit and Examination Committee Pre-Approval Policies and
Procedures. That information is incorporated into this report by reference.
PART IV
ITEM 15.
1. FINANCIAL STATEMENTS
The Companys consolidated financial statements, include the notes thereto, and the report of the independent
registered public accounting firm thereon, are set forth on pages 68-120 of the 2006 Annual Report to Stockholders,
incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules for the Company have been included in the consolidated financial statements or the
related footnotes, or are either inapplicable or not required.
3. EXHIBITS
A list of exhibits to this Form 10-K is set forth on the Exhibit Index immediately preceding such exhibits and is
incorporated into this report by reference.
Stockholders may obtain a copy of any of the following exhibits, upon payment of a reasonable fee, by writing to Wells
Fargo & Company, Office of the Secretary, Wells Fargo Center, N9305-173, Sixth and Marquette, Minneapolis,
Minnesota 55479.
The Companys SEC file number is 001-2979. On and before November 2, 1998, the Company filed documents with
the SEC under the name Norwest Corporation. The former Wells Fargo & Company filed documents under SEC file
number 001-6214.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 1, 2007.
WELLS FARGO & COMPANY
By: /s/ RICHARD M. KOVACEVICH
Richard M. Kovacevich
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ HOWARD I. ATKINS
Howard I. Atkins
Senior Executive Vice President and
Chief Financial Officer (Principal Financial Officer)
March 1, 2007
By: /s/ RICHARD D. LEVY
Richard D. Levy
Executive Vice President and Controller
(Principal Accounting Officer)
March 1, 2007
The Directors of Wells Fargo & Company listed below have duly executed powers of attorney empowering Philip J.
Quigley to sign this document on their behalf.
John S. Chen
Lloyd H. Dean
Susan E. Engel
Enrique Hernandez, Jr.
Robert L. Joss
Richard M. Kovacevich
Richard D. McCormick
Cynthia H. Milligan
Donald B. Rice
Judith M. Runstad
Stephen W. Sanger
John G. Stumpf
Susan G. Swenson
Michael W. Wright
By: /s/ PHILIP J. QUIGLEY
Philip J. Quigley
Director and Attorney-in-fact
March 1, 2007
17
EXHIBIT INDEX
Exhibit
Number
Description
Location
3(a)
3(b)
By-Laws.
4(a)
4(b)
10(a)*
Filed herewith.
Filed herewith.
18
Exhibit
Number
10(a)*
Description
Location
10(b)*
10(c)*
10(d)*
10(e)*
10(f)*
10(g)*
Filed herewith.
Filed herewith.
1990 Director Option Plan for directors of the former Wells Fargo.
19
Exhibit
Number
10(h)*
Description
Location
1987 Director Option Plan for directors of the former Wells Fargo;
and
Amendment to 1987 Director Option Plan, effective
September 16, 1997.
10(i)*
10(j)*
10(k)*
10(l)*
10(m)*
20
Exhibit
Number
10(m)*
Description
Location
10(n)*
10(o)*
10(p)*
10(q)*
10(r)*
10(s)*
10(t)*
10(u)*
21
Exhibit
Number
10(v)*
Description
Location
10(w)*
10(x)
10(y)
12(a)
Filed herewith.
12(b)
2006
Including interest
on deposits
2.02
2.51
3.68
3.63
3.13
Excluding interest
on deposits
3.39
4.03
5.92
5.76
4.96
2006
Including interest
on deposits
2.02
2.51
3.68
3.62
3.13
Excluding interest
on deposits
3.39
4.03
5.92
5.74
4.95
Filed herewith.
13
Filed herewith.
21
Filed herewith.
23
Filed herewith.
24
Powers of Attorney.
Filed herewith.
22
Exhibit
Number
Description
Location
31(a)
Filed herewith.
31(b)
Filed herewith.
32(a)
Furnished herewith.
32(b)
Furnished herewith.
23
Exhibit 10(a)
Amendment to Long-Term Incentive Compensation Plan
Effective February 28, 2007, Section 2.1(l) of the Long-Term Incentive Compensation Plan was amended in its
entirety to read as follows:
(l) Fair Market Value as of any date means, unless a different calculation measure is specified by the
Committee, that days closing sales price of a Share on the New York Stock Exchange.
Action of Human Resources Committee Specifying Fair Market Value for February 27, 2007 Option Grants Under
the Long-Term Incentive Compensation Plan and for Option Exercises Involving a Market Transaction
RESOLVED that for purposes of the option grants under the Plan approved by the Committee on February 27,
2007, Fair Market Value shall mean the closing sales price of a Share on the New York Stock Exchange for
February 27, 2007.
RESOLVED that for purposes of determining the amount of compensation and withholding taxes from a cashless
exercise (same-day sale) or other Option exercise involving a market transaction, Fair Market Value shall mean the
actual price at which the sale transaction occurs.
Exhibit 10(f)
Amendments to Directors Stock Compensation and Deferral Plan
Effective November 27, 2006, the definition of Interest in Article II of the Directors Stock Compensation and
Deferral Plan was amended in its entirety to read as follows:
Interest
Effective February 27, 2007, the definition of Fair Market Value in Article II of the Directors Stock
Compensation and Deferral Plan was amended in its entirety to read as follows:
Fair Market Value The New York Stock Exchange-only closing price per share of the Common
Stock for the relevant date (e.g., option grant date or exercise date, stock award
date, etc., as the case may be) or, if the New York Stock Exchange is not open
on the relevant date, the New York Stock Exchange-only closing price per
share of the Common Stock for the trading day immediately preceding the
relevant date.
Action of Governance and Nominating Committee Increasing Amount of Formula Stock and Option Awards Under
Directors Stock Compensation and Deferral Plan
RESOLVED that effective January 1, 2007, the Fair Market Value of the formula stock award payable under
paragraph 1 of Section A of Article V of the Directors Stock Compensation and Deferral Plan (the Plan), to each
Non-Employee Director who has served as a director of the Company for at least the entire month of April in any year
and is elected as a director at the annual meeting of stockholders held that year, shall be increased from $65,000 to
$70,000.
RESOLVED that effective January 1, 2007, the Fair Market Value of the formula stock award payable under
paragraph 2 of Section A of Article V of the Plan, to each Non-Employee Director who first joins the Board after the
annual meeting of stockholders in any year but on or before September 30 in such year, shall be increased from
$65,000 to $70,000.
RESOLVED that effective January 1, 2007, the Fair Market Value of the formula stock award payable under
paragraph 3 of Section A of Article V of the Plan, to each Non-Employee Director who first joins the Board on or after
October 1 in any year but on or before March 31 of the following year, shall be increased from $32,500 to $35,000.
RESOLVED that effective January 1, 2007, the Fair Market Value of the formula award of options payable
under Section A of Article IV of the Plan shall be increased from $57,000 to $60,000.
EXHIBIT 12(a)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(in millions)
Earnings, including interest on deposits (1):
Income before income tax expense and effect of change in accounting principle
Fixed charges
Fixed charges:
Interest expense
Less interest on deposits
Estimated interest component of net rental expense
(1)
(2)
2006
2005
$12,745
12,498
$25,243
$11,548
7,656
$19,204
$10,769
4,017
$14,786
$ 9,477
3,606
$13,083
$ 8,854
4,155
$13,009
$12,288
210
$12,498
$ 7,458
198
$ 7,656
$ 3,817
200
$ 4,017
$ 3,411
195
$ 3,606
$ 3,977
178
$ 4,155
2.02
2.51
3.68
3.63
3.13
$12,745
5,324
$18,069
$11,548
3,808
$15,356
$10,769
2,190
$12,959
$ 9,477
1,993
$11,470
$ 8,854
2,236
$11,090
$12,288
7,174
210
$ 5,324
$ 7,458
3,848
198
$ 3,808
$ 3,817
1,827
200
$ 2,190
$ 3,411
1,613
195
$ 1,993
$ 3,977
1,919
178
$ 2,236
3.39
4.03
5.92
5.76
4.96
EXHIBIT 12(b)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
(in millions)
2006
2005
$12,745
12,498
$25,243
$11,548
7,656
$19,204
$10,769
4,017
$14,786
$ 9,477
3,606
$13,083
$ 8,854
4,155
$13,009
1.51
1.50
$
1.54
3
1.53
4
1.55
12,288
210
12,498
$12,498
7,458
198
7,656
$ 7,656
3,817
200
4,017
$ 4,017
3,411
195
3,606
$ 3,611
3,977
178
4,155
$ 4,161
2.02
2.51
3.68
3.62
3.13
$12,745
5,324
$18,069
$11,548
3,808
$15,356
$10,769
2,190
$12,959
$ 9,477
1,993
$11,470
$ 8,854
2,236
$11,090
12,288
7,174
210
5,324
$ 5,324
7,458
3,848
198
3,808
$ 3,808
3,817
1,827
200
2,190
$ 2,190
3,411
1,613
195
1,993
$ 1,998
3,977
1,919
178
2,236
$ 2,242
3.39
4.03
5.92
5.74
4.95
Exhibit 13
Financial Review
34
38
41
47
48
49
59
59
61
Financial Statements
Overview
Critical Accounting Policies
Earnings Performance
Balance Sheet Analysis
Off-Balance Sheet Arrangements and
Aggregate Contractual Obligations
Risk Management
Capital Management
Comparison of 2005 with 2004
Risk Factors
68
69
70
71
72
120
121
33
This Annual Report, including the Financial Review and 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 significantly from our forecasts and expectations due to
several factors. Please refer to the Risk Factors section of this Report for a discussion of some of the factors that may cause results to differ.
Financial Review
Overview
Wells Fargo & Company is a $482 billion diversified financial services
company providing banking, insurance, investments, mortgage banking
and consumer finance through banking stores, the internet and other
distribution channels to consumers, businesses and institutions in all 50
states of the U.S. and in other countries. We ranked fifth in assets and
fourth in market value of our common stock among U.S. bank holding
companies at December 31, 2006. When we refer to the Company,
we, our or us in this Report, we mean Wells Fargo & Company
and Subsidiaries (consolidated). When we refer to the Parent, we
mean Wells Fargo & Company.
We had another exceptional year in 2006, with record diluted
earnings per share of $2.49, record net income of $8.5 billion, both up
11%, and exceptional, broad-based performance across our more than
80 businesses. All common share and per share disclosures in this
Report reflect the two-for-one stock split in the form of a 100% stock
dividend distributed August 11, 2006.
Over the past twenty years, our annual compound growth rate in
earnings per share was 14% and our annual compound growth rate in
revenue was 12%. Our total annual compound stockholder return of
14% the past five years was more than double the S&P 500 and at
15% almost double for the past ten years. We far out-paced the S&P
500 the past 15 and 20 years with total annual compound shareholder
returns of 18% and 21%, respectivelyperiods with almost every
economic cycle and economic condition a financial institution can
experience. Our primary strategy, consistent for 20 years, is to satisfy all
our customers financial needs, help them succeed financially and,
through cross-selling, gain market share, wallet share and earn 100% of
their business.
Our growth in earnings per share was driven by revenue growth. Our
primary sources of earnings are lending and deposit taking activities,
which generate net interest income, and providing financial services that
generate fee income.
Revenue grew 8% to a record $35.7 billion from $32.9 billion in
2005. The breadth and depth of our business model resulted in very
strong and balanced growth across product sources (net interest income
up 8%, noninterest income up 9%) and across businesses (double-digit
revenue and/or profit growth in regional banking, business direct,
wealth management, credit and debit card, corporate trust, commercial
banking, asset-based lending, asset management, real estate brokerage,
insurance, international, commercial real estate, corporate banking and
specialized financial services).
We have stated in the past that to consistently grow over the long
term, successful companies must invest in their core businesses and in
maintaining strong balance sheets. We continued to make investments
in 2006 by opening 109 regional banking stores. We grew our sales and
service force by adding 4,497 team members (full-time equivalents) in
2006, including 1,914 retail platform bankers. We continued to be #1 in
many categories of financial services nationally, including retail
mortgage originations, home equity lending, small business lending,
agricultural lending, internet banking, and provider of financial services
to middle-market companies in the western U.S.
Our solid financial performance enables us to be one of the top
givers to non-profits among all U.S. companies. Wells Fargo Bank,
N.A. continued to be rated as Aaa, the highest possible credit rating
issued by Moodys Investors Service, and was upgraded in
February 2007 to AAA, the highest possible credit rating issued by
Standard & Poors Ratings Services. Of the more than 1,100 financial
institutions and 70 national banking systems covered by S&P globally,
this upgrade makes our bank one of only two banks worldwide to have
S&Ps AAA credit rating. Our bank is now the only U.S. bank to have
the highest possible credit rating from both Moodys and S&P.
Our vision is to satisfy all our customers financial needs, help them
succeed financially, be recognized as the premier financial services
company in our markets and be one of Americas great companies. Our
primary strategy to achieve this vision is to increase the number of
products our customers buy from us and to give them all the financial
products that fulfill their needs. Our cross-sell strategy and diversified
business model facilitate growth in strong and weak economic cycles, as
we can grow by expanding the number of products
34
our current customers have with us. Our cross-sell set records for the
eighth consecutive yearour average retail banking household now has
5.2 products, almost one in five have more than eight, six for Wholesale
Banking customers, and our average middle-market commercial
banking customer has more than seven products. Our goal is eight
products per customer, which is currently half of our estimate of
potential demand.
Net income in 2006 increased 11% to $8.5 billion from $7.7 billion
in 2005. Diluted earnings per common share increased 11% to $2.49 in
2006 from $2.25 in 2005. Return on average total assets was 1.75% and
return on average stockholders equity was 19.65% in 2006, compared
with 1.72% and 19.59%, respectively, in 2005.
Net interest income on a taxable-equivalent basis was $20.1 billion
in 2006, compared with $18.6 billion a year ago, reflecting solid loan
growth (excluding adjustable rate mortgages (ARMs)) and a relatively
stable net interest margin. With short-term interest rates now above 5%,
our cumulative sales of ARMs and debt securities since mid-2004 have
had a positive impact on our net interest margin and net interest income.
We have completed our sales of over $90 billion of ARMs since mid2004 with the sales of $26 billion of ARMs in second quarter 2006.
Average earning assets grew 8% from 2005, or 17% excluding 1-4
family first mortgages (the loan category that includes ARMs). Our net
interest margin was 4.83% for 2006, compared with 4.86% in 2005.
Noninterest income increased 9% to $15.7 billion in 2006 from
$14.4 billion in 2005. Growth in noninterest income was driven by
growth across our businesses, with particular strength in trust and
investment fees (up 12%), card fees (up 20%), insurance fees (up 10%)
and gains on equity investments (up 44%).
Revenue, the sum of net interest income and noninterest income,
increased 8% to a record $35.7 billion in 2006 from $32.9 billion in
2005. Wells Fargo Home Mortgage (Home Mortgage) revenue
decreased $704 million, or 15%, to
PROFITABILITY RATIOS
Net income to average total assets (ROA)
Net income to average stockholdersequity
(ROE)
EFFICIENCY RATIO (1)
CAPITAL RATIOS
At year end:
Stockholders equity to assets
Risk-based capital (2)
Tier 1 capital
Total capital
Tier 1 leverage (2)
Average balances:
Stockholders equity to assets
PER COMMON SHARE DATA
Dividend payout (3)
Book value
Market price (4)
High
Low
Year end
1.75%
1.72%
1.71%
19.65
19.59
19.57
58.1
57.7
58.5
9.52
8.44
8.85
8.95
12.50
7.89
8.26
11.64
6.99
8.41
12.07
7.08
8.88
8.78
8.73
42.9
$13.58
44.1
$12.12
44.9
$11.17
$36.99
30.31
35.56
$32.35
28.81
31.42
$32.02
27.16
31.08
(1) The efficiency ratio is noninterest expense divided by total revenue (net
interest income and noninterest income).
(2) See Note 25 (Regulatory and Agency Capital Requirements) to Financial
Statements for additional information.
(3) Dividends declared per common share as a percentage of earnings per
common share.
(4) Based on daily prices reported on the New York Stock Exchange Composite
Transaction Reporting System.
35
% Change
2006/
2005
Five-year
compound
growth rate
2006
2005
2004
2003
2002
2001
$ 19,951
15,740
35,691
2,204
20,742
$ 18,504
14,445
32,949
2,383
19,018
$ 17,150
12,909
30,059
1,717
17,573
$ 16,007
12,382
28,389
1,722
17,190
$ 14,482
10,767
25,249
1,684
14,711
$ 11,976
9,005
20,981
1,727
13,794
8%
9
8
(8)
9
11%
12
11
5
9
8,482
2.52
2.49
7,671
2.27
2.25
7,014
2.07
2.05
6,202
1.84
1.83
5,710
1.68
1.66
3,411
0.99
0.98
11
11
11
20
21
21
8,482
2.52
2.49
7,671
2.27
2.25
7,014
2.07
2.05
6,202
1.84
1.83
5,434
1.60
1.58
3,411
0.99
0.98
11
11
11
20
21
21
17
2
3
(3)
5
7
9
1
14
3
9
8
19
13
11
(1)
1.08
1.00
0.93
0.75
0.55
0.50
$ 42,629
319,116
3,764
11,275
481,996
270,224
87,145
$ 41,834
310,837
3,871
10,787
481,741
253,341
79,668
$ 33,717
287,586
3,762
10,681
427,849
229,703
73,580
$ 32,953
253,073
3,891
10,371
387,798
211,271
63,642
$ 27,947
192,478
3,819
9,753
349,197
198,234
47,320
$ 40,308
167,096
3,717
9,527
307,506
182,295
36,095
45,876
40,660
37,866
34,469
2,885
30,319
2,435
27,175
Change in accounting principle is for a transitional goodwill impairment charge recorded in 2002 upon adoption of FAS 142, Goodwill and Other Intangible
Assets .
(2)
Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, and market rate and other savings.
(3)
At December 31, 2003, upon adoption of FIN 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46(R)), these balances were reflected
in long-term debt. See Note 12 (Long-Term Debt) to Financial Statements for more information.
36
Given that the majority of our loan portfolio is consumer loans, for
which losses tend to emerge within a relatively short, predictable
timeframe, and that a significant portion of the allowance for credit
losses relates to estimated credit losses associated with consumer loans,
management believes that the provision for credit losses for consumer
loans, absent any significant credit event, will closely track the level of
related net charge-offs. From time to time, events or economic factors
may impact the loan portfolio, as Hurricane Katrina did in 2005 and
2006, causing management to provide additional amounts or release
balances from the allowance for credit losses.
are generally offset by gains or losses in the fair value of the derivatives
depending on the amount of MSRs we hedge and the particular
instruments chosen to hedge the MSRs. We may choose not to fully
hedge MSRs, partly because origination volume tends to act as a
natural hedge. For example, as interest rates decline, servicing values
decrease and fees from origination volume tend to increase. Conversely,
as interest rates increase, the fair value of the MSRs increases, while
fees from origination volume tend to decline. See Mortgage Banking
Interest Rate Risk for discussion of the timing of the effect of changes
in mortgage interest rates.
Net servicing income, a component of mortgage banking noninterest
income, includes the changes from period to period in fair value of both
our residential MSRs and the free-standing derivatives (economic
hedges) used to hedge our residential MSRs. Changes in the fair value
of residential MSRs from period to period result from (1) changes in the
valuation model inputs or assumptions (principally reflecting changes in
discount rates and prepayment speed assumptions, mostly due to
changes in interest rates) and (2) other changes, representing changes
due to collection/realization of expected cash flows. Prior to the
adoption of FAS 156, we carried residential MSRs at the lower of cost
or market, with amortization of MSRs and changes in the MSRs
valuation allowance recognized in net servicing income.
We use a dynamic and sophisticated model to estimate the value of
our MSRs. The model is validated by an independent internal model
validation group operating in accordance with Company policies. Senior
management reviews all significant assumptions quarterly. Mortgage
loan prepayment speeda key assumption in the modelis the annual
rate at which borrowers are forecasted to repay their mortgage loan
principal. The discount rate used to determine the present value of
estimated future net servicing incomeanother key assumption in the
modelis the required rate of return investors in the market would
expect for an asset with similar risk. To determine the discount rate, we
consider the risk premium for uncertainties from servicing operations
(e.g., possible changes in future servicing costs, ancillary income and
earnings on escrow accounts). Both assumptions can, and generally will,
change quarterly valuations as market conditions and interest rates
change. For example, an increase in either the prepayment speed or
discount rate assumption results in a decrease in the fair value of the
MSRs, while a decrease in either assumption would result in an increase
in the fair value of the MSRs. In recent years, there have been
significant market-driven fluctuations in loan prepayment speeds and
the discount rate. These fluctuations can be rapid and may be significant
in the future. Therefore, estimating prepayment speeds within a range
that market participants would use in determining the fair value of
MSRs requires significant management judgment.
These key economic assumptions and the sensitivity of the fair value
of MSRs to an immediate adverse change in those assumptions are
shown in Note 20 (Securitizations and Variable Interest Entities) to
Financial Statements.
39
Pension Accounting
We account for our defined benefit pension plans using an actuarial
model required by FAS 87, Employers Accounting for Pensions , as
amended by FAS 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R) . FAS 158 was issued on
September 29, 2006, and became effective for us on December 31,
2006. FAS 158 requires us to recognize the funded status of our pension
and postretirement benefit plans on our balance sheet. Additionally,
FAS 158 will require us to use a year-end measurement date beginning
in 2008. We conformed our pension asset and our pension and
postretirement liabilities to FAS 158 and recorded a corresponding
reduction of $402 million (after tax) to the December 31, 2006, balance
of cumulative other comprehensive income in stockholders equity. The
adoption of FAS 158 did not change the amount of net periodic benefit
expense recognized in our income statement.
We use four key variables to calculate our annual pension cost: size
and characteristics of the employee population, actuarial assumptions,
expected long-term rate of return on plan assets, and discount rate. We
describe below the effect of each of these variables on our pension
expense.
of return for 2007 is 8.75%, the same rate used for 2006. Differences in
each year, if any, between expected and actual returns are included in
our net actuarial gain or loss amount, which is recognized in other
comprehensive income. We generally amortize any net actuarial gain or
loss in excess of a 5% corridor (as defined in FAS 87, Employers
Accounting for Pensions ) in net periodic pension expense calculations
over the next five years. Our average remaining service period is
approximately 11 years. See Note 15 (Employee Benefits and Other
Expenses) to Financial Statements for information on funding, changes
in the pension benefit obligation, and plan assets (including the
investment categories, asset allocation and the fair value).
We use November 30 as the measurement date for our pension assets
and projected benefit obligations. If we were to assume a 1%
increase/decrease in the expected long-term rate of return, holding the
discount rate and other actuarial assumptions constant, pension expense
would decrease/increase by approximately $54 million.
Under FAS 158, we will be required to use December 31 as a
measurement date for our pension assets and benefit obligations for
fiscal years ending after December 15, 2008. (See Current Accounting
Developments for more information.)
We use the discount rate to determine the present value of our future
benefit obligations. It reflects the rates available on long-term highquality fixed-income debt instruments, and is reset annually on the
measurement date. As the basis for determining our discount rate, we
review the Moodys Aa Corporate Bond Index, on an annualized basis,
and the rate of a hypothetical portfolio using the Hewitt Yield Curve
(HYC) methodology, which was developed by our independent actuary.
The instruments used in both the Moodys Aa Corporate Bond Index
and the HYC consist of high quality bonds for which the timing and
amount of cash outflows approximates the estimated payouts of our
Cash Balance Plan. We used a discount rate of 5.75% in 2006 and 2005.
If we were to assume a 1% increase in the discount rate, and keep the
expected long-term rate of return and other actuarial assumptions
constant, pension expense would decrease by approximately
$37 million. If we were to assume a 1% decrease in the discount rate,
and keep other assumptions constant, pension expense would increase
by approximately $103 million. The decrease in pension expense due to
a 1% increase in discount rate differs from the increase in pension
expense due to a 1% decrease in discount rate due to the impact of the
5% gain/loss corridor.
DISCOUNT RATE
We determine the expected return on plan assets each year based on the
composition of assets and the expected long-term rate of return on that
portfolio. The expected long-term rate of return assumption is a longterm assumption and is not anticipated to change significantly from year
to year.
To determine if the expected rate of return is reasonable, we consider
such factors as (1) the actual return earned on plan assets, (2) historical
rates of return on the various asset classes in the plan portfolio,
(3) projections of returns on various asset classes, and (4)
current/prospective capital market conditions and economic forecasts.
Our expected rate
40
Earnings Performance
Average earning assets increased $32.3 billion to $415.8 billion in
2006 from $383.5 billion in 2005. Loans averaged $306.9 billion in
2006, compared with $296.1 billion in 2005. Average mortgages held
for sale were $42.9 billion in 2006 and $39.0 billion in 2005. Debt
securities available for sale averaged $53.6 billion in 2006 and
$33.1 billion in 2005.
Average core deposits are an important contributor to growth in net
interest income and the net interest margin. This low-cost source of
funding rose 7% from 2005. Average core deposits were $260.0 billion
and $242.8 billion and funded 53.5% and 54.5% of average total assets
in 2006 and 2005, respectively. Total average retail core deposits, which
exclude Wholesale Banking core deposits and retail mortgage escrow
deposits, for 2006 grew $12.0 billion, or 6%, from 2005. Average
mortgage escrow deposits were $18.2 billion in 2006 and $16.7 billion
in 2005. Savings certificates of deposits increased on average to
$32.4 billion in 2006 from $22.6 billion in 2005 and noninterest-bearing
checking accounts and other core deposit categories increased on
average to $227.7 billion in 2006 from $220.1 billion in 2005.
Total average interest-bearing deposits increased to $223.8 billion in
2006 from $194.6 billion in 2005, largely due to organic growth.
Table 3 presents the individual components of net interest income
and the net interest margin.
5,515
4,958
Yields/
rates
4.80%
4.95
2006
Interest
income/
expense
265
245
Average
balance
5,448
5,411
Yields/
rates
3.01%
3.52
2005
Interest
income/
expense
164
190
875
4.36
39
997
3.81
38
3,192
7.98
245
3,395
8.27
266
36,691
6.04
2,206
19,768
6.02
1,162
6,640
43,331
6,204
6.57
6.12
7.10
430
2,636
439
5,128
24,896
3,846
5.60
5.94
7.10
283
1,445
266
53,602
42,855
630
6.31
6.41
7.40
3,359
2,746
47
33,134
38,986
2,857
6.24
5.67
5.10
2,015
2,213
146
65,720
29,344
14,810
5,437
8.13
7.32
7.94
5.72
5,340
2,148
1,175
311
58,434
29,098
11,086
5,226
6.76
6.31
6.67
5.91
3,951
1,836
740
309
115,311
7.78
8,974
103,844
6.58
6,836
57,509
7.27
4,182
78,170
6.42
5,016
64,255
12,571
7.98
13.29
5,126
1,670
55,616
10,663
6.61
12.33
3,679
1,315
50,922
185,257
6,343
306,911
1,357
$ 415,828
9.60
8.57
12.39
8.35
4.97
7.79
4,889
15,867
786
25,627
68
32,357
43,102
187,551
4,711
296,106
1,581
$ 383,523
8.80
7.36
13.49
7.19
4.34
6.81
3,794
13,804
636
21,276
68
26,072
4,302
134,248
32,355
32,168
20,724
223,797
21,471
84,035
2.86
2.40
3.91
4.99
4.60
3.21
4.62
4.91
123
3,225
1,266
1,607
953
7,174
992
4,124
3,607
129,291
22,638
27,676
11,432
194,644
24,074
79,137
1.43
1.45
2.90
3.29
3.12
1.98
3.09
3.62
51
1,874
656
910
357
3,848
744
2,866
329,303
3.73
12,290
297,855
2.50
7,458
FUNDING SOURCES
Deposits:
Interest-bearing checking
Market rate and other savings
Savings certificates
Other time deposits
Deposits in foreign offices
Total interest-bearing deposits
Short-term borrowings
Long-term debt
Guaranteed preferred beneficial interests
in Companys subordinated
debentures (6)
Total interest-bearing
liabilities
Portion of noninterest-bearing funding
sources
86,525
Total funding sources
$ 415,828
Net interest margin and net interest
income on a taxableequivalent basis (7)
NONINTEREST-EARNING ASSETS
Cash and due from banks
$ 12,466
Goodwill
11,114
Other
46,615
Total noninterest-earning
assets
$ 70,195
NONINTEREST-BEARING FUNDING SOURCES
Deposits
$ 89,117
Other liabilities
24,430
Stockholders equity
43,173
Noninterest-bearing funding sources used
to fund earning assets
(86,525)
Net noninterest-bearing
funding sources
$ 70,195
TOTAL ASSETS
$ 486,023
2.96
4.83%
12,290
85,668
$ 383,523
1.95
4.86%
$ 20,067
7,458
$ 18,614
$ 13,173
10,705
38,389
$ 62,267
$ 87,218
21,559
39,158
(85,668)
$ 62,267
$ 445,790
(1)
Our average prime rate was 7.96%, 6.19%, 4.34%, 4.12% and 4.68% for 2006, 2005, 2004, 2003 and 2002, respectively.The average three-month London
Interbank Offered Rate (LIBOR) was 5.20%, 3.56%, 1.62%, 1.22% and 1.80% for the same years, respectively.
(2)
Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
(3)
Yields are based on amortized cost balances computed on a settlement date basis.
(4)
42
Average
balance
Yields/
rates
1.49%
2.75
1,161
4.05
3,501
64
145
Average
balance
Yields/
rates
4,174
6,110
1.16%
2.56
46
1,286
4.74
8.00
267
2,424
21,404
6.03
1,248
3,604
25,008
3,395
5.16
5.91
7.72
33,065
32,263
8,201
2003
Interest
income/
expense
49
156
Yields/
rates
2002
Interest
income/
expense
1.73%
3.58
58
1,770
5.57
95
8.62
196
2,106
8.33
167
18,283
7.37
1,276
26,718
7.23
1,856
180
1,428
236
2,001
20,284
3,302
6.24
7.26
7.75
120
1,396
240
2,341
29,059
3,029
7.18
7.22
7.74
163
2,019
232
6.24
5.38
3.56
1,977
1,737
292
27,296
58,672
7,142
7.32
5.34
3.51
1,890
3,136
251
35,964
39,858
5,380
7.25
6.13
4.69
2,513
2,450
252
49,365
28,708
8,724
5,068
5.77
5.35
5.30
6.23
2,848
1,535
463
316
47,279
25,846
7,954
4,453
6.08
5.44
5.11
6.22
2,876
1,405
406
277
46,520
25,413
7,925
4,079
6.80
6.17
5.69
6.32
3,164
1,568
451
258
91,865
5.62
5,162
85,532
5.80
4,964
83,937
6.48
5,441
87,700
5.44
4,772
56,252
5.54
3,115
32,669
6.69
2,185
44,415
8,878
5.18
11.80
2,300
1,048
31,670
7,640
5.80
12.06
1,836
922
25,220
6,810
7.07
12.27
1,783
836
33,528
174,521
3,184
269,570
1,709
$ 354,348
9.01
6.38
15.30
6.23
3.81
5.97
3,022
11,142
487
16,791
65
21,071
29,838
125,400
2,200
213,132
1,626
$ 318,152
9.09
6.85
18.00
6.54
4.57
6.16
2,713
8,586
396
13,946
74
19,502
24,072
88,771
1,774
174,482
1,436
$ 264,828
10.28
8.20
18.90
7.48
4.87
7.04
2,475
7,279
335
13,055
72
18,562
3,059
122,129
18,850
29,750
8,843
182,631
26,130
67,898
0.44
0.69
2.26
1.43
1.40
1.00
1.35
2.41
13
838
425
427
124
1,827
353
1,637
2,571
106,733
20,927
25,388
6,060
161,679
29,898
53,823
0.27
0.66
2.53
1.20
1.11
1.00
1.08
2.52
7
705
529
305
67
1,613
322
1,355
2,494
93,787
24,278
8,191
5,011
133,761
33,278
42,158
0.55
0.95
3.21
1.86
1.58
1.43
1.61
3.33
14
893
780
153
79
1,919
536
1,404
3,306
3.66
121
2,780
4.23
118
276,659
1.38
3,817
248,706
1.37
3,411
211,977
1.88
3,977
77,689
69,446
52,851
Average
balance
2,961
4,747
4,254
5,286
2004
Interest
income/
expense
51
169
$ 354,348
1.08
4.89%
3,817
$ 318,152
1.08
$ 17,254
5.08%
3,411
$ 264,828
$ 16,091
5.53%
$ 13,055
10,418
32,758
$ 13,433
9,905
36,123
$ 13,820
9,737
33,340
$ 56,231
$ 59,461
$ 56,897
$ 79,321
18,764
35,835
$ 76,815
20,030
32,062
$ 63,574
17,054
29,120
(77,689)
$ 56,231
$ 410,579
(69,446)
$ 59,461
$ 377,613
1.51
3,977
$ 14,585
(52,851)
$ 56,897
$ 321,725
(5)
Nonaccrual loans and related income are included in their respective loan categories.
(6)
At December 31, 2003, upon adoption of FIN 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46(R)), these balances were reflected
in long-term debt. See Note 12 (Long-Term Debt) to Financial Statements for more information.
(7)
Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities.The federal statutory tax rate was 35% for all years
presented.
43
Table 4 allocates the changes in net interest income on a taxableequivalent basis to changes in either average balances or average rates
for both interest-earning assets and interest-bearing liabilities. Because
of the numerous simultaneous volume and rate changes during any
period,
(in millions)
2006 over 2005
Rate
Total
Volume
Increase (decrease) in interest income:
Federal funds sold, securities purchased under resale agreements and
other short-term investments
Trading assets
Debt securities available for sale:
Securities of U.S. Treasury and federal agencies
Securities of U.S. states and political subdivisions
Mortgage-backed securities:
Federal agencies
Private collateralized mortgage obligations
Other debt securities
Mortgages held for sale
Loans held for sale
Loans:
Commercial and commercial real estate:
Commercial
Other real estate mortgage
Real estate construction
Lease financing
Consumer:
Real estate 1-4 family first mortgage
Real estate 1-4 family junior lien mortgage
Credit card
Other revolving credit and installment
Foreign
Other
Total increase in interest income
Increase (decrease) in interest expense:
Deposits:
Interest-bearing checking
Market rate and other savings
Savings certificates
Other time deposits
Deposits in foreign offices
Short-term borrowings
Long-term debt
Total increase in interest expense
Increase (decrease) in net interest income on a taxable-equivalent basis
2
(17)
(5)
(13)
99
72
6
(8)
101
55
Volume
$
22
3
78
42
100
45
1
(21)
(6)
(9)
(2)
8
(8)
(1)
1,040
93
173
230
(146)
4
54
303
47
1,044
147
173
533
(99)
(84)
86
45
378
(240)
(2)
17
(15)
98
94
(86)
103
30
476
(146)
529
16
278
12
860
296
157
(10)
1,389
312
435
2
570
21
142
10
533
280
135
(17)
1,103
301
277
(7)
(1,441)
620
247
730
205
(10)
2,543
607
827
108
365
(55)
10
3,742
(834)
1,447
355
1,095
150
6,285
(555)
658
218
844
212
(5)
2,310
799
721
49
(72)
(63)
8
2,691
244
1,379
267
772
149
3
5,001
12
75
337
167
376
(88)
186
1,065
1,478
60
1,276
273
530
220
336
1,072
3,767
(25)
72
1,351
610
697
596
248
1,258
4,832
1,453
3
52
96
(32)
45
(30)
305
439
1,871
35
984
135
515
188
421
924
3,202
(511)
38
1,036
231
483
233
391
1,229
3,641
1,360
Noninterest Income
We earn trust, investment and IRA fees from managing and
administering assets, including mutual funds, corporate trust, personal
trust, employee benefit trust and agency assets. At December 31, 2006,
these assets totaled $983 billion, up 26% from $783 billion at
December 31, 2005. Generally, trust, investment and IRA fees are based
on the market value of the assets that are managed, administered, or
both. The increase in these fees in 2006 was due to continued strong
growth across all the trust and investment management businesses.
We also receive commissions and other fees for providing services to
full-service and discount brokerage customers. At December 31, 2006
and 2005, brokerage assets totaled $115 billion and $97 billion,
respectively. Generally, these fees include transactional commissions,
which are based on the number of transactions executed at the
customers direction, or asset-based fees, which are based on the market
value of the customers assets. The increase in these fees in 2006 was
primarily due to continued growth in asset-based fees.
44
Service charges on
deposit accounts
Trust and investment
fees:
Trust,investment and
IRA fees
Commissions and all
other fees
Total trust and
investment fees
Card fees
Other fees:
Cash network fees
Charges and fees on
loans
All other
Total other fees
Mortgage banking:
Servicing income,net
Net gains on mortgage
loan
origination/sales
activities
All other
Total mortgage
banking
7%
4%
2,033
1,855
1,509
10
23
704
581
607
21
(4)
2,737
2,436
2,116
12
15
1,747
1,458
1,230
20
19
184
180
180
976
897
2,057
1,022
727
1,929
921
678
1,779
(5)
23
7
11
7
8
893
987
1,037
(10)
(5)
1,116
302
1,085
350
539
284
3
(14)
101
23
2,311
2,422
1,860
(5)
30
(4)
10
(5)
(3)
2
9
Operating leases
812
836
783
Insurance
1,215
1,193
1,340
Trading assets
571
523
544
Net losses on debt
securities available for
sale
(120)
(15)
(19)
Net gains from equity
investments
511
394
738
All other
699
576
812
Total
$15,740 $14,445 $12,909
(84)
700
44
16
9
30
21
12
December 31,
2005
2006
$ 117
232
39
10
$ 398
$ 139
176
39
12
$ 366
Net losses on debt securities were $19 million for 2006, compared
with $120 million for 2005. Net gains from equity investments were
$738 million in 2006, compared with $511 million in 2005, primarily
reflecting the continued strong performance of our venture capital
business.
We routinely review our investment portfolios and recognize
impairment write-downs based primarily on issuer-specific factors and
results, and our intent to hold such securities. We also consider general
economic and market conditions, including industries in which venture
capital investments are made, and adverse changes affecting the
availability of venture capital. We determine impairment based on all of
the information available at the time of the assessment, with particular
focus on the severity and duration of specific security impairments, but
new information or economic developments in the future could result in
recognition of additional impairment.
interest margin resulting from solid loan and deposit growth. Excluding
real estate 1-4 family mortgagesthe loan category affected by the
sales of ARMs during the yeartotal average loans grew $15.1 billion,
or 12%. Average deposit growth was $18.8 billion, or 7%, and was
driven by a 5% increase in consumer checking accounts and 4% growth
in business checking accounts. Noninterest income increased
$497 million, or 5%, primarily due to strong double-digit growth in
debit and credit card fees, trust and investment fees, and service charge
fee income, driven by the growth in both consumer and business
checking accounts, partially offset by lower mortgage banking
noninterest income. The provision for credit losses for 2006 decreased
$8 million from 2005, which included incremental losses due to the
change to the bankruptcy law in 2005. Noninterest expense for 2006
increased $850 million, or 7%, due to the addition of 2,800 sales and
service team members, including 1,914 retail platform bankers, the
opening of 109 banking stores, 246 net new webATM machines and
investments in technology.
Noninterest Expense
Table 7: Noninterest Expense
(in millions)
Salaries
$ 7,007 $ 6,215 $ 5,393
Incentive compensation
2,366
1,807
2,885
Employee benefits
1,874
1,724
2,035
Equipment
1,267
1,236
1,252
Net occupancy
1,412
1,208
1,405
Operating leases
635
633
630
Outside professional
services
835
669
942
Contract services
596
626
579
Travel and entertainment
481
442
542
Advertising and promotion
443
459
456
Outside data processing
449
418
437
Postage
281
269
312
Telecommunications
278
296
279
Insurance
224
247
257
Stationery and supplies
205
240
223
Operating losses
194
192
180
Security
167
161
179
Core deposit intangibles
123
134
112
Charitable donations
61
248
59
Net losses from debt
extinguishment
11
174
24
All other
901
997
947
Total
$20,742 $19,018 $17,573
13%
22
9
(1)
(1)
13
(3)
13
3
(3)
11
15
9
(7)
7
(9)
(3)
118
5
9
15%
31
9
3
17
25
(5)
9
(3)
7
4
(6)
(9)
(15)
1
4
(8)
(75)
(94)
(10)
8
$865 million in 2006 from $409 million in 2005. Net income in 2006
was reduced by an increase of $160 million (pre tax) in auto losses
partially due to growth and seasoning, but largely due to collection
capacity constraints and restrictive payment extension practices during
the integration of the prime and non-prime auto loan businesses. Net
income for 2006 also included a $50 million (pre tax) release of
provision for credit losses releasing the remaining portion of the
provision made for Hurricane Katrina. Net income for 2005 included
incremental losses due to the change in the bankruptcy law, a first
quarter 2005 $163 million charge (pre tax) to conform Wells Fargo
Financials charge-off practices with FFIEC guidelines, and
$100 million (pre tax) for estimated losses
After
one year
through
five years
$ 12,181 $ 9,108
46,608 21,819
$ 58,789 $30,927
Deposits
Year-end deposit balances are shown in Table 10. Comparative detail of
average deposit balances is included in Table 3. Average core deposits
increased $17.2 billion to $260.0 billion in 2006 from $242.8 billion in
2005, primarily due to an increase in savings certificates. Average core
deposits funded 53.5% and 54.5% of average total assets in 2006 and
2005, respectively. Total average interest-bearing deposits increased to
$223.8 billion in 2006 from $194.6 billion in 2005, largely due to
organic growth. Total average noninterest-bearing deposits rose to
$89.1 billion in 2006 from $87.2 billion in 2005. Savings certificates
increased on average to $32.4 billion in 2006 from $22.6 billion in
2005.
29.0
32.0
(2.0)
1.0
7.0 yrs.
1.1 yrs.
47
December 31 ,
%
2005 Change
2006
2%
$ 89,119 $ 87,712
3,324
6
3,540
4
140,283 134,811
27,494
36
37,282
7
270,224 253,341
46,488
(70)
13,819
14,621
79
26,200
(1)
$310,243 $314,450
Contractual Obligations
In addition to the contractual commitments and arrangements described
above, which, depending on the nature of the obligation, may or may
not require use of our resources, we enter into other contractual
obligations in the ordinary course of business, including debt issuances
for the funding of operations and leases for premises and equipment.
Table 11 summarizes these contractual obligations at December 31,
2006, except obligations for short-term borrowing arrangements and
pension and postretirement benefit
(1)
(2)
(3)
Note(s) to
Financial Statements
Less than
1 year
10
7, 12
7
$ 71,254
14,741
567
326
$ 86,888
1-3
years
$
4,753
18,640
870
589
$ 24,852
3-5
years
$
1,125
23,941
574
10
$ 25,650
More than
5 years
Indeterminate
maturity (1)
256
29,823
1,135
2
$ 31,216
232,855
232,855
Total
$ 310,243
87,145
3,146
927
$ 401,461
Includes interest-bearing and noninterest-bearing checking, and market rate and other savings accounts.
Includes capital leases of $12 million.
Represents agreements to purchase goods or services.
Risk Management
data integrity standards to ensure accurate and complete credit
performance reporting for the consolidated company. We strive to
identify problem loans early and have dedicated, specialized collection
and work-out units.
The Chief Credit Officer, who reports directly to the Chief Executive
Officer, provides company-wide credit oversight. Each business unit
with direct credit risks has a credit officer and has the primary
responsibility for managing its own credit risk. The Chief Credit Officer
delegates authority, limits and other requirements to the business units.
These delegations are routinely reviewed and amended if there are
significant changes in personnel, credit performance or business
requirements. The Chief Credit Officer is a member of the Companys
Management Committee. The Chief Credit Officer provides a quarterly
credit review to the Credit Committee of the Board of Directors and
meets with them periodically.
Our business units and the office of the Chief Credit Officer
periodically review all credit risk portfolios to ensure that the risk
identification processes are functioning properly and that credit
standards are followed. Business units conduct quality assurance
reviews to ensure that loans meet portfolio or investor credit standards.
Our loan examiners and internal auditors also independently review
portfolios with credit risk.
Our primary business focus on middle-market commercial and
residential real estate, auto and small consumer lending, results in
portfolio diversification. We assess loan portfolios for geographic,
industry or other concentrations and use mitigation strategies, which
may include loan sales, syndications or third party insurance, to
minimize these concentrations, as we deem appropriate.
In our commercial loan, commercial real estate loan and lease
financing portfolios, larger or more complex loans are individually
underwritten and judgmentally risk rated. They are periodically
monitored and prompt corrective actions are taken on deteriorating
loans. Smaller, more homogeneous commercial small business loans are
approved and monitored using statistical techniques.
Retail loans are typically underwritten with statistical decisionmaking tools and are managed throughout their life cycle on a portfolio
basis. The Chief Credit Officer establishes corporate standards for
model development and validation to ensure sound credit decisions and
regulatory compliance and approves new model implementation and
periodic validation.
Residential real estate mortgages are one of our core products. We
offer a broad spectrum of first mortgage and junior lien loans that we
consider predominantly prime or near prime. These loans are almost
entirely secured by a primary residence for the purpose of purchase
money, refinance, debt consolidation, or home equity loans. We do not
believe negative amortization or option ARMs benefit our customers
and have not made or purchased these loan products.
We originate mortgage loans through a variety of sources, including
our retail sales force, licensed real estate brokers and correspondent
lenders. We apply consistent credit policies, borrower documentation
standards, Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA) compliant appraisal requirements, and sound
underwriting, regardless of application source. We perform quality
control reviews for third party originated loans and actively manage or
terminate sources that do not meet our credit standards.
We believe our underwriting process is well controlled and
appropriate for the needs of our customers. We offer interest-only
products but ensure that the customer qualifies for higher payments after
the initial interest-only period. The majority of our reduced
documentation loans are initiated based on our determination that the
customer is creditworthy
Other real estate mortgages and real estate construction loans that are
diversified in terms of both the state where the property is located and
by the type of property securing the loans are presented in Table 14. The
composition of these portfolios was stable throughout 2006 and the
distribution is consistent with our target markets and focus on customer
relationships. Approximately 25% of other real estate and construction
loans are loans to owner-occupants where more than 50% of the
property is used in the conduct of their business. The largest group of
loans in any one state is 5% of total loans and the largest group of loans
secured by one type of property is 3% of total loans.
California
Minnesota
Arizona
Florida
Texas
Colorado
Washington
New York
Nevada
Illinois
Other (1)
Total
Real estate
1-4 family
first
mortgage
Real estate
1-4 family
junior lien
mortgage
10,902
2,698
2,200
2,513
3,252
2,034
1,640
1,265
1,275
1,371
24,078
53,228
24,994
4,067
3,079
2,616
1,586
2,749
2,576
1,887
1,539
1,394
22,439
68,926
11%
2
2
2
1
1
1
*
*
*
15
38%
Table 14: Commercial Real Estate Loans by State and Property Type
By state:
California
Texas
Arizona
Colorado
Washington
Minnesota
Oregon
Florida
Utah
Nevada
Other (1)
Total (2)
Small business
Property investment and services (1)
Agricultural production
Retailers
Financial institutions
Food and beverage
Oil and gas
Industrial equipment
Investment management
Healthcare
Other (2)
Total
9,575
6,452
5,604
4,696
3,870
3,414
2,992
2,883
2,050
2,039
32,443
76,018
Real
estate
construction
$ 11,590
2,904
1,650
1,604
1,587
1,335
782
264
645
608
7,143
$ 30,112
4,495
1,185
1,134
786
720
595
446
881
443
474
4,776
15,935
1,237
1,351
644
4,031
3,716
984
2,382
29
415
256
890
15,935
16,085
4,089
2,784
2,390
2,307
1,930
1,228
1,145
1,088
1,082
11,919
46,047
5%
1
*
*
*
*
*
*
*
*
4
14%
8,892
6,584
5,604
4,121
3,905
3,561
2,382
1,931
1,858
1,132
6,077
46,047
3%
2
2
1
1
1
*
*
*
*
2
14%
By property type:
Office buildings
Retail buildings
Industrial
Land
1-4 family structures
Apartments
1-4 family land
Agriculture
Hotels/motels
Institutional
Other
Total (2)
Other real
estate
mortgage
(in millions)
3%
2
2
1
1
1
*
*
*
*
10
24%
7,655
5,233
4,960
90
189
2,577
1,902
1,443
876
5,187
$ 30,112
51
Table 15 shows the five-year trend for nonaccrual loans and other
assets. We generally place loans on nonaccrual status when:
the full and timely collection of interest or principal becomes
uncertain;
they are 90 days (120 days with respect to real estate 1-4 family
first and junior lien mortgages and auto loans) past due for interest
or principal (unless both well-secured and in the process of
collection); or
part of the principal balance has been charged off.
Note 1 (Summary of Significant Accounting Policies) to Financial
Statements describes our accounting policy for nonaccrual loans.
Consumer loans, primarily residential real estate and auto, which we
believe to have relatively low loss content, represented about 65% of
total nonperforming loans. Approximately 40% of the $232 million
increase in other foreclosed assets from December 31, 2005, to
December 31, 2006, consists of repossessed autos and approximately
60%
Table 15: Nonaccrual Loans and Other Assets
(in millions)
2005
2006
Nonaccrual loans:
Commercial and commercial real estate:
Commercial
Other real estate mortgage
Real estate construction
Lease financing
Total commercial and commercial real estate
Consumer:
Real estate 1-4 family first mortgage
Real estate 1-4 family junior lien mortgage
Other revolving credit and installment
Total consumer
Foreign
Total nonaccrual loans (1)
As a percentage of total loans
Foreclosed assets:
GNMA loans (2)
Other
Real estate and other nonaccrual investments (3)
Total nonaccrual loans and other assets
As a percentage of total loans
(1)
(2)
(3)
331
105
78
29
543
286
165
31
45
527
2004
345
229
57
68
699
2003
592
285
56
73
1,006
December 31,
2002
796
192
93
79
1,160
688
212
180
1,080
43
1,666
0.52%
471
144
171
786
25
1,338
0.43%
386
92
160
638
21
1,358
0.47%
274
87
88
449
3
1,458
0.58%
230
49
48
327
5
1,492
0.78%
322
423
5
2,416
0.76%
191
2
1,531
0.49%
212
2
1,572
0.55%
198
6
1,662
0.66%
195
4
1,691
0.88%
Includes impaired loans of $230 million, $190 million, $309 million, $629 million and $612 million at December 31, 2006, 2005, 2004, 2003 and 2002,
respectively. (See Note 1 (Summary of Significant Accounting Policies) and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements for further
discussion of impaired loans.)
As a result of a change in regulatory reporting requirements effective January 1, 2006, foreclosed real estate securing GNMA loans has been classified as
nonperforming.
These assets are fully collectible because the corresponding GNMA loans are insured by the FHA or guaranteed by the Department of Veterans Affairs.
Includes real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if these assets were recorded as
loans.
52
assume that our allowance for credit losses as a percentage of chargeoffs and nonaccrual loans will change at different points in time based
on credit performance, loan mix and collateral values. Any loan with
past due principal or interest that is not both well-secured and in the
process of collection generally is charged off (to the extent that it
exceeds the fair value of any related collateral) based on loan category
after a defined period of time. Also, a loan is charged off when
classified as a loss by either internal loan examiners or regulatory
examiners. The detail of the changes in the allowance for credit losses,
including charge-offs and recoveries by loan category, is in Note 6
(Loans and Allowance for Credit Losses) to Financial Statements.
At December 31, 2006, the allowance for loan losses was
$3.76 billion, or 1.18% of total loans, compared with $3.87 billion, or
1.25%, at December 31, 2005. The allowance for credit losses was
$3.96 billion, or 1.24% of total loans, at December 31, 2006, and
$4.06 billion, or 1.31%, at December 31, 2005. These ratios fluctuate
from period to period and the decrease in the ratios of the allowance for
loan losses and the allowance for credit losses to total loans in 2006 was
primarily due to a continued shift toward a higher percentage of
consumer loans in our portfolio, including auto and other consumer
loans and some small business loans, which have shorter loss emergence
periods, as well as home mortgage loans, which tend to have lower
credit loss rates that emerge over a longer time frame compared with
other consumer products. We have historically experienced the lowest
credit losses on our residential real estate secured consumer loan
portfolio. The reserve for unfunded credit commitments was
$200 million at December 31, 2006, and $186 million at December 31,
2005.
The ratio of the allowance for credit losses to total nonaccrual loans
was 238% and 303% at December 31, 2006 and 2005, respectively. This
ratio may fluctuate significantly from period to period due to such
factors as the mix of loan types in the portfolio, borrower credit strength
and the value and marketability of collateral. Over half of nonaccrual
loans were home mortgages, auto and other consumer loans at
December 31, 2006. Nonaccrual loans are generally written down to fair
value less cost to sell at the time they are placed on nonaccrual and
accounted for on a cost recovery basis.
The provision for credit losses totaled $2.20 billion in 2006,
$2.38 billion in 2005 and $1.72 billion in 2004. In 2005, the provision
included $100 million in excess of net charge-offs, which was our
estimate of probable credit losses related to Hurricane Katrina. Since
that time, we identified and recorded approximately $50 million of
Katrina-related losses. Because we do not anticipate any further credit
losses attributable to Katrina, we released the remaining $50 million
balance in 2006.
2006
2005
2004
December 31,
2003
2002
15
3
3
$ 18
13
9
$ 26
6
6
$ 87
9
6
$ 92
7
11
21
40
38
102
110
154
103
148
117
104
63
262
50
159
40
150
29
134
18
130
616
1,095
44
$1,160
290
602
41
$ 683
306
644
76
$ 758
271
551
43
$ 696
282
534
28
$ 672
(in millions)
Commercial and commercial real
estate:
Commercial
Other real estate mortgage
Real estate construction
Total commercial and
commercial real estate
Consumer:
Real estate 1-4 family first
mortgage
Real estate 1-4 family junior
lien mortgage
Credit card
Other revolving credit and
installment
Total consumer
Foreign
Total
Loans 90 days or more past due and still accruing for other revolving
credit and installment loans, which includes auto loans, increased
$326 million from $290 million in 2005 to $616 million in 2006, with
approximately $235 million due to the auto portfolio.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses, which consists of the allowance for loan
losses and the reserve for unfunded credit commitments, is
managements estimate of credit losses inherent in the loan portfolio at
the balance sheet date. We
53
2006
Loans
as %
of total
loans
Commercial and commercial real estate:
Commercial
Other real estate mortgage
Real estate construction
Lease financing
Total commercial and commercial real estate
Consumer:
Real estate 1-4 family first mortgage
Real estate 1-4 family junior lien mortgage
Credit card
Other revolving credit and installment
Total consumer
Foreign
Total allocated
Unallocated component of allowance (1)
Total
(1)
2004
Loans
as %
of total
loans
2003
Loans
as %
of total
loans
December 31,
2002
Loans
as %
of total
loans
$ 1,051
225
109
40
1,425
22%
9
5
2
38
$ 926
253
115
51
1,345
20%
9
4
2
35
$ 940
298
46
30
1,314
19%
11
3
2
35
$ 917
444
63
40
1,464
19%
11
3
2
35
$ 865
307
53
75
1,300
24%
13
4
2
43
186
168
606
1,434
2,394
145
3,964
$ 3,964
17
21
5
17
60
2
100%
229
118
508
1,060
1,915
149
3,409
648
$ 4,057
25
19
4
15
63
2
100%
150
104
466
889
1,609
139
3,062
888
$ 3,950
31
18
4
11
64
1
100%
176
92
443
802
1,513
95
3,072
819
$ 3,891
33
15
3
13
64
1
100%
104
62
386
597
1,149
86
2,535
1,284
$ 3,819
23
15
4
14
56
1
100%
At December 31, 2006, we changed our estimate of the allocation of the allowance for credit losses. At December 31, 2006, the portion of the allowance assigned
to individual portfolio types includes an amount for imprecision or uncertainty to better reflect our view of risk in these portfolios. In prior years, this portion of
the allowance was associated with the portfolio as a whole, rather than with an individual portfolio type and was categorized as unallocated.
Aa1 Aa2
AA+ AA
AA AA-
P-1
A-1+
F1+
AA
R-1(middle) AA(high)
AA(low)
Aaa
AAA
AA+
P-1
A-1+
F1+
R-1(high)
58
Capital Management
We have an active program for managing stockholder capital. We use
capital to fund organic growth, acquire banks and other financial
services companies, pay dividends and repurchase our shares. Our
objective is to produce above-market long-term returns by
opportunistically using capital when returns are perceived to be high
and issuing/accumulating capital when such costs are perceived to be
low.
From time to time the Board authorizes the Company to repurchase
shares of our common stock. Although we announce when the Board
authorizes share repurchases, we typically do not give any public notice
before we repurchase our shares. Various factors determine the amount
and timing of our share repurchases, including our capital requirements,
the number of shares we expect to issue for acquisitions and employee
benefit plans, market conditions (including the trading price of our
stock), and legal considerations. These factors can change at any time,
and there can be no assurance as to the number of shares we will
repurchase or when we will repurchase them.
Historically, our policy has been to repurchase shares under the safe
harbor conditions of Rule 10b-18 of the Exchange Act including a
limitation on the daily volume of repurchases. Rule 10b-18 imposes an
additional daily volume limitation on share repurchases during a
pending merger or acquisition in which shares of our stock will
constitute some or all of the consideration. Our management may
determine that during a pending stock merger or acquisition when the
safe harbor would otherwise be available, it is in our best interest to
repurchase shares in excess of this additional daily volume limitation. In
such cases, we intend to repurchase shares in compliance with the other
conditions of the safe harbor, including the standing daily volume
limitation that applies whether or not there is a pending stock merger or
acquisition.
In 2005, the Board authorized the repurchase of up to 150 million
additional shares of our outstanding common stock. In June 2006, the
Board authorized the repurchase of up to 50 million additional shares of
our outstanding common
net interest income and noninterest income for 2005 grew solidly from
2004 and virtually all of our fee-based products had double-digit
revenue growth. We took significant actions to reposition our balance
sheet in 2005 designed to improve yields on earning assets, including
the sale of $48 billion of our lowest-yielding ARMs, resulting in
$119 million of sales-related losses, and the sale of $17 billion of debt
securities, including low-yielding fixed-income securities, resulting in
$120 million of losses.
59
Our growth in earnings per share in 2005 compared with 2004 was
driven by revenue growth, operating leverage (revenue growth in excess
of expense growth) and credit quality, which remained solid despite the
following credit-related events:
Risk Factors
An investment in the Company has risk. We discuss below and
elsewhere in this Report and in other documents we file with the SEC
various risk factors that could cause our financial results and condition
to vary significantly from period to period. We refer you to the
Financial Review section and Financial Statements and related Notes in
this Report for more information about credit, interest rate and market
risks and to the Regulation and Supervision section of our 2006 Form
10-K for more information about legislative and regulatory risks. Any
factor described below or elsewhere in this Report or in our 2006 Form
10-K could, by itself or together with one or more other factors, have a
material adverse effect on our financial results and condition and on the
value of an investment in Wells Fargo. Refer to our quarterly reports on
Form 10-Q that we will file with the SEC in 2007 for material changes
to the discussion of risk factors.
In accordance with the Private Securities Litigation Reform Act of
1995, we caution you that one or more of the factors discussed below, in
the Financial Review section of this Report, in the Financial Statements
and related Notes included in this Report, in the 2006 Form 10-K, or in
other documents we file with the SEC from time to time could cause us
to fall short of expectations for our future financial and business
performance that we may express in forward-looking statements. We
make forward-looking statements when we use words such as believe,
expect, anticipate, estimate, will, may, can and similar
expressions. Do not unduly rely on forward-looking statements, as
actual results may differ significantly from expectations. Forwardlooking statements speak only as of the date made, and we do not
undertake to update them to reflect changes or events that occur after
that date.
In this Report we make forward-looking statements about:
managements belief that the provision for credit losses for
consumer loans, absent a significant credit event, will closely
track the level of related net charge-offs;
the expected reduction of our net interest expense by
approximately $320 million over the next twenty years from the
extinguishment of trust preferred securities;
our expectation that we will open 100 regional banking stores in
2007;
our belief regarding the loss content of our residential real estate
loans and auto loans;
the adequacy of our allowance for credit losses;
our anticipation that we will not incur additional credit losses
attributable to Hurricane Katrina;
the expected impact of changes in interest rates on loan demand,
credit losses, mortgage origination volume, the value of MSRs,
and other items that may affect earnings;
the expected time periods over which unrecognized compensation
expense relating to stock options and restricted share rights will be
recognized;
the expected timing and impact of the adoption of new accounting
standards and policies;
We earn revenue from interest and fees we charge on the loans and
other products and services we sell. When the economy slows, the
demand for those products and services can fall, reducing our interest
and fee income and our earnings. An economic downturn can also hurt
the ability of our borrowers to repay their loans, causing us to incur
higher credit losses. Several factors could cause the economy to slow
down or even recede, including higher energy costs, higher interest
rates, reduced consumer or corporate spending, a slowdown in housing,
natural disasters, terrorist activities, military conflicts, and the normal
cyclical nature of the economy.
61
earn fee income from managing assets for others and providing
brokerage services. Because investment management fees are often
based on the value of assets under management, a fall in the market
prices of those assets could reduce our fee income. Changes in stock
market prices could affect the trading activity of investors, reducing
commissions and other fees we earn from our brokerage business.
For more information, refer to Risk Management Asset/ Liability
and Market Risk Management Market Risk Equity Markets in
the Financial Review section of this Report.
on loans, debt securities and other assets we hold minus the interest we
pay on our deposits, long-term and short-term debt and other liabilities.
Net interest income reflects both our net interest margin the
difference between the yield we earn on our assets and the interest rate
we pay for deposits and our other sources of funding and the amount
of earning assets we hold. As a result, changes in either our net interest
margin or the amount of earning assets we hold could affect our net
interest income and our earnings.
Changes in interest rates up or down could adversely affect our
net interest margin. Although the yield we earn on our assets and our
funding costs tend to move in the same direction in response to changes
in interest rates, one can rise or fall faster than the other, causing our net
interest margin to expand or contract. Our liabilities tend to be shorter in
duration than our assets, so they may adjust faster in response to
changes in interest rates. As a result, when interest rates rise, our
funding costs may rise faster than the yield we earn on our assets,
causing our net interest margin to contract until the yield catches up.
Changes in the slope of the yield curve or the spread between
short-term and long-term interest rates could also reduce our net
interest margin. Normally, the yield curve is upward sloping, meaning
short-term rates are lower than long-term rates. Because our liabilities
tend to be shorter in duration than our assets, when the yield curve
flattens or even inverts, we could experience pressure on our net interest
margin as our cost of funds increases relative to the yield we can earn
on our assets.
We assess our interest rate risk by estimating the effect on our
earnings under various scenarios that differ based on assumptions about
the direction, magnitude and speed of interest rate changes and the slope
of the yield curve. We hedge some of that interest rate risk with interest
rate derivatives. We also rely on the natural hedge that our loan
originations and servicing rights can provide.
We do not hedge all of our interest rate risk. There is always the risk
that changes in interest rates could reduce our net interest income and
our earnings in material amounts, especially if actual conditions turn out
to be materially different than what we assumed. For example, if interest
rates rise or fall faster than we assumed or the slope of the yield curve
changes, we may incur significant losses on debt securities we hold as
investments. To reduce our interest rate risk, we may rebalance our
investment and loan portfolios, refinance our debt and take other
strategic actions. We may incur losses or expenses when we take such
actions.
For more information, refer to Risk Management Asset/Liability
and Market Risk Management Interest Rate Risk in the Financial
Review section of this Report.
credit risk, or the risk of losses if our borrowers do not repay their loans.
We reserve for credit losses by establishing an allowance through a
charge to earnings. The amount of this allowance is based on our
assessment of credit losses inherent in our loan portfolio (including
unfunded credit commitments). The process for determining the amount
of the allowance is critical to our financial results and condition. It
requires difficult, subjective and complex judgments about the future,
including forecasts of economic or market conditions that might impair
the ability of our borrowers to repay their loans.
We might underestimate the credit losses inherent in our loan
portfolio and have credit losses in excess of the amount reserved. We
might increase the allowance because of changing economic conditions.
For example, in a rising interest rate environment, borrowers with
adjustable rate loans could see their payments increase. In the absence
of offsetting factors such as increased economic activity and higher
wages, this could reduce their ability to repay their loans, resulting in
our increasing the allowance. We might also increase the allowance
because of unexpected events, as we did in third quarter 2005 for
Hurricane Katrina.
The auto loan portfolio posted losses at elevated levels in the third
and fourth quarters of 2006 partially due to growth and seasoning, but
largely due to collection capacity constraints and restrictive payment
extension practices during Wells Fargo Financials integration of the
prime and non-prime auto loan businesses. We continued to hire and
train new collectors and contract with external collections vendors to
increase capacity. We also adjusted account acquisition strategies to
reduce new loan volumes, particularly in higher-risk tiers. We anticipate
these
62
actions will stabilize losses in early 2007 and lead to improved loss
rates. We monitor vintage credit performance to identify potential
adverse credit or economic trends. We saw higher delinquency and
losses in recent auto vintages, consistent with industry-wide experience.
If current trends do not improve as expected, we could experience
higher credit losses than planned.
For more information, refer to Critical Accounting Policies
Allowance for Credit Losses and Risk Management Credit Risk
Management Process in the Financial Review section of this Report.
can be volatile and hard to predict and can have a significant effect on
our earnings from period to period. When and if we recognize
gains can depend on a number of factors, including general economic
conditions, the prospects of the companies in which we invest, when
these companies go public, the size of our position relative to the public
float, and whether we are subject to any resale restrictions. Our venture
capital investments could result in significant losses.
We assess our private and public equity portfolio at least quarterly
for other-than-temporary impairment based on a number of factors,
including the then current market value of each
63
the supply of money and credit in the United States. Its policies
determine in large part our cost of funds for lending and investing and
the return we earn on those loans and investments, both of which affect
our net interest margin. They also can materially affect the value of
financial instruments we hold, such as debt securities and MSRs. Its
policies also can affect our borrowers, potentially increasing the risk
that they may fail to repay their loans. Changes in FRB policies are
beyond our control and can be hard to predict.
Reputation risk, or the risk to our earnings and capital from negative
public opinion, is inherent in our business. Negative public opinion
could adversely affect our ability to keep and attract customers and
expose us to adverse legal and regulatory consequences. Negative
public opinion could result from our actual or alleged conduct in any
number of activities, including lending practices, corporate governance,
regulatory compliance, mergers and acquisitions, and disclosure,
sharing or inadequate protection of customer information, and from
actions taken by government regulators and community organizations in
response to that conduct. Because we conduct most of our businesses
under the Wells Fargo brand, negative public opinion about one
business could affect our other businesses.
company;
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 the company are being made only in accordance with authorizations of management and
directors of the company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys
Financial Statements
Wells Fargo & Company and Subsidiaries
Consolidated Statement of Income
Year ended December 31,
2005
2004
225
3,278
2,746
47
25,611
332
32,239
190
1,921
2,213
146
21,260
232
25,962
145
1,883
1,737
292
16,781
129
20,967
INTEREST EXPENSE
Deposits
Short-term borrowings
Long-term debt
Total interest expense
7,174
992
4,122
12,288
3,848
744
2,866
7,458
1,827
353
1,637
3,817
19,951
2,204
17,747
18,504
2,383
16,121
17,150
1,717
15,433
NONINTEREST INCOME
Service charges on deposit accounts
Trust and investment fees
Card fees
Other fees
Mortgage banking
Operating leases
Insurance
Net losses on debt securities available for sale
Net gains from equity investments
Other
Total noninterest income
2,690
2,737
1,747
2,057
2,311
783
1,340
(19)
738
1,356
15,740
2,512
2,436
1,458
1,929
2,422
812
1,215
(120)
511
1,270
14,445
2,417
2,116
1,230
1,779
1,860
836
1,193
(15)
394
1,099
12,909
NONINTEREST EXPENSE
Salaries
Incentive compensation
Employee benefits
Equipment
Net occupancy
Operating leases
Other
Total noninterest expense
7,007
2,885
2,035
1,252
1,405
630
5,528
20,742
6,215
2,366
1,874
1,267
1,412
635
5,249
19,018
5,393
1,807
1,724
1,236
1,208
633
5,572
17,573
12,745
4,263
11,548
3,877
10,769
3,755
NET INCOME
$ 8,482
$ 7,671
$ 7,014
2.52
2.27
2.07
2.49
2.25
2.05
1.08
1.00
0.93
3,368.3
3,372.5
3,384.4
3,410.1
3,410.9
3,426.7
68
2006
December 31,
2005
$ 15,028
6,078
5,607
42,629
33,097
721
$ 15,397
5,306
10,905
41,834
40,534
612
319,116
(3,764)
315,352
310,837
(3,871)
306,966
17,591
377
4,698
11,275
29,543
$ 481,996
12,511
4,417
10,787
32,472
$ 481,741
LIABILITIES
Noninterest-bearing deposits
Interest-bearing deposits
Total deposits
Short-term borrowings
Accrued expenses and other liabilities
Long-term debt
Total liabilities
$ 89,119
221,124
310,243
12,829
25,903
87,145
436,120
$ 87,712
226,738
314,450
23,892
23,071
79,668
441,081
STOCKHOLDERS EQUITY
Preferred stock
Common stock $1 2 / 3 par value, authorized 6,000,000,000 shares; issued 3,472,762,050 shares
Additional paid-in capital
Retained earnings
Cumulative other comprehensive income
Treasury stock 95,612,189 shares and 117,595,986 shares
Unearned ESOP shares
Total stockholders equity
Total liabilities and stockholders equity
384
5,788
7,739
35,277
302
(3,203)
(411)
45,876
$ 481,996
325
5,788
7,040
30,580
665
(3,390)
(348)
40,660
$ 481,741
Number
of common
shares
3,396,218,748
Preferred
stock
Common
stock
Additional
paid-in
capital
Retained
earnings
Cumulative
other
comprehensive
income
Treasury
stock
Unearned
ESOP
shares
Total
stockholders'
equity
$ 5,788
$ 22,842
$ (1,833 )
$34,469
214
6,749
938
(229)
7,014
7,014
12
12
(22)
(22)
22
59,939,306
(46)
306,964
(76,345,112)
9,063,368
321
23
(19)
(265)
29
(206 )
1,523
22
7,026
1,271
8
(2,188 )
9
(2,188)
(344)
284
236
(3,150)
(3,150 )
7
175
(7,035,474)
3,389,183,274
56
163
270
5,788
6,912
(18)
3,640
26,482
12
(414 )
(60)
950
(2,247 )
(289)
7,671
(298)
3,909,004
(105,597,728)
12
10,142,528
362
25
(21)
(307)
21
(198 )
1,617
8
7,386
1,367
110
(3,159 )
122
(3,159)
(387)
328
286
143
3,355,166,064
55
128
4,098
(285)
3
(1,143 )
325
5,788
7,040
30,580
665
(3,390 )
(59)
143
3
2,794
(348)
40,660
101
3,355,166,064
325
5,788
7,040
30,681
8,482
307
(3,375)
(3,375 )
(34,017,210)
37,866
(298)
(52)
175
(18)
3,397
7,671
5
57,528,986
265
101
665
(3,390 )
(348)
40,761
8,482
Other comprehensive
income, net of tax:
Net unrealized losses on
securities available
for sale and other
interests held
Net unrealized gains on
derivatives and
hedging activities
Total comprehensive income
Common stock issued
Common stock repurchased
Preferred stock (414,000)
issued to ESOP
Preferred stock released to
ESOP
Preferred stock (355,659)
converted to common
shares
Common stock dividends
Tax benefit upon exercise of
stock options
Stock option compensation
expense
Net change in deferred
compensation and related
plans
Reclassification of share-based
plans
Adoption of FAS 158
Net change
BALANCE DECEMBER 31,
2006
(31)
(31)
70
70,063,930
(58,534,072)
(67)
414
10,453,939
(355)
(245 )
70
8,521
1,764
(1,965)
2,076
(1,965 )
29
(443)
(25)
380
355
41
314
(3,641)
(3,641 )
229
229
134
134
50
(27)
308
21,983,797
3,377,149,861
59
384
$ 5,788
23
(211 )
699
4,596
7,739
$ 35,277
(402)
(363)
302
187
$ (3,203 )
(63)
(411)
97
(402)
5,115
$45,876
(in millions)
2006
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Provision for credit losses
Reversal of provision for MSRs in excess of fair value
Change in fair value of residential MSRs
Depreciation and amortization
Net gains on securities available for sale
Net gains on mortgage loan origination/sales activities
Other net losses (gains)
Preferred shares released to ESOP
Stock option compensation expense
Excess tax benefits related to stock option payments
Net decrease (increase) in trading assets
Net increase in deferred income taxes
Net increase in accrued interest receivable
Net increase in accrued interest payable
Originations of mortgages held for sale
Proceeds from sales of mortgages originated for sale
Principal collected on mortgages originated for sale
Net decrease (increase) in loans originated for sale
Other assets, net
Other accrued expenses and liabilities, net
Net cash provided (used) by operating activities
Cash flows from investing activities:
Securities available for sale:
Sales proceeds
Prepayments and maturities
Purchases
Net cash acquired from (paid for) acquisitions
Increase in banking subsidiaries loan originations, net of collections
Proceeds from sales (including participations) of loans by banking subsidiaries
Purchases (including participations) of loans by banking subsidiaries
Principal collected on nonbank entities loans
Loans originated by nonbank entities
Proceeds from sales of foreclosed assets
Net increase in federal funds sold, securities purchased under resale agreements and other shortterm investments
Other changes in MSRs
Other, net
Net cash used by investing activities
Cash flows from financing activities:
Net increase (decrease) in deposits
Net increase (decrease) in short-term borrowings
Proceeds from issuance of long-term debt
Long-term debt repayment
Proceeds from issuance of common stock
Common stock repurchased
Cash dividends paid on common stock
Excess tax benefits related to stock option payments
Other, net
Net cash provided (used) by financing activities
Net change in cash and due from banks
Cash and due from banks at beginning of year
8,482
2,204
2,453
3,221
(326)
(1,116)
(259)
355
134
(227)
5,271
593
(291)
455
(237,841)
240,517
2,401
(109)
3,570
2,607
7,671
2,383
(378)
4,161
(40)
(1,085)
(75)
307
(1,905)
813
(796)
311
(230,897)
214,740
1,426
683
(10,237)
3,585
7,014
1,717
(208)
3,449
(60)
(539)
9
265
(81)
432
(196)
47
(221,978)
217,272
1,409
(1,331)
(2,468)
1,732
32,094
(9,333)
6,485
53,304
7,321
(62,462)
(626)
(37,730)
38,343
(5,338)
23,921
(26,974)
593
19,059
6,972
(28,634)
66
(42,309)
42,239
(8,853)
22,822
(33,675)
444
6,322
8,823
(16,583)
(331)
(33,800)
14,540
(5,877)
17,996
(27,751)
419
(717)
(7,657)
(2,678)
(281)
(4,595)
(3,324)
(1,287)
(1,389)
(516)
(20,700)
(30,069)
(39,434)
(4,452)
(11,156)
20,255
(12,609)
1,764
(1,965)
(3,641)
227
(186)
38,961
1,878
26,473
(18,576)
1,367
(3,159)
(3,375)
(1,673)
27,327
(2,697)
29,394
(19,639)
1,271
(2,188)
(3,150)
(13)
(11,763)
41,896
30,305
(369)
2,494
(2,644)
12,903
15,547
15,397
$ 15,028
$ 15,397
$ 12,903
$ 11,833
3,084
$ 32,383
1,918
$ 41,270
7,444
567
5,490
7,769
3,584
3,864
2,326
$ 11,225
603
Trading Assets
Trading assets are primarily securities, including corporate debt, U.S.
government agency obligations and other securities that we acquire for
short-term appreciation or other trading purposes, and the fair value of
derivatives held for customer accommodation purposes or proprietary
trading. Trading assets are carried at fair value, with realized and
unrealized gains and losses recorded in noninterest income. Noninterest
income from trading assets was $544 million, $571 million and
$523 million in 2006, 2005 and 2004, respectively.
Securities
SECURITIES AVAILABLE FOR SALE Debt securities that we might not
Consolidation
Our consolidated financial statements include the accounts of the Parent
and our majority-owned subsidiaries and variable interest entities
(VIEs) (defined below) in which we are the primary beneficiary.
Significant intercompany accounts and transactions are eliminated in
consolidation. If we own at least 20% of an entity, we generally account
for the investment using the equity method. If we own less than 20% of
an entity, we generally carry the investment at cost, except marketable
equity securities, which we carry at fair value with changes in fair value
included in other comprehensive income. Assets accounted for under
the equity or cost method are included in other assets.
We are a variable interest holder in certain special-purpose entities in
which we do not have a controlling financial interest or do not have
enough equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. Our
variable interest arises from contractual, ownership or other monetary
interests in the entity, which change with fluctuations in the entitys net
asset value. We consolidate a VIE if we are the primary beneficiary
because we will absorb a majority of the entitys expected losses,
receive a majority of the entitys expected residual returns, or both.
72
when:
the full and timely collection of interest or principal becomes
uncertain;
they are 90 days (120 days with respect to real estate 1-4 family
first and junior lien mortgages and auto loans) past due for interest
or principal (unless both well-secured and in the process of
collection); or
part of the principal balance has been charged off.
Generally, consumer loans not secured by real estate or autos are
placed on nonaccrual status only when part of the principal has been
charged off. These loans are charged off or charged down to the net
realizable value of the collateral when deemed uncollectible, due to
bankruptcy or other factors, or when they reach a defined number of
days past due based on loan product, industry practice, country, terms
and other factors.
When we place a loan on nonaccrual status, we reverse the accrued
and unpaid interest receivable against interest income and account for
the loan on the cash or cost recovery method, until it qualifies for return
to accrual status. Generally, we return a loan to accrual status when
(a) all delinquent interest and principal becomes current under the terms
of the loan agreement or (b) the loan is both well-secured and in the
process of collection and collectibility is no longer doubtful.
securities include venture capital equity securities that are not publicly
traded and securities acquired for various purposes, such as to meet
regulatory requirements (for example, Federal Reserve Bank and
Federal Home Loan Bank stock). We review these assets at least
quarterly for possible other-than-temporary impairment. Our review
typically includes an analysis of the facts and circumstances of each
investment, the expectations for the investments cash flows and capital
needs, the viability of its business model and our exit strategy. These
securities are accounted for under the cost or equity method and are
included in other assets. We reduce the asset value when we consider
declines in value to be other than temporary. We recognize the
estimated loss as a loss from equity investments in noninterest income.
Mortgages Held for Sale
Mortgages held for sale include residential mortgages that were
originated in accordance with secondary market pricing and
underwriting standards and certain mortgages originated initially for
investment and not underwritten to secondary market standards, and are
stated at the lower of cost or market value. Gains and losses on loan
sales (sales proceeds minus carrying value) are recorded in noninterest
income. Direct loan origination costs and fees are deferred at origination
of the loan. These deferred costs and fees are recognized in mortgage
banking noninterest income upon sale of the loan.
certain nonaccrual commercial and commercial real estate loans that are
over $3 million. We consider a loan to be impaired when, based on
current information and events, we will probably not be able to collect
all amounts due according to the loan contract, including scheduled
interest payments.
When we identify a loan as impaired, we measure the impairment
based on the present value of expected future cash flows, discounted at
the loans effective interest rate, except when the sole
(remaining) source of repayment for the loan is the operation or
liquidation of the collateral. In these cases we use an observable market
price or the current fair value of the collateral, less selling costs when
foreclosure is probable, instead of discounted cash flows.
If we determine that the value of the impaired loan is less than the
recorded investment in the loan (net of previous charge-offs, deferred
loan fees or costs and unamortized premium or discount), we recognize
impairment through an allowance estimate or a charge-off to the
allowance.
which consists of the allowance for loan losses and the reserve for
unfunded credit commitments, is managements estimate of credit losses
inherent in the loan portfolio at the balance sheet date.
value upon the eventual disposition of the equipment. Leased assets are
written down to the fair value of the collateral less cost to sell when
120 days past due.
Income Taxes
We file a consolidated federal income tax return and, in certain states,
combined state tax returns.
We determine deferred income tax assets and liabilities using the
balance sheet method. Under this method, the net deferred tax asset or
liability is based on the tax effects of the differences between the book
and tax bases of assets and liabilities, and recognizes enacted changes in
tax rates and laws. Deferred tax assets are recognized subject to
management judgment that realization is more likely than not. Foreign
taxes paid are generally applied as credits to reduce federal income
taxes payable.
Pension Accounting
We account for our defined benefit pension plans using an actuarial
model required by FAS 87, Employers Accounting for Pensions , as
amended by FAS 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R) . This model allocates pension
costs over the service period of employees in the plan. The underlying
principle is that employees render service ratably over this period and,
therefore, the income statement effects of pensions should follow a
similar pattern.
FAS 158 was issued on September 29, 2006, and became effective
for us on December 31, 2006. FAS 158 requires us to recognize the
funded status of our pension and postretirement benefit plans on our
balance sheet. Additionally, FAS 158 requires us to use a year-end
measurement date beginning in 2008. We conformed our pension asset
and our pension and postretirement liabilities to FAS 158 and recorded a
corresponding reduction of $402 million (after tax) to the December 31,
2006, balance of cumulative other comprehensive income in
stockholders equity. The adoption of FAS 158 did not change the
amount of net periodic benefit expense recognized in our income
statement.
One of the principal components of the net periodic pension expense
calculation is the expected long-term rate of return on plan assets. The
use of an expected long-term rate of return on plan assets may cause us
to recognize pension income returns that are greater or less than the
actual returns of plan assets in any given year.
The expected long-term rate of return is designed to approximate the
actual long-term rate of return over time and is not expected to change
significantly. Therefore, the pattern of income/expense recognition
should closely match the stable pattern of services provided by our
employees over the life of our pension obligation. To determine if the
expected rate of return is reasonable, we consider such factors as (1) the
actual return earned on plan assets, (2) historical rates of return on the
various asset classes in the plan portfolio, (3) projections of returns on
various asset classes, and (4) current/prospective capital market
conditions and economic forecasts. Differences in each year, if any,
between expected and actual returns are included in our net actuarial
gain or loss amount, which is recognized in other comprehensive
income. We generally amortize any net actuarial gain or loss in excess
of a 5% corridor (as defined in FAS 87) in net periodic pension expense
calculations over the next five years.
We use a discount rate to determine the present value of our future
benefit obligations. The discount rate reflects the rates available at the
measurement date on long-term high-quality fixed-income debt
instruments and is reset annually on the measurement date
(November 30).
Stock-Based Compensation
We have several stock-based employee compensation plans, which are
more fully discussed in Note 14. Prior to January 1, 2006, we accounted
for stock options and stock awards under the recognition and
measurement provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations, as permitted by FAS 123, Accounting for Stock-Based
Compensation . Under this guidance, no stock option expense was
recognized in our income statement for periods prior to January 1, 2006,
as all options granted under our plans had an exercise price equal to the
market value of the underlying common stock on the date of grant.
Effective January 1, 2006, we adopted FAS 123(R), Share-Based
Payment , using the modified-prospective transition method.
Accordingly, compensation cost recognized in 2006 includes
(1) compensation cost for all share-based payments granted prior to, but
not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with FAS 123, and (2) compensation cost for
all share-based awards granted on or after January 1, 2006. Results for
prior periods have not been restated. In calculating the common stock
equivalents for purposes of diluted earnings per share, we selected the
transition method provided by Financial Accounting Standards Board
(FASB) Staff Position FAS 123(R)-3, Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment Awards .
As a result of adopting FAS 123(R) on January 1, 2006, our income
before income taxes of $12.7 billion and net income of $8.5 billion for
2006 was $134 million and $84 million lower, respectively, than if we
had continued to account for share-based compensation under APB 25.
Basic and diluted earnings per share for 2006 of $2.52 and $2.49,
respectively, were both $0.025 per share lower than if we had not
adopted FAS 123(R).
Prior to the adoption of FAS 123(R), we presented all tax benefits of
deductions resulting from the exercise of stock options as operating cash
flows in the statement of cash flows. FAS 123(R) requires the cash
flows from the tax benefits resulting from tax deductions in excess of
the compensation cost recognized for those options (excess tax benefits)
to be classified as financing cash flows. The $227 million excess tax
benefit for 2006 classified as a financing cash inflow
75
$ 7,671
$ 7,014
(275)
$ 6,741
2.27
2.22
2.07
1.99
2.25
2.19
2.05
1.97
(in millions)
Date
2006
Secured Capital Corp/Secured Capital LLC, Los Angeles, California
Martinius Corporation, Rogers, Minnesota
Commerce Funding Corporation, Vienna, Virginia
Fremont National Bank of Canon City/Centennial Bank of Pueblo, Canon City and Pueblo, Colorado
Certain assets of the Reilly Mortgage Companies, McLean, Virginia
Barrington Associates, Los Angeles, California
EFC Partners LP (Evergreen Funding), Dallas, Texas
Other (1)
January 18
March 1
April 17
June 7
August 1
October 2
December 15
Various
Assets
$
$
2005
Certain branches of PlainsCapital Bank, Amarillo, Texas
First Community Capital Corporation, Houston, Texas
Other (2)
July 22
July 31
Various
2004
Other (3)
Various
(1)
(2)
(3)
77
132
91
82
201
303
65
93
20
987
190
644
40
874
74
Note 4: Federal Funds Sold, Securities Purchased Under Resale Agreements and Other Short-Term
Investments
The table to the right provides the detail of federal funds sold, securities
purchased under resale agreements and other short-term investments.
(in millions)
Federal funds sold and securities purchased under
resale agreements
Interest-earning deposits
Other short-term investments
Total
78
December 31,
2005
2006
$5,024 $3,789
847
413
670
641
$6,078 $5,306
Unrealized
gross
gains
December 31,
2005
Unrealized
Fair
gross
value
losses
(in millions)
Cost
Securities of U.S.Treasury
and federal agencies
Securities of U.S. states and
political subdivisions
Mortgage-backed securities:
Federal agencies
Private collateralized
mortgage obligations (1)
Total mortgage-backed
securities
Other
Total debt securities
Marketable equity securities
Total (2)
774
Unrealized
gross
gains
Unrealized
gross
losses
(8)
2006
Fair
value
768
Cost
845
(10)
839
3,387
148
(5)
3,530
3,048
149
(6)
3,191
26,981
497
(15)
27,463
25,304
336
(24)
25,616
3,989
63
(6)
4,046
6,628
128
(6)
6,750
30,970
5,980
41,111
592
$ 41,703
560
67
777
210
987
(21)
(21)
(55)
(6)
(61)
31,509
6,026
41,833
796
$ 42,629
31,932
4,518
40,343
558
$ 40,901
464
75
692
349
1,041
(30)
(55)
(101)
(7)
(108)
32,366
4,538
40,934
900
$ 41,834
(1)
Substantially all of the private collateralized mortgage obligations are AAA-rated bonds collateralized by 1-4 family residential first mortgages.
(2)
At December 31, 2006, we held no securities of any single issuer (excluding the U.S.Treasury and federal agencies) with a book value that exceeded 10% of
stockholders equity.
The following table shows the unrealized gross losses and fair value
of securities in the securities available for sale portfolio at December 31,
2006 and 2005, by length of time
(in millions)
12 months or more
Unrealized
Fair
gross
value
losses
Unrealized
gross
losses
Total
Fair
value
(1)
164
(7)
316
(8)
480
(4)
203
(1)
90
(5)
293
(10)
342
(5)
213
(15)
555
(5)
(15)
(6)
(26)
(6)
(32)
67
409
365
1,141
75
$ 1,216
(1)
(6)
(15)
(29)
(29)
68
281
558
1,245
$ 1,245
(6)
(21)
(21)
(55)
(6)
(61)
135
690
923
2,386
75
$ 2,461
(6)
(4)
(10)
(3)
341
204
(3)
142
57
(6)
483
261
Mortgage-backed securities:
Federal agencies
Private collateralized mortgage
obligations
Total mortgage-backed securities
Other
Total debt securities
Marketable equity securities
Total
(22)
2,213
(2)
89
(24)
2,302
(6)
(28)
(38)
(75)
(7)
(82)
1,494
3,707
890
5,142
185
$ 5,327
(2)
(17)
(26)
(26)
89
338
626
626
(6)
(30)
(55)
(101)
(7)
(108)
1,494
3,796
1,228
5,768
185
$ 5,953
79
The decline in fair value for the debt securities that had been in a
continuous loss position for 12 months or more at December 31, 2006,
was largely due to changes in market interest rates and not due to the
credit quality of the securities. We believe that the principal and interest
on these securities are fully collectible and we have the intent and
ability to retain our investment for a period of time to allow for any
anticipated recovery in market value. We have reviewed these securities
in accordance with our policy and do not consider them to be otherthan-temporarily impaired.
Securities pledged where the secured party has the right to sell or
repledge totaled $5.3 billion at both December 31, 2006 and 2005.
Securities pledged where the secured party does not have the right to
sell or repledge totaled $29.3 billion at December 31, 2006, and
$24.3 billion at December 31, 2005, primarily to secure trust and public
deposits and for other purposes as required or permitted by law. We
have accepted collateral in the form of securities that we have the right
to sell or repledge of $1.8 billion at December 31, 2006, and $3.4 billion
at December 31, 2005, of which we sold or repledged $1.4 billion and
$2.3 billion, respectively.
The following table shows the realized net gains on the sales of
securities from the securities available for sale portfolio, including
marketable equity securities.
Year ended December 31,
2005
2004
2006
(in millions)
Realized gross gains
Realized gross losses (1)
Realized net gains
Securities of U.S.Treasury
and federal agencies
Securities of U.S. states and
political subdivisions
Mortgage-backed securities:
Federal agencies
Private collateralized
mortgage obligations
Total mortgagebacked securities
Other
Total debt securities at
fair value (1)
(1)
768
Weightedaverage
yield
4.56%
$ 168
(108)
$ 60
$ 355
(315)
$ 40
(in millions)
Total
amount
$ 621
(295)
$ 326
134
5.20% $
551
4.33%
78
4.89% $
7.66%
3,530
7.17
166
7.99
437
6.56
708
6.97
2,219
7.29
27,463
5.91
7.11
43
6.99
68
5.84
27,350
5.91
4,046
5.92
4,046
5.92
31,509
6,026
5.91
6.45
2
226
7.11
6.38
43
4,289
6.99
6.22
68
975
5.84
7.18
31,396
536
5.91
7.00
528
6.59% $ 5,320
$41,833
6.07%
The weighted-average yield is computed using the contractual life amortization method.
80
6.06%
$ 1,829
6.95% $ 34,156
6.02%
with 14% at the end of 2005. These loans are diversified among the
larger metropolitan areas in California, with no single area consisting of
more than 3% of our total loans. Changes in real estate values and
underlying economic conditions for these areas are monitored
continuously within our credit risk management process.
Some of our real estate 1-4 family mortgage loans, including first
mortgage and home equity products, include an interest-only feature as
part of the loan terms. At December 31, 2006, such loans were
approximately 19% of total loans, compared with 26% at the end of
2005. Substantially all of these loans are considered to be prime or near
prime. We do not offer option adjustable-rate mortgage products, nor do
we offer variable-rate mortgage products with fixed payment amounts,
commonly referred to within the financial services industry as negative
amortizing mortgage loans.
2006
2005
2004
2003
December 31,
2002
$ 70,404
30,112
15,935
5,614
122,065
$ 61,552
28,545
13,406
5,400
108,903
$ 54,517
29,804
9,025
5,169
98,515
$ 48,729
27,592
8,209
4,477
89,007
$ 47,292
25,312
7,804
4,085
84,493
53,228
68,926
14,697
53,534
190,385
6,666
$ 319,116
77,768
59,143
12,009
47,462
196,382
5,552
$ 310,837
87,686
52,190
10,260
34,725
184,861
4,210
$ 287,586
83,535
36,629
8,351
33,100
161,615
2,451
$ 253,073
44,119
28,147
7,455
26,353
106,074
1,911
$ 192,478
(in millions)
Commercial and commercial real estate:
Commercial
Other real estate mortgage
Real estate construction
Lease financing
Total commercial and commercial real estate
Consumer:
Real estate 1-4 family first mortgage
Real estate 1-4 family junior lien mortgage
Credit card
Other revolving credit and installment
Total consumer
Foreign
Total loans
81
The total of our unfunded loan commitments, net of all funds lent
and all standby and commercial letters of credit issued under the terms
of these commitments, is summarized by loan category in the following
table:
(in millions)
loans and a loan equivalent amount for unfunded loan commitments and
letters of credit. These estimates are then adjusted or supplemented
where necessary from additional analysis of long-term average loss
experience, external loss data, or other risks identified from current
conditions and trends in selected portfolios, including managements
judgment for imprecision and uncertainty. Also, we review individual
nonperforming loans over $3 million for impairment based on cash
flows or collateral. We include the impairment on these nonperforming
loans in the allowance unless it has already been recognized as a loss.
The potential risk from unfunded loan commitments and letters of
credit for wholesale loan portfolios is considered along with the loss
analysis of loans outstanding. Unfunded commercial loan commitments
and letters of credit are converted to a loan equivalent factor as part of
the analysis. The reserve for unfunded credit commitments was
$200 million at December 31, 2006, and $186 million at December 31,
2005.
The allowance includes an amount for imprecision or uncertainty to
incorporate the range of probable outcomes inherent in estimates used
for the allowance, which may change from period to period. This
portion of the total allowance is the result of our judgment of risks
inherent in the portfolio, economic uncertainties, historical loss
experience and other subjective factors, including industry trends. In
2006, the methodology used to determine this portion of the allowance
was refined so that this method was calculated for each portfolio type to
better reflect our view of risk in these portfolios. In prior years, this
element of the allowance was associated with the portfolio as a whole,
rather than with a specific portfolio type, and was categorized as
unallocated.
Like all national banks, our subsidiary national banks continue to be
subject to examination by their primary regulator, the OCC, and some
have OCC examiners in residence. The OCC examinations occur
throughout the year and target various activities of our subsidiary
national banks, including both the loan grading system and specific
segments of the loan portfolio (for example, commercial real estate and
shared national credits). The Parent and our nonbank subsidiaries are
examined by the Federal Reserve Board.
We consider the allowance for credit losses of $3.96 billion adequate
to cover credit losses inherent in the loan portfolio, including unfunded
credit commitments, at December 31, 2006.
December 31,
2005
2006
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded credit commitments. Changes in the
allowance for credit losses were:
(in millions)
Balance, beginning of year
Provision for credit losses
Loan charge-offs:
Commercial and commercial real estate:
Commercial
Other real estate mortgage
Real estate construction
Lease financing
Total commercial and commercial real estate
Consumer:
Real estate 1-4 family first mortgage
Real estate 1-4 family junior lien mortgage
Credit card
Other revolving credit and installment
Total consumer
Foreign
Total loan charge-offs
Loan recoveries:
Commercial and commercial real estate:
Commercial
Other real estate mortgage
Real estate construction
Lease financing
Total commercial and commercial real estate
Consumer:
Real estate 1-4 family first mortgage
Real estate 1-4 family junior lien mortgage
Credit card
Other revolving credit and installment
Total consumer
Foreign
Total loan recoveries
Net loan charge-offs
Other
2006
2005
2004
$ 4,057
$ 3,950
$ 3,891
$ 3,819
$ 3,717
2,204
2,383
1,717
1,722
1,684
(414)
(5)
(2)
(30)
(451)
(406)
(7)
(6)
(35)
(454)
(424)
(25)
(5)
(62)
(516)
(597)
(33)
(11)
(41)
(682)
(716)
(24)
(40)
(21)
(801)
(103)
(154)
(505)
(1,685)
(2,447)
(281)
(3,179)
(111)
(136)
(553)
(1,480)
(2,280)
(298)
(3,032)
(53)
(107)
(463)
(919)
(1,542)
(143)
(2,201)
(47)
(77)
(476)
(827)
(1,427)
(105)
(2,214)
(39)
(55)
(407)
(770)
(1,271)
(84)
(2,156)
111
19
3
21
154
26
36
96
537
695
76
925
(2,254)
(43)
133
16
13
21
183
21
31
86
365
503
63
749
(2,283)
150
17
6
26
199
6
24
62
220
312
24
535
(1,666)
177
11
11
8
207
10
13
50
196
269
19
495
(1,719)
162
16
19
197
8
10
47
205
270
14
481
(1,675)
69
93
$ 3,964
$ 4,057
$ 3,950
$ 3,891
$ 3,819
Components:
Allowance for loan losses
Reserve for unfunded credit commitments (1)
Allowance for credit losses
$ 3,764
200
$ 3,964
$ 3,871
186
$ 4,057
$ 3,762
188
$ 3,950
$ 3,891
$ 3,891
$ 3,819
$ 3,819
0.73%
0.77%
0.62%
0.81%
0.96%
1.18%
1.24
1.25%
1.31
1.31%
1.37
1.54%
1.54
1.98%
1.98
(1)
Effective September 30, 2004, we transferred the portion of the allowance for loan losses related to commercial lending commitments and letters of credit to other
liabilities.
83
December 31,
2005
2006
$122
108
$230
$115
75
$190
(1) Includes $146 million and $56 million of impaired loans with a related
allowance of $29 million and $10 million at December 31, 2006 and 2005,
respectively.
84
December 31,
2005
2006
(in millions)
Land
Buildings
Furniture and equipment
Leasehold improvements
Premises and equipment leased under capital leases
Total premises and equipment
Less: Accumulated depreciation and amortization
Net book value, premises and equipment
$ 657 $ 649
3,891 3,617
3,786 3,425
1,117 1,115
60
60
9,511 8,866
4,813 4,449
$4,698 $4,417
567 $
474
396
321
253
1,135
3,146
Executory costs
Amounts representing interest
Present value of net minimum lease
payments
3,091
7,522
2,570
383
3,414
11,606
2,279
489
322
191
423
104
103
9,299
9,892
$29,543 $32,472
3
2
1
1
1
16
24
(2)
(10)
$ 1,671 $ 1,537
1,402
1,326
2,151
2,240
5,090
5,237
(1) At December 31, 2006 and 2005, $4.5 billion and $4.4 billion, respectively,
of nonmarketable equity investments, including all federal bank stock, were
accounted for at cost.
December 31,
2005
2006
(in millions)
12
85
(in millions)
$ 393
$ 351
$ 319
20
43
33
$ 413
$ 394
$ 352
The following table provides the current year and estimated future
amortization expense for amortized intangible assets.
December 31,
2005
2006
Gross Accumulated
Gross Accumulated
carrying amortization carrying amortization
amount
amount
Amortized intangible
assets:
MSRs, before
valuation
allowance (1) :
Residential
$
Commercial
457
Core deposit
intangibles
2,374
Credit card and
other intangibles
581
Total intangible
assets
$ 3,412
(1)
MSRs (fair value)
$ 17,591
Trademark
14
$ $ 24,957
169
80
$11,382
46
1,991
2,432
1,943
378
567
312
$2,449 $ 28,125
$
14
$13,683
(in millions)
112 $
100 $ 212
102 $
94
86
77
19
93 $ 195
82 176
75 161
70 147
61
80
(1) Includes amortized commercial MSRs and credit card and other intangibles.
(1) Prior to 2006, amortized intangible assets included both residential and
commercial MSRs. Effective January 1, 2006, upon adoption of FAS 156,
residential MSRs are measured at fair value and are no longer amortized. See
Note 21 for additional information on MSRs.
Note 9: Goodwill
The changes in the carrying amount of goodwill as allocated to our operating segments for goodwill impairment analysis were:
(in millions)
Community
Banking
Wholesale
Banking
Wells Fargo
Financial
Consolidated
Company
7,291
(31)
125
(11)
7,374
30
(19)
7,385
3,037
(3)
13
3,047
458
19
3,524
353
11
2
366
366
10,681
(34)
138
2
10,787
488
11,275
(in millions)
Community
Banking
Wholesale
Banking
Wells Fargo
Financial
Enterprise
Consolidated
Company
3,516
1,108
366
5,797
10,787
3,538
86
1,574
366
5,797
11,275
(in millions)
2007
2008
2009
2010
2011
Thereafter
Total
45,054
3,571
1,182
590
535
256
51,188
(in millions)
15,289
6,440
2,943
1,850
26,522
Amount
2006
Rate
Amount
2005
Rate
Amount
2004
Rate
As of December 31,
Commercial paper and other short-term
borrowings
$ 1,122
4.06%
$ 3,958
3.80%
$ 6,225
2.40%
11,707
$ 12,829
4.88
4.81
19,934
$ 23,892
3.99
3.96
15,737
$ 21,962
2.04
2.14
$ 7,701
4.61%
$ 9,548
3.09%
$ 10,010
1.56%
13,770
$ 21,471
4.62
4.62
14,526
$ 24,074
3.09
3.09
16,120
$ 26,130
1.22
1.35
$ 14,580
N/A
$ 15,075
N/A
$ 16,492
N/A
16,910
N/A
22,315
N/A
22,117
N/A
(in millions)
Highest month-end balance in each of the last three years was in February 2006, January 2005 and July 2004.
(2)
Highest month-end balance in each of the last three years was in May 2006, August 2005 and June 2004.
87
2006
December 31,
2005
$21,225
21,917
10,000
372
3,000
56,514
$16,081
21,711
10,000
444
3,000
51,236
4,560
4,558
300
4,860
300
4,858
(in millions)
Maturity
date(s)
Stated
interest
rate(s)
2007-2035
2007-2046
2008-2015
2007-2014
2033
2.20-6.75%
Varies
Varies
0.23-4.24%
Varies
2011-2023
2012
4.625-6.65%
4.00% through
mid-2007, varies
2031-2036
5.625-7.00%
4,022
4,022
65,396
3,247
3,247
59,341
2007-2011
2007-2034
2012
2007-2019
1.16-5.375%
Varies
5.20%
0.53-5.79%
173
2,174
203
985
12
3,547
256
3,138
203
229
14
3,840
2010-2036
2016
2007-2013
4.75-7.55%
Varies
4.70-12.00%
6,264
500
13
6,777
10,324
4,330
13
4,343
8,183
2007-2034
2007-2010
2.67-7.47%
Varies
7,654
1,970
$ 9,624
7,159
1,714
$ 8,873
We entered into interest rate swap agreements for a major portion of these notes, whereby we receive fixed-rate interest payments approximately equal to interest
on the notes and make interest payments based on an average one-month, three-month or six-month London Interbank Offered Rate (LIBOR).
(2)
The extendable notes are floating-rate securities with an initial maturity of 13 months, which can be extended on a rolling monthly basis to a final maturity of
5 years at the investors option.
(3)
On April 15, 2003, we issued $3 billion of convertible senior debentures as a private placement. In November 2004, we amended the indenture under which the
debentures were issued to eliminate a provision in the indenture that prohibited us from paying cash upon conversion of the debentures if an event of default as
defined in the indenture exists at the time of conversion. We then made an irrevocable election under the indenture on December 15, 2004, that upon conversion
of the debentures, we must satisfy the accreted value of the obligation (the amount accrued to the benefit of the holder exclusive of the conversion spread) in cash
and may satisfy the conversion spread (the excess conversion value over the accreted value) in either cash or stock. We can also redeem all or some of the
convertible debt securities for cash at any time on or after May 5, 2008, at their principal amount plus accrued interest, if any.
(4)
Effective December 31, 2003, as a result of the adoption of FIN 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46(R)), we
deconsolidated certain wholly-owned trusts formed for the sole purpose of issuing trust preferred securities (the Trusts). The junior subordinated debentures held
by the Trusts are included in the Companys long-term debt.
(5)
On December 5, 2006, Wells Fargo Capital X issued 5.95% Capital Securities and used the proceeds to purchase from the Parent 5.95% Capital Efficient Notes
(the Notes) due 2086 (scheduled maturity 2036). When it issued the Notes, the Parent entered into a Replacement Capital Covenant (the Covenant) in which it
agreed for the benefit of the holders of the Parents 5.625% Junior Subordinated Debentures due 2034 that it will not repay, redeem or repurchase, and that none
of its subsidiaries will purchase, any part of the Notes or the Capital Securities on or before December 1, 2066, unless the repayment, redemption or repurchase is
made from the net cash proceeds of the issuance of certain qualified securities and pursuant to the other terms and conditions set forth in the Covenant. For more
information, refer to the Covenant, which was filed as Exhibit 99.1 to the Companys Current Report on Form 8-K filed December 5, 2006.
Stated
interest
rate(s)
Senior
Fixed-Rate Notes
Floating-Rate FHLB Advances
Other notes and debentures Floating-Rate
Total senior debt Other consolidated subsidiaries
2007-2049
2008-2009
2012-2037
0.50-8.00%
Varies
Varies
Subordinated
Fixed-Rate Notes (1)
Other notes and debentures Floating-Rate
Total subordinated debt Other consolidated subsidiaries
2008
2011-2016
6.25%
Varies
2029-2031
2027-2034
9.875-10.18%
Varies
2006
December 31,
2005
Junior Subordinated
Fixed-Rate Notes (4)
Floating-Rate Notes (4)
Total junior subordinated debt Other consolidated subsidiaries
Total long-term debt Other consolidated subsidiaries
Total long-term debt
378
500
404
1,282
502
500
14
1,016
209
78
287
1,138
66
1,204
56
176
232
1,801
$ 87,145
869
182
1,051
3,271
$ 79,668
Parent Company
$10,815 $ 14,741
8,629
11,282
5,881
7,358
8,383
10,472
10,253
13,469
21,435
29,823
$65,396 $ 87,145
89
from 8.50% to 12.50%, depending upon the year of issuance. Each share
of ESOP Preferred Stock released from the unallocated reserve of the
401(k) Plan is converted into shares of our common stock based on the
stated value of the ESOP Preferred Stock and the then current market
price of our common stock. The ESOP Preferred Stock is also
convertible at the option of the holder at any time, unless previously
redeemed. We have the option to redeem the ESOP Preferred Stock at
any time, in whole or in part, at a redemption price per share equal to
the higher of (a) $1,000 per share plus accrued and unpaid dividends or
(b) the fair market value, as defined in the Certificates of Designation
for the ESOP Preferred Stock.
Shares issued
and outstanding
December 31,
2005
2006
ESOP Preferred Stock (1) :
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
Total ESOP Preferred Stock
Unearned ESOP shares (2)
115,521
84,284
65,180
44,843
32,874
22,303
14,142
4,094
563
383,804
102,184
74,880
52,643
39,754
28,263
19,282
6,368
1,953
136
325,463
Carrying amount
(in millions)
December 31,
2005
2006
$
$
$
116
84
65
45
33
22
14
4
1
384
(411)
$
$
102
75
53
40
28
19
6
2
325
(348)
Minimum
10.75%
9.75
8.50
8.50
10.50
10.50
11.50
10.30
10.75
9.50
Adjustable
dividend rate
Maximum
11.75%
10.75
9.50
9.50
11.50
11.50
12.50
11.30
11.75
10.50
(1)
Liquidation preference $1,000. At December 31, 2006 and 2005, additional paid-in capital included $27 million and $23 million, respectively, related to preferred
stock.
(2)
In accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 93-6, Employers Accounting for Employee Stock
Ownership Plans, we recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned
ESOP shares are reduced as shares of the ESOP Preferred Stock are committed to be released. For information on dividends paid, see Note 14.
90
Common Stock
Our reserved, issued and authorized shares of common stock at
December 31, 2006, were:
Number of shares
Dividend reinvestment and common stock purchase
plans
Director plans
Stock plans (1)
Total shares reserved
Shares issued
Shares not reserved
Total shares authorized
11,770,843
1,165,176
525,694,478
538,630,497
3,472,762,050
1,988,607,453
6,000,000,000
(1) Includes employee option, restricted shares and restricted share rights, 401(k)
and compensation deferral plans.
quoted market price of our common stock at the date of grant, we did
not recognize any compensation expense in 2005 and prior years. In
2006, under FAS 123(R), we began to recognize expense related to
these grants, based on the remaining vesting period.
provide annual grants of options to purchase common stock to each nonemployee director elected or re-elected at the annual meeting of
stockholders. The options can be exercised after six months and through
the tenth anniversary of the grant date.
The table below summarizes stock option activity and related
information for 2006.
Director Plans
We provide a stock award to non-employee directors as part of their
annual retainer under our director plans. We also
Number
Weighted-average
exercise price
221,182,224
46,962,990
(1,371,700)
(43,656,832)
223,116,682
221,933,695
185,775,820
48,985,522
(2,217,334)
(8,757,398)
38,010,790
38,010,790
20,444,040
779,028
91,219
(75,636)
794,611
794,611
791,106
Weighted-average
remaining contractual
term (in yrs.)
24.82
32.80
31.18
22.84
26.85
5.9
26.82
25.81
5.9
5.2
22.75
24.78
20.40
23.18
4.1
23.18
21.39
4.1
3.1
24.33
32.69
15.21
26.16
5.7
26.16
26.12
5.7
5.7
Aggregate
intrinsic value
(in millions)
1,947
1,943
1,816
471
471
290
7
7
$3.75
3.13
16.1%
3.4
4.4
4.0%
$4.66
4.67
23.8%
3.4
4.4
2.9%
74,536,040
383,804
$
384
212,366
26,580
(91,800)
147,146
Shares outstanding
December 31,
2005
2004
2006
Allocated shares (common)
Unreleased shares (preferred)
Weighted-average
grant-date
fair value
26.92
33.90
24.75
29.53
Number
73,835,002
325,463
$
325
67,843,516
269,563
$
2006
$
79
47
Dividends paid
Year ended December 31,
2005
2004
$
71
39
270
61
32
Employee Benefits
We sponsor noncontributory qualified defined benefit retirement plans
including the Cash Balance Plan. The Cash Balance Plan is an active
plan that covers eligible employees (except employees of certain
subsidiaries).
Under the Cash Balance Plan, eligible employees Cash Balance Plan
accounts are allocated a compensation credit based on a percentage of
their certified compensation. The compensation credit percentage is
based on age and years of credited service. In addition, investment
credits are allocated to participants quarterly based on their accumulated
balances. Employees become vested in their Cash Balance Plan
accounts after completing five years of vesting service or reaching age
65, if earlier.
We did not make a contribution in 2006 to our Cash Balance Plan
because a contribution was not required and the Plan was well-funded.
Although we will not be required to make a contribution in 2007 for the
Cash Balance Plan, our decision on how much to contribute, if any, will
be based on the maximum deductible contribution under the Internal
Revenue Code, which has not yet been determined, and other factors,
including the actual investment performance of plan assets during 2007.
Given these uncertainties, we cannot estimate at this time the amount
that we will contribute in 2007 to the Cash Balance Plan. The total
amount contributed for our other pension plans in 2006 was $50 million.
For the unfunded nonqualified pension plans and postretirement benefit
plans, we will contribute the minimum required amount in 2007, which
equals the benefits paid under the plans. In 2006, we paid $74 million in
benefits for the postretirement plans, which included $35 million in
retiree contributions and $33 million for the unfunded pension plans.
(in millions)
Other assets
Total assets
Accrued expenses and other liabilities
Total liabilities
Before
adoption
of FAS 158
Adjustments
After
adoption
of FAS 158
30,000
482,453
(457)
(457)
29,543
481,996
25,958
436,175
(55)
(55)
25,903
436,120
704
46,278
(402)
(402)
302
45,876
482,453
(457)
481,996
94
The changes in the projected benefit obligation of pension benefits and the accumulated benefit obligation of other benefits and the fair value of
plan assets during 2006 and 2005, the funded status at December 31, 2006 and 2005, and the amounts recognized in the balance sheet at December 31,
2006, were:
December 31,
2005
(in millions)
2006
Pension benefits
NonQualified
qualified
Other
benefits
Pension benefits
NonQualified
qualified
277
16
16
31
(39)
301
709
15
39
35
(11)
26
(74)
739
370
37
44
35
(74)
412
4,045
247
224
18
225
(317)
1
4,443
4,944
703
20
(317)
1
5,351
39
(39)
908
(301)
(327)
927
(19)
908
(301)
(301)
(327)
(327)
Net loss
Net prior service credit
Net transition obligation
494
(7)
487
76
(21)
55
3,777
208
220
37
43
(242)
2
4,045
4,457
400
327
(242)
2
4,944
899
Other
benefits
228
21
14
27
(13)
277
13
(13)
329
34
56
29
(78)
370
(277)
(339)
751
21
41
29
(44)
(12)
(78)
1
709
The net loss and net prior service credit for the defined benefit
pension plans that will be amortized from accumulated other
comprehensive income into net periodic benefit cost in 2007 are
$44 million and $2 million, respectively. The net loss and net prior
service credit for the other defined benefit postretirement plans that will
be amortized from accumulated other comprehensive income into net
periodic benefit cost in 2007 are $5 million and $4 million, respectively.
144
(46)
3
101
This table reconciles the funded status of the plans to the amounts included in the balance sheet at December 31, 2005.
(in millions)
899
615
(277)
2
42
(339)
4
131
3
Fair value of plan assets at year end less projected benefit obligation at year end.
95
(25)
1,489
1,489
1,489
(11)
(244)
(245)
1
(244)
(51)
(252)
(252)
(252)
Pension
benefits (1)
Discount rate
Rate of compensation
increase
2006
Other
benefits
5.75%
5.75%
5.75%
5.75%
4.0
4.0
Pension
plan
assets
Equity securities
Debt securities
Real estate
Other
Total
70%
24
4
2
100%
62%
35
2
1
100%
69%
27
3
1
100%
58%
40
1
1
100%
The table below provides information for pension plans with benefit
obligations in excess of plan assets, substantially due to our
nonqualified pension plans.
(in millions)
December 31,
2005
2006
$399
345
70
$359
297
60
Pension benefits
NonQualified
qualified
Other
benefits
Pension benefits
NonQualified
qualified
Other
benefits
(in millions)
2005
2006
Service cost
Interest cost
Expected return on plan
assets
Amortization of net
actuarial loss (1)
Amortization of prior
service cost
Special termination
benefits
Curtailment gain
Settlement
Net periodic benefit
cost
(1)
247
224
16
16
15
39
208
220
21
14
21
41
170
215
23
13
17
43
(421)
(31)
(393)
(25)
(327)
(23)
56
68
51
(1)
(4)
(4)
(2)
(1)
(1)
(1)
(1)
(9)
(2)
113
40
15
96
99
36
42
106
38
38
The weighted-average assumptions used to determine the net periodic benefit cost were:
Pension
benefits (1)
Discount rate
Expected return on plan assets
Rate of compensation increase
(1)
2006
Other
benefits
5.75%
8.75
4.0
Pension
benefits (1)
5.75%
8.75
2005
Other
benefits
6.0%
9.0
4.0
6.0%
9.0
6.5%
9.0
4.0
6.5%
9.0
354
410
403
384
325
2,185
33 $
32
40
34
38
174
54
57
59
62
65
348
Other benefits
subsidy receipts
7
7
8
8
8
45
Other Expenses
Expenses exceeding 1% of total interest income and noninterest income
that are not otherwise shown separately in the financial statements or
Notes to Financial Statements were:
97
(in millions)
$ 942
579
542
456
437
$ 835
596
481
443
449
$ 669
626
442
459
418
(in millions)
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Total
$2,993
438
239
3,670
$2,627
346
91
3,064
$2,815
354
154
3,323
521
72
593
$4,263
715
98
813
$3,877
379
53
432
$3,755
December 31,
2005
2006
(in millions)
Deferred Tax Assets
Allowance for loan losses
Deferred compensation and employee benefits
Other
Total deferred tax assets
Deferred Tax Liabilities
Mortgage servicing rights
Leasing
Mark to market, net
Net unrealized gains on securities available for
sale
Other
Total deferred tax liabilities
Net Deferred Tax Liability
Amount
2006
Rate
$ 4,461
35.0%
331
(356)
(173)
$ 4,263
4,234
2,349
972
3,517
2,430
708
368
342
1,175 1,006
9,072 8,029
$6,018 $5,595
Amount
2005
Rate
$ 4,042
35.0%
$ 3,769
(in millions)
$1,430 $1,471
156
484
807
1,140
3,054 2,434
2.6
(2.8)
(1.4)
33.4%
98
289
(327)
(127)
$ 3,877
2.5
(2.8)
(1.1)
33.6%
265
(224)
(55)
$ 3,755
35.0%
2.5
(2.1)
(0.5)
34.9%
$ 8,482
3,368.3
41.7
0.1
3,410.1
$ 2.49
99
3,368.3
2.52
$ 7,671
3,372.5
2.27
3,372.5
37.8
0.6
3,410.9
$ 2.25
$ 7,014
3,384.4
2.07
3,384.4
41.5
0.8
3,426.7
$ 2.05
(in millions)
Before
tax
Translation adjustments
2006
Net of
tax
Tax
effect
Before
tax
$
2005
Net of
tax
Tax
effect
$
20
12
264
93
171
(401)
(143)
(258)
35
12
23
(326)
(124)
(202)
(64)
(24)
(40)
(72)
(27)
(45)
(62)
(31)
(31)
(465)
(167)
(298)
(37)
(15)
(22)
46
16
30
349
134
215
(376)
(137)
(239)
64
24
40
(335)
(128)
(207)
413
152
261
110
40
70
14
37
15
22
48
39
(443)
6
$
(158)
8
$
(285)
20
12
Translation
adjustments
12
Defined
benefit
pension
plans
$
Net unrealized
gains (losses)
on securities
and other
interests held
$
913
Net unrealized
gains on
derivatives and
other hedging
activities
$
13
Cumulative
other
comprehensive
income
$
938
Net change
Balance, December 31, 2004
12
24
(22)
891
22
35
12
950
Net change
Balance, December 31, 2005
5
29
(298)
593
8
43
(285)
665
Net change
Balance, December 31, 2006
29
(402) (1)
(402)
(1)
100
(31)
562
70
113
(363)
302
101
(income/expense in millions,
average balances in billions)
2006
Net interest income (1)
Provision for credit losses
Noninterest income
Noninterest expense
Income before income tax expense
Income tax expense
Net income
2005
Net interest income (1)
Provision for credit losses
Noninterest income
Noninterest expense
Income before income tax expense
Income tax expense
Net income
2004
Net interest income (1)
Provision for credit losses
Noninterest income
Noninterest expense
Income (loss) before income tax expense (benefit)
Income tax expense (benefit)
Net income (loss)
2006
Average loans
Average assets
Average core deposits
2005
Average loans
Average assets
Average core deposits
Community
Banking
Wholesale
Banking
Wells Fargo
Financial
Other (2)
Consolidated
Company
13,117
887
9,915
13,822
8,323
2,792
5,531
2,924
16
4,310
4,114
3,104
1,018
2,086
3,910
1,301
1,515
2,806
1,318
453
865
12,702
895
9,418
12,972
8,253
2,780
5,473
2,393
1
3,756
3,487
2,661
872
1,789
3,409
1,487
1,271
2,559
634
225
409
12,018
787
8,212
11,978
7,465
2,633
4,832
2,210
62
3,432
3,062
2,518
839
1,679
2,922
868
1,265
2,357
962
345
617
176
(176)
(62)
(114)
178.0
320.2
231.4
71.4
97.1
28.5
57.5
62.9
0.1
5.8
306.9
486.0
260.0
187.0
297.7
218.2
62.2
89.6
24.6
46.9
52.7
5.8
296.1
445.8
242.8
19,951
2,204
15,740
20,742
12,745
4,263
8,482
18,504
2,383
14,445
19,018
11,548
3,877
7,671
17,150
1,717
12,909
17,573
10,769
3,755
7,014
(1)
Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned
on segment assets and, if the segment has excess liabilities, interest credits for providing funding to other segments.The cost of liabilities includes interest expense
on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of excess liabilities from another
segment. In general, Community Banking has excess liabilities and receives interest credits for the funding it provides to other segments.
(2)
In 2004, a $176 million loss on debt extinguishment was recorded at the enterprise level.
102
At December 31, 2005, we also retained some AAA-rated floatingrate mortgage-backed securities, which were sold in 2006. The fair
value at the date of securitization was determined using quoted market
prices. The implied CPR, life, and discount spread to the London
Interbank Offered Rate (LIBOR) curve at the date of securitization is
presented in the following table.
Other interests held AAA
mortgage-backed securities
2005
Prepayment speed (annual CPR)
Life (in years)
Discount spread to LIBOR curve
103 $ 40,982 $
154
225
560
15.7%
5.8
10.5%
($ in millions)
Mortgage
servicing rights
Other
interests held
Other
interests held
2005
2006
16.9% 13.9%
5.6
7.0
10.1% 10.0%
26.8%
2.4
0.22%
18,047
5.6
6.3
12.4%
10.4%
616
1,439
651
1,253
14
33
10.8%
$
367
11.3%
$
13
24
12.7%
7.0
10.2%
103
This table presents information about the principal balances of owned and securitized loans.
December 31,
Delinquent loans(2)
2005
2006
(in millions)
2006
Commercial and commercial real estate:
Commercial
Other real estate mortgage
Real estate construction
Lease financing
Total commercial and commercial
real estate
Consumer:
Real estate 1-4 family first mortgage
Real estate 1-4 family junior lien
mortgage
Credit card
Other revolving credit and installment
Total consumer
Foreign
Total loans owned and
securitized
Less:
Securitized loans
Mortgages held for sale
Loans held for sale
Total loans held
Total loans(1)
2005
$ 70,779
44,834
15,935
5,614
$ 61,552
45,042
13,406
5,400
137,162
125,400
634
733
278
291
114,676
136,261
929
709
77
90
68,926
14,697
54,036
252,335
6,983
59,143
12,009
48,287
255,700
5,930
275
262
804
2,270
94
194
159
470
1,532
71
118
409
1,148
1,752
210
105
467
1,115
1,777
239
396,480
387,030
$ 2,998
$ 2,336
$ 2,240
$ 2,307
43,546
33,097
721
$ 319,116
35,047
40,534
612
$ 310,837
346
178
81
29
304
344
40
45
303
(33)
(1)
9
273
11
(7)
14
(1)
Represents loans in the balance sheet or that have been securitized, but excludes securitized loans that we continue to service but as to which we have no other
continuing involvement.
(2)
Includes nonaccrual loans and loans 90 days or more past due and still accruing.
We also hold variable interests greater than 20% but less than 50% in
certain special-purpose entities formed to provide affordable housing
and to securitize corporate debt that had approximately $2.9 billion in
total assets at both December 31, 2006 and 2005. We are not required to
consolidate these entities. Our maximum exposure to loss as a result of
our involvement with these unconsolidated variable interest entities was
approximately $980 million and $870 million at December 31, 2006 and
2005, respectively, predominantly representing investments in entities
formed to invest in affordable housing. However, we expect to recover
our investment over time, primarily through realization of federal lowincome housing tax credits.
104
(in millions)
Residential Commercial
MSRs
MSRs
Total
MSRs
12,389 $
122 $12,511
158
12,547 $
158
122 $12,669
Valuation allowance:
Balance, beginning of year
Reversal of provision for MSRs in
excess of fair value
Write-down of MSRs
Balance, end of year
Amortized MSRs, net
$ 12,547
3,859
$ 122
278
11
(34)
$ 9,466
2,683
2,652
(1,991)
$ 8,848
1,353
1,769
(1,826)
(169)
$ 377
888
$13,698
(509)
$ 9,466
$ 1,565
$ 1,942
$
$ 377
(378)
$ 1,187
$12,511
(208)
(169)
$ 1,565
$ 7,901
$ 146
457
$ 7,913
12,693
$ 6,914
7,913
4,107
(469)
(9)
(2,444)
$ 17,591
105
December 31,
2005
2006
$1,280
86
1,366
19
$1,385
(in millions)
$ 871
118
989
27
$1,016
1.41%
(9)
Other changes in fair value (3)
(2,444)
Amortization
(34) (1,991) (1,826)
Reversal of provision for MSRs in
excess of fair value
378
208
(145)
Total servicing income, net
987
1,037
893
Net gains on mortgage loan
origination/sales activities
1,085
539
1,116
All other
350
284
302
Total mortgage banking
noninterest income
$ 2,311 $ 2,422 $ 1,860
Market-related valuation changes to MSRs,
net of hedge results (2) + (5)
$ (154)
1.44%
(1) Consists of 1-4 family first mortgage and commercial mortgage loans.
(2) Consists of mortgages held for sale and 1-4 family first mortgage loans.
(1) Includes contractually specified servicing fees, late charges and other
ancillary revenues. Also includes impairment write-downs on other interests
held of $26 million for 2006. There were no impairment write-downs for
2005 or 2004.
(2) Principally reflects changes in discount rates and prepayment speed
assumptions, mostly due to changes in interest rates.
(3) Represents changes due to collection/realization of expected cash flows over
time.
(4) Results related to MSRs fair value hedging activities under FAS 133,
Accounting for Derivative Instruments and Hedging Activities (as amended),
consist of gains and losses excluded from the evaluation of hedge
effectiveness and the ineffective portion of the change in the value of these
derivatives. Gains and losses excluded from the evaluation of hedge
effectiveness are those caused by market conditions (volatility) and the
spread between spot and forward rates priced into the derivative contracts
(the passage of time). See Note 26 Fair Value Hedges for additional
discussion and detail.
(5) Represents results from free-standing derivatives (economic hedges) used to
hedge the risk of changes in fair value of MSRs. See Note 26 FreeStanding Derivatives for additional discussion and detail.
106
Parent
WFFI
Other
consolidating
subsidiaries
Eliminations
Consolidated
Company
5,283
102
5,385
$ 2,176
876
3,266
103
6,421
20,370
6,428
26,798
(2,176)
(876)
(42)
(3,266)
(5)
(6,365)
25,611
6,628
32,239
Deposits
Short-term borrowings
Long-term debt
Total interest expense
436
3,197
3,633
381
1,758
2,139
7,174
1,065
710
8,949
(890)
(1,543)
(2,433)
7,174
992
4,122
12,288
2,788
2,788
3,246
1,061
2,185
17,849
1,143
16,706
(3,932)
(3,932)
19,951
2,204
17,747
NONINTEREST INCOME
Fee income nonaffiliates
Other
Total noninterest income
180
180
285
259
544
8,946
6,126
15,072
(56)
(56)
9,231
6,509
15,740
NONINTEREST EXPENSE
Salaries and benefits
Other
Total noninterest expense
95
22
117
1,128
976
2,104
10,704
8,753
19,457
(936)
(936)
11,927
8,815
20,742
625
205
$ 420
12,321
4,223
8,098
(3,052)
(5,466)
(8,518)
12,745
4,263
8,482
2,851
(165)
5,466
$ 8,482
107
Parent
WFFI
Other
consolidating
subsidiaries
Eliminations
Consolidated
Company
4,467
104
4,571
$ 4,675
763
2,215
105
7,758
16,809
4,493
21,302
(4,675)
(763)
(16)
(2,215)
(7,669)
21,260
4,702
25,962
Deposits
Short-term borrowings
Long-term debt
Total interest expense
256
2,000
2,256
223
1,362
1,585
3,848
897
598
5,343
(632)
(1,094)
(1,726)
3,848
744
2,866
7,458
5,502
5,502
2,986
1,582
1,404
15,959
801
15,158
(5,943)
(5,943)
18,504
2,383
16,121
NONINTEREST INCOME
Fee income nonaffiliates
Other
Total noninterest income
298
298
224
223
447
8,111
5,727
13,838
(138)
(138)
8,335
6,110
14,445
NONINTEREST EXPENSE
Salaries and benefits
Other
Total noninterest expense
92
50
142
985
759
1,744
9,378
8,398
17,776
(644)
(644)
10,455
8,563
19,018
5,658
145
2,158
$ 7,671
107
(2)
$ 109
11,220
3,734
7,486
(5,437)
(2,158)
(7,595)
11,548
3,877
7,671
$ 3,652
307
1,117
91
5,167
3,548
84
3,632
13,233
4,011
17,244
(3,652)
(307)
(1,117)
(5,076)
16,781
4,186
20,967
106
872
978
47
1,089
1,136
1,827
458
387
2,672
(258)
(711)
(969)
1,827
353
1,637
3,817
4,189
4,189
2,496
833
1,663
14,572
884
13,688
(4,107)
(4,107)
17,150
1,717
15,433
139
139
223
256
479
7,319
5,053
12,372
(81)
(81)
7,542
5,367
12,909
NONINTEREST EXPENSE
Salaries and benefits
Other
Total noninterest expense
INCOME BEFORE INCOME TAX EXPENSE
(BENEFIT) AND EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES
Income tax expense (benefit)
Equity in undistributed income of subsidiaries
NET INCOME
64
313
377
3,951
(97)
2,966
$ 7,014
108
944
746
1,690
7,916
7,820
15,736
(230)
(230)
8,924
8,649
17,573
452
159
$ 293
10,324
3,693
6,631
(3,958)
(2,966)
(6,924)
10,769
3,755
7,014
Parent
WFFI
Other
consolidating
subsidiaries
Eliminations
Consolidated
Company
$ 14,131
78
920
3,400
48,014
51,414
146
324
1,725
15
47,136
538
(1,193)
46,481
43,098
4,616
5,778
$120,035
1,745
$50,436
19
3,762
65,396
4,982
74,159
45,876
$120,035
7,708
1,323
38,456
47,487
2,949
$50,436
$ 10,720
74
888
20,704
39,990
33,803
272,339
(14,277)
(6)
(359)
21,106
42,629
33,818
319,116
(2,571)
269,768
(3,400)
(48,552)
(52,311)
(3,764)
315,352
62,981
427,246
(43,098)
(4,616)
(1,413)
(115,721)
69,091
481,996
324,520
18,793
22,683
16,580
382,576
44,670
427,246
25
20,410
39,189
41,114
267,121
(14,277)
(13,691)
(1,865)
(33,287)
(4,982)
(68,102)
(47,619)
(115,721)
(11,000)
(6)
(883)
310,243
12,829
25,903
87,145
436,120
45,876
481,996
3,100
44,935
48,036
255
219
1,763
32
44,598
1,003
(1,280)
44,321
37,298
4,258
6,272
$107,546
1,247
$47,837
81
3,480
59,341
3,984
66,886
40,660
$107,546
9,005
1,241
35,087
45,333
2,504
$47,837
20,703
41,834
41,146
310,837
(2,591)
264,530
(3,100)
(45,938)
(49,921)
(3,871)
306,966
65,336
430,604
(37,298)
(4,258)
(1,763)
(104,246)
71,092
481,741
325,450
28,746
20,856
16,613
391,665
38,939
430,604
(11,000)
(13,940)
(2,506)
(31,373)
(3,984)
(62,803)
(41,443)
(104,246)
314,450
23,892
23,071
79,668
441,081
40,660
481,741
109
Parent
WFFI
$ 3,536
$ 1,179
Other
consolidating
subsidiaries/
eliminations
Consolidated
Company
27,379
32,094
353
14
(378)
822
259
(1,032)
(2,003)
52,129
7,048
(61,052)
(626)
(35,727)
53,304
7,321
(62,462)
(626)
(37,730)
(500)
(7,805)
4,926
(145)
(3,535)
50
(202)
19,998
(22,382)
1,081
(3,409)
38,293
(5,136)
3,923
(4,592)
500
7,805
(4,926)
145
(11,540)
(13,756)
38,343
(5,338)
23,921
(26,974)
(10,459)
(20,700)
931
13,448
(7,362)
1,764
(1,965)
(3,641)
227
12
3,414
(1,297)
8,670
(5,217)
70
2,226
(4,452)
(10,790)
(1,863)
(30)
(268)
(17,403)
(4,452)
(11,156)
20,255
(12,609)
1,764
(1,965)
(3,641)
227
(186)
(11,763)
(4)
(3,780)
(369)
3,415
10,794
$14,209
110
474
$
470
4,129
$
349
15,397
$
15,028
Parent
WFFI
$ 5,396
$ 1,159
Other
consolidating
subsidiaries/
eliminations
Consolidated
Company
281
248
(486)
(953)
18,147
6,634
(27,917)
66
(41,356)
19,059
6,972
(28,634)
66
(42,309)
(3,166)
(10,751)
2,950
194
(10,283)
232
19,542
(29,757)
(1,059)
(11,952)
42,007
(8,853)
3,280
(3,918)
3,166
10,751
(2,950)
(194)
(6,697)
(7,834)
42,239
(8,853)
22,822
(33,675)
(7,756)
(30,069)
1,048
18,297
(8,216)
1,367
(3,159)
(3,375)
5,962
3,344
11,891
(4,450)
10,785
38,961
(2,514)
(3,715)
(5,910)
(1,673)
25,149
38,961
1,878
26,473
(18,576)
1,367
(3,159)
(3,375)
(1,673)
41,896
1,427
2,494
2,702
12,903
(8)
9,719
$ 10,794
111
(9,333)
631
90
(231)
1,075
(15,888)
482
$
474
4,129
15,397
Parent
WFFI
$ 3,848
$ 1,297
Other
consolidating
subsidiaries/
eliminations
Consolidated
Company
6,485
78
160
(207)
268
152
(580)
5,976
8,511
(15,796)
(331)
(33,800)
6,322
8,823
(16,583)
(331)
(33,800)
(92)
(11,676)
896
(353)
(11,194)
17,668
(27,778)
(121)
(10,391)
14,540
(5,877)
328
27
92
11,676
(896)
353
(2,652)
(17,849)
14,540
(5,877)
17,996
(27,751)
(2,773)
(39,434)
(831)
19,610
(4,452)
1,271
(2,188)
(3,150)
10,260
(110)
683
12,919
(4,077)
9,415
27,437
(2,549)
(3,135)
(11,110)
(13)
10,630
27,327
(2,697)
29,394
(19,639)
1,271
(2,188)
(3,150)
(13)
30,305
2,914
321
(5,879)
(2,644)
6,805
161
8,581
15,547
$ 9,719
1,340
482
2,702
12,903
112
113
(in billions)
Amount
Actual
Ratio
For capital
adequacy purposes
Amount
Ratio
To be well capitalized
under the FDICIA prompt
corrective action provisions
Amount
Ratio
51.4
12.50%
40.6
12.05
>
$32.9
>
27.0
> 8.00%
> 8.00
> $33.7
> 10.00%
> $20.2
>
6.00%
> $19.6
>
5.00%
36.8
8.95%
29.2
8.66
36.8
7.89%
29.2
7.46
>
$16.5
>
13.5
> 4.00%
> 4.00
>
$18.7
>
15.7
The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding goodwill and certain other items.The minimum leverage ratio
guideline is 3% for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality, high liquidity, good
earnings, effective management and monitoring of market risk and, in general, are considered top-rated, strong banking organizations.
114
since that notification that management believes have changed the riskbased capital category of any of the covered subsidiary banks.
As an approved seller/servicer, Wells Fargo Bank, N.A., through its
mortgage banking division, is required to maintain minimum levels of
shareholders equity, as specified by various
Free-Standing Derivatives
We use free-standing derivatives (economic hedges), in addition to debt
securities available for sale, to hedge the risk of changes in the fair
value of residential MSRs, with the resulting gain or loss reflected in
income. These derivatives include swaps, swaptions, Treasury futures
and options, Eurodollar futures and options, and forward contracts. Net
derivative losses of $145 million for 2006 from economic hedges
related to our mortgage servicing activities are included in the income
statement in Mortgage banking. The aggregate fair value of these
derivatives used as economic hedges was a net asset of $157 million at
December 31, 2006, and $32 million at December 31, 2005, and is
included in the balance sheet in Other assets. Changes in fair value of
debt securities available for sale (unrealized gains and losses) are not
included in servicing income, but are reported in cumulative other
comprehensive income (net of tax) or, upon sale, are reported in net
gains (losses) on debt securities available for sale.
Interest rate lock commitments for residential mortgage loans that we
intend to sell are considered free-standing derivatives. Our interest rate
exposure on these derivative loan commitments is hedged with freestanding derivatives (economic hedges) such as Treasury futures,
forwards and options, Eurodollar futures, and forward contracts. The
commitments and free-standing derivatives are carried at fair value with
changes in fair value included in the income statement in Mortgage
banking. We record a zero fair value for a derivative loan commitment
at inception consistent with Securities and Exchange Commission
(SEC) Staff Accounting Bulletin No. 105, Application of Accounting
Principles to Loan Commitments . Changes subsequent to inception are
based on changes in fair value of the underlying loan resulting from the
exercise of the commitment and changes in the probability that the loan
will not fund within the terms of the commitment, which is affected
primarily by changes in interest rates and passage of time (referred to as
a fall-out factor). The aggregate fair value of derivative loan
commitments in the balance sheet at December 31, 2006 and 2005, was
a net liability of $65 million and $54 million, respectively, and is
included in the caption Interest rate contracts under Customer
Accommodation, Trading and Other Free-Standing Derivatives in the
following table.
We also enter into various derivatives primarily to provide derivative
products to customers. To a lesser extent, we take positions based on
market expectations or to benefit from price differentials between
financial instruments and markets. These derivatives are not linked to
specific assets and liabilities in the balance sheet or to forecasted
transactions in an accounting hedge relationship and, therefore, do not
qualify for hedge accounting. We also enter into free-standing
derivatives for risk management that do not otherwise qualify for hedge
accounting. They are carried at fair value with changes in fair value
recorded as part of other noninterest income in the income statement.
December 31,
2005
2004
$ (5)
$ 350
$ 933
11
(399)
(411)
45
23
10
116
The total notional or contractual amounts, credit risk amount and estimated net fair value for derivatives were:
(in millions)
Notional or
contractual
amount
ASSET/LIABILITY MANAGEMENT
HEDGES
Qualifying hedge contracts accounted for
under FAS 133
Interest rate contracts:
Swaps
Futures
Floors and caps purchased
Floors and caps written
Options purchased
Forwards
Equity contracts:
Options purchased
Options written
Forwards
Foreign exchange contracts:
Swaps
Free-standing derivatives (economic hedges)
Interest rate contracts:
Swaps
Futures
Options purchased
Options written
Forwards
Foreign exchange contracts:
Swaps
Forwards
CUSTOMER ACCOMMODATION,
TRADING AND OTHER FREESTANDING DERIVATIVES
Interest rate contracts:
Swaps
Futures
Floors and caps purchased
Floors and caps written
Options purchased
Options written
Forwards
Commodity contracts:
Swaps
Futures
Floors and caps purchased
Floors and caps written
Options purchased
Options written
Equity contracts:
Swaps
Futures
Forwards
Options purchased
Options written
Foreign exchange contracts:
Swaps
Futures
Options purchased
Options written
Forwards and spots
Credit contracts:
Swaps
36,840
339
500
27,781
Credit
risk
amount(2)
530
86
2006
Estimated
net fair
value
Notional or
contractual
amount
158
36
30,634
15,341
5,250
5,250
26,508
86,985
Credit
risk
amount(2)
263
87
103
95
December 31,
2005
Estimated
net fair
value
37
87
(13)
103
(14)
3
75
15
1
(3)
2
3,614
61
12
6,344
254,114
405
37,838
145
1
32
(11)
(3)
(29)
87
603
1,000
81
11
81
1,286
30
102
15
21
230
30
(20)
102
(133 )
5
92,462
8,400
7,169
12,653
10,160
41,124
37,968
1,175
33
129
41
17
133
33
(27)
129
(160)
3,422
518
839
1,224
184
155
277
55
30
34
55
(66)
30
(31)
2,858
455
1,686
1,629
48
203
599
195
(1)
195
(130)
7
(33)
81
90
160
2,732
2,113
1
295
(7)
295
(302)
55
31
54
1,751
1,542
253
(2)
253
(263)
4,133
1
2,384
2,145
34,576
40
72
194
(17)
72
(55)
19
1,078
53
2,280
2,219
21,516
35
60
220
60
(59)
22
1,513
30
5,454
23
(33)
1
75
4
(15)
10,157
548
539
29,674
61,339
94,101
11,620
260,751
164
157
394
39
157
(5)
(8)
603
1,000
87
49
100,944
16,870
6,929
10,704
8,993
31,237
83,163
(1)
(1)
Includes free-standing derivatives (economic hedges) used to hedge the risk of changes in the fair value of residential MSRs, interest rate lock commitments and
other interests held.
(2)
Credit risk amounts reflect the replacement cost for those contracts in a gain position in the event of nonperformance by all counterparties.
117
Financial Assets
SHORT-TERM FINANCIAL ASSETS
Short-term financial assets include cash and due from banks, federal
funds sold and securities purchased under resale agreements and due
from customers on acceptances. The carrying amount is a reasonable
estimate of fair value because of the relatively short time between the
origination of the instrument and its expected realization.
TRADING ASSETS
Trading assets are carried at fair value.
118
Financial Liabilities
DEPOSIT LIABILITIES
FAS 107 states that the fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, interest-bearing checking,
and market rate and other savings, is equal to the amount payable on
demand at the measurement date. The amount included for these
deposits in the following table is their carrying value at December 31,
2006 and 2005. The fair value of other time deposits is calculated based
on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for like wholesale deposits
with similar remaining maturities.
Derivatives
The fair values of derivatives are reported in Note 26.
Limitations
We make these fair value disclosures to comply with the requirements
of FAS 107. The calculations represent managements best estimates;
however, due to the lack of broad markets and the significant items
excluded from this disclosure, the calculations do not represent the
underlying value of the Company. The information presented is based
on fair value calculations and market quotes as of December 31, 2006
and 2005. These amounts have not been updated since year end;
therefore, the valuations may have changed significantly since that point
in time.
As discussed above, some of our asset and liability financial
instruments are short term, and therefore, the carrying amounts in the
balance sheet approximate fair value. Other significant assets and
liabilities that are not considered financial assets or liabilities, and for
which fair values have not been estimated, include mortgage servicing
rights, premises and equipment, goodwill and other intangibles, deferred
taxes and other liabilities.
The table below is a summary of financial instruments, as defined by
FAS 107, excluding short-term financial assets and liabilities, for which
carrying amounts approximate fair value, and trading assets, securities
available for sale and derivatives, which are carried at fair value.
Carrying
amount
December 31,
2005
Estimated
fair value
(in millions)
Carrying
amount
2006
Estimated
fair value
FINANCIAL ASSETS
Mortgages held for sale
Loans held for sale
Loans, net
Nonmarketable equity investments (cost method)
$ 33,097
721
315,352
4,451
33,240
731
315,484
4,711
$ 40,534
612
306,966
4,377
$ 40,666
629
307,721
4,821
FINANCIAL LIABILITIES
Deposits
Long-term debt (1)
$ 310,243
87,133
$ 310,116
86,837
$314,450
79,654
$ 314,301
78,868
(1)
The carrying amount and fair value exclude obligations under capital leases of $12 million and $14 million at December 31, 2006 and 2005, respectively.
119
INTEREST INCOME
INTEREST EXPENSE
Dec. 31
Sept. 30
2006
Quarter ended
June 30
Mar. 31
$ 8,231
3,181
$ 8,399
3,352
$ 8,077
3,093
5,050
726
5,047
613
4,324
2005
Quarter ended
June 30
Mar. 31
Dec. 31
Sept. 30
$ 7,532
2,662
$ 7,244
2,405
$ 6,645
1,969
$ 6,200
1,664
$ 5,873
1,420
4,984
432
4,870
433
4,839
703
4,676
641
4,536
454
4,453
585
4,434
4,552
4,437
4,136
4,035
4,082
3,868
665
675
418
510
735
200
364
623
663
384
488
415
201
364
655
623
394
478
628
200
272
654
614
377
520
743
202
248
625
597
361
478
237
202
358
578
602
326
453
814
208
337
NONINTEREST INCOME
Service charges on deposit accounts
Trust and investment fees
Card fees
Other fees
Mortgage banking
Operating leases
Insurance
Net gains (losses) on debt securities
available for sale
Net gains from equity investments
Other
Total noninterest income
695
735
481
550
677
190
299
707
664
464
509
484
192
313
51
256
429
4,363
121
159
274
3,887
(156)
133
261
3,805
(35)
190
392
3,685
(124)
93
434
3,653
(31)
146
354
3,827
39
201
231
3,329
(4)
71
251
3,636
NONINTEREST EXPENSE
Salaries
Incentive compensation
Employee benefits
Equipment
Net occupancy
Operating leases
Other
Total noninterest expense
1,812
793
501
339
367
157
1,442
5,411
1,769
710
458
294
357
155
1,338
5,081
1,754
714
487
284
345
157
1,435
5,176
1,672
668
589
335
336
161
1,313
5,074
1,613
663
428
328
344
161
1,346
4,883
1,571
676
467
306
354
159
1,356
4,889
1,551
562
432
263
310
157
1,279
4,554
1,480
465
547
370
404
158
1,268
4,692
3,276
1,095
3,240
1,046
3,181
1,092
3,048
1,030
2,906
976
2,973
998
2,857
947
2,812
956
NET INCOME
$ 2,181
$ 2,194
$ 2,089
$ 2,018
$ 1,930
$ 1,975
$ 1,910
$ 1,856
0.65
0.65
0.62
0.60
0.57
0.59
0.56
0.55
0.64
0.64
0.61
0.60
0.57
0.58
0.56
0.54
0.28
0.54
0.26
0.26
0.26
0.24
0.24
3,379.4
3,371.9
3,363.8
3,358.3
3,350.8
3,373.5
3,375.4
3,390.8
3,424.0
3,416.0
3,404.4
3,395.7
3,387.8
3,410.6
3,414.4
3,431.5
$ 36.99
34.90
35.56
$ 36.89
33.36
36.18
$ 34.86
31.90
33.54
$ 32.76
30.31
31.94
$ 32.35
28.81
31.42
$ 31.44
29.00
29.29
$ 31.11
28.89
30.79
$ 31.38
29.08
29.90
All common share and per share disclosures reflect the two-for-one split in the form of a 100% stock dividend distributed August 11, 2006.
(2)
Based on daily prices reported on the New York Stock Exchange Composite Transaction Reporting System.
121
EXHIBIT 21
SUBSIDIARIES OF THE PARENT
The following is a list of the direct and indirect subsidiaries of the Parent as of December 31, 2006:
Subsidiary
1st Capital Mortgage, LLC
A.G. Edwards Mortgage, LLC
ACO Brokerage Holdings Corporation
Acordia Brokerage Services, Ltd.
Acordia Management Services Ltd.
Acordia Northeast, Inc.
Acordia of Indiana, Inc.
Acordia of Virginia Insurance Agency, Inc.
Acordia Services, Inc.
Acordia Southeast, Inc.
Advance Mortgage
Advantage Home Mortgage, LLC
Advantage Mortgage Partners, LLC
Alano Funding, LLC
Alaska Best Mortgage, LLC
Alces Funding, LLC
Alliance Home Mortgage, LLC
Alopekis Funding, LLC
Aman Collection Service, Inc.
Amber Asset Management Inc.
Amber Mortgage, LLC
American Clearinghouse, LLC
American E & S Insurance Brokers California, Inc.
American Priority Mortgage, LLC
American Securities Company
American Securities Company of Missouri
American Securities Company of Nevada
American Securities Company of Utah
American Southern Mortgage Services, LLC
APM Mortgage, LLC
Arcturus Trustee Limited
Arizona Community Mortgage, LLC
Ashton Woods Mortgage, LLC
Aspen Delaware Funding, LLC
ATC Realty Fifteen, Inc.
ATC Realty Nine, Inc.
ATC Realty Sixteen, Inc.
Augustus Ventures, L.L.C.
Azalea Asset Management, Inc.
Bancshares Insurance Company
Belgravia Mortgage Group, LLC
Bellwether Mortgage, LLC
Benefit Mortgage, LLC
Bergamasco Funding, LLC
Jurisdiction of Incorporation
or Organization
Delaware
Delaware
Delaware
Bermuda
Bermuda
New York
Indiana
Virginia
Delaware
Mississippi
Virginia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
South Dakota
Maryland
Delaware
Delaware
California
Delaware
California
Missouri
Nevada
Utah
Delaware
Delaware
United Kingdom
Delaware
Delaware
Delaware
California
California
California
Nevada
Delaware
Vermont
Delaware
Delaware
Delaware
Delaware
Subsidiary
Berks Mortgage Services, LLC
BHS Home Loans, LLC
Bitterroot Asset Management, Inc.
Blackhawk Bancorporation
Blue Spirit Insurance Company
Bluebonnet Asset Management, Inc.
Brittlebush Financing, LLC
Bryan, Pendleton, Swats & McAllister, LLC
Builders Mortgage Company, LLC
Canopus Finance Trust
Capital Pacific Home Loans, LP
Capstone Home Mortgage, LLC
Carnation Asset Management, Inc.
Centennial Home Mortgage, LLC
Central Bucks Mortgage, LLC
Centurion Agency Nevada, Inc.
Centurion Casualty Company
Centurion Life Insurance Company
Certified Home Loans, LLC
Cervus Funding, L.P.
CGT Insurance Company LTD.
Charter Holdings, Inc.
Chestnut Asset Management, Inc.
CHL Home Mortgage, LLC
Choice Home Financing, LLC
Choice Mortgage Servicing, LLC
CityLife Lending Group, LLC
Collin Equities, Inc.
Colorado Mortgage Alliance, LLC
Colorado Professionals Mortgage, LLC
Columbine Asset Management, Inc.
Commerce Funding Corporation
Copper Asset Management, Inc.
Crocker Properties, Inc.
DH Financial, LLC
Dial Finance Company, Inc.
Dial National Community Benefits, Inc.
Discovery Home Loans, LLC
Dynami Mortgage, LLC
Eastdil Secured, L.L.C.
Eastern Mortgage Authority, LLC
Eaton Village Associates, Ltd. Co.
Edward Jones Mortgage, LLC
Elite Home Mortgage, LLC
Ellis Advertising, Inc.
Ennis Home Mortgage, LP
Everest Management S.A.
Express Financial & Mortgage Services, LLC
EZG Associates Limited Partnership
Falcon Asset Management, Inc.
Family Home Mortgage, LLC
Financial Resources Mortgage, LLC
Finvercon USA, Inc.
First Associates Mortgage, LLC
First Commerce Bancshares, Inc.
First Commonwealth Home Mortgage, LLC
Jurisdiction of Incorporation
or Organization
Delaware
Delaware
Delaware
Iowa
Vermont
Delaware
Nevada
Tennessee
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Nevada
Iowa
Missouri
Delaware
Delaware
Barbados
Nevada
Delaware
Delaware
Delaware
Delaware
Delaware
Texas
Delaware
Delaware
Delaware
Maryland
Delaware
California
Delaware
Nevada
Nevada
Delaware
Delaware
New York
Delaware
New Mexico
Delaware
Delaware
Iowa
Delaware
Luxembourg
Delaware
Delaware
Delaware
Delaware
Delaware
Nevada
Delaware
Nebraska
Delaware
Subsidiary
First Community Capital Corporation
First Community Capital Corporation of Delaware, Inc.
First Community Capital Trust I
First Community Capital Trust II
First Community Capital Trust III
First Mortgage Consultants, LLC
First Place Financial Corporation
First Rate Home Mortgage, LLC
First Security Capital I
First Valley Delaware Financial Corporation
FIT II GP, LLC
Five Star Lending, LLC
FNL Insurance Company
Foothill Capital Corporation
Foothill Income Trust II, L.P.
Foothill Partners IV, L.P.
Foundation Mortgage Services, LLC
FP, IV GP, LLC
FPFC Management LLC
Fulton Homes Mortgage, LLC
Galliard Capital Management, Inc.
Generation Home Mortgage, LLC
Genesis Mortgage, LLC
Global General Mortgage, LLC
Gold Coast Home Mortgage
Golden Funding Company
Golden Pacific Insurance Company
Goldenrod Asset Management, Inc.
Great East Mortgage, LLC
Great Plains Insurance Company
Greater Atlanta Financial Services, LLC
Greenfield Funding, LLC
Greenridge Mortgage Services, LLC
Greylock Investments, LLC
Griffin Financial Services, LLC
GST Co.
Guarantee Pacific Mortgage, LLC
H.D. Vest Advisory Services, Inc.
H.D. Vest Insurance Agency, L.L.C.
H.D. Vest Insurance Agency, L.L.C.
H.D. Vest Insurance Agency, L.L.C.
H.D. Vest Investment Securities, Inc.
H.D. Vest Technology Services, Inc.
H.D. Vest, Inc.
HADBO Investments C.V.
Hallmark Mortgage Group, LLC
Harrier Funding, LLC
Havanese Funding, LLC
Hearthside Funding, L.P.
Hendricks Mortgage, LLC
Heritage Home Mortgage Group, LLC
Hewitt Mortgage Services, LLC
Home Services Title Reinsurance Company
Jurisdiction of Incorporation
or Organization
Texas
Delaware
Delaware
Delaware
Delaware
Delaware
New Mexico
Delaware
Delaware
Delaware
Delaware
Delaware
Vermont
California
Delaware
Delaware
Delaware
Delaware
New Mexico
Delaware
Minnesota
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Vermont
Delaware
Delaware
Vermont
Delaware
Minnesota
Delaware
Delaware
Delaware
Delaware
Delaware
Texas
Texas
Montana
Massachusetts
Texas
Texas
Texas
Netherlands
Delaware
Delaware
Delaware
California
Delaware
Delaware
Delaware
Vermont
Subsidiary
HomeLife Financial, LLC
Homeservices Lending, LLC
Hometown Mortgage, LLC
Horizon Mortgage, LLC
Hubble Home Loans, LLC
Iapetus Funding, LLC
IBID, Inc.
Illustrated Properties Mortgage Company, LLC
Ilumina Mortgage, LLC
Insurance Risk Managers, Ltd.
Integrity Home Funding, LLC
Interwest Capital Trust I
IntraWest Asset Management, Inc.
Iris Asset Management, Inc.
Island Finance Credit Services, Inc.
Island Finance Holding Company, LLC
Island Finance New York, Inc.
Island Finance Puerto Rico, Inc.
Island Finance Sales Finance Corporation
Island Finance Sales Finance Trust
IWIC Insurance Company
Jerboa Funding, LLC
John Laing Mortgage, LP
Jones & Minear Financial Services, LLC
JTS Financial, LLC
KD Mortgage, LLC
Keller Mortgage, LLC
Leader Mortgage, LLC
Legacy Mortgage
Lincoln Building Corporation
Linear Financial, LP
Lowry Hill Investment Advisors, Inc.
M.C.E.B. Agency, Inc.
Marben Mortgage, LLC
Marigold Asset Management, Inc.
Marigold International Limited
Martinius Corporation
Master Home Mortgage, LLC
Mastiff Funding, LP
Max Mortgage, LLC
MC of America, LLC
MCIG Pennsylvania, Inc.
MCZ/Centrum Mortgage Company, LLC
Mercantile Mortgage, LLC
MJC Mortgage Company, LLC
Monument Peak, LLC
Morrison Financial Services, LLC
Mortgage 100, LLC
Mortgages On-Site, LLC
Mortgages Unlimited, LLC
Mulberry Asset Management, Inc.
Mutual Service Mortgage, LLC
National Bancorp of Alaska, Inc.
National Condo Lending, LLC
NDC Financial Services, LLC
NEC VIII, LLC
Nero Limited, LLC
Jurisdiction of Incorporation
or Organization
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
New York
Cayman Islands
New York
Delaware
Cayman Islands
Puerto Rico
Vermont
Delaware
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Colorado
Delaware
Minnesota
Ohio
Delaware
Delaware
Cayman Islands
Minnesota
Delaware
Delaware
Delaware
Delaware
Pennsylvania
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Subsidiary
New West Mortgage Services, LLC
NHI Home Mortgage, LLC
North Star Mortgage Guaranty Reinsurance Company
Northern Prairie Indemnity Limited
Northwest Home Finance, LLC
Norwest Alliance System, Inc.
Norwest Equity Capital, L.L.C.
Norwest Equity Partners IV, a Minnesota Limited Partnership
Norwest Equity Partners V, a Minnesota Limited Partnership
Norwest Equity Partners VI, LP
Norwest Equity Partners VII, LP
Norwest Equity Partners VIII, LP
Norwest Financial Canada DE, Inc.
Norwest Financial Funding, Inc.
Norwest Financial Investment 1, Inc.
Norwest Financial Investment, Inc.
Norwest Financial Massachusetts
Norwest Home Improvement, Inc.
Norwest Limited LP, LLLP
Norwest Mezzanine Partners I, LP
Norwest Mezzanine Partners II, LP
Norwest Properties Holding Company
Norwest Venture Capital Management, Inc.
Norwest Venture Partners FVCI-Mauritius
Norwest Venture Partners IX, LP
Norwest Venture Partners VI, LP
Norwest Venture Partners VI-A, LP
Norwest Venture Partners VII, LP
Norwest Venture Partners VII-A, LP
Norwest Venture Partners VIII, LP
Norwest Venture Partners X, LP
Norwest Venture Partners-Mauritius
NVP Associates, LLC
Pacific Coast Home Mortgage, LLC
Pacific Northwest Bancorp
Pacific Northwest Statutory Trust I
Pageantry Mortgage, LLC
Paramount Mortgage of Polk County, LLC
Parkway Mortgage and Financial Center, LLC
PCM Mortgage, LLC
Peak Home Mortgage, LLC
Pelican Asset Management, Inc.
Peony Asset Management, Inc.
Peregrine Capital Management, Inc.
Personal Mortgage Group, LLC
Pheasant Asset Management, Inc.
Pinnacle Mortgage of Nevada, LLC
Platinum Residential Mortgage, LLC
Playground Financial Services, LLC
PNC Mortgage, LLC
Jurisdiction of Incorporation
or Organization
Delaware
Delaware
Vermont
Cayman Islands
Delaware
Minnesota
Minnesota
Minnesota
Minnesota
Minnesota
Minnesota
Delaware
Delaware
Nevada
Nevada
Nevada
Massachusetts
Texas
Delaware
Minnesota
Delaware
Minnesota
Minnesota
Mauritius
Delaware
Minnesota
Delaware
Minnesota
Delaware
Delaware
Delaware
Mauritius
Delaware
Delaware
Washington
Connecticut
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Minnesota
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Subsidiary
Precedent Mortgage, LLC
Premier Home Mortgage
Premium Financial Services, Inc.
Prestige Claims Service, Inc.
Primrose Asset Management, Inc.
Private Mortgage Advisors, LLC
Professional Financial Services of Arizona, LLC
Properties Mortgage, LLC
Pumi Funding, LLC
Quail Asset Management, LLC
Real Estate Financial
Real Living Mortgage, LLC
Regency Insurance Agency, Inc.
Related Financial, LLC
Reliable Finance Holding Company
Reliable Finance Holding Company, LLC
Reliable Financial Services, Inc.
Reliable Insurance Services Corp.
Residential Community Mortgage Company, LLC
Residential Home Mortgage Investment, L.L.C.
ResortQuest Mortgage, LLC
Rigil Finance, LLC
River City Group, LLC
Riverside Home Loans, LLC
Ruby Asset Management Inc.
Rural Community Insurance Agency, Inc.
Rural Community Insurance Company
Russ Lyon Mortgage, LLC
RWF Mortgage Company
RWF Mortgage, LLC
Sagebrush Asset Management, Inc.
Saguaro Asset Management, Inc.
Sapphire Asset Management Inc.
Scott Life Insurance Company
Secured Capital Corp
Security First Financial Group, LLC
SecurSource Mortgage, LLC
SelectNet Plus, Inc.
SG Group Holdings LLC
SG New York LLC
SG Pennsylvania LLC
SG Tucson LLC
Sierra Delaware Funding, LLC
Sierra Peaks Funding, LP
Silver Asset Management, Inc.
Sirius Finance, LLC
Skyline Home Mortgage, LLC
Smart Mortgage, LLC
Smith Family Mortgage, LLC
Southeast Home Mortgage, LLC
Southeast Minnesota Mortgage, LLC
Southern Ohio Mortgage, LLC
Jurisdiction of Incorporation
or Organization
Delaware
California
Kentucky
West Virginia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Minnesota
Delaware
Puerto Rico
Nevada
Puerto Rico
Puerto Rico
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Minnesota
Minnesota
Delaware
California
Delaware
Delaware
Delaware
Maryland
Arizona
California
Delaware
Delaware
West Virginia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Subsidiary
Southwest Partners, Inc.
Spring Cypress Water Supply Corporation
Stagecoach Insurance Agency, Inc.
Stagecoach Insurance Services, LLC
Stock Financial Services, LLC
Summit National Mortgage, LLC
Sunbelt Funding Services, LLC
Sundance Mortgage, LLC
Superior Guaranty Insurance Company
Superior Health Care Management, Inc.
Sutter Advisors LLC
Sweetroot Funding, LLC
Tai Mo Shan Investments Partnership
TAI Title Trust
Telomian Funding, Inc.
Texas Financial Bancorporation, Inc.
The Foothill Group, Inc.
The Trumbull Group, LLC
Tiberius Ventures, L.L.C.
TMS Funding II Limited
TMS Funding Limited
Topaz Asset Management Inc.
Touchstone Home Mortgage, LLC
Trademark Mortgage, LLC
Triple Diamond Mortgage and Financial, LLC
Two Rivers Corporation
United California Bank Realty Corporation
Valley Asset Management, Inc.
Victoria Investments, LLC
Village Communities Financial, LLC
Village Mortgage, LLC
Violet Asset Management, Inc.
Wapiti Funding, LLC
Washington Mortgage, LLC
Waterways Home Mortgage, LLC
WCI Mortgage, LLC
Wells Capital Management Incorporated
Wells Fargo Alaska Trust Company, National Association
Wells Fargo Alternative Asset Management, LLC
Wells Fargo Asia Limited
Wells Fargo Asset Management Corporation
Wells Fargo Asset Securities Corporation
Wells Fargo Auto Finance, Inc.
Wells Fargo Auto Receivables Corporation
Wells Fargo Bank Grand Junction, National Association
Wells Fargo Bank Grand Junction-Downtown, National Association
Wells Fargo Bank International
Wells Fargo Bank Northwest, National Association
Wells Fargo Bank, Ltd.
Wells Fargo Bank, National Association
Jurisdiction of Incorporation
or Organization
California
Texas
California
Delaware
Delaware
Delaware
Delaware
Delaware
Vermont
Delaware
Delaware
Delaware
Hong Kong
Delaware
Delaware
Minnesota
Delaware
Delaware
Nevada
Cayman Islands
Cayman Islands
Maryland
Delaware
Delaware
Delaware
Colorado
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
California
United States
Delaware
Hong Kong
Minnesota
Delaware
California
Delaware
United States
United States
United States
United States
California
United States
Subsidiary
Wells Fargo Bill Presentment Venture Member, LLC
Wells Fargo Brokerage Services, LLC
Wells Fargo Capital A
Wells Fargo Capital B
Wells Fargo Capital C
Wells Fargo Capital Holdings, Inc.
Wells Fargo Capital I
Wells Fargo Capital II
Wells Fargo Capital IV
Wells Fargo Capital IX
Wells Fargo Capital V
Wells Fargo Capital VI
Wells Fargo Capital VII
Wells Fargo Capital VIII
Wells Fargo Capital X
Wells Fargo Cash Centers, Inc.
Wells Fargo Central Bank
Wells Fargo Century, Inc.
Wells Fargo Community Development Corporation
Wells Fargo Community Development Enterprises, Inc.
Wells Fargo Credit Card Funding LLC
Wells Fargo Credit Card Master Note Trust
Wells Fargo Credit, Inc.
Wells Fargo Delaware Trust Company
Wells Fargo Energy Capital, Inc.
Wells Fargo Equipment Finance Company
Wells Fargo Equipment Finance, Inc.
Wells Fargo Equity Capital, Inc.
Wells Fargo Escrow Company, LLC
Wells Fargo Financial Acceptance America, Inc.
Wells Fargo Financial Acceptance, LLC
Wells Fargo Financial Agency, Co.
Wells Fargo Financial Alabama, Inc.
Wells Fargo Financial Alaska, Inc.
Wells Fargo Financial America, Inc.
Wells Fargo Financial Arizona, Inc.
Wells Fargo Financial Arkansas, Inc.
Wells Fargo Financial Auto Owner Trust 2004-A
Wells Fargo Financial Auto Owner Trust 2005-A
Wells Fargo Financial Bank
Wells Fargo Financial California, Inc.
Wells Fargo Financial Canada Corporation
Wells Fargo Financial CAR LLC
Wells Fargo Financial Colorado, Inc.
Wells Fargo Financial Connecticut, Inc.
Wells Fargo Financial Corporation
Wells Fargo Financial Corporation Canada
Wells Fargo Financial Credit Services New York, Inc.
Wells Fargo Financial Delaware, Inc.
Wells Fargo Financial Florida, Inc.
Wells Fargo Financial Funding B.V.
Wells Fargo Financial Georgia, Inc.
Wells Fargo Financial Guam, Inc.
Jurisdiction of Incorporation
or Organization
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Nevada
California
New York
Nevada
Nevada
Delaware
Delaware
Minnesota
Delaware
Texas
Canada
Minnesota
California
Iowa
Pennsylvania
Minnesota
Iowa
Alabama
Alaska
Pennsylvania
Arizona
Arkansas
Delaware
Delaware
South Dakota
Colorado
Canada
Delaware
Colorado
Connecticut
Canada
Canada
New York
Delaware
Florida
Netherlands
Iowa
Delaware
Subsidiary
Wells Fargo Financial Hawaii, Inc.
Wells Fargo Financial Hong Kong Limited
Wells Fargo Financial Idaho, Inc.
Wells Fargo Financial Illinois, Inc.
Wells Fargo Financial Indiana, Inc.
Wells Fargo Financial Information Services, Inc.
Wells Fargo Financial Investments, Inc.
Wells Fargo Financial Iowa 1, Inc.
Wells Fargo Financial Iowa 3, Inc.
Wells Fargo Financial Kansas, Inc.
Wells Fargo Financial Kentucky 1, Inc.
Wells Fargo Financial Kentucky, Inc.
Wells Fargo Financial Leasing Florida, LLC
Wells Fargo Financial Leasing, Inc.
Wells Fargo Financial Louisiana, Inc.
Wells Fargo Financial Maine, Inc.
Wells Fargo Financial Maryland, Inc.
Wells Fargo Financial Massachusetts 1, Inc.
Wells Fargo Financial Massachusetts, Inc.
Wells Fargo Financial Michigan, Inc.
Wells Fargo Financial Minnesota, Inc.
Wells Fargo Financial Mississippi 2, Inc.
Wells Fargo Financial Mississippi, Inc.
Wells Fargo Financial Missouri, Inc.
Wells Fargo Financial Montana, Inc.
Wells Fargo Financial National Bank
Wells Fargo Financial Nebraska, Inc.
Wells Fargo Financial Nevada 1, Inc.
Wells Fargo Financial Nevada 2, Inc.
Wells Fargo Financial Nevada, Inc.
Wells Fargo Financial New Hampshire 1, Inc.
Wells Fargo Financial New Hampshire, Inc.
Wells Fargo Financial New Jersey, Inc.
Wells Fargo Financial New Mexico, Inc.
Wells Fargo Financial New York, Inc.
Wells Fargo Financial North Carolina 1, Inc.
Wells Fargo Financial North Carolina, Inc.
Wells Fargo Financial North Dakota, Inc.
Wells Fargo Financial Ohio 1, Inc.
Wells Fargo Financial Ohio, Inc.
Wells Fargo Financial Oklahoma, Inc.
Wells Fargo Financial Oregon, Inc.
Wells Fargo Financial Pennsylvania, Inc.
Wells Fargo Financial Preferred Capital, Inc.
Wells Fargo Financial Puerto Rico, Inc.
Wells Fargo Financial Receivables, LLC
Wells Fargo Financial Resources, Inc.
Wells Fargo Financial Retail Credit, Inc.
Wells Fargo Financial Retail Services Company Canada
Wells Fargo Financial Retail Services, Inc.
Wells Fargo Financial Rhode Island, Inc.
Wells Fargo Financial Saipan, Inc.
Wells Fargo Financial Security Services, Inc.
Wells Fargo Financial Services Virginia, Inc.
Jurisdiction of Incorporation
or Organization
Hawaii
Hong Kong
Idaho
Iowa
Indiana
Iowa
Nevada
Iowa
Iowa
Kansas
Kentucky
Kentucky
Florida
Iowa
Louisiana
Maine
Maryland
Massachusetts
Massachusetts
Michigan
Minnesota
Delaware
Delaware
Missouri
Montana
United States
Nebraska
Nevada
Nevada
Nevada
New Hampshire
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Carolina
North Dakota
New Hampshire
Ohio
Oklahoma
Oregon
Pennsylvania
Iowa
Delaware
Delaware
Iowa
Iowa
Canada
Iowa
Rhode Island
Delaware
Iowa
Virginia
Subsidiary
Wells Fargo Financial Services, Inc.
Wells Fargo Financial South Carolina, Inc.
Wells Fargo Financial South Dakota, Inc.
Wells Fargo Financial System Florida, Inc.
Wells Fargo Financial System Minnesota, Inc.
Wells Fargo Financial System Virginia, Inc.
Wells Fargo Financial Tennessee 1, LLC
Wells Fargo Financial Tennessee, Inc.
Wells Fargo Financial Texas, Inc.
Wells Fargo Financial Utah, Inc.
Wells Fargo Financial Vermont, Inc.
Wells Fargo Financial Virginia, Inc.
Wells Fargo Financial Washington 1, Inc.
Wells Fargo Financial Washington, Inc.
Wells Fargo Financial West Virginia, Inc.
Wells Fargo Financial Wisconsin, Inc.
Wells Fargo Financial Wyoming, Inc.
Wells Fargo Financial, Inc.
Wells Fargo Financing Corporation
Wells Fargo Foothill, Inc.
Wells Fargo Foothill, LLC
Wells Fargo Funding, Inc.
Wells Fargo Funds Distributor, LLC
Wells Fargo Funds Management (Ireland) Limited
Wells Fargo Funds Management, LLC
Wells Fargo Home Mortgage of Hawaii, LLC
Wells Fargo Housing Advisors, Inc.
Wells Fargo HSBC Trade Bank, National Association
Wells Fargo India Solutions Private Limited
Wells Fargo Institutional Funding, LLC
Wells Fargo Institutional Securities, LLC
Wells Fargo Insurance Agency of Michigan, Inc.
Wells Fargo Insurance Nevada, Inc.
Wells Fargo Insurance Services Mountain West, Inc.
Wells Fargo Insurance Services Northeast, Inc.
Wells Fargo Insurance Services Northwest, Inc.
Wells Fargo Insurance Services of Alabama, Inc.
Wells Fargo Insurance Services of Alaska, Inc.
Wells Fargo Insurance Services of Arizona, Inc.
Wells Fargo Insurance Services of Illinois, Inc.
Wells Fargo Insurance Services of Indiana, LLC
Wells Fargo Insurance Services of Kentucky, Inc.
Wells Fargo Insurance Services of Minnesota, Inc.
Wells Fargo Insurance Services of Nevada, Inc.
Wells Fargo Insurance Services of North Carolina, Inc.
Wells Fargo Insurance Services of Ohio, LLC
Wells Fargo Insurance Services of Oregon, Inc.
Wells Fargo Insurance Services of Pennsylvania, Inc.
Wells Fargo Insurance Services of Tennessee, Inc.
Wells Fargo Insurance Services of Texas, Inc.
Wells Fargo Insurance Services of West Virginia, Inc.
Wells Fargo Insurance Services Southeast, Inc.
Wells Fargo Insurance Services, Inc.
Wells Fargo Insurance Wyoming, Inc.
Wells Fargo Insurance, Inc.
Jurisdiction of Incorporation
or Organization
Delaware
South Carolina
South Dakota
Florida
Minnesota
Virginia
Tennessee
Tennessee
Texas
Utah
Vermont
Virginia
Washington
Washington
West Virginia
Wisconsin
Wyoming
Iowa
California
California
Delaware
Minnesota
Delaware
Ireland
Delaware
Delaware
California
United States
India
Delaware
Delaware
Michigan
Nevada
Colorado
New Jersey
Washington
Alabama
Alaska
Arizona
Illinois
Indiana
Kentucky
Minnesota
Nevada
North Carolina
Ohio
Oregon
Pennsylvania
Tennessee
Texas
West Virginia
Florida
Delaware
Wyoming
Minnesota
Subsidiary
Wells Fargo International Commercial Services Limited
Wells Fargo Investment Group, Inc.
Wells Fargo Investments, LLC
Wells Fargo of California Insurance Services, Inc.
Wells Fargo Private Client Funding, Inc.
Wells Fargo Private Investment Advisors, LLC
Wells Fargo Properties, Inc.
Wells Fargo RE, Inc.
Wells Fargo Real Estate Capital Investments, LLC
Wells Fargo Real Estate Tax Services, LLC
Wells Fargo Retail Finance II, LLC
Wells Fargo Retail Finance, LLC
Wells Fargo Rural Insurance Agency, Inc.
Wells Fargo Securities, LLC
Wells Fargo Securitisation Services Limited
Wells Fargo Servicing Solutions, LLC
Wells Fargo Small Business Investment Company, Inc.
Wells Fargo Structured Lending, LLC
Wells Fargo Student Loans Receivables I, LLC
Wells Fargo Third Party Administrators, Inc.
Wells Fargo Ventures, LLC
Wells Fargo, Ltd.
WF Deferred Compensation Holdings, Inc.
WF National Bank South Central
WF/TW Mortgage Venture, LLC
WFC Holdings Corporation
WFI Insurance Agency Montana, Inc.
WFI Insurance Agency Washington, Inc.
WFI Insurance Agency Wyoming, Inc.
WF-KW, LLC
WFLC Subsidiary, LLC
Whippet Funding, LLC
Windward Home Mortgage, LLC
Winmark Financial, LLC
Yucca Asset Management, Inc.
Jurisdiction of Incorporation
or Organization
Hong Kong
Delaware
Delaware
California
Delaware
Delaware
Minnesota
New Jersey
Delaware
Delaware
Delaware
Delaware
Minnesota
Delaware
United Kingdom
Florida
California
Delaware
Delaware
West Virginia
Delaware
Hawaii
Delaware
United States
Delaware
Delaware
Montana
Washington
Wyoming
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Wells Fargo & Company:
We consent to the incorporation by reference in the registration statements noted below on Forms S-3, S-4 and S-8 of
Wells Fargo & Company (the Company), of our reports dated February 20, 2007, with respect to: (a) the
consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of December 31, 2006 and 2005, and the
related consolidated statements of income, changes in stockholders equity and comprehensive income, and cash flows
for each of the years in the three-year period ended December 31, 2006; and (b) managements assessment of the
effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal
control over financial reporting as of December 31, 2006; which reports appear in the Companys December 31, 2006
Annual Report on Form 10-K. Our report on the aforementioned consolidated financial statements refers to a change in
the method of accounting for residential mortgage servicing rights, stock-based compensation, and pensions in 2006.
Registration
Statement Number
Form
Description
333-76330
333-103711
333-135006
333-105939
333-113573
333-138793
333-123689
333-68512
333-115993
333-121545
333-83604
033-57904
333-63247
333-37862
333-45384
333-107230
333-62877
333-103776
333-128598
333-50789
333-74655
333-103777
333-123241
333-105091
333-54354
333-115994
333-123243
S-3
S-3
S-3
S-3
S-3
S-3
S-3
S-4
S-4
S-4/S-8
S-4/S-8
S-4/S-8
S-4/S-8
S-4/S-8
S-4/S-8
S-4/S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
S-8
Exhibit 24
WELLS FARGO & COMPANY
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY,
a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of
the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and
member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the
undersigneds true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the
undersigneds name, place, and stead, to sign and affix the undersigneds name as such director of said Company to an
Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and all amendments thereto, to be filed by
said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of
1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and
authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 27th day of February,
2007.
/s/ JOHN S. CHEN
/s/ LLOYD H. DEAN
/s/ SUSAN E. ENGEL
/s/ ENRIQUE HERNANDEZ, JR.
/s/ ROBERT L. JOSS
/s/ RICHARD M. KOVACEVICH
/s/ RICHARD D. McCORMICK
/s/ CYNTHIA H. MILLIGAN
Exhibit 31(a)
CERTIFICATION
I, Richard M. Kovacevich, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2006, of Wells Fargo &
Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred
during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrants ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrants internal control over financial reporting.
Exhibit 31(b)
CERTIFICATION
I, Howard I. Atkins, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2006, of Wells Fargo &
Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred
during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrants ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrants internal control over financial reporting.
Exhibit 32(a)
Certification of Periodic Financial Report by
Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
and 18 U.S.C. 1350
I, Richard M. Kovacevich, Chairman and Chief Executive Officer of Wells Fargo & Company (the Company),
certify that:
(1) The Companys Annual Report on Form 10-K for the period ended December 31, 2006 (the Report) fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Exhibit 32(b)
Certification of Periodic Financial Report by
Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
and 18 U.S.C. 1350
I, Howard I. Atkins, Senior Executive Vice President and Chief Financial Officer of Wells Fargo & Company (the
Company), certify that:
(1) The Companys Annual Report on Form 10-K for the period ended December 31, 2006 (the Report) fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.