Wells Fargo & Company Annual Report 2004

FY2004 Annual Report · Wells Fargo & Company

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Last year, we called for a new set of financial performance measures—to reflect more accurately how financial services companies
like ours create value for customers and stockholders.We believe this new set of measures is more suited to the faster growing,
dynamic, diversified, knowledge-based financial services industry than to the stagnant, old banking segment.The more precisely
that service companies can measure the value they create, the more accurately the marketplace can measure the value of their
stock. Our proposal prompted such significant interest and discussion that we’ve expanded on it in our report to you this year.

Which measures really matter?

1 To Our Owners

Our total compound annual stock-
holder return the past 20 years: 23%.
CEO Dick Kovacevich explains how
we did it.

6 Our 10 Strategic Initiatives

A progress report on the initiatives
that help us achieve double-digit
revenue and earnings growth.

11 Which Measures Really Matter?

We measure success differently than
our competitors. We believe these
measures matter most.

25 Helping Our Communities Prosper

and Grow
Are we making measurable progress?

Wells Fargo & Company (NYSE: WFC)

is a diversified financial services company

providing banking, insurance, investments,

mortgage loans and consumer finance. Our

corporate headquarters is in San Francisco,

but we’re decentralized so all Wells Fargo

“convenience points”—including stores,

regional commercial banking centers,

ATMs, Wells Fargo Phone BankSM centers,

internet—are headquarters for satisfying

all our customers’ financial needs and

helping them succeed financially.

“Aaa” Wells Fargo Bank, N.A. is the only
U.S. bank to receive the highest possible

31 Board of Directors, Senior Management

credit rating from Moody’s Investors Service.

33 Financial Review

Assets: $428 billion

60 Controls and Procedures

62 Financial Statements

112 Report of Independent Registered

Public Accounting Firm

116 Stockholder Information

Rank in size among U.S. peers: 5th

Market value of stock: $105 billion

Rank by market cap among U.S. peers: 4th

Team members: 150,000 (one of U.S.’s

40 largest private employers)

Customers: 23 million

Stores: 6,046

Fortune 500 rank (profit): 17

Our Businesses

Community Banking . . . . . . . . . . . . 33%

Wholesale Banking . . . . . . . . 7%

Investments & Insurance . . . . . . . . .15%

Consumer Finance . . . . . . . . 7%

Home Mortgage/Home Equity . . . 20%

Commercial Real Estate . . . . 4%

Specialized Lending . . . . . . . . . . . . .14%

Earnings based on historical averages and near future year expectations

#1, #2 or #3 in deposit market share in 17 of
our 23 banking states; #2 nationally (6/30/04)

#1 retail mortgage originator,
#2 mortgage servicer*,

#1 in mortgages to low-to-moderate

income home buyers

#1 home equity lender,

#1 (and first) internet bank,

#1 small business lender,

Banking, insurance, investments,
mortgage loans, and consumer finance
— we span North America and beyond.

#1 insurance broker owned by bank-

holding company (world’s 5th largest
insurance brokerage)

*Inside Mortgage Finance

#1 agricultural lender (banks)

#1 financial services provider to
middle-market businesses in
our territory,

#2 debit card issuer,

#3 bank auto lender,

#4 ATM network,

One of USA’s leading commercial

real estate lenders among banks,

One of North America’s premier
consumer finance companies.

FORWARD-LOOKING STATEMENTS In this report we make forward-looking statements about our company’s financial condition, results of operations, plans, objectives and
future performance and business. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “may,” “can”, “will” or similar expressions, we are making forward-looking statements.
These forward-looking statements involve inherent risks and uncertainties. A number of factors — many beyond our control — could cause actual results to differ from those in our
forward-looking statements. These factors include • changes in political, business and economic conditions, including changes in interest rates • competition, including competition
from insurance companies and securities firms • fiscal and monetary policies • customers choosing not to use banks for transactions • legislation and regulation • future mergers and
acquisitions • the integration of merged and acquired companies • critical accounting policies. We discuss in more detail on pages 55–59 these factors and other factors that
could cause actual results to differ from those in our forward-looking statements. Other factors are described under “Regulation and Supervision” in our 2004 Annual Report on Form 10-K.
© 2005 Wells Fargo & Company. All rights reserved.

To Our Owners,
Another exceptional year by a truly
exceptional team!

Once again, our team’s performance
continues to be among the very best,
not just in financial services but in
any industry:

- Solid market share growth across our
more than 80 businesses,

- Double-digit earnings per share growth,

- Double-digit loan growth,

- Double-digit growth in retail
core deposits,

- Record sales of more than one million
core banking products every month,

- Improved productivity,

- Strong credit quality.

All in all, significant progress toward
achieving our vision of satisfying all our
customers’ financial needs and helping
them succeed financially.

Dick Kovacevich
Chairman and CEO
San Francisco, California
Team member since: 1986

$4.09, up 12 percent.

mong our 2004
achievements:

• Diluted earnings per share — a record

• Net income — a record $7.0 billion, up

13 percent.

• Return on equity — 19.6 percent; return

on assets 1.71 percent.

• Revenue growth of six percent — the

single-most important measure of success
in our industry — up 11 percent excluding
Wells Fargo Home Mortgage (which had
exceptional revenue in 2003 due to the
refinance boom).

• Every month, through needs-based selling,

we sold more than one million retail
banking products, a company record.

• Cross-sell reached a record high of

4.6 products per consumer household
(up from about three at the time of the
Norwest-Wells Fargo merger six years
ago) and 5.3 products per Wholesale
Banking customer.

• Consumer households with eight products

or more — our long-term goal — reached
14 percent of our total banking house-
holds; 38 percent of our consumers have
five products or more.

• Nonperforming assets and net charge-

offs, as a percent of loans, declined from
.66 percent and .81 percent in 2003 to
.55 percent and .62 percent in 2004.

• Record net income for Wholesale Banking

for the sixth consecutive year — #1 in
market share for middle market
commercial customers in the western U.S.1

• Wells Fargo Financial, our consumer
finance company, continued its rapid
growth, increasing average receivables
45 percent with profit of more than a
half billion dollars for the ﬁrst time in
its 106-year history.

• We originated $298 billion in mortgages
and continued to be the nation’s #1 retail
mortgage originator. Our owned mortgage
servicing portfolio, which helps provide
a “natural hedge” when interest rates rise
and mortgage originations decline, rose
13 percent to $805 billion.

• #1 nationally in home equity loan market
share for the fourth consecutive year,
our portfolio rose 42 percent from last
year to $52 billion. Home equity lines
and loans remain the consumer credit
“product of choice.” Credit quality
continued to be very solid.

for remitting funds to Mexico of any U.S.
financial services company.

• Being the first financial services company
in the nation to seize the opportunity, we
surpassed the half million mark in the
number of accounts opened for Mexican
nationals using the Matricula Consular
card as a form of identification. This helps
Mexican nationals move from the risky
cash economy into secure, reliable financial
services so they can succeed financially.
At year-end 2004, we were opening an
average of 22,000 new accounts a month
through this process, a seven-fold increase
over the past three years.

• Our stock reached a record high close of

$63.25 on December 13, 2004.

• Our dividend payout over the past year
of more than $3 billion ranked as the
fourth highest in the U.S. among all
public companies.2

• Our total market capitalization at year-
end was $105 billion (versus less than
$1 billion 20 years ago).

• Our bank remains the only “Aaa” rated

bank in the United States with the highest
possible credit rating from Moody’s
Investors Service.

• Retention improved by six percent for

• More than half our households and almost

• In recognition of our team’s outstanding

high-value checking account customers.

• Customer service levels and teller-line

wait times improved but still are not at
the levels we want them to be.

• One of every three of our new checking

account customers now has a Wells Fargo
PacksSM — a checking account and at least
three other products such as a debit card,
credit card, savings account, home equity
loan, or online banking.

two-thirds of our corporate customers
now bank with us actively online — more
than a third of those households using
Bill Pay and presentment; Global Finance
ranks us the world’s best consumer
internet bank and Watchfire GomezPro
ranks us the best U.S. internet bank.
• Through joint ventures with Grupo
Banorte, HSBC Mexico and BBVA
Bancomer, we now have the largest
network of banking stores and ATMs

performance and their key role in achieving
these great results, we committed to a
special, one-time contribution in shares of
Wells Fargo common stock of one percent
of their pay to the 401(k) account for every
eligible team member (up to maximum of
$750), for a total of $44 million.

1 Independent research firm, cumulative market share of lead
banking relationships across Wells Fargo's 23 banking states

2 Cato Institute

12%

-2

5 years

10 years

15 years

20 years

Total Compound Annual
Stockholder Return percent increase
Includes reinvested dividends

WFC

S&P 500®

Double-Digit Total Compound Annual
Return—for 20 Years
“Wells Fargo has achieved annual double-digit
increases in revenue, earnings per share and total
stockholder return not just over the past five years
but also over the past ten,15 and 20 years…In fact
our total annual stockholder return has been about
10 percentage points above the S&P 500 through
all of these time spans.”

-5

Gabe Guerra
Wells Fargo Auto Finance
Victoria, Texas
Team member since: 2000

Our Performance
Double-digit growth in net income, earnings per share,
dividends per common share, loans and retail core deposits.

($ in millions, except per share amounts)

F O R T H E Y E A R

Net income

Diluted earnings per common share

Profitability ratios

Net income to average total assets (ROA)

Net income applicable to common stock to average

common stockholders’ equity (ROE)

Efficiency ratio (1)

Total revenue

Dividends declared per common share

Average common shares outstanding

Diluted average common shares outstanding

Average loans

Average assets

Average core deposits (2)

Average retail core deposits (3)

Net interest margin

AT Y E A R E N D

Securities available for sale

Loans

Allowance for loan losses

Goodwill

Assets

Core deposits

Stockholders’ equity

Tier 1 capital

Total capital

Capital ratios

2004

2003

% Change
2004/2003

$ 7,014

4.09

$ 6,202

3.65

13%

1.71%

1.64%

19.56

58.5

19.36

60.6

$ 30,059

$ 28,389

1.86

1,692.2

1,713.4

$269,570

410,579

223,359

183,716

1.50

1,681.1

1,697.5

$213,132

377,613

207,046

165,881

4.89%

5.08%

$ 33,717

287,586

3,762

10,681

427,849

229,703

37,866

29,060

41,706

$ 32,953

253,073

3,891

10,371

387,798

211,271

34,469

25,704

37,267

(3)

(4)

(3)

—

(1)

Stockholders’ equity to assets

8.85%

8.89%

Risk-based capital

Tier 1 capital

Total capital

Tier 1 leverage

Book value per common share

Team members (active, full-time equivalent)

8.41

12.07

7.08

$ 22.36

145,500

8.42

12.21

6.93

$ 20.31

140,000

(1) The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).
(2) Core deposits consist of noninterest-bearing deposits, interest-bearing checking, savings certificates and market rate and other savings.
(3) Retail core deposits consist of total core deposits excluding Wholesale Banking core deposits and mortgage escrow deposits.

12%

5 years

Double-Digit Earnings
Per Share Growth
compound annual growth rate

10%

5 years

Double-Digit
Revenue Growth
compound annual growth rate

Two Decades of Consistent
Double-Digit Growth
We’re very proud of our performance.
However, achieving such results over
one, two or even five years — as many
outstanding companies have done — isn’t
really that unique. What’s really unusual
is to achieve consistent performance over
long periods — through many different
economic cycles — expansions, recessions,
recoveries, bubbles, high interest rates, low
interest rates, low unemployment, high
unemployment. Wells Fargo has achieved
double-digit increases in revenue, earnings
per share and total stockholder return not
just over the past five years but over the past
ten, 15 and 20 years. Now that’s consistent
performance! Now that’s impressive!

The past 20 years our compound

annual growth in revenue has been
13 percent. Our compound annual
growth in diluted earnings per share has
been 14 percent. Our compound annual
growth in total stockholder return has
been 23 percent compared with 13 percent
for the S&P 500. In fact, our total annual
stockholder return, including reinvested
dividends, has been about 10 percentage
points above the S&P 500 through all of

these time spans. Now that’s impressive!
How do we do it? It’s no secret. We do
it because we have the best people —
talented, dedicated, innovative team
members who care about each other, care
about their customers, and care about their
communities. We do it with a strong culture
and a consistent vision that’s been in place
for almost 20 years — a vision and strong
values that do not shift with the wind,
the latest industry fad or the whims of
Wall Street. We do it by investing in our
businesses, investing in our people,
distribution networks and technology.
We do it with a conservative, disciplined
operating philosophy built on prudent
risk/reward metrics.

The Value of Diversified Financial Services
Another reason for our outstanding
performance year after year for almost two
decades — regardless of the economic cycle
—is our time-tested business model. We’re
diversified across virtually all of financial
services, not just banking. We offer our
customers — individuals and businesses —
virtually every product they need at every
stage of their life cycle. We’re customer-
centric not product-centric. We offer our

customers a broad product line across a
wide geography through every channel —
stores, ATMs, phone and internet — when,
where and how our customers want to be
served. It’s their choice. This diversity of
revenue sources is good for all our stake-
holders. Our customers can get a better deal,
more value and greater convenience when
they give us more of their business. Our
company can earn more profit because we
generate more revenue through our large,
fixed-cost distribution network. Our
risk is lower because it’s diversified, not
concentrated. You, our owners, can benefit
from a higher return on your investment
when we achieve consistent double-digit
earnings. Our team members can achieve
their full potential with lots of career
opportunities and share in the success
as almost all are stockholders.

We operate more than 80 businesses.

I’m often asked, why do we have so
many? Why aren’t we more focused?
My response always is: the only way to
manage through the inevitable “cyclical
risk” of each segment of our industry is
not only to underwrite superbly but to
diversify our revenue stream across all
industry segments. With our diversified

continued on page 9

Our 10 Strategic Initiatives guide us toward
our vision and help us achieve double-digit
revenue and earnings growth. Here’s a brief
progress report on each:

1. Investments, Brokerage,Trust,
Private Banking, Insurance
Fifteen percent of our banking earnings
came from investments, brokerage, trust,
private banking and insurance — it’s still
not good enough. We want to increase
that percentage to at least 25 percent. Less
than five percent of our 10 million banking
households have relationships with our
brokerage business. Less than two percent
buy insurance through us.

Progress:
• Acquired $29 billion in assets under
management from Strong Financial,
making us one of the nation’s top 20
mutual fund companies. Our combined
team now can offer our 11 million banking
households a broader, deeper array of
funds through new distribution channels.
• 1,000+ bankers (up 120 percent in 2004)
licensed to sell investment products such
as mutual funds.

• The number of our private bankers has

grown to more than 600 the last ﬁve years
(up 400 percent).

• New assets attracted through WellsTrade,®
our online brokerage channel, have grown
at a compound rate of 21 percent the past
two years.

years ago: 10.8 percent). Only 21.3 percent
have a home equity loan with us (five years
ago: 11 percent). Forty-three percent of our
mortgage customers who bank with us also
have a home equity loan with us.

Progress:
• Announced a long-term goal: double
number of commission-based home
mortgage consultants, currently 10,000.

• In response to rising interest rate

environment, launched SmartFit Home
Equity Account,SM giving homeowners
certainty of fixed rate, benefit of lower
payments and ﬂexible line of credit.

Progress:
• Added 10,000 sales people in banking,

mortgage and consumer finance
businesses past three years.

• Increased training, partnering among team
members to better identify opportunities to
satisfy more of customers’financial needs.

3.Doing It Right for the Customer
Our product is service and our value-added
is financial advice. We want to be advocates
for our customers, put them at the center of
everything we do and give them such
outstanding service and advice that they will
give us all their business, honor us with
repeat purchases and rave about us to their
family, friends and business associates.

5.Wells Fargo Cards in Every

Wells Fargo Wallet

We want every one of our creditworthy
customers to have a Wells Fargo credit
card and debit card. These cards—and,
increasingly, stored-value cards—have
surpassed checks and cash for in-store
purchases. They’re the payment tool of
choice for a majority of Americans.

Progress:
• With just one request through any of our
stores or Wells Fargo Phone Bank, our
customers now can change their address
for 23 products — including savings,
checking, debit cards, credit cards, Bill
Pay, mortgage, home equity, brokerage
and insurance.

• Wells Fargo Phone Bank now services

customer accounts from a single source
using web-based technology, reducing
human error, speeding service.

Progress:
• Banking customers with a Wells Fargo

credit card: 31 percent (1999: 21 percent).

• Checking account customers with a

Wells Fargo debit card: 88 percent (1999:
72 percent).

6.When,Where and How
We integrate our distribution channels to
offer our products and services anytime,
anywhere our customers want to be served.
We believe we offer customers more choices
than virtually any other financial services
provider—traditional stores, supermarket
stores, ATMs, Wells Fargo Phone Bank,
internet and mail—when, where and how
they want to use them. Very few, if any,
customers are single-channel users. We want
to further expand our distribution channels
for more customer convenience and be
recognized as the world’s best internet bank

2.“Going for Gr-Eight”
Our average banking household has 4.6
products with us (about double the industry
average). Our average commercial/corporate
customer has 5.3. But both purchase about
16 financial products from someone. We
want our consumer and business customers
to have at least eight products with us.

4. Banking with a Mortgage
and a Home Equity Loan
We want all our mortgage customers in our
23 banking states to bank with us. We also
want all our banking customers—who need
a mortgage or a home equity loan—to get
it through Wells Fargo. Only 20.5 percent of
our banking customers who own a home
have their mortgage with Wells Fargo (five

across all four major customer segments:
consumer, investor, small business, middle
market and large companies.

Progress:
• Opened 104 new banking stores, average

of two per week; remodeled 396.
• Opened 80 consumer finance stores.
• Global Finance ranks Wells Fargo best U.S.

consumer internet bank, best for online bill
payment and presentment, online credit,
and corporate/institutional website design
in North America; Watchfire GomezPro
ranks us the best internet bank in the U.S.

• Active users of Commercial Electronic

Office® (CEO®) internet portal — giving
corporate and commercial customers
integrated financial services in one place,
real time — have grown to over 60 percent
of our customers in three years since
launch; CEO log-ins surpassed one million
a month. Revenue ﬂowing through our
CEO portal in 2004 was almost twice what
it was in 2002.

• Consumer households banking actively

with us online rose 27 percent versus last
year; small business active online users
rose 30 percent; middle market and large
corporate rose 14 percent.

• All 6,200 ATMs are now web-enabled for

faster transactions, customized messaging,
serving customers in six languages;
also customized for audio guidance for
visually impaired.

7.“Information-Based”

Marketing

Take full advantage of what we know about
our customers’ needs so we can offer them
the choice, convenience and price benefits
of giving us all their business. We use
technology not to de-personalize service but
to personalize it. Thanks to technology, we
know how many products each customer
has with us. We can anticipate the products
they’ll most likely need—based on account
balances, life events, transaction history, and

how they access Wells Fargo. With that
knowledge, and respecting the confidentiality
of information of our customers, we can
tailor sales messages through our Wells Fargo
Phone Bank, ATMs,wellsfargo.com and
statement mailings to help satisfy our
customers’ financial needs.

Progress:
• First to provide online customers, for free,
automatic, all-in-one personal finance
picture showing debit card and credit card
spending, checking and Bill Pay, organizing
transactions by categories such as gas/auto,
groceries and ATM withdrawals.

8. Be Our Customers’
Payment Processor

Banking is necessary. Banks are not. Banks
traditionally have been the intermediary in
the billions of transactions among consumers,
businesses and the government. That role,
however, is not a birthright. We need to
make sure Wells Fargo adds real value so we
can be our customers’ first choice, electronic
or paper, whenever and wherever they buy
services and be the payments link for all their
Wells Fargo accounts. We generate about
30 percent of our revenue through payment
services such as checks, credit cards, debit
cards, cash and securities, direct deposit,
wire transfer and automated clearinghouse
(ACH). Last year for the first time, electronic
payments surpassed cash and checks. The
new Federal law, known as “Check 21,”
makes it possible for banks to process digital
images of checks, not just paper ones,
reducing risk and the inefficiency of
transporting paper checks from hand to
hand and institution to institution.

Progress:
• Processed more than $35 trillion in
payments electronically in 2004.*
• Nation’s third largest processor of

ACH transactions.

9. Premier Customers
We must attract more — and keep all our
current—premier and excellent customers.
We also need to aggressively cross-sell
households that have the potential to
become premier customers. We must focus
even more on closing the “back door”—
reducing, by half, the number of customers
who leave us or give us less of their business.

Progress:
• Six percent improvement in retaining

high-value checking account customers.
(see page 16)

10. People as a Competitive

Advantage

Most importantly, we must do even better in
training, rewarding and recognizing all our
team members. We must build an inclusive
workplace and a diverse organization. All
members of our team should know they’re
valued, that they can go as far as their ability
and desire to work will take them. We must
be a company that encourages a healthy
balance in work and home life. Our success
depends on how much our team members
care for their customers, for each other, their
communities and our stockholders. People
commit themselves to other people, not
organizations. Processes are important but
they don’t do the work, people do. Because
we believe in people as our competitive
advantage, we’ll continue to invest in our
“human capital.”It’s the most important,
valuable investment we can make.

Progress:
• Special one-time contribution of

Wells Fargo common stock to 401(k)
account of each eligible team member
(up to maximum of $750).

• To be more responsive to our increasingly
diverse communities, our team members
have formed 72 Team Member Networks
and 44 Diversity Councils nationwide.

*Credit card point of sale, debit card, credit card purchases, online
Bill Pay, ACH, merchant card, online merchant payments and
wire transfer

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Revenue dollars, billions
20-year compound annual growth rate: 13%

0
99

Earnings Per Share diluted,* * dollars
20-year compound annual growth rate: 14%

*2001 includes venture capital impairment; 2002 is before effect
of change related to adoption of FAS 142 accounting principle.

**Includes all common stock equivalents (“in the money”

stock options, warrants and rights, convertible bonds and
convertible preferred stock)

Andrew Owen
Wells Fargo Funds
San Francisco, California
Team member since: 1992

set of financial services businesses, each
responding differently to a given economic
situation, we’ve found that we can grow
at double-digit rates and actually reduce
risk. For narrowly-focused companies,
faster linear growth often results in an
exponential increase in concentrated risk.
In our diversified business model, our risk
actually decreases as we grow because
we’re diversifying that risk among
many businesses.

How Do We Measure the Value We Create?
Our diversified business model — executed
successfully for two decades — drives the
way we measure success. Last year, we
called for a new set of measures —to reﬂect
more accurately how financial services
companies, like ours, create value for
customers and stockholders. We believe
this new set of measures is more suited to

information technology and the internet— is
not new. Experts around the world — even
a Nobel Prize winner — have been discussing
and studying it for at least two decades.
Some companies even have created complex
software programs to try to measure the
correlation between a company’s intellectual
capital and its market value. Sweden has a
government agency that tries to measure the
country’s intellectual capital, which one
expert has called “the invisible balance
sheet.” Most recently, the American
Enterprise Institute called for “a more
relevant and transparent system of financial
and non-financial disclosure.” It says this
“will help investors better assess the value of
companies in the knowledge economy, and
… help companies create more value for
their shareholders.”

We don’t pretend to be as smart as the
experts on this subject. We don’t propose

“The problem is that the framework
underpinning Generally Accepted Accounting
Principles (GAAP) is flawed…GAAP does
not recognize the value of intangible assets
that a knowledge-based company such as
Wells Fargo generates internally—such as
the loyalty and relationship levels of our
team members and customers.”

the faster growing, dynamic, diversified
financial services industry than those
measures that “big banks” have tradition-
ally used. We measure what we treasure…
revenue, profit, market share growth and
stockholder returns. Now it’s a year later.
Our proposal prompted such significant
interest and discussion that we’ve expanded
on it in our report to you this year. Why
should all this matter to you? The more
precisely that service companies, the heart
of the U.S. economy, can measure the value
they create, the more accurately the market-
place can measure the value of their stock.
This subject of measuring value created

— fueled by the explosive growth of

any fancy new theories. We are simply
suggesting a new set of value-creation
measures for ﬁnancial services companies
so there is an apples-to-apples way to
compare companies’ performance across
the industry in the measures that really
matter. That’s why we say ﬁnancial
services companies measure the wrong
things, often based on the traditional
measures of the banking industry.
For example:
• Asset size and return on assets —

important to banks in the “old days”—
do not reﬂect contributions from such
fee-based businesses as mortgage,
insurance and money management.

• Deposits can be a valuable measure of
market share but today they represent
only about one-fifth of total household
financial assets. Our share of deposits in
some states is 25 to 30 percent but guess
what our average share of total household
financial assets is in those states? About
five percent!

• Total customers can be a meaningless

measure — it gives you little or no insight
into breadth and depth of relationships.
Think of the profit difference between
ten customers who entrust you with
100 percent of their business versus
100 who give you just ten percent of it.

• The standard efficiency ratio — how

many cents it costs to generate a dollar
of revenue — differs widely by type of
business in financial services. For example,
a well-run commercial lending business
has an efficiency ratio of about 25 percent
while a well-run insurance broker has an
efficiency ratio of 75 percent. Guess which
one has the higher risk-based return on
equity? We prefer a different way to
measure efficiency: the rate at which
revenue growth exceeds expense growth.
Our goal is to grow revenue twice as fast
as expenses. If you do that, your efficiency
ratio will improve year after year after year.

The “Gap”in GAAP
The problem is that the framework under-
pinning Generally Accepted Accounting
Principles (GAAP) is conceptually ﬂawed.
It uses a combination of historical cost and
fair market values but omits the value of
intangible assets that a company generates,
such as the value of customer relationships.
GAAP uses the cost of purchased assets —
such as building, machinery, and equipment.
They’re recorded on the balance sheet at
historical cost and depreciated as they
generate revenue. GAAP does not recognize
the value of intangible assets that a knowledge-
based company such as Wells Fargo
generates internally — such as the loyalty
and relationship levels of our team members
and customers. One study by the Brookings
Institution estimates that 80 percent of the
value of companies in the S&P 500 is
represented by their intangible assets! This
transformation is global. In the 19th century,

contribute to non-profits and community
activities. We thank them for striving for the
highest standards of corporate governance,
their commitment to tough and thorough
internal audit and compliance, for believing
in principles not just rules. We thank them
for building a corporate culture in which we
all should know instinctively what’s right and
what’s wrong — without needing to be told.
We thank our customers for entrusting

us with more of their business and
for paying us the ultimate compliment:
returning to us for their next financial
services product. We thank our
communities — thousands of them across
North America — for the privilege of
helping make them better places in which
to live and work. And we thank you, our
owners, for your confidence in Wells Fargo
as we begin our 153rd year.

The “Next Stage” of success is just
down the road — for our team members,
our customers, our communities and
our stockholders.

It’s going to be a great ride!

Richard M. Kovacevich, Chairman and CEO

trade between nations was in goods. In the
21st century, the movement of goods is far
surpassed by the movement of capital —
monetary and intellectual — on fiber lines
around the world at the speed of light. As
the late Walt Wriston, my friend, mentor,
and former CEO of Citicorp, wrote so
wisely more than a decade ago, “capital
will go where it’s welcome and stay where
it’s well treated.” And that goes not just for
financial capital but intellectual capital. In a
knowledge-based economy, it’s your people
who are most important, not physical assets.
People who can choose where they want to
work. People who have a choice of being
truly engaged (or not) and excited about
what they’re doing and what they achieve.
Among the new measures we’ve
added this year are ones that track the
value of our most important competitive
advantage — our team members. How
long do they stay with us so we can
benefit from their knowledge, experience,
caring, and customer relationships? How
engaged are they? Recruiting and training
new team members costs tens of millions
of dollars a year. So, reducing the loss of
talented team members increases earnings.
Keeping customers also is critical to
consistent growth. Our customers — how
long do they stay with us so we can better
understand their financial goals, help
them succeed financially and earn more of
their business? Lowering the rate of lost
customers is even more profitable than
attracting new ones. And, of course, you
often lose customers when the people
serving them leave you. A company our
size, for example, can easily lose a million
banking households a year. On average,
each of these households delivered over
$200 in annual proﬁt — that’s $200 mil-
lion in reduced profit; on a present value
basis, billions in lost profits. GAAP
seldom captures the full effect of
lost customers.

1 01 0

2005: The Economy
Last year at this time we said a solid case
could be made for economic optimism.
That proved correct. Now a year later,
interest rates, inﬂation and inventories are
still low. The U.S. Gross Domestic Product is
growing nicely. The economy has generated
more than two million jobs in the past year.
Capital spending is strong. Productivity is
good. The dollar has fallen over 20 percent,
helping exports. The S&P 500 is up
51 percent from its 2003 low. The NASDAQ
is up 71 percent. Retail sales are good.
Economic growth in India, China and
the rest of Asia is strong. Unfortunately,
European economies are not keeping pace,
partly due to the drag of their welfare
entitlement states. Core inﬂation is likely
to remain low, allowing the Federal Reserve
to increase interest rates slowly until they
reach an economic neutral rate of about
three to four percent.

The “Next Stage”
Once again, we thank our 150,000 talented
team members for their outstanding
accomplishments and record results. We
thank them for believing, living and sharing
our customer-focused vision and values. We
thank them for knowing how they connect
individually with our business strategy and
our time-tested business model. We thank
them for their unrelenting focus on
satisfying all our customers’ financial needs
and for partnering to do what’s best for our
customers. We thank them for listening to
our customers, asking them the right
questions, and offering products and
services of real value — so that our
customers, in turn, can succeed financially
and then vote with their pocketbooks and
buy even more of our products and services
— thus increasing our revenue. We thank
them for their commitment to our
communities and for the time — hundreds of
thousands of hours — and the talent they

Which Measures
Really Matter?
We measure success differently
than our competitors.We believe
these measures matter most.
They’re the most important
long-term indicators of success in
the financial services industry.

- Revenue Growth

- Earnings Per Share

- Return On Equity

- Revenue vs. Expense Growth

- Assets Managed, Administered

- Managing Risk

- Retaining Team Members

- Team Member Engagement

- Retaining Customers

- Customer Service

- Customer Access Options

- Cross-Selling

- Product Solutions (Sales)
Per Banker Per Day

- Market Share

- Total Stockholder Return

Letty Cantero
Wells Fargo Bank
Corona, California
Team member since: 1994

1 1

“Our goal is to grow revenue and EPS at
a double-digit compound rate—which
we’ve done for the past 20 years because
we have the best people — talented,
dedicated, innovative team members who
care about each other, their customers
and their communities.”

Revenue Growth

Earnings Per Share*

Return On Equity*

1
0
3

4
8
2 2
5
2

7
0
2

0
1.
2

9
8
1
$

8
15
2
2
$
10

0
99

9
0
4

5
6
3

2
3
3

2
3
72
9
1.

4
8
9
% 1
5
3
7
1

4
9
1

7
8
1

4
5
1

2
6
1

6
6
1

6
3
1

7
2
1

6
9
1 1
7
1

1
6
1

dollars, billions
5-year compound annual growth rate: 10%

diluted,* * dollars
5-year compound annual growth rate: 12%

percent

WFC

Peers

+13%

10-year compound annual growth rate

+12%

10-year compound annual growth rate

• Profit a company generates in
cents for every $1 a stockholder
invests in the company.

+13%

20-year compound annual growth rate

+14%

20-year compound annual growth rate

Goal: Grow annual EPS at
double-digit compound rate,
which we’ve done for the last
20 years.

• Past ﬁve-year average ROE for
our peers: 15.62 percent.

• Past ﬁve-year average for
Wells Fargo: 17.31 percent.

Goal: Be among very best in
ROE, around 20 percent.

• Single most important
measure of long-term success
in financial services.

• Adjusted for risk, reﬂects
strength and depth of customer
relationships, quality of service
and advice, and effectiveness of
needs-based selling.

Goal: Grow revenue at double-
digit compound rate, which we’ve
done for the past 20 years.

1 2

*2001 includes venture capital impairment; 2002 is before effect of change related to adoption of FAS 142 accounting principle.

**Includes all common stock equivalents (“in the money stock” options, warrants and rights, convertible bonds and convertible preferred stock)

Retaining Team
Members

%
7
3

*
4
3

8
2

5
2

9
2

Annual Percent of Team Members
Who Leave Us
*Excludes Wells Fargo Financial (consumer finance)

• Most important inﬂuence on
our customers? Our talented
team members.

• The longer they stay with us
the more they can use their
talent, skill, knowledge and
experience to help satisfy
all our customers’ financial
needs and help them
succeed financially.

• Our size and diversity offers
team members so many
opportunities for personal
and professional growth that
they should want to stay
with Wells Fargo for their
entire career.

Goal: Lose fewer team members
every year than any other
competitor in our industry.

Sherrie Sykes
Wells Fargo Financial
Tempe, Arizona
Team member since: 2000

1 3

Team Member
Engagement

88%

Wells Fargo team members who say
they like their work

91%

Wells Fargo team members who know
how their work helps Wells Fargo

Mohan Chellaswami
Wells Fargo Home Mortgage
St. Louis, Missouri
Team member since: 1991

• Vast majority of our surveyed
team members like their work
and know how it helps our
company achieve its goals.

• Our team member satisfaction
scores: significantly higher
than national average.

• Our ratio of engaged to actively
disengaged team members
in Regional Banking is 4 to 1
(1.7 to 1 for average U.S. workers).
Source: The Gallup Organization

Goal: Maintain our engaged
to disengaged ratio well over
the national average.

1
8 9

% 8
4
8

9
% 8
4
8

8
8

Wells Fargo Team Members
Who Say They Know How
Their Work Helps Wells Fargo
percent

Wells Fargo Team Members
Who Say They Like Their Work
percent

1 4

100

Assets Managed,
Administered

800

700

600

500

400

300

200

100

1
9
7

4
5
8 6
7
5
$

dollars, billions
Includes brokerage

+37%

Two-year increase in assets
managed, administered

• Year-end 2004, our customers
entrusted us to manage or
administer $791 billion of their
assets, up 21 percent from
previous year.

• With acquisition of Strong
Financial assets we now manage
$100 billion in mutual funds,
making us one of U.S.’s top 20
mutual fund companies.

• Largest trust business in
western U.S.

Managing Risk

“Aaa”

Wells Fargo: only U.S. bank rated “Aaa”by
Moody’s Investors Service (highest credit
rating possible); first time Moody’s has
rated a bank as high since 1995.

Credit quality
• A successful financial services
company manages risk effectively
by understanding its customers,
diversifying credit risk across
geographies, loan sizes and
industries.

Goal: Be the best at managing
risk in our industry.

Credit rating
• The higher a company’s credit
rating (based on risk that it can
meet its debt obligations) the
less interest it has to pay to
borrow money. Wells Fargo:
only U.S. bank rated “Aaa.”

8
0
1

8
8

%
6
8

6
6

5
5

Nonperforming Assets
(NPAs)/Total Loans
percent

0
1
1

6
9

%
4
8

1
8

2
6

Loan Losses as a Percent
of Average Loans percent

Moody’s

S&P 500
companies with
higher rating

Aaa
Aaa
A

Aa1
Aa1
Aa2

None
None
None

Seven
Seven
One

1 5

Wells Fargo Bank, N.A.
Issuer
Long-term deposits
Financial strength

Wells Fargo & Company
Issuer
Senior debt
Subordinated debt

1.2

1.0

0.8

0.6

0.4

0.2

0.0

1.2

1.0

0.8

0.6

0.4

0.2

0.0

Retaining Customers

The longer we keep customers, the more
we understand their financial needs, the
more time and money we can save them,
the more products they’re likely to buy from
us, the more proﬁtable they are for us.

+31.9%

Mortgage customers who return for their
next loan

)
.
t
s
e
(

%
4
0
1

9
8

0
8

5
7.

High-Value* Checking Account
Customers Who Leave Us percent
*Top 20 percent of banking customers based on balances

Goal: Lose fewer customers
every year than any other
competitor in our industry.

Keith Lavachek
Home and Consumer Finance
Billings, Montana
Team member since: 1970

1 6

Revenue vs. Expense Growth

3
0
2

9
6
1

4
2
1

0
7

%
4
1

7
6

9
5

2
2

Revenue Growth

Expense Growth

percent increase

1.2x

Average revenue growth exceeded
average expense growth last four years

• The standard efficiency
ratio — cents it costs to earn
a dollar of revenue — differs
widely by type of business in
financial services.

• We prefer a different measure:
the rate at which revenue growth
exceeds expense growth.

Goal: Grow revenue twice as
fast as expenses. If we do, our
efficiency ratio will improve
year after year.

Meriem Elmandjra
Specialized Financial Services, Wholesale Banking
San Francisco, California
Team member since: 1999

1 7

Cross-Selling

• Cross-selling: our most important
customer-related measure.

• About 80 percent of our revenue
growth comes from selling more
products to existing customers.

Goal: Sell at least eight products
to every customer.

1
1
3

9
6
7 2
3
2

2
3
2

2
2
2

%
3
1
2

Retail Banking Households with
Credit Cards percent

1 8

5
0
2

9
8
1

2
6
1

2
3
% 1
8
0
1

3
1.
2

0
8
1

8
4
6 1
2
% 1
0
1
1

Homeowner-Banking Customers
with Mortgage Products
percent

Homeowner-Banking Customers
with Home Equity Products
percent

2
8 4
3

7
3

4
2 3
3

6
3 4
4

Products Per Banking Household

4
5
8

9
5
8

7
8
8

3
3
2 8
9
7

%
5
2
7

Retail Checking Households with
Debit Cards percent

3
0 5
5

5
9
6 4
4

Commercial/Corporate
Products Per Banking Customer

100

6
3
3

1
6
2

5
4
2

%
2
5
1

New Retail Checking Customers
Who Buy a Wells Fargo Pack*
percent

*Checking account and three other products
(e.g., debit card, credit card, online banking,
savings account, home equity loan)

Our average banking household has
4.6 products with us (about double
the industry average). Our average
commercial/corporate customer has 5.3.
But both purchase about 16 financial
products from someone. We want our
consumer and business customers to
have at least eight products with us.

Product Solutions
(Sales) Per Banker*
Per Day

8
4

7
4

3
0 4
4

6
3

*Platform full-time equivalent (FTE) team member

+33% Since 2000

• Very important measure of how
effectively and efficiently we
take advantage of sales and
service opportunities brought
to us each day by our 10 million
retail banking households.

• Our vision: providing our
customers solutions—not
pitching products.

• We ask: How can we help
customers be financially
successful? What are their
financial goals? What products
and services do they need to
achieve those goals?

Goal: Earn all our customers’
financial services business.

Beth Opperman
Private Client Services
Minneapolis, Minnesota
Team member since: 1994

1 9

Dion Woods
Wells Capital Management
Los Angeles, California
Team member since: 2000

Customer Access Options

We integrate all our channels — stores,
ATMs, Wells Fargo Phone Bank, internet,
direct mail — so that all information about
a customer’s accounts is available to that
customer in real time, any time, 24/7.

2 0

6
4
0
6

0
0
9
5

0
1
3
5

0
0
4
5

0
0
6
5

Stores

8
1

2
1

Active Online Banking Consumers
millions

5
2

2
2

8
1

Active Online Middle Market/
Large Corporate Customers
thousands

2
7

2
5

4
3

1
2

3
1.

Unique Online Banking Visitors
visits per year, millions

0
5
4

7
5
4

6
6
4

8
7
4

2
8
4

7
8
3

ATMs transactions, millions

7
3
0 2
2
2

9
1
2

7
4
2

0
5
2

3
5
2

99
Wells Fargo Phone Bank
calls per year, millions

1
3
5

5
1
4

7
9
2

5
8
1

9
5

Active Online Small Business
Customers thousands

1
5

3
4

4
3

6
2

0
2

%
4
1

Consumer Checking Accounts–
Percent Active Online

Market Share

500
Deposits
• The most important core
400
relationship a financial
services company can
have with its customers.

200

300

100

• We have second largest U.S.
deposit market share even
though we have banks in
less than half the states.

300

• Last five years: core deposits
up 88 percent.

250

200

150

100

Mortgage
• Among our homeowner-
customers, opportunity to
earn their mortgage is key
to earning all their financial
services business.

• U.S.’s #1 retail mortgage
originator since 1992.
(Inside Mortgage News, 11/19/04)

600

500

400

300

200

100

Home Equity Loans
• The home often is a homeowner’s
most important source of wealth.

• We believe homeowners should
30
be able to access and control
20
this investment just as they do
stocks, bonds, mutual funds,
10
retirement plans.

• #1 U.S. home equity lender
fourth year in a row.

300

250

200

150

100

500

400

300

200

100

1000

800

600

400

200

5
7
2

8
4
7 2
1
2

7
8
0 1
7
1

6
4
1
$

Deposits dollars, billions

0
7
4

3
3
3

8
9
2

2
0
2

0
1
1
$

2
8

6
7

Originations dollars, billions

5
0
8

0
1
7

1
8
5

2
6
3 4
8
3

9
9
2

2
6
2
$

Servicing dollars, billions

2
5

7
3

8
2

2
2

7
1

3
1
$

Home Equity Loans dollars, billions
Real estate 1-4 family junior lien mortgages

2 1

Total Stockholder Return

1
2

3
2

%
2
1

2
1

1
1

3
1

5
9

9
4 7
7

9
6
$

5
0
1

0
20
0
1

2
-

5 years

10 years

15 years

20 years

Total Compound Annual
Stockholder Return percent increase
Includes reinvested dividends

WFC

S&P 500®

Market Capitalization
dollars, billions

-5

23%Total compound annual stockholder return

(including reinvested dividends) last 20 years

Highest market caps at year-end 2004 among Fortune 100

Company

1. General Electric
2. Exxon Mobil
3. Microsoft
4. Citigroup
5. Wal-Mart Stores
6. Pfizer
7. Bank of America
8. Johnson & Johnson
9. AIG
10. IBM
11. Intel
12. Procter & Gamble
13. JP Morgan Chase
14. Berkshire Hathaway
15. Cisco Systems
16. Altria Group
17. Verizon
18. Chevron Texaco
19. Wells Fargo
20. Dell

2 2

Market Value
(billions)

Fortune rank
(revenue)

$ 386
331
290
250
224
203
190
188
171
164
148
140
139
135
127
125
112
111
105
105

5
2
46
8
1
25
24
30
10
9
53
28
26
14
100
15
12
6
49
31

5
1
2
6

9
8
8
5

9
6
5
5

4
4
0
4
$

7
8
6
4

7
4
3
4

Wells Fargo Stock Price
year-end, dollars

2
3

5
2

9
7 1

6 1
1

4
1
$

Dividends Paid dollars, billions

120

100

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Customer Service

Our product is service! Our value added is
financial advice.The quality of our service
keeps customers coming back for more.

100

2
% 8
0
8

12/03 12/04

Retail Banking Customers (Served
by Tellers) “Extremely Satisfied”*
with Wells Fargo percent
Responses from 30,000 retail customers a month
*4 or 5 rating (5: extremely satisfied)

• We expect that the first team
80
member a customer approaches
60
with a problem will take personal
responsibility for fixing it.
40
• More sales do not always result
in better service but better
20
service almost always results
in more sales.
0

Goal: Surprise and delight
customers with such great
service that they’ll recommend
us to family, friends and
business associates.
100

7
4 8
8

7
7

%
0
7

Evelyn Lane
80
Business Banking,
Wells Fargo Bank
60
Everett, Washington
Team member since: 1986

100

Commercial Banking Customers
Who Rate Our Service Very Good
or Excellent percent
Responses from 1,900 middle-market customers, 2004

%
1
8

0
8

8
7

0
6 8
7

Mortgage Customer
Satisfaction with Wells Fargo
Percent who say they are satisfied “very much”
with service when surveyed

2 3

2 4

Lonnie Dafney
Wells Fargo Financial
Des Moines, Iowa
Team member since: 1992

Helping Our Communities
Prosper and Grow.

100

3
9

2
8

3
8

6
2 6
6
$

Wells Fargo Contributions
Benefited 15,000 non-profits in 2004
dollars, millions

One of the best ways to determine if a company
will be successful in the future is to look around
the communities it serves. Are they growing?
Adding jobs? Is there enough affordable
housing? Is there measurable progress in those
and other key indicators of economic success?
That’s why we believe community involvement
is one of the most important measures of a
company’s future success.

Successful companies don’t improve their
communities simply by writing checks — it
takes human capital and social capital, not
just financial capital, to make a meaningful
difference. By combining the three, we’re
making a difference one by one — one team
member at a time, one customer at a time,
one community at a time. Thousands of our
team members are making that difference
by giving their time, talent and resources to
help our communities prosper and grow.
We’re proud of their commitment—and
we thank them for their generosity.

+24 Years of Involvement
Wells Fargo team member Lonnie Dafney of
Des Moines, Iowa lives our company’s “Vision
and Values”every single day. She’s been
involved with the Isiserettes Drill and Drum
Team since its founding in 1980. The team—
performers of high-energy dance routines to
the beat of percussion instruments—gives
low-to-moderate income inner-city youth
the opportunity to travel and experience
life outside the inner city, helping build
self-esteem and character.

A passionate dancer, Dafney joined the
Isiserettes at age 11. Her mother was one
of the team’s founders and is still involved.
Dafney became an Isiserettes dance and
music instructor 15 years ago, and today, in
addition to her job in human resources, she
dedicates up to 50 hours every month, and
many of her weekends to traveling with the
team, which performs in parades, community
events, and half-time shows at sporting events.

Thanks to Dafney’s involvement, 60
young people every year travel all over the
country as ambassadors for the African-
American community and Iowa, learning
valuable life lessons in diversity, money
management and social skill building.

This year, Dafney and the Isiserettes won

the $50,000 Wells Fargo Volunteer Service
Award. She was one of 162 team members
awarded over $300,000 in grants for their
designated non-profits. “I encourage young
people to reach for places they would have
never dreamed of going,”says Dafney.
“If I can do it, so can they.”

Dafney is just one of the thousands
of Wells Fargo team members who are

supporting causes important to them.
A few examples:
• The past eleven years, 92,000 team
member-volunteers have given 3.2 million
hours to build or renovate 1,700 homes
with Habitat for Humanity.

• 3,000 team members have been trained
to teach Wells Fargo’s financial literacy
curriculum, Hands On Banking®, in schools
and community groups.

• The past ten years, 250 team members
have been awarded a fully paid Volunteer
Leave. The total leave time granted was
800 months of volunteer service, or
139,360 hours.

• In 2004, 3,000 team members across
the country participated in the annual
“Week of Caring”by lending a hand at
local community service agencies—
tutoring school children, spending time
with home-bound elderly, serving meals
at homeless shelters, or making
neighborhood improvements.

2 5
2 5

Alfonso Castro
Customer Since: 2004
San Diego, California

+ 900 Hispanic Adults at Five
Financial Literacy Seminars
Alfonso Castro was apprehensive when he
decided to attend a Wells Fargo financial
literacy seminar. In search of a job to support
his family, he had to leave his wife and
13-year-old daughter behind in San Pedro
Xalostoc Etepac, Mexico to come to the
United States, where he found a restaurant
job in San Diego, California. At first he was
intimidated by banks, but he soon realized
he needed to open an account to save
for his daughter’s quinceanera (15th
birthday celebration).

Castro attended a Spanish-language
workshop on money management, one of
a number of free, financial literacy seminars
hosted by Wells Fargo in a variety of
languages nationwide to help low-income
families and immigrants manage their
money so they can save for college tuition,
buy a home or start a business.

During the seminar, Castro met bilingual

team member Mariher Valenzuela. “She
really took the time to understand my

2 6

financial goals,”said Castro, “and explain
the process to me.”

The next week he opened checking,
savings, and credit card accounts. Since
Castro works up to 80 hours each week,
he often uses ATMs, and is now banking
through wellsfargo.com. His cousin and
several friends also have opened accounts
with Wells Fargo through Valenzuela.

Castro is not alone. He’s one of about 900
Spanish-speaking customers who attended
five financial literacy seminars in San Diego
in 2004.

+ 1,700 Children Served in 3 Years
Eighth grader Steven Cantu (opposite page)
faced the prospect of an uneventful summer
— then he got the opportunity of his young
life. Cantu, who attends Kingsborough
Middle School in San Antonio, Texas, was
chosen to participate in a summer basketball
camp sponsored by local non-profit Slam
Dunk for Life.

He might not have had this opportunity

if it weren’t for Wells Fargo team member
Randy Fields. He’s a regional trust manager

for Private Client Services in San Antonio and
a founding director and board member of
the organization. Fields became involved
with Slam Dunk in 2002 when asked by his
pastor to lend a hand.

Some 31 inner-city middle schools
participate in the program and kids who
make an effort to be good students can
be nominated by their school. Camp
instructors include some of the city’s
premier high school basketball coaches
and sports celebrities.

Fields spends several hours every week
managing the program, building relation-
ships with schools and he helps coach and
mentor children every summer.

Instructors at the week-long camp have

trained over 1,700 at-risk middle school
children not just in basketball fundamentals,
but important life skills such as goal setting,
perseverance, teamwork and discipline.
“I learned how to work together with others,"
said Cantu. “I also learned how important it
is to stay in school.”

Randy Fields
Wells Fargo Private Client Services
San Antonio, Texas
Team member since: 2002

2 7

Bruce H. Carpenter III
Team member since: 2002

Stacy DiCianni
Team member since: 2003

Wayne Ware
Team member since: 2002

Wells Fargo Home Mortgage
Pensacola, Florida

2 82 8

$200,000 Contribution to the American
Red Cross Disaster Relief Fund
In the summer of 2004, four devastating
hurricanes—Charley, Frances, Ivan and
Jeanne—pounded Florida. In the storms’
path were more than 80 Wells Fargo Home
Mortgage and Wells Fargo Financial stores,
with more than 1,900 team members
across the state.

The Wells Fargo Housing Foundation
contributed $200,000 to the American Red
Cross for disaster relief efforts. The financial
support was very important but it was the
caring and commitment of our own team
members on the ground that really made
the difference.

When Ivan swept the coast in mid-

September, team members Bruce
Carpenter, Stacy DiCianni and Wayne
Ware were among 25 Home Mortgage
team members evacuated from their
offices in Pensacola, Florida. For three
weeks, these hometown heroes helped
clear debris, repair roofs and deliver
lunches to police officers working
around the clock.

Carpenter borrowed generators from
a friend in Atlanta to provide power and
water for his neighbors. Another team
member, Tracy Morgan-Frick, welcomed
six Marines to stay in her home for three
days, distributing supplies on behalf of
the American Red Cross.

Back in their hurricane-damaged
offices, the team provided recovery aid
to thousands of Wells Fargo customers
affected by the storms. One hundred Home
Mortgage team members from across the
U.S. volunteered to go to Florida to help
customers keep their mortgage loans in
good standing and help clean up debris.
“Everyone in the community came
together,”said Carpenter. “In times like
this, you don’t think twice about it—you
just do it.”

Corporate America’s 10 Largest
Givers dollars, millions

Wells Fargo, team members give
$1.4 million for tsunami relief
Wells Fargo was one of the first U.S. companies to pledge support for victims
after devastating tsunamis hit countries bordering the Indian Ocean last December.
The company donated $100,000 to the American Red Cross and then created
a dollar-for-dollar matching program for contributions from its team members
to three relief agencies — the American Red Cross International Response Fund,
UNICEF and Global Impact. In only three weeks, team members contributed
more than $600,000, bringing Wells Fargo’s total contribution to $1.4 million.

Wells Fargo contributed $93 million to
more than 15,000 non-profits in 2004

Arts

Fort Wayne, Indiana – A decade of support. Wells Fargo donated $30,000 to Arts United
of Greater Fort Wayne for the 10th consecutive year. The non-profit provides leadership to
the local arts community, and is the largest single source of financial support for the arts
in the region.

Wichita Falls,Texas – For the fourth year in a row, Wells Fargo sponsored the Wichita Falls
invitational high school art exhibit. Wells Fargo team members hosted 150 teachers, parents
and friends at an awards ceremony honoring the students from Rider, Wichita Falls and
Hirschi high schools.

Community Development

Boise, Idaho – $100,000 grant for affordable housing through the Wells Fargo Housing
Foundation’s sixth annual Focus Communities Initiative. Wells Fargo team members raised
an additional $18,000 for Neighborhood Housing Services during Wells Fargo’s annual
Community Support Campaign. The Housing Foundation has awarded $3 million through
the initiative since 1999.

Des Moines, Iowa – $150,000 and six new homes. Team members Rob Nye and Brian Murphy
started the “Greater Des Moines Challenge”to increase team member involvement and
financial support for Habitat for Humanity. In 2004 they recruited 800 volunteers to build
homes for low-to-moderate income families.

Milwaukee,Wisconsin – $50,000 and five home improvement projects. Wells Fargo team
members partnered with non-profits on four Saturdays, working with 19 low-to-moderate
income residents to paint, fix porches and replace windows and doors.

Park City, Utah – $17,500 in financial support. Wells Fargo provided a grant to Mountainlands
Community Housing Trust, a non-proﬁt providing affordable housing, education and down
payment help for lower-income households. Wells Fargo team members helped build six
homes in the area.

1. Wal-Mart Stores
2. Ford Motor
3. Altria
4. Johnson & Johnson
5. Exxon Mobil
6. J.P. Morgan Chase
7. Bank of America
8. Pﬁzer
9. WELLS FARGO
10. Citigroup

Business Week 11/29/04

$176
120
115
99
97
86
85
83
83
81

Riverside, California – $3 million over four years to 30 non-profit organizations that help
people start or grow small businesses. Inland Empire SBDC, which provides management
and technical assistance to entrepreneurs, was one of 13 small businesses across the state
to receive a $100,000 grant as part of Wells Fargo’s Technical Assistance Initiative.

Tucson, Arizona – $25,000 to help low-to-moderate income families. Justin Ireland of
Wells Fargo Home Mortgage and 25 team members mentor students at Howenstine
High School to build houses with Habitat for Humanity. The students are working on their
second house. Wells Fargo commits hundreds of volunteers and thousands of dollars to
Habitat for Humanity projects every year.

2 92 9

The United Way of America selected Wells Fargo
for its highest possible recognition: all four of its
Summit Awards, the second company in judging
history to receive all four awards in one year —
for Corporate Community Investment, Employee
Community Investment, Employee Community
Engagement and Community Leadership.

Sacramento, California – $500,000 as
lead sponsor to support Sacramento High
School’s new School of Business, which
introduces students to finance, economic
development and community revitalization.
Students receive financial literacy training
and participate in business programs and
Wells Fargo team members mentor students.

San Francisco, California – $100,000 grant to
44 schools. Mayor Gavin Newsom recognized
Wells Fargo’s contribution by declaring
“Wells Fargo’s Support for Schools Day”at a
celebratory event. Fifty Wells Fargo team
members attended.

Human Services

Albuquerque, New Mexico – 17 team
members raised $4,400. Team members from
the Wells Fargo Loan Servicing Center held
several fundraisers for the American Cancer
Society’s Relay for Life. 13 team members
and their families, with sleeping bags in tow,
walked in the 16-hour event.

Big Sandy, Montana – One community,
14 years involvement. Team member
Dianna Webster is on the board of Big Sandy
Rotary Club, the only civic organization in
the small rural community. Dianna and other
Wells Fargo team members helped raise
$20,000 for community programs, including
a summer camp for disadvantaged kids.

Denver, Colorado – $1 million grant to build
new children’s hospital. Wells Fargo’s
contribution to The Children’s Hospital fund-
raising campaign was one of the hospital’s
largest ever one-time contributions from a
public company. Team member David Kasper
of Wells Fargo Private Client Services serves
on the hospital’s board of directors.

Los Angeles, California – $500,000 to the
United Way of Greater Los Angeles Bridging
the Gap Fund, helping children and adults
break out of the cycle of poverty by

empowering them with basic skills and
critical resources — food, shelter and
healthcare. Regional President Laura Schulte
is a board member; team members
volunteer for a variety of United Way
“Commitment to Caring”projects.

Omaha, Nebraska – $5,000 and 300 turkey
dinners. Just two days before Thanksgiving,
Wells Fargo came to the local Food Bank’s
aid and provided turkey dinners and all the
fixings to 300 families in need. Thirty team
members packed and delivered 300 meals.
Team members donated canned food
during the Food Bank’s annual Corporate
Food Drive.

Seattle,Washington – Five years of board
participation and $20,000 grant. Mike Foody
of Wells Fargo Private Client Services is on
the board of Treehouse, providing services
to disadvantaged foster children. The grant
supported educational programs promoting
self-esteem and confidence. Team members
raised an additional $14,000 to buy clothing
and school supplies.

Sioux Falls, South Dakota – $6,500 raised
for Make-A-Wish Foundation. Wells Fargo
team members held fundraisers to help
grant the wish of a 2 1/2 year-old boy with
a life-threatening illness. They sold holiday
ornaments, held a book fair, a silent auction,
and a pancake breakfast.

Twin Cities, Minnesota – 35,000 homeless
Minnesotans helped over 10 years. Wells Fargo
partnered with Twin Cities Community Voice
Mail to provide the phoneless, many looking
for housing or jobs, with free voice mail. Team
members Shari McGuire and Dave Kapalka
of Wells Fargo Services serve as board
members, and Wells Fargo has contributed
over $33,500 since the partnership began
in 1998.

+50%Increase in ﬁnancial contributions last 4 years

Education

Anchorage, Alaska – Seven years, 240
students. Students at East High School work
at their on-campus Wells Fargo banking store
in exchange for class credit, gaining valuable
career readiness and financial literacy skills.
Twenty students participate every semester,
managed by their teacher and Wells Fargo
store manager, Bill Kaltschnee.

Los Angeles, California – $500,000 over
three years to help students at Manual Arts
High School prepare for college and career.
Wells Fargo partnered with the University
of Southern California and The Fulfillment
Fund, a non-profit helping underserved
students attain higher education, to develop
the “College Pathways Program,”providing
critical educational resources for students
with average academic performance. Team
member Tom Booker serves on the board
of directors.

Phoenix, Arizona – $150,000 to teachers in
300 schools. Wells Fargo’s Teacher Partner
Program awards up to $500 each to teachers
for special needs such as school supplies,
musical instruments, field trips, and
computer lab equipment. A panel of team
members, school officials and community
leaders selects the winning teachers. The
program has awarded $1.2 million to
Arizona schools since 1997.

Reno, Nevada – $1 million to build
Wells Fargo Auditorium at University of
Nevada, Reno. The auditorium will be part
of the University’s Knowledge Center, a new
center for community outreach programs
and cultural presentations.

3 0

Board of Directors

Executive Officers and
Corporate Staff

J.A. Blanchard III 1, 2, 4
Chairman, ADC Telecommunications
Eden Prairie, Minnesota
(Communications equipment, services)

Cynthia H. Milligan 1, 4
Dean, College of Business Administration
University of Nebraska – Lincoln
(Higher education)

Susan E. Engel 2, 3, 5
Chairwoman, CEO
Department 56, Inc.
Eden Prairie, Minnesota
(Specialty retailer)

Enrique Hernandez, Jr. 1, 3
Chairman, CEO
Inter-Con Security Systems, Inc.
Pasadena, California
(Security services)

Robert L. Joss 2, 3
Philip H. Knight Professor and Dean
Stanford U. Graduate School of Business
Palo Alto, California
(Higher education)

Reatha Clark King 1, 3
Retired President, Board Chair
General Mills Foundation
Minneapolis, Minnesota
(Corporate foundation)

Richard M. Kovacevich
Chairman, President, CEO
Wells Fargo & Company
San Francisco, California

Richard D. McCormick 3, 5
Chairman Emeritus,
US WEST, Inc.
Denver, Colorado
(Communications)

Philip J. Quigley 1, 2, 4
Retired Chairman, President, CEO
Pacific Telesis Group
San Francisco, California
(Telecommunications)

Donald B. Rice 4, 5
Chairman, President, CEO
Agensys, Inc.
Santa Monica, California
(Biotechnology)

Judith M. Runstad 1, 3
Of Counsel
Foster Pepper & Shefelman PLLC
Seattle, Washington
(Law firm)

Stephen W. Sanger 3, 5
Chairman, CEO
General Mills, Inc.
Minneapolis, Minnesota
(Packaged foods)

Susan G. Swenson 1, 2, 4
Chief Operating Officer
T-Mobile USA, Inc.
Bellevue, Washington
(Wireless communications)

Michael W. Wright 2, 4, 5
Retired Chairman, CEO
SUPERVALU INC.
Eden Prairie, Minnesota
(Food distribution, retailing)

Committees 1 Audit and Examination
2 Credit
3 Finance
4 Governance and Nominating
5 Human Resources

Paul R. Ackerman, SVP,
Treasurer

Howard I. Atkins, EVP,
Chief Financial Officer *

Patricia R. Callahan, EVP,
Human Resources *

C. Webb Edwards, EVP,
Technology and Operations *

John E. Ganoe, EVP,
Corporate Development

Lawrence P. Haeg, EVP,
Corporate Communications

Laurel A. Holschuh, SVP,
Corporate Secretary

David A. Hoyt, Group EVP,
Wholesale Banking *

Richard M. Kovacevich, Chairman,
President, CEO *

Richard D. Levy, SVP,
Controller *

Kevin McCabe, EVP,
Chief Auditor

David J. Munio, EVP,
Chief Credit Officer *

Mark C. Oman, Group EVP,
Home and Consumer Finance Group *

Eric D. Shand,
Chief Loan Examiner

Robert S. Strickland, SVP,
Investor Relations

James M. Strother, EVP,
General Counsel, Government Relations *

John G. Stumpf, Group EVP,
Community Banking *

Carrie L. Tolstedt, Group EVP,
Regional Banking *

* “Executive officers” according to Securities

and Exchange Commission rules

3 1

Senior Business Officers

COMMUNITY BANKING

Group Head

John G. Stumpf

Regional Banking

Group Head

Carrie L. Tolstedt

Regional Presidents

Jon R. Campbell, Minnesota, North Dakota,
South Dakota, Illinois, Indiana, Michigan,
Wisconsin, Ohio

Debra J. Paterson, Metro Minnesota

Norbert J. Harrington, Greater Minnesota

J. Lanier Little, Illinois, Michigan,

Wisconsin

Carl A. Miller, Jr., Indiana, Ohio

Daniel P. Murphy, South Dakota,

North Dakota

Peter J. Fullerton, North Dakota

Paul W. “Chip” Carlisle, Texas

George W. Cone, Heart of Texas

John T. Gavin, Dallas-Fort Worth

Glenn V. Godkin, Houston

Don C. Kendrick Jr., Central Texas

Kenneth A. Telg, West Texas

Thomas W. Honig, Colorado, Montana, Utah,

Wyoming

Joy N. Ott, Montana

Robert A. Hatch, Utah

Donald R. Sall, Greater Colorado

H. Lynn Horak, Iowa, Nebraska

J. Scott Johnson, Iowa

Kirk L. Kellner, Nebraska

James O. Prunty, Northwest

Alan V. Johnson, Oregon

J. Pat McMurray, Idaho

Richard Strutz, Alaska

Laura A. Schulte, California, Nevada,

Border Banking

Michael F. Billeci, Greater San Francisco

Bay Area

Nathan E. Christian, Southern California,

Border Banking

Kirk V. Clausen, Nevada

William J. Dewhurst, Central California

Felix S. Fernandez, Northern California

Shelley Freeman, Los Angeles Metro

Lisa J. Stevens, San Francisco Metro

Robert D. Worth, California Business

Banking

Kim M. Young, Orange County

Gerrit van Huisstede, Arizona, New Mexico

Gregory A. Winegardner, New Mexico

Business Banking Support Group

Timothy J. Coughlon

Marketing

Sylvia L. Reynolds

Retail Insurance Group

Peter J. Wissinger

Michael E. Connealy, Rural Community

Insurance Services

Steven Veno, Wells Fargo Insurance

3 2

Consumer, Business, Investment
Internet Services

Avid Modjtabai

Private Client Services

Group Head

Clyde W. Ostler

Lance P. Fox, Credit Administration

Jay S. Welker, Regional Management

Regional Managing Directors

Anne D. Copeland, Northern California,

Central California, Nevada

Richard D. Byrd, Los Angeles County

James Cimino, Southern California,

Orange County, Arizona

Joe W. Defur, Washington, Oregon, Idaho,

Alaska

David J. Kasper, Colorado, Utah, Montana,

Wyoming

Russell A. LaBrasca, Texas, New Mexico

David J. Pittman, Illinois, Iowa, Nebraska

Timothy N. Traudt, Minnesota, North Dakota,
South Dakota, Wisconsin, Illinois, Indiana,
Ohio, Michigan

Tracey B. Warson, Bay Area

Diversified Products Group

Group Head

Michael R. James

Marc L. Bernstein, Business Direct Lending

Louis M. Cosso, Auto Finance

Jerry E. Gray, SBA Lending

Michael T. Borchert, Payroll Services

Rebecca L. Macieira-Kaufmann,
Small Business Segment

Kevin A. Rhein, Wells Fargo Card Services

Debra B. Rossi, Online Merchant Services

Consumer Credit Group

International and Insurance Services

Doreen Woo Ho, Division President

David J. Zuercher

Brian J. Bartlett, Corporate Trust

Ronald A. Caton, Global Correspondent

John W. Barton, Regional Banking

Scott Gable, Personal Credit Management

Meheriar M. Hasan, Direct to Consumer

Kathleen L. Vaughan, Equity Direct and

Institutional Lending

Wells Fargo Financial, Inc.

Thomas P. Shippee, CEO, President

Greg M. Janasko, Commercial Business

David R. Kvamme, Consumer Business

Gary D. Lorenz, Auto Business

Oriol Segarra, Caribbean Consumer

Banking

Kevin W. Conboy, Acordia

Peter P. Connolly, Foreign Exchange/
International Financial Services

Sanjiv S. Sanghvi, Wells Fargo HSBC

Trade Bank

Asset-Based Lending

John F. Nickoll

Peter E. Schwab, Wells Fargo Foothill

Henry K. Jordan, Wells Fargo Foothill

Thomas Pizzo, Wells Fargo Century

Martin J. McKinley, Wells Fargo Business

Jaime Marti, Caribbean Auto

Credit

WHOLESALE BANKING

Group Head

David A. Hoyt

Credit Adminsitration

Thomas J. Davis, Real Estate

Michael J. Loughlin, Commercial/Corporate

Commercial Banking

Iris S. Chan

John C. Adams, Northern California

JoAnn N. Bertges, Central California

Robert A. Chereck, Texas

Albert F. (Rick) Ehrke, Southern California

Mark D. Howell, Intermountain/Southwest

Paul D. Kalsbeek, Southeast

Edmund O. Lelo, Greater Los Angeles

Perry G. Pelos, Midwest

John V. Rindlaub, Pacific Northwest

Jeffrey T. Nikora, Alternative Investment

Management

Eastdil Realty Company, LLC

Benjamin V. Lambert, Chairman, CEO

Roy H. March, President

Institutional Investment Services

Michael J. Niedermeyer

Robert W. Bissell, Wells Capital Management

James W. Paulsen, Wells
Capital Management

John S. McCune, Institutional Brokerage

Laurie B. Nordquist, Institutional Trust Group

Karla M. Rabusch, Wells Fargo Funds

Wholesale Services

Stephen M. Ellis

Norwest Equity Partners

John E. Lindahl, Managing Partner

Norwest Venture Partners

Promod Haque, Managing Partner

Jon A. Veenis, Education Finance Services

Specialized Financial Services

Donald W. Weber, Merchant Services

Timothy J. Sloan

Wells Fargo Services

Group Head

C. Webb Edwards

Kevin B. Dabney, Payment Strategies Group

Kerri P. Grosslight, Enterprise Shared

Services

Victor K. Nichols, Technology Infrastructure

Michael D. Noble, Operations

Anthony M. Padinha, Group Technology

Diana L. Starcher, Customer Service

and Sales

HOME AND CONSUMER FINANCE

Group Head

Mark C. Oman

Wells Fargo Home Mortgage

Michael J. Heid, Division President, Capital
Markets, Finance and Administration

Cara K. Heiden, Division President,
National Consumer Lending and
Institutional Lending

Susan A. Davis, Centralized Retail/

Retail Administration

Michael Lepore, Institutional Lending

J. Edward Blakey, Commercial Mortgage

Group

Richard P. Ferris, Corporate Banking,

Shareowner Services

John P. Hullar, Wells Fargo Securities

Jay Kornmayer, Gaming

Mark L. Myers, Real Estate Merchant
Banking, Homebuilder Finance

J. Michael Johnson, Financial Sponsors,

Leveraged, Media and Mezzanine Finance,
Distribution

James R. Renner, Wells Fargo Equipment

Finance

David J. Weber, Securities Investment Group

Real Estate

A. Larry Chapman

Charles H. Fedalen, Jr., Southern

California/Southwest

Shirley O. Griffin, Real Estate Portfolio

Services

Christopher J. Jordan, Mid-Atlantic/

New England

Robin W. Michel, Northern
California/Northwest

James H. Muir, Eastern/Midwest

Stephen P. Prinz, Central/Texas

Financial Review

34 Overview

38 Critical Accounting Policies

Earnings Performance

41
41 Net Interest Income
44 Noninterest Income
45 Noninterest Expense
45 Operating Segment Results

46
46

Balance Sheet Analysis
Securities Available for Sale
(table on page 72)
Loan Portfolio (table on page 74)

46
46 Deposits

47 Off-Balance Sheet Arrangements and

Aggregate Contractual Obligations

47 Off-Balance Sheet Arrangements,

Variable Interest Entities, Guarantees
and Other Commitments

48 Contractual Obligations
48

Transactions with Related Parties

Risk Management

48
48 Credit Risk Management Process
49 Nonaccrual Loans and Other Assets
Loans 90 Days or More Past Due
50
and Still Accruing
Allowance for Credit Losses
(table on page 75)

50 Asset/Liability and

Market Risk Management
Interest Rate Risk

51 Mortgage Banking Interest Rate Risk
52 Market Risk – Trading Activities
52 Market Risk – Equity Markets
Liquidity and Funding
53

54 Capital Management

54 Comparison of 2003 with 2002

Factors That May Affect Future Results

59 Additional Information

60 Controls and Procedures

60 Disclosure Controls and Procedures

Internal Control over Financial Reporting

60 Management’s Report on Internal Control

over Financial Reporting

Report of Independent Registered Public
Accounting Firm

Financial Statements

62 Consolidated Statement of Income

63 Consolidated Balance Sheet

64 Consolidated Statement of

Changes in Stockholders’ Equity
and Comprehensive Income

65 Consolidated Statement of Cash Flows

66 Notes to Financial Statements

112 Report of Independent Registered

Public Accounting Firm

113 Quarterly Financial Data

115 Glossary

-5

This Annual Report, including the Financial Review and the Financial Statements and related Notes, has forward-
looking statements, which 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 state-
ments. Actual results might differ significantly from our forecasts and expectations. Please refer to “Factors that May
Affect Future Results” for a discussion of some factors that may cause results to differ.

Overview

Wells Fargo & Company is a $428 billion diversiﬁed ﬁnancial
services company providing banking, insurance, investments,
mortgage banking and consumer ﬁnance through banking
stores, the internet and other distribution channels to con-
sumers, 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, 2004. When we refer to “the
Company”, “we”, “our” and “us” in this report, we mean
Wells Fargo & Company and Subsidiaries (consolidated). When
we refer to the Parent, we mean Wells Fargo & Company.
2004 was another exceptional year for our company,
with record diluted earnings per share of $4.09, record net
income of $7.0 billion and solid market share growth across
our more than 80 businesses. Because these results would not
have been possible without the customer focus and dedication
of our exceptional team, at the end of 2004 we committed to
make a special contribution in shares of Wells Fargo common
stock to the 401(k) Plan accounts of eligible team members,
equaling 1% of a team member’s pay, up to a maximum
contribution of $750, resulting in an additional $44 million
in employee beneﬁts expense.

Our growth in earnings per share was driven by revenue

growth, operating leverage (revenue growth in excess of
expense growth) and improved credit quality. Our primary
sources of earnings are driven by lending and deposit taking
activities, which generate net interest income, and providing
ﬁnancial services that generate fee income.

Revenue grew 6% from 2003. Combined revenue in all

of our businesses other than Wells Fargo Home Mortgage
(Home Mortgage), which had exceptional revenue in 2003
due to the reﬁnance boom, grew 11% this year. In addition
to double-digit growth in earnings per share, we also had
double-digit growth in loans and retail core deposits and
continued strong credit quality for the year. We have been
achieving these results not just for one, two, or even ﬁve years,
as many companies have done, but for the past 20 years,
through many different economic cycles. Our compound
annual growth rate over the past 20 years has averaged
13% in revenue, averaged 14% in earnings per share, and
our total compound annual stockholder return has been 23%
compared with 13% for the S&P 500®. Our total compound
annual stockholder return, including reinvestment of dividends,
has been about 10 percentage points above the S&P 500 for
each of the past ﬁve, ten, 15 and 20 year periods.

LONG-TERM PERFORMANCE – TOTAL COMPOUND ANNUAL
STOCKHOLDER RETURN (Including reinvestment of dividends)

12%

-2

5 years

(percent)

Wells Fargo Common Stock

S&P 500

We have a 20-year history of investing in our company,

and 2004 was one of our highest investment years ever.
Companies must reinvest to consistently grow proﬁts and
revenue at double-digit rates over time. We achieved record
results in 2004 while making very signiﬁcant investments
throughout the year to beneﬁt future performance, including
opening 177 new stores, increasing the number of team
members serving our customers by over 5,000, committing
to add Wells Fargo stock to every eligible team member’s
401(k) account to thank them for all their efforts, making
signiﬁcant incremental investments in electronic imaging,
call centers and other technology projects, integrating
acquisitions, and improving future margins by incurring
the costs of extinguishing high interest rate debt and selling
low yielding assets. We continued to support our communities
by taking a $217 million charitable contribution expense
in fourth quarter 2004, to be funded by tax-advantaged
venture capital gains, helping ensure that the Wells Fargo
Foundation remains well funded over the next eight to
ten years.

In 2004, we became one of the nation’s 20 largest mutual
fund companies with the acquisition of $29 billion in assets
under management from Strong Financial Corporation
(Strong Financial). Our stock hit a record high close of
$63.25 in December 2004. Our solid ﬁnancial performance
enables us to be one of the top givers to non-proﬁts among
all U.S. companies. We continue to be the only “Aaa” rated
bank in the U.S., the highest possible credit rating.

Our corporate vision is to satisfy all the ﬁnancial needs of

We believe it is important to maintain a well-controlled

our customers, help them succeed ﬁnancially, be recognized
as the premier ﬁnancial services company in our markets and
be one of America’s great companies. Our primary strategy
to achieve this vision is to increase the number of products
we provide to our customers and to focus on providing each
customer with all of 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 our current
customers have with us. We estimate that our average banking
household now has 4.6 products with us, which we believe
is among the highest, if not the highest, in our industry. Our
goal is eight products per customer, which is currently half
of our estimate of potential demand.

Our core products grew this year as follows:
• Average loans grew by 26%;
• Average retail core deposits grew by 11%
(average core deposits grew by 8%); and

• Assets managed and administered were up 22%.

Table 1: Six-Year Summary of Selected Financial Data

environment as we continue to grow our businesses. We
manage our credit risk by maintaining prudent credit policies
and continuously examining our credit process. In 2004,
nonperforming loans and net charge-offs as a percentage of
loans outstanding declined from the prior year. Asset quality
improved in 2004 compared with a year ago, with net
charge-offs down 3% and nonperforming assets (including
nonaccrual loans and foreclosed assets) down 5%. We
manage the interest rate and market risks inherent in our
asset and liability balances within prudent ranges, while
ensuring adequate liquidity and funding. Our stockholder
value has increased over time due to customer satisfaction,
strong ﬁnancial results, reinvestment in our businesses and
the prudent way we attempt to manage our business risks.

Our ﬁnancial results included the following:

Net income in 2004 increased 13% to $7.0 billion from

$6.2 billion in 2003. Diluted earnings per common share
increased 12% to $4.09 in 2004 from $3.65 in 2003. In

(in millions, except
per share amounts)

INCOME STATEMENT
Net interest income
Provision for credit losses
Noninterest income
Noninterest expense

Before effect of change in
accounting principle (1)

Net income
Earnings per common share
Diluted earnings

per common share

After effect of change in
accounting principle

Net income
Earnings per common share
Diluted earnings

per common share
Dividends declared
per common share

BALANCE SHEET
(at year end)
Securities available for sale
Loans
Allowance for loan losses
Goodwill
Assets
Core deposits (2)
Long-term debt
Guaranteed preferred beneﬁcial

interests in Company’s
subordinated debentures (3)
Stockholders’ equity

2004

2003

2002

2001

2000

1999

$ 17,150
1,717
12,909
17,573

$ 16,007
1,722
12,382
17,190

$ 14,482
1,684
10,767
14,711

$ 11,976
1,727
9,005
13,794

$ 10,339
1,284
10,360
12,889

$ 9,608
1,079
9,277
11,483

$ 7,014
4.15

$ 6,202
3.69

5,710
3.35

3,411
1.99

4,012
2.35

$ 3,995
2.31

4.09

3.65

3.32

1.97

2.32

2.28

$ 7,014
4.15

6,202
3.69

5,434
3.19

3,411
1.99

4,012
2.35

$ 3,995
2.31

4.09

1.86

3.65

1.50

3.16

1.10

1.97

1.00

2.32

.90

2.28

.785

$ 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

$ 38,655
155,451
3,681
9,303
272,382
156,710
32,046

$ 43,911
126,700
3,312
8,046
241,032
138,247
26,866

—
37,866

—
34,469

2,885
30,319

2,435
27,175

935
26,461

935
23,858

% Change
2004/
2003

Five-year
compound
growth rate

7%
—
4
2

13
12

2
14
(3)
3
10
9
16

—
10

12%
10
7
9

12
12

(5)
18
3
6
12
11
22

—
10

(1) 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 consist of 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 46R), these balances were reﬂected in long-term

debt. See Note 13 (Guaranteed Preferred Beneﬁcial Interests in Company’s Subordinated Debentures) to Financial Statements for more information.

addition to incremental investments in new stores, sales-
focused team members and technology, 2004 results included
$217 million ($.08 per share) of charitable contribution
expense for the Wells Fargo Foundation, $44 million ($.02
per share) for the special 401(k) contribution and $19 million
($.01 per share) in integration expense related to the Strong
Financial transaction. We also took signiﬁcant actions to
reposition our balance sheet in 2004 designed to improve
earning asset yields and to reduce long-term debt costs. The
extinguishment of high interest rate debt reduced earnings
by $.06 per share for 2004. Return on average assets was
1.71% and return on average common equity was 19.56%
in 2004, up from 1.64% and 19.36%, respectively, for 2003.
Net interest income on a taxable-equivalent basis was
$17.3 billion in 2004, compared with $16.1 billion a year
ago. The net interest margin was 4.89% for 2004, compared
with 5.08% in 2003.

Noninterest income was $12.9 billion in 2004, compared

with $12.4 billion in 2003, an increase of 4%, driven by
growth across our business, with particular strength in trust,
investment and IRA fees, credit and debit card fees, loan fees
and gains on equity investments.

Revenue, the sum of net interest income and noninterest
income, increased 6% to a record $30.1 billion in 2004 from
$28.4 billion in 2003, despite a 37% decrease in mortgage
originations as the reﬁnance driven market declined from its
exceptional 2003 level. Despite our balance sheet repositioning
actions during the year, which reduced revenue growth by
approximately 1 percentage point due to the loss on sale of
lower yielding assets, and our signiﬁcant level of investment
spending, operating leverage improved during 2004 with
revenue growing 6% and noninterest expense up only 2%.
For the year, Home Mortgage revenue declined $807 million,
or 16%, from $5.2 billion in 2003 to $4.4 billion in 2004.
Noninterest expense totaled $17.6 billion in 2004,
compared with $17.2 billion in 2003, an increase of 2%.
In 2005, we expect to incur integration expense of approxi-
mately $.02 per share for the balance of the Strong Financial
transaction and for the pending acquisition of Houston-based
First Community Capital Corporation. We will expense stock
options, as required, beginning July 1, 2005, and we estimate
the effect of expensing current outstanding options will
reduce earnings by $.03 per share for the last half of 2005.
During 2004, net charge-offs were $1.67 billion, or
.62% of average total loans, compared with $1.72 billion,
or .81%, during 2003. The provision for credit losses was
$1.72 billion in 2004, ﬂat compared with 2003. The allowance
for credit losses, which comprises the allowance for loan losses
and the reserve for unfunded credit commitments, was
$3.95 billion, or 1.37% of total loans, at December 31, 2004,
compared with $3.89 billion, or 1.54%, at December 31, 2003.

At December 31, 2004, total nonaccrual loans were
$1.36 billion, or .47% of total loans, down from $1.46 billion,
or .58%, at December 31, 2003. Foreclosed assets were
$212 million at December 31, 2004, compared with
$198 million at December 31, 2003.

The ratio of stockholders’ equity to total assets was
8.85% at December 31, 2004, compared with 8.89% at
December 31, 2003. Our total risk-based capital (RBC)
ratio at December 31, 2004 was 12.07% and our Tier 1
RBC ratio was 8.41%, exceeding the minimum regulatory
guidelines of 8% and 4%, respectively, for bank holding
companies. Our RBC ratios at December 31, 2003 were
12.21% and 8.42%, respectively. Our Tier 1 leverage ratios
were 7.08% and 6.93% at December 31, 2004 and 2003,
respectively, exceeding the minimum regulatory guideline of
3% for bank holding companies.

Table 2: Ratios and Per Common Share Data

Year ended December 31 ,
2002
2003
2004

Before effect of change in accounting principle (1)

PROFITABILITY RATIOS
Net income to average total assets (ROA)
Net income applicable to common stock to

average common stockholders’ equity (ROE)

Net income to average stockholders’ equity

After effect of change in accounting principle

PROFITABILITY RATIOS
ROA
ROE
Net income to average stockholders’ equity
EFFICIENCY RATIO (2)

CAPITAL RATIOS
At year end:

Stockholders’ equity to assets
Risk-based capital (3)

Tier 1 capital
Total capital
Tier 1 leverage (3)
Average balances:

1.71% 1.64% 1.77%

19.56
19.57

19.36
19.34

19.63
19.61

1.71
19.56
19.57

1.64
19.36
19.34

1.69
18.68
18.66

58.5

60.6

58.3

8.85

8.89

8.68

8.41
12.07
7.08

8.42
12.21
6.93

7.70
11.44
6.57

Stockholders’ equity to assets

8.73

8.49

9.05

PER COMMON SHARE DATA
Dividend payout (4)
Book value
Market prices (5)
High
Low
Year end

44.8
$22.36

40.7
$20.31

34.5
$17.95

$64.04
54.32
62.15

$59.18
43.27
58.89

$54.84
38.10
46.87

(1) 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) The efﬁciency ratio is noninterest expense divided by total revenue

(net interest income and noninterest income).

(3) See Note 26 (Regulatory and Agency Capital Requirements) to Financial

Statements for additional information.

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

common share.

(5) Based on daily prices reported on the New York Stock Exchange Composite

Transaction Reporting System.

Recent Accounting Standards
On December 8, 2003, President Bush signed the Medicare
Prescription Drug, Improvement and Modernization Act
of 2003 (the Act). The Act introduces a prescription drug
beneﬁt under Medicare as well as a federal subsidy to plan
sponsors that provide a beneﬁt that is at least equivalent to
Medicare. Speciﬁc authoritative guidance on the accounting
for the federal subsidy has been issued through the Financial
Accounting Standards Board (FASB) Staff Position 106-2
(FSP 106-2), Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003, which was issued in
May 2004. We adopted FSP 106-2 prospectively effective
July 1, 2004, and the adoption did not have a material
impact on either our accumulated postretirement beneﬁt
obligation or our net periodic postretirement beneﬁt cost
during 2004.

On December 12, 2003, the Accounting Standards
Executive Committee of the American Institute of Certiﬁed
Public Accountants issued Statement of Position 03-3
(SOP 03-3), Accounting for Certain Loans or Debt Securities
Acquired in a Transfer, which addresses the accounting for
certain loans acquired in a transfer when it is probable, at
acquisition, that the investor will be unable to collect all
contractually required payments receivable. SOP 03-3 is
applied prospectively, effective for loans acquired beginning
January 1, 2005. SOP 03-3 requires acquired loans with
evidence of credit deterioration to be recorded at fair value
and prohibits recording any valuation allowance related to
such loans at the time of purchase. This SOP limits the yield
that may be accreted on such loans to the excess of the
investor’s estimated cash ﬂows over its initial investment in
the loan. Subsequent increases in cash ﬂows expected to be
collected are recognized prospectively through adjustment
of the loan’s yield over its remaining life. Decreases in cash
ﬂows expected to be collected are recognized as impairment.
Mortgage loans held for sale and loans to borrowers in good
standing under revolving credit agreements are excluded
from the scope of SOP 03-3.

On July 16, 2004, the FASB ratified the decisions
reached by the Emerging Issues Task Force (EITF) with
respect to Issue No. 02-14 (EITF 02-14), Whether the Equity
Method of Accounting Applies When an Investor Does
Not Have an Investment in Voting Stock of an Investee
but Exercises Signiﬁcant Inﬂuence through Other Means.
The EITF reached a consensus that an investor should apply
the equity method of accounting when it has investments in
either common stock or “in-substance common stock” of
a corporation, provided that the investor has the ability to
exercise signiﬁcant inﬂuence over the operating and ﬁnancial
policies of the investee. In-substance common stock, as deﬁned
in the consensus, is an investment that has risk and reward

characteristics, among other factors, that are substantially
the same as common stock. We adopted the consensus
reached in EITF 02-14 during 2004 and the adoption did
not have a material effect on our ﬁnancial statements.

On October 13, 2004, the FASB ratiﬁed the consensus
reached by the EITF at its September 29–30 and June 30–July 1
meetings with respect to Issue No. 04-8 (EITF 04-8), The
Effect of Contingently Convertible Instruments on Diluted
Earnings Per Share. This consensus requires instruments with
contingent conversion features that are based on the market
price of an entity’s own stock, even though the market price
trigger has not been met, to be included in the computation
of diluted earnings per share. EITF 04-8 became effective
for periods ending after December 15, 2004. However, the
determination of the dilutive effect upon adoption of EITF
04-8, if any, is based on the form of the instrument that
existed at December 31, 2004.

In November 2004, we amended the indenture under

which the Company’s Floating Rate Convertible Senior
Debentures due 2033 (the Debentures) were issued to elimi-
nate 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 that obligates us to deliver, upon conversion of the
Debentures, cash in an amount equal to at least the original
principal amount of the converted Debentures and cash or
common stock or a combination of cash and common stock
for any amount in excess of such original principal amount.
As a result of these actions, none of the shares of common
stock underlying the Debentures currently would be considered
outstanding for the purposes of calculating diluted earnings
per share under EITF 04-8.

On December 16, 2004, the FASB issued Statement of
Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (FAS 123R), which replaces FAS 123,
Accounting for Stock-Based Compensation, and supersedes
Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees. The scope of FAS 123R includes
a wide range of stock-based compensation arrangements
including stock options, restricted stock plans, performance-
based awards, stock appreciation rights, and employee stock
purchase plans. FAS 123R requires us to measure the cost
of employee services received in exchange for an award of
equity instruments based on the fair value of the award on
the grant date. That cost must be recognized in the income
statement over the vesting period of the award. Because
market prices are generally not available for most employee
stock options, the grant-date fair value must be estimated
using an option-pricing model. FAS 123R applies to all
awards granted after July 1, 2005 and to awards modiﬁed,
repurchased, or cancelled after July 1, 2005. We will adopt

FAS 123R effective July 1, 2005, as required, and will use
the “modiﬁed prospective” transition method. Under this
method, awards that are granted, modiﬁed, or settled after
July 1, 2005, will be measured and accounted for in accor-
dance with FAS 123R. In addition, beginning July 1, 2005,
expense must be recognized in the income statement for

unvested awards that were granted prior to July 1, 2005.
The expense will be based on the fair value determined at
grant date under FAS 123. We estimate that our earnings
per share in the second half of 2005 will be reduced by
$.03 as a result of implementing FAS 123R.

Critical Accounting Policies

Our signiﬁcant accounting policies (described in Note 1
(Summary of Signiﬁcant Accounting Policies) to Financial
Statements) are fundamental to understanding our results of
operations and ﬁnancial condition, because some accounting
policies require that we use estimates and assumptions that
may affect the value of our assets or liabilities and ﬁnancial
results. Three of these policies are critical because they require
management to make difﬁcult, subjective and complex
judgments about matters that are inherently uncertain and
because it is likely that materially different amounts would
be reported under different conditions or using different
assumptions. These policies govern the allowance for credit
losses, the valuation of mortgage servicing rights and pension
accounting. Management has reviewed and approved these
critical accounting policies and has discussed these policies
with the Audit and Examination Committee.

Allowance for Credit Losses
The allowance for credit losses, which comprises the
allowance for loan losses and the reserve for unfunded
credit commitments, is management’s estimate of credit losses
inherent in the loan portfolio at the balance sheet date. We
have an established process, using several analytical tools
and benchmarks, to calculate a range of possible outcomes
and determine the adequacy of the allowance. No single
statistic or measurement determines the adequacy of the
allowance. Loan recoveries and the provision for credit
losses increase the allowance, while loan charge-offs
decrease the allowance.

PROCESS TO DETERMINE THE ADEQUACY OF THE ALLOWANCE
FOR CREDIT LOSSES
For analytical purposes only, we allocate a portion of the
allowance to speciﬁc loan categories (the allocated allowance).
The entire allowance (both allocated and unallocated), however,
is used to absorb credit losses inherent in the total loan portfolio.
Approximately two-thirds of the allocated allowance
is determined at a pooled level for retail loan portfolios
(consumer loans and leases, home mortgage loans and
some segments of small business loans). We use forecasting
models to measure the losses inherent in these portfolios.
We frequently validate and update these models to capture
the recent behavioral characteristics of the portfolios, as well
as any changes in our loss mitigation or marketing strategies.

We use a standardized loan grading process for wholesale

loan portfolios (commercial loans, commercial real estate
and construction loans and leases). Based on this process,
we assign a loss factor to each pool of graded loans and a
loan equivalent amount of unfunded loan commitments and
letters of credit. For graded loans with evidence of credit
weakness at the balance sheet date, the loss factors are
derived from migration models that track loss content
associated with actual portfolio movements between loan
grades over a speciﬁed period of time. For graded loans
without evidence of credit weakness at the balance sheet
date, we use a combination of our long-term average loss
experience and external loss data. In addition, we individually
review nonperforming loans over $3 million for impairment
based on cash ﬂows or collateral. We include the impairment
on nonperforming loans in the allocated allowance unless it
has already been recognized as a loss.

The allocated allowance is supplemented by the unallocated

allowance to adjust for imprecision and to incorporate the
range of probable outcomes inherent in estimates used for
the allocated allowance. The unallocated 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, not reﬂected in
the allocated allowance.

The ratios of the allocated allowance and the unallocated
allowance to the total allowance may change from period to
period. The total allowance reﬂects management’s estimate
of credit losses inherent in the loan portfolio at the balance
sheet date.

The allowance for credit losses, and the resulting provi-

sion, is based on judgments and assumptions, including
(1) general economic conditions, (2) loan portfolio composition,
(3) loan loss experience, (4) management’s evaluation of
the credit risk relating to pools of loans and individual
borrowers, (5) sensitivity analysis and expected loss models
and (6) observations from our internal auditors, internal
loan review staff or our banking regulators.

To estimate the possible range of allowance required at

December 31, 2004, and the related change in provision
expense, we assumed the following scenarios of a reasonably
possible deterioration or improvement in loan credit quality.

Assumptions for deterioration in loan credit quality were:
• For retail loans, a 15 basis point increase in estimated

loss rates from actual 2004 loss levels; and

• For wholesale loans, a 20 basis point increase in estimated

loss rates, moving closer to historical averages.

Assumptions for improvement in loan credit quality were:
• For retail loans, a 5 basis point decrease in estimated

loss rates from actual 2004 loss levels; and

• For wholesale loans, no improvement in actual

2004 loss levels.

Under the assumptions for deterioration in loan credit
quality, another $470 million in expected losses could occur
and under the assumptions for improvement, a $70 million
reduction in expected losses could occur.

Changes in the estimate of the allowance for credit
losses can materially affect net income. The example above
is only one of a number of reasonably possible scenarios.
Determining the allowance for credit losses requires us to
make forecasts that are highly uncertain and require a high
degree of judgment.

Valuation of Mortgage Servicing Rights
We recognize the rights to service mortgage loans for others,
or mortgage servicing rights (MSRs), as assets, whether we
purchase the servicing rights, or keep them after the sale or
securitization of loans we originated. Purchased MSRs are
capitalized at cost. Originated MSRs are recorded based on
the relative fair value of the retained servicing right and the
mortgage loan on the date the mortgage loan is sold. Both
purchased and originated MSRs are carried at the lower of
(1) the capitalized amount, net of accumulated amortization
and hedge accounting adjustments, or (2) fair value. If MSRs
are designated as a hedged item in a fair value hedge, the
MSRs’ carrying value is adjusted for changes in fair value
resulting from the application of hedge accounting. The
adjustment becomes part of the carrying value. The carrying
value of these MSRs is subject to a fair value test under FAS
140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities.

MSRs are amortized in proportion to and over the period
of estimated net servicing income. We analyze the amortiza-
tion of MSRs monthly and adjust amortization to reﬂect
changes in prepayment speeds and discount rates.

We determine the fair value of MSRs using a valuation
model that calculates the present value of estimated future
net servicing income. The model incorporates assumptions
that market participants use in estimating future net servicing
income, including estimates of prepayment speeds, discount
rate, cost to service, escrow account earnings, contractual
servicing fee income, ancillary income and late fees. The
valuation of MSRs is discussed further in this section and
in Notes 1 (Summary of Signiﬁcant Accounting Policies),
21 (Securitizations and Variable Interest Entities) and 22
(Mortgage Banking Activities) to Financial Statements.

Each quarter, we evaluate MSRs for possible impairment

based on the difference between the carrying amount and
current estimated fair value under FAS 140. To evaluate
and measure impairment we stratify the portfolio based on
certain risk characteristics, including loan type and note rate.
If temporary impairment exists, we establish a valuation
allowance through a charge to net income for any excess
of amortized cost over the current fair value, by risk stratiﬁ-
cation. If we later determine that all or part of the temporary
impairment no longer exists for a particular risk stratiﬁca-
tion, we may reduce the valuation allowance through an
increase to net income.

Under our policy, we also evaluate other-than-temporary
impairment of MSRs by considering both historical and pro-
jected trends in interest rates, pay-off activity and whether
the impairment could be recovered through interest rate
increases. We recognize a direct write-down if we determine
that the recoverability of a recorded valuation allowance
is remote. A direct write-down permanently reduces the
carrying value of the MSRs, while a valuation allowance
(temporary impairment) can be reversed.

To reduce the sensitivity of earnings to interest rate and
market value ﬂuctuations, we hedge the change in value of
MSRs primarily with derivative contracts. Reductions or
increases in the value of the MSRs are generally offset by
gains or losses in the value of the derivative. If the reduction
or increase in the value of the MSRs is not offset, we
immediately recognize a gain or loss for the portion of the
amount that is not offset (hedge ineffectiveness). We do not
fully hedge MSRs because origination volume is a “natural
hedge,” (i.e., as interest rates decline, servicing values decrease
and fees from origination volume increase). Conversely, as
interest rates increase, the value of the MSRs increases,
while fees from origination volume tend to decline.

Servicing fees—net of amortization, provision for
impairment and gain or loss on the ineffective portion and
the portion of the derivatives excluded from the assessment
of hedge effectiveness—are recorded in mortgage banking
noninterest income.

We use a dynamic and sophisticated model to estimate
the value of our MSRs. Mortgage loan prepayment speed—a
key assumption in the model—is the annual rate at which
borrowers are forecasted to repay their mortgage loan
principal. The discount rate—another key assumption in
the model—is equal to what we believe the required rate of
return would be for an asset with similar risk. To determine
the discount rate, we consider the risk premium for uncer-
tainties 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 in quarterly and annual valuations as market
conditions and interest rates change. Senior management
reviews all assumptions quarterly.

Our key economic assumptions and the sensitivity of the
current fair value of MSRs to an immediate adverse change
in those assumptions are shown in Note 21 (Securitizations
and Variable Interest Entities) to Financial Statements.

There have been signiﬁcant market-driven ﬂuctuations in
loan prepayment speeds and the discount rate in recent years.
These ﬂuctuations could be rapid and 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.

Pension Accounting
We use four key variables to calculate our annual pension
cost; (1) size and characteristics of the employee population,
(2) actuarial assumptions, (3) expected long-term rate of return
on plan assets, and (4) discount rate. We describe below the
effect of each of these variables on our pension expense.

SIZE AND CHARACTERISTICS OF THE EMPLOYEE POPULATION
Pension expense is directly related to the number of employees
covered by the plans, and other factors including salary, age
and years of employment. The number of our employees
eligible for pension beneﬁts has steadily increased over the last
few years, causing a proportional growth in pension expense.

ACTUARIAL ASSUMPTIONS
To estimate the projected beneﬁt obligation, actuarial
assumptions are required about factors such as mortality
rate, turnover rate, retirement rate, disability rate and the
rate of compensation increases. These factors don’t tend to
change signiﬁcantly over time, so the range of assumptions,
and their impact on pension expense, is generally narrow.

EXPECTED LONG-TERM RATE OF RETURN ON PLAN ASSETS
We calculate the expected return on plan assets each year
based on the composition of assets at the beginning of the
plan year and the expected long-term rate of return on that
portfolio. The expected long-term rate of return is designed
to approximate the actual long-term rate of return on the plan
assets over time and is not expected to change signiﬁcantly.
Therefore the pattern of income/expense recognition closely
matches the stable pattern of services provided by our
employees over the life of the 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. We have used
an expected rate of return of 9% on plan assets for the past
eight years. Over the last two decades, the plan assets have
actually earned an average annualized rate of return higher
than 9%. Differences in each year, if any, between expected
and actual returns are included in our unrecognized net
actuarial gain or loss amount. We generally amortize any
unrecognized net actuarial gain or loss in excess of a 5%
corridor (as deﬁned in FAS 87, Employers’ Accounting for
Pensions) in net periodic pension calculations over the next
ﬁve years. Our average remaining service period is approxi-
mately 11 years. See Note 16 (Employee Beneﬁts and Other
Expenses) to Financial Statements for details on changes in
the pension beneﬁt obligation and the fair value of plan assets.
We use November 30 as a measurement date for our
pension asset and projected beneﬁt obligation balances. 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 $44 million.

DISCOUNT RATE
We use the discount rate to determine the present value of
our future beneﬁt obligations. It reﬂects the rates available
on long-term high-quality ﬁxed-income debt instruments,
reset annually on the measurement date. We lowered our
discount rate to 6% in 2004 from 6.5% in 2003 and 7%
in 2002, reﬂecting the decline in market interest rates
during these periods.

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 $62 million; if we were to
assume a 1% decrease in the discount rate, and keep other
assumptions constant, pension expense would increase by
approximately $90 million. The decrease to pension expense
based on a 1% increase in discount rate differs from the
increase to pension expense based on a 1% decrease in
discount rate due to the 5% corridor.

Earnings Performance

Net Interest Income
Net interest income is the interest earned on debt securities,
loans (including yield-related loan fees) and other interest-
earning assets minus the interest paid for deposits and long-
term and short-term debt. The net interest margin is the
average yield on earning assets minus the average interest
rate paid for deposits and our other sources of funding. Net
interest income and the net interest margin are presented on
a taxable-equivalent basis to consistently reﬂect income from
taxable and tax-exempt loans and securities based on a 35%
marginal tax rate.

Net interest income on a taxable-equivalent basis was
$17.3 billion in 2004, compared with $16.1 billion in 2003,
an increase of 7%. The increase was primarily due to strong
consumer loan growth, particularly in mortgage products. The
beneﬁt of this growth was partially offset by lower loan yields
as new volumes were added below the portfolio average.

The net interest margin for 2004 decreased to 4.89% from

5.08% in 2003. The decrease was primarily due to lower
investment portfolio yields following maturities and prepay-
ments of higher yielding mortgage-backed securities, and the
addition of new consumer and commercial loans with yields
below the existing portfolio average. These factors were
partially offset by the beneﬁts of balance sheet repositioning
actions taken in 2004.

Average earning assets increased $36.2 billion in 2004

from 2003 due to increases in average loans and debt
securities available for sale, offset by a decline in average
mortgages held for sale. Loans averaged $269.6 billion in

2004, compared with $213.1 billion in 2003. The increase
was largely due to growth in mortgage and home equity
products. Average mortgages held for sale decreased to
$32.3 billion in 2004 from $58.7 billion in 2003, due to
a 37% decrease in mortgage originations as the reﬁnance
driven market declined from its exceptional 2003 level.
Debt securities available for sale averaged $33.1 billion
in 2004, compared with $27.3 billion in 2003.

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 8% from 2003. Total
average retail core deposits, which exclude Wholesale
Banking core deposits and mortgage escrow deposits, for
2004 grew $17.8 billion, or 11%, from a year ago. Average
mortgage escrow deposits declined to $14.1 billion in 2004
from $18.9 billion in 2003. Average core deposits were
$223.4 billion and $207.0 billion and funded 54.4% and
54.8% of average total assets in 2004 and 2003, respectively.
While savings certiﬁcates of deposits declined on average
from $20.9 billion to $18.9 billion, noninterest-bearing
checking accounts and other core deposit categories increased
on average from $186.1 billion in 2003 to $204.5 billion in
2004 reﬂecting growth in consumer and business primary
account relationships. Total average interest-bearing deposits
increased to $182.6 billion in 2004 from $161.7 billion a
year ago. Total average noninterest-bearing deposits increased
to $79.3 billion in 2004 from $76.8 billion a year ago.

Table 3 presents the individual components of net interest

income and the net interest margin.

Table 3: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)

(in millions)

EARNING ASSETS
Federal funds sold, securities purchased under

resale agreements and other short-term investments

Trading assets
Debt securities available for sale (3):

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

Average
balance

4,254
5,286

1,161
3,501

21,404
3,604
25,008
3,395
33,065
32,263
8,201

49,365
28,708
8,724
5,068
91,865

87,700
44,415
8,878
33,528
174,521
3,184
269,570
1,709
$354,348

$ 3,059
122,129
18,850
29,750
8,843
182,631
26,130
67,898

—
276,659
77,689

$354,348

$ 13,055
10,418
32,758

$ 56,231

$ 79,321
18,764
35,835

(77,689)
$ 56,231

$410,579

Yields/
rates

2004
Interest
income/
expense

1.49%
2.75

$ 64
145

4.05
8.00

6.03
5.16
5.91
7.72
6.24
5.38
3.56

5.77
5.35
5.30
6.23
5.62

5.44
5.18
11.80
9.01
6.38
15.30
6.23
3.81
5.97

.44
.69
2.26
1.43
1.40
1.00
1.35
2.41

—
1.38
—

1.08

46
267

1,248
180
1,428
236
1,977
1,737
292

2,848
1,535
463
316
5,162

4,772
2,300
1,048
3,022
11,142
487
16,791
65
21,071

13
838
425
427
124
1,827
353
1,637

—
3,817
—

3,817

Average
balance

Yields/
rates

2003
Interest
income/
expense

1.16%
2.56

$ 4,174
6,110

1,286
2,424

18,283
2,001
20,284
3,302
27,296
58,672
7,142

47,279
25,846
7,954
4,453
85,532

56,252
31,670
7,640
29,838
125,400
2,200
213,132
1,626
$318,152

$ 2,571
106,733
20,927
25,388
6,060
161,679
29,898
53,823

3,306
248,706
69,446

$318,152

49
156

58
196

1,276
120
1,396
240
1,890
3,136
251

2,876
1,405
406
277
4,964

3,115
1,836
922
2,713
8,586
396
13,946
74
19,502

7
705
529
305
67
1,613
322
1,355

121
3,411
—

3,411

4.74
8.62

7.37
6.24
7.26
7.75
7.32
5.34
3.51

6.08
5.44
5.11
6.22
5.80

5.54
5.80
12.06
9.09
6.85
18.00
6.54
4.57
6.16

.27
.66
2.53
1.20
1.11
1.00
1.08
2.52

3.66
1.37
—

1.08

4.89%

$17,254

5.08%

$16,091

$ 13,433
9,905
36,123

$ 59,461

$ 76,815
20,030
32,062

(69,446)
$ 59,461

$377,613

Total mortgage-backed securities

Other debt securities (4)

Total debt securities available for sale (4)

Mortgages held for sale (3)
Loans held for sale (3)
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 loans (5)

Other

Total earning assets

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 Company’s

subordinated debentures (6)

Total interest-bearing liabilities

Portion of noninterest-bearing funding sources

Total funding sources

Net interest margin and net interest income on

a taxable-equivalent basis (7)

NONINTEREST-EARNING ASSETS
Cash and due from banks
Goodwill
Other

Total noninterest-earning assets

NONINTEREST-BEARING FUNDING SOURCES
Deposits
Other liabilities
Stockholders’ equity
Noninterest-bearing funding sources used to

fund earning assets

Net noninterest-bearing funding sources

TOTAL ASSETS

(1) Our average prime rate was 4.34%, 4.12%, 4.68%, 6.91% and 9.24% for 2004, 2003, 2002, 2001 and 2000, respectively. The average three-month London Interbank

Offered Rate (LIBOR) was 1.62%, 1.22%, 1.80%, 3.78% and 6.52% for the same years, respectively.

Average
balance

2,741
2,580

2,158
2,026

27,433
1,766
29,199
3,343
36,726
23,677
4,820

48,648
24,194
8,073
4,024
84,939

23,359
17,587
6,270
23,459
70,675
1,603
157,217
1,262

$229,023

$ 2,178
80,585
29,850
1,332
6,209
120,154
33,885
34,501

1,394
189,934
39,089

$229,023

2001
Interest
income/
expense

Yields/
rates

3.72%
4.44

102
115

137
154

1,917
148
2,065
254
2,610
1,595
317

3,896
1,934
654
278
6,762

1,761
1,619
838
2,674
6,892
333
13,987
69

18,795

35
1,675
1,530
67
246
3,553
1,273
1,826

89
6,741
—

6,741

6.55
7.98

7.19
8.55
7.27
7.80
7.32
6.72
6.58

8.01
7.99
8.10
6.90
7.96

7.54
9.20
13.36
11.40
9.75
20.82
8.90
5.50

8.24

1.59
2.08
5.13
5.04
3.96
2.96
3.76
5.29

6.40
3.55
—

2.95

Average
balance

2,485
1,713

3,322
2,080

26,054
2,379
28,433
5,049
38,884
10,725
4,915

45,352
22,509
6,934
4,218
79,013

17,190
14,458
5,867
21,824
59,339
1,621
139,973
1,378

$200,073

3,424
63,577
30,101
4,438
5,950
107,490
28,222
29,000

935
165,647
34,426

$200,073

2000
Interest
income/
expense

Yields/
rates

6.18%
5.71

$ 153
98

6.16
7.74

7.22
7.61
7.25
7.93
7.24
7.85
8.50

9.40
8.99
10.02
5.35
9.12

7.72
10.85
14.58
12.06
10.76
21.15
9.95
6.56

9.18

1.88
2.81
5.37
5.69
6.22
3.80
6.23
6.69

7.92
4.75
—

3.95

210
162

1,903
187
2,090
261
2,723
849
418

4,263
2,023
695
225
7,206

1,327
1,569
856
2,631
6,383
343
13,932
91

18,264

64
1,786
1,616
253
370
4,089
1,758
1,939

74
7,860
—

7,860

Average
balance

Yields/
rates

2002
Interest
income/
expense

1.73%
3.58

$ 51
169

5.57
8.33

7.23
7.18
7.22
7.74
7.25
6.13
4.69

6.80
6.17
5.69
6.32
6.48

6.69
7.07
12.27
10.28
8.20
18.90
7.48
4.87
7.04

.55
.95
3.21
1.86
1.58
1.43
1.61
3.33

4.23
1.88
—

1.51

95
167

1,856
163
2,019
232
2,513
2,450
252

3,164
1,568
451
258
5,441

2,185
1,783
836
2,475
7,279
335
13,055
72

18,562

14
893
780
153
79
1,919
536
1,404

118
3,977
—

3,977

2,961
4,747

1,770
2,106

26,718
2,341
29,059
3,029
35,964
39,858
5,380

46,520
25,413
7,925
4,079
83,937

32,669
25,220
6,810
24,072
88,771
1,774
174,482
1,436
$264,828

$ 2,494
93,787
24,278
8,191
5,011
133,761
33,278
42,158

2,780
211,977
52,851

$264,828

$ 13,820
9,737
33,340

$ 56,897

$ 63,574
17,054
29,120

(52,851)
$ 56,897

$321,725

5.53%

$14,585

5.29%

$12,054

5.23%

$10,404

$ 14,608
9,514
32,222

$ 56,344

$ 55,333
13,214
26,886

(39,089)
$ 56,344

$285,367

$ 13,103
8,811
28,170

$ 50,084

$ 48,691
10,949
24,870

(34,426)
$ 50,084

$250,157

(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 46R), these balances were reﬂected in

long-term debt. See Note 13 (Guaranteed Preferred Beneﬁcial Interests in Company’s Subordinated Debentures) 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.

Noninterest Income

Table 4: Noninterest Income

(in millions)

Year ended December 31, ___% Change
2003/
2004
2002

2004/
2003

2002

2003

Service charges on
deposit accounts

Trust and investment fees:

$ 2,417 $ 2,297 $ 2,134

Trust,investment and IRA fees
Commissions and all other fees

1,509
607

1,345
592

1,343
532

2,116

1,937

1,875

1,230

1,079

977

180
921

179
756
678 625
1,560

1,779

183
616
573
1,372

12
3

1
22
8
14

and provision for impairment 1,037

(954)

(737) —

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 fees,net of amortization

Net gains on mortgage loan
origination/sales activities

All other

Total mortgage banking

Operating leases
Insurance
Trading assets
Net gains (losses) on debt

securities available for sale

Net gains (losses) from
equity investments
Net gains on sales of loans
Net gains (losses) on dispositions

of operations

All other

Total

539
284
1,860

836
1,193
523

3,019
2,086
447 364
1,713
2,512

937
1,071
502

1,115
997
321

(82)
(36)
(26)

(11)
11
4

(15)

394
11

55
28

293

—

(327)
19

616
(61)

(15)
580

10
371 268

— 190
38
56

$12,909 $12,382 $10,767

4% 15%

—
11

(2)
23
9
14

45
23
47

(16)
7
56

(99)

—
47

Service charges on deposit accounts increased 5% to
$2,417 million in 2004 from $2,297 million in 2003 due
to growth in core deposits and increased activity.

We earn trust, investment and IRA fees from managing
and administering assets, which include mutual funds, corpo-
rate trust, personal trust, employee beneﬁt trust and agency
assets. Generally, these fees are based on the market value
of the assets that are managed, administered, or both. At
December 31, 2004, our managed and administered assets
totaled approximately $705 billion, up from $576 billion
at December 31, 2003. This increase included $24 billion
in mutual fund assets and $5 billion in institutional invest-
ment accounts acquired from Strong Financial Corporation
(Strong Financial) at December 31, 2004. When the merger
of the Wells Fargo Funds® and certain Strong Financial
funds is completed in second quarter 2005, we will rename
our mutual fund family the Wells Fargo Advantage FundsSM.
The increase in trust, investment and IRA fees was primarily
due to growth in assets, successful efforts to grow businesses,
and modest ﬁll-in acquisitions (excluding the year-end Strong
Financial transaction).

Additionally, we receive commission and other fees for
providing services for retail and discount brokerage customers.

At December 31, 2004 and 2003, brokerage balances were
approximately $86 billion and $78 billion, respectively.
Generally, these fees are based on the number of transactions
executed at the customer’s direction.

Card fees increased 14% to $1,230 million in 2004 from
$1,079 million in 2003 predominantly due to increases in credit
card accounts and credit and debit card transaction volume.
Other fees increased 14% to $1,779 million in 2004 from

$1,560 million in 2003 due to the increase in loan fees as a
result of growth in the portfolio.

Mortgage banking noninterest income was $1,860 million
in 2004, compared with $2,512 million in 2003. Net servicing
fees reﬂected income of $1,037 million in 2004 compared
with losses of $954 million in 2003. Servicing fees are
presented net of amortization and impairment of mortgage
servicing rights (MSRs) and gains and losses from hedge
ineffectiveness, which are all inﬂuenced by both the level
and direction of mortgage interest rates. The increase in
net servicing fees in 2004, compared with the prior year,
reﬂected a reduction of $934 million in amortization due
to an increase in average interest rates and higher gross
servicing fees resulting from growth in the servicing portfolio.
In addition, to reﬂect the higher value of our MSRs, we
reversed $208 million of the valuation allowance in 2004,
compared with an impairment provision of $1,092 million
in 2003. Net derivative gains on fair value hedges of our MSRs
were $554 million and $1,111 million in 2004 and 2003,
respectively. (For further discussion of hedge accounting for
MSRs see Note 27 (Derivatives – Fair Value Hedges) to
Financial Statements.)

Net gains on mortgage loan origination/sales activities
were $539 million in 2004, compared with $3,019 million
for 2003. The lower level of gains in 2004 compared with
2003 reﬂected lower origination volume and a decrease in
margins due primarily to the increase in average interest
rates and lower consumer demand. Originations during
2004 declined to $298 billion from $470 billion in 2003.
Net losses on debt securities were $15 million for 2004,
compared with net gains of $4 million for 2003. Net gains
from equity investments were $394 million in 2004, com-
pared with gains of $55 million in 2003 due to improved
market conditions.

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 ven-
ture capital. We determine impairment based on all of the
information available at the time of the assessment, but new
information or economic developments in the future could
result in recognition of additional impairment.

“All other” noninterest income for 2003 was offset by
$163 million of losses on the early retirement of $2.6 billion
of term debt that was previously issued at higher costs.

Noninterest Expense

Table 5: Noninterest Expense

(in millions)

Year ended December 31,
2002
2003
2004

_ _ % Change
2003/
2004/
2002
2003

Salaries
Incentive compensation
Employee beneﬁts
Equipment
Net occupancy
Operating leases
Outside professional services
Contract services
Advertising and promotion
Travel and entertainment
Outside data processing
Telecommunications
Postage
Charitable donations
Insurance
Stationery and supplies
Operating losses
Net losses from debt
extinguishment

Security
Core deposit intangibles
All other

Total

$ 5,393 $ 4,832 $ 4,383
1,706
1,283
1,014
1,102
802
445
546
327
337
350
347
256
39
169
226
163

1,807
1,724
1,236
1,208
633
669
626
459
442
418
296
269
248
247
240
192

2,054
1,560
1,246
1,177
702
509
866
392
389
404
343
336
237
197
241
193

174
161
134
997

—
159
155
902
$17,573 $17,190 $14,711

—
163
142
1,207

12% 10%
(12)
11
(1)
3
(10)
31
(28)
17
14
3
(14)
(20)
5
25
—
(1)

20
22
23
7
(12)
14
59
20
15
15
(1)
31
508
17
7
18

—
(1)
(6)
(17)

—
3
(8)
34

2% 17%

Noninterest expense in 2004 increased only 2%, includ-
ing the net losses on extinguishment of debt and additional
investments made in new stores, technology and additional
sales and service team members, offset by a reduction in
Home Mortgage production costs. Employee beneﬁts
expense included the $44 million special 401(k) contribu-
tion. Noninterest expense for 2004 included a $217 million
expense for a charitable contribution to our Foundation, to
be funded by tax-advantaged venture capital gains, and 2003
included donations of appreciated public equity securities to
our Foundation.

We expect to incur approximately $65 million of integra-

tion expense related to the Strong Financial transaction, of
which $19 million (or approximately $.01 per share) was
incurred in fourth quarter 2004. In 2005, we expect to incur
total integration expense of approximately $.02 per share for
the balance of the expenses for the Strong Financial transac-
tion and for the pending acquisition of First Community
Capital Corporation.

We will expense stock options, as required, beginning
July 1, 2005, and estimate the effect of expensing current
outstanding options will reduce earnings per share by $.03
for the last half of 2005.

Operating Segment Results
Our lines of business for management reporting consist
of Community Banking, Wholesale Banking and
Wells Fargo Financial.

COMMUNITY BANKING’S net income increased 14% to
$5.0 billion in 2004 from $4.4 billion in 2003. Net interest
income increased to $12.2 billion in 2004 from $11.5 billion
in 2003, or 6%, primarily due to growth in consumer loans
and deposits, partially offset by a decrease in average
mortgages held for sale. Average loans were $187.0 billion
in 2004, up 31% from $143.2 billion in 2003. Retail core
deposits, which exclude Wholesale Banking core deposits
and mortgage escrow deposits, averaged $183.7 billion in
2004, up 11% over the prior year. Revenue in businesses
other than Home Mortgage rose 10% on higher fee revenue,
including deposit service charges, trust and investments,
debit and credit cards and insurance. Home Mortgage
revenue decreased from 2003, a year of record originations
from strong reﬁnancing activity. While total Community
Banking noninterest expense included additional investments
made in technology, store growth and additional team
members, total noninterest expense decreased $137 million,
or 1%, due to overall expense management, including a
reduction in Home Mortgage production costs.

WHOLESALE BANKING’S net income increased 11% to $1.6 billion
in 2004 from $1.4 billion in 2003. Average loans increased
7% and average core deposits grew 14% from 2003. The
quality of Wholesale Banking’s loan portfolio improved
as reﬂected in a lower level of nonperforming loans and
a decrease in net credit losses from the prior year. The
provision for credit losses decreased to $62 million in 2004
from $177 million in 2003, due to lower net charge-offs.
Noninterest income increased $304 million to $3.1 billion in
2004 compared with 2003, primarily due to higher income
in insurance brokerage, trust and investment fees, commis-
sions and capital markets activity. Noninterest expense
increased to $2.7 billion in 2004 from $2.6 billion in 2003
primarily due to higher personnel expense, along with
integration costs related to the Strong Financial transaction.

WELLS FARGO FINANCIAL’S net income increased 12% to
$507 million in 2004 from $451 million in 2003. The 2004
results reﬂected a strong increase in real estate secured loans
and auto lending, as average loans reached $29.5 billion, an
increase of 45% over the prior year. Total revenue rose 18%
in 2004, reaching $3.2 billion, compared with $2.7 billion in
2003, due to higher net interest income. Net interest income
increased $482 million, or 21%, to $2.8 billion in 2004
from $2.3 billion in 2003 due to growth in average loans.
The provision for credit losses increased by $174 million
from 2003 to 2004 due to the growth in average loans
and expected seasoning in the loan portfolio. Noninterest
expense increased $247 million, or 18%, in 2004 from
2003, reﬂecting investments in new consumer ﬁnance
stores and additional team members.

For a more complete description of our operating seg-
ments, including additional ﬁnancial information and the
underlying management accounting process, see Note 20
(Operating Segments) to Financial Statements.

Balance Sheet Analysis

A comparison between the year-end 2004 and 2003 balance
sheets is presented below.

Securities Available for Sale
Our securities available for sale portfolio includes both debt
and marketable equity securities. We hold debt securities
available for sale primarily for liquidity, interest rate risk
management and yield enhancement purposes. Accordingly,
this portfolio primarily includes very liquid, high-quality
federal agency debt securities. At December 31, 2004, we
held $33.0 billion of debt securities available for sale,
compared with $32.4 billion at December 31, 2003, with a
net unrealized gain of $1.2 billion and $1.3 billion for the
same periods. In addition, we held $696 million of marketable
equity securities available for sale at December 31, 2004,
and $582 million at December 31, 2003, with a net unrealized
gain of $189 million and $188 million for the same periods.
The weighted-average expected maturity of debt securities
available for sale was 4.3 years at December 31, 2004. Since
76% of this portfolio is mortgage-backed securities, the
expected remaining maturity may differ from contractual
maturity because borrowers may have the right to prepay
obligations before the underlying mortgages mature.

The estimated effect of a 200 basis point increase or
decrease in interest rates on the fair value and the expected
remaining maturity of the mortgage-backed securities
available for sale portfolio is in Table 6.

Table 6: Mortgage-Backed Securities

Loan Portfolio
A comparative schedule of average loan balances is included
in Table 3; year-end balances are in Note 6 (Loans and
Allowance for Credit Losses) to Financial Statements.

Loans averaged $269.6 billion in 2004, compared with

$213.1 billion in 2003, an increase of 26%. Total loans
at December 31, 2004, were $287.6 billion, compared
with $253.1 billion at year-end 2003, an increase of 14%.
Average 1–4 family ﬁrst mortgages and junior liens increased
$31.4 billion, or 56%, and $12.7 billion, or 40%, respectively,
in 2004 compared with a year ago. Average commercial and
commercial real estate loans increased $6.3 billion in 2004
compared with a year ago. Average mortgages held for sale
decreased $26.4 billion, or 45%, to $32.3 billion in 2004
from $58.7 billion in 2003 due to lower origination volume.
With lower reﬁnancing demand in 2004, residential mortgage
originations of $298 billion were down 37% from the
industry record of $470 billion we established in 2003.

Deposits
Year-end deposit balances are in Table 7. Comparative
detail of average deposit balances is included in Table 3.
Average core deposits funded 54.4% and 54.8% of average
total assets in 2004 and 2003, respectively. Total average
interest-bearing deposits rose from $161.7 billion in 2003
to $182.6 billion in 2004. Total average noninterest-bearing
deposits rose from $76.8 billion in 2003 to $79.3 billion
in 2004. Savings certiﬁcates declined on average from
$20.9 billion in 2003 to $18.9 billion in 2004.

(in billions)

At December 31, 2004

At December 31, 2004,

Fair
value

$25.1

Net unrealized
gain (loss)

Remaining
maturity

Table 7: Deposits

$ .9

3.7 yrs.

(in millions)

December 31,
2003

2004

%
Change

assuming a 200 basis point:
Increase in interest rates
Decrease in interest rates

23.2
25.9

(1.0)
1.7

6.3 yrs.
1.6 yrs.

See Note 5 (Securities Available for Sale) to Financial
Statements for securities available for sale by security type.

Noninterest-bearing
Interest-bearing checking
Market rate and
other savings
Savings certiﬁcates
Core deposits

Other time deposits
Deposits in foreign ofﬁces

$ 81,082
3,122

$ 74,387
2,735

126,648
18,851
229,703
36,622
8,533

114,362
19,787
211,271
27,488
8,768

Total deposits

$274,858

$247,527

11
(5)
9
33
(3)

11%

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements, Variable Interest
Entities, Guarantees and Other Commitments
We consolidate our majority-owned subsidiaries and sub-
sidiaries in which we are the primary beneﬁciary. Generally,
we use the equity method of accounting if we own at least
20% of an afﬁliate and we carry the investment at cost if we
own less than 20% of an afﬁliate. See Note 1 (Summary of
Signiﬁcant Accounting Policies) to Financial Statements for
our consolidation policy.

In the ordinary course of business, we engage in ﬁnancial

transactions that are not recorded on the balance sheet, or
may be recorded on the balance sheet in amounts that are
different than the full contract or notional amount of the
transaction. These transactions are designed to (1) meet the
ﬁnancial needs of customers, (2) manage our credit, market
or liquidity risks, (3) diversify our funding sources or
(4) optimize capital, and are accounted for in accordance
with generally accepted accounting principles (GAAP).

Almost all of our off-balance sheet arrangements result
from securitizations. We routinely securitize home mortgage
loans and, from time to time, other ﬁnancial assets, including
student loans, commercial mortgages and automobile
receivables. We normally structure loan securitizations as
sales, in accordance with FAS 140. This involves the transfer
of ﬁnancial assets to certain qualifying special-purpose entities
that we are not required to consolidate. In a securitization,
we can convert the assets into cash earlier than if we held
the assets to maturity. Special-purpose entities used in these
types of securitizations obtain cash to acquire assets by issu-
ing securities to investors. In a securitization, we usually
provide representations and warranties for receivables
transferred. Also, we generally retain the right to service the
transferred receivables and to repurchase those receivables
from the special-purpose entity if the outstanding balance
of the receivable falls to a level where the cost exceeds the
beneﬁts of servicing such receivables.

At December 31, 2004, securitization arrangements
sponsored by the Company consisted of approximately
$77 billion in securitized loan receivables, including
$45 billion of home mortgage loans. We retained servicing
rights and other beneﬁcial interests related to these securiti-
zations of $575 million, consisting of $138 million in securi-
ties, $353 million in servicing assets and $84 million in other
retained interests. Related to securitizations, we provided
$16 million in liquidity commitments in demand notes and
reserve fund balances, and committed to provide up to
$32 million in credit enhancements.

Also, we hold variable interests greater than 20% but
less than 50% in certain special-purpose entities formed
to provide affordable housing and to securitize high-yield
corporate debt that had approximately $3 billion in total
assets at December 31, 2004. 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 $950 million at
December 31, 2004, primarily representing investments in
entities formed to invest in affordable housing. We, however,
expect to recover our investment over time through realization
of federal low-income housing tax credits.

For more information on securitizations including
sales proceeds and cash flows from securitizations, see
Note 21 (Securitizations and Variable Interest Entities) to
Financial Statements.

Home Mortgage, in the ordinary course of business, origi-
nates a portion of its mortgage loans through unconsolidated
joint ventures in which we own an interest of 50% or less.
Loans made by these joint ventures are funded by Wells Fargo
Bank, N.A., or an afﬁliated entity, through an established
line of credit and are subject to speciﬁed underwriting
criteria. At December 31, 2004, the total assets of these
mortgage origination joint ventures were approximately
$80 million. We provide liquidity to these joint ventures in
the form of outstanding lines of credit and, at December 31,
2004, these liquidity commitments totaled $350 million.
We also hold interests in other unconsolidated joint
ventures formed with unrelated third parties to provide
efﬁciencies from economies of scale. A third party manages
our real estate lending services joint ventures and provides
customers title, escrow, appraisal and other real estate related
services. Our merchant services joint venture includes credit
card processing and related activities. At December 31, 2004,
total assets of our real estate lending and merchant services
joint ventures were approximately $520 million.

When we acquire brokerage, asset management and

insurance agencies, the terms of the acquisitions may provide
for deferred payments or additional consideration, based
on certain performance targets. At December 31, 2004, the
amount of contingent consideration we expected to pay was
not signiﬁcant to our ﬁnancial statements.

As a ﬁnancial services provider, we routinely commit to
extend credit, including loan commitments, standby letters of
credit and ﬁnancial guarantees. A signiﬁcant portion of com-
mitments to extend credit may expire without being drawn
upon. These commitments are subject to the same credit
policies and approval process used for our loans. For more
information, see Note 6 (Loans and Allowance for Credit
Losses) and Note 25 (Guarantees) to Financial Statements.
In our venture capital and capital markets businesses, we

commit to fund equity investments directly to investment
funds and to speciﬁc private companies. The timing of future
cash requirements to fund these commitments generally
depends on the venture capital investment cycle, the period
over which privately-held companies are funded by venture
capital investors and ultimately taken public through an ini-
tial offering. This cycle can vary based on market conditions
and the industry in which the companies operate. We expect
that many of these investments will become public, or other-
wise become liquid, before the balance of unfunded equity

commitments is used. At December 31, 2004, these commit-
ments were approximately $685 million. Our other invest-
ment commitments, principally affordable housing, civic and
other community development initiatives, were approximately
$530 million at December 31, 2004. Also, in 2004, we made
an irrevocable commitment of $275 million to the Wells Fargo
Foundation to fund the Foundation over the next eight to
ten years, which resulted in a $217 million charitable
contribution expense.

In the ordinary course of business, we enter into indemni-

fication agreements, including underwriting agreements
relating to offers and sales of our securities, acquisition
agreements, and various other business transactions or
arrangements, such as relationships arising from service as
a director or ofﬁcer of the Company. For more information,
see Note 25 (Guarantees) to Financial Statements.

Contractual Obligations
In addition to the contractual commitments and arrange-
ments 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 8 summarizes these contractual obligations at
December 31, 2004, except obligations for short-term
borrowing arrangements and pension and postretirement
beneﬁts plans. More information on these obligations is
in Notes 11 (Short-Term Borrowings) and 16 (Employee
Beneﬁts and Other Expenses) to Financial Statements. The
table also excludes other commitments more fully described
under “Off-Balance Sheet Arrangements, Variable Interest
Entities, Guarantees and Other Commitments.”

We enter into derivatives, which create contractual
obligations, as part of our interest rate risk management
process, for our customers or for other trading activities.
See “Asset/Liability and Market Risk Management” in this
report and Note 27 (Derivatives) to Financial Statements for
more information.

Transactions with Related Parties
FAS 57, Related Party Disclosures, requires disclosure of
material related party transactions, other than compensation
arrangements, expense allowances and other similar items in
the ordinary course of business. The Company had no related
party transactions required to be reported under FAS 57 for
the years ended December 31, 2004, 2003 and 2002.

Table 8: Contractual Obligations

(in millions)

Contractual payments by period:

Deposits
Long-term debt (2)
Operating leases
Purchase obligations (3)
Total contractual obligations

Note(s) to
Financial Statements

Less than
1 year

1-3
years

3-5
years

More than
5 years

Indeterminate

maturity (1)

Total

10
7, 12
7

$56,279
14,586
476
2,155
$73,496

$ 5,668
22,465
730
176
$29,039

$ 1,557
16,785
487
43
$18,872

349
19,744
835
4
$20,932

$211,005
—
—
—
$211,005

$274,858
73,580
2,528
2,378
$353,344

(1) Represents interest- and noninterest-bearing checking, market rate and other savings accounts.
(2) Includes capital leases of $20 million.
(3) Represents agreements to purchase goods or services.

Risk Management

Credit Risk Management Process
Our credit risk management process provides for decentral-
ized management and accountability by our lines of business.
Our overall credit process includes comprehensive credit
policies, frequent and detailed risk measurement and model-
ing, extensive credit training programs and a continual loan
audit review process. In addition, regulatory examiners
review and perform detailed tests of our credit underwriting,
loan administration and allowance processes.

Managing credit risk is a company-wide process. We have

credit policies for all banking and nonbanking operations
incurring credit risk with customers or counterparties that
provide a consistent, prudent approach to credit risk man-
agement. We use detailed tracking and analysis to measure
credit performance and exception rates and we routinely

review and modify credit policies as appropriate. We have
corporate data integrity standards to ensure accurate and
complete credit performance reporting. We strive to identify
problem loans early and have dedicated, specialized collec-
tion and work-out units.

The Chief Credit Ofﬁcer, who reports directly to the
Chief Executive Ofﬁcer, provides company-wide credit over-
sight. 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 or credit performance. The
Chief Credit Ofﬁcer is actively involved in the Corporate
Enterprise Risk Management Committee.

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/or
internal auditors also independently review portfolios with
credit risk.

Our primary business focus in middle market commercial
and residential real estate, auto and small consumer lending,
results in portfolio diversiﬁcation. We ensure that we use
appropriate methods to understand and underwrite risk.

In our wholesale portfolios, loans are individually under-

written and judgmentally risk rated. They are periodically
monitored and prompt corrective actions are taken on
deteriorating loans.

Retail loans are typically underwritten with statistical
decision-making 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.

Each business unit completes quarterly asset quality fore-
casts to quantify its intermediate-term outlook for loan losses
and recoveries, nonperforming loans and market trends. To
make sure our overall allowance for credit losses is adequate
we conduct periodic stress tests. This includes a portfolio loss
simulation model that simulates a range of possible losses
for various sub-portfolios assuming various trends in loan
quality. We assess loan portfolios for geographic, industry, or
other concentrations and develop mitigation strategies, which
may include loan sales, syndications or third party insurance,
to minimize these concentrations as we deem necessary.

We routinely review and evaluate risks that are not
borrower speciﬁc but that may inﬂuence the behavior of a
particular credit, group of credits or entire sub-portfolios.
We also assess risk for particular industries and speciﬁc
macroeconomic trends.

NONACCRUAL LOANS AND OTHER ASSETS
Table 9 shows the ﬁve-year trend for nonaccrual loans and
other assets. We generally place loans on nonaccrual status
(1) when the full and timely collection of interest or principal
becomes uncertain, (2) when they are 90 days (120 days with
respect to real estate 1–4 family ﬁrst and junior lien mortgages)
past due for interest or principal (unless both well-secured
and in the process of collection) or (3) when 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.

We expect that the amount of nonaccrual loans will
change due to portfolio growth, portfolio seasoning, routine
problem loan recognition and resolution through collections,
sales or charge-offs. The performance of any loan can be
affected by external factors, such as economic conditions,
or factors particular to a borrower, such as actions of a
borrower’s management.

If interest due on the book balances of all nonaccrual

loans (including loans that were but are no longer on
nonaccrual at year end) had been accrued under the original
terms, approximately $80 million of interest would have
been recorded in 2004, compared with payments of
$38 million recorded as interest income.

Substantially all foreclosed assets at December 31, 2004,

have been in the portfolio one year or less.

Table 9: Nonaccrual Loans and Other Assets

(in millions)

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
Real estate investments (2)

Total nonaccrual loans and

other assets

As a percentage of total loans

December 31,
2000

2003

2002

2001

2004

$ 345
229
57
68
699

386
92
160
638
21
1,358

$ 592
285
56
73
1,006

274
87
88
449
3
1,458

$ 796
192
93
79
1,160

230
49
48
327
5
1,492

$ 827
210
145
163
1,345

205
22
59
286
9
1,640

.98%

160
2

.47%

.58%

.78%

212
2

$1,572

.55%

198
6

$1,662

.66%

195
4

$1,691

.88%

$1,802

1.08%

$ 739
113
57
92
1,001

128
22
36
186
7
1,194

.77%

120
27

$1,341

.86%

(1) Includes impaired loans of $309 million, $629 million, $612 million, $823 million and $504 million at December 31, 2004, 2003, 2002, 2001 and 2000, respectively.
(See Notes 1 (Signiﬁcant Accounting Policies) and 6 (Loans and Allowance for Credit Losses) to Financial Statements for further discussion of impaired loans.)
(2) Real estate investments (contingent interest loans accounted for as investments) that would be classiﬁed as nonaccrual if these assets were recorded as loans.
Real estate investments totaled $4 million, $9 million, $9 million, $24 million and $56 million at December 31, 2004, 2003, 2002, 2001 and 2000, respectively.

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Loans included in this category are 90 days or more past due
as to interest or principal and still accruing, because they are
(1) well-secured and in the process of collection or (2) real
estate 1-4 family ﬁrst mortgage loans or consumer loans exempt
under regulatory rules from being classiﬁed as nonaccrual.

The total of loans 90 days past due and still accruing was

$2,578 million, $2,337 million, $672 million, $698 million
and $578 million at December 31, 2004, 2003, 2002, 2001
and 2000, respectively. In 2004 and 2003, the total included
$1,820 million and $1,641 million, respectively, in advances
pursuant to our servicing agreements to Government National
Mortgage Association (GNMA) mortgage pools whose repay-
ments are insured by the Federal Housing Administration or
guaranteed by the Department of Veterans Affairs. Prior to
clarifying guidance issued in 2003 as to classiﬁcation as loans,
GNMA advances were included in other assets. Table 10
provides detail by loan category excluding GNMA advances.

Table 10: Loans 90 Days or More Past Due and Still Accruing
(Excluding Insured/Guaranteed GNMA Advances)

(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

December 31,
2000
2002
2004

2003

2001

$ 26

$ 87

$ 92

$ 60

$ 87

6
6

9
6

7
11

22
47

24
12

102

110

129

123

148

117

104

145

40
150

306
644
76

29
134

271
551
43

18
130

282
534
28

17
116

268
546
23

18
95

235
422
33

Total

$758

$696

$672

$698

$578

ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses, which comprises the
allowance for loan losses and the reserve for unfunded
credit commitments, is management’s estimate of credit losses
inherent in the loan portfolio at the balance sheet date. We
assume that our allowance for credit losses as a percentage
of charge-offs and nonperforming loans will change at
different points in time based on credit performance, loan
mix and collateral values. The analysis of the changes in the
allowance for credit losses, including charge-offs and recov-
eries by loan category, is presented in Note 6 (Loans and
Allowance for Credit Losses) to Financial Statements.

At December 31, 2004, the allowance for loan losses

was $3.76 billion, or 1.31% of total loans, compared
with $3.89 billion, or 1.54%, at December 31, 2003, and
$3.82 billion, or 1.98%, at December 31, 2002. The decrease
in the ratio of the allowance for loan losses to total loans
was primarily due to signiﬁcant growth in our consumer
real estate portfolio, which inherently has lower losses that
emerge over a longer time frame compared with other
consumer products. We have historically experienced lower
losses on our residential real estate secured consumer loan
portfolio. The provision for credit losses totaled $1.72 billion
in 2004 and 2003 and $1.68 billion in 2002. Net charge-offs
in 2004 were .62% of average total loans, compared with
.81% in 2003 and .96% in 2002. 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, loans
are charged off when classiﬁed as a loss by either internal
loan examiners or regulatory examiners.

At December 31, 2004, the reserve for unfunded credit
commitments was $188 million, less than 5% of the allowance
for credit losses, compared with 3% a year ago.

We consider the allowance for credit losses of $3.95 billion
adequate to cover credit losses inherent in the loan portfolio,
including unfunded credit commitments, at December 31,
2004. The process for determining the adequacy of the
allowance for credit losses is critical to our ﬁnancial results.
It requires difﬁcult, subjective and complex judgments, as
a result of the need to make estimates about the effect of
matters that are uncertain. (See “Financial Review – Critical
Accounting Policies – Allowance for Credit Losses.”) Therefore,
we cannot provide assurance that, in any particular period,
we will not have sizeable credit losses in relation to the amount
reserved. We may need to signiﬁcantly adjust the allowance
for credit losses, considering current factors at the time, includ-
ing economic conditions and ongoing internal and external
examination processes. Our process for determining the
adequacy of the allowance for credit losses is discussed
in Note 6 (Loans and Allowance for Credit Losses) to
Financial Statements.

Asset/Liability and Market Risk Management
Asset/liability management involves the evaluation, monitoring
and management of interest rate risk, market risk, liquidity
and funding. The Corporate Asset/Liability Management
Committee (Corporate ALCO)—which oversees these risks
and reports periodically to the Finance Committee of the
Board of Directors—consists of senior ﬁnancial and business
executives. Each of our principal business groups—Community
Banking (including Mortgage Banking), Wholesale Banking
and Wells Fargo Financial—have individual asset/liability
management committees and processes linked to the
Corporate ALCO process.

INTEREST RATE RISK
Interest rate risk, which potentially can have a signiﬁcant
earnings impact, is an integral part of being a ﬁnancial
intermediary. We are subject to interest rate risk because:

• assets and liabilities may mature or reprice at different

times (for example, if assets reprice faster than liabilities
and interest rates are generally falling, earnings will
initially decline);

• assets and liabilities may reprice at the same time but by
different amounts (for example, when the general level
of interest rates is falling, we may reduce rates paid on
checking and savings deposit accounts by an amount that
is less than the general decline in market interest rates);

• short-term and long-term market interest rates may

change by different amounts (i.e., the shape of the yield
curve may affect new loan yields and funding costs
differently); or

• the remaining maturity of various assets or liabilities
may shorten or lengthen as interest rates change (for
example, if long-term mortgage interest rates decline
sharply, mortgage-backed securities held in the securities
available for sale portfolio may prepay signiﬁcantly
earlier than anticipated – which could reduce portfolio
income). In addition, interest rates may have an indirect
impact on loan demand, credit losses, mortgage origination
volume, the value of mortgage servicing rights, the value
of the pension liability and other sources of earnings.

We assess interest rate risk by comparing our most likely

earnings plan with various earnings models using many
interest rate scenarios that differ in the direction of interest
rate changes, the degree of change over time, the speed of
change and the projected shape of the yield curve. For example,
if we assume an increase of 325 basis points in the federal
funds rate and an increase of 250 basis points in the 10 year
Constant Maturity Treasury Bond yield during the same
period, estimated earnings at risk would be approximately
3.0% of our most likely earnings plan for 2005. Simulation
estimates depend on, and will change with, the size and mix
of our actual and projected balance sheet at the time of
each simulation.

We use exchange-traded and over-the-counter interest rate

derivatives to hedge our interest rate exposures. The credit
risk amount and estimated net fair values of these derivatives
as of December 31, 2004 and 2003 are presented in Note 27
(Derivatives) to Financial Statements. We use derivatives for
asset/liability management in three ways:

• to convert most of the long-term ﬁxed-rate debt to
ﬂoating-rate payments by entering into receive-ﬁxed
swaps at issuance;

• to convert the cash ﬂows from selected asset and/or
liability instruments/portfolios from ﬁxed to ﬂoating
payments or vice versa; and

• to hedge the mortgage origination pipeline, funded
mortgage loans and mortgage servicing rights using
swaptions, futures, forwards and options.

MORTGAGE BANKING INTEREST RATE RISK
We originate, fund and service mortgage loans, which sub-
jects us to a number of risks, including credit, liquidity and
interest rate risks. We manage credit and liquidity risk by
selling or securitizing most of the mortgage loans we origi-
nate. Changes in interest rates, however, may have a signiﬁ-
cant effect on mortgage banking income in any quarter and
over time. Interest rates impact both the value of the mort-
gage servicing rights (MSRs), which is adjusted to the lower
of cost or fair value, and the future earnings of the mortgage
business, which are driven by origination volume and the
duration of our servicing. We manage both risks by hedging
the impact of interest rates on the value of the MSRs using
derivatives, combined with the “natural hedge” provided by
the origination and servicing components of the mortgage
business; however, we do not hedge 100% of these two risks.
We hedge a signiﬁcant portion of the value of our MSRs
against a change in interest rates with derivatives. The prin-
cipal source of risk in this hedging process is the risk that
changes in the value of the hedging contracts may not match
changes in the value of the hedged portion of our MSRs for
any given change in long-term interest rates.

The value of our MSRs is inﬂuenced primarily by prepay-

ment speed assumptions affecting the duration of the mort-
gage loans to which our MSRs relate. Changes in long-term
interest rates affect these prepayment speed assumptions.
For example, a decrease in long-term rates would accelerate
prepayment speed assumptions as borrowers reﬁnance their
existing mortgage loans and decrease the value of the MSRs.
In contrast, prepayment speed assumptions would tend to
slow in a rising interest rate environment and increase the
value of the MSRs.

For a given decline in interest rates, a portion of the
potential reduction in the value of our MSRs is offset by
estimated increases in origination and servicing fees over
time from new mortgage activity or reﬁnancing associated
with that decline in interest rates. With much lower long-
term interest rates, the decline in the value of our MSRs and
the effect on net income would be immediate whereas the
additional origination and servicing fee income accrues over
time. Under GAAP, impairment of our MSRs, due to a
decrease in long-term rates or other reasons, is charged to
earnings through an increase to the valuation allowance.

In scenarios of sustained increases in long-term interest
rates, origination fees may decline as reﬁnancing activity slows.
In such higher interest rate scenarios, the duration of the ser-
vicing portfolio may lengthen. In such circumstances, we may
reduce periodic amortization of MSRs, and may recover some
or all of the previously established valuation allowance.

Our MSRs totaled $7.9 billion, net of a valuation allowance
of $1.6 billion at December 31, 2004, and $6.9 billion, net of
a valuation allowance of $1.9 billion, at December 31, 2003.
The weighted-average note rate on the owned servicing
portfolio was 5.75% at December 31, 2004, and 5.90% at
December 31, 2003. Our MSRs were 1.15% of mortgage
loans serviced for others at December 31, 2004 and 2003.

As part of our mortgage banking activities, we enter into
commitments to fund residential mortgage loans at speciﬁed
times in the future. A mortgage loan commitment is an interest
rate lock that binds us to lend funds to a potential borrower
at a speciﬁed interest rate and within a speciﬁed period of
time, generally up to 60 days after inception of the rate lock.
These loan commitments are derivative loan commitments if
the loans that will result from the exercise of the commitments
will be held for sale. Under FAS 133, Accounting for Derivative
Instruments and Hedging Activities (as amended), these
derivative loan commitments are recognized at fair value
on the consolidated balance sheet with changes in their fair
values recorded as part of income from mortgage banking
operations. Consistent with EITF 02-3, Issues Involved in
Accounting for Derivative Contracts Held for Trading
Purposes and Contracts Involved in Energy Trading and Risk
Management Activities, and SEC Staff Accounting Bulletin
No. 105, Application of Accounting Principles to Loan
Commitments, we record no value for the loan commitment
at inception. Subsequent to inception, we recognize fair
value of the derivative loan commitment based on estimated
changes in the fair value of the underlying loan that would
result from the exercise of that commitment and on changes
in the probability that the loan will fund within the terms of
the commitment. The value of that loan is affected primarily
by changes in interest rates and the passage of time. We also
apply a fall-out factor to the valuation of the derivative loan
commitment for the probability that the loan will not fund
within the terms of the commitments. The value of the
MSRs is recognized only after the servicing asset has been
contractually separated from the underlying loan by sale
or securitization.

Outstanding derivative loan commitments expose us
to the risk that the price of the loans underlying the commit-
ments might decline due to increases in mortgage interest
rates from inception of the rate lock to the funding of the
loan. To minimize this risk, we utilize options, futures and
forwards to economically hedge the potential decreases in
the values of the loans that could result from the exercise
of the loan commitments. We expect that these derivative
ﬁnancial instruments will experience changes in fair value
that will offset the changes in fair value of the derivative
loan commitments.

MARKET RISK – TRADING ACTIVITIES
From a market risk perspective, our net income is exposed to
changes in interest rates, credit spreads, foreign exchange rates,
equity and commodity prices and their implied volatilities. The
primary purpose of our trading businesses is to accommodate
customers in the management of their market price risks. Also,
we take positions based on market expectations or to beneﬁt
from price differences between ﬁnancial instruments and
markets, subject to risk limits established and monitored
by Corporate ALCO. All securities, loans, foreign exchange
transactions, commodity transactions and derivatives—
transacted with customers or used to hedge capital market
transactions with customers—are carried at fair value.

The Institutional Risk Committee establishes and monitors
counterparty risk limits. The notional or contractual amount,
credit risk amount and estimated net fair value of all customer
accommodation derivatives at December 31, 2004 and 2003
are included in Note 27 (Derivatives) to Financial Statements.
Open, “at risk” positions for all trading business are moni-
tored by Corporate ALCO.

The standardized approach for monitoring and reporting
market risk for the trading activities is the value-at-risk (VAR)
metrics complemented with factor analysis and stress testing.
Value-at-risk measures the worst expected loss over a given
time interval and within a given conﬁdence interval. We
measure and report daily VAR at 99% conﬁdence interval
based on actual changes in rates and prices over the past
250 days. The analysis captures all ﬁnancial instruments that
are considered trading positions. The average one-day VAR
throughout 2004 was $19 million, with a lower bound of
$12 million and an upper bound of $57 million.

MARKET RISK – EQUITY MARKETS
We are directly and indirectly affected by changes in the equity
markets. We make and manage direct equity investments in
start-up businesses, emerging growth companies, management
buy-outs, acquisitions and corporate recapitalizations. We also
invest in non-afﬁliated funds that make similar private equity
investments. These private equity investments are made within
capital allocations approved by management and the Board
of Directors. The Board reviews business developments, key
risks and historical returns for the private equity investments
at least annually. Management reviews these investments at least
quarterly and assesses them for possible other-than-temporary
impairment. For nonmarketable investments, the analysis is
based on facts and circumstances of each individual investment
and the expectations for that investment’s cash ﬂows and
capital needs, the viability of its business model and our exit
strategy. At December 31, 2004, private equity investments
totaled $1,449 million, compared with $1,714 million at
December 31, 2003.

We also have marketable equity securities in the available
for sale investment portfolio, including securities distributed
from our venture capital activities. We manage these investments
within capital risk limits approved by management and the
Board and monitored by Corporate ALCO. Gains and losses
on these securities are recognized in net income when realized
and, in addition, other-than-temporary impairment may be
periodically recorded. The initial indicator of impairment for
marketable equity securities is a sustained decline in market
price below the amount recorded for that investment. We
consider a variety of factors, such as the length of time and
the extent to which the market value has been less than cost;
the issuer’s ﬁnancial condition, capital strength, and near-
term prospects; any recent events speciﬁc to that issuer and
economic conditions of its industry; and, to a lesser degree,
our investment horizon in relationship to an anticipated near-
term recovery in the stock price, if any. At December 31, 2004,
the fair value of marketable equity securities was $696 million
and cost was $507 million, compared with $582 million and
$394 million, respectively, at December 31, 2003.

Changes in equity market prices may also indirectly affect
our net income (1) by affecting the value of third party assets
under management and, hence, fee income, (2) by affecting
particular borrowers, whose ability to repay principal and/
or interest may be affected by the stock market, or (3) by
affecting brokerage activity, related commission income and
other business activities. Each business line monitors and
manages these indirect risks.

LIQUIDITY AND FUNDING
The objective of effective liquidity management is to ensure
that we can meet customer loan requests, customer deposit
maturities/withdrawals and other cash commitments efﬁ-
ciently under both normal operating conditions and under
unpredictable circumstances of industry or market stress.
To achieve this objective, Corporate ALCO establishes and
monitors liquidity guidelines that require sufﬁcient asset-
based liquidity to cover potential funding requirements and
to avoid over-dependence on volatile, less reliable funding
markets. We set liquidity management guidelines for both
the consolidated balance sheet as well as for the Parent
speciﬁcally to ensure that the Parent is a source of strength
for its regulated, deposit-taking banking subsidiaries.

Debt securities in the securities available for sale portfolio
provide asset liquidity, in addition to the immediately liquid
resources of cash and due from banks and federal funds
sold and securities purchased under resale agreements. The
weighted-average expected remaining maturity of the debt
securities within this portfolio was 4.3 years at December 31,
2004. Of the $31.8 billion (cost basis) of debt securities in
this portfolio at December 31, 2004, $5.1 billion, or 16%,
is expected to mature or be prepaid in 2005 and an additional
$4.5 billion, or 14%, in 2006. Asset liquidity is further
enhanced by our ability to sell or securitize loans in secondary
markets through whole-loan sales and securitizations. In
2004, we sold mortgage loans of approximately $230 billion,
including securitized home mortgage loans and commercial
mortgage loans of approximately $195 billion. The amount
of mortgage loans, as well as home equity loans and other
consumer loans, available to be sold or securitized totaled
approximately $125 billion at December 31, 2004.

Core customer deposits have historically provided a size-
able source of relatively stable and low-cost funds. Average
core deposits and stockholders’ equity funded 63.1% and
63.3% of average total assets in 2004 and 2003, respectively.

The remaining assets were funded by long-term debt,
deposits in foreign ofﬁces, short-term borrowings (federal
funds purchased, securities sold under repurchase agreements,
commercial paper and other short-term borrowings) and
trust preferred securities. Short-term borrowings averaged
$26.1 billion and $29.9 billion in 2004 and 2003, respectively.
Long-term debt, including issuances of trust preferred securi-
ties, averaged $67.9 billion and $57.1 billion in 2004 and
2003, respectively.

We anticipate making capital expenditures of approximately
$1.2 billion in 2005 for stores, relocation and remodeling of

Company facilities, and routine replacement of furniture, equip-
ment and servers. We will fund these expenditures from
various sources, including retained earnings and borrowings.
Liquidity is also available through our ability to raise
funds in a variety of domestic and international money and
capital markets. We access capital markets for long-term
funding by issuing registered debt, private placements and
asset-backed secured funding. Approximately $80 billion
of our debt is rated by Moody’s Investors Service as “Aa1”
and Fitch, Inc. as “AA,” among the highest ratings given to
a ﬁnancial services company. In September 2003, Moody’s
Investors Service raised Wells Fargo Bank, N.A.’s rating to
“Aaa,” its highest investment grade, from “Aa1” and raised
the Company’s senior debt rating to “Aa1” from “Aa2.” In
October 2003, Standard & Poor’s Ratings Service raised the
counterparty ratings on the Company to “AA-minus/A-1-plus”
from “A-plus/A-1” and the revised outlook for the Company
to stable from positive. Rating agencies base their ratings on
many quantitative and qualitative factors, including capital
adequacy, liquidity, asset quality, business mix and level and
quality of earnings. Material changes in these factors could
result in a different debt rating; however, a change in debt
rating would not cause us to violate any of our debt covenants.

PARENT. In March 2003, the Parent registered with the
Securities and Exchange Commission (SEC) for issuance of
$15.3 billion in senior and subordinated notes and preferred
and common securities. In April 2004, the Parent ﬁled a reg-
istration statement with the SEC for issuance of an additional
$20 billion in senior and subordinated notes, preferred stock
and other securities. During 2004, the Parent issued a total
of $17.1 billion of senior and subordinated notes and trust
preferred securities. At December 31, 2004, the Parent’s
remaining issuance capacity under effective registration state-
ments was $11.9 billion. We used the proceeds from securi-
ties issued in 2004 for general corporate purposes and expect
that the proceeds in the future will also be used for general
corporate purposes. The Parent also issues commercial paper
and has a $1 billion back-up credit facility. In February 2005,
the Parent issued $750 million in senior notes.

WELLS FARGO BANK, N.A. In March 2003, Wells Fargo Bank, N.A.
established a $50 billion bank note program under which it
may issue up to $20 billion in short-term senior notes out-
standing at any time and up to a total of $30 billion in long-
term senior and subordinated notes. Securities are issued under
this program as private placements in accordance with Ofﬁce
of the Comptroller of the Currency (OCC) regulations. During
2004, Wells Fargo Bank, N.A. issued $5.9 billion in senior
long-term notes. At December 31, 2004, the remaining issuance
authority under the long-term portion was $9.0 billion. In
January 2005, Wells Fargo Bank, N.A. issued $225 million
in senior long-term notes. In addition, not under the bank
note program, in February 2005, Wells Fargo Bank, N.A.
issued $1.5 billion in subordinated debt.

WELLS FARGO FINANCIAL. In November 2003, Wells Fargo
Financial Canada Corporation (WFFCC), a wholly owned
Canadian subsidiary of Wells Fargo Financial, Inc. (WFFI),
qualiﬁed for distribution with the provincial securities
exchanges in Canada $1.5 billion (Canadian) of issuance
authority. In December 2004, WFFCC amended its existing
shelf registration by adding $2.5 billion (Canadian) of
issuance authority. During 2004, WFFCC issued $1.1 billion

(Canadian) in senior notes. At December 31, 2004, the
remaining issuance capacity for WFFCC was $2.9 billion
(Canadian). During 2004, WFFI issued $400 million
(Canadian) and $207 million (U.S.) in senior notes as
private placements. In 2004, WFFI also entered into a
secured borrowing arrangement for $500 million (U.S.).
Under the terms of the arrangement, WFFI pledged auto
loans as security for the borrowing.

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 repur-
chase 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 our Board of Directors authorizes
the Company to repurchase shares of its common stock.
Although we announce when our 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. In November 2003, the SEC amended Rule
10b-18 to impose 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 the Company’s 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.

Comparison of 2003 with 2002

During 2002, the Board of Directors authorized the
repurchase of up to 50 million additional shares of our out-
standing common stock. In April 2004, the Board authorized
the repurchase of up to 25 million shares of common stock.
During 2004, we repurchased approximately 38 million
shares of our common stock. At December 31, 2004, the
total remaining common stock repurchase authority under
the 2004 authorization was approximately 13 million shares.
In January 2005, the Board authorized the repurchase of up
to an additional 25 million shares of common stock. Effective
February 22, 2005, the Board amended the PartnerShares®
Stock Option Plan to reduce the number of shares available for
awards under the plan by 20,000,000 shares. At December 31,
2004, there were 21,194,286 shares available for awards under
the plan. (See Note 15 (Common Stock and Stock Plans) for
additional information on our broad-based employee stock
option plans.)

Our potential sources of capital include retained earnings,

and issuances of common and preferred stock and subordi-
nated debt. In 2004, retained earnings increased $3.6 billion,
predominantly as a result of net income of $7.0 billion less
dividends of $3.2 billion. In 2004, we issued $1.7 billion of
common stock under various employee beneﬁt and director
plans and under our dividend reinvestment program. The
Parent issued $1.9 billion in subordinated debt and trust
preferred securities in 2004.

The Company and each of our subsidiary banks are
subject to various regulatory capital adequacy requirements
administered by the Federal Reserve Board and the OCC.
Risk-based capital guidelines establish a risk-adjusted ratio
relating capital to different categories of assets and off-balance
sheet exposures. At December 31, 2004, the Company and
each of our covered subsidiary banks were “well capitalized”
under regulatory standards. See Note 26 (Regulatory and
Agency Capital Requirements) to Financial Statements for
additional information.

Net income in 2003 was $6.2 billion, or $3.65 per share,
compared with $5.7 billion, or $3.32 per share, before the
effect of the accounting change related to FAS 142, for 2002.
On the same basis, return on average assets (ROA) was
1.64% and return on average common equity (ROE) was

19.36% in 2003, compared with 1.77% and 19.63%,
respectively, for 2002.

Net income in 2003 was $6.2 billion, compared with
$5.4 billion in 2002. Diluted earnings per common share
were $3.65 in 2003, compared with $3.16 in 2002. ROA

was 1.64% and ROE was 19.36% in 2003, compared with
1.69% and 18.68%, respectively, in 2002.

Net interest income on a taxable-equivalent basis was
$16.1 billion in 2003, compared with $14.6 billion in 2002.
The 10% increase in net interest income was primarily due
to robust loan growth and signiﬁcantly lower funding costs
resulting from strong core deposit growth and lower whole-
sale funding rates. These factors were partially offset by
reduced income from a smaller investment portfolio follow-
ing the sale, prepayment and maturity of higher yielding
mortgage-backed securities. The net interest margin was
5.08% for 2003, compared with 5.53% in 2002. The
decrease was primarily due to declining loan yields as new
volumes were added to the portfolio at yields below existing
loans due to a lower interest rate environment. This was
partially offset by signiﬁcantly reduced funding costs and
growth in noninterest-bearing funds.

Noninterest income was $12.4 billion in 2003, compared

with $10.8 billion in 2002. The 15% increase was largely
due to higher mortgage banking noninterest income and fee
income, including service charges on deposit accounts, credit
card fees and charges and fees on loans. Also, the increase
reﬂects net gains from equity investments in 2003, compared
with losses in 2002. The increase in noninterest income was
partially offset by lower net gains on debt securities in 2003
compared with 2002.

Mortgage banking noninterest income was $2.5 billion
in 2003, compared with $1.7 billion in 2002. Net servicing
fees reﬂected losses of $1.0 billion in 2003, compared with
$.7 billion in 2002. The increase in net losses from servicing
fees was primarily due to lower average interest rates, which
resulted in higher MSRs amortization and an increase to the

Factors That May Affect Future Results

We make forward-looking statements in this report and
in other reports and proxy statements we file with the
SEC. In addition, our senior management might make
forward-looking statements orally to analysts, investors,
the media and others.

Forward-looking statements include:
• projections of our revenues, income, earnings per share,

capital expenditures, dividends, capital structure or
other ﬁnancial items;

• descriptions of plans or objectives of our management
for future operations, products or services, including
pending acquisitions;

• forecasts of our future economic performance; and
• descriptions of assumptions underlying or relating to

any of the foregoing.

In this report, for example, we make forward-looking
statements about:
• the projected funding requirements of the Wells Fargo
Foundation over the next eight to ten years and the

valuation allowance. The increase in net losses was partially
offset by an increase in gross servicing fees due to an 18%
growth in the servicing portfolio. Net gains on mortgage
loan origination/sales activities increased to $3.0 billion
in 2003 from $2.1 billion in 2002, primarily due to higher
mortgage origination volume and gains on loan sales.
Originations during 2003 grew to $470 billion from
$333 billion in 2002.

Revenue, the sum of net interest income and noninterest
income, increased from $25.2 billion in 2002 to $28.4 billion
in 2003, or 12%.

Noninterest expense totaled $17.2 billion in 2003,
compared with $14.7 billion in 2002, an increase of 17%.
The increase in noninterest expense, including increases in
salaries, employee beneﬁts, incentive compensation, contract
services, advertising and promotion and postage, was largely
due to the growth in the mortgage banking business, which
accounted for approximately 48% of the increase from 2002.
The increase was also due to charitable donations, predomi-
nantly donations of appreciated public equity securities to
the Wells Fargo Foundation.

The provision for credit losses was $1.72 billion in 2003,

compared with $1.68 billion in 2002. During 2003, net
charge-offs were .81% of average total loans, compared
with .96% during 2002. The allowance for credit losses was
$3.89 billion, or 1.54% of total loans, at December 31, 2003,
compared with $3.82 billion, or 1.98%, at December 31, 2002.

At December 31, 2003, total nonaccrual loans were

$1.46 billion, or .58% of total loans, compared with
$1.49 billion, or .78%, at December 31, 2002. Foreclosed
assets were $198 million at December 31, 2003, and
$195 million at December 31, 2002.

expected funding sources for the 2004 commitment to
the Foundation;

• the amount of integration expense expected to be

incurred in 2005 for the Strong Financial transaction
and the pending acquisition of First Community
Capital Corporation;

• the estimated impact of expensing stock options on

2005 earnings per share;

• the anticipated amount of capital expenditures in 2005
for stores, relocation and remodeling of facilities, and
other items;

• the expected impact of recent accounting standards;
• future credit losses and nonperforming assets; and
• future short-term and long-term interest rate levels

and their impact on our net interest margin,
net income, liquidity and capital.

Forward-looking statements discuss matters that are not
historical facts. Because they discuss future events or condi-
tions, forward-looking statements often include words such

as “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“plan,” “project,” “target,” “can,” “could,” “may,” “should,”
“will,” “would” or similar expressions. Do not unduly rely
on forward-looking statements. They give our expectations
about the future and are not guarantees. Forward-looking
statements speak only as of the date they are made, and we
might not update them to reﬂect changes that occur after the
date they are made.

There are a number of factors—many beyond our control—
that could cause results to differ signiﬁcantly from our expec-
tations. Some of these factors are described below. Other fac-
tors, such as credit, market, operational, liquidity, interest
rate and other risks, are described elsewhere in this report
(see, for example, “Balance Sheet Analysis”). Factors relating
to the regulation and supervision are described in our Annual
Report on Form 10-K for the year ended December 31, 2004.
Any factor described in this report or in our 2004 Form 10-K
could by itself, or together with one or more other factors,
adversely affect our business, results of operations or ﬁnan-
cial condition. There are also other factors that we have not
described in this report or in our 2004 Form 10-K that could
cause results to differ from our expectations.

Industry Factors
AS A FINANCIAL SERVICES COMPANY, OUR EARNINGS ARE SIGNIFICANTLY
AFFECTED BY GENERAL BUSINESS AND ECONOMIC CONDITIONS.
Our business and earnings are affected by general business
and economic conditions in the United States and abroad.
These conditions include short-term and long-term interest
rates, inﬂation, monetary supply, ﬂuctuations in both debt
and equity capital markets, and the strength of the U.S.
economy and the local economies in which we operate. For
example, an economic downturn, an increase in unemploy-
ment, or other events that affect household and/or corporate
incomes could decrease the demand for loan and non-loan
products and services and increase the number of customers
who fail to pay interest or principal on their loans.

Geopolitical conditions can also affect our earnings. Acts

or threats of terrorism, actions taken by the U.S. or other
governments in response to acts or threats of terrorism and/or
military conﬂicts, could affect business and economic conditions
in the U.S. and abroad. The terrorist attacks in 2001, for
example, caused an immediate decrease in air travel, which
affected the airline industry, lodging, gaming and tourism.
We discuss other business and economic conditions in

more detail elsewhere in this report.

THE FISCAL AND MONETARY POLICIES OF THE FEDERAL GOVERNMENT
AND ITS AGENCIES SIGNIFICANTLY AFFECT OUR EARNINGS.
The Board of Governors of the Federal Reserve System reg-
ulates 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 mar-
gin. They also can materially affect the value of ﬁnancial
instruments we hold, such as debt securities and mortgage
servicing rights. Its policies also can affect our borrowers,

potentially increasing the risk that they may fail to repay
their loans. Changes in Federal Reserve Board policies are
beyond our control and hard to predict.

THE FINANCIAL SERVICES INDUSTRY IS HIGHLY COMPETITIVE.
We operate in a highly competitive industry that could become
even more competitive as a result of legislative, regulatory
and technological changes and continued consolidation.
Banks, securities ﬁrms and insurance companies now can
merge by creating a “ﬁnancial holding company,” which can
offer virtually any type of ﬁnancial service, including banking,
securities underwriting, insurance (both agency and under-
writing) and merchant banking. Recently, a number of for-
eign banks have acquired ﬁnancial services companies in
the United States, further increasing competition in the U.S.
market. Also, technology has lowered barriers to entry and
made it possible for nonbanks to offer products and services
traditionally provided by banks, such as automatic transfer
and automatic payment systems. Many of our competitors
have fewer regulatory constraints and some have lower
cost structures.

WE ARE HEAVILY REGULATED BY FEDERAL AND STATE AGENCIES.
The Parent, our subsidiary banks and many of our nonbank
subsidiaries are heavily regulated at the federal and state
levels. This regulation is to protect depositors, federal deposit
insurance funds and the banking system as a whole, not
security holders. Congress and state legislatures and federal
and state regulatory agencies continually review banking
laws, regulations and policies for possible changes. Changes
to statutes, regulations or regulatory policies, including
interpretation or implementation of statutes, regulations
or policies, could affect us in substantial and unpredictable
ways including limiting the types of ﬁnancial services and
products we may offer and/or increasing the ability of nonbanks
to offer competing ﬁnancial services and products. Also, if
we do not comply with laws, regulations or policies, we could
receive regulatory sanctions and damage to our reputation.
For more information, refer to the “Regulation and Supervision”
section of our 2004 Form 10-K and to Notes 3 (Cash, Loan
and Dividend Restrictions) and 26 (Regulatory and Agency
Capital Requirements) to Financial Statements.

FUTURE LEGISLATION COULD CHANGE OUR COMPETITIVE POSITION.
Legislation is from time to time introduced in the Congress,
including proposals to substantially change the ﬁnancial
institution regulatory system and to expand or contract the
powers of banking institutions and bank holding companies.
This legislation may change banking statutes and our operating
environment in substantial and unpredictable ways. If enacted,
such 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 regulations, would have
on our ﬁnancial condition or results of operations.

WE DEPEND ON THE ACCURACY AND COMPLETENESS OF INFORMATION
ABOUT CUSTOMERS AND COUNTERPARTIES.
In deciding whether to extend credit or enter into other
transactions with customers and counterparties, we may rely
on information furnished to us by or on behalf of customers
and counterparties, including ﬁnancial statements and other
ﬁnancial information. We also may rely on representations
of customers and counterparties as to the accuracy and
completeness of that information and, with respect to
ﬁnancial statements, on reports of independent auditors.
For example, in deciding whether to extend credit, we may
assume that a customer’s audited ﬁnancial statements con-
form with GAAP and present fairly, in all material respects,
the ﬁnancial condition, results of operations and cash ﬂows
of the customer. We also may rely on the audit report
covering those ﬁnancial statements. Our ﬁnancial condition
and results of operations could be negatively affected by
relying on ﬁnancial statements that do not comply with
GAAP or that are materially misleading.

CONSUMERS MAY DECIDE NOT TO USE BANKS TO COMPLETE THEIR
FINANCIAL TRANSACTIONS.
Technology and other changes now allow parties to complete
ﬁnancial transactions without banks. For example, consumers
can pay bills and transfer funds directly without banks. The
process of eliminating banks as intermediaries, known as
“disintermediation,” could result in the loss of fee income,
as well as the loss of customer deposits and income generated
from those deposits.

Company Factors
MAINTAINING OR INCREASING OUR MARKET SHARE DEPENDS
ON MARKET ACCEPTANCE AND REGULATORY APPROVAL OF
NEW PRODUCTS AND SERVICES.
Our success depends, in part, on our ability to adapt our
products and services to evolving industry standards. There is
increasing pressure to provide products and services at lower
prices. This can reduce our net interest margin and revenues
from our fee-based products and services. In addition, the
widespread adoption of new technologies, including internet
services, could require us to make substantial expenditures to
modify or adapt our existing products and services. We might
not be successful in introducing new products and services,
achieving market acceptance of our products and services, or
developing and maintaining loyal customers.

NEGATIVE PUBLIC OPINION COULD DAMAGE OUR REPUTATION AND
ADVERSELY IMPACT OUR EARNINGS.
Reputation risk, or the risk to our earnings and capital from
negative public opinion, is inherent in our business. Negative
public opinion can result from our actual or alleged conduct
in any number of activities, including lending practices, cor-
porate governance and acquisitions, and from actions taken
by government regulators and community organizations in
response to those activities. Negative public opinion can
adversely affect our ability to keep and attract customers
and can expose us to litigation and regulatory action. Because
virtually all our businesses operate under the “Wells Fargo”

brand, actual or alleged conduct by one business can result in
negative public opinion about other Wells Fargo businesses.
Although we take steps to minimize reputation risk in dealing
with our customers and communities, as a large diversiﬁed
ﬁnancial services company with a relatively high industry
proﬁle, the risk will always be present in our organization.

THE PARENT RELIES ON DIVIDENDS FROM ITS SUBSIDIARIES FOR
MOST OF ITS REVENUE.
The Parent is a separate and distinct legal entity from its
subsidiaries. It receives substantially all of its revenue from
dividends from its subsidiaries. These dividends are the
principal source of funds to pay dividends on the Parent’s
common and preferred stock and interest and principal on
its debt. Various federal and/or state laws and regulations
limit the amount of dividends that our bank and certain of
our nonbank subsidiaries may pay to the Parent. Also, the
Parent’s right to participate in a distribution of assets upon
a subsidiary’s liquidation or reorganization is subject to the
prior claims of the subsidiary’s creditors. For more information,
refer to “Regulation and Supervision – Dividend Restrictions”
and “ – Holding Company Structure” in our 2004 Form 10-K.

OUR ACCOUNTING POLICIES AND METHODS ARE KEY TO HOW WE
REPORT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
THEY MAY REQUIRE MANAGEMENT TO MAKE ESTIMATES ABOUT
MATTERS THAT ARE UNCERTAIN.
Our accounting policies and methods are fundamental to
how we record and report our ﬁnancial condition and results
of operations. Our management must exercise judgment in
selecting and applying many of these accounting policies and
methods so they comply with GAAP and reﬂect management’s
judgment of the most appropriate manner to report our
ﬁnancial condition and results. In some cases, management
must select the accounting policy or method to apply from
two or more alternatives, any of which might be reasonable
under the circumstances yet might result in our reporting
materially different amounts than would have been reported
under a different alternative. Note 1 (Summary of Signiﬁcant
Accounting Policies) to Financial Statements describes our
signiﬁcant accounting policies.

Three accounting policies are critical to presenting our
ﬁnancial condition and results. They require management
to make difﬁcult, subjective or complex judgments about
matters that are uncertain. Materially different amounts
could be reported under different conditions or using different
assumptions. These critical accounting policies relate to:
(1) the allowance for credit losses, (2) the valuation of
mortgage servicing rights, and (3) pension accounting.
Because of the uncertainty of estimates about these matters,
we cannot provide any assurance that we will not:

• signiﬁcantly increase our allowance for credit losses

and/or sustain credit losses that are signiﬁcantly higher
than the reserve provided;

• recognize signiﬁcant provision for impairment of our

mortgage servicing rights; or

• signiﬁcantly increase our pension liability.

For more information, refer in this report to “Critical

Accounting Policies,” “Balance Sheet Analysis” and
“Risk Management.”

CHANGES IN ACCOUNTING STANDARDS COULD MATERIALLY IMPACT
OUR FINANCIAL STATEMENTS.
From time to time the Financial Accounting Standards
Board (FASB) changes the ﬁnancial accounting and reporting
standards that govern the preparation of our financial
statements. These changes can be hard to predict and can
materially impact how we record and report our ﬁnancial
condition and results of operations. In some cases, we could
be required to apply a new or revised standard retroactively,
resulting in our restating prior period ﬁnancial statements.

WE HAVE BUSINESSES OTHER THAN BANKING.
We are a diversiﬁed ﬁnancial services company. In addition
to banking, we provide insurance, investments, mortgages
and consumer ﬁnance. Although we believe our diversity
helps lessen the effect when downturns affect any one
segment of our industry, it also means our earnings could
be subject to different risks and uncertainties. We discuss
some examples below.

MERCHANT BANKING. Our merchant banking business, which
includes venture capital investments, has a much greater risk
of capital losses than our traditional banking business. Also,
it is difﬁcult to predict the timing of any gains from this
business. Realization of gains from our venture capital
investments depends on a number of factors—many beyond
our control—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 restric-
tions. Factors, such as a slowdown in consumer demand or
a decline in capital spending, could result in declines in the
values of our publicly-traded and private equity securities.
If we determine that the declines are other-than-temporary,
additional impairment charges would be recognized. Also,
we will realize losses to the extent we sell securities at less
than book value. For more information, see in this report
“Balance Sheet Analysis – Securities Available for Sale.”

MORTGAGE BANKING. The effect of interest rates on our mort-
gage business can be large and complex. Changes in interest
rates can affect loan origination fees and loan servicing fees,
which account for a signiﬁcant portion of mortgage-related
revenues. A decline in mortgage rates generally increases
the demand for mortgage loans as borrowers reﬁnance, but
also generally leads to accelerated payoffs in our mortgage
servicing portfolio. Conversely, in a constant or increasing
rate environment, we would expect fewer loans to be reﬁ-
nanced and a decline in payoffs in our servicing portfolio.
We use dynamic, sophisticated models to assess the effect
of interest rates on mortgage fees, amortization of mortgage
servicing rights, and the value of mortgage servicing rights.

The estimates of net income and fair value produced by
these models, however, depend on assumptions of future
loan demand, prepayment speeds and other factors that may
overstate or understate actual experience. We use derivatives
to hedge the value of our servicing portfolio but they do not
cover the full value of the portfolio. We cannot assure that
the hedges will offset signiﬁcant decreases in the value of the
portfolio. For more information, see in this report “Critical
Accounting Policies – Valuation of Mortgage Servicing Rights”
and “Asset /Liability and Market Risk Management.”

WE RELY ON OTHER COMPANIES TO PROVIDE KEY COMPONENTS

OF OUR BUSINESS INFRASTRUCTURE.
Third parties provide key components of our business
infrastructure such as internet connections and network
access. Any disruption in internet, network access or other
voice or data communication services provided by these third
parties or any failure of these third parties to handle current
or higher volumes of use could adversely affect our ability to
deliver products and services to our customers and otherwise
to conduct our business. Technological or ﬁnancial difﬁculties
of a third party service provider could adversely affect our
business to the extent those difﬁculties result in the interrup-
tion or discontinuation of services provided by that party.

WE HAVE AN ACTIVE ACQUISITION PROGRAM.
We regularly explore opportunities to acquire ﬁnancial
institutions and other ﬁnancial services providers. We cannot
predict the number, size or timing of acquisitions. We typically
do not comment publicly on a possible acquisition or business
combination until we have signed a deﬁnitive agreement.
We must generally receive federal regulatory approval
before we can acquire a bank or bank holding company. 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 condi-
tion, 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 communi-
ties to be served, including the acquiring institution’s record
of compliance under the Community Reinvestment Act,
and the effectiveness of the acquiring institution in combat-
ing money laundering activities. In addition, we cannot be
certain when or if, or on what terms and conditions, any
required regulatory approvals will be granted. We might be
required to sell banks or branches as a condition to receiving
regulatory approval.

Difﬁculty in integrating an acquired company may cause

us not to realize expected revenue increases, cost savings,
increases in geographic or product presence, and/or other
projected beneﬁts from the acquisition. The integration could
result in higher than expected deposit attrition (run-off), loss
of key employees, disruption of our business or the business
of the acquired company, or otherwise adversely affect our
ability to maintain relationships with customers and employees
or achieve the anticipated beneﬁts of the acquisition. Also,

the negative effect of any divestitures required by regulatory
authorities in acquisitions or business combinations may be
greater than expected.

• recommendations by securities analysts;
• new technology used, or services offered,

by our competitors;

LEGISLATIVE RISK
Our business model depends on sharing information among
the family of companies owned by Wells Fargo to better
satisfy our customers’ needs. Laws that restrict the ability
of our companies to share information about customers
could negatively affect our revenue and proﬁt.

OUR BUSINESS COULD SUFFER IF WE FAIL TO ATTRACT AND RETAIN
SKILLED PEOPLE.
Our success depends, in large part, on our ability to attract
and retain key people. Competition for the best people in
most activities we engage in can be intense. We may not
be able to hire the best people or to keep them.

OUR STOCK PRICE CAN BE VOLATILE.
Our stock price can ﬂuctuate widely in response to a variety
of factors including:

• actual or anticipated variations in our quarterly

operating results;

Additional Information

• signiﬁcant acquisitions or business combinations,
strategic partnerships, joint ventures or capital
commitments by or involving us or our competitors;

• failure to integrate our acquisitions or realize
anticipated beneﬁts from our acquisitions;

• operating and stock price performance of other

companies that investors deem comparable to us;
• news reports relating to trends, concerns and other

issues in the ﬁnancial services industry;
• changes in government regulations; and
• geopolitical conditions such as acts or threats

of terrorism or military conﬂicts.

General market ﬂuctuations, industry factors and general
economic and political conditions and events, such as terrorist
attacks, economic slowdowns or recessions, interest rate
changes, credit loss trends or currency ﬂuctuations, also
could cause our stock price to decrease regardless of our
operating results.

Our common stock is traded on the New York Stock
Exchange and the Chicago Stock Exchange. The common
stock prices in the graphs below were reported on the New
York Stock Exchange Composite Transaction Reporting
System. The number of holders of record of our common
stock was 94,669 at January 31, 2005.

Our chief executive ofﬁcer certified to the New York Stock
Exchange (NYSE) that, as of May 14, 2004, he was not aware
of any violation by the Company of the NYSE’s corporate
governance listing standards. The certiﬁcations of our chief

executive ofﬁcer and chief ﬁnancial ofﬁcer required under
Section 302 of the Sarbanes-Oxley Act of 2002 were ﬁled as
Exhibits 31(a) and 31(b), respectively, to our 2004 Form 10-K.
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 of charge on or through
our website (www.wellsfargo.com), as soon as reasonably
practicable after they are electronically ﬁled with or fur-
nished to the SEC. Those reports and amendments are also
available free of charge on the SEC’s website (www.sec.gov).

PRICE RANGE OF COMMON STOCK–ANNUAL ($)

PRICE RANGE OF COMMON STOCK–QUARTERLY ($)

$60

64.04

54.32

59.18

43.27

54.84

38.10

$60

59.18

58.98

59.72

59.86

64.04

55.97

54.32

56.12

57.55

53.71

48.90

52.80

45.01

51.68

49.13

43.27

Indicates closing price at end of year

Indicates closing price at end of quarter

2002

2003

2004

2003

2004

Controls and Procedures

Disclosure Controls and Procedures

As required by SEC rules, the Company’s management evaluated the effectiveness, as of December 31, 2004, of the
Company’s disclosure controls and procedures. The Company’s chief executive ofﬁcer and chief ﬁnancial ofﬁcer
participated in the evaluation. Based on this evaluation, the Company’s chief executive ofﬁcer and the chief ﬁnancial
ofﬁcer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2004.

Internal Control over Financial Reporting

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

dispositions of assets of the company;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial
statements in accordance with generally accepted accounting principles, 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 company’s assets that could have a material effect on the ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect misstatements.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. No change occurred during fourth quarter 2004 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over ﬁnancial reporting. Management’s report on internal control
over ﬁnancial reporting is set forth below, and should be read with these limitations in mind.

Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over ﬁnancial
reporting for the Company. Management assessed the effectiveness of the Company’s internal control over ﬁnancial
reporting as of December 31, 2004, using the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on this assessment, management
concluded that as of December 31, 2004, the Company’s internal control over ﬁnancial reporting was effective.

KPMG LLP, the independent registered public accounting ﬁrm that audited the Company’s ﬁnancial statements

included in this Annual Report, issued an audit report on management’s assessment of the Company’s internal
control over ﬁnancial reporting. KPMG’s audit report appears on the following page.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Wells Fargo & Company:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal
Control over Financial Reporting, that Wells Fargo & Company and Subsidiaries (“the Company”) maintained
effective internal control over ﬁnancial reporting as of December 31, 2004, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for maintaining effective internal control over ﬁnancial reporting
and for its assessment of the effectiveness of internal control over ﬁnancial reporting. Our responsibility is to express
an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over
ﬁnancial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over ﬁnancial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over ﬁnancial reporting, evaluating management’s assessment, testing
and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over ﬁnancial reporting is a process designed 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. A company’s internal control over ﬁnancial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reﬂect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of ﬁnancial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect misstate-
ments. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.

In our opinion, management’s assessment that Wells Fargo & Company and Subsidiaries maintained effective
internal control over ﬁnancial reporting as of December 31, 2004, is fairly stated, in all material respects, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Also in our opinion, Wells Fargo & Company and Subsidiaries maintained,
in all material respects, effective internal control over ﬁnancial reporting as of December 31, 2004, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of December 31, 2004
and 2003, 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, 2004, and our report
dated February 23, 2005 expressed an unqualiﬁed opinion on those consolidated ﬁnancial statements.

San Francisco, California
February 23, 2005

Wells Fargo & Company and Subsidiaries
Consolidated Statement of Income

(in millions, except per share amounts)

INTEREST INCOME
Trading assets
Securities available for sale
Mortgages held for sale
Loans held for sale
Loans
Other interest income

Total interest income

INTEREST EXPENSE
Deposits
Short-term borrowings
Long-term debt
Guaranteed preferred beneﬁcial interests

in Company’s subordinated debentures

Total interest expense

NET INTEREST INCOME
Provision for credit losses
Net interest income after provision for credit losses

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 (losses) from equity investments
Other

Total noninterest income

NONINTEREST EXPENSE
Salaries
Incentive compensation
Employee beneﬁts
Equipment
Net occupancy
Operating leases
Other

Total noninterest expense

INCOME BEFORE INCOME TAX EXPENSE AND

EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

Income tax expense

NET INCOME BEFORE EFFECT OF

CHANGE IN ACCOUNTING PRINCIPLE

Cumulative effect of change in accounting principle

NET INCOME

EARNINGS PER COMMON SHARE BEFORE

EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Earnings per common share

Diluted earnings per common share

EARNINGS PER COMMON SHARE
Earnings per common share

Diluted earnings per common share

DIVIDENDS DECLARED PER COMMON SHARE

Average common shares outstanding

Diluted average common shares outstanding

The accompanying notes are an integral part of these statements.

2004

145
1,883
1,737
292
16,781
129
20,967

1,827
353
1,637

—
3,817

17,150
1,717
15,433

2,417
2,116
1,230
1,779
1,860
836
1,193
(15)
394
1,099
12,909

5,393
1,807
1,724
1,236
1,208
633
5,572
17,573

10,769
3,755

7,014
—

$ 7,014

4.15

4.09

4.15

4.09

1.86

1,692.2

1,713.4

Year ended December 31,
2002

2003

156
1,816
3,136
251
13,937
122
19,418

1,613
322
1,355

121
3,411

16,007
1,722
14,285

2,297
1,937
1,079
1,560
2,512
937
1,071
4
55
930
12,382

4,832
2,054
1,560
1,246
1,177
702
5,619
17,190

9,477
3,275

6,202
—

$ 6,202

3.69

3.65

3.69

3.65

1.50

1,681.1

1,697.5

169
2,424
2,450
252
13,045
119
18,459

1,919
536
1,404

118
3,977

14,482
1,684
12,798

2,134
1,875
977
1,372
1,713
1,115
997
293
(327)
618
10,767

4,383
1,706
1,283
1,014
1,102
802
4,421
14,711

8,854
3,144

5,710
(276)

$ 5,434

3.35

3.32

3.19

3.16

1.10

1,701.1

1,718.0

Wells Fargo & Company and Subsidiaries
Consolidated Balance Sheet

(in millions, except shares)

ASSETS
Cash and due from banks
Federal funds sold, securities purchased under

resale agreements and other short-term investments

Trading assets
Securities available for sale
Mortgages held for sale
Loans held for sale

Loans
Allowance for loan losses

Net loans

Mortgage servicing rights, net
Premises and equipment, net
Goodwill
Other assets

Total assets

LIABILITIES
Noninterest-bearing deposits
Interest-bearing deposits

Total deposits
Short-term borrowings
Accrued expenses and other liabilities
Long-term debt

Total liabilities

STOCKHOLDERS’ EQUITY
Preferred stock
Common stock – $12/3 par value, authorized 6,000,000,000 shares;

issued 1,736,381,025 shares

Additional paid-in capital
Retained earnings
Cumulative other comprehensive income
Treasury stock – 41,789,388 shares and 38,271,651 shares
Unearned ESOP shares

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these statements.

December 31,
2003

2004

$ 12,903

$ 15,547

5,020
9,000
33,717
29,723
8,739

287,586
(3,762)

283,824

7,901
3,850
10,681
22,491
$427,849

$ 81,082
193,776

274,858
21,962
19,583
73,580

389,983

3,733
8,919
32,953
29,027
7,497

253,073
(3,891)

249,182

6,906
3,534
10,371
20,129
$387,798

$ 74,387
173,140

247,527
24,659
17,501
63,642

353,329

270

214

2,894
9,806
26,482
950
(2,247)
(289)

37,866

$427,849

2,894
9,643
22,842
938
(1,833)
(229)

34,469

$387,798

Wells Fargo & Company and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income

(in millions, except shares)

BALANCE DECEMBER 31, 2001
Comprehensive income
Net income – 2002
Other comprehensive income, net of tax:

Translation adjustments
Minimum pension liability adjustment
Net unrealized gains on securities available
for sale and other retained interests
Net unrealized losses on derivatives and

hedging activities

Total comprehensive income
Common stock issued
Common stock issued for acquisitions
Common stock repurchased
Preferred stock (238,000) issued to ESOP
Preferred stock released to ESOP
Preferred stock (205,727) converted

to common shares
Preferred stock dividends
Common stock dividends
Change in Rabbi trust assets and similar

arrangements (classiﬁed as treasury stock)

Net change

BALANCE DECEMBER 31, 2002
Comprehensive income
Net income – 2003
Other comprehensive income, net of tax:

Translation adjustments
Net unrealized losses on securities available
for sale and other retained interests
Net unrealized gains on derivatives and

hedging activities

Total comprehensive income
Common stock issued
Common stock issued for acquisitions
Common stock repurchased
Preferred stock (260,200) issued to ESOP
Preferred stock released to ESOP
Preferred stock (223,660) converted

to common shares

Preferred stock (1,460,000) redeemed
Preferred stock dividends
Common stock dividends
Change in Rabbi trust assets and similar

arrangements (classiﬁed as treasury stock)

Other, net
Net change

BALANCE DECEMBER 31, 2003
Comprehensive income
Net income – 2004
Other comprehensive income, net of tax:

Translation adjustments
Net unrealized losses on securities available
for sale and other retained interests
Net unrealized gains on derivatives and

hedging activities
Total comprehensive income
Common stock issued
Common stock issued for acquisitions
Common stock repurchased
Preferred stock (321,000) issued to ESOP
Preferred stock released to ESOP
Preferred stock (265,537) converted

to common shares
Common stock dividends
Change in Rabbi trust assets and similar

arrangements (classiﬁed as treasury stock)

Other, net
Net change

BALANCE DECEMBER 31, 2004

Number
of common
shares

Preferred
stock

Common Additional
paid-in
capital

stock

Retained
earnings

Cumulative
other
comprehensive
income

Treasury Unearned
ESOP
shares

stock

Total
stock-
holders’
equity

1,695,494,997

$ 218

$ 2,894

$ 9,436

$ 15,966

$ 752

$ (1,937)

$(154)

$ 27,175

1
42

484

(303)

5,434

(168)

(4)
(1,873)

43
4

17
(14)

5,434

1
42

484

(303)
5,658
652
535
(2,033)
—
206

—
(4)
(1,873)

777
531
(2,033)

194

(256)
220

17,345,078
12,017,193
(43,170,943)

239

4,220,182

(206)

______________
(9,588,490)

1,685,906,507

_____
33

251

______
—

________
62

_________
3,389

2,894

9,498

19,355

_______
224

976

3
(528)

_____
(36)

3
3,144

(2,465)

(190)

30,319

26,063,731
12,399,597
(30,779,500)

4,519,039

260

(224)
(73)

6,202

(190)

(3)
(2,527)

63
66

19
(16)

(117)

1,221
585
(1,482)

211

(279)
240

___________
12,202,867

____
(37)

______
—

______
145

5
3,487

_____
(38)

97
______
632

_____
(39)

6,202

(117)

53
6,164
1,094
651
(1,482)
—
224

—
(73)
(3)
(2,527)

97
5
4,150

1,698,109,374

214

2,894

9,643

22,842

938

(1,833)

(229)

34,469

7,014

(22)

29,969,653
153,482
(38,172,556)

321

4,531,684

(265)

129
1

23
(19)

(206)

(3,150)

______________
(3,517,737)

1,694,591,637

_____
56

$270

_______
—

$2,894

_______
163

(18)
3,640

$9,806

$26,482

______
12

$ 950

7,014

(22)

22
7,026
1,446
9
(2,188)
—
265

—
(3,150)

7
(18)
3,397

1,523
8
(2,188)

236

7
_________
(414)

(344)
284

______
(60)

$(2,247)

$(289)

$37,866

The accompanying notes are an integral part of these statements.

Wells Fargo & Company and Subsidiaries
Consolidated Statement of Cash Flows

(in millions)

Cash ﬂows from operating activities:

Net income
Adjustments to reconcile net income to net cash provided (used) by operating activities:

Provision for credit losses
Provision (reversal of provision) for mortgage servicing rights in excess of fair value
Depreciation and amortization
Net gains on securities available for sale
Net gains on mortgage loan origination/sales activities
Net gains on sales of loans
Net losses on dispositions of premises and equipment
Net losses (gains) on dispositions of operations
Release of preferred shares to ESOP
Net decrease (increase) in trading assets
Net increase in deferred income taxes
Net decrease (increase) in accrued interest receivable
Net increase (decrease) in accrued interest payable
Originations of mortgages held for sale
Proceeds from sales of mortgages held for sale
Principal collected on mortgages held for sale
Net increase in loans held 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:
Proceeds from sales
Proceeds from prepayments and maturities
Purchases

Net cash 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
Purchases of loans by nonbank entities
Proceeds from dispositions of operations
Proceeds from sales of foreclosed assets
Net increase in federal funds sold, securities purchased

under resale agreements and other short-term investments

Net increase in mortgage servicing rights
Other, net

Net cash used by investing activities

Cash ﬂows from ﬁnancing activities:

Net increase in deposits
Net decrease in short-term borrowings
Proceeds from issuance of long-term debt
Repayment of long-term debt
Proceeds from issuance of guaranteed preferred beneﬁcial interests

in Company’s subordinated debentures

Proceeds from issuance of common stock
Redemption of preferred stock
Repurchase of common stock
Payment of cash dividends on preferred and common stock
Other, net

Net cash provided by ﬁnancing activities

Net change in cash and due from banks

Cash and due from banks at beginning of year

Cash and due from banks at end of year

Supplemental disclosures of cash ﬂow information:

Cash paid during the year for:

Interest
Income taxes

Noncash investing and ﬁnancing activities:

Net transfers from loans to mortgages held for sale
Net transfers from loans to loans held for sale
Transfers from loans to foreclosed assets

The accompanying notes are an integral part of these statements.

2004

Year ended December 31,

2003

2002

$ 7,014

6,202

5,434

1,717
(208)
3,449
(60)
(539)
(11)
5
15
265
(81)
432
(196)
47
(221,978)
230,355
1,929
(1,331)
(2,468)
1,732

20,088

6,322
8,823
(16,583)
(331)
(34,320)
1,457
(5,877)
17,996
(27,751)
—
4
419

(1,287)
(1,389)
(520)

(53,037)

27,327
(2,697)
29,394
(19,639)

—
1,271
—
(2,188)
(3,150)
(13)

30,305

(2,644)

1,722
1,092
4,305
(62)
(3,019)
(28)
46
(29)
224
1,248
1,698
(148)
(63)
(382,335)
404,207
3,136
(832)
(5,099)
(1,070)

31,195

7,357
13,152
(25,131)
(822)
(36,235)
1,590
(15,087)
17,638
(21,792)
(3,682)
34
264

(208)
(3,875)
3,818

(62,979)

28,643
(8,901)
29,490
(17,931)

700
944
(73)
(1,482)
(2,530)
651

29,511

(2,273)

15,547

$ 12,903

17,820

$ 15,547

1,684
2,135
4,297
(198)
(2,086)
(19)
52
(10)
206
(3,859)
305
145
(53)
(285,052)
263,126
2,063
(1,091)
(4,466)
1,929

(15,458)

11,863
9,684
(7,261)
(588)
(18,992)
948
(2,818)
11,396
(14,621)
—
94
473

(789)
(1,492)
628

(11,475)

25,050
(5,224)
21,711
(10,902)

450
578
—
(2,033)
(1,877)
32

27,785

852

16,968

$ 17,820

$ 3,864
2,326

3,348
2,713

3,924
2,789

11,225
—
603

368
—
411

439
829
491

Notes to Financial Statements

Note 1: Summary of Signiﬁcant Accounting Policies

Wells Fargo & Company is a diversiﬁed ﬁnancial services
company. We provide banking, insurance, investments, mort-
gage 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. In this Annual Report, Wells Fargo & Company
and Subsidiaries (consolidated) are called the Company.
Wells Fargo & Company (the Parent) is a ﬁnancial holding
company and a bank holding company.

Our accounting and reporting policies conform with

generally accepted accounting principles (GAAP) and
practices in the ﬁnancial services industry. To prepare the
ﬁnancial statements in conformity with GAAP, management
must make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the ﬁnancial
statements and income and expenses during the reporting
period. Management has made signiﬁcant estimates in several
areas, including the allowance for credit losses (Note 6),
valuing mortgage servicing rights (Notes 21 and 22) and
pension accounting (Note 16). Actual results could differ
from those estimates.

The following is a description of our signiﬁcant

accounting policies.

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 afﬁliate, we generally account
for the investment using the equity method. If we own less
than 20% of an afﬁliate, 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.

In January 2003, the Financial Accounting Standards

Board (FASB) issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities and, in December
2003, issued Revised Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46R), which replaced FIN 46.
This set forth the rules of consolidation for certain entities,
VIEs, in which the equity investors 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. An enterprise’s variable
interest arises from contractual, ownership or other monetary
interests in the entity, which change with ﬂuctuations in
the entity’s net asset value. Effective for VIEs formed after
January 31, 2003, and effective for all existing VIEs on

December 31, 2003, we consolidate a VIE if we are the
primary beneﬁciary because we will absorb a majority of
the entity’s expected losses, receive a majority of the entity’s
expected residual returns, or both.

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.

Securities
SECURITIES AVAILABLE FOR SALE Debt securities that we might not
hold until maturity and marketable equity securities are classiﬁed
as securities available for sale and reported at estimated fair
value. Unrealized gains and losses, after applicable taxes, are
reported in cumulative other comprehensive income. We use
current quotations, where available, to estimate the fair value
of these securities. Where current quotations are not available,
we estimate fair value based on the present value of future
cash ﬂows, adjusted for the quality rating of the securities,
prepayment assumptions and other factors.

We reduce the asset value when we consider the declines
in the value of debt securities and marketable equity securities
to be other-than-temporary and record the estimated loss in
noninterest income. The initial indicator of impairment for
both debt and marketable equity securities is a sustained decline
in market price below the amount recorded for that investment.
We consider the length of time and the extent to which market
value has been less than cost and any recent events speciﬁc to
the issuer and economic conditions of its industry.

For marketable equity securities, we also consider:
• the issuer’s ﬁnancial condition, capital strength, and

near-term prospects; and

• to a lesser degree, our investment horizon in relationship
to an anticipated near-term recovery in the stock price,
if any.

For debt securities we also consider:
• the cause of the price decline – general level of interest

rates and broad industry factors or issuer-speciﬁc;
• the issuer’s ﬁnancial condition and current ability to

make future payments in a timely manner;

• our investment horizon;
• the issuer’s ability to service debt; and
• any change in agencies’ ratings at evaluation date from

acquisition date and any likely imminent action.

We manage these investments within capital risk limits
approved by management and the Board and monitored
by the Corporate Asset/Liability Management Committee.
We recognize realized gains and losses on the sale of these
securities in noninterest income using the speciﬁc identiﬁca-
tion method.

Unamortized premiums and discounts are recognized in
interest income over the contractual life of the security using
the interest method. As principal repayments are received
on securities (i.e. primarily mortgage-backed securities) a
pro-rata portion of the unamortized premium or discount
is recognized in interest income.

NONMARKETABLE EQUITY SECURITIES Nonmarketable equity
securities include venture capital equity securities that are
not publicly traded and securities acquired for various pur-
poses, 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 investment’s 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 are stated at the lower of total
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.

Loans Held for Sale
Loans held for sale are carried at the lower of cost or
market value. Direct loan origination costs and fees are
deferred at origination of the loan. Gains and losses on loan
sales (sales proceeds minus carrying value) are recorded in
noninterest income.

Loans
Loans are reported at the principal amount outstanding, net
of unearned income, except for purchased loans, which are
recorded at fair value on the purchase date. Unearned income
includes deferred fees net of deferred direct incremental loan
origination costs. We amortize unearned income to interest
income, over periods not exceeding the contractual life of the
loan, using the interest method.

From time to time, we pledge loans, primarily 1-4 family

mortgage loans, to secure borrowings from the Federal
Home Loan Bank.

NONACCRUAL LOANS We generally place loans on nonaccrual
status (1) when the full and timely collection of interest or
principal becomes uncertain, (2) when they are 90 days
(120 days with respect to real estate 1-4 family ﬁrst and
junior lien mortgages) past due for interest or principal
(unless both well-secured and in the process of collection)
or (3) when part of the principal balance has been charged
off. Generally, consumer loans not secured by real estate are
placed on nonaccrual status only when part of the principal
has been charged off. These loans are entirely charged off
when deemed uncollectible 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 (a) when all delinquent
interest and principal becomes current under the terms of
the loan agreement or (b) when the loan is both well-secured
and in the process of collection and collectibility is no longer
doubtful, after a period of demonstrated performance.

IMPAIRED LOANS We assess, account for and disclose as
impaired certain nonaccrual commercial loans and commer-
cial real estate mortgage and construction 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 con-
tract, including scheduled interest payments.

When we identify a loan as impaired, we measure the
impairment using discounted cash ﬂows, except when the
sole (remaining) source of repayment for the loan is the
operation or liquidation of the collateral. In these cases we
use the current fair value of the collateral, less selling costs,
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 allocated reserve or a charge-off to the allowance.

ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses,
which comprises the allowance for loan losses and the
reserve for unfunded credit commitments, is management’s
estimate of credit losses inherent in the loan portfolio at
the balance sheet date. Our determination of the allowance,
and the resulting provision, is based on judgments and
assumptions, including (1) general economic conditions,
(2) loan portfolio composition, (3) loan loss experience,
(4) management’s evaluation of credit risk relating to pools
of loans and individual borrowers, (5) sensitivity analysis and
expected loss models and (6) observations from our internal
auditors, internal loan review staff or our banking regulators.

Transfers and Servicing of Financial Assets
We account for a transfer of ﬁnancial assets as a sale when
we surrender control of the transferred assets. Servicing
rights and other retained interests in the sold assets are
recorded by allocating the previously recorded investment
between the assets sold and the interest retained based on
their relative fair values at the date of transfer. We determine
the fair values of servicing rights and other retained interests
at the date of transfer using the present value of estimated
future cash ﬂows, using assumptions that market partici-
pants use in their estimates of values. We use quoted market
prices when available to determine the value of other
retained interests.

We recognize the rights to service mortgage loans for others,

or mortgage servicing rights (MSRs), as assets whether we
purchase the servicing rights or sell or securitize loans we
originate and retain servicing rights. MSRs are amortized in
proportion to, and over the period of, estimated net servicing
income. The amortization of MSRs is analyzed monthly and
is adjusted to reﬂect changes in prepayment speeds.

To determine the fair value of MSRs, we use a valuation

model that calculates the present value of estimated future
net servicing income. We use assumptions in the valuation
model that market participants use in estimating future net
servicing income, including estimates of prepayment speeds,
discount rate, cost to service, escrow account earnings, con-
tractual servicing fee income, ancillary income and late fees.
Each quarter, we evaluate MSRs for possible impairment

based on the difference between the carrying amount and
current fair value, in accordance with Statement of Financial
Accounting Standards No. 140 (FAS 140), Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. To evaluate and measure impairment we stratify
the portfolio based on certain risk characteristics, including
loan type and note rate. If temporary impairment exists,
we establish a valuation allowance through a charge to net
income for any excess of amortized cost over the current fair
value, by risk stratiﬁcation. If we later determine that all or
a portion of the temporary impairment no longer exists for
a particular risk stratiﬁcation, we will reduce the valuation
allowance through an increase to net income.

Under our policy, we also evaluate other-than-temporary

impairment of MSRs by considering both historical and
projected trends in interest rates, pay off activity and
whether the impairment could be recovered through interest
rate increases. We recognize a direct write-down when we
determine that the recoverability of a recorded valuation
allowance is remote. A direct write-down permanently
reduces the carrying value of the MSRs, while a valuation
allowance (temporary impairment) can be reversed.

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. Net gains and losses on mortgage loan
origination/sales activities reﬂect the periodic evaluation of
our portfolios, which are carried at the lower of cost or
market value.

Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation and amortization. Capital leases are included
in premises and equipment at the capitalized amount less
accumulated amortization.

Primarily we use the straight-line method of depreciation
and amortization. Estimated useful lives range up to 40 years
for buildings, up to 10 years for furniture and equipment,
and the shorter of the estimated useful life or lease term for
leasehold improvements. We amortize capitalized leased assets
on a straight-line basis over the lives of the respective leases.

Goodwill and Identifiable Intangible Assets
Goodwill is recorded when the purchase price is higher than
the fair value of net assets acquired in business combinations
under the purchase method of accounting.

Effective January 1, 2002, we assess goodwill for impair-
ment annually, and more frequently in certain circumstances.
We assess goodwill for impairment on a reporting unit level
by applying a fair-value-based test using discounted estimated
future net cash ﬂows. Impairment exists when the carrying
amount of the goodwill exceeds its implied fair value.
We recognize impairment losses as a charge to noninterest
expense (unless related to discontinued operations) and
an adjustment to the carrying value of the goodwill asset.
Subsequent reversals of goodwill impairment are prohibited.
In 2002, our initial goodwill impairment testing resulted
in a $276 million (after tax), $404 million (before tax),
transitional impairment charge reported as a cumulative
effect of a change in accounting principle.

We amortize core deposit intangibles on an accelerated

basis based on useful lives of 10 to 15 years. We review
core deposit intangibles for impairment whenever events
or changes in circumstances indicate that their carrying
amounts may not be recoverable. Impairment is indicated
if the sum of undiscounted estimated future net cash ﬂows
is less than the carrying value of the asset. Impairment is
permanently recognized by writing down the asset to the
extent that the carrying value exceeds the estimated fair value.

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 manage-
ment judgment that realization is more likely than not.
Foreign taxes paid are generally applied as credits to reduce
federal income taxes payable.

Stock-Based Compensation
We have several stock-based employee compensation plans,
which are described more fully in Note 15. As permitted by
FAS 123, Accounting for Stock-Based Compensation, we
have elected to continue applying the intrinsic value method
of Accounting Principles Board Opinion 25, Accounting for
Stock Issued to Employees, in accounting for stock-based
employee compensation plans. Pro forma net income and
earnings per common share information is provided below,
as if we accounted for employee stock option plans under
the fair value method of FAS 123.

(in millions, except per
share amounts)

Year ended December 31,
2002

2003

2004

Net income, as reported

$7,014

$6,202

$5,434

Add: Stock-based employee
compensation expense
included in reported net
income, net of tax
Less: Total stock-based

employee compensation
expense under the fair value
method for all awards,
net of tax

Net income, pro forma

Earnings per common share

As reported
Pro forma

Diluted earnings per common share

As reported
Pro forma

(275)

$6,741

(198)

$6,007

(190)

$5,247

$ 4.15
3.99

$ 4.09
3.93

$ 3.69
3.57

$ 3.65
3.53

$ 3.19
3.08

$ 3.16
3.05

Operating Lease Assets
Operating lease rental income for leased assets, generally
automobiles, is recognized in other income on a straight-line
basis over the lease term. Related depreciation expense is
recorded on a straight-line basis over the life of the lease,
taking into account the estimated residual value of the
leased asset. On a periodic basis, leased assets are reviewed
for impairment. Impairment loss is recognized if the carrying
amount of leased assets exceeds fair value and is not recover-
able. The carrying amount of leased assets is not recoverable
if it exceeds the sum of the undiscounted cash ﬂows expected
to result from the lease payments and the estimated residual
value upon the eventual disposition of the equipment. Auto
lease receivables are written off when 120 days past due.

Pension Accounting
We account for our deﬁned beneﬁt pension plans using an
actuarial model required by FAS 87, Employers’ Accounting
for Pensions. 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.

One of the principal components of the net periodic
pension 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 closely matches 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 unrecognized
net actuarial gain or loss amount. We generally amortize any
unrecognized net actuarial gain or loss in excess of a 5%
corridor (as deﬁned in FAS 87) in net periodic pension
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).

formally assess, both at the inception of the hedge and on
an ongoing basis, if the derivatives we use are highly effective
in offsetting changes in fair values or cash ﬂows of hedged
items. If we determine that a derivative is not highly effective
as a hedge, we discontinue hedge accounting.

We discontinue hedge accounting prospectively when
(1) a derivative is no longer highly effective in offsetting
changes in the fair value or cash ﬂows of a hedged item,
(2) a derivative expires or is sold, terminated, or exercised,
(3) a derivative is dedesignated as a hedge, because it is
unlikely that a forecasted transaction will occur, or (4) we
determine that designation of a derivative as a hedge is no
longer appropriate.

When we discontinue hedge accounting because a deriva-

tive no longer qualiﬁes as an effective fair value hedge, we
continue to carry the derivative on the balance sheet at its
fair value with changes in fair value included in earnings,
and no longer adjust the previously hedged asset or liability
for changes in fair value. Previous adjustments to the hedged
item are accounted for in the same manner as other compo-
nents of the carrying amount of the asset or liability.

When we discontinue hedge accounting because it is
probable that a forecasted transaction will not occur, we
continue to carry the derivative on the balance sheet at its
fair value with changes in fair value included in earnings,
and immediately recognize gains and losses that were accu-
mulated in other comprehensive income in earnings.

When we discontinue hedge accounting because the hedg-

ing instrument is sold, terminated, or no longer designated
(dedesignated), the amount reported in other comprehensive
income up to the date of sale, termination or dedesignation
continues to be reported in other comprehensive income
until the forecasted transaction affects earnings.

In all other situations in which we discontinue hedge
accounting, the derivative will be carried at its fair value on
the balance sheet, with changes in its fair value recognized in
current period earnings.

We occasionally purchase or originate financial
instruments that contain an embedded derivative. At
inception of the financial instrument, we assess (1) if the
economic characteristics of the embedded derivative are
clearly and closely related to the economic characteristics
of the financial instrument (host contract), (2) if the
financial instrument that embodies both the embedded
derivative and the host contract is measured at fair value
with changes in fair value reported in earnings, or (3) if a
separate instrument with the same terms as the embedded
instrument would meet the definition of a derivative. If the
embedded derivative does not meet any of these conditions,
we separate it from the host contract and carry it at fair
value with changes recorded in current period earnings.

Total stock-based employee compensation was higher
under the fair value method in 2004 compared with 2003.
Stock options granted in our February 2004 grant, under
our Long-Term Incentive Compensation Plan (the Plan),
fully vested upon grant, resulting in full recognition of
stock-based compensation expense for the 2004 annual
grant under the fair value method in the table on the previ-
ous page. Stock options granted in our 2003, 2002 and
2001 annual grants under the Plan vest over a three-year
period, and expense reﬂected in the table for these grants
is recognized over the vesting period.

Earnings Per Common Share
We present earnings per common share and diluted earnings
per common share. We compute earnings per common share
by dividing net income (after deducting dividends on preferred
stock) by the average number of common shares outstanding
during the year. We compute diluted earnings per common
share by dividing net income (after deducting dividends on
preferred stock) by the average number of common shares
outstanding during the year, plus the effect of common stock
equivalents (for example, stock options, restricted share
rights and convertible debentures) that are dilutive.

Derivatives and Hedging Activities
We recognize all derivatives on the balance sheet at fair
value. On the date we enter into a derivative contract, we
designate the derivative as (1) a hedge of the fair value of a
recognized asset or liability (“fair value” hedge), (2) a hedge
of a forecasted transaction or of the variability of cash ﬂows
to be received or paid related to a recognized asset or liability
(“cash ﬂow” hedge) or (3) held for trading, customer accom-
modation or a contract not qualifying for hedge accounting
(“free-standing derivative”). For a fair value hedge, we record
changes in the fair value of the derivative and, to the extent
that it is effective, changes in the fair value of the hedged
asset or liability, attributable to the hedged risk, in current
period net income in the same ﬁnancial statement category
as the hedged item. For a cash ﬂow hedge, we record changes
in the fair value of the derivative to the extent that it is
effective in other comprehensive income. We subsequently
reclassify these changes in fair value to net income in the
same period(s) that the hedged transaction affects net income
in the same ﬁnancial statement category as the hedged item.
For free-standing derivatives, we report changes in the fair
values in current period noninterest income.

We formally document the relationship between hedging

instruments and hedged items, as well as our risk manage-
ment objective and strategy for various hedge transactions.
This includes linking all derivatives designated as fair value
or cash ﬂow hedges to speciﬁc assets and liabilities on the
balance sheet or to speciﬁc forecasted transactions. We also

Note 2: Business Combinations

We regularly explore opportunities to acquire ﬁnancial
services companies and businesses. Generally, we do not
make a public announcement about an acquisition
opportunity until a deﬁnitive agreement has been signed.
Effective December 31, 2004, we completed the
acquisition of $29 billion in assets under management,
comprising $24 billion in mutual fund assets and $5 billion
in institutional investment accounts, from Strong Financial
Corporation. Other business combinations completed in
2004, 2003 and 2002 were:

(in millions)

2004
Other (1)

2003
Certain assets of Telmark, LLC, Syracuse, New York
Paciﬁc Northwest Bancorp, Seattle, Washington
Two Rivers Corporation, Grand Junction, Colorado
Other (2)

2002
Texas Financial Bancorporation, Inc., Minneapolis, Minnesota
Five afﬁliated banks and related entities of Marquette Bancshares, Inc.
located in Minnesota, Wisconsin, Illinois, Iowa and South Dakota

Rediscount business of Washington Mutual Bank, FA, Philadelphia, Pennsylvania
Tejas Bancshares, Inc., Amarillo, Texas
Other (3)

At December 31, 2004, we had two pending business
combinations with total assets of approximately $720 mil-
lion. We expect to complete these transactions by second
quarter 2005.

For information on contingent consideration related to
acquisitions, which are considered guarantees, see Note 25.

Date

Various

February 28
October 31
October 31
Various

February 1

February 1
March 28
April 26
Various

Assets

$ 660
3,245
74
136
$ 4,115

$2,957

3,086
281
374
94
$ 6,792

(1) Consists of 13 acquisitions of insurance brokerage and payroll services businesses.
(2) Consists of 14 acquisitions of asset management, commercial real estate brokerage, bankruptcy and insurance brokerage businesses.
(3) Consists of 6 acquisitions of asset management, securities brokerage and insurance brokerage businesses.

Note 3: Cash, Loan and Dividend Restrictions

Federal Reserve Board regulations require that each of our
subsidiary banks maintain reserve balances on deposits with
the Federal Reserve Banks. The average required reserve
balance was $1.2 billion and $1.0 billion in 2004 and
2003, respectively.

Federal law restricts the amount and the terms of both
credit and non-credit transactions between a bank and its
nonbank afﬁliates. They may not exceed 10% of the bank’s
capital and surplus (which for this purpose represents Tier 1
and Tier 2 capital, as calculated under the risk-based capital
guidelines, plus the balance of the allowance for credit losses
excluded from Tier 2 capital) with any single nonbank afﬁli-
ate and 20% of the bank’s capital and surplus with all its
nonbank afﬁliates. Transactions that are extensions of credit
may require collateral to be held to provide added security to
the bank. (For further discussion of risk-based capital, see
Note 26.)

Dividends paid by our subsidiary banks are subject to
various federal and state regulatory limitations. Dividends
that may be paid by a national bank without the express
approval of the Ofﬁce of the Comptroller of the Currency
(OCC) are limited to that bank’s retained net proﬁts for the
preceding two calendar years plus retained net proﬁts up to
the date of any dividend declaration in the current calendar
year. Retained net proﬁts, as deﬁned by the OCC, consist of
net income less dividends declared during the period. We also
have state-chartered subsidiary banks that are subject to
state regulations that limit dividends. Under those provisions,
our national and state-chartered subsidiary banks could
have declared additional dividends of $1,154 million and
$844 million at December 31, 2004 and 2003, respectively,
without obtaining prior regulatory approval. In addition,
our nonbank subsidiaries could have declared additional
dividends of $1,638 million and $1,682 million at
December 31, 2004 and 2003, respectively.

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

December 31,
2003

2004

$3,009

1,397

614

$5,020

$2,081

988

664

$3,733

Note 5: Securities Available for Sale

The following table provides the cost and fair value for the
major categories of securities available for sale carried at fair

value. There were no securities classiﬁed as held to maturity
at the end of 2004 or 2003.

(in millions)

Cost

December 31,
2003
Fair
value

2004
Fair
value

Cost

Unrealized
gross
gains

Unrealized
gross
losses

Unrealized Unrealized
gross
losses

gross
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 (1)
Total mortgage-backed securities

Other

Total debt securities

Marketable equity securities

$ 1,128
3,429

16
196

$ (4)
(4)

$ 1,140
3,621

$ 1,252
3,175

35
176

$ (1)
(5)

$ 1,286
3,346

20,198

4,082
24,280
2,974
31,811
507

750

121
871
157
1,240
198

(4)

20,944

20,353

799

(22)

21,130

(4)
(8)
(14)
(30)
(9)

$(39)

4,199
25,143
3,117
33,021
696

3,056
23,409
3,285
31,121
394

$33,717

$31,515

106
905
198
1,314
188

$1,502

(8)
(30)
(28)
(64)
—

3,154
24,284
3,455
32,371
582

$(64)

$32,953

Total (2)

$32,318

$1,438

(1) A majority of private collateralized mortgage obligations are AAA-rated bonds collateralized by 1–4 family residential ﬁrst mortgages.
(2) At December 31, 2004, 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, 2004, by length of time that individual securities
in each category have been in a continuous loss position.

(in millions)

Less than 12 months
Fair
value

Unrealized
gross
losses

December 31, 2004
Total
Fair
value

12 months or more
Fair
value

Unrealized
gross
losses

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 mortgage-backed securities

Other

Total debt securities

Marketable equity securities

Total

$ (4)
(1)

(4)

(4)
(8)
(11)
(24)
(9)
$(33)

$ 304
65

450

981
1,431
584
2,384
44
$2,428

$—
(3)

—

—
—
(3)
(6)
—
$ (6)

$ —
62

—

—
—
56
118
—
$118

$ (4)
(4)

(4)

(4)
(8)
(14)
(30)
(9)
$(39)

$ 304
127

450

981
1,431
640
2,502
44
$2,546

We had a limited number of debt securities in a continuous
loss position for 12 months or more at December 31, 2004,
which consisted of asset-backed securities, bonds and notes.
Because the declines in fair value were due to changes in
market interest rates, not in estimated cash ﬂows, and because
we have the intent and ability to retain our investment in
the issuer for a period of time to allow for any anticipated
recovery in market value, no other-than-temporary impair-
ment was recorded at December 31, 2004.

Securities pledged where the secured party has the right
to sell or repledge totaled $2.3 billion at December 31, 2004,
and $3.2 billion at December 31, 2003. Securities pledged
where the secured party does not have the right to sell or
repledge totaled $19.4 billion at December 31, 2004, and
$18.6 billion at December 31, 2003, 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
$2.5 billion at December 31, 2004, and $2.1 billion at
December 31, 2003, of which we sold or repledged
$1.7 billion and $1.8 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.

(in millions)

Realized gross gains
Realized gross losses (1)
Realized net gains

2004

$ 168

(108)

$ 60

Year ended December 31,
2002

2003

$ 178

(116)

$ 62

$ 617

(419)

$ 198

(1) Includes other-than-temporary impairment of $9 million, $50 million and

$180 million for 2004, 2003 and 2002, respectively.

The following table shows the remaining contractual
principal maturities and contractual yields of debt securities
available for sale. The remaining contractual principal
maturities for mortgage-backed securities were allocated
assuming no prepayments. Remaining expected maturities
will differ from contractual maturities because borrowers
may have the right to prepay obligations before the
underlying mortgages mature.

(in millions)

amount

Total Weighted-
average
yield

December 31, 2004
Remaining contractual principal maturity

Within one year
Yield

Amount

After one year
through ﬁve years
Yield
Amount

After five years
through ten years
Yield
Amount

After ten years
Yield
Amount

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 mortgage-backed securities

Other

ESTIMATED FAIR VALUE

OF DEBT SECURITIES (1)

TOTAL COST OF DEBT SECURITIES

$ 1,140

3.51%

$278

3.02% $ 774

3.47% $

4.99% $

5.73%

3,621

20,944

4,199
25,143
3,117

$33,021

$31,811

7.20

5.80

4.98
5.67
8.42

6.02%

253

8.10

1,011

7.73

1,020

7.35

1,337

6.51

—
28
207

$766

$645

2.79

—
2.79
4.63

5.55

5.72

20,761

5.81

3
92
1,037

6.80
5.60
8.46

4
70
1,115

3.79
5.60
8.79

4,192
24,953
758

4.98
5.67
8.84

5.12% $2,914

6.79% $2,248

7.97% $27,093

5.80%

$2,504

$2,093

$26,569

(1) The weighted-average yield is computed using the contractual life amortization method.

Note 6: Loans and Allowance for Credit Losses

A summary of the major categories of loans outstanding is
shown in the following table. Outstanding loan balances at
December 31, 2004 and 2003, are net of unearned income,
including net deferred loan fees, of $3,766 million and
$3,430 million, respectively.

At December 31, 2004 and 2003, we did not have any
concentrations greater than 10% of total loans included in

any of the following loan categories: commercial loans by
industry; commercial real estate loans by state or property
type; real estate 1–4 family ﬁrst and junior lien mortgages
by state, except for California, which represented 18% of
total loans at December 31, 2004, and 19% of total loans
at December 31, 2003; or other revolving credit and
installment loans by product type.

December 31,
2000

2004

2002

2003

2001

$ 54,517
29,804
9,025
5,169
98,515

87,686
52,190
10,260
34,725
184,861
4,210
$287,586

$ 48,729
27,592
8,209
4,477
89,007

83,535
36,629
8,351
33,100
161,615
2,451
$253,073

$ 47,292
25,312
7,804
4,085
84,493

44,119
28,147
7,455
26,353
106,074
1,911
$192,478

$ 47,547
24,808
7,806
4,017
84,178

29,317
21,801
6,700
23,502
81,320
1,598
$167,096

$ 50,518
23,972
7,715
4,350
86,555

19,321
17,361
6,616
23,974
67,272
1,624
$155,451

In addition, we manage the potential risk in credit com-
mitments by limiting the total amount of arrangements, both
by individual customer and in total, by monitoring the size
and maturity structure of these portfolios and by applying
the same credit standards for all of our credit activities.

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 categories in the following table.

(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

December 31,
2003

2004

$ 59,603
2,788
7,164

$ 52,211
1,961
5,644

69,555

59,816

9,009
31,396
38,200
15,427
94,032
407

6,428
23,436
24,831
11,219
65,914
238

Total loan commitments

$163,994

$125,968

(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

In assessing adequate compensation for the credit risk
presented by a customer, we may require collateral. We hold
various types of collateral, including accounts receivable,
inventory, land, buildings, equipment, income-producing
commercial properties and residential real estate. Collateral
requirements for each customer may vary according to the
speciﬁc credit underwriting, terms and structure of loans
funded immediately or under a commitment to fund at a
later date.

A commitment to extend credit is a legally binding
agreement to lend funds to a customer, usually at a stated
interest rate and for a speciﬁed purpose. These commitments
have ﬁxed expiration dates and generally require a fee. When
we make such a commitment, we have credit risk. The liquidity
requirements or credit risk will be lower than the contractual
amount of commitments to extend credit because a signiﬁcant
portion of these commitments are expected to expire without
being used. Certain commitments are subject to loan agreements
with covenants regarding the ﬁnancial performance of the
customer that must be met before we are required to fund
the commitment. We use the same credit policies for
commitments to extend credit that we use in making loans.
For information on standby letters of credit, see Note 25.

The allowance for credit losses comprises the allowance for

Changes in the allowance for credit losses were:

loan losses and the reserve for unfunded credit commitments.

(in millions)

2004

2003

2002

Year ended December 31,
2000

2001

Balance, beginning of year

$ 3,891

$ 3,819

$ 3,717

$ 3,681

$ 3,312

Allowances related to business combinations/other

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

Balance, end of year

Components:

Allowance for loan losses
Reserve for unfunded credit commitments (1)

Allowance for credit losses

Net loan charge-offs as a percentage of average total loans

Allowance for loan losses as a percentage of total loans
Allowance for credit losses as a percentage of total loans

1,717

(424)
(25)
(5)
(62)
(516)

(53)
(107)
(463)
(919)
(1,542)
(143)
(2,201)

150
17
6
26
199

6
24
62
220
312
24
535
(1,666)

$ 3,950

$ 3,762
188
$ 3,950

1,722

(597)
(33)
(11)
(41)
(682)

(47)
(77)
(476)
(827)
(1,427)
(105)
(2,214)

177
11
11
8
207

10
13
50
196
269
19
495
_(1,719)

$ 3,891

$ 3,891
—
$ 3,891

1,684

(716)
(24)
(40)
(21)
(801)

(39)
(55)
(407)
(770)
(1,271)
(84)
(2,156)

162
16
19
—
197

8
10
47
205
270
14
481
(1,675)

$ 3,819

$ 3,819
—
$ 3,819

1,727

(692)
(32)
(37)
(22)
(783)

(40)
(36)
(421)
(770)
(1,267)
(78)
(2,128)

96
22
3
—
121

6
8
40
203
257
18
396
(1,732)

$ 3,717

$ 3,717
—
$ 3,717

265

1,284

(429)
(32)
(8)
—
(469)

(16)
(34)
(367)
(623)
(1,040)
(86)
(1,595)

98
13
4
—
115

4
14
39
213
270
30
415
(1,180)

$ 3,681

$ 3,681
—
$ 3,681

.62%

1.31%
1.37

.81%

1.54%
1.54

.96%

1.98%
1.98

1.10%

2.22%
2.22

.84%

2.37%
2.37

(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.

We have an established process to determine the adequacy

of the allowance for credit losses that assesses the risks and
losses inherent in our portfolio. This process supports an
allowance consisting of two components, allocated and
unallocated. For the allocated component, we combine
estimates of the allowances needed for loans analyzed on
a pooled basis and loans analyzed individually (including
impaired loans).

Approximately two-thirds of the allocated allowance
is determined at a pooled level for retail loan portfolios
(consumer loans and leases, home mortgage loans, and some
segments of small business loans). We use forecasting models
to measure inherent loss in these portfolios. We frequently
validate and update these models to capture recent behavioral
characteristics of the portfolios, as well as any changes in our
loss mitigation or marketing strategies.

We use a standardized loan grading process for wholesale

loan portfolios (commercial, commercial real estate, real
estate construction and leases) and review larger higher-risk
transactions individually. Based on this process, we assign a
loss factor to each pool of graded loans. For graded loans
with evidence of credit weakness at December 31, 2004, the
loss factors are derived from migration models that track loss
content associated with actual portfolio movements between
loan grades over a speciﬁed period of time. For graded loans
without evidence of credit weakness at December 31, 2004,
we use a combination of our long-term average loss experience
and external loss data. In addition, we individually review
nonperforming loans over $3 million for impairment based
on cash ﬂows or collateral. We include the impairment on
nonperforming loans in the allocated allowance unless it
has already been recognized as a loss.

We consider the allowance for credit losses of $3.95 billion
adequate to cover credit losses inherent in the loan portfolio,
including unfunded commitments, at December 31, 2004.

Nonaccrual loans were $1,358 million and $1,458 million

at December 31, 2004 and 2003, respectively. Loans past
due 90 days or more as to interest or principal and still
accruing interest were $2,578 million at December 31, 2004
and $2,337 million at December 31, 2003. The 2004 and
2003 balances included $1,820 million and $1,641 million,
respectively, in advances pursuant to our servicing agreements
to the Government National Mortgage Association (GNMA)
mortgage pools whose repayments are insured by the Federal
Housing Administration or guaranteed by the Department of
Veteran Affairs. Prior to clarifying guidance issued in 2003
as to classiﬁcation as loans, GNMA advances were included
in other assets.

The potential risk from unfunded loan commitments and

The recorded investment in impaired loans and the

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.
At December 31, 2004, the reserve for these unfunded credit
commitments was $188 million, less than 5% of the allowance
for credit losses. At December 31, 2003, 3% of the total
allowance for credit losses related to this potential risk.

The allocated allowance is supplemented by the unallo-
cated allowance to adjust for imprecision and to incorporate
the range of probable outcomes inherent in estimates used
for the allocated allowance. The unallocated 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.

Like all national banks, our subsidiary national banks

continue to be subject to examination by their primary
regulator, the Ofﬁce of the Comptroller of the Currency
(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 its nonbank
subsidiaries are examined by the Federal Reserve Board.

methodology used to measure impairment was:

(in millions)

Impairment measurement based on:

Collateral value method
Discounted cash ﬂow method

Total (1)

December 31,
2003
2004

$183
126
$309

$386
243
$629

(1) Includes $107 million and $59 million of impaired loans with a related allowance

of $17 million and $8 million at December 31, 2004 and 2003, respectively.

The average recorded investment in impaired loans during

2004, 2003 and 2002 was $481 million, $668 million and
$705 million, respectively.

All of our impaired loans are on nonaccrual status.
When the ultimate collectibility of the total principal of
an impaired loan is in doubt, all payments are applied to
principal, under the cost recovery method. When the ultimate
collectibility of the total principal of an impaired loan is not
in doubt, contractual interest is credited to interest income
when received, under the cash basis method. Total interest
income recognized for impaired loans in 2004, 2003 and
2002 under the cash basis method was not signiﬁcant.

Note 7: Premises, Equipment, Lease Commitments and Other Assets

Operating lease rental expense (predominantly for premises),

net of rental income, was $586 million, $574 million and
$535 million in 2004, 2003 and 2002, respectively.

The components of other assets were:

(in millions)

Nonmarketable equity investments:
Private equity investments
Federal bank stock
All other

Total nonmarketable equity

investments (1)

Operating lease assets
Accounts receivable
Interest receivable
Core deposit intangibles
Foreclosed assets
Due from customers on acceptances
Other

December 31,
2003

2004

$ 1,449
1,713
2,067

$ 1,714
1,765
1,542

5,229

3,642
2,682
1,483
603
212
170
8,470

5,021

3,448
2,456
1,287
737
198
137
6,845

Total other assets

$22,491

$20,129

(1) At December 31, 2004 and 2003, $3.3 billion and $2.8 billion, respectively, of
nonmarketable equity investments, including all federal bank stock, were
accounted for at cost.

Income related to nonmarketable equity investments was:

(in millions)

Nonmarketable equity investments:
Net gains (losses) from private

equity investments

Net gains from all other nonmarketable

equity investments
Net gains from nonmarketable

equity investments

Year ended December 31,
2003

2004

$319

$352

$ (3)

116

$113

(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

2004

$ 585
2,974
3,110
1,049

60
7,778

3,928

Net book value, premises and equipment $3,850

December 31,
2003

$ 521
2,699
3,013
957

57
7,247

3,713

$3,534

Depreciation and amortization expense for premises and
equipment was $654 million, $666 million and $599 million
in 2004, 2003 and 2002, respectively.

Net losses on dispositions of premises and equipment,
included in noninterest expense, were $5 million, $46 million
and $52 million in 2004, 2003 and 2002, respectively.

We have obligations under a number of noncancelable
operating leases for premises (including vacant premises)
and equipment. The terms of these leases, including renewal
options, are predominantly up to 15 years, with the longest
up to 75 years, and many provide for periodic adjustment of
rentals based on changes in various economic indicators. The
future minimum payments under noncancelable operating
leases and capital leases, net of sublease rentals, with terms
greater than one year as of December 31, 2004, were:

(in millions)

Operating leases

Capital leases

Year ended December 31,
2005
2006
2007
2008
2009
Thereafter

Total minimum lease payments

Executory costs
Amounts representing interest

Present value of net minimum

lease payments

$ 476
398
332
268
219
835

$2,528

$ 7
4
2
2
1
15

(2)
(9)

$20

77
77

Note 8:

Intangible Assets

The gross carrying amount of intangible assets and
accumulated amortization was:

(in millions)

2004
Gross Accumulated
carrying amortization
amount

December 31,
2003
Gross Accumulated
carrying amortization
amount

As of December 31, 2004, the current year and estimated

future amortization expense for amortized intangible
assets was:

(in millions)

Mortgage
servicing
rights

Core
deposit
intangibles

Other

Total

Amortized intangible assets:
Mortgage servicing
rights, before
valuation
allowance (1)

Core deposit
intangibles

Other

Total amortized

$ 18,903

$ 9,437

$16,459

$7,611

2,426
567

1,823
296

2,426
392

1,689
273

2005
2006
2007
2008
2009

Year ended

December 31, 2004
Estimate for year ended

December 31,

$1,826

$134

$26

$1,986

$ 1,828
1,413
1,115
930
762

$ 123
110
100
92
85

$ 51
47
44
25
23

$ 2,002
1,570
1,259
1,047
870

intangible assets $21,896

$11,556

$19,277

$9,573

Unamortized

intangible asset
(trademark)

$ 14

(1) See Note 22 for additional information on MSRs and the related

valuation allowance.

We based the projections of amortization expense for
mortgage servicing rights shown above on existing asset
balances and the existing interest rate environment as
of December 31, 2004. Future amortization expense may
be signiﬁcantly different depending upon changes in the
mortgage servicing portfolio, mortgage interest rates and
market conditions. We based the projections of amortization
expense for core deposit intangibles shown above on existing
asset balances at December 31, 2004. Future amortization
expense may vary based on additional core deposit
intangibles acquired through business combinations.

Note 9: Goodwill

The changes in the carrying amount of goodwill as allocated to our operating segments for goodwill impairment analysis were:

(in millions)

December 31, 2002

Goodwill from business combinations
Foreign currency translation adjustments
Goodwill written off related to divested businesses

December 31, 2003

Goodwill from business combinations
Foreign currency translation adjustments

December 31, 2004

Community
Banking

Wholesale
Banking

Wells Fargo
Financial

Consolidated
Company

$ 6,743
545
—
(2)

7,286
5
—
$7,291

$ 2,667
68
—
—

2,735
302
—
$3,037

$ 343
—
7
—

350
—
3
$353

$ 9,753
613
7
(2)

10,371
307
3
$10,681

For goodwill impairment testing, enterprise-level goodwill

acquired in business combinations is allocated to reporting
units based on the relative fair value of assets acquired and
recorded in the respective reporting units. Through this allo-
cation, we assigned enterprise-level goodwill to the reporting
units that are expected to beneﬁt from the synergies of the
combination. We used discounted estimated future net cash
ﬂows to evaluate goodwill reported at all reporting units.

For our goodwill impairment analysis, we allocate all
of the goodwill to the individual operating segments. For
management reporting we do not allocate all of the goodwill
to the individual operating segments: some is allocated at
the enterprise level. See Note 20 for further information
on management reporting. The balances of goodwill for
management reporting were:

(in millions)

December 31, 2003

December 31, 2004

Community
Banking

$ 3,439

$3,444

Wholesale
Banking

$ 785

$1,087

Wells Fargo
Financial

$ 350

$353

Enterprise

$ 5,797

$5,797

Consolidated
Company

$ 10,371

$10,681

Note 10: Deposits

The total of time certificates of deposit and other time
deposits issued by domestic offices was $55,495 million
and $47,322 million at December 31, 2004 and 2003,
respectively. Substantially all of those deposits were
interest bearing. The contractual maturities of those
deposits were:

(in millions)

2005
2006
2007
2008
2009
Thereafter
Total

December 31, 2004

$47,937
3,758
1,909
953
604
334

$55,495

Of those deposits, the amount of time deposits with a
denomination of $100,000 or more was $41,851 million
and $33,258 million at December 31, 2004 and 2003,
respectively. The contractual maturities of these
deposits were:

(in millions)

December 31, 2004

Three months or less
After three months through six months
After six months through twelve months
After twelve months

Total

$37,990
778
1,115
1,968
$41,851

Time certiﬁcates of deposit and other time deposits issued
by foreign ofﬁces with a denomination of $100,000 or more
represent the majority of all of our foreign deposit liabilities
of $8,533 million and $8,768 million at December 31, 2004
and 2003, respectively.

Demand deposit overdrafts of $470 million and $655 mil-

lion were included as loan balances at December 31, 2004
and 2003, respectively.

Note 11: Short-Term Borrowings

The table below shows selected information for short-term
borrowings, which generally mature in less than 30 days.

maintenance of compensating balances or payment of fees,
which were not material.

At December 31, 2004, we had $1.09 billion available in

lines of credit. These ﬁnancing arrangements require the

(in millions)

Amount

2004
Rate

2003
Rate

Amount

2002
Rate

Amount

As of December 31,
Commercial paper and other short-term borrowings

Federal funds purchased and securities sold under

agreements to repurchase

Total

Year ended December 31,
Average daily balance
Commercial paper and other short-term borrowings

Federal funds purchased and securities sold under

agreements to repurchase

Total

Maximum month-end balance
Commercial paper and other short-term borrowings (1)

Federal funds purchased and securities sold under

agreements to repurchase (2)

$ 6,225

2.40%

$ 6,709

1.26%

$11,109

1.57%

15,737

$21,962

2.04

2.14

17,950

$24,659

.84

.95

22,337

$33,446

1.08

1.24

$10,010

1.56%

$11,506

1.22%

$13,048

1.84%

16,120

$26,130

1.22

1.35

18,392

$29,898

$16,492

N/A

$14,462

22,117

N/A

24,132

.99

1.08

N/A

20,230

$33,278

$17,323

33,647

1.47

1.61

N/A

N/A – Not applicable.
(1) Highest month-end balance in each of the last three years was in July 2004, January 2003 and January 2002.
(2) Highest month-end balance in each of the last three years was in June 2004, April 2003 and January 2002.

Note 12: Long-Term Debt

Following is a summary of long-term debt, based on original maturity, (reﬂecting unamortized debt discounts and premiums,
where applicable) owed by the Parent and its subsidiaries:

(in millions)

Wells Fargo & Company (Parent only)

Senior
Global Notes (1)
Floating-Rate Notes
Extendable Notes (2)
Equity Linked Notes (3)
Convertible Debenture (4)

Total senior debt – Parent

Subordinated
Fixed-Rate Notes (1)
FixFloat Notes

Total subordinated debt – Parent

Junior Subordinated
Fixed-Rate Notes (1)(5)

Total junior subordinated debt – Parent

Total long-term debt – Parent

Wells Fargo Bank, N.A. and its subsidiaries (WFB, N.A.)

Senior
Fixed-Rate Bank Notes (1)
Floating-Rate Notes
Floating-Rate Federal Home Loan Bank (FHLB) Advances
FHLB Notes and Advances (1)
Equity Linked Notes (3)
Notes payable by subsidiaries
Other notes and debentures
Other notes and debentures
Obligations of subsidiaries under capital leases (Note 7)

Total senior debt – WFB, N.A.

Subordinated
Fixed-Rate Bank Notes (1)
FixFloat Notes (1)
Floating-Rate Notes
Notes
Other notes and debentures

Total subordinated debt – WFB, N.A.
Total long-term debt – WFB, N.A.

Wells Fargo Financial, Inc., and its subsidiaries (WFFI)

Senior
Fixed-Rate Notes
Floating-Rate Notes

Total long-term debt – WFFI

Maturity
date(s)

2005-2027
2005-2009
2005-2009
2006-2014
2033

2011-2023
2012

Stated
interest
rate(s)

2.20-7.65%
Varies
Varies
Varies
Varies

4.625-6.65%
4.00% through 2006, varies

2031-2034

5.625-7.00%

2006-2007
2005-2034
2005-2011
2012
2005-2014
2005-2024
2005-2013
2005-2011

2011-2013
2010
2011-2013
2010-2011
2008-2013

1.50-2.75%
Varies
Varies
5.20%
2.08-5.13%
3.132-21.08%
1.14-3.83%
Varies

7.73-9.39%
Varies
Varies
6.45-7.55%
6.00-12.00%

2004

December 31,
2003

$12,970
20,155
5,500
472
3,000
42,097

4,502
299
4,801

3,248
3,248
50,146

165
7,604
1,400
200
40
79
53
11
19
9,571

—
998
—
2,821
11
3,830
13,401

$ 9,497
12,905
2,999
297
3,000
28,698

3,280
299
3,579

2,732
2,732
35,009

210
9,035
1,075
3,310
—
79
—
11
7
13,727

16
998
43
2,867
—
3,924
17,651

2005-2012
2005-2034

1.47-7.60%
Varies

5,343
1,303
$ 6,646

6,969
1,292
$ 8,261

(1) 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 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, at the investor's option,

to a ﬁnal maturity of 5 years.

(3) These notes are linked to baskets of equities, commodities or equity indices.
(4) 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.

(5) See Note 13 (Guaranteed Preferred Beneﬁcial Interests in Company’s Subordinated Debentures).

(continued on following page)

(continued from previous page)

(in millions)

Other consolidated subsidiaries

Senior
Fixed-Rate Notes
Floating-Rate FHLB Advances
Other notes and debentures – Floating-Rate
Other notes and debentures
Other notes and debentures
Obligations of subsidiaries under capital leases (Note 7)
Total senior debt – Other consolidated subsidiaries

Subordinated
Notes
Notes (1)
Other notes and debentures – Floating-Rate
Other notes and debentures

Total subordinated debt – Other consolidated subsidiaries

Junior Subordinated
Fixed-Rate Notes (5)
Floating-Rate Notes (5)

Total junior subordinated debt – Other consolidated subsidiaries

Total long-term debt – Other consolidated subsidiaries

Total long-term debt

Maturity
date(s)

2005-2031
2008-2009
2011
2005-2016
2007

2008
2005-2006
2005
2005-2008

2026-2029
2027-2032

Stated
interest
rate(s)

1.50-6.97%
Varies
Varies
1.16-3.50%
Varies

6.25%
6.875-7.31%
7.55%
1.23-11.88%

7.73-9.875%
Varies

2004

December 31,
2003

$ 93
500
10
471
1
1
1,076

222
889
85
83
1,279

865
167
1,032
3,387
$73,580

$ 150
—
10
41
5
18
224

228
1,091
85
57
1,461

868
168
1,036
2,721
$63,642

At December 31, 2004, the principal payments, including

The interest rates on ﬂoating-rate notes are determined

sinking fund payments, on long-term debt are due as noted:

(in millions)

2005
2006
2007
2008
2009
Thereafter

Total

Parent

$ 8,149
7,358
10,592
6,666
5,928
11,453

$50,146

Company

$14,586
9,113
13,352
9,831
6,954
19,744

$73,580

periodically by formulas based on certain money market
rates, subject, on certain notes, to minimum or maximum
interest rates.

As part of our long-term and short-term borrowing
arrangements, we are subject to various ﬁnancial and opera-
tional covenants. Some of the agreements under which debt
has been issued have provisions that may limit the merger or
sale of certain subsidiary banks and the issuance of capital
stock or convertible securities by certain subsidiary banks.
At December 31, 2004, we were in compliance with all
the covenants.

Note 13: Guaranteed Preferred Beneﬁcial Interests in Company’s Subordinated Debentures

Effective December 31, 2003, as a result of the adoption
of FIN 46R we deconsolidated certain wholly-owned trusts
formed for the sole purpose of issuing trust preferred securi-
ties (the Trusts).With respect to those Trusts that would
otherwise be subject to reporting obligations under SEC
rules and regulations, the Parent has provided a full and
unconditional guarantee of the trust preferred securities,
and the Trusts have no operating histories or independent
operations and are not engaged in and do not propose to
engage in any other activity.

Information with respect to the Trusts is summarized
in the table to the right and information with respect to
the Parent is included in Note 23 (Condensed Consolidating
Financial Statements). The trust preferred securities qualiﬁed
as Tier 1 capital. See Note 26 (Regulatory and Agency
Capital Requirements). The junior subordinated debentures

held by the Trusts are included in the Company’s long-term
debt. See Note 12 (Long-Term Debt). Prior to December 31,
2003, the Trusts were consolidated subsidiaries and the trust
preferred securities were included in liabilities in the consoli-
dated balance sheet, as “Guaranteed preferred beneﬁcial
interests in Company’s subordinated debentures.”

($ in millions)

December 31,
2003

2004

Company’s junior subordinated debentures

$4,280

$3,768

Trust common securities
Trust preferred securities

Number of Trusts

$ 129
4,151
$4,280

$ 113
3,655
$3,768

Note 14: Preferred Stock

We are authorized to issue 20 million shares of preferred
stock and 4 million shares of preference stock, both without
par value. Preferred shares outstanding rank senior to com-
mon shares both as to dividends and liquidation preference
but have no general voting rights. We have not issued any
preference shares under this authorization.

On November 15, 2003, all shares of the Adjustable-Rate

Cumulative, Series B, preferred stock were redeemed.
Preferred dividends of $3 million and $4 million were
declared in 2003 and 2002, respectively.

ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK
All shares of our ESOP Cumulative Convertible Preferred
Stock (ESOP Preferred Stock) were issued to a trustee acting
on behalf of the Wells Fargo & Company 401(k) Plan.

Dividends on the ESOP Preferred Stock are cumulative from
the date of initial issuance and are payable quarterly at
annual rates ranging 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 of the ESOP Preferred Stock.

ESOP Preferred Stock (1):

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

Shares issued
and outstanding
December 31,
2003

2004

Carrying amount
(in millions)
December 31,
2003

2004

Adjustable
dividend rate
Maximum

Minimum

89,420

60,513

46,694

34,279

24,362

8,722

2,985

2,206

382

—

68,238

53,641

40,206

29,492

11,032

4,075

4,081

2,927

408

$ 90

$ —

8.50%

9.50%

—

8.50

10.50

11.50

10.30

10.75

9.50

8.50

10.00

9.50

11.50

12.50

11.30

11.75

10.50

9.50

10.00

Total ESOP Preferred Stock
Unearned ESOP shares (2)

269,563

214,100

$ 270

$(289)

$ 214

$(229)

(1) Liquidation preference $1,000.
(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 15.

Note 15: Common Stock and Stock Plans

Common Stock
Our reserved, issued and authorized shares of common stock
at December 31, 2004, were:

Dividend reinvestment and

common stock purchase plans

Director plans
Stock plans (1)

Total shares reserved

Shares issued
Shares not reserved

Total shares authorized

Number of shares

2,304,973
734,684
212,321,072
215,360,729
1,736,381,025
4,048,258,246
6,000,000,000

(1) Includes employee option, restricted shares and restricted share rights, 401(k),

proﬁt sharing and compensation deferral plans.

Dividend Reinvestment and Common Stock Purchase Plans
Participants in our dividend reinvestment and common stock
direct purchase plans may purchase shares of our common
stock at fair market value by reinvesting dividends and/or
making optional cash payments, under the plan’s terms.

Director Plans
We provide a stock award to non-employee directors as
part of their annual retainer under our director plans. We
also provide annual grants of options to purchase common
stock to each non-employee 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.

Employee Stock Plans
LONG-TERM INCENTIVE PLANS Our stock incentive plans provide
for awards of incentive and nonqualiﬁed stock options, stock
appreciation rights, restricted shares, restricted share rights,
performance awards and stock awards without restrictions.
We can grant employee stock options with exercise prices at
or above the fair market value (as deﬁned in the plan) of the
stock at the date of grant and with terms of up to ten years.
Options granted in 2003 and prior generally become fully
exercisable over three years from the date of grant. Options
granted in 2004 generally vest fully upon grant. Except as
otherwise permitted under the plan, if employment is ended
for reasons other than retirement, permanent disability
or death, the option period is reduced or the options
are canceled.

Options also may include the right to acquire a “reload”

stock option. If an option contains the reload feature and
if a participant pays all or part of the exercise price of the
option with shares of stock purchased in the market or held
by the participant for at least six months, upon exercise of
the option, the participant is granted a new option to pur-
chase, at the fair market value of the stock as of the date of
the reload, the number of shares of stock equal to the sum of
the number of shares used in payment of the exercise price
and a number of shares with respect to related statutory
minimum withholding taxes. Options granted in 2004 did
not include a reload feature.

We did not record any compensation expense for the
options granted under the plans during 2004, 2003 and
2002, as the exercise price was equal to the quoted market
price of the stock at the date of grant. The total number of
shares of common stock available for grant under the plans
at December 31, 2004, was 38,417,959.

Holders of restricted shares and restricted share rights are

entitled to the related shares of common stock at no cost
generally over three to ﬁve years after the restricted shares
or restricted share rights were granted. Holders of restricted
shares generally are entitled to receive cash dividends paid
on the shares. Holders of restricted share rights generally are
entitled to receive cash payments equal to the cash dividends
that would have been paid had the restricted share rights
been issued and outstanding shares of common stock. Except
in limited circumstances, restricted shares and restricted
share rights are canceled when employment ends.

In 2004, no restricted shares or restricted share rights

were granted. In 2003 and 2002, 61,740 and 81,380
restricted shares and restricted share rights were granted,
respectively, with a weighted-average grant-date per
share fair value of $56.05 and $45.47, respectively. At
December 31, 2004, 2003 and 2002, there were 448,150,
577,722 and 656,124 restricted shares and restricted share
rights outstanding, respectively. The compensation expense
for the restricted shares and restricted share rights equals the
quoted market price of the related stock at the date of grant
and is accrued over the vesting period. We recognized total
compensation expense for the restricted shares and restricted
share rights of $3 million in 2004, $4 million in 2003 and
$5 million in 2002.

For various acquisitions and mergers since 1992, we
converted employee and director stock options of acquired
or merged companies into stock options to purchase our
common stock based on the terms of the original stock
option plan and the agreed-upon exchange ratio.

BROAD-BASED PLANS In 1996, we adopted the PartnerShares®
Stock Option Plan, a broad-based employee stock option
plan. It covers full- and part-time employees who were
not included in the long-term incentive plans described on
the preceding page. The total number of shares of common
stock authorized for issuance under the plan since inception
through December 31, 2004, was 74,000,000, including
21,194,286 shares available for grant. The exercise date of
options granted under the PartnerShares Plan is the earlier of
(1) ﬁve years after the date of grant or (2) when the quoted

market price of the stock reaches a predetermined price.
These options generally expire ten years after the date of
grant. Because the exercise price of each PartnerShares
grant has been equal to or higher than the quoted market
price of our common stock at the date of grant, we do
not recognize any compensation expense.

The following table summarizes stock option activity

and related information for the three years ended
December 31, 2004.

Director Plans
Number Weighted-average
exercise price

Long-Term Incentive Plans
Number Weighted-average
exercise price

Broad-Based Plans
Weighted-average
Number
exercise price

Options outstanding as of December 31, 2001

312,916

$ 34.69

81,929,268

$ 37.23

45,414,315

$ 39.23

2002:

Granted
Canceled
Exercised
Acquisitions

44,786
—
(8,594)
—

50.22
—
30.56
—

23,790,286 (1)
(1,539,244)
(10,873,465)
72,892

Options outstanding as of December 31, 2002

349,108

36.78

93,379,737

2003:

Granted
Canceled
Exercised
Acquisitions

Options outstanding as of December 31, 2003

2004:

Granted
Canceled
Exercised

Options outstanding as of December 31, 2004

Outstanding options exercisable as of:

December 31, 2002
December 31, 2003
December 31, 2004

62,346
—
(59,707)
4,769

356,516

50,960
—
(21,427)
386,049

349,108
353,131
386,049

46.99
45.36
30.62
31.33

40.35

46.04
46.76
31.96
25.89

42.56

18,015,150
(10,092,056)
(3,249,213)
—

50,088,196

—
(4,293,930)
(6,408,797)
—

39,385,469

57.41
48.06
37.89
$46.46

—
(2,895,200)
(3,792,605)
32,697,664

47.22
—
26.90
31.42

40.19

56.39
—
18.81
$43.51

23,052,384 (1)
(1,529,868)
(13,884,561)
889,842

101,907,534

21,983,690 (1)
(1,241,637)
(18,574,660)
104,074,927

$ 36.78
40.08
43.51

54,429,329
63,257,541
84,702,073

$ 36.94
40.33
46.64

9,174,196
12,063,244
8,590,539

(1) Includes 4,909,864, 2,311,824 and 2,860,926 reload grants at December 31, 2004, 2003 and 2002, respectively.

The following table presents the weighted-average per
share fair value of options granted estimated using a Black-
Scholes option-pricing model and the weighted-average
assumptions used.

Per share fair value of options granted:

Director Plans
Long-Term Incentive Plans
Broad-Based Plans

Expected life (years)
Expected volatility
Risk-free interest rate
Expected annual dividend yield

2004

2003

2002

$9.34
9.32
—
4.4
23.8%
2.9
3.4

$9.59
9.48
—
4.3
29.2%
2.5
2.9

$13.45
12.34
15.62
5.0
31.6%
4.6
2.4

50.46
42.15
30.54
—

43.25

—
46.85
34.09
—

44.35

—
48.26
34.84
$45.10

$ 31.35
35.21
35.99

This table is a summary of our stock option plans described on the preceding page.

Range of exercise prices

Number

Options outstanding
Weighted-average
remaining contractual
life (in yrs.)

Weighted-average
exercise price

December 31, 2004
Options exercisable
Weighted-average
Number
exercise price

Director Plans

$7.84-$13.48
$13.49-$16.00
$16.01-$25.04
$25.05-$38.29
$38.30-$51.00
$51.01-$69.01

Long-Term Incentive Plans

$3.37-$5.06
$5.07-$7.60
$11.42-$17.13
$17.14 -$25.71
$25.72-$38.58
$38.59-$71.30

Broad-based Plans
$16.56
$24.85-$37.81
$37.82-$46.50
$46.51-$51.15

3,210
12,530
40,796
44,620
211,733
73,160

51,412
4,366
424,485
121,589
21,690,735
81,782,340

429,482
7,041,357
13,584,200
11,642,625

$10.80
15.49
22.08
32.92
46.53
59.43

$ 4.22
5.84
15.72
23.26
34.18
49.94

$16.56
35.29
46.46
50.50

1.01
.64
.93
2.86
6.62
7.75

5.10
21.02
1.09
3.21
3.94
7.05

1.56
3.41
5.85
7.22

3,210
12,530
40,796
44,620
211,733
73,160

51,412
4,366
334,485
121,589
21,476,235
62,713,986

429,482
7,041,357
738,150
381,550

$10.80
15.49
22.08
32.92
46.53
59.43

$ 4.22
5.84
15.48
23.26
34.17
51.16

$16.56
35.29
46.48
50.50

EMPLOYEE STOCK OWNERSHIP PLAN Under the Wells Fargo &
Company 401(k) Plan (the 401(k) Plan), a deﬁned contribu-
tion employee stock ownership plan (ESOP), the 401(k) Plan
may borrow money to purchase our common or preferred
stock. Beginning in 1994, we have loaned money to the
401(k) Plan to purchase shares of our ESOP Preferred Stock.
As we release and convert ESOP Preferred Stock into com-
mon shares, we record compensation expense equal to the
current market price of the common shares. Dividends
on the common shares allocated as a result of the release
and conversion of the ESOP Preferred Stock reduce retained

earnings and the shares are considered outstanding for
computing earnings per share. Dividends on the unallocated
ESOP Preferred Stock do not reduce retained earnings, and
the shares are not considered to be common stock equivalents
for computing earnings per share. Loan principal and interest
payments are made from our contributions to the 401(k)
Plan, along with dividends paid on the ESOP Preferred Stock.
With each principal and interest payment, a portion of the
ESOP Preferred Stock is released and, after conversion of
the ESOP Preferred Stock into common shares, allocated
to the 401(k) Plan participants.

The balance of ESOP shares, the dividends on allocated shares of common stock and unreleased preferred shares paid to the

401(k) Plan and the fair value of unearned ESOP shares were:

(in millions, except shares)

Shares outstanding
__________December 31,
2002
2003
2004

Allocated shares (common)
Unreleased shares (preferred)

33,921,758
269,563

31,927,982
214,100

29,421,521
177,560

Fair value of unearned ESOP shares

$270

$214

$178

Dividends paid
Year ended December 31,
2002

2003

$46
26

$31
24

2004

$61
32

Deferred Compensation Plan for Independent Sales Agents
WF Deferred Compensation Holdings, Inc. is a wholly-
owned subsidiary of the Parent formed solely to sponsor
a deferred compensation plan for independent sales agents
who provide investment, ﬁnancial and other qualifying
services for or with respect to participating afﬁliates.

The plan, which became effective January 1, 2002, allows
participants to defer all or part of their eligible compensation
payable to them by a participating afﬁliate. The Parent
has fully and unconditionally guaranteed the deferred
compensation obligations of WF Deferred Compensation
Holdings, Inc. under the plan.

Note 16: Employee Beneﬁts and Other Expenses

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 allo-
cated 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. Pension beneﬁts accrued before
the conversion to the Cash Balance Plan are guaranteed.
In addition, certain employees are eligible for a special
transition beneﬁt.

Although we were not required to make a minimum con-
tribution in 2004 for our Cash Balance Plan, we funded the
maximum amount deductible under the Internal Revenue
Code, or $535 million. The total amount contributed for our
pension plans was $580 million. We expect that we will not
be required to make a minimum contribution in 2005 for the
Cash Balance Plan. The maximum contribution amount in
2005 for the Cash Balance Plan depends on several factors,
including the ﬁnalization of participant data. Our decision
on how much to contribute, if any, depends on other factors,
including the actual investment performance of plan assets.
Given these uncertainties, we cannot at this time reliably
estimate the maximum deductible contribution or the
amount that we will contribute in 2005 to the Cash Balance
Plan. For the unfunded nonqualiﬁed pension plans and
postretirement beneﬁt plans, we will contribute the minimum

required amount in 2005, which equals the beneﬁts paid
under the plans. In 2004, we paid $70 million in beneﬁts
for the postretirement plans, which included $26 million in
retiree contributions, and $25 million for the unfunded
pension plans.

We sponsor deﬁned contribution retirement plans includ-
ing the 401(k) Plan. Under the 401(k) Plan, after one month
of service, eligible employees may contribute up to 25% of
their pretax certiﬁed compensation, although there may be
a lower limit for certain highly compensated employees in
order to maintain the qualiﬁed status of the 401(k) Plan.
Eligible employees who complete one year of service are
eligible for matching company contributions, which are
generally a 100% match up to 6% of an employee’s certiﬁed
compensation. The matching contributions generally vest
over four years.

At the end of 2004, we committed to make a special
contribution in shares of Wells Fargo common stock to the
401(k) Plan for eligible team members, equaling 1% of a
team member’s pay, up to a maximum of $750, resulting in
an additional $44 million in employee beneﬁts expense.

Expenses for deﬁned contribution retirement plans were
$356 million, $257 million and $248 million in 2004, 2003
and 2002, respectively.

We provide health care and life insurance beneﬁts for
certain retired employees and reserve the right to terminate
or amend any of the beneﬁts at any time.

The information set forth in the following tables is based

on current actuarial reports using the measurement date
of November 30 for our pension and postretirement
beneﬁt plans.

The changes in the projected beneﬁt obligation during 2004 and 2003 and the amounts included in the Consolidated Balance

Sheet at December 31, 2004 and 2003, were:

(in millions)

December 31,
2003
2004
Pension beneﬁts
Pension beneﬁts
Non-
Non-
qualiﬁed
qualiﬁed

Other
beneﬁts

Qualiﬁed

Projected beneﬁt obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Amendments
Actuarial gain (loss)
Beneﬁts paid
Foreign exchange impact
Projected beneﬁt obligation at end of year

$3,387
170
215
—
(54)
296
(240)
3
$3,777

$202
23
13
—
(12)
27
(25)
—
$228

$698
17
43
26
(1)
37
(70)
1
$751

$3,055
164
209
—
17
150
(213)
5
$3,387

$215
22
14
—
—
(31)
(18)
—
$202

$619
15
42
20
—
66
(65)
1
$698

The weighted-average assumptions used to determine the

The accumulated beneﬁt obligation for the deﬁned beneﬁt

projected beneﬁt obligation were:

pension plans was $3,786 million and $3,366 million at
December 31, 2004 and 2003, respectively.

2004
Pension
Other
beneﬁts(1) beneﬁts

Year ended December 31,
2003
Pension
Other
beneﬁts(1) beneﬁts

Discount rate
Rate of compensation increase

6.0%
4.0

6.0%
—

6.5%
4.0

6.5%
—

(1) Includes both qualiﬁed and nonqualiﬁed pension beneﬁts.

The changes in the fair value of plan assets during 2004 and 2003 were:

(in millions)

Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Plan participants’ contributions
Beneﬁts paid
Foreign exchange impact
Fair value of plan assets at end of year

2004

Pension beneﬁts
Non-
qualiﬁed

Qualiﬁed

Other
beneﬁts

$3,690
450
555
—
(240)
2
$4,457

$ —
—
25
—
(25)
—
$ —

$272
27
74
26
(70)
—
$329

Year ended December 31,
2003
Pension beneﬁts
Non-
qualiﬁed

Other
beneﬁts

Qualiﬁed

$3,090
445
365
—
(213)
3
$3,690

$ —
—
18
—
(18)
—
$ —

$213
26
79
19
(65)
—
$272

We seek to achieve the expected long-term rate of return

with a prudent level of risk given the beneﬁt obligations
of the pension plans and their funded status. We target
the Cash Balance Plan’s asset allocation for a target mix
range of 40–70% equities, 20–50% ﬁxed income, and
approximately 10% in real estate, venture capital and
other investments. The target ranges employ a Tactical

Asset Allocation overlay, which is designed to overweight
stocks or bonds when a compelling opportunity exists. The
Employee Beneﬁt Review Committee (EBRC), which includes
several members of senior management, formally reviews the
investment risk and performance of the Cash Balance Plan
on a quarterly basis. Annual Plan liability analysis and
periodic asset/liability evaluations are also conducted.

The weighted-average allocation of plan assets was:

Equity securities
Debt securities
Real estate
Other

Total

Pension
plan
assets

63%
33
3
1
100%

Percentage of plan assets at December 31,
2003
Other
beneﬁt
plan assets

2004
Other
beneﬁt
plan assets

Pension
plan
assets

51%
46
1
2
100%

66%
31
2
1
100%

49%
46
1
4
100%

This table reconciles the funded status of the plans to the amounts included in the Consolidated Balance Sheet.

(in millions)

2004

Pension beneﬁts
Non-
qualiﬁed

Qualiﬁed

December 31,
2003
Pension beneﬁts
Non-
qualiﬁed

Other
beneﬁts

Qualiﬁed

Funded status (1)
Employer contributions in December
Unrecognized net actuarial loss
Unrecognized net transition asset
Unrecognized prior service cost
Accrued beneﬁt income (cost)

Amounts recognized in the balance sheet

consist of:

Prepaid beneﬁt cost
Accrued beneﬁt liability
Intangible asset
Accumulated other

comprehensive income

Accrued beneﬁt income (cost)

$ 680
—
647
—
(67)
$1,260

$1,260
—
—

—
$1,260

$(228)
1
25
—
(20)
$(222)

$ —
(223)
—

1
$(222)

$(422)
5
158
3
(8)
$(264)

$ —
(264)
—

—
$(264)

$303
—
523
(1)
(13)
$812

$812
(2)
1

1
$812

$(202)
2
1
—
(8)
$(207)

$ —
(209)
—

2
$(207)

$(426)
7
128
4
(9)
$(296)

$ —
(296)
—

—
$(296)

(1) Fair value of plan assets at year end less beneﬁt obligation at year end.

The table to the right provides information for pension
plans with beneﬁt obligations in excess of plan assets, which
are substantially due to our nonqualiﬁed pension plans.

The net periodic beneﬁt cost was:

(in millions)

Projected beneﬁt obligation
Accumulated beneﬁt obligation
Fair value of plan assets

December 31,
2003

2004

$294
247
55

$240
207
28

2004

Pension beneﬁts
Non-
qualiﬁed

Qualiﬁed

Other
beneﬁts

2003
Pension beneﬁts
Non-
qualiﬁed

Other
beneﬁts

Qualiﬁed

Year ended December 31,
2002

Pension beneﬁts
Non-
qualiﬁed

Qualiﬁed

Other
beneﬁts

(in millions)

Service cost
Interest cost
Expected return
on plan assets

Recognized

net actuarial
loss (gain) (1)
Amortization of

prior service cost

Amortization of
unrecognized
transition asset

Settlement

Net periodic

beneﬁt cost

$ 170
215

(327)

(1)

—
(2)

$ 106

$23
13

—

(1)

—
2

$38

$ 17
43

(23)

(1)

—
—

$ 164
209

(275)

—
—

$22
14

—

—
—

$ 15
42

(18)

(3)

(1)

1
—

$ 154
202

(244)

(1)

(1)
—

$ 38

$ 199

$43

$ 36

$ 112

(1) Net actuarial loss (gain) is generally amortized over ﬁve years.

$20
14

—

(1)

—
—

$40

$ 14
40

(19)

(7)

(1)

—
—

$ 27

The investment strategy for the postretirement plans
is maintained separate from the strategy for the pension
plans. The general target asset mix is 55–65% equities
and 35–45% ﬁxed income. In addition, the Retiree Medical
Plan VEBA considers the effect of income taxes by utilizing
a combination of variable annuity and low turnover invest-
ment strategies. Members of the EBRC formally review the
investment risk and performance of the postretirement
plans on a quarterly basis.

Future beneﬁts, reﬂecting expected future service that

we expect to pay under the pension and other beneﬁt
plans were:

(in millions)

Pension beneﬁts
Non-qualiﬁed

Qualiﬁed

Other
beneﬁts

Year ended December 31,

2005
2006
2007
2008
2009
2010-2014

$ 221
225
228
237
241
1,278

$ 23
23
23
23
24
103

$ 44
47
50
53
56
310

Other Expenses
Expenses which exceeded 1% of total interest income and
noninterest income and which are not otherwise shown
separately in the ﬁnancial statements or Notes to Financial
Statements were:

(in millions)

Outside professional services
Contract services
Advertising and promotion
Travel and entertainment
Outside data processing
Telecommunications
Postage

2004

$669
626
459
442
418
296
269

Year ended December 31,
2002

2003

$509
866
392
389
404
343
336

$445
546
327
337
350
347
256

The weighted-average assumptions used to determine the

net periodic beneﬁt cost were:

2004
Other

2003
Other
Pension
Pension
beneﬁts(1) beneﬁts beneﬁts(1) beneﬁts

Year ended December 31,
2002
Other
Pension
beneﬁts(1) beneﬁts

Discount rate
Expected

return on
plan assets

Rate of

compensation
increase

6.5%

7.0%

7.5%

9.0

4.0

9.0

—

9.0

4.0

9.0

—

9.0

4.0

9.0

—

(1) Includes both qualiﬁed and nonqualiﬁed pension beneﬁts.

The long-term rate of return assumptions above were

derived based on a combination of factors including
(1) long-term historical return experience for major asset
class categories (i.e., large cap and small cap domestic
equities, international equities and domestic ﬁxed income),
and (2) forward-looking return expectations for these
major asset classes.

To account for postretirement health care plans we use a
health care cost trend rate to recognize the effect of expected
changes in future health care costs due to medical inﬂation,
utilization changes, new technology, regulatory requirements
and Medicare cost shifting. We assumed average annual
increases of 10.5% for health care costs for 2005. The rate
of average annual increases is assumed to trend down 1%
each year between 2005 and 2010. By 2010 and thereafter,
we assumed rates of 5.5% for HMOs and for all other types
of coverage. Increasing the assumed health care trend by one
percentage point in each year would increase the beneﬁt
obligation as of December 31, 2004, by $64 million and the
total of the interest cost and service cost components of the
net periodic beneﬁt cost for 2004 by $6 million. Decreasing
the assumed health care trend by one percentage point in
each year would decrease the beneﬁt obligation as of
December 31, 2004, by $57 million and the total of the
interest cost and service cost components of the net periodic
beneﬁt cost for 2004 by $5 million.

Note 17:

Income Taxes

The components of income tax expense were:

(in millions)

Current:

Federal
State and local
Foreign

Deferred:

Federal
State and local

Total

2004

$2,815
354
154
3,323

379
53
432
$3,755

Year ended December 31,
2002

2003

$1,298
165
114
1,577

1,492
206
1,698
$3,275

$2,529
273
37
2,839

268
37
305
$3,144

The tax beneﬁt related to the exercise of employee stock
options recorded in stockholders’ equity was $175 million,
$148 million and $73 million for 2004, 2003 and 2002,
respectively.

We had a net deferred tax liability of $4,940 million and
$4,517 million at December 31, 2004 and 2003, respectively.
The tax effects of temporary differences that gave rise to
signiﬁcant portions of deferred tax assets and liabilities
are presented in the table to the right.

We have determined that a valuation reserve is not
required for any of the deferred tax assets since it is more
likely than not that these assets will be realized principally
through carry back to taxable income in prior years, future
reversals of existing taxable temporary differences, and, to a
lesser extent, future taxable income and tax planning strate-
gies. Our conclusion that it is “more likely than not” that
the deferred tax assets will be realized is based on federal
taxable income in excess of $13 billion in the carry-back
period, substantial state taxable income in the carry-back
period, as well as a history of growth in earnings.

The deferred tax liability related to 2004, 2003 or 2002

unrealized gains and losses on securities available for sale
along with the deferred tax liability related to derivative
and hedging activities for 2004 and 2003, had no effect on
income tax expense as these gains and losses, net of taxes,
were recorded in cumulative other comprehensive income.

(in millions)

Deferred Tax Assets

Allowance for loan losses
Net tax-deferred expenses
Other

Total deferred tax assets

Deferred Tax Liabilities

Core deposit intangibles
Leasing
Mark to market
Mortgage servicing
FAS 115 adjustment
FAS 133 adjustment
Other

Total deferred tax liabilities

December 31,
2003

2004

$1,430
217
402
2,049

188
2,461
448
2,848
535
23
486
6,989

$1,479
567
102
2,148

251
2,225
1,026
2,206
559
8
390
6,665

Net Deferred Tax Liability

$4,940

$4,517

On October 22, 2004, Congress passed the American

Jobs Creation Act of 2004, which creates a temporary
incentive for U.S. multinationals to repatriate accumulated
income earned abroad by providing an 85% dividends-
received deduction on certain dividends from controlled
foreign corporations. To qualify for the deduction, the
dividends must be reinvested in the U.S. in accordance with
a qualiﬁed plan adopted by a company’s CEO and Board
of Directors. We have completed our evaluation of the
repatriation provisions and we do not anticipate that the
potential income tax effects of any repatriation will have
a material effect on our ﬁnancial statements.

The table below reconciles the statutory federal income

tax expense and rate to the effective income tax expense
and rate.

(in millions)

Statutory federal income tax expense and rate
Change in tax rate resulting from:

State and local taxes on income, net of

federal income tax benefit
Tax-exempt income and tax credits
Donations of appreciated securities
Other

2004
Rate

Amount

2003
Rate

Amount

Year ended December 31,
2002
Rate

Amount

$3,769

35.0%

$3,317

35.0%

$3,100

35.0%

265
(224)
—
(55)

2.5
(2.1)
—
(.5)

241
(161)
(90)
(32)

2.5
(1.7)
(.9)
(.3)

201
(122)
—
(35)

2.3
(1.4)
—
(.4)

Effective income tax expense and rate

$3,755

34.9%

$3,275

34.6%

$3,144

35.5%

Note 18: Earnings Per Common Share

The table below shows earnings per common share and
diluted earnings per common share and reconciles the
numerator and denominator of both earnings per common
share calculations.

(in millions, except per share amounts)

Net income before effect of change in accounting principle
Less: Preferred stock dividends
Net income applicable to common stock before effect of

change in accounting principle (numerator)

Cumulative effect of change in accounting principle (numerator)
Net income applicable to common stock (numerator)

EARNINGS PER COMMON SHARE
Average common shares outstanding (denominator)

Per share before effect of change in accounting principle
Per share effect of change in accounting principle
Per share

DILUTED EARNINGS PER COMMON SHARE
Average common shares outstanding
Add:

Stock options
Restricted share rights

Diluted average common shares outstanding (denominator)

Per share before effect of change in accounting principle
Per share effect of change in accounting principle
Per share

At December 31, 2004, 2003 and 2002, options to purchase
3.3 million, 4.4 million and 35.9 million shares, respectively,
were outstanding but not included in the calculation of
earnings per share because the exercise price was higher than
the market price, and therefore they were antidilutive.

2004

$ 7,014
—

7,014
—
$ 7,014

1,692.2

4.15
—
4.15

1,692.2
20.8
.4
1,713.4

4.09
—
4.09

2003

$ 6,202
3

6,199
—
$ 6,199

1,681.1

$ 3.69
—
$ 3.69

1,681.1
16.0
.4
1,697.5

$ 3.65
—
3.65

Year ended December 31,
2002

$ 5,710
4

5,706
(276)
$ 5,430

1,701.1

3.35
(.16)
$ 3.19

1,701.1
16.6
.3
1,718.0

$ 3.32
(.16)
3.16

Note 19: Other Comprehensive Income

The components of other comprehensive income and the related tax effects were:

(in millions)

2004
Net of
Tax
tax
effect

Before
tax

2003
Net of
Tax
tax
effect

Year ended December 31,
2002
Net of
tax

Tax
effect

Before
tax

Translation adjustments

$ 20

$ 12

$ 16

$ 1

$ —

Minimum pension liability adjustment

—

Securities available for sale and other

retained interests:
Net unrealized gains (losses) arising

during the year

Reclassiﬁcation of net losses (gains)

included in net income

Net unrealized gains (losses) arising

during the year

Derivatives and hedging activities:
Net unrealized losses arising

during the year

Reclassiﬁcation of net losses on
cash ﬂow hedges included in
net income

Net unrealized gains (losses) arising

during the year

(72)

(37)

(27)

(15)

(45)

(22)

(117)

(68)

(185)

(42)

(26)

(68)

(75)

(42)

(117)

414

369

783

159

140

299

255

229

484

(376)

(137)

(239)

(1,629)

(603)

(1,026)

(800)

(297)

(503)

Other comprehensive income

$ 20

$ 8

$ 12

(65)

$ (27)

(38)

413

152

261

1,707

628

1,079

318

118

200

(482)

$ 370

(179)

$ 146

(303)

$ 224

Cumulative other comprehensive income balances were:

(in millions)

Translation
adjustments

Minimum pension
liability adjustment

Net unrealized
gains (losses) on
securities and other
retained interests

Net unrealized
gains (losses) on
derivatives and other
hedging activities

Cumulative other
comprehensive income

Balance, December 31, 2001

Net change

Balance, December 31, 2002

Net change

Balance, December 31, 2003

Net change

Balance, December 31, 2004

$(15)

1
(14)

26
12

12
$ 24

$(42)

42
—

—
—

—
$ —

$ 546

484
1,030

(117)
913

(22)
$ 891

$263

(303)
(40)

53
13

22
$ 35

$752

224
976

(38)
938

12
$950

Note 20: Operating Segments

We have three lines of business for management reporting:
Community Banking, Wholesale Banking and Wells Fargo
Financial. The results for these lines of business are based on
our management accounting process, which assigns balance
sheet and income statement items to each responsible operat-
ing segment. This process is dynamic and, unlike ﬁnancial
accounting, there is no comprehensive, authoritative guid-
ance for management accounting equivalent to generally
accepted accounting principles. The management accounting
process measures the performance of the operating segments
based on our management structure and is not necessarily
comparable with similar information for other ﬁnancial
services companies. We deﬁne our operating segments by
product type and customer segments. If the management
structure and/or the allocation process changes, allocations,
transfers and assignments may change. In that case, results
for prior periods would be restated for comparability.

The Community Banking Group offers a complete line
of diversiﬁed ﬁnancial products and services to consumers
and small businesses with annual sales generally up to
$10 million in which the owner generally is the ﬁnancial
decision maker. Community Banking also offers investment
management and other services to retail customers and high
net worth individuals, insurance, securities brokerage
through afﬁliates and venture capital ﬁnancing. These prod-
ucts and services include the Wells Fargo Funds®, a family
of mutual funds, as well as personal trust, employee beneﬁt
trust and agency assets. Loan products include lines of
credit, equity lines and loans, equipment and transportation
(auto, recreational vehicle and marine) loans, education
loans, origination and purchase of residential mortgage
loans and servicing of mortgage loans and credit cards.
Other credit products and ﬁnancial services available to
small businesses and their owners include receivables and
inventory ﬁnancing, equipment leases, real estate ﬁnancing,
Small Business Administration ﬁnancing, venture capital
ﬁnancing, cash management, payroll services, retirement
plans, medical savings accounts and credit and debit card
processing. Consumer and business deposit products include
checking accounts, savings deposits, market rate accounts,
Individual Retirement Accounts (IRAs), time deposits and
debit cards.

Community Banking serves customers through a wide
range of channels, which include traditional banking stores,
in-store banking centers, business centers and ATMs. Also,
Phone BankSM centers and the National Business Banking
Center provide 24-hour telephone service. Online banking
services include single sign-on to online banking, bill pay
and brokerage, as well as online banking for small business.

The Wholesale Banking Group serves businesses across

the United States with annual sales generally in excess of
$10 million. Wholesale Banking provides a complete line
of commercial, corporate and real estate banking products
and services. These include traditional commercial loans
and lines of credit, letters of credit, asset-based lending,
equipment leasing, mezzanine ﬁnancing, high-yield debt,
international trade facilities, foreign exchange services,
treasury management, investment management, institutional
ﬁxed income and equity sales, online/electronic products
such as the CEO® (Commercial Electronic Ofﬁce®) portal,
insurance brokerage services and investment banking
services. Wholesale Banking manages and administers
institutional investments and mutual funds, including the
Wells Fargo Funds. Upon the second quarter 2005 merger
of the Wells Fargo Funds and certain funds acquired in the
Strong Financial transaction, we will rename our mutual
fund family the Wells Fargo Advantage FundsSM. Wholesale
Banking includes the majority ownership interest in the
Wells Fargo HSBC Trade Bank, which provides trade ﬁnanc-
ing, letters of credit and collection services and is sometimes
supported by the Export-Import Bank of the United States
(a public agency of the United States offering export ﬁnance
support for American-made products). Wholesale Banking
also supports the commercial real estate market with
products and services such as construction loans for com-
mercial and residential development, land acquisition and
development loans, secured and unsecured lines of credit,
interim ﬁnancing arrangements for completed structures,
rehabilitation loans, affordable housing loans and letters
of credit, permanent loans for securitization, commercial
real estate loan servicing and real estate and mortgage
brokerage services.

Wells Fargo Financial includes consumer ﬁnance and auto
ﬁnance operations. Consumer ﬁnance operations make direct
consumer and real estate loans to individuals and purchase
sales ﬁnance contracts from retail merchants from ofﬁces
throughout the United States and in Canada, Latin America,
the Caribbean, Guam and Saipan. Automobile ﬁnance oper-
ations specialize in purchasing sales ﬁnance contracts directly
from automobile dealers and making loans secured by
automobiles in the United States, Canada and Puerto Rico.
Wells Fargo Financial also provides credit cards and lease
and other commercial ﬁnancing.

The “Other” Column consists of Corporate level invest-
ment activities and balances and unallocated goodwill held
at the enterprise level. This column also includes separately
identiﬁed transactions recorded at the enterprise level for
management reporting.

(income/expense in millions,
average balances in billions)

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)

2003
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)

2002
Net interest income (1)
Provision for credit losses
Noninterest income
Noninterest expense
Income (loss) before income tax expense
(beneﬁt) and effect of change in
accounting principle
Income tax expense (beneﬁt)
Net income (loss) before effect of change

in accounting principle
Cumulative effect of change in
accounting principle

Net income (loss)

2004
Average loans
Average assets
Average core deposits

2003
Average loans
Average assets
Average core deposits

Community
Banking

Wholesale
Banking

Wells Fargo
Financial

Other (2)

Consolidated
Company

$12,153
858
9,360
13,077

7,578
2,611

$ 4,967

$ 11,495
892
9,218
13,214

6,607
2,243

$ 4,364

$ 10,372
865
8,085
11,241

6,351
2,235

4,116

—

$ 4,116

$ 187.0
295.8
197.8

$ 143.2
273.5
184.6

$2,209
62
3,070
2,728

2,489
890

$1,599

$ 2,228
177
2,766
2,579

2,238
792

$ 1,446

$ 2,257
278
2,316
2,367

1,928
692

1,236

(98)

$ 1,138

$ 53.1
77.6
25.5

$ 49.5
75.8
22.3

$2,793
797
385
1,590

791
284

$ (5)
—
94
178

(89)
(30)

$ 507

$ (59)

$ 2,311
623
378
1,343

723
272

$ (27)
30
20
54

(91)
(32)

$17,150
1,717
12,909
17,573

10,769
3,755

$ 7,014

$ 16,007
1,722
12,382
17,190

9,477
3,275

$ 451

$ (59)

$ 6,202

$ 1,866
541
354
1,099

580
220

360

(178)

$ (13)
—
12
4

(5)
(3)

(2)

—

$ 182

$ (2)

$ 29.5
31.2
.1

$ 20.4
22.2
.1

$ —
6.0
—

$ —
6.1
—

$ 14,482
1,684
10,767
14,711

8,854
3,144

5,710

(276)

$ 5,434

$ 269.6
410.6
223.4

$ 213.1
377.6
207.0

(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 the other segments.

(2) The reconciling items for revenue (net interest income plus noninterest income) and net income principally related to Corporate level equity investment activities and
other separately identiﬁed transactions recorded at the enterprise level for management reporting, including, in 2004, a $176 million loss on debt extinguishment and,
in 2003, a $30 million non-recurring loss on sale of a sub-prime credit card portfolio and $51 million of other charges related to employee beneﬁts and software.
Average assets principally comprise unallocated goodwill held at the enterprise level.

Note 21: Securitizations and Variable Interest Entities

We routinely originate, securitize and sell into the secondary
market home mortgage loans and, from time to time,
other ﬁnancial assets, including student loans, commercial
mortgage loans, home equity loans, auto receivables and
securities. We typically retain the servicing rights and may
retain other beneﬁcial interests from these sales. These
securitizations are usually structured without recourse to us
and with no restrictions on the retained interests. We do
not have signiﬁcant credit risks from the retained interests.
We recognized gains of $379 million from sales of ﬁnan-

cial assets in securitizations in 2004 and $393 million in
2003. Additionally, we had the following cash ﬂows with
our securitization trusts.

(in millions)

Mortgage

2004
Other
loans ﬁnancial
assets

Year ended December 31,
2003
Other
ﬁnancial
assets

Mortgage
loans

Sales proceeds from

securitizations

Servicing fees
Cash flows on other
retained interests

$33,550
88

$ — $23,870
60

—

$132
8

138

137

In the normal course of creating securities to sell to
investors, we may sponsor special-purpose entities which
hold, for the beneﬁt of the investors, ﬁnancial instruments
that are the source of payment to the investors. Special-
purpose entities are consolidated unless they meet the
criteria for a qualifying special-purpose entity in accordance
with FAS 140 or are not required to be consolidated under
existing accounting guidance.

For securitizations completed in 2004 and 2003, we used

the following assumptions to determine the fair value of
mortgage servicing rights and other retained interests at the
date of securitization.

In 2004, we retained some AAA-rated ﬂoating-rate
mortgage-backed securities. The fair value at the date of
securitization was determined using quoted market prices.
The implied CPR, life, and discount spread to LIBOR
curve at the date of securitization is presented in the
following table.

Retained interest – AAA
mortgage-backed securities
2004

34.8%
2.2
.32%

Prepayment speed (annual CPR)
Life (in years)
Discount spread to LIBOR (1) curve

(1) London Interbank Offered Rate

At December 31, 2004, key economic assumptions and
the sensitivity of the current fair value of mortgage servicing
rights, both purchased and retained, and other retained
interests related to residential mortgage loan securitizations
to immediate adverse changes in those assumptions are
presented in the table below.

($ in millions)

Mortgage Other retained
interests

servicing rights

Fair value of retained interests
Expected weighted-average life (in years)

$7,911
4.6

$ 134
3.1

Prepayment speed assumption (annual CPR)

16.1%

19.6%

Decrease in fair value from

10% adverse change

Decrease in fair value from

25% adverse change

Discount rate assumption

Decrease in fair value from

100 basis point adverse change

Decrease in fair value from

200 basis point adverse change

$ 358

822

10.2%

10.5%

$ 265

513

Prepayment speed
(annual CPR (1))(2)

Life (in years) (2)
Discount rate (2)

Mortgage
servicing rights
2003
2004

Other retained
interests
2003
2004

16.8% 15.1%

5.6

4.9
9.9% 8.1%

14.9% 18.0%

3.9

4.3

10.3% 11.6%

At December 31, 2004, key economic assumptions and

the sensitivity of the current fair value of the AAA-rated
ﬂoating-rate mortgage-backed securities related to residential
mortgage loan securitizations to immediate adverse changes
in those assumptions are presented in the table on the next
page. The fair value of these securities was determined using
quoted market prices.

(1) Constant prepayment rate
(2) Represents weighted averages for all retained interests resulting from

securitizations completed in 2004 and 2003.

($ in millions)

Retained
interest – AAA
mortgage-
backed
securities

Fair value of retained interests
Expected weighted-average life (in years)

Prepayment speed assumption (annual CPR)

Decrease in fair value from 10% adverse change
Decrease in fair value from 25% adverse change

Discount spread to LIBOR curve assumption

Decrease in fair value from 10 basis point adverse change
Decrease in fair value from 20 basis point adverse change

$ 928
1.7

42.2%

$ —
1

.40%
2
3

The sensitivities in the previous tables are hypothetical

and should be used with caution. Changes in fair value
based on a 10% variation in assumptions generally cannot
be extrapolated because the relationship of the change in the
assumption to the change in fair value may not be linear.
Also, in the previous tables, the effect of a variation in a
particular assumption on the fair value of the retained inter-
est is calculated independently without changing any other
assumption. In reality, changes in one factor may result in
changes in another (for example, changes in prepayment
speed estimates could result in changes in the discount rates),
which might magnify or counteract the sensitivities.

This table presents information about the principal balances of managed and securitized loans.

(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

Less:

December 31,

Total loans (1)

Delinquent loans (2)

2004

2003

2004

2003

Year ended December 31,
Net charge-offs (recoveries)
2003
2004

$ 54,517
59,910
9,025
5,169
128,621

132,703
52,190
10,260
43,744
238,897
4,527

$ 48,729
50,963
8,209
4,477
112,378

136,137
36,629
8,351
41,249
222,366
2,728

$ 371 $ 679
480
62
73
1,294

370
63
68
872

724
132
150
476
1,482
99

671
118
135
414
1,338
8

$ 274
32
(1)
36
341

47
83
401
699
1,230
122

$ 420
30
—
33
483

37
64
426
641
1,168
88

Total loans managed and securitized

$372,045

$337,472

$2,453 $2,640

$1,693

$1,739

Sold or securitized loans
Mortgages held for sale
Loans held for sale

Total loans held

45,997
29,723
8,739

47,875
29,027
7,497

$287,586

$253,073

(1) Represents loans on 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 are a variable interest holder in certain special-
purpose entities that are consolidated because we absorb
a majority of each entity’s expected losses, receive a
majority of each entity’s expected returns or both. We
do not hold a majority voting interest in these entities.
Substantially all of these entities were formed to invest
in securities and to securitize real estate investment trust
securities and had approximately $6 billion and $5 billion
in total assets at December 31, 2004 and 2003, respectively.
The primary activities of these entities consist of acquiring
and disposing of, and investing and reinvesting in securities,
and issuing beneﬁcial interests secured by those securities
to investors. The creditors of substantially all of these
consolidated entities have no recourse against us.

We hold variable interests greater than 20% but less than

50% in certain special-purpose entities formed to provide
affordable housing and to securitize high-yield corporate
debt that had approximately $3 billion and $2 billion in
total assets at December 31, 2004 and 2003, respectively.
We are not required to consolidate these entities. Our maxi-
mum exposure to loss as a result of our involvement with
these unconsolidated variable interest entities was approxi-
mately $950 million and $450 million at December 31, 2004
and 2003, respectively, primarily representing investments
in entities formed to invest in affordable housing. We, how-
ever, expect to recover our investment over time through
realization of federal low-income housing tax credits.

Note 22: Mortgage Banking Activities

Mortgage banking activities, included in the Community
Banking and Wholesale Banking operating segments,
consist of residential and commercial mortgage originations
and servicing.

The components of mortgage banking noninterest

income were:

(in millions)

Servicing fees, net of

amortization and provision
for impairment (1)

Net gains on mortgage loan

origination/sales activities

All other

Total mortgage banking
noninterest income

Year ended December 31,
2002

2003

2004

$1,037

$ (954)

$ (737)

539
284

3,019
447

2,086
364

$1,860

$ 2,512

$1,713

(1) Includes impairment write-downs on other retained interests of nil, $79 million

and $567 million for 2004, 2003 and 2002, respectively.

The changes in mortgage servicing rights were:

(in millions)

Mortgage servicing rights:
Balance, beginning of year

Originations (1)
Purchases (1)
Amortization
Write-down
Other (includes changes in

mortgage servicing rights
due to hedging)

Balance, end of year

Valuation Allowance:
Balance, beginning of year

Provision (reversal of provision)
for mortgage servicing rights
in excess of fair value
Write-down of mortgage

servicing rights

Year ended December 31,
2002

2003

2004

$ 8,848
1,769
1,353
(1,826)
(169)

$ 6,677
3,546
2,140
(2,760)
(1,338)

$ 7,365
2,408
1,474
(1,942)
(1,071)

(509)
$ 9,466

583
$ 8,848

(1,557)
$ 6,677

$ 1,942

$ 2,188

$ 1,124

(208)

1,092

2,135

(169)

(1,338)

(1,071)

$ 1,565

$ 1,942

$ 2,188

Each quarter, we evaluate MSRs for possible impairment

Balance, end of year

based on the difference between the carrying amount and
current fair value of the MSRs. If a temporary impairment
exists, we establish a valuation allowance for any excess of
amortized cost, as adjusted for hedge accounting, over the
current fair value through a charge to income. We have a
policy of reviewing MSRs for other-than-temporary impair-
ment each quarter and recognize a direct write-down when
the recoverability of a recorded valuation allowance is deter-
mined to be remote. Unlike a valuation allowance, a direct
write-down permanently reduces the carrying value of the
MSRs and the valuation allowance, precluding subsequent
reversals. (See Note 1 – Transfers and Servicing of Financial
Assets for additional discussion of our policy for valuation
of MSRs.)

Mortgage servicing rights, net

$ 7,901

$ 6,906

$ 4,489

Ratio of mortgage servicing rights to
related loans serviced for others

1.15%

.92%

(1) Based on December 31, 2004 assumptions, the weighted-average amortization
period for mortgage servicing rights added during the year was approximately
4.8 years.

The components of the managed servicing portfolio were:

(in billions)

Loans serviced for others
Owned loans serviced

(portfolio and held for sale)
Total owned servicing

Sub-servicing

Total managed servicing

December 31,
2003

2004

$688

$598

117
805
27

$832

112
710
21

$731

Note 23: Condensed Consolidating Financial Statements

Following are the condensed consolidating ﬁnancial
statements of the Parent and Wells Fargo Financial, Inc.
and its wholly-owned subsidiaries (WFFI). The Wells Fargo
Financial business segment for management reporting

(see Note 20) consists of WFFI and other afﬁliated
consumer ﬁnance entities managed by WFFI that are
included within other consolidating subsidiaries in the
following tables.

Condensed Consolidating Statement of Income

(in millions)

Parent

WFFI

Other
consolidating
subsidiaries

Eliminations

Consolidated
Company

Year ended December 31, 2004

Dividends from subsidiaries:

Bank
Nonbank

Interest income from loans
Interest income from subsidiaries
Other interest income

Total interest income

Short-term borrowings
Long-term debt
Other interest expense

Total interest expense

NET INTEREST INCOME
Provision for credit losses
Net interest income after provision for credit losses

NONINTEREST INCOME
Fee income – nonafﬁliates
Other

Total noninterest income

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

$3,652
307
—
1,117
91
5,167

106
872
—
978

4,189
—
4,189

—
139
139

64
313
377

3,951
(97)
2,966

$7,014

$ —
—
3,548
—
84
3,632

47
1,089
—
1,136

2,496
833
1,663

223
256
479

944
746
1,690

452
159
—

$ 293

$ —
—
13,233
—
4,011
17,244

458
387
1,827
2,672

14,572
884
13,688

7,319
5,053
12,372

7,916
7,820
15,736

10,324
3,693
—

$ 6,631

$(3,652)
(307)
—
(1,117)
—
(5,076)

(258)
(711)
—
(969)

(4,107)
—
(4,107)

—
(81)
(81)

—
(230)
(230)

(3,958)
—
(2,966)

$(6,924)

$ —
—
16,781
—
4,186
20,967

353
1,637
1,827
3,817

17,150
1,717
15,433

7,542
5,367
12,909

8,924
8,649
17,573

10,769
3,755
—

$ 7,014

Condensed Consolidating Statements of Income

(in millions)

Parent

WFFI

Other
consolidating
subsidiaries

Eliminations

Consolidated
Company

Year ended December 31, 2003

Dividends from subsidiaries:

Bank
Nonbank

Interest income from loans
Interest income from subsidiaries
Other interest income

Total interest income

Short-term borrowings
Long-term debt
Other interest expense

Total interest expense

NET INTEREST INCOME
Provision for credit losses
Net interest income after provision for credit losses

NONINTEREST INCOME
Fee income – nonafﬁliates
Other

Total noninterest income

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

Year ended December 31, 2002

Dividends from subsidiaries:

Bank
Nonbank

Interest income from loans
Interest income from subsidiaries
Other interest income

Total interest income

Short-term borrowings
Long-term debt
Other interest expense

Total interest expense

NET INTEREST INCOME
Provision for credit losses
Net interest income after provision for credit losses

NONINTEREST INCOME
Fee income – nonafﬁliates
Other

Total noninterest income

NONINTEREST EXPENSE
Salaries and beneﬁts
Other

Total noninterest expense

INCOME BEFORE INCOME TAX EXPENSE

(BENEFIT), EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES AND EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE

Income tax expense (beneﬁt)
Equity in undistributed income of subsidiaries

NET INCOME BEFORE EFFECT OF CHANGE

IN ACCOUNTING PRINCIPLE

Cumulative effect of change in accounting principle

NET INCOME

100

$5,194
841
2
567
75
6,679

81
560
—
641
6,038
—
6,038

—

167
167

134
18
152

6,053
(48)
101

$6,202

$3,561
234
—
365
78
4,238

127
457
—
584
3,654
—
3,654

—
164
164

162
27
189

3,629
(222)
1,602

5,453
(19)

$5,434

$ —
—
2,799
—
77
2,876

73
730
—
803
2,073
814
1,259

209
239
448

745
583
1,328

379
143
—

$ 236

$ —
—
2,295
—
78
2,373

96
549
—
645
1,728
556
1,172

202
222
424

560
466
1,026

570
210
—

360
—

$ 360

$ —
—
11,136
—
5,329
16,465

413
321
1,734
2,468
13,997
908
13,089

6,664
5,195
11,859

7,567
8,301
15,868

9,080
3,180
—

$ 5,900

$ —
—
10,750
—
5,270
16,020

347
571
2,037
2,955
13,065
1,128
11,937

6,156
4,088
10,244

6,650
6,911
13,561

8,620
3,156
—

5,464
(257)

$ 5,207

$(5,194)
(841)
—
(567)
—
(6,602)

(245)
(256)
—
(501)
(6,101)
—
(6,101)

—
(92)
(92)

—
(158)
(158)

(6,035)
—
(101)

$(6,136)

$(3,561)
(234)
—
(365)
(12)
(4,172)

(34)
(173)
—
(207)
(3,965)
—
(3,965)

—
(65)
(65)

(3,965)
—
(1,602)

(5,567)
—

$(5,567)

$ —
—
13,937
—
5,481
19,418

322
1,355
1,734
3,411
16,007
1,722
14,285

6,873
5,509
12,382

8,446
8,744
17,190

9,477
3,275
—

$ 6,202

$ —
—
13,045
—
5,414
18,459

536
1,404
2,037
3,977
14,482
1,684
12,798

6,358
4,409
10,767

7,372
7,339
14,711

8,854
3,144
—

5,710
(276)

$ 5,434

Condensed Consolidating Balance Sheets

(in millions)

Parent

WFFI

Other
consolidating
subsidiaries

Eliminations

Consolidated
Company

December 31, 2004

ASSETS
Cash and cash equivalents due from:

Subsidiary banks
Nonafﬁliates

Securities available for sale
Mortgages and loans held for sale
Loans
Loans to subsidiaries:

Bank
Nonbank

Allowance for loan losses
Net loans

Investments in subsidiaries:

Bank
Nonbank
Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Short-term borrowings
Accrued expenses and other liabilities
Long-term debt
Indebtedness to subsidiaries
Total liabilities
Stockholders’ equity

Total liabilities and stockholders’ equity

December 31, 2003

ASSETS
Cash and cash equivalents due from:

Subsidiary banks
Nonafﬁliates

Securities available for sale
Mortgages and loans held for sale
Loans
Loans to nonbank subsidiaries
Allowance for loan losses
Net loans

Investments in subsidiaries:

Bank
Nonbank
Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Short-term borrowings
Accrued expenses and other liabilities
Long-term debt
Indebtedness to subsidiaries
Total liabilities
Stockholders’ equity

Total liabilities and stockholders’ equity

$ 9,493
226
1,419
—
1

700
36,368
—
37,069

35,357
4,413
4,720
$92,697

$ —
65
2,535
50,146
2,085
54,831
37,866
$92,697

$ 6,590
215
1,405
—
1
26,196
—
26,197

32,578
3,948
3,377
$74,310

$ —
724
1,832
35,009
2,276
39,841
34,469
$74,310

$ 171
311
1,841
23
33,624

—
856
(952)
33,528

—
—
807
$36,681

$ —
5,662
1,103
27,508
—
34,273
2,408
$36,681

19
142
1,695
—
24,000
825
(823)
24,002

—
—
750
$26,608

$ 110
4,978
895
18,511
—
24,494
2,114
$26,608

$ —
17,386
30,463
38,439
253,961

—
—
(2,810)
251,151

—
—
48,997
$386,436

$284,522
27,985
17,342
19,354
—
349,203
37,233
$386,436

$ —
18,923
29,858
36,524
229,072
—
(3,068)
226,004

—
—
46,950
$358,259

$254,027
30,422
16,561
23,239
—
324,249
34,010
$358,259

$ (9,664)
—
(6)
—
—

(700)
(37,224)
—
(37,924)

(35,357)
(4,413)
(601)
$(87,965)

$ (9,664)
(11,750)
(1,397)
(23,428)
(2,085)
(48,324)
(39,641)
$(87,965)

$ (6,609)
—
(5)
—
—
(27,021)
—
(27,021)

(32,578)
(3,948)
(1,218)
$(71,379)

$ (6,610)
(11,465)
(1,787)
(13,117)
(2,276)
(35,255)
(36,124)
$(71,379)

$ —
17,923
33,717
38,462
287,586

—
—
(3,762)
283,824

—
—
53,923
$427,849

$274,858
21,962
19,583
73,580
—
389,983
37,866
$427,849

$ —
19,280
32,953
36,524
253,073
—
(3,891)
249,182

—
—
49,859
$387,798

$247,527
24,659
17,501
63,642
—
353,329
34,469
$387,798

101

Condensed Consolidating Statement of Cash Flows

(in millions)

Parent

WFFI

Other
consolidating
subsidiaries/
eliminations

Consolidated
Company

Year ended December 31, 2004

Cash flows from operating activities:
Net cash provided by operating activities

Cash flows from investing activities:
Securities available for sale:
Proceeds from sales
Proceeds from prepayments and maturities
Purchases

Net cash 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
Net advances to nonbank entities
Capital notes and term loans made to subsidiaries
Principal collected on notes/loans made to subsidiaries
Net decrease (increase) in investment in subsidiaries
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
Repayment of long-term debt
Proceeds from issuance of common stock
Repurchase of common stock
Payment of cash dividends on common stock
Other, net

Net cash provided by ﬁnancing activities

Net change in cash and due from banks

Cash and due from banks at beginning of year

Cash and due from banks at end of year

$ 3,848

$ 1,297

$ 14,943

$ 20,088

78
160
(207)
—

—

—
—
—
(92)
(11,676)
896
(353)
—
(11,194)

—
(831)
19,610
(4,452)
1,271
(2,188)
(3,150)
—
10,260

2,914

6,805

268
152
(580)
—

—

—
17,668
(27,778)
—
—
—
—
(121)
(10,391)

(110)
683
12,919
(4,077)
—
—
—
—
9,415

321

161

5,976
8,511
(15,796)
(331)

(34,320)

1,457

(5,877)
328
27
92
11,676
(896)
353
(2,652)
(31,452)

27,437
(2,549)
(3,135)
(11,110)
—
—
—
(13)
10,630

(5,879)

8,581

6,322
8,823
(16,583)
(331)

(34,320)

1,457

(5,877)
17,996
(27,751)
—
—
—
—
(2,773)
(53,037)

27,327
(2,697)
29,394
(19,639)
1,271
(2,188)
(3,150)
(13)
30,305

(2,644)

15,547

$ 9,719

$ 482

$ 2,702

$ 12,903

102

Condensed Consolidating Statement of Cash Flows

(in millions)

Parent

WFFI

Other
consolidating
subsidiaries/
eliminations

Consolidated
Company

Year ended December 31, 2003

Cash flows from operating activities:
Net cash provided by operating activities

Cash flows from investing activities:
Securities available for sale:
Proceeds from sales
Proceeds from prepayments and maturities
Purchases

Net cash 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
Purchases of loans by nonbank entities
Net advances to nonbank entities
Capital notes and term loans made to subsidiaries
Principal collected on notes/loans made to subsidiaries
Net decrease (increase) in investment in subsidiaries
Other, net

Net cash used by investing activities

Cash flows from financing activities:

Net increase in deposits
Net decrease in short-term borrowings
Proceeds from issuance of long-term debt
Repayment of long-term debt
Proceeds from issuance of guaranteed preferred beneﬁcial

interests in Company’s subordinated debentures

Proceeds from issuance of common stock
Redemption of preferred stock
Repurchase of common stock
Payment of cash dividends on preferred and common stock
Other, net

Net cash provided by ﬁnancing activities

Net change in cash and due from banks

Cash and due from banks at beginning of year

Cash and due from banks at end of year

$ 6,352

$ 1,271

$ 23,572

$ 31,195

146
150
(655)
(55)

—

—
3,683
—
(3,682)
(2,570)
(14,614)
6,160
122
—
(11,315)

—
(1,182)
15,656
(3,425)

700
944
(73)
(1,482)
(2,530)
—
8,608

3,645

3,160

347
223
(732)
(600)

—

—
13,335
(21,035)
—
—
—
—
—
107
(8,355)

22
(676)
10,355
(2,151)

—
—
—
—
(600)
—
6,950

(134)

295

$ 6,805

$ 161

6,864
12,779
(23,744)
(167)

(36,235)

1,590

(15,087)
620
(757)
—
2,570
14,614
(6,160)
(122)
(74)
(43,309)

28,621
(7,043)
3,479
(12,355)

—
—
—
—
600
651
13,953

(5,784)

14,365

$ 8,581

7,357
13,152
(25,131)
(822)

(36,235)

1,590

(15,087)
17,638
(21,792)
(3,682)
—
—
—
—
33
(62,979)

28,643
(8,901)
29,490
(17,931)

700
944
(73)
(1,482)
(2,530)
651
29,511

(2,273)

17,820

$ 15,547

103

Condensed Consolidating Statement of Cash Flows

(in millions)

Parent

WFFI

Other
consolidating
subsidiaries/
eliminations

Consolidated
Company

$ 4,366

956

$(20,780)

$(15,458)

531
150
(201)
(589)

—

—
—
—
(2,728)
(2,262)
457
507
—
(4,135)

—
(2,444)
8,495
(3,150)

450
578
(2,033)
(1,877)
—
19

250

769
143
(1,030)
(281)

—

—
10,984
(13,996)
—
—
—
—
(179)
(3,590)

9
329
4,126
(1,745)

—
—
—
(45)
—
2,674

255

295

2,910

$ 3,160

10,563
9,391
(6,030)
282

(18,992)

948

(2,818)
412
(625)
2,728
2,262
(457)
(507)
(907)
(3,750)

25,041
(3,109)
9,090
(6,007)

—
—
—
45
32
25,092

562

13,803

$ 14,365

11,863
9,684
(7,261)
(588)

(18,992)

948

(2,818)
11,396
(14,621)
—
—
—
—
(1,086)
(11,475)

25,050
(5,224)
21,711
(10,902)

450
578
(2,033)
(1,877)
32
27,785

852

16,968

$ 17,820

Year ended December 31, 2002

Cash flows from operating activities:
Net cash provided (used) by operating activities

Cash flows from investing activities:
Securities available for sale:
Proceeds from sales
Proceeds from 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

Net cash used by investing activities

Cash flows from financing activities:

Net increase in deposits
Net increase (decrease) in short-term borrowings
Proceeds from issuance of long-term debt
Repayment of long-term debt
Proceeds from issuance of guaranteed preferred beneﬁcial

interests in Company’s subordinated debentures

Proceeds from issuance of common stock
Repurchase of common stock
Payment of cash dividends on preferred and common stock
Other, net

Net cash provided by ﬁnancing activities

Net change in cash and due from banks

Cash and due from banks at beginning of year

Cash and due from banks at end of year

104

Note 24: Legal Actions

In the normal course of business, we are subject to pending
and threatened legal actions, some for which the relief or
damages sought are substantial. After reviewing pending and
threatened actions with counsel, and any speciﬁc reserves
established for such matters, management believes that the
outcome of such actions will not have a material adverse

effect on the results of operations or stockholders’ equity.
We are not able to predict whether the outcome of such
actions may or may not have a material adverse effect on
results of operations in a particular future period as the
timing and amount of any resolution of such actions and its
relationship to the future results of operations are not known.

Note 25: Guarantees

We provide signiﬁcant guarantees to third parties including
standby letters of credit, various indemniﬁcation agreements,
guarantees accounted for as derivatives, contingent consider-
ation related to business combinations and contingent
performance guarantees.

We issue standby letters of credit, which include perfor-
mance and ﬁnancial guarantees, for customers in connection
with contracts between the customers and third parties.
Standby letters of credit assure that the third parties will
receive speciﬁed funds if customers fail to meet their
contractual obligations. We are obliged to make payment
if a customer defaults. Standby letters of credit were
$9.4 billion and $8.3 billion at December 31, 2004 and
2003, respectively, including ﬁnancial guarantees of
$5.3 billion and $4.7 billion, respectively, that we had
issued or purchased participations in. Standby letters of
credit are net of participations sold to other institutions and
were $1.7 billion and $1.5 billion at December 31, 2004
and 2003, respectively. We consider the credit risk in
standby letters of credit in determining the allowance for
credit losses. Deferred fees for these standby letters of
credit were not signiﬁcant to our ﬁnancial statements.
We also had commitments for commercial and similar
letters of credit of $731 million and $810 million at
December 31, 2004 and 2003, respectively.

We enter into indemniﬁcation agreements in the ordinary
course of business under which we agree to indemnify third
parties against any damages, losses and expenses incurred in
connection with legal and other proceedings arising from
relationships or transactions with us. These relationships or
transactions include those arising from service as a director
or ofﬁcer of the Company, underwriting agreements relating
to our securities, securities lending, acquisition agreements,
and various other business transactions or arrangements.
Because the extent of our obligations under these agreements
depends entirely upon the occurrence of future events,
our potential future liability under these agreements is
not determinable.

We write options, ﬂoors and caps. Options are exercisable

based on favorable market conditions. Periodic settlements
occur on ﬂoors and caps based on market conditions. At
December 31, 2004 and 2003, the fair value of the written
options liability in our balance sheet was $292 million and
$382 million, respectively, and the written ﬂoors and caps

liability was $227 million and $213 million, respectively.
Our ultimate obligation under written options, ﬂoors
and caps is based on future market conditions and is only
quantiﬁable at settlement. We offset substantially all
options written to customers with purchased options.

We also enter into credit default swaps under which
we buy loss protection from or sell loss protection to a
counterparty in the event of default of a reference obliga-
tion. The carrying amount of the contracts sold was a
$2 million liability at December 31, 2004, and a $5 million
liability at December 31, 2003. The maximum amount we
would be required to pay under the swaps in which we sold
protection, assuming all reference obligations default at
a total loss, without recoveries, was $2.6 billion and
$2.7 billion at December 31, 2004 and 2003, respectively.
We purchased $2.8 billion notional of credit default swaps
to mitigate the exposure of the written credit default swaps
at December 31, 2004 and 2003. Almost all of these pur-
chased credit default swaps had terms (i.e., use the same
reference obligation and maturity) that would offset our
exposure from the written default swap contracts in which
we are providing protection to a counterparty.

In connection with certain brokerage, asset management
and insurance agency acquisitions we have made, the terms
of the acquisition agreements provide for deferred payments
or additional consideration based on certain performance
targets. At December 31, 2004 and 2003, the amount of
contingent consideration we expected to pay was not
signiﬁcant to our ﬁnancial statements.

We have entered into various contingent performance
guarantees through credit risk participation arrangements
with terms ranging from 1 to 30 years. We will be required
to make payments under these guarantees if a customer
defaults on its obligation to perform under certain credit
agreements with third parties. Because the extent of our
obligations under these guarantees depends entirely on
future events, our potential future liability under these
agreements is not fully determinable. However, our
exposure under most of the agreements can be quantiﬁed
and for those agreements our exposure was contractually
limited to an aggregate liability of approximately
$370 million at December 31, 2004 and $330 million
at December 31, 2003.

105

Note 26: Regulatory and Agency Capital Requirements

The Company and each of its subsidiary banks are subject
to various regulatory capital adequacy requirements
administered by the Federal Reserve Board and the OCC,
respectively. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) required that the federal
regulatory agencies adopt regulations deﬁning ﬁve capital
tiers for banks: well capitalized, adequately capitalized,
undercapitalized, signiﬁcantly undercapitalized and critically
undercapitalized. Failure to meet minimum capital require-
ments can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could
have a direct material effect on our ﬁnancial statements.

Quantitative measures, established by the regulators to
ensure capital adequacy, require that the Company and each
of the subsidiary banks maintain minimum ratios (set forth
in the table below) of capital to risk-weighted assets. There
are three categories of capital under the guidelines. Tier 1
capital includes common stockholders’ equity, qualifying
preferred stock and trust preferred securities, less goodwill
and certain other deductions (including the unrealized net
gains and losses, after applicable taxes, on securities avail-
able for sale carried at fair value). Tier 2 capital includes
preferred stock not qualifying as Tier 1 capital, subordinated
debt, the allowance for credit losses and net unrealized gains
on marketable equity securities, subject to limitations by the
guidelines. Tier 2 capital is limited to the amount of Tier 1
capital (i.e., at least half of the total capital must be in the
form of Tier 1 capital). Tier 3 capital includes certain
qualifying unsecured subordinated debt.

On December 31, 2003, we deconsolidated our wholly-

owned trusts (the Trusts) that were formed to issue trust
preferred securities and related common securities of the
Trusts. The $3.8 billion of junior subordinated debentures

(in billions)

were reﬂected as long-term debt on the consolidated balance
sheet at December 31, 2003. (See Note 13.) The trust pre-
ferred securities continue to qualify as Tier 1 capital under
guidance issued by the Federal Reserve Board.

Under the guidelines, capital is compared with the
relative risk related to the balance sheet. To derive the risk
included in the balance sheet, a risk weighting is applied to
each balance sheet asset and off-balance sheet item, primarily
based on the relative credit risk of the counterparty. For
example, claims guaranteed by the U.S. government or one
of its agencies are risk-weighted at 0% and certain real estate
related loans risk-weighted at 50%. Off-balance sheet items,
such as loan commitments and derivatives, are also applied
a risk weight after calculating balance sheet equivalent
amounts. A credit conversion factor is assigned to loan
commitments based on the likelihood of the off-balance
sheet item becoming an asset. For example, certain loan
commitments are converted at 50% and then risk-weighted
at 100%. Derivatives are converted to balance sheet
equivalents based on notional values, replacement costs
and remaining contractual terms. (See Notes 6 and 27 for
further discussion of off-balance sheet items.) Effective
January 1, 2002, federal banking agencies amended the
regulatory capital guidelines regarding the treatment of cer-
tain recourse obligations, direct credit substitutes, residual
interests in asset securitization, and other securitized
transactions that expose institutions primarily to credit risk.
The amendment creates greater differentiation in the capital
treatment of residual interests. The capital amounts and
classiﬁcation under the guidelines are also subject to
qualitative judgments by the regulators about components,
risk weightings and other factors.

Actual
Ratio

Amount

For capital
adequacy purposes
Ratio

Amount

To be well
capitalized under
the FDICIA
prompt corrective
action provisions
Ratio
Amount

As of December 31, 2004:

Total capital (to risk-weighted assets)
Wells Fargo & Company
Wells Fargo Bank, N.A.

Tier 1 capital (to risk-weighted assets)
Wells Fargo & Company
Wells Fargo Bank, N.A.

Tier 1 capital (to average assets)

(Leverage ratio)

Wells Fargo & Company
Wells Fargo Bank, N.A.

$41.7
31.4

$29.1
24.1

12.07%
11.01

8.41%
8.45

> $27.6
> 22.9

> $13.8
> 11.4

>8.00%
>8.00

>4.00%
>4.00

>$28.6

>10.00%

>$17.1

> 6.00%

7.08%
6.82

> $16.4
> 14.2

>4.00%(1)
>4.00 (1)

>$17.7

> 5.00%

(1) 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.

106

Management believes that, as of December 31, 2004, the
Company and each of the covered subsidiary banks met all
capital adequacy requirements to which they are subject.

The most recent notiﬁcation from the OCC categorized

each of the covered subsidiary banks as well capitalized,
under the FDICIA prompt corrective action provisions
applicable to banks. To be categorized as well capitalized,
the institution must maintain a total risk-based capital ratio
as set forth in table on the previous page and not be subject
to a capital directive order. There are no conditions or events
since that notiﬁcation that management believes have

changed the risk-based capital category of any of the
covered subsidiary banks.

Wells Fargo Bank, N.A., through its mortgage banking

division, is an approved seller/servicer, and is required
to maintain minimum levels of shareholders’ equity, as
speciﬁed by various agencies, including the United States
Department of Housing and Urban Development,
Government National Mortgage Association, Federal Home
Loan Mortgage Corporation and Federal National Mortgage
Association. At December 31, 2004, Wells Fargo Bank, N.A.
met these requirements.

Note 27: Derivatives

Our approach to managing interest rate risk includes the
use of derivatives. This helps minimize signiﬁcant unplanned
ﬂuctuations in earnings, fair values of assets and liabilities,
and cash ﬂows caused by interest rate volatility. This
approach involves modifying the repricing characteristics
of certain assets and liabilities so that changes in interest
rates do not have a signiﬁcant adverse effect on the net
interest margin and cash ﬂows. As a result of interest rate
ﬂuctuations, hedged assets and liabilities will gain or lose
market value. In a fair value hedging strategy, the effect of
this unrealized gain or loss will generally be offset by income
or loss on the derivatives linked to the hedged assets and
liabilities. In a cash ﬂow hedging strategy, we manage the
variability of cash payments due to interest rate ﬂuctuations
by the effective use of derivatives linked to hedged assets
and liabilities.

We use derivatives as part of our interest rate risk

management, including interest rate swaps, caps and ﬂoors,
futures and forward contracts, and options. We also offer
various derivatives, including interest rate, commodity, equi-
ty, credit and foreign exchange contracts, to our customers
but usually offset our exposure from such contracts by
purchasing other ﬁnancial contracts. The customer accom-
modations and any offsetting ﬁnancial contracts are treated
as free-standing derivatives. Free-standing derivatives also
include derivatives we enter into for risk management that
do not otherwise qualify for hedge accounting. To a lesser
extent, we take positions based on market expectations or to
beneﬁt from price differentials between ﬁnancial instruments
and markets.

By using derivatives, we are exposed to credit risk if
counterparties to ﬁnancial instruments do not perform as
expected. If a counterparty fails to perform, our credit risk
is equal to the fair value gain in a derivative contract. We
minimize credit risk through credit approvals, limits and
monitoring procedures. Credit risk related to derivatives is
considered and, if material, provided for separately. As we

generally enter into transactions only with counterparties
that carry high quality credit ratings, losses from counterpar-
ty nonperformance on derivatives have not been signiﬁcant.
Further, we obtain collateral where appropriate to reduce
risk. To the extent the master netting arrangements meet the
requirements of FASB Interpretation No. 39, Offsetting of
Amounts Related to Certain Contracts, as amended by FASB
Interpretation No. 41, Offsetting of Amounts Related to
Certain Repurchase and Reverse Repurchase Agreements,
amounts are shown net in the balance sheet.

Our derivative activities are monitored by the Corporate

Asset/Liability Management Committee. Our Treasury
function, which includes asset/liability management, is
responsible for various hedging strategies developed through
analysis of data from ﬁnancial models and other internal
and industry sources. We incorporate the resulting hedging
strategies into our overall interest rate risk management
and trading strategies.

Fair Value Hedges
We use derivatives to manage the risk of changes in the fair
value of mortgage servicing rights and other retained inter-
ests. Derivative gains or losses caused by market conditions
(volatility) and the spread between spot and forward rates
priced into the derivative contracts (the passage of time) are
excluded from the evaluation of hedge effectiveness, but
are reﬂected in earnings. The change in value of derivatives
excluded from the assessment of hedge effectiveness was a
net gain of $944 million, $908 million and $1,201 million
in 2004, 2003 and 2002, respectively. The ineffective portion
of the change in value of these derivatives was a net loss
of $390 million in 2004 and a net gain of $203 million
and $1,125 million in 2003 and 2002, respectively. The
net derivative gain was $554 million, $1,111 million and
$2,326 million in 2004, 2003 and 2002, respectively. Net
derivative gains and losses are included in “Servicing fees,
net of amortization and provision for impairment” in
Note 22.

107

Free-Standing Derivatives
We 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 on the balance sheet or to forecasted
transactions in an accounting hedge relationship and,
therefore, do not qualify for hedge accounting. They are
carried at fair value with changes in fair value recorded as
part of other noninterest income in the statement of income.
Interest rate lock commitments for residential mortgage
loans that we intend to resell are considered free-standing
derivatives. Our interest rate exposure on these derivative
loan commitments is economically hedged with options,
futures and forwards. The commitments and free-standing
derivatives are carried at fair value with changes in fair
value recorded as a part of mortgage banking noninterest
income in the statement of income. We record a zero
fair value for a derivative loan commitment at inception
consistent with EITF 02-3, Issues Involved in Accounting
for Derivative Contracts Held for Trading Purposes and
Contracts Involved in Energy Trading and Risk Management
Activities, and 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 fund within the terms of the commitment, which
is affected primarily by changes in interest rates and passage
of time. The aggregate fair value of derivative loan commit-
ments on the consolidated balance sheet at December 31,
2004 and 2003, was a net liability of $38 million and
$44 million, respectively; and is included in the caption
“Interest rate contracts – Options written” under Customer
Accommodations and Trading in the following table.

In 2002, we began using derivatives to hedge changes
in fair value of our commercial real estate mortgages and
franchise loans due to changes in LIBOR interest rates.
We originate a portion of these loans with the intent to
sell them. The ineffective portion of these fair value hedges
was a net loss of $21 million, $22 million and $3 million
in 2004, 2003 and 2002, respectively, recorded as part of
mortgage banking noninterest income in the statement of
income. For the commercial real estate hedges, all parts of
each derivative’s gain or loss are included in the assessment
of hedge effectiveness.

We also enter into interest rate swaps, designated as fair
value hedges, to convert certain of our ﬁxed-rate long-term
debt to ﬂoating-rate debt. The ineffective part of these fair
value hedges was not signiﬁcant in 2004, 2003 or 2002.
For long-term debt, all parts of each derivative’s gain or
loss are included in the assessment of hedge effectiveness.
At December 31, 2004, all designated fair value hedges

continued to qualify as fair value hedges.

Cash Flow Hedges
We use derivatives to convert ﬂoating-rate loans to ﬁxed
rates and to hedge forecasted sales of mortgage loans. We
also hedge ﬂoating-rate senior debt against future interest
rate increases by using interest rates swaps to convert ﬂoat-
ing-rate senior debt to ﬁxed rates and by using interest rate
caps. We recognized a net gain of $10 million in 2004,
which represents the total ineffectiveness of cash ﬂow
hedges, compared with a net gain of $72 million in 2003
and a net loss of $311 million in 2002. Gains and losses
on derivatives that are reclassiﬁed from cumulative other
comprehensive income to current period earnings, are
included in the line item in which the hedged item’s effect
in earnings is recorded. All parts of gain or loss on these
derivatives are included in the assessment of hedge effective-
ness. As of December 31, 2004, all designated cash ﬂow
hedges continued to qualify as cash ﬂow hedges.

At December 31, 2004, we expected that $8 million of
deferred net losses on derivatives in other comprehensive
income will be reclassiﬁed as earnings during the next
twelve months, compared with $9 million and $125 million
of deferred net losses at December 31, 2003 and 2002,
respectively. We are hedging our exposure to the variability
of future cash ﬂows for all forecasted transactions for a
maximum of one year for hedges converting ﬂoating-rate
loans to ﬁxed, seven years for hedges of ﬂoating-rate
senior debt and one year for hedges of forecasted sales
of mortgage loans.

108

The total notional or contractual amounts, credit risk amount and estimated net fair value for derivatives were:

December 31,
2003
Estimated
net fair
value

2004
Estimated
net fair
value

Notional or
contractual
amount

Credit
risk
amount(1)

Credit
risk
amount (1)

Notional or
contractual
amount

(in millions)

ASSET/LIABILITY MANAGEMENT

HEDGES

Interest rate contracts:

Swaps
Futures
Floors purchased
Options purchased
Options written
Forwards

CUSTOMER ACCOMMODATIONS

AND TRADING
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
Options purchased
Options written

Foreign exchange contracts:

Swaps
Futures
Options purchased
Options written
Forwards and spots

Credit contracts:
Swaps

$ 27,145
10,314
1,400
51,695
99
103,967

74,659
152,943
32,715
34,119
699
26,418
46,167

4,427
230
391
609
35
42

4
730
1,011
935

673
24
2,211
2,187
25,788

5,443

$ 626
—
25
50
—
138

1,631
—
170
1
4
45
13

141
—
39
—
17
—

—
—
189
—

53
—
79
—
489

$ 524
—
25
50
(18)
113

28
—
170
(189)
4
(45)
(19)

(27)
—
39
(37)
17
(6)

—
—
189
(181)

52
—
79
(79)
19

(22)

$ 22,570
5,027
—
115,810
42,106
93,977

65,181
49,397
28,591
26,411
5,523
24,894
54,725

897
4
319
322
1
1

—
—
1,109
1,121

292
148
1,930
1,904
22,444

5,416

$1,116
—
—
440
—
291

2,005
—
153
—
66
40
12

61
—
39
—
14
—

—
—
136
—

17
—
84
—
479

(1) Credit risk amounts reﬂect the replacement cost for those contracts in a gain position in the event of nonperformance by all counterparties.

$1,035
—
—
440
(47)
118

102
—
153
(173)
66
(55)
(90)

(1)
—
40
(40)
14
(14)

—
—
136
(143)

17
—
84
(84)
42

(16)

109

Note 28: Fair Value of Financial Instruments

FAS 107, Disclosures about Fair Value of Financial
Instruments, requires that we disclose estimated fair values
for our ﬁnancial instruments. This disclosure should be
read with the ﬁnancial statements and Notes to Financial
Statements in this Annual Report. The carrying amounts
in the following table are recorded in the Consolidated
Balance Sheet under the indicated captions.

We base fair values on estimates or calculations using
present value techniques when quoted market prices are not
available. Because broadly-traded markets do not exist for
most of our ﬁnancial instruments, we try to incorporate the
effect of current market conditions in the fair value calcula-
tions. These valuations are our estimates, and are often
calculated based on current pricing policy, the economic and
competitive environment, the characteristics of the ﬁnancial
instruments and other such factors. These calculations are
subjective, involve uncertainties and signiﬁcant judgment
and do not include tax ramiﬁcations. Therefore, the results
cannot be determined with precision, substantiated by
comparison to independent markets and may not be realized
in an actual sale or immediate settlement of the instruments.
There may be inherent weaknesses in any calculation tech-
nique, and changes in the underlying assumptions used,
including discount rates and estimates of future cash
ﬂows, that could signiﬁcantly affect the results.

We have not included certain material items in our
disclosure, such as the value of the long-term relationships
with our deposit, credit card and trust customers, since
these intangibles are not ﬁnancial instruments. For all
of these reasons, the total of the fair value calculations
presented do not represent, and should not be construed
to represent, the underlying value of the Company.

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.

SECURITIES AVAILABLE FOR SALE
Securities available for sale are carried at fair value.
For further information, see Note 5.

MORTGAGES HELD FOR SALE
The fair value of mortgages held for sale is based on quoted
market prices or on what secondary markets are currently
offering for portfolios with similar characteristics.

110

LOANS HELD FOR SALE
The fair value of loans held for sale is based on what
secondary markets are currently offering for portfolios
with similar characteristics.

LOANS
The fair valuation calculation differentiates loans based on
their ﬁnancial characteristics, such as product classiﬁcation,
loan category, pricing features and remaining maturity.
Prepayment estimates are evaluated by product and
loan rate.

The fair value of commercial loans, other real estate

mortgage loans and real estate construction loans is
calculated by discounting contractual cash ﬂows using
discount rates that reﬂect our current pricing for loans
with similar characteristics and remaining maturity.

For real estate 1-4 family ﬁrst and junior lien mortgages,
fair value is calculated by discounting contractual cash ﬂows,
adjusted for prepayment estimates, using discount rates
based on current industry pricing for loans of similar size,
type, remaining maturity and repricing characteristics.

For consumer ﬁnance and credit card loans, the portfo-
lio’s yield is equal to our current pricing and, therefore, the
fair value is equal to book value.

For other consumer loans, the fair value is calculated by
discounting the contractual cash ﬂows, adjusted for prepay-
ment estimates, based on the current rates we offer for
loans with similar characteristics.

Loan commitments, standby letters of credit and commer-
cial and similar letters of credit not included in the following
table had contractual values of $164.0 billion, $9.4 billion
and $731 million, respectively, at December 31, 2004, and
$126.0 billion, $8.3 billion and $810 million, respectively, at
December 31, 2003. These instruments generate ongoing
fees at our current pricing levels. Of the commitments at
December 31, 2004, 40% mature within one year. Deferred
fees on commitments and standby letters of credit totaled
$46 million and $38 million at December 31, 2004 and
2003, respectively. Carrying cost estimates fair value for
these fees.

NONMARKETABLE EQUITY INVESTMENTS
There are generally restrictions on the sale and/or liquidation
of our nonmarketable equity investments, including federal
bank stock. Federal bank stock carrying value approximates
fair value. We use all facts and circumstances available to
estimate the fair value of our cost method investments.
We typically consider our access to and need for capital
(including recent or projected ﬁnancing activity), qualitative
assessments of the viability of the investee, and prospects
for its future.

Financial Liabilities
DEPOSIT LIABILITIES
FAS 107 states that the fair value of deposits with no stated
maturity, such as noninterest-bearing demand deposits, inter-
est-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 follow-
ing table is their carrying value at December 31, 2004 and
2003. 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.

SHORT-TERM FINANCIAL LIABILITIES
Short-term ﬁnancial liabilities include federal funds pur-
chased, securities sold under repurchase agreements, commer-
cial paper and other short-term borrowings. 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.

LONG-TERM DEBT
The discounted cash ﬂow method is used to estimate the
fair value of our ﬁxed-rate long-term debt. Contractual
cash ﬂows are discounted using rates currently offered
for new notes with similar remaining maturities.

Derivatives
The fair values of derivatives are reported in Note 27.

Limitations
We make these fair value disclosures to comply with the
requirements of FAS 107. The calculations represent
management’s best estimates; however, due to the lack
of broad markets and the signiﬁcant items excluded from
this disclosure, the calculations do not represent the underly-
ing value of the Company. The information presented is
based on fair value calculations and market quotes as of
December 31, 2004 and 2003. 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 ﬁnan-

cial instruments are short-term, and therefore, the carrying
amounts in the Consolidated Balance Sheet approximate fair
value. Other signiﬁcant assets and liabilities, which are not
considered ﬁnancial assets or liabilities and for which fair
values have not been estimated, include premises and equip-
ment, goodwill and other intangibles, deferred taxes and
other liabilities.

This table 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.

(in millions)

FINANCIAL ASSETS
Mortgages held for sale
Loans held for sale
Loans, net
Nonmarketable equity investments

FINANCIAL LIABILITIES
Deposits
Long-term debt (1)

December 31,
2003
2004
Estimated
Estimated
fair value
fair value

Carrying
amount

$ 29,723
8,739
283,824
5,229

$ 29,888
8,972
285,488
5,494

$ 29,027
7,497
249,182
5,021

$ 29,277
7,649
249,134
5,312

274,858
73,560

274,900
74,085

247,527
63,617

247,628
64,672

(1) The carrying amount and fair value exclude obligations under capital leases of $20 million and $25 million at December 31, 2004 and 2003, respectively.

111

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Wells Fargo & Company:

We have audited the accompanying consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of
December 31, 2004 and 2003, 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, 2004. These
consolidated ﬁnancial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated ﬁnancial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board

(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the ﬁnancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the ﬁnancial statements. An audit also includes assessing the accounting principles used and
signiﬁcant estimates made by management, as well as evaluating the overall ﬁnancial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material respects, the ﬁnancial
position of Wells Fargo & Company and Subsidiaries as of December 31, 2004 and 2003, and the results of their operations
and their cash ﬂows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles.

As discussed in Note 1 to the consolidated ﬁnancial statements, the Company changed its method of accounting for

goodwill in 2002.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),

the effectiveness of Wells Fargo & Company and Subsidiaries’ internal control over ﬁnancial reporting as of December 31,
2004, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 23, 2005 expressed an unqualiﬁed
opinion on management’s assessment of, and the effective operation of, internal control over ﬁnancial reporting.

San Francisco, California
February 23, 2005

112

Quarterly Financial Data
Condensed Consolidated Statement of Income — Quarterly (Unaudited)

(in millions, except per share amounts)

2004
Quarter ended
Mar. 31

Sept. 30

June 30

Dec. 31

2003
Quarter ended
Mar. 31

Sept. 30

June 30

Dec. 31

INTEREST INCOME
INTEREST EXPENSE

NET INTEREST INCOME

$ 5,635
1,179
4,456

$ 5,405
987
4,418

$ 5,069
843
4,226

$ 4,858
808
4,050

Provision for credit losses
Net interest income after provision for credit losses

Total noninterest income

NONINTEREST EXPENSE
Salaries
Incentive compensation
Employee beneﬁts
Equipment
Net occupancy
Operating leases
Other

Total noninterest expense

INCOME BEFORE INCOME TAX EXPENSE
Income tax expense

465
3,991

594
543
321
479
790
211
265
3
170
336
3,712

1,438
526
451
410
301
164
1,681
4,971

2,732
947

408
4,010

618
508
319
452
262
207
264
10
48
212
2,900

1,383
449
390
254
309
158
1,277
4,220

2,690
942

440
3,786

611
530
308
437
493
209
347
(61)
81
245
3,200

1,295
441
391
271
304
156
1,495
4,353

2,633
919

404
3,646

594
535
282
411
315
209
317
33
95
306
3,097

1,277
391
492
301
294
155
1,119
4,029

2,714
947

$ 4,856
812

4,044

465
3,579

$ 4,979
837
4,142

426
3,716

$ 4,855
882
3,973

421
3,552

$ 4,728
879
3,849

411
3,438

595
504
273
409
636
211
264
(12)
143
378
3,401

1,351
483
417
375
310
162
1,402
4,500

2,480
856

590
504
271
419
773
229
252
(23)
58
118
3,191

1,185
621
374
298
283
175
1,639
4,575

2,332
771

571
470
276
370
543
245
289
20
(47)
220
2,957

1,155
503
350
305
288
178
1,379
4,158

2,351
826

540
460
259
363
561
251
266
18
(98)
213
2,833

1,141
447
419
269
296
187
1,198
3,957

2,314
822

NET INCOME

$ 1,785

$ 1,748

$ 1,714

$ 1,767

$ 1,624

$ 1,561

$ 1,525

$ 1,492

EARNINGS PER COMMON SHARE

$ 1.06

$ 1.03

$ 1.02

$ 1.04

.96

$ .93

$ .91

.89

DILUTED EARNINGS PER COMMON SHARE

$ 1.04

$ 1.02

$ 1.00

$ 1.03

.95

$ .92

DIVIDENDS DECLARED PER COMMON SHARE

$ .48

.48

.45

$ .45

.45

.90

.30

.88

.30

Average common shares outstanding

1,692.7

1,688.9

1,688.1

1,699.3

1,690.2

1,677.2

1,675.7

1,681.5

Diluted average common shares outstanding

1,715.0

1,708.7

1,708.3

1,721.2

1,712.6

1,693.9

1,690.6

1,694.1

113

Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) — Quarterly (1)(2) (Unaudited)

(in millions)

EARNING ASSETS
Federal funds sold, securities purchased
under resale agreements and other
short-term investments

Trading assets
Debt securities available for sale (3):

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 mortgage-backed securities

Other debt securities (4)

Total debt securities available for sale (4)

Mortgages held for sale (3)
Loans held for sale (3)
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

Other

Total loans (5)

Total earning assets

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 Company’s

subordinated debentures (6)

Total interest-bearing liabilities
Portion of noninterest-bearing funding sources
Total funding sources
Net interest margin and net interest income on

a taxable-equivalent basis (7)

NONINTEREST-EARNING ASSETS
Cash and due from banks
Goodwill
Other

Total noninterest-earning assets

NONINTEREST-BEARING FUNDING SOURCES
Deposits
Other liabilities
Stockholders’ equity
Noninterest-bearing funding sources used to

fund earning assets

Net noninterest-bearing funding sources

TOTAL ASSETS

Average
balance

2004
Interest
Yields/
income/
rates
expense

Quarter ended December 31,
2003
Interest
Yields/
income/
rates
expense

Average
balance

$ 4,967
5,040

2.01%
2.73

$ 26
34

3,217
6,936

.99%

2.72

3.72
8.31

6.08
5.35
5.97
7.91
6.32
5.48
4.05

5.93
5.67
5.80
5.84
5.84

5.70
5.54
11.57
8.99
6.59
14.00
6.44
4.19

6.16

.68
.83
2.32
1.98
1.95
1.22
1.90
2.70

—
1.65
—
1.28

10
71

321
49
370
59
510
443
87

774
419
135
75
1,403

1,233
709
281
779
3,002
141
4,546
17

5,663

5
262
108
152
49
576
126
477

—
1,179
—
1,179

1,278
3,141

21,149
2,014
23,163
3,478
31,060
41,055
7,373

47,674
26,691
8,151
4,508
87,024

71,402
35,152
8,013
31,975
146,542
2,420
235,986
1,715

$327,342

$ 2,744
112,392
19,949
26,382
5,992
167,459
28,367
58,814

3,591
258,231
69,111
$327,342

4.39
8.02

6.25
5.53
6.19
7.69
6.46
5.36
3.22

5.93
5.25
4.96
6.13
5.64

5.32
5.28
11.85
8.91
6.45
17.74
6.27
4.31

5.96

.21
.61
2.31
1.10
.99
.89
.95
2.27

3.60
1.25
—
.99

8
48

14
60

318
27
345
60
479
551
60

712
353
102
69
1,236

952
467
237
716
2,372
107
3,715
18

4,879

1
172
116
73
15
377
68
335

32
812
—
812

4.88%

$4,484

4.97%

$4,067

$ 13,083
10,209
34,110

$ 57,402

$ 74,941
18,000
33,572

(69,111)
$ 57,402

$384,744

1,101
3,624

21,916
3,787
25,703
3,246
33,674
32,373
8,536

51,896
29,412
9,246
5,109
95,663

86,389
50,909
9,706
34,475
181,479
4,025
281,167
1,698

$367,455

$ 3,244

125,350
18,697
30,460
10,026
187,777
26,315
70,646

—
284,738
82,717
$367,455

$ 13,366
10,436
34,002

$ 57,804

$ 82,958
20,336
37,227

(82,717)
$ 57,804

$425,259

(1) Our average prime rate was 4.94% and 4.00% for the quarters ended December 31, 2004 and 2003, respectively. The average three-month London Interbank Offered Rate

(LIBOR) was 2.30% and 1.17% for the same quarters, 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) Includes certain preferred securities.
(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 46R), these balances were reﬂected in long-term

debt. See Note 13 (Guaranteed Preferred Beneﬁcial Interests in Company’s Subordinated Debentures) 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 both quarters presented.
114
114

Glossary

Collateralized debt obligations: Securitized corporate debt.

Core deposits: Deposits acquired in a bank’s natural market area,
counted as a stable source of funds for lending. These deposits
generally have a predictable cost and customer loyalty.

Net interest margin: The average yield on earning assets minus the
average interest rate paid for deposits and debt.

Notional amount: A number of currency units, shares, or other units
speciﬁed in a derivative contract.

Core deposit intangibles: The present value of the difference in cost of
funding provided by core deposit balances compared with alternative
funding with similar terms assigned to acquired core deposit balances
by a buyer.

Cost method of accounting: Investment in the subsidiary is carried at
cost, and the parent company accounts for the subsidiary’s operations
only to the extent that the subsidiary declares dividends. Generally
used if investment ownership is less than 20%.

Derivatives: Financial contracts whose value is derived from publicly
traded securities, interest rates, currency exchange rates or market
indices. Derivatives cover a wide assortment of ﬁnancial contracts,
including forward contracts, futures, options and swaps.

Effectiveness/ineffectiveness (of derivatives): Effectiveness is the
gain or loss on a hedging instrument that exactly offsets the loss or
gain on the hedged item. Any difference would be the effect of
hedge ineffectiveness, which is recognized currently in earnings.

Equity method of accounting: Investment in the subsidiary is
originally recorded at cost, and the value of the investment is
increased or decreased based on the investor’s proportional share
of the change in the subsidiary’s net worth. Generally used if
investment ownership is 20% or more but less than 50%.

Federal Reserve Board (FRB): The Board of Governors of the Federal
Reserve System, charged with supervising and regulating bank
holding companies, including ﬁnancial holding companies.

Futures and forward contracts: Contracts in which the buyer agrees to
purchase and the seller agrees to deliver a speciﬁc ﬁnancial instrument
at a predetermined price or yield. May be settled either in cash or by
delivery of the underlying ﬁnancial instrument.

GAAP (Generally accepted accounting principles): Accounting
rules and conventions deﬁning acceptable practices in recording
transactions and preparing ﬁnancial statements. U.S. GAAP is primarily
determined by the Financial Accounting Standards Board (FASB).

Hedge: Financial technique to offset the risk of loss from price
ﬂuctuations in the market by offsetting the risk in another
transaction. The risk in one position counterbalances the risk
in another transaction.

Interest rate ﬂoors and caps: Interest rate protection instruments
where the seller pays the buyer an interest differential, which
represents the difference between a short-term rate (e. g., three-
month LIBOR) and an agreed-upon rate (the strike rate)
applied to a notional principal amount.

Interest rate swap contracts: Primarily an asset/liability management
strategy to reduce interest rate risk. Interest rate swap contracts are
exchanges of interest rate payments, such as ﬁxed-rate payments for
ﬂoating-rate payments, based on notional principal amounts.

Mortgage servicing rights: The rights to service mortgage loans for
others, which are acquired through purchases or kept after sales or
securitizations of originated loans.

Ofﬁce of the Comptroller of the Currency (OCC): Part of the U.S.
Treasury department and the primary regulator for banks with
national charters.

Options: Contracts that grant the purchaser, for a premium payment,
the right, but not the obligation, to either purchase or sell the
associated ﬁnancial instrument at a set price during a period or
at a speciﬁed date in the future.

Other-than-temporary impairment: A write-down of certain assets
recorded when a decline in the fair market value below the carrying
value of the asset is considered not to be temporary. Applies to
goodwill, mortgage servicing rights, other intangible assets, securities
available for sale and nonmarketable equity securities. (See Note 1 –
Summary of Signiﬁcant Accounting Policies for impairment policies
for speciﬁc categories of assets.)

Qualifying special-purpose entities (QSPE): A trust or other legal
vehicle that meets certain conditions, including (1) that it is distinct
from the transferor, (2) activities are limited, and (3) the types of assets
it may hold and conditions under which it may dispose of noncash
assets are limited. A QSPE is not consolidated on the balance sheet.

Securitize/securitization: The process and the result of pooling
ﬁnancial assets together and issuing liability and equity obligations
backed by the resulting pool of assets to convert those assets into
marketable securities.

Special-purpose entities (SPE): A legal entity, sometimes a trust or a
limited partnership, created solely for the purpose of holding assets.

Taxable-equivalent basis: Basis of presentation of net interest income
and the net interest margin adjusted to consistently reﬂect income
from taxable and tax-exempt loans and securities based on a 35%
marginal tax rate. The yield that a tax-free investment would provide
to an investor if the tax-free yield was “grossed up” by the amount of
taxes not paid.

Underlying: A speciﬁed interest rate, security price, commodity price,
foreign exchange rate, index of prices or rates or other variable. An
underlying may be the price or rate of an asset or liability, but is not
the asset or liability itself.

Value at risk: The amount or percentage of value that is at risk of being
lost from a change in prevailing interest rates.

Variable interest entity (VIE): An entity in which the equity investors
(1) do not have a controlling ﬁnancial interest, or (2) do not have
sufﬁcient equity at risk for the entity to ﬁnance its activities without
subordinated ﬁnancial support from other parties.

Yield curve (shape of the yield curve, ﬂat yield curve): A graph
showing the relationship between the yields on bonds of the same
credit quality with different maturities. For example, a “normal”, or
“positive”, yield curve exists when long-term bonds have higher yields
than short-term bonds. A “ﬂat” yield curve exists when yields are the
same for short-term and long-term bonds. A “steep” yield curve exists
when yields on long-term bonds are signiﬁcantly higher than on
short-term bonds.

115

Wells Fargo & Company

+3,137%

Stock Price Growth Over 20 Years

$62.15 (12/04)

+1,140%

Dividend Growth Over 20 Years

$1.86 (2004)

$1.92 (12/84)

Stock Listing

Wells Fargo & Company is listed and trades on the New York
Stock Exchange and the Chicago Stock Exchange in the
United States. Our trading symbol is WFC.

Stockholders

12/31/04: 1,694,591,637 common shares outstanding

Stock Purchase and Dividend Reinvestment

You can buy Wells Fargo stock directly from Wells Fargo,
even if you’re not a Wells Fargo stockholder, through optional
cash payments or automatic monthly deductions from a
bank account. You can also have your dividends reinvested
automatically. It’s a convenient, economical way to increase
your Wells Fargo investment.

Call 1-877-840-0492 for an enrollment kit including a
plan prospectus.

Form 10-K

The Company will send the Wells Fargo Annual Report on
Form10-K for 2004 (including the ﬁnancial statements filed
with the Securities and Exchange Commission) without charge
to any stockholder who asks for a copy in writing. Stockholders
also can ask for copies of any exhibit to the Form 10-K. The
Company will charge a fee to cover expenses to prepare and
send any exhibits. Please send requests to: Corporate Secretary,
Wells Fargo & Company, Wells Fargo Center, MAC N9305-173,
Sixth and Marquette, Minneapolis, MN 55479.

116

$.15 (1984)

Independent Registered
Public Accounting Firm

KPMG LLP
55 Second Street
Suite 1400
San Francisco, CA 94105
415-963-5100

Contact Information

Investor Services
1-888-662-7865
investorrelations@wellsfargo.com

Stockholder Communications
Shareholder Services and Transfer Agent
Wells Fargo Shareowner Services
P.O. Box 64854
Saint Paul, MN 55164-0854
1-877-840-0492

Corporate Information

Annual Stockholders’ Meeting
1:00 p.m., Tuesday, April 26, 2005
420 Montgomery Street, San Francisco, CA

Proxy statement and form of proxy will be mailed to
stockholders beginning on or about March 17, 2005.

Headquarters
Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94104

Online
wellsfargo.com

Reputation

Forbes
Among top 25 companies worldwide in composite
ranking of sales, profit, assets and market cap.

Best managed company in banking.

Fortune
Among top 20 Fortune 500 companies in profit
and market cap.

Global Finance
Best U.S. consumer internet bank, best for online
bill payment and presentment, online credit,
corporate/institutional website design in
North America.

Moody’s Investors Service
Only U.S. bank rated “Aaa,” highest possible
credit rating.

Smart Money
#2 U.S. full service investment broker

Watchfire GomezPro
#1 U.S. online internet bank

Anna Hsiung
Wells Fargo Services
San Francisco, California
Team member since: 2001

OUR VISION:
Satisfy all our customers’ financial needs
and help them succeed financially.

NUESTRA VISION:
Deseamos satisfacer todas las necesidades
financieras de nuestros clientes y ayudarlos
a tener éxito en el área financiera.

Linda Adler, Private Client Services, Rapid City, South Dakota
Team member since: 1980

Are the days of company loyalty gone? There’s lots of opportunity for career
growth with a successful, large, diverse, national company. Fifteen years ago, as
a teller, Linda became the first team member in our history to be on the cover of
our Annual Report. She’s still growing with Wells Fargo today and helping satisfy
all her customers’ financial needs.

Well done, Linda!

Wells Fargo & Company
420 Montgomery Street
San Francisco, California 94163

1-800-411- 4932
www.wellsfargo.com