Wells Fargo & Company Annual Report 2006

FY2006 Annual Report · Wells Fargo & Company

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One team. Pulling together…

2 To Our Owners

Wells Fargo & Company (NYSE: WFC)

Reputation

Building a culture of collaboration—
instinctively putting what’s best for the
customer first—is the key to outstanding
financial performance. Dick Kovacevich
and John Stumpf explain how we’re doing.

10 One Team. Pulling Together.

For Customers.
Our customers come to us every day
with financial problems they can’t solve,
financial questions they can’t answer,
financial needs they expect us to satisfy.
Eleven stories show how we do it.

24 One Team. Pulling Together.

For Communities.
We pull together as one Wells Fargo to
make our communities better places
to live and work. In financial capital alone,
we gave over $100 million to nonprofits
nationally for the first time.

31 Board of Directors, Senior Leaders

34 Financial Review

66 Controls and Procedures

68 Financial Statements

120 Report of Independent Registered

We’re a diversified financial services company
helping satisfy all our customers’ financial
needs—and helping them succeed financially
—through banking, insurance, investments,
mortgage loans and consumer finance.

Our corporate headquarters is in San Francisco,
but we’re decentralized so all Wells Fargo “con-
venience points”—stores, regional commercial
banking centers, ATMs, Wells Fargo Phone BankSM
centers, internet—are headquarters for satisfy-
ing all our customers’ financial needs
and helping them succeed financially.

Aaa, AAA

Barron’s
World’s 12th most-admired company

CRO Magazine
Among 50 top corporate citizens

BusinessWeek
Among 10 most generous corporate givers

DiversityInc.
Among top 50 companies for diversity

Forbes
Among top 25 U.S. companies in composite
ranking of revenue, profits, assets and market
value

Wells Fargo Bank, N.A. is the only bank in the
U.S., and one of only two worldwide, to have
the highest credit rating from both Moody's
Investors Service,“Aaa,” and Standard & Poor's
Ratings Service,“AAA.”

Fortune
USA’s “Most Admired” Large Bank

KeyNote WebExcellence
No. 2 full-service online broker

Assets: $482 billion
(5th among U.S. peers)

Market value of stock: $120 billion
(4th among U.S. peers)

Public Accounting Firm

Fortune 500: Profit, 17th; Market cap, 18th

123 Stock Performance

124 Stockholder Information

Which Measures Really Matter?
2006 Update (inside back cover)

Team members: 158,000
(one of U.S.’s 40 largest private employers)

Stores: 6,000+

Our Market Leadership

#1 retail mortgage originator*

#1 mortgage servicer*

#1 small business lender

#1 small business lender in low-to-

moderate income neighborhoods

#1 insurance broker owned by bank

holding company (world’s 5th-largest insur-
ance broker)

#1 agricultural lender

#1 financial services provider to

middle-market businesses across
our banking states

#1 commercial real estate broker

#2 home equity lender

#2 debit card issuer

#2 bank auto lender

#3 ATM network

#4 deposits

* Inside Mortgage Finance

Luxury Institute
Among top 10 brands for wealth management

Moody’s Investors Service
S&P Ratings Services
Highest credit ratings (Wells Fargo Bank, N.A.)

Working Mother
Among 100 best companies

Our Earnings Diversity
historical averages, near future year expectations

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

Home Mortgage/Home Equity . . . . . . . . . . . . . . . 19%

Investments & Insurance . . . . . . . . . . . . . . . . . . . . . 16%

Specialized Lending* . . . . . . . . . . . . . . . . . . . . . . . . . 16%

Wholesale Banking/Commercial Real Estate . . . . 9%

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

* Credit cards, student loans, asset-based lending, equipment finance,

structured finance, correspondent banking, etc.

…for customers.
Financial services is a team sport, especially in a company as large
and diverse as Wells Fargo.We have 80+ businesses. Hundreds of
products. 158,000 team members. 6,000+ stores. Our customers
don’t expect any of us to know everything about everything.
What they do expect is that—quickly and easily—they can
ﬁnd the right team member through their preferred channel
(store, ATM, phone, internet) to answer their question, provide
value-added advice, solve their ﬁnancial problem or satisfy
their ﬁnancial need.To do that, every Wells Fargo team member
has to be customer-focused. Responding immediately to the
customer’s need. Knowing who on our team can best satisfy
that need. Committing to follow up with the customer by a
speciﬁc time. When the customer’s satisﬁed, everyone gets
the credit. In this report, we show you how we do it: One team.
One Wells Fargo. Pulling together. For customers.

Richard M. Kovacevich, Chairman and CEO (right);
John G. Stumpf, President and COO

To Our Owners,
Again this year, our talented team—158,000 strong and pulling
together for our customers—achieved outstanding results, among
the best not just in ﬁnancial services but all industries.

Among Our Achievements:

• Diluted earnings per share, a record $2.49, up 11 percent.

• Net income, a record $8.5 billion, up 11 percent.

• Revenue, a record $35.7 billion—the most important measure
of success in our industry—rose 8 percent, up 12 percent in
businesses other than Wells Fargo Home Mortgage.

• The quarterly cash dividend on our common stock increased
almost 8 percent to 28 cents a share—the 19th consecutive
year our dividend has increased and 13th-largest dividend
payout of any U.S. public company. Since 1989, our dividend
has increased at a compound annual growth rate of 15 percent.

• Return on equity—19.65 percent (after-tax proﬁt for every
shareholder dollar)—and return on assets of 1.75 percent
(after-tax proﬁt for every $100 of assets).

• Our stock split two for one—our company’s eighth stock

split in 47 years.

• Our stock price reached a record-high close of $36.81 on

October 18, 2006.

• Total return on our stock this year, including reinvested
dividends, was 17 percent, exceeding the S&P 500®—
and the total market value of our company rose 14 percent
to $120 billion.

Double-Digit Annual Compound
Growth—for 20 Years

Years
5
10
15
20

WFC Total
EPS
Revenue
Return
21% 11% 14%
10
13
12
18
12
14

15
18
21

S&P 500
Total Return
6%
8
11
12

Long-Term Results
Although 2006 was another very successful year, it certainly
wasn’t the ﬁrst. As shown in the chart above, we’ve been
achieving annual, double-digit increases in revenue, earnings per
share, and total stockholder return over the past 20, 15, 10 and
ﬁve years. The past 20 years our annual compound growth rate
in earnings per share was 14 percent; our annual compound rate
in revenue 12 percent. Our total annual compound stockholder
return of 14 percent the past ﬁve years was more than double
the S&P 500 —and at 15 percent almost double for the past
10 years. We far outpaced the S&P 500 the past 15 and 20 years
with total annual compound shareholder returns of 18 percent
and 21 percent, respectively—periods with almost every
economic cycle and economic condition a ﬁnancial institution
can experience.

Full Horsepower
This outstanding short- and long-term performance was
driven by the full horsepower of our more than 80 businesses—
diversiﬁed across virtually all of ﬁnancial services. Among
their achievements:

• Community Banking—record proﬁt of $5.5 billion. Our retail
banking team had record core product “solutions” (sales) of
18.7 million, up 17 percent. Sales in our banking stores have
grown at an average compound rate of 14 percent the last
ﬁve years. Our measures of how effectively we welcome our
customers in our stores, how quickly our teller lines move,
and how loyal our customers are to us all improved by
double digits.

• For the eighth consecutive year, our cross-sell reached record
highs—5.2 products per retail banking household (up from
3.2 in 1998), and 6.0 per Wholesale Banking customer. One
of every ﬁve of our customers buys eight or more products
from Wells Fargo.

• For the fourth consecutive year we’re the United States’

No. 1 lender to small businesses (loans less than $100,000)
and No. 1 lender to small businesses in low-to-moderate
income neighborhoods. Nationwide, our small business loans
grew 30 percent. Products (“solutions”) sold to our business
banking customers in our stores were up 26 percent. Net
business checking accounts rose 4.3 percent. Our average
business banking customer now has 3.3 products with us
(3.0 last year).

• For the 14th consecutive year we were the nation’s No. 1
retail mortgage originator. We’re very disciplined in home
mortgage lending—we don’t make option adjustable-rate
mortgages or negative amortizing mortgages. Our owned
home mortgage servicing (administering the monthly
payments of your home loan) reached $1.37 trillion, the
largest in our industry—up 38 percent—and mortgage
originations were up 9 percent to $398 billion.

• Our National Home Equity Group portfolio rose to

$79 billion, up 10 percent.

• Wholesale Banking, for the eighth consecutive year, achieved

record net income, $2.1 billion, up 17 percent—with
strong double-digit growth in revenue and loans across its
businesses. We acquired commercial real estate investment
advisor Secured Capital Corp. (Los Angeles), multifamily
real estate ﬁnancier Reilly Mortgage (Virginia), investment
banker Barrington Associates (Los Angeles), accounts receivable
purchasers Commerce Funding (Virginia), Evergreen Funding
(Texas), and insurance agencies in California, Indiana and
West Virginia.

• Wells Fargo Financial—our consumer ﬁnance business—

earned a record $865 million and grew average receivables
secured by real estate, by 25 percent and auto ﬁnance
receivables by 29 percent.

One Team. Pulling Together. For Customers.
Despite our superior ﬁnancial performance and the outstanding
efforts of our great team, we have a lot of work to do—especially
in the quality of our customer service. We’ve said in previous
annual reports that “Customer service…is the one area in
which we continue to be only about average compared with our
peers.” We’ve made signiﬁcant progress, but we still have more
to do. We survey hundreds of thousands of our retail banking
customers a year—served through all our channels—to ﬁnd
out what they think of the quality of our service. Our customer
loyalty scores rose 32 percent the last two years. Customer
perceptions of how long they have to wait in our teller lines
and how satisﬁed they are with how we welcome them have
improved 44 percent in that time. This year, Wells Fargo Home
Mortgage was ranked among the top ﬁve in its industry for

Our Performance
Double-digit growth: net income and earnings per share

$ in millions, except per share amounts

2006

2005

Change

8,482

2.49

7,671

2.25

11%

FOR THE YEAR

Net income

Diluted earnings per common share

Proﬁtability ratios:

Net income to average total assets (ROA)

Net income to average 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 YEAR END

Securities available for sale

Loans

Allowance for loan losses

Goodwill

Assets

Core deposits 2

Stockholders’ equity

Tier 1 capital

Total capital

Capital ratios:

1.75%

19.65

58.1

1.72%

19.59

57.7

$ 35,691

$ 32,949

1.08

3,368.3

3,410.1

$306,911

486,023

260,022

213,818

1.00

3,372.5

3,410.9

$296,106

445,790

242,754

201,867

4.83%

4.86%

$ 42,629

319,116

3,764

11,275

481,996

270,224

45,876

36,808

51,427

$ 41,834

310,837

3,871

10,787

481,741

253,341

40,660

31,724

44,687

—

(1)

(3)

—

Stockholders’ equity to assets

9.52%

8.44%

Risk-based capital

Tier 1 capital

Total capital

Tier 1 leverage

Book value per common share

Team members (active, full-time equivalent)

8.95

12.50

7.89

8.26

11.64

6.99

13.58

12.12

158,000

153,500

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

“What we want to instill is a
culture of collaboration that
instinctively and naturally puts
what is best for the customer
ﬁrst—and then deliver it.”

difﬁcult for our customers to do business with us. So, in many
ways, our most formidable competitor is…ourselves. As Pogo in
the comics used to say, “We have met the enemy, and they is us.”
Customers aren’t waiting for companies such as ours to raise

the bar on service quality. They’re raising it themselves. We’re
No. 1 in our industry in the average number of products per
customer, but with that leadership comes a responsibility. The more
business our customers give us, the more they expect from us.

“One Wells Fargo”
To make it easier for our customers to do business with us,
we’re changing the way we think and act—as one company, not
80+ separate businesses. Among ourselves, we call this way of
thinking and acting “one Wells Fargo.” We’re asking ourselves,
“What are the most signiﬁcant ways we can present ourselves to
our customers as one company?” We want our customers to see
us as one organization not separately as a bank, a mortgage
company, a consumer ﬁnance company, a commercial/corporate
bank, a wealth management company or an insurance company.
Likewise, we must see each customer not just as a bank customer,
a mortgage customer, a consumer ﬁnance customer, a commercial
customer, an investment customer or an insurance customer,
but as a Wells Fargo customer.

It’s not enough to make sure we incent all our businesses
ﬁnancially to work well together or partner effectively. The self-
interest of our separate businesses is not enough, because from the
start it leaves the most important person out of the equation:
the customer! What we want to instill is a culture of collaboration
that instinctively and naturally puts what is best for the customer
ﬁrst—and then deliver it.

Examining Our Processes
To think and act instinctively as “one Wells Fargo,” we’re
systematically examining the major processes inside our company
that are most important to make it easier for our customers to do
business with us.

customer satisfaction with the way we originate and service their
mortgages. In Wholesale Banking, our customer satisfaction
scores were among the highest in our industry and have risen the
last four years—with more than eight of 10 customers rating
their total experience with us “above average” to “excellent.” Our
own team members—whose attitudes are the leading indicator
of customer attitudes—tell us they’re satisﬁed and happy in their
work by a ratio of seven to one, in the top quartile, about four
times the national average for all workers.

So, what keeps us from being known as absolutely off-the-
charts great in providing a superior customer experience each
time, every time? The fault lies not with our team members. They
try to give their all for our customers every minute of every day.
They try to do what’s right for our customers so we can satisfy
all their ﬁnancial needs.

The Cost of Complexity
We’ve concluded that the problem lies not just with the growing
demands of customers for more simplicity in their lives, but in the
complexity of our organization. A lack of consistency across our
business lines in some processes and systems prevents us from
always asking, “How will this look to the customer?” Simple or
complex? Easy or time-consuming? Friendly or formal? Intuitive
or confusing? As a diversiﬁed ﬁnancial services company, more
than just a bank, we have more than 80 businesses. That’s a great
advantage. We can offer customers more value and convenience
—and give them a better deal for bringing us more and preferably
all of their business. We can build relationships that last a lifetime.
We can drive more revenue through our large, ﬁxed-cost
distribution network. We can diversify our risk and revenue
sources and thus achieve consistent double-digit earnings growth.
We can offer our team members lots of career opportunities
within a large, growing, dynamic company.

Being so large and diverse, however, also can be a disadvantage.

Complexity can have a hidden cost. Presenting ourselves to our
customers as 80+ different Wells Fargos can sometimes make it

Our 10 Strategic Initiatives

Our 10 Strategic Initiatives have guided us the last 10 years toward our vision of satisfying all our customers’ ﬁnancial needs.
They also help us toward our objective of double-digit growth in revenue, earnings and stock price. Here’s some of our progress.

1. Investments, Brokerage, Private Banking, Insurance
About 16 percent of our earnings come from these businesses
that are so important to our customers’ ﬁnancial well-being.
Our goal: 25 percent.

• Private Banking: average loans, up 8%; average deposits, up 15%.

• Private bankers: 800, up 16% (690,‘05)

• Core deposits: up 7%.

• Brokerage assets under administration: $115 billion, up 19%.

• WellsTrade® brokerage assets: $11.5 billion, up 32%.
• Wealth Management professionals: 3,800, up 8%.

• Mutual fund assets managed: $126 billion, up 12%.

6. When, Where and How

Integrate all delivery channels—stores, ATMs, Wells Fargo Phone
Bank centers, wellsfargo.com, direct mail, interactive video—to
match them with when, where and how our customers want to
be served.

• Opened 109 Community Banking stores and 21 Wholesale

Banking ofﬁces.

• About seven of every 10 of our Wholesale Banking customers
are active online users of our Commercial Electronic Ofﬁce®
(CEO®) service to run their businesses more efﬁciently.
• Active online internet customers: 8.5 million (2/3 of all

consumer checking account customers), up 18%.

• Customers referred from bankers to insurance team: up 100%.

• Active online small business customers: 800,000, up 25%.

2. Going for Gr-eight!—Product Packages

Our average banking household has 5.2 products with us.
Our average Wholesale Banking customer has 6.0—our
average commercial banking customer more than seven. Our
goal is eight products per customer. Already, one of every
ﬁve of our customers has eight or more products with us.
The average U.S. banking customer has about 16.

• Two-thirds of our new checking account customers buy

a Wells Fargo PackageSM (checking account and three other
products such as debit card, credit card, online banking,
savings account, home equity loan).

• Added 1,900+ bankers in our stores.

3. Doing It Right for the Customer

Be “one Wells Fargo” advocates for our customers, put them
at the center of all we do, and give them such outstanding
service and advice that they’ll give us all their business and
rave about us to their family, friends and business associates.

• Launched mortgage industry’s ﬁrst comprehensive program

to help nonprime customers achieve ﬁnancial success.

• Launched “one Wells Fargo” initiatives to make it easier for our

customers to do business with us.

• 400+ of our ATMs in the Bay Area now accept deposits with
no envelopes required—a service we plan to expand across
our 23 banking states.

7. “Information-Based” Marketing

Offer the right product to the right customer at the right
time at every point of customer contact.

• Customers accepted 11.5 million tailored product offers through
our stores, phone banks and wellsfargo.com (10.2 million, ’05)

• Launched My Savings PlanSM—online tool to set savings goals,

amounts, time frames and measure progress.

• My Spending Report attracted 4.5 million ﬁrst-time users.

8. Be Our Customers’ Payment Processor

Wells Fargo must add real value to enable us to be the
intermediary—electronic or paper—whenever and wherever
our customers buy products and services.

• Active online bill payment/presentment customers: 4.8 million,

up 43%.

• Business customers deposited $90 billion in checks via internet
(Desktop Deposit® service—scanning paper checks into screen
images) in ’06.

4. Banking with a Mortgage, Home Equity

9. Premier Customers

and Consumer Finance Loan
All our mortgage and consumer ﬁnance customers in our
Community Banking states should bank with us. All our
banking customers who need a mortgage or a home equity
loan should get it through Wells Fargo.

• Homeowner-customers who have mortgage products with us:

21.2% (17.3%, ’01).

• Homeowner-customers with home equity products with us:

16.6% (12.6%, ’01).

5. Wells Fargo Cards in Every Wallet

Every one of our bank customers should have an active credit card
and debit card with us.

Attract more and keep all our premier customers. Cross-sell
Wells Fargo products to households that could become
premier customers. Reduce by half the number of customers
who leave us or give us less of their business.

• High-value customers who leave us annually: 5.6% (7.1,‘03)

• Banking households with Portfolio Management Account (PMA):

13.82% (11.07, ’05)

10. People as a Competitive Advantage

Develop, reward and recognize all our team members;
build an inclusive work environment and a more
diverse organization.

• Team member training: 2.7% of total payroll

• Households with Wells Fargo credit card: 35.3% (23.2%, ’01).

• Team member tuition reimbursement: $19.3 million (up 23%)

• Checking account customers with Wells Fargo debit card: 90.7%

• Almost 100 team member resource groups (64,‘03) bring

(83.3%, ’01).

• Business Banking customers with Wells Fargo credit card: 22.9%

(16.6%, ’04).

together diverse team members with shared interests and
common backgrounds for professional growth.

• 71 diversity councils companywide (39,‘03) advise management

• Business Banking checking account customers with Wells Fargo

debit card: 66.2% (49.5%, ’04).

on policy, programs and best practices.

• 4,500 net new team members. Welcome!

250

174

153

113

167

224

1,320

329

128

291

109

122

115

Hawaii

738

2
17

72
63

6
47
54

14
9

33
52

138

Puerto Rico

Diversiﬁed. Nationwide. Banking, insurance, investments, mortgage
and consumer ﬁnance—we span North America with one of the most
extensive networks of stores in all of ﬁnancial services.

We’re asking questions such as:

• Are there fees we should eliminate because customers do not

• We have hundreds of different products—picture a crowded
menu board at a fast food restaurant. Can we reduce and
simplify the menu, and thereby reduce customer confusion,
our own costs and processing errors? For example, we’re
thoroughly analyzing how our customers use our checking
products so we can make them easier to understand and use.

• When a customer comes to us with a problem—especially

through our Wells Fargo Phone Bank centers—how can we
increase the likelihood that we can ﬁx the customer’s problem
the ﬁrst time? (Our batting average now is only about .333—
great for baseball, not good enough for our customers.) If we
can’t ﬁx it right away, how can we ensure that we give the
customer periodic updates on the status of our investigation
and specify the date we’ll solve it?

• How can we speak more conversationally in letters to our

customers so they don’t have to scratch their heads and say,
“What are they talking about?” We’ve all had this experience
as customers. In a disclosure statement, for example, why
use banking terms such as “debits” and “credits”? Why
say “rolling consecutive twelve month billing cycle period,”
as one company recently did, when it meant “the next
12 months”?

• How can we make it easier for our customers to access

information about their accounts, safely and securely, and with
less paper? A text-messaging society that gets information
at search engine speed doesn’t understand overnight “batch
processing” of paper checks.

perceive a fair value for them?

• Can we reduce the number of “800” numbers we offer to

customers from our different business lines? When a customer
calls one of them, can we automatically route them to the
right “800” number so we can satisfy their need or solve
their problem faster? The answer is “yes.”We’ve installed
technology the last three years to do just that.

• How can we make sure we don’t ask our customers time and
again for information about them we already have? For example,
when customers use one of our 6,700+ ATMs and they always
select English or Spanish or Chinese as their preferred language,
we shouldn’t ask them every time which language they prefer.
We already know! The old saying is still true—“I wish I knew
what I already know.” All our ATMs remember customers’
preferred withdrawal amount. We’re testing technology to
remember customers’ preferred ATM language.

Our “One Wells Fargo” Goal is Simple
We must help our team members serve our customers faster and
more easily so that every interaction we have with our customers
—about 5,000 every minute of every day—appears to the
customer to be simple, obvious, intuitive, usable, practical and,
where possible, tailored to their special need of the moment. If we
do that, our customers—who want us to know them, understand
them, acknowledge them and reward them—will reward us with
even more of their business, which will generate double-digit
growth in revenue, earnings per share and stock price.

We must help our team members
serve our customers faster and
more easily so that every
customer interaction is simple,
obvious and intuitive.

we’re one of its 40 largest private employers. We have 51 stores
in Maryland, headquarters for our national Corporate Trust
business, and we’re one of that state’s 50 largest private employers.
In Pennsylvania, we employ almost 2,000 team members,
have 55 stores, and it’s national headquarters for our Auto
Finance business.

We have no compelling need for a retail banking presence in
the eastern United States. That’s because we have such tremendous
untapped opportunity for more market share growth in our
community banking states in the Midwest, the Southwest,
the Rockies, the West and the Paciﬁc Northwest. We estimate
we have only about 3 percent market share of total household
ﬁnancial assets in those states. Consider the approximate
population growth rates of just nine of our fastest-growing
Community Banking states:

More Growth Ahead

2000–2005
Population Growth

2005–2025
Projected*

Nevada
Arizona
Texas
Idaho
Utah
Colorado
California
Washington
Oregon
United States

+17.7%
+14.4
+ 9.2
+ 8.7
+ 8.3
+ 7.4
+ 6.4
+ 5.3
+ 5.1
+ 5.0

+64.2%
+62.4
+35.5
+31.7
+33.4
+19.6
+22.9
+28.9
+26.1
+18.3

* Sources:

www.census.gov/population/projections/PressTab6.xls
www.infoplease.com/ipa/A0763098.html

Beginning on page 10 of this report, we tell the stories of
11 of our customers. Each came to us with an everyday ﬁnancial
problem or need all of us are familiar with—how to qualify for
a home equity loan, what to do when your checking account is
overdrawn through no fault of your own, or how to manage
personal ﬁnances after the death of a spouse. They did not see
themselves as coming to our bank, our mortgage company, our
website, our investment businesses, our consumer ﬁnance
company or our insurance business. They came to Wells Fargo,
period, because that’s the way they see us. In many of these
situations a Wells Fargo team member took personal responsibility
to make sure that our businesses—collaborating together
(sometimes dozens or hundreds of our team members behind the
curtain)—satisﬁed the customer’s ﬁnancial need smoothly and
simply. In most of these situations, we not only satisﬁed that
need but earned even more of that customer’s business.

Diversiﬁed. Nationwide. And Growing!
Despite the challenges and uncertainty ahead for our economy
and our industry in 2007, we’re as optimistic, as ever, about our
ability to satisfy all our customers’ ﬁnancial needs and help them
succeed ﬁnancially. We have one vision. We’ve made steady,
measurable progress toward it for more than 20 years. We have
an effective, time-tested business model. We have great people.
We have a very strong, well-understood culture. We have one
of the broadest, most extensive product lines in our industry.
We’re also in the fastest-growing markets in the United States,
the world’s most dynamic, prosperous national economy.

One of our best-kept secrets is our recent growth in the
eastern United States. Almost half our Wells Fargo Home
Mortgage and Wells Fargo Financial stores in the United States
are in states outside our Community Banking states, and almost
one of every ﬁve of our Wholesale Banking ofﬁces is east of
the Mississippi. In Florida, for example, we have 133 stores
(mortgage, consumer ﬁnance and commercial banking), and

The last ﬁve years, for example, both California and Texas each
added the equivalent of a city about the size of Houston. Nevada
added the equivalent of a St. Louis. Arizona, almost the equivalent
of an Indianapolis. Colorado, more than a Toledo. Projected 20-
year growth rates are even more dramatic. California and Texas
each could add another eight million people.

Nation of Immigrants
Much of this growth in our Community Banking states comes
from new immigrants who have been the lifeblood of our
country’s dynamic, entrepreneurial economy and work ethic
since our nation’s ﬁrst days. Immigration is now at a 70-year
high in the United States. At least one of nine American residents
is foreign-born. They’ve accounted for half the growth of the
United States labor force since 1995. They’re now 15 percent
of the work force. California has become the nation’s ﬁrst
white minority state—home to one of every three Hispanics
in the United States. There are surprises everywhere you look.
The New York Times found that in one town in central Iowa,
Denison, half the children in kindergarten are ethnically diverse.
In Clark County, Idaho, almost a ﬁfth of the population is
foreign-born. Fifteen years ago, the U.S. census counted about
3,500 residents of Mexican birth in Minnesota; today, it’s about
200,000. More and more Americans identify with more than one
culture. Seven million registered for the census as a combination
of races. One of every four residents in suburban America is
ethnically diverse. U.S. Latinos have estimated buying power of
$736 billion, African-Americans $723 billion, Asian-Americans
$400 billion. Immigrants and ethnic minorities are the fastest-
growing segment of ﬁrst-time U.S. home buyers.

Key to U.S. Prosperity: Access to Financial Services for All
A recent report said it well: Our nation’s economic prosperity
now depends to a great extent on whether the economic progress
of immigrants can keep pace with their growth in numbers.* They
cannot achieve prosperity without access to ﬁnancial services.
That’s how they can achieve the American dream—become
entrepreneurs and start businesses, own homes, build credit
histories and save for retirement.

The immigrants’ main point of entry into the U.S. banking
system is the checking account. That’s why all of us at Wells Fargo
welcome these potential customers with open arms to help them
succeed ﬁnancially. Five years ago Wells Fargo was the ﬁrst bank
in the United States to promote the use of the Matricula Consular
as a form of identiﬁcation to help Mexican Nationals move from
the risky cash economy to secure, reliable ﬁnancial services. Since
then—with the active support of the U.S. Treasury Department
and hundreds of local police departments and municipalities—

* “Financial Access for Immigrants: Lessons from Diverse Perspectives,” Federal Reserve Bank of Chicago,

The Brookings Institution, May 2006.

we’ve welcomed one million of these account holders as
Wells Fargo banking customers. We’ve expanded this Consular
program to include immigrants from Guatemala, Argentina and
Colombia. We also partner with U.S. consulates and embassies
in Asia to offer banking information to Asians preparing to come
to the United States. We’ve publicly committed to spend at least
$1 billion with diverse suppliers in ﬁve years, and we’re half way
there. Our spending with diverse suppliers has risen 25 percent
the past three years.

We were the ﬁrst major U.S. bank to enable consumers to remit
money to China and Vietnam, expanding this service beyond the
Philippines, Mexico, El Salvador, Guatemala and India. The past
12 years, we’ve loaned $33 billion to businesses owned by Latinos,
African-Americans, Asian-Americans and women. More and more
of our banking stores in diverse neighborhoods reﬂect the culture
of their communities—in ethnic backgrounds and language skills
of our team members, in the art and design of those stores, in the
diverse vendors we hire to build and remodel them.

It’s no wonder we’re optimistic about the future of our

company and our country!

The “Next Stage”
We thank our 158,000 talented team members for their
outstanding accomplishments and record results. We thank our
customers for entrusting us with more of their business and for
returning to us for their next ﬁnancial services product. We thank
our communities—thousands of them across North America—
that we partner with to make them better places to live and
work. And we thank you, our owners, for your conﬁdence in
Wells Fargo as we begin our 156th year. The “Next Stage” of
success is just down the road as we become “one Wells Fargo”—
for our team members, our customers, our communities and our
stockholders. It’s going to be a great ride!

Richard M. Kovacevich
Chairman and Chief Executive Ofﬁcer

John G. Stumpf
President and Chief Operating Ofﬁcer

One Team.
Pulling Together.
For Customers.
At its heart, ﬁnancial services is not about assets or liabilities,
proﬁt ratios or yield curves. It’s about people. It’s about customers.
Their hopes and dreams.Their goals and plans.The home they
want to own.The business they want to start or grow.The college
education they want for their children.The ﬁnancial security
they want for retirement.

But it’s not easy. It takes hard work.They have ﬁnancial
problems they can’t solve. Financial questions they can’t answer.
Financial advice they need.To solve those problems, answer
those questions, and get that advice, they come to Wells Fargo.

Every day millions of them do business in our stores.
Every day, they conduct 2.17 million sessions on wellsfargo.com.
Every day, they make 574,000 calls to our telephone centers.
Every day, they make 1.3 million transactions at our ATMs.

These are the stories of 11 Wells Fargo customers, each with a
speciﬁc ﬁnancial need, and how we responded—as one team,“one
Wells Fargo,” pulling together—to help them succeed ﬁnancially.

1 0

“A few weeks after we moved here, my
husband died suddenly. He managed
all our ﬁnances. Now I have to do it all
alone, in a community where I don’t
have any family or friends. Who can I
turn to for help?”
Theresa Janousek, St. George, Utah

Michael Osmund
Regional Banking
St. George, Utah

Theresa: “My husband paid our bills online with a Wells Fargo
competitor.That’s where we had most of our savings. I told them my
husband had died and I needed to get the account passwords.They
immediately locked the accounts. It took me a week to get access.
Thank goodness I had the Wells Fargo accounts to pay for the funeral
and other expenses. I asked Michael to help me with some of my
ﬁnances. I don’t know what I would have done without him. Because
of his help, I transferred all of my accounts to Wells Fargo. I’ve also told
all my friends and family what a great help he’s been. I’m not a wealthy
person, but Michael went out of his way to help me get control of my
ﬁnancial life in my time of greatest need.”

1 1

“I’m a single parent with two children.
I’ve worked for two years to improve
my credit score. I want to own my own
home. Is there a mortgage company
that can help me achieve my dream and
make it affordable for me?”
Davina Payne, District Heights, Maryland

Marcus Malone
Wells Fargo Home Mortgage
District Heights, Maryland

Davina: “I have a bachelor’s degree in accounting and business
management, and I’m an auditor for the U.S. Navy Department. After a
divorce, I moved from Charleston, South Carolina, to Maryland. I improved
my credit score, qualiﬁed for an FHA loan, and the state helped me ﬁnance
the closing costs for my townhouse. Marcus and I grew up together in the
same neighborhood in southeast Washington. I’ve known him for years,
and I trust him implicitly.The mortgage process wasn’t easy, and it took
some time to get all the paperwork done, but he made sure everything
was in order and that there was good communication to make sure the
funds were there at the closing.We moved into our home on May 5, 2006.
Thank you, Marcus!”

1 2

“We’re paying our maintenance

workers, third-country nationals,
on U.S. military bases in the Middle
East in cash, but that leaves them
vulnerable to theft. How can we pay
them in a more secure way?”
Glenn Robson, AECOM Technology Corp., Los Angeles, California

Vanessa Meyer
Wholesale Banking
Los Angeles, California

Glenn: “It was natural for us to ask Wells Fargo to solve this problem
for us because they already provide us a full array of treasury
management services as well as credit.Their solution—modify their
standard paycard to comply with new Homeland Security rules and
use the card internationally. So now we issue these maintenance
workers a VISA® “PayCard” that they use to access their pay,
denominated in U.S. dollars, from ATMs. It’s safe, secure and monitored
to guard against fraud and misuse. Vanessa brought in a team of
specialists from a number of Wells Fargo businesses including Robert
Rosdorff, Michele Rose-Vezina, Lisa Mitchell and Trish Fischer.They
spent months to develop a product to make sure it met our needs.”

1 3

1 4

“We worked hard to build our business,

but it’s grown to a stage where we
need a bank to be our partner for
even more growth. We want a
relationship—not just a place to
do transactions.”
Thomas Cheng, San Francisco, California

Man-Sim Tang
Regional Banking
San Francisco, California

Thomas: “Our business is needlepoint—handcrafted pillows, hooked
rugs, stools, fabric for chairs. We began with Wells Fargo from our
ﬁrst location in the Avenues neighborhood in San Francisco. Our
banker was Man-Sim Tang at 19th and Geary. When the business
grew and we moved it to South San Francisco, guess who we found
there? Man-Sim Tang! She introduced us to Banker Gin Ho, and the
relationship and business grew even more. As our business keeps
growing, we’re now served by the Wells Fargo banking store at
Broadway and Grant in San Francisco’s Chinatown.Thank you,
Wells Fargo, for helping us grow wherever we do business!”

1 5

“I’m in a rush to reﬁnance our home
mortgage, and I need a line of credit
for bridge ﬁnancing. The person who
helped me at Wells Fargo just left
the company. Now who do I turn to?”
Mark Soliman, Kirkland, Washington

Irene Dizon
Regional Banking
Kirkland, Washington

Mark: “Irene had to pick up my account midway through the process.
She never missed a beat. Then I had to call her again for another
emergency transaction and line of credit for bridge ﬁnancing, and
she responded with grace and an amazingly good understanding of
the products you offer and what I needed. She moved very quickly on
everything, and she was so responsive and accommodating with my
sometimes unreasonable demands and timetables. She came through
for me on a very tight timetable. Because of her exceptional service,
I’ve decided to drop my current credit union and move all my money
and accounts to Wells Fargo.”

1 6

“We’ve been customers of Wells Fargo
—both our company and our personal
business—for years. Then our
company hit some tough times. One by
one, our banks pulled away from us.
Except one.”
Jud and George Schroeder, San Antonio,Texas

Randy Majek
Wealth Management Group
San Antonio, Texas

Jud and George: “We founded Lancer Corporation—maker of equip-
ment for soft drink machines—in 1967. It was publicly owned, we were
the major shareholders, and we’d been with Wells Fargo for years. Our
company hit a tough patch and was temporarily delisted from an
exchange due to questions about our audited statements. But Wells Fargo
stuck with us. Once outside auditors gave our company a clean bill of
health, our stock resumed trading. In early 2006, we sold our company
for a sizable proﬁt.We met with a wealth-planning team from Wells Fargo
and invested much of the proceeds with Wells Fargo.The best compliment
we can pay Wells Fargo is that several of our family members and others
we’ve referred have become Wells Fargo customers.”

1 7

“I don’t know who else to turn to. I’ve been a
customer of Wells Fargo Financial for several
months. My husband, Heriberto, and I have
four jobs. He’s a factory machine operator and
a painter. I’m a Salvation Army manager and
have a cleaning service. To get to our jobs,
we’ve been sharing one vehicle with two other
people. Our family needs a car just for us.”
Ruth Florez, Seminole, Florida

Joel Marius
Wells Fargo Financial
Seminole, Florida

Ruth: “I speak only Spanish, so it’s important for me to do business
with a company such as Wells Fargo because they speak Spanish, too.
I met with Joel in person and explained our need. He approved our
application for an automobile loan. During a long discussion, we also
considered several ways to better manage our ﬁnances. I decided that
rather than just get a loan for a used car, we could free up more money
by reﬁnancing our home mortgage at a lower interest rate and
consolidating our debt at a lower interest rate.That way we could
afford not just one vehicle but two.This loan also helped us reduce our
monthly payments by almost $200. We received the loan in July and
since then I’ve referred three more customers to Joel and Wells Fargo.”

1 8

“Without my knowledge or approval, large

withdrawals somehow were made three times
from my checking account, causing it to be
overdrawn. It was a nightmare. A hold was
placed on my account. I called the phone
bank and still didn’t get the problem resolved.
So I went to the local Wells Fargo ofﬁce to
close my account.”
Linda Kelly, Red Wing, Minnesota

Sandy Place
Regional Banking
Red Wing, Minnesota

Linda: “Sandy welcomed me, apologized for the situation, and thanked
me for coming in. She got the hold taken off the account, and suggested
we open a new checking account since I’d had several errors recorded
on the old one. She agreed to monitor my new account to make sure
all transactions were accurately recorded. She also took the time to
ask me about my ‘big picture’ ﬁnancial goals and objectives. I told her
about proceeds I was expecting from the sale of a property. So, besides
my new checking account, I also opened a savings account, and applied
for debit cards, a credit card, Online Banking, Bill Pay, a CD and two IRAs.
I walked into the bank a frustrated customer, and I walked out feeling
very good about my ﬁnancial well-being.”

1 9

2 0

“New York City decided to establish

a trust to fund a portion of its retiree
health care obligations. Who did the
nation’s largest city select to serve as
trustee…and why?”
Simone Saywack, New York City

Denise Zapzalka
Institutional Trust
Minneapolis, Minnesota

Simone:“We turned to Wells Fargo because they offered us a
customized solution at a competitive price—a total package
including trustee and custody services, payment services,
performance reporting and investment guideline reporting.Their
online portal, Commercial Electronic Ofﬁce, is a convenient, easy way
to track investment performance and payments. It also helps us
make sure the trust is complying with investment guidelines.
And, we get customized reports. Wells Fargo now safekeeps
about $1 billion in assets under custody for the New York City
Retiree Health Beneﬁts Trust.”

2 1

“My business is less than two years old,

but we exceeded our ﬁve-year plan in the
ﬁrst year. We expect to grow 25 percent
this year. We need a line of credit to keep
growing. Our bank turned us down.
Now where do we go?”
Rey Sosa, Tigard, Oregon

Tim Miller
Business Banking
Tigard, Oregon

Rey: “When we started our custom tooling business, a neighbor who
had his own business recommended a bank.They never asked to see
our business plan or offered any other business solutions or services.
After exceeding our ﬁve-year plan in our ﬁrst year, we needed a credit
line, but they turned us down. Our business consultant recommended
Wells Fargo. What a difference! They’re interested, proactive, accessible,
and they save us time.The turn time for capital equipment loans has
been painless.Tim’s always available by phone to answer questions,
and the education I get from Wells Fargo seminars helps me stay
current with what’s going on in ﬁnancial services. We expect to grow
25 percent this year and look forward to a long-term relationship.”

2 2

“I asked that my mortgage payments through
Wells Fargo be deducted automatically from
my checking account, but they weren’t. So,
through no fault of my own, my payments
were unpaid and overdue. I was really upset
and walked into my local Wells Fargo bank
to complain.”
Ruby Pantoja, Los Angeles, California

Ricardo Villarreal
Regional Banking
Los Angeles, California

Ruby: “I met Ricardo, the manager of your bank in Panorama City. He
apologized for the mistake, told me how sorry he was and helped calm
me down. He alerted your mortgage team and helped me ﬁll out forms
to ﬁx the problem. He showed he really cared about me. I’m sure he
went way beyond his job duties to sort out my problem. I think so
much of him that even though he’s moved to another Wells Fargo bank
about 20 miles away, I still drive there when I need personal attention
because I know he’ll take good care of me. In fact, three weeks later,
I walked into that bank, and Ricardo recognized me immediately. I now
have 10 products with Wells Fargo, and I’ve encouraged my family and
friends to become Wells Fargo customers. All because of Ricardo.”

2 3

One Team.
Pulling Together.
For Communities.
Community involvement is more than just writing checks.
It takes a team of people—in and “of” their communities—to
really know the unique needs of a community and the most
effective ways to respond to those needs. Every day, thousands
of our team members across the nation listen to customers,
neighbors, community leaders and business owners to ﬁnd out
how to better serve the community.They’re learning what each
community needs to prosper economically, what its people
need to achieve their ﬁnancial goals, what its businesses need
to grow and be proﬁtable.The shared wisdom of our team helps
us make thoughtful decisions about investing where it counts
the most—locally.

Our teams in each community help ﬁnd the best ways to
provide ﬁnancial, human and, most importantly, social capital.
Our team members are attentive, ready to lend a hand.They’re
the reason Wells Fargo is known as a trusted, knowledgeable
partner with our customers and communities. Only when we
pull together as “one Wells Fargo” can we meet all their needs.

2 4

“We share a goal with Wells Fargo—

we want to help people fully realize their
vision of running a successful business.
Together, we help knowledgeable
entrepreneurs start and grow their small
businesses, the backbone of the economy
in rural Wisconsin.”
Wendy Baumann, President,
Wisconsin Women’s Business Initiative Corporation

Jeff Gauvin
Community Development
Milwaukee, Wisconsin

Small businesses are the engine for economic growth in communities
across America, and one way we help them succeed is by investing
in organizations such as the Wisconsin Women’s Business Initiative
Corporation (WWBIC) in Milwaukee.This nonproﬁt—in which Wells Fargo
invested $150,000 in 2006—offers business education and capital to
women, people of color and lower-income entrepreneurs such as Gerald
Hoover and his daughter Stephanie (left).Their family-run business,
August Steel Masters, doubled its sales after a $60,000 loan from WWBIC
helped it improve production and inventory. As the United States’
No. 1 lender to small businesses, Wells Fargo has loaned $33 billion
to women and minority-owned businesses the past 12 years.

2 5

2 6

“Habitat for Humanity gave me and my

family a home 12 years ago, and I wanted
to share the same gift with another family.
I’m so grateful that, with Wells Fargo’s
support, I could give back to a cause that
has given me so much.”
Jacinta Stubbs-Smith

Jacinta Stubbs-Smith
Wells Fargo Home Mortgage
Shiloh, Illinois

Habitat for Humanity needed $25,000 to complete its only home
built in 2006 in East St. Louis, Ill., a community where household
income is signiﬁcantly below the national average. Jacinta, a Habitat
homeowner, asked Wells Fargo to fund the East St. Louis Habitat afﬁliate
and secured a full sponsorship—exactly $25,000—to build another
home in her neighborhood. Her hard work and Wells Fargo’s grant
made homeownership possible for Quintella Watson (left), a single
mother who works for East St. Louis School District 189 and is enrolled
in college. Over the last 13 years Wells Fargo has provided 3.5 million
volunteer hours and $40 million to build and renovate homes,
including Wells Fargo’s 2,000th Habitat home in Chester, Penn.

2 7

“Million Trees LA is a public and private

partnership on all levels. This ambitious project
is made possible by the support of outstanding
community partners such as Wells Fargo.
They help us build awareness of the many
environmental beneﬁts that a sustainable urban
forest can provide our metro area.”
Paula Daniels, Commissioner, Los Angeles Board of Public Works

Jerry Ruiz
Community Development
Los Angeles, California

How much clean air and shade can one tree provide? What about a
million trees? The City of Los Angeles is ﬁnding out. Million Trees LA
unites nonproﬁts, public and private organizations around Los Angeles
to plant a million trees in underserved communities, schools and
parks.The city will have a cleaner, greener landscape, thanks in part to
Wells Fargo’s $1 million Green Equity Equivalent Investment, providing
capital to environmentally friendly nonproﬁts. We also provided a
$25,000 grant, and our team members will get their hands dirty
planting thousands of saplings in their communities. Our investments,
grants and volunteerism show how we integrate environmental
stewardship into our business practices and community involvement.

2 8

“Teachers in our business department wanted
to create a unique business and education
partnership, and Wells Fargo had the right pieces
to make our plan a reality. They put together a
great team to give our students more tools for
success, and together we opened a Wells Fargo
banking store just in time for homecoming.”
Debra Duvall, Superintendent, Mesa, Arizona Public Schools

Linda Highland
Mesa High School Banking Store Manager
Mesa, Arizona

Teachers in Mesa wanted a classroom unlike any other, where
students could get real-world experience in career development and
ﬁnancial skills.Today, behind a classroom door at Mesa High School,
is a hands-on education center: a Wells Fargo banking store—our ﬁrst
on a high school campus.Wells Fargo converted the classroom into a
full-service store, and Mesa High graduates (such as Wells Fargo team
member Theo Sergeo Kwi, below) serve students, parents and faculty.
Team members visit classes to talk about careers in banking and
money management, using our ﬁnancial education curriculum Hands
on Banking®. Five thousand team members are trained to present our
Hands on Banking program, teaching ﬁnancial skills to all ages, including
new material for young adults facing ﬁnancial independence.

2 9

3
9

5
9

3
0
1

2
8
$

3
8

02
Wells Fargo Contributions
millions— cash basis

America’s Most Generous Corporate
Foundations Forbes magazine

1. Wal-Mart
2. Aventis
3. Ford Motor Company
4. Citigroup
5. Wells Fargo

6. Verizon
7. JPMorgan Chase
8. ExxonMobil
9. General Electric

10. SBC

Team Members Make the Difference

For more than a quarter century, we’ve recognized and thanked
our team members who make a difference in our communities
by providing grants annually (2006: 161 awards, $319,000) to
the organizations where many of them volunteer.

This year’s top winners, Kathleen Vaughan (San Francisco, Calif.)
and Scott Schwartz (Menomonee Falls,Wis.), each received $35,000
for their nonproﬁts. Kathleen gives her time to A Bridge for Africa,
an organization she founded to build relationships between
businesses and artists to increase economic development in rural
Africa. After Scott’s son was diagnosed with autism, Scott started
Dylan’s Run/Walk to raise funds for autism research and family
education. Kathleen and Scott each give more than 15 hours a
week to these causes.

Corporate Citizenship Report
A report on our achievements in corporate citizenship for 2006
is available at: www.wellsfargo.com/about/csr.

3 0

Environmental Stewardship:
Top U.S. Buyer of
Renewable Energy*

1. Wells Fargo & Company
2. Whole Foods Market
3. Johnson & Johnson
4. Starbucks
5. DuPont Company

* U.S. Environmental Protection Agency

6. Vail Resorts, Inc.
7. HSBC North America
8.
IBM Corporation
9. Sprint Nextel

10. Safeway

Number of kilowatt-hours of wind
energy Wells Fargo will purchase a year
over next three years:

550 million

$1.4 billion

community development lending
Includes affordable housing, community service and economic
development loans. Up 62% from previous year

$23 million

to 4,400 educational organizations
+ $5 million in matched educational donations from
team members

748,000 hours

volunteered by team members
Average value of a volunteer hour is $18.04 = $13.5 million in time
contributed.Team members serve on 3,000 nonproﬁt boards.

$26 million

donated by team members in the
’06 Community Support Campaign
Up 15% from ’05

Board of Directors

John S. Chen 3
Chairman, President, CEO
Sybase, Inc.
Dublin, California
(Computer software)

Lloyd H. Dean 1, 3
President, CEO
Catholic Healthcare West
San Francisco, California
(Health care)

Susan E. Engel 2, 3, 5
Retired Chairwoman, CEO
Lenox Group 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 1, 2, 4
Philip H. Knight
Professor and Dean
Stanford U. Graduate
School of Business
Palo Alto, California
(Higher education)

Richard M. Kovacevich
Chairman, CEO
Wells Fargo & Company

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

Cynthia H. Milligan 1, 2, 4
Dean
College of Business
Administration
University of Nebraska –
Lincoln
(Higher education)

Nicholas G. Moore 1, 3
Retired Global Chairman
PricewaterhouseCoopers
New York, New York
(Accounting)

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

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

John G. Stumpf
President, COO
Wells Fargo & Company

Susan G. Swenson 1, 2, 4
COO
Amp’d Mobile, Inc.
Los Angeles, California
(Mobile entertainment)

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

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

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

Judith M. Runstad 2, 3
Of Counsel
Foster Pepper PLLC
Seattle, Washington
(Law ﬁrm)

Executive Ofﬁcers, Corporate Staff

Richard M. Kovacevich, Chairman, CEO *

Paul R. Ackerman, Treasurer

Avid Modjtabai, Human Resources *

John G. Stumpf, President, COO *

Patricia R. Callahan, Compliance and

Victor K. Nichols, Technology

Senior Executive Vice Presidents

Howard I. Atkins, Chief Financial Ofﬁcer *

David A. Hoyt, Wholesale Banking *

Mark C. Oman, Home and Consumer Finance *

Risk Management *

Lawrence P. Haeg, Corporate Communications

Ellen Haude, Investment Portfolio

Bruce E. Helsel, Corporate Development

Laurel A. Holschuh, Corporate Secretary

Eric D. Shand, Chief Loan Examiner

Diana L. Starcher, Customer Service, Sales, Operations

Robert S. Strickland, Investor Relations

James M. Strother, General Counsel,

Government Relations *

Richard D. Levy, Controller *

Carrie L.Tolstedt, Community Banking *

* “Executive ofﬁcers” according to Securities

and Exchange Commission rules

Michael J. Loughlin, Chief Credit Ofﬁcer *

Kevin McCabe, Chief Auditor

3 1

Senior Business Leaders

COMMUNITY BANKING

Diversiﬁed Products Group

WHOLESALE BANKING

J. Scott Johnson, Iowa, Illinois

Mary C. Cofﬁn, Mortgage Servicing/

Michael R. James

Michael W. Azevedo, Business Banking

Support Group

Marc L. Bernstein, Business Direct Lending

Louis M. Cosso, Auto Dealer
Commercial Services

Jerry E. Gray, SBA/Payroll

David J. Rader, SBA Lending

Group Head

David A. Hoyt

Commercial, Real Estate and
Specialized Financial Services

Timothy J. Sloan

Commercial Banking

Todd A. Reimringer, Payroll Services

Iris S. Chan

Rebecca Macieira-Kaufmann,
Small Business Segment

John C. Adams, Northern California

JoAnn N. Bertges, Central California

Debra B. Rossi, Merchant Payment Services

Robert A. Chereck, Texas

Kenneth A. Zimmerman, Consumer

Deposits Group

HOME AND CONSUMER FINANCE

Group Head

Mark C. Oman

Albert F. (Rick) Ehrke, Southern California

Mark D. Howell, Intermountain/Southwest

Paul D. Kalsbeek, Southeast

Richard J. Kerbis, Northeast

Edmond O. Lelo, Greater Los Angeles

Perry G. Pelos, Midwest

Asset-Based Lending

Peter E. Schwab

Henry K. Jordan, Wells Fargo Foothill

Scott R. Diehl, Commercial Finance

Jeffrey T. Nikora, Alternative
Investment Management

Martin J. McKinley, Wells Fargo Business Credit

Thomas Pizzo, Wells Fargo Century

Eastdil Secured, LLC

Benjamin V. Lambert, Chairman

Roy H. March, CEO

D. Michael Van Konynenburg, President

W. Jay Borzi, Managing Director

Asset Management Group

Michael J. Niedermeyer

Robert W. Bissell,Wells Capital Management Inc.

James W. Paulsen, Wells Capital

Wells Fargo Home Mortgage

Michael J. Heid, Division President,

Commercial Real Estate

Capital Markets, Finance, Administration

A. Larry Chapman

John S. McCune, Institutional Brokerage

Laurie B. Nordquist, Institutional Trust Group

Karla M. Rabusch, Wells Fargo Funds LLC

John V. Rindlaub, Paciﬁc Northwest

Management Inc.

Charles H. Fedalen, Jr., Real Estate Group

Robin W. Michel, Middle Market Real Estate

Mark L. Myers, Real Estate Merchant Banking,

Wealth Management Group/
Internet Services

Homebuilder Finance

Clyde W. Ostler

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

Post Closing

Susan A. Davis, National Retail Sales/

Fulﬁllment Services

Michael Lepore, Institutional Lending

Consumer Credit Group

Doreen Woo Ho, Division President

Steven Allocca, Personal Credit Management

Brian J. Bartlett, Corporate Trust

John W. Barton, Regional Banking,

Equity Direct

Meheriar M. Hasan, Direct to Consumer,
Institutional Lending, Customer/
Management Information

Specialized Financial Services

J. Edward Blakey, Commercial Mortgage Group

John M. McQueen, Wells Fargo
Equipment Finance, Inc.

J. Michael Johnson, Energy, Financial Sponsors,

Gaming, Media, Mezzanine Finance,
Distribution, Investment Banking

David B. Marks, Corporate Banking,

Shareowner Services

John R. Shrewsberry, Securities

Investment Group

Jon A. Veenis, Education Finance Services

Credit Administration

Card Services

Kevin A. Rhein

David J. Weber, Commercial/Corporate

International and Insurance Services

Daniel I. Ayala, Global Remittance Services

David J. Zuercher, Chairman, Wells Fargo

Edward M. Kadletz, Debit Card

Wells Fargo Financial, Inc.

Thomas P. Shippee, CEO, President

Greg M. Janasko, Commercial Business

David R. Kvamme, Consumer Business

Gary D. Lorenz, Auto Business

Jaime Marti, Puerto Rico Auto

Insurance Services

Neal R. Aton, Wells Fargo Insurance

Randy C.Tronnes, Rural Community

Insurance Services

Peter P. Connolly,

International/Foreign Exchange

Ronald A. Caton, Global

Correspondent Banking

Sanjiv S. Sanghvi, Wells Fargo

HSBC Trade Bank, N.A.

James P. Smith, Online Consumer Internet

Jay S. Welker, Wealth Management Group

James Cimino, Arizona, Nevada,

Orange County, Southern California

Anne D. Copeland, Northern California

Joe W. DeFur, Los Angeles County

Lance P. Fox, Credit Administration

Jeffrey Grubb, Alaska, Idaho, Oregon,

Washington

David J. Kasper, Colorado, Iowa, Montana,

Nebraska, Utah, Wyoming

Russell A. LaBrasca, Texas, New Mexico

Timothy N.Traudt, Illinois, Indiana,

Michigan, Minnesota, North Dakota, Ohio,
South Dakota, Wisconsin

Wholesale Services

Stephen M. Ellis

Jose R. Becquer, Health Beneﬁt Services

Deborah M. Ball/Daniel C. Peltz,

Treasury Management

Norwest Equity Partners

John E. Lindahl, Managing Partner

Norwest Venture Partners

Promod Haque, Managing Partner

Corporate Properties

Donald E. Dana

Group Head

Carrie L.Tolstedt

Regional Banking

Regional Presidents

James O. Prunty, Great Lakes

Norbert J. Harrington, Greater Minnesota

J. Lanier Little, Michigan, Wisconsin

Carl A. Miller, Jr., Indiana, Ohio

Daniel P. Murphy, South Dakota

Peter J. Fullerton, North Dakota

Debra J. Paterson, Metro Minnesota

Paul W.“Chip” Carlisle, Texas

George W. Cone, Heart of Texas

John T. Gavin, Dallas-Fort Worth

Glenn V. Godkin, Houston

Don C. Kendrick, Central Texas

Kenneth A.Telg, West Texas

H. Lynn Horak, Iowa

Thomas W. Honig, Colorado, Illinois, Iowa,
Montana, Nebraska, Utah, Wyoming

Nathan E. Christian, Colorado

Robert A. Hatch, Utah

Kirk L. Kellner, Nebraska

Michael J. Matthews, Wyoming

Joy N. Ott, Montana

Laura A. Schulte, Western Banking

Michael F. Billeci, Greater San Francisco

Bay Area

William J. Dewhurst, Central California

Felix S. Fernandez, Northern California

Shelley Freeman, Los Angeles Metro

Alan V. Johnson, Oregon

J. Pat McMurray, Idaho

John K. Sotoodeh, Southern California

Lisa J. Stevens, San Francisco Metro

Richard Strutz, Alaska

Robert D. Worth, California

Business Banking

Hector E. Retta, Border Banking

Patrick G.Yalung, Washington

Kim M.Young, Orange County

Gerrit van Huisstede, Arizona, Nevada,

New Mexico

Kirk V. Clausen, Nevada

Gregory A. Winegardner, New Mexico

Mergers and Acquisitions

Jon R. Campbell

Enterprise Marketing

Sylvia L. Reynolds

3 2

Financial Review

Financial Statements

Consolidated Statement of Income

Consolidated Balance Sheet

Consolidated Statement of
Changes in Stockholders’ Equity
and Comprehensive Income

Consolidated Statement of
Cash Flows

Notes to Financial Statements

120

Report of Independent Registered
Public Accounting Firm

121 Quarterly Financial Data

34 Overview

Critical Accounting Policies

Earnings Performance

Balance Sheet Analysis

48 Off-Balance Sheet Arrangements and

Aggregate Contractual Obligations

Risk Management

Capital Management

Comparison of 2005 with 2004

Risk Factors

Controls and Procedures

66 Disclosure Controls and Procedures

Internal Control over Financial
Reporting

66 Management’s Report on Internal
Control over Financial Reporting

Report of Independent Registered
Public Accounting Firm

-5

This Annual Report, including the Financial Review and the Financial Statements and related Notes, has forward-looking
statements, which may include forecasts of our ﬁnancial results and condition, expectations for our operations and business,
and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results might
differ signiﬁcantly from our forecasts and expectations due to several factors. Please refer to the “Risk Factors” section of this
Report for a discussion of some of the factors that may cause results to differ.

Financial Review

Overview

Wells Fargo & Company is a $482 billion diversiﬁed ﬁnancial
services company providing banking, insurance, investments,
mortgage banking and consumer ﬁnance through banking stores,
the internet and other distribution channels to consumers,
businesses and institutions in all 50 states of the U.S. and in
other countries. We ranked ﬁfth in assets and fourth in market
value of our common stock among U.S. bank holding companies
at December 31, 2006. When we refer to “the Company,”
“we,” “our” or “us” in this Report, we mean Wells Fargo &
Company and Subsidiaries (consolidated). When we refer to
“the Parent,” we mean Wells Fargo & Company.

We had another exceptional year in 2006, with record
diluted earnings per share of $2.49, record net income of
$8.5 billion, both up 11%, and exceptional, broad-based
performance across our more than 80 businesses. All com-
mon share and per share disclosures in this Report reﬂect the
two-for-one stock split in the form of a 100% stock dividend
distributed August 11, 2006.

Over the past twenty years, our annual compound growth
rate in earnings per share was 14% and our annual compound
growth rate in revenue was 12%. Our total annual compound
stockholder return of 14% the past ﬁve years was more than
double the S&P 500®— and at 15% almost double for the
past ten years. We far out-paced the S&P 500 the past 15 and
20 years with total annual compound shareholder returns
of 18% and 21%, respectively — periods with almost every
economic cycle and economic condition a ﬁnancial institution
can experience. Our primary strategy, consistent for 20 years,
is to satisfy all our customers’ ﬁnancial needs, help them
succeed ﬁnancially and, through cross-selling, gain market
share, wallet share and earn 100% of their business.

Our growth in earnings per share was driven by revenue

growth. Our primary sources of earnings are lending and
deposit taking activities, which generate net interest income,
and providing ﬁnancial services that generate fee income.
Revenue grew 8% to a record $35.7 billion from

$32.9 billion in 2005. The breadth and depth of our business
model resulted in very strong and balanced growth across
product sources (net interest income up 8%, noninterest
income up 9%) and across businesses (double-digit revenue
and/or proﬁt growth in regional banking, business direct,
wealth management, credit and debit card, corporate trust,
commercial banking, asset-based lending, asset management,
real estate brokerage, insurance, international, commercial
real estate, corporate banking and specialized ﬁnancial services).

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

14%

5 years

(percent)

Wells Fargo Common Stock

S&P 500

We have stated in the past that to consistently grow over
the long term, successful companies must invest in their core
businesses and in maintaining strong balance sheets. We con-
tinued to make investments in 2006 by opening 109 regional
banking stores. We grew our sales and service force by adding
4,497 team members (full-time equivalents) in 2006, including
1,914 retail platform bankers. We continued to be #1 in many
categories of ﬁnancial services nationally, including retail
mortgage originations, home equity lending, small business
lending, agricultural lending, internet banking, and provider of
ﬁnancial services to middle-market companies in the western U.S.
Our solid ﬁnancial performance enables us to be one of

the top givers to non-profits among all U.S. companies.
Wells Fargo Bank, N.A. continued to be rated as “Aaa,” the
highest possible credit rating issued by Moody’s Investors
Service, and was upgraded in February 2007 to “AAA,” the
highest possible credit rating issued by Standard & Poor’s
Ratings Services. Of the more than 1,100 ﬁnancial institutions
and 70 national banking systems covered by S&P globally,
this upgrade makes our bank one of only two banks world-
wide to have S&P’s “AAA” credit rating. Our bank is now
the only U.S. bank to have the highest possible credit rating
from both Moody’s and S&P.

Our vision is to satisfy all our customers’ ﬁnancial needs,

help them succeed ﬁnancially, be recognized as the premier
ﬁnancial services company in our markets and be one of
America’s great companies. Our primary strategy to achieve
this vision is to increase the number of products our customers
buy from us and to give them all the ﬁnancial products that
fulfill their needs. Our cross-sell strategy and diversified
business model facilitate growth in strong and weak economic
cycles, as we can grow by expanding the number of products

our current customers have with us. Our cross-sell set records
for the eighth consecutive year — our average retail banking
household now has 5.2 products, almost one in ﬁve have more
than eight, six for Wholesale Banking customers, and our
average middle-market commercial banking customer has more
than seven products. Our goal is eight products per customer,
which is currently half of our estimate of potential demand.

Our core products grew this year:
• Average loans grew by 4% (up 14% excluding

real estate 1-4 family ﬁrst mortgages);
• Average core deposits grew by 7%; and
• Assets managed and administered were up 26%.

We believe it is important to maintain a well-controlled
environment as we continue to grow our businesses. We manage
our credit risk by setting credit policies for underwriting,
and monitoring and reviewing the performance of our loan
portfolio. We maintain a well-diversiﬁed loan portfolio,
measured by industry, geography and product type. 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, investment in our businesses, consistent execution of
our business model and management of our business risks.

Our ﬁnancial results included the following:

Net income in 2006 increased 11% to $8.5 billion from

$7.7 billion in 2005. Diluted earnings per common share
increased 11% to $2.49 in 2006 from $2.25 in 2005. Return
on average total assets was 1.75% and return on average
stockholders’ equity was 19.65% in 2006, compared with
1.72% and 19.59%, respectively, in 2005.

Net interest income on a taxable-equivalent basis was
$20.1 billion in 2006, compared with $18.6 billion a year
ago, reﬂecting solid loan growth (excluding adjustable rate
mortgages (ARMs)) and a relatively stable net interest margin.
With short-term interest rates now above 5%, our cumulative
sales of ARMs and debt securities since mid-2004 have had
a positive impact on our net interest margin and net interest
income. We have completed our sales of over $90 billion of
ARMs since mid-2004 with the sales of $26 billion of ARMs
in second quarter 2006. Average earning assets grew 8% from
2005, or 17% excluding 1-4 family ﬁrst mortgages (the loan
category that includes ARMs). Our net interest margin was
4.83% for 2006, compared with 4.86% in 2005.

Noninterest income increased 9% to $15.7 billion in
2006 from $14.4 billion in 2005. Growth in noninterest
income was driven by growth across our businesses, with
particular strength in trust and investment fees (up 12%),
card fees (up 20%), insurance fees (up 10%) and gains on
equity investments (up 44%).

Revenue, the sum of net interest income and noninterest
income, increased 8% to a record $35.7 billion in 2006 from
$32.9 billion in 2005. Wells Fargo Home Mortgage (Home
Mortgage) revenue decreased $704 million, or 15%, to

$4.2 billion in 2006 from $4.9 billion in 2005. Combined
revenue in businesses other than Home Mortgage grew 12%
from 2005 to 2006, with double-digit revenue growth in
virtually every major business line other than Home Mortgage.

Noninterest expense was $20.7 billion in 2006, up
9% from $19.0 billion in 2005, primarily due to continued
investments in new stores and additional sales and service-
related team members. We began expensing stock options
on January 1, 2006. Total stock option expense reduced
earnings by approximately $0.025 per share for 2006.
During 2006, net charge-offs were $2.25 billion, or
0.73% of average total loans, compared with $2.28 billion,
or 0.77%, during 2005. Credit losses for auto loans increased
$160 million in 2006 partially due to growth and seasoning,
but largely due to collection capacity constraints and restrictive
payment extension practices that occurred when Wells Fargo
Financial integrated its prime and non-prime auto loan
businesses during 2006. Credit losses for 2005 included
$171 million of incremental fourth quarter bankruptcy losses
and increased losses of $163 million in ﬁrst quarter 2005 to
conform Wells Fargo Financial’s charge-off practices to more
stringent Federal Financial Institutions Examination Council
(FFIEC) guidelines. The provision for credit losses was
$2.20 billion in 2006, down $179 million from $2.38 billion
in 2005. The 2005 provision for credit losses also included
$100 million for estimated credit losses related to Hurricane
Katrina. We subsequently realized approximately $50 million

Table 1: Ratios and Per Common Share Data

Year ended December 31 ,
2004
2005
2006

PROFITABILITY RATIOS
Net income to average total assets (ROA)
Net income to average stockholders’ equity (ROE)
EFFICIENCY RATIO (1)

1.75%
19.65

1.72% 1.71%

19.59

19.57

58.1

57.7

58.5

CAPITAL RATIOS
At year end:

Stockholders’ equity to assets
Risk-based capital (2)

Tier 1 capital
Total capital
Tier 1 leverage (2)
Average balances:

9.52

8.44

8.85

8.95
12.50
7.89

8.26
11.64
6.99

8.41
12.07
7.08

Stockholders’ equity to assets

8.88

8.78

8.73

PER COMMON SHARE DATA
Dividend payout (3)
Book value
Market price (4)
High
Low
Year end

42.9
$13.58

44.1
$12.12

44.9
$11.17

$36.99
30.31
35.56

$32.35
28.81
31.42

$32.02
27.16
31.08

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

interest income and noninterest income).

(2) See Note 25 (Regulatory and Agency Capital Requirements) to Financial

Statements for additional information.

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

common share.

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

Transaction Reporting System.

of Katrina-related losses. Because we no longer anticipate
further credit losses attributable to Katrina, we released the
remaining $50 million reserve in 2006. The allowance for
credit losses, which consists of the allowance for loan losses
and the reserve for unfunded credit commitments, was
$3.96 billion, or 1.24% of total loans, at December 31, 2006,
compared with $4.06 billion, or 1.31%, at December 31, 2005.

At December 31, 2006, total nonaccrual loans were
$1.67 billion (0.52% of total loans) up from $1.34 billion
(0.43%) at December 31, 2005. Total nonperforming assets
were $2.42 billion (0.76% of total loans) at December 31,
2006, compared with $1.53 billion (0.49%) at December 31,
2005. Foreclosed assets were $745 million at December 31,
2006, compared with $191 million at December 31, 2005.
Foreclosed assets, a component of total nonperforming
assets, included an additional $322 million of foreclosed real
estate securing Government National Mortgage Association
(GNMA) loans at December 31, 2006, due to a change in
regulatory reporting requirements effective January 1, 2006.

Table 2: Six-Year Summary of Selected Financial Data

The foreclosed real estate securing GNMA loans of $322 million
represented 10 basis points of the ratio of nonperforming
assets to loans at December 31, 2006. Both principal and
interest for the GNMA loans secured by the foreclosed real
estate are fully collectible because the GNMA loans are insured
by the Federal Housing Administration (FHA) or guaranteed
by the Department of Veterans Affairs.

The ratio of stockholders’ equity to total assets was
9.52% at December 31, 2006, compared with 8.44% at
December 31, 2005. Our total risk-based capital (RBC) ratio
at December 31, 2006, was 12.50% and our Tier 1 RBC ratio
was 8.95%, exceeding the minimum regulatory guidelines
of 8% and 4%, respectively, for bank holding companies.
Our RBC ratios at December 31, 2005, were 11.64% and
8.26%, respectively. Our Tier 1 leverage ratios were 7.89%
and 6.99% at December 31, 2006 and 2005, respectively,
exceeding the minimum regulatory guideline of 3% for bank
holding companies.

(in millions, except
per share amounts)

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

2006

2005

2004

2003

2002

2001

$ 19,951
15,740
35,691
2,204
20,742

$ 18,504
14,445
32,949
2,383
19,018

$ 17,150
12,909
30,059
1,717
17,573

$ 16,007
12,382
28,389
1,722
17,190

$ 14,482
10,767
25,249
1,684
14,711

$ 11,976
9,005
20,981
1,727
13,794

8,482
2.52

7,671
2.27

7,014
2.07

$ 6,202
1.84

5,710
1.68

3,411
0.99

2.49

2.25

2.05

1.83

1.66

0.98

8,482
2.52

7,671
2.27

7,014
2.07

6,202
1.84

5,434
1.60

3,411
0.99

2.49

1.08

2.25

1.00

2.05

0.93

1.83

0.75

1.58

0.55

0.98

0.50

$ 42,629
319,116
3,764
11,275
481,996
270,224
87,145

$ 41,834
310,837
3,871
10,787
481,741
253,341
79,668

$ 33,717
287,586
3,762
10,681
427,849
229,703
73,580

$ 32,953
253,073
3,891
10,371
387,798
211,271
63,642

$ 27,947
192,478
3,819
9,753
349,197
198,234
47,320

$ 40,308
167,096
3,717
9,527
307,506
182,295
36,095

—
45,876

—
40,660

—
37,866

—
34,469

2,885
30,319

2,435
27,175

% Change
2006/
2005

Five-year
compound
growth rate

8%
9
8
(8)
9

11
11

2
3
(3)
5
—
7
9

—
13

11%
12
11
5
9

20
21

1
14
—
3
9
8
19

—
11

(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 are noninterest-bearing deposits, interest-bearing checking, savings certiﬁcates, and market rate and other savings.
(3) At December 31, 2003, upon adoption of FIN 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46(R)), these balances were reﬂected in

long-term debt. See Note 12 (Long-Term Debt) to Financial Statements for more information.

Current Accounting Developments
On July 13, 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48, Accounting for Income Tax
Uncertainties (FIN 48). FIN 48 supplements Statement of
Financial Accounting Standards No. 109, Accounting for Income
Taxes (FAS 109), by deﬁning the threshold for recognizing tax
beneﬁts in the ﬁnancial statements as “more-likely-than-not”
to be sustained by the applicable taxing authority. The beneﬁt
recognized for a tax position that meets the “more-likely-
than-not” criterion is measured based on the largest beneﬁt
that is more than 50% likely to be realized, taking into
consideration the amounts and probabilities of the outcomes
upon settlement. We adopted FIN 48 on January 1, 2007, as
required. FIN 48 had no material effect on our consolidated
ﬁnancial statements upon adoption.

Also on July 13, 2006, the FASB issued Staff Position 13-2,

Accounting for a Change or Projected Change in the Timing
of Cash Flows Relating to Income Taxes Generated by a
Leveraged Lease Transaction (FSP 13-2). FSP 13-2 relates
to the accounting for leveraged lease transactions for which
there have been cash ﬂow estimate changes based on when
income tax beneﬁts are recognized. Certain of our leveraged
lease transactions have been challenged by the Internal
Revenue Service (IRS). While we have not made investments
in a broad class of transactions that the IRS commonly refers
as “Lease-In, Lease-Out” (LILO) transactions, we have pre-
viously invested in certain leveraged lease transactions that
the IRS labels as “Sale-In, Lease-Out” (SILO) transactions.
We have paid the IRS the contested income tax associated
with our SILO transactions. However, we are continuing to
vigorously defend our initial ﬁling position as to the timing
of the tax beneﬁts associated with these transactions. We
adopted FSP 13-2 on January 1, 2007, as required, and
recorded a cumulative effect adjustment to reduce the 2007
beginning balance of retained earnings by approximately
$71 million after tax ($115 million pre tax) in stockholders’
equity. This amount will be recognized back into income
over the remaining terms of the affected leases.

On February 16, 2006, the FASB issued FAS 155,

Accounting for Certain Hybrid Financial Instruments, which
amends FAS 133, Accounting for Derivatives and Hedging
Activities, and FAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. Hybrid ﬁnancial instruments are single ﬁnancial
instruments that contain an embedded derivative. Under FAS
155, entities can elect to record certain hybrid financial
instruments at fair value as individual ﬁnancial instruments.
Prior to this amendment, certain hybrid ﬁnancial instruments
were required to be separated into two instruments — a
derivative and host — and generally only the derivative was
recorded at fair value. FAS 155 also requires that beneﬁcial
interests in securitized assets be evaluated for either

free-standing or embedded derivatives. FAS 155 became
effective for all ﬁnancial instruments acquired or issued after
January 1, 2007. FAS 155 had no effect on our consolidated
ﬁnancial statements on the date of adoption.

On September 15, 2006, the FASB issued FAS 157, Fair
Value Measurements, which deﬁnes fair value, establishes a
framework for measuring fair value under generally accepted
accounting principles (GAAP), and expands disclosures
about fair value measurements. FAS 157 is applicable to
accounting pronouncements that require or permit fair value
measurements, where the FASB previously concluded in
those accounting pronouncements that fair value is the most
relevant measurement attribute. FAS 157 is effective for the
year beginning January 1, 2008, with early adoption permit-
ted on January 1, 2007. We are currently evaluating if we
will choose to adopt FAS 157 early. We do not expect that
the adoption of FAS 157 will have a material effect on our
consolidated ﬁnancial statements.

On September 29, 2006, the FASB issued FAS 158,

Employers’ Accounting for Deﬁned Beneﬁt Pension and Other
Postretirement Plans – an amendment of FASB Statements
No. 87, 88, 106, and 132(R). FAS 158 represents the ﬁrst
phase of the FASB’s project on pension and postretirement
beneﬁts. The next phase will consider potential changes in
determining net periodic beneﬁt cost and measuring plan assets
and obligations. As discussed in this Annual Report, we
implemented the requirement to recognize the funded status
of our beneﬁt plans as of December 31, 2006. (See Note 15
(Employee Beneﬁts and Other Expenses) to Financial Statements
for additional information.) The requirement to measure plan
assets and beneﬁt obligations as of the date of the employer’s
ﬁscal year-end statement of ﬁnancial position is effective for
ﬁscal years ending after December 15, 2008. We currently
use a measurement date of November 30. In 2007, we will
assess the impact of the change in measurement date on our
consolidated ﬁnancial statements.

On February 15, 2007, the FASB issued FAS 159, The
Fair Value Option for Financial Assets and Financial Liabilities,
Including an amendment of FASB Statement No. 115. FAS
159 provides an alternative measurement treatment for
certain ﬁnancial assets and ﬁnancial liabilities, under an
instrument-by-instrument election, that permits fair value to
be used for both initial and subsequent measurement, with
changes in fair value recognized in earnings. While FAS 159
is effective beginning January 1, 2008, earlier adoption is
permitted as of January 1, 2007, provided that the entity
also adopts all of the requirements of FAS 157. Because
electing the option to use fair value could eliminate certain
timing differences when we account for mortgages held for
sale and related hedge activity, we are currently evaluating
whether we will adopt FAS 159 early, and the impact FAS
159 may have on our consolidated ﬁnancial statements.

Critical Accounting Policies

Our signiﬁcant accounting policies (see 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 manage-
ment 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 residential mortgage servicing rights (MSRs)
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 consists of 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
While we attribute portions of the allowance to speciﬁc
loan categories as part of our analytical process, the entire
allowance is used to absorb credit losses inherent in the total
loan portfolio.

A signiﬁcant portion of the allowance, approximately
70% at December 31, 2006, is estimated at a pooled level
for consumer loans and some segments of commercial small
business loans. We use forecasting models to measure the
losses inherent in these portfolios. We independently validate
and update these models at least annually to capture recent
behavioral characteristics of the portfolios, such as updated
credit bureau information, actual changes in underlying
economic or market conditions and changes in our loss
mitigation or marketing strategies.

The remainder of the allowance is for commercial loans,
commercial real estate loans and lease ﬁnancing. We initially
estimate this portion of the allowance by applying historical
loss factors statistically derived from tracking losses associated
with actual portfolio movements over a speciﬁed period of
time, using a standardized loan grading process. Based on
this process, we assign loss factors to each pool of graded
loans and a loan equivalent amount for unfunded loan
commitments and letters of credit. These estimates are then
adjusted or supplemented where necessary from additional

analysis of long-term average loss experience, external loss
data or other risks identified from current conditions and
trends in selected portfolios, including management’s judgment
for imprecision and uncertainty. Also, we review individual
nonperforming loans over $3 million for impairment based
on cash ﬂows or collateral. We include the impairment on
these nonperforming loans in the allowance unless it has
already been recognized as a loss.

The allowance includes an amount for imprecision or
uncertainty to incorporate the range of probable outcomes
inherent in estimates used for the allowance, which may
change from period to period. This portion of the total
allowance is the result of our judgment of risks inherent in
the portfolio, economic uncertainties, historical loss experi-
ence and other subjective factors, including industry trends.
In 2006, the methodology used to determine this portion of
the allowance was reﬁned so that this method was calculated
for each portfolio type to better reﬂect our view of risk in
these portfolios. In prior years, this element of the allowance
was associated with the portfolio as a whole, rather than with
a speciﬁc portfolio type, and was categorized as unallocated.
The portion of the allowance representing our judgment

for imprecision or uncertainty 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.

To estimate the possible range of allowance required at

December 31, 2006, 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 consumer loans, an 18 basis point increase in esti-
mated loss rates from actual 2006 loss levels, moving
closer to longer term average loss rates; and

• for wholesale loans, a 30 basis point increase in esti-
mated loss rates, moving closer to historical averages.

Assumptions for improvement in loan credit quality were:
• for consumer loans, a 17 basis point decrease in
estimated loss rates from actual 2006 loss levels,
adjusting for the elevated auto losses and a better
economic environment for consumers; and
• for wholesale loans, nominal change from the

essentially zero 2006 net credit loss performance.

Under the assumptions for deterioration in loan credit
quality, another $546 million in expected losses could occur
and under the assumptions for improvement, a $339 million
reduction in expected losses could occur.

Changes in the estimate of the allowance for credit losses

and the related provision expense 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 of losses that
are highly uncertain and require a high degree of judgment.

Given that the majority of our loan portfolio is consumer
loans, for which losses tend to emerge within a relatively
short, predictable timeframe, and that a signiﬁcant portion
of the allowance for credit losses relates to estimated credit
losses associated with consumer loans, management believes
that the provision for credit losses for consumer loans, absent
any significant credit event, will closely track the level of
related net charge-offs. From time to time, events or economic
factors may impact the loan portfolio, as Hurricane Katrina
did in 2005 and 2006, causing management to provide
additional amounts or release balances from the allowance
for credit losses.

Valuation of Residential Mortgage Servicing Rights
We recognize as assets the rights to service mortgage loans
for others, or mortgage servicing rights (MSRs), whether we
purchase the servicing rights, or the servicing rights result
from the sale or securitization of loans we originate (asset
transfers). We also acquire MSRs under co-issuer agreements
that provide for us to service loans that are originated and
securitized by third-party correspondents. Effective January 1,
2006, under FAS 156, Accounting for Servicing of Financial
Assets – an amendment of FASB Statement No. 140, we
elected to initially measure and carry our MSRs related to
residential mortgage loans (residential MSRs) using the fair
value measurement method. Under this method, purchased
MSRs and MSRs from asset transfers are capitalized and
carried at fair value. Prior to the adoption of FAS 156, we
capitalized purchased residential MSRs at cost, and MSRs
from asset transfers based on the relative fair value of the
servicing right and the residential mortgage loan at the time
of sale, and carried both purchased MSRs and MSRs from
asset transfers at the lower of cost or market. Effective
January 1, 2006, upon the remeasurement of our residential
MSRs at fair value, we recorded a cumulative effect adjust-
ment to increase the 2006 beginning balance of retained
earnings by $101 million after tax ($158 million pre tax)
in stockholders’ equity.

At the end of each quarter, 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 Note 1 (Summary of Signiﬁcant
Accounting Policies), Note 20 (Securitizations and Variable
Interest Entities) and Note 21 (Mortgage Banking Activities)
to Financial Statements.

To reduce the sensitivity of earnings to interest rate and
market value ﬂuctuations, we may use securities available
for sale and free-standing derivatives (economic hedges) to
hedge the risk of changes in the fair value of MSRs, with the
resulting gains or losses reﬂected in income. Changes in the
fair value of the MSRs from changing mortgage interest rates

are generally offset by gains or losses in the fair value of the
derivatives depending on the amount of MSRs we hedge and
the particular instruments chosen to hedge the MSRs. We
may choose not to fully hedge MSRs, partly because origina-
tion volume tends to act as a “natural hedge.” For example,
as interest rates decline, servicing values decrease and fees
from origination volume tend to increase. Conversely, as
interest rates increase, the fair value of the MSRs increases,
while fees from origination volume tend to decline. See
“Mortgage Banking Interest Rate Risk” for discussion of the
timing of the effect of changes in mortgage interest rates.

Net servicing income, a component of mortgage banking

noninterest income, includes the changes from period to
period in fair value of both our residential MSRs and the
free-standing derivatives (economic hedges) used to hedge
our residential MSRs. Changes in the fair value of residential
MSRs from period to period result from (1) changes in the
valuation model inputs or assumptions (principally reﬂecting
changes in discount rates and prepayment speed assumptions,
mostly due to changes in interest rates) and (2) other changes,
representing changes due to collection/realization of expected
cash flows. Prior to the adoption of FAS 156, we carried
residential MSRs at the lower of cost or market, with amor-
tization of MSRs and changes in the MSRs valuation
allowance recognized in net servicing income.

We use a dynamic and sophisticated model to estimate

the value of our MSRs. The model is validated by an
independent internal model validation group operating in
accordance with Company policies. Senior management
reviews all signiﬁcant assumptions quarterly. Mortgage loan
prepayment 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 used to determine
the present value of estimated future net servicing income—
another key assumption in the model — is the required rate
of return investors in the market would expect for an asset
with similar risk. To determine the discount rate, we consider
the risk premium for uncertainties from servicing operations
(e.g., possible changes in future servicing costs, ancillary
income and earnings on escrow accounts). Both assumptions
can, and generally will, change quarterly valuations as
market conditions and interest rates change. For example,
an increase in either the prepayment speed or discount rate
assumption results in a decrease in the fair value of the
MSRs, while a decrease in either assumption would result
in an increase in the fair value of the MSRs. In recent years,
there have been signiﬁcant market-driven ﬂuctuations in loan
prepayment speeds and the discount rate. These ﬂuctuations
can be rapid and may be signiﬁcant in the future. Therefore,
estimating prepayment speeds within a range that market
participants would use in determining the fair value of MSRs
requires signiﬁcant management judgment.

These key economic assumptions and the sensitivity of the

fair value of MSRs to an immediate adverse change in those
assumptions are shown in Note 20 (Securitizations and
Variable Interest Entities) to Financial Statements.

Pension Accounting
We account for our deﬁned beneﬁt pension plans using an
actuarial model required by FAS 87, Employers’ Accounting
for Pensions, as amended by FAS 158, Employers’ Accounting
for Deﬁned Beneﬁt Pension and Other Postretirement Plans –
an amendment of FASB Statements No. 87, 88, 106, and
132(R). FAS 158 was issued on September 29, 2006, and
became effective for us on December 31, 2006. FAS 158
requires us to recognize the funded status of our pension
and postretirement beneﬁt plans on our balance sheet.
Additionally, FAS 158 will require us to use a year-end
measurement date beginning in 2008. We conformed our
pension asset and our pension and postretirement liabilities
to FAS 158 and recorded a corresponding reduction of
$402 million (after tax) to the December 31, 2006, balance of
cumulative other comprehensive income in stockholders’ equity.
The adoption of FAS 158 did not change the amount of net
periodic beneﬁt expense recognized in our income statement.

We use four key variables to calculate our annual pension

cost: size and characteristics of the employee population,
actuarial assumptions, expected long-term rate of return on
plan assets, and discount rate. We describe below the effect
of each of these variables on our pension expense.

SIZE AND CHARACTERISTICS OF THE EMPLOYEE POPULATION
Pension expense is directly related to the number of employ-
ees covered by the plans, and other factors including salary,
age and years of employment.

ACTUARIAL ASSUMPTIONS
To estimate the projected beneﬁt obligation, actuarial
assumptions are required about factors such as the rates of
mortality, turnover, retirement, disability and compensation
increases for our participant population. These demographic
assumptions are reviewed periodically. In general, the range
of assumptions is narrow.

EXPECTED LONG-TERM RATE OF RETURN ON PLAN ASSETS
We determine the expected return on plan assets each year
based on the composition of assets and the expected long-
term rate of return on that portfolio. The expected long-term
rate of return assumption is a long-term assumption and is
not anticipated to change signiﬁcantly from year to year.

To determine if the expected rate of return is reasonable,
we consider such factors as (1) the actual return earned on
plan assets, (2) historical rates of return on the various asset
classes in the plan portfolio, (3) projections of returns on
various asset classes, and (4) current/prospective capital mar-
ket conditions and economic forecasts. Our expected rate

of return for 2007 is 8.75%, the same rate used for 2006.
Differences in each year, if any, between expected and actual
returns are included in our net actuarial gain or loss amount,
which is recognized in other comprehensive income. We
generally amortize any net actuarial gain or loss in excess of
a 5% corridor (as deﬁned in FAS 87, Employers’ Accounting
for Pensions) in net periodic pension expense calculations
over the next ﬁve years. Our average remaining service
period is approximately 11 years. See Note 15 (Employee
Beneﬁts and Other Expenses) to Financial Statements for
information on funding, changes in the pension beneﬁt oblig-
ation, and plan assets (including the investment categories,
asset allocation and the fair value).

We use November 30 as the measurement date for our
pension assets and projected beneﬁt obligations. If we were
to assume a 1% increase/decrease in the expected long-term
rate of return, holding the discount rate and other actuarial
assumptions constant, pension expense would decrease/increase
by approximately $54 million.

Under FAS 158, we will be required to use December 31

as a measurement date for our pension assets and beneﬁt
obligations for ﬁscal years ending after December 15, 2008.
(See “Current Accounting Developments” for more information.)

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,
and is reset annually on the measurement date. As the basis
for determining our discount rate, we review the Moody’s
Aa Corporate Bond Index, on an annualized basis, and the
rate of a hypothetical portfolio using the Hewitt Yield Curve
(HYC) methodology, which was developed by our indepen-
dent actuary. The instruments used in both the Moody’s Aa
Corporate Bond Index and the HYC consist of high quality
bonds for which the timing and amount of cash outﬂows
approximates the estimated payouts of our Cash Balance
Plan. We used a discount rate of 5.75% in 2006 and 2005.
If we were to assume a 1% increase in the discount rate,

and keep the expected long-term rate of return and other
actuarial assumptions constant, pension expense would
decrease by approximately $37 million. If we were to assume
a 1% decrease in the discount rate, and keep other assump-
tions constant, pension expense would increase by approxi-
mately $103 million. The decrease in pension expense due to
a 1% increase in discount rate differs from the increase in
pension expense due to a 1% decrease in discount rate due
to the impact of the 5% gain/loss corridor.

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
$20.1 billion in 2006, compared with $18.6 billion in 2005,
an increase of 8%, reﬂecting solid loan growth (other than
ARMs) and a relatively stable net interest margin. In 2006,
we incurred noninterest expense of $31 million on the extin-
guishment of approximately $800 million of trust preferred
securities (included in junior subordinated long-term debt).
Because we were able to reﬁnance this debt at a rate approx-
imately 200 basis points lower, our net interest expense will
be reduced by approximately $320 million over the next
twenty years.

Our net interest margin was 4.83% for 2006 and 4.86%
for 2005. With short-term interest rates now above 5%, our
cumulative sales of ARMs and debt securities since mid-2004
have had a positive impact on our net interest margin and net
interest income. We have completed our sales of over $90 billion
of ARMs since mid-2004 with the sales of $26 billion of ARMs
in second quarter 2006. In addition, taking advantage of
market volatility during second quarter 2006, we sold our
lowest-yielding debt securities and added to our portfolio of
long-term debt securities at yields of approximately 6.25%
—nearly 200 basis points higher than the cyclical low in yields.

Average earning assets increased $32.3 billion to

$415.8 billion in 2006 from $383.5 billion in 2005. Loans
averaged $306.9 billion in 2006, compared with $296.1 billion
in 2005. Average mortgages held for sale were $42.9 billion
in 2006 and $39.0 billion in 2005. Debt securities available for
sale averaged $53.6 billion in 2006 and $33.1 billion in 2005.
Average core deposits are an important contributor to
growth in net interest income and the net interest margin.
This low-cost source of funding rose 7% from 2005. Average
core deposits were $260.0 billion and $242.8 billion and
funded 53.5% and 54.5% of average total assets in 2006
and 2005, respectively. Total average retail core deposits,
which exclude Wholesale Banking core deposits and retail
mortgage escrow deposits, for 2006 grew $12.0 billion, or
6%, from 2005. Average mortgage escrow deposits were
$18.2 billion in 2006 and $16.7 billion in 2005. Savings
certiﬁcates of deposits increased on average to $32.4 billion
in 2006 from $22.6 billion in 2005 and noninterest-bearing
checking accounts and other core deposit categories increased
on average to $227.7 billion in 2006 from $220.1 billion in 2005.

Total average interest-bearing deposits increased to

$223.8 billion in 2006 from $194.6 billion in 2005, largely
due to organic growth.

Table 3 presents the individual components of net interest

income and the net interest margin.

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

Yields/
rates

2006
Interest
income/
expense

Average
balance

Yields/
rates

2005
Interest
income/
expense

4.80%
4.95

3.01%
3.52

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

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

Average
balance

5,515
4,958

875
3,192

36,691
6,640
43,331
6,204
53,602
42,855
630

65,720
29,344
14,810
5,437
115,311

57,509
64,255
12,571
50,922
185,257
6,343
306,911
1,357
$415,828

4,302
134,248
32,355
32,168
20,724
223,797
21,471
84,035

—
329,303
86,525

$415,828

$ 12,466
11,114
46,615

$ 70,195

$ 89,117
24,430
43,173

(86,525)
$ 70,195

$486,023

265
245

39
245

2,206
430
2,636
439
3,359
2,746
47

5,340
2,148
1,175
311
8,974

4,182
5,126
1,670
4,889
15,867
786
25,627
68
32,357

123
3,225
1,266
1,607
953
7,174
992
4,124

—
12,290
—

12,290

4.36
7.98

6.04
6.57
6.12
7.10
6.31
6.41
7.40

8.13
7.32
7.94
5.72
7.78

7.27
7.98
13.29
9.60
8.57
12.39
8.35
4.97
7.79

2.86
2.40
3.91
4.99
4.60
3.21
4.62
4.91

—
3.73
—

2.96

$ 5,448
5,411

997
3,395

19,768
5,128
24,896
3,846
33,134
38,986
2,857

58,434
29,098
11,086
5,226
103,844

78,170
55,616
10,663
43,102
187,551
4,711
296,106
1,581
$383,523

$ 3,607
129,291
22,638
27,676
11,432
194,644
24,074
79,137

—
297,855
85,668

$383,523

164
190

38
266

1,162
283
1,445
266
2,015
2,213
146

3,951
1,836
740
309
6,836

5,016
3,679
1,315
3,794
13,804
636
21,276
68
26,072

51
1,874
656
910
357
3,848
744
2,866

—
7,458
—

7,458

3.81
8.27

6.02
5.60
5.94
7.10
6.24
5.67
5.10

6.76
6.31
6.67
5.91
6.58

6.42
6.61
12.33
8.80
7.36
13.49
7.19
4.34
6.81

1.43
1.45
2.90
3.29
3.12
1.98
3.09
3.62

—
2.50
—

1.95

4.83%

$20,067

4.86%

$18,614

$ 13,173
10,705
38,389

$ 62,267

$ 87,218
21,559
39,158

(85,668)
$ 62,267

$445,790

(1) Our average prime rate was 7.96%, 6.19%, 4.34%, 4.12% and 4.68% for 2006, 2005, 2004, 2003 and 2002, respectively. The average three-month London Interbank

Offered Rate (LIBOR) was 5.20%, 3.56%, 1.62%, 1.22% and 1.80% for the same years, respectively.

Average
balance

Yields/
rates

2004
Interest
income/
expense

2003
Interest
income/
expense

Yields/
rates

1.49%
2.75

1.16%
2.56

Average
balance

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

0.27
0.66
2.53
1.20
1.11
1.00
1.08
2.52

3.66
1.37
—

1.08

Average
balance

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

2002
Interest
income/
expense

Yields/
rates

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

0.55
0.95
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

64
145

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

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

0.44
0.69
2.26
1.43
1.40
1.00
1.35
2.41

—
1.38
—

1.08

$ 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

4.89%

$17,254

5.08%

$16,091

5.53%

$14,585

$ 13,433
9,905
36,123

$ 59,461

$ 76,815
20,030
32,062

(69,446)
$ 59,461

$377,613

$ 13,820
9,737
33,340

$ 56,897

$ 63,574
17,054
29,120

(52,851)
$ 56,897

$321,725

(5) Nonaccrual loans and related income are included in their respective loan categories.
(6) At December 31, 2003, upon adoption of FIN 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46(R)), these balances were reﬂected in

long-term debt. See Note 12 (Long-Term Debt) to Financial Statements for more information.

(7) Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate was 35% for all

years presented.

Table 4 allocates the changes in net interest income on

a taxable-equivalent basis to changes in either average
balances or average rates for both interest-earning assets
and interest-bearing liabilities. Because of the numerous
simultaneous volume and rate changes during any period,

it is not possible to precisely allocate such changes between
volume and rate. For this table, changes that are not solely
due to either volume or rate are allocated to these categories
in proportion to the percentage changes in average volume
and average rate.

Table 4: Analysis of Changes in Net Interest Income

(in millions)

2006 over 2005
Total
Rate

Volume

Year ended December 31,
2005 over 2004
Total

Rate

Increase (decrease) in interest income:
Federal funds sold, securities purchased under resale
agreements and other short-term investments

Trading assets
Debt securities available for sale:

Securities of U.S. Treasury and federal agencies
Securities of U.S. states and political subdivisions
Mortgage-backed securities:

Federal agencies
Private collateralized mortgage obligations

Other debt securities
Mortgages held for sale
Loans held for sale
Loans:

Commercial and commercial real estate:

Commercial
Other real estate mortgage
Real estate construction
Lease ﬁnancing

Consumer:

Real estate 1-4 family ﬁrst mortgage
Real estate 1-4 family junior lien mortgage
Credit card
Other revolving credit and installment

Foreign

Other

Total increase in interest income

Increase (decrease) in interest expense:
Deposits:

Interest-bearing checking
Market rate and other savings
Savings certiﬁcates
Other time deposits
Deposits in foreign ofﬁces

Short-term borrowings
Long-term debt

Total increase in interest expense

Increase (decrease) in net interest income

on a taxable-equivalent basis

2
(17)

(5)
(13)

1,040
93
173
230
(146)

529
16
278
12

(1,441)
620
247
730
205
(10)
2,543

12
75
337
167
376
(88)
186
1,065

99
72

6
(8)

4
54
—
303
47

860
296
157
(10)

607
827
108
365
(55)
10
3,742

60
1,276
273
530
220
336
1,072
3,767

$ 101
55

1
(21)

1,044
147
173
533
(99)

1,389
312
435
2

(834)
1,447
355
1,095
150
—
6,285

72
1,351
610
697
596
248
1,258
4,832

22
3

(6)
(9)

(84)
86
45
378
(240)

570
21
142
10

(555)
658
218
844
212
(5)
2,310

3
52
96
(32)
45
(30)
305
439

78
42

(2)
8

(2)
17
(15)
98
94

533
280
135
(17)

799
721
49
(72)
(63)
8
2,691

35
984
135
515
188
421
924
3,202

$ 100
45

(8)
(1)

(86)
103
30
476
(146)

1,103
301
277
(7)

244
1,379
267
772
149
3
5,001

38
1,036
231
483
233
391
1,229
3,641

$ 1,478

$ (25)

$1,453

$1,871

$ (511)

$1,360

Noninterest Income
We earn trust, investment and IRA fees from managing and
administering assets, including mutual funds, corporate trust,
personal trust, employee beneﬁt trust and agency assets. At
December 31, 2006, these assets totaled $983 billion, up 26%
from $783 billion at December 31, 2005. Generally, trust,
investment and IRA fees are based on the market value of the
assets that are managed, administered, or both. The increase
in these fees in 2006 was due to continued strong growth
across all the trust and investment management businesses.

We also receive commissions and other fees for providing

services to full-service and discount brokerage customers.
At December 31, 2006 and 2005, brokerage assets totaled
$115 billion and $97 billion, respectively. Generally, these fees
include transactional commissions, which are based on the
number of transactions executed at the customer’s direction,
or asset-based fees, which are based on the market value of
the customer’s assets. The increase in these fees in 2006 was
primarily due to continued growth in asset-based fees.

Card fees increased 20% to $1,747 million in 2006 from

$1,458 million in 2005, mostly due to increases in credit
card accounts and credit and debit card transaction volume.
Purchase volume on debit and credit cards was up 21%
from a year ago and average card balances were up 19%.

Mortgage banking noninterest income was $2,311 million

in 2006 compared with $2,422 million in 2005. With the
adoption of FAS 156 in 2006 and measuring our residential
MSRs at fair value, net servicing income includes both changes
in the fair value of MSRs during the period as well as changes
in the value of derivatives (economic hedges) used to hedge
the MSRs. An additional $158 million ($101 million after
tax) increase in the value of MSRs upon remeasurement
to fair value under FAS 156 in 2006 was recorded as an
adjustment to the beginning balance of retained earnings in
stockholders’ equity. Prior to adoption of FAS 156, servicing
income included net derivative gains and losses (primarily the
ineffective portion of the change in value of derivatives used
to hedge MSRs under FAS 133, Accounting for Derivative

Year ended December 31,
2004
2005
2006

% Change
2005/
2006/
2004
2005

$ 2,690 $ 2,512 $ 2,417

2,033

1,509
704 581 607

1,855

2,737

2,436

2,116

1,747

1,458

1,230

184
976

180
180
921
1,022
897 727 678
1,779
1,929

2,057

10
21

2
(5)
23
7

23
(4)

—
11
7
8

because we sell or securitize most of the mortgages we
originate. In 2006, 26% of our total mortgage origination
volume, and about 65% of non-prime originations, were
made under co-issue arrangements, where we act exclusively
as the loan servicer and a third party correspondent securitizes
the loans. Under co-issue arrangements, we do not assume
any credit risk, because third parties assume all credit risk.
We also do not assume the seller’s liabilities normally associated
with residential real estate originations, such as exposure
associated with standard representations and warranties or
early payment buyback obligations. Loan sales were $271 billion
in 2006 and $251 billion in 2005. The 1-4 family ﬁrst mortgage
unclosed pipeline was $48 billion at year-end 2006 and $50 billion
at year-end 2005.

893

987

1,037

(10)

(5)

Table 6: Residential Real Estate Origination and Co-Issue Volume (1)

Table 5: Noninterest Income

(in millions)

Service charges on
deposit accounts

Trust and investment fees:

Trust,investment and IRA fees
Commissions and all other fees

Total trust and

investment fees

Card fees

Other fees:

Cash network fees
Charges and fees on loans
All other

Total other fees

Mortgage banking:

Servicing income,net
Net gains on mortgage loan
origination/sales activities

All other

Total mortgage banking

Operating leases
Insurance
Trading assets
Net losses on debt

1,116

539
1,085
302 350 284
1,860
2,422

2,311

783
1,340
544

812
1,215
571

836
1,193
523

3
(14)
(5)

(4)
10
(5)

101
23
30

(3)
2
9

securities available for sale

(19)

(120)

(15)

(84)

700

Net gains from

equity investments

All other

738

394
812 699 576

511

Total

$15,740 $14,445 $12,909

44
16

30
21

Instruments and Hedging Activities (as amended)), amortiza-
tion and MSRs impairment, which are all inﬂuenced by both
the level and direction of mortgage interest rates.

Servicing fees (included in net servicing income) grew to
$3,525 million in 2006 from $2,457 million in 2005 largely
due to a 47% increase in the portfolio of mortgage loans
serviced for others, which was $1.28 trillion at December 31,
2006, up from $871 billion a year ago. In July 2006, we
acquired a $140 billion mortgage servicing portfolio from
Washington Mutual, Inc. The change in the value of MSRs net
of economic hedging results in 2006 was a loss of $154 million.
The interest rate-related effect (impairment provision net of
hedging results) in 2005 was a gain of $521 million.

Net gains on mortgage loan origination/sales activities
were $1,116 million in 2006, up from $1,085 million in 2005,
primarily due to higher loan sales. Residential real estate
origination and co-issue volume (shown in Table 6 on the
right) totaled $398 billion in 2006, up from $366 billion in
2005. We do not have credit risk for most of these originations

(in billions)

Residential real estate ﬁrst

mortgage loans:

Retail
Correspondent/Wholesale (2)

Home equity loans and lines
Wells Fargo Financial
Total (2)

December 31,
2005
2006

$117
232
39
10

$398

$139
176
39
12

$366

(1) Consists of residential real estate originations from all channels.
(2) Includes $104 billion and $48 billion of co-issue volume for 2006 and 2005,

respectively. Under co-issue arrangements, we become the servicer when the
correspondent securitizes the related loans.

Net losses on debt securities were $19 million for 2006,
compared with $120 million for 2005. Net gains from equity
investments were $738 million in 2006, compared with
$511 million in 2005, primarily reﬂecting the continued
strong performance of our venture capital business.

We routinely review our investment portfolios and recognize

impairment write-downs based primarily on issuer-speciﬁc
factors and results, and our intent to hold such securities.
We also consider general economic and market conditions,
including industries in which venture capital investments
are made, and adverse changes affecting the availability of
venture capital. We determine impairment based on all of
the information available at the time of the assessment, with
particular focus on the severity and duration of specific
security impairments, but new information or economic
developments in the future could result in recognition of
additional impairment.

Noninterest Expense

Table 7: Noninterest Expense

(in millions)

Year ended December 31,
2004
2005
2006

% Change
2005/
2006/
2004
2005

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

All other

Total

$ 7,007 $ 6,215 $ 5,393
1,807
1,724
1,236
1,208
633
669
626
442
459
418
269
296
247
240
192
161
134
248

2,885
2,035
1,252
1,405
630
942
579
542
456
437
312
279
257
223
180
179
112
59

2,366
1,874
1,267
1,412
635
835
596
481
443
449
281
278
224
205
194
167
123
61

13% 15%
31
22
9
9
3
(1)
—
17
(1) —
25
13
(5)
(3)
9
13
(3)
3
7
(3)
4
11
(6)
—
(9)
15
(15)
9
1
(7)
4
7
(8)
(9)
(75)
(3)

174
11
24
947
901
997
$20,742 $19,018 $17,573

118
5

(94)
(10)

In 2006, we continued to focus on building our business with
investments in additional team members and new banking
stores. The 9% increase in noninterest expense to $20.7 billion
in 2006 from $19.0 billion in 2005 was due primarily to
the increase in salaries, incentive compensation and employee
beneﬁts. We grew our sales and service force by adding
4,497 team members (full-time equivalents), including
1,914 retail platform bankers and 110 private bankers.
Incentive compensation in 2006 also included $134 million
of stock option expense, which we are required to recognize
under FAS 123(R), Share-Based Payment, adopted in 2006.
In 2006, we opened 109 regional banking stores and we
remodeled 528 of our banking stores. We expect to open
another 100 regional banking stores in 2007.

Operating Segment Results
We have three lines of business for management reporting:
Community Banking, Wholesale Banking and Wells Fargo
Financial. For a more complete description of our operating
segments, including additional ﬁnancial information and the
underlying management accounting process, see Note 19
(Operating Segments) to Financial Statements.

Segment results for prior periods have been revised due
to the realignment of our insurance business into Wholesale
Banking in 2006, designed to leverage the expertise, systems
and resources of the existing businesses.

COMMUNITY BANKING’S net income increased to $5.53 billion
in 2006 from $5.47 billion in 2005. Total revenue for 2006
increased $912 million, or 4%, driven by an improved net

interest margin resulting from solid loan and deposit growth.
Excluding real estate 1-4 family mortgages — the loan cate-
gory affected by the sales of ARMs during the year — total
average loans grew $15.1 billion, or 12%. Average deposit
growth was $18.8 billion, or 7%, and was driven by a 5%
increase in consumer checking accounts and 4% growth in
business checking accounts. Noninterest income increased
$497 million, or 5%, primarily due to strong double-digit
growth in debit and credit card fees, trust and investment
fees, and service charge fee income, driven by the growth in
both consumer and business checking accounts, partially
offset by lower mortgage banking noninterest income. The
provision for credit losses for 2006 decreased $8 million
from 2005, which included incremental losses due to the
change to the bankruptcy law in 2005. Noninterest expense
for 2006 increased $850 million, or 7%, due to the addition
of 2,800 sales and service team members, including 1,914 retail
platform bankers, the opening of 109 banking stores, 246
net new webATM® machines and investments in technology.

WHOLESALE BANKING’S net income was a record $2.09 billion
in 2006, up 17% from $1.79 billion in 2005, driven largely
by an 11% increase in earning assets and an expanding
net interest margin, as well as continued low credit losses.
Average loans increased 15% to $71.4 billion in 2006 from
$62.2 billion in 2005, with double-digit increases across
the majority of the wholesale lending businesses. Average
deposits grew 45% entirely due to increases in interest-bearing
deposits, driven by a mix of organic customer growth,
conversions of customer sweep accounts from off-balance
sheet money market funds into deposits, and continued
growth in foreign central bank deposits. The provision for
credit losses was $16 million in 2006 and $1 million in
2005. Noninterest income increased 15% to $4.31 billion in
2006, due to acquisitions of fee-generating businesses such
as Secured Capital, Reilly Mortgage, Barrington Associates
and Evergreen Funding, along with stronger asset management,
capital markets, insurance and foreign exchange revenue.
Noninterest expense increased 18% to $4.11 billion in 2006
from $3.49 billion in 2005, due to higher personnel-related
expenses, including staff additions, along with higher expenses
from acquisitions, expenses related to higher sales volumes,
and investments in new ofﬁces, businesses and systems.

WELLS FARGO FINANCIAL’S net income increased 111% to
$865 million in 2006 from $409 million in 2005. Net income
in 2006 was reduced by an increase of $160 million (pre tax)
in auto losses partially due to growth and seasoning, but
largely due to collection capacity constraints and restrictive
payment extension practices during the integration of the prime
and non-prime auto loan businesses. Net income for 2006
also included a $50 million (pre tax) release of provision for
credit losses releasing the remaining portion of the provision
made for Hurricane Katrina. Net income for 2005 included
incremental losses due to the change in the bankruptcy law, a
ﬁrst quarter 2005 $163 million charge (pre tax) to conform
Wells Fargo Financial’s charge-off practices with FFIEC
guidelines, and $100 million (pre tax) for estimated losses

from Hurricane Katrina. Total revenue rose 16% in 2006,
reaching $5.4 billion, compared with $4.7 billion in 2005,
due to higher net interest income. Average loans were
$57.5 billion in 2006, up from $46.9 billion in 2005.

Noninterest expense increased $247 million, or 10%, in
2006 from 2005, reﬂecting investments in new consumer
ﬁnance stores and additional team members.

Balance Sheet Analysis

Securities Available for Sale
Our securities available for sale portfolio consists of both
debt and marketable equity securities. We hold debt securities
available for sale primarily for liquidity, interest rate risk
management and yield enhancement. Accordingly, this
portfolio primarily includes very liquid, high-quality federal
agency debt securities. At December 31, 2006, we held
$41.8 billion of debt securities available for sale, compared
with $40.9 billion at December 31, 2005, with a net unrealized
gain of $722 million and $591 million for the same periods,
respectively. We also held $796 million of marketable equity
securities available for sale at December 31, 2006, and
$900 million at December 31, 2005, with a net unrealized
gain of $204 million and $342 million for the same periods,
respectively.

The weighted-average expected maturity of debt securities
available for sale was 5.2 years at December 31, 2006. Since
75% 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 avail-
able for sale portfolio is shown in Table 8 below.

Table 8: Mortgage-Backed Securities

(in billions)

At December 31, 2006

At December 31, 2006,

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

Fair
value

$31.5

29.0
32.0

Net unrealized
gain (loss)

Remaining
maturity

$ 0.5

4.2 yrs.

(2.0)
1.0

7.0 yrs.
1.1 yrs.

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

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.

Total loans at December 31, 2006, were $319.1 billion,
compared with $310.8 billion at year-end 2005, an increase
of 3%. Consumer loans of $190.4 billion at December 31, 2006,
decreased 3% from $196.4 billion a year ago. Excluding 1-4 family
ﬁrst mortgages (the category affected by ARMs sales), consumer
loans increased 16% from 2005. Commercial and commercial
real estate loans of $122.1 billion at December 31, 2006,

increased $13.2 billion, or 12%, compared with a year
ago. Mortgages held for sale decreased to $33.1 billion at
December 31, 2006, from $40.5 billion a year ago.

Table 9 shows contractual loan maturities and interest

rate sensitivities for selected loan categories.

Table 9: Maturities for Selected Loan Categories

(in millions)

December 31, 2006
Total

Within
one
year

After
one year
through
ﬁveyears

After
ﬁve
years

Selected loan maturities:

Commercial
Other real estate mortgage
Real estate construction
Foreign

Total selected loans

$21,735
3,724
7,114
828
$33,401

11,247
7,481

$35,309 $13,360 $ 70,404
30,112
15,141
1,340
15,935
4,752 1,086 6,666
$58,789 $30,927 $123,117

Sensitivity of loans due after
one year to changes in
interest rates:
Loans at ﬁxed interest rates
Loans at ﬂoating/variable

interest rates
Total selected loans

$12,181 $ 9,108

46,608 21,819
$58,789 $30,927

Deposits
Year-end deposit balances are shown in Table 10. Comparative
detail of average deposit balances is included in Table 3.
Average core deposits increased $17.2 billion to $260.0 billion
in 2006 from $242.8 billion in 2005, primarily due to an
increase in savings certiﬁcates. Average core deposits funded
53.5% and 54.5% of average total assets in 2006 and 2005,
respectively. Total average interest-bearing deposits increased
to $223.8 billion in 2006 from $194.6 billion in 2005, largely
due to organic growth. Total average noninterest-bearing
deposits rose to $89.1 billion in 2006 from $87.2 billion in
2005. Savings certiﬁcates increased on average to $32.4 billion
in 2006 from $22.6 billion in 2005.

Table 10: Deposits

(in millions)

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

Other time deposits
Deposits in foreign ofﬁces

Total deposits

December 31,
2005

2006

%
Change

$ 89,119
3,540

140,283
37,282
270,224
13,819
26,200
$310,243

$ 87,712
3,324

134,811
27,494
253,341
46,488
14,621
$314,450

2%
6

4
36
7
(70)
79
(1)

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 variable
interest entities in which we are the primary beneﬁciary.
Generally, we use the equity method of accounting if we own
at least 20% of an entity and we carry the investment at cost
if we own less than 20% of an entity. 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 in the balance sheet, or
may be recorded in 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 U.S. 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 auto receivables.
We normally structure loan securitizations as sales, in accor-
dance 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 issuing
securities to investors. In a securitization, we record a liabili-
ty related to standard representations and warranties we
make to purchasers and issuers 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, 2006, securitization arrangements
sponsored by the Company consisted of $168 billion in
securitized loan receivables, including $109 billion of home
mortgage loans. At December 31, 2006, the retained servicing
rights and other interests held related to these securitizations
were $1,632 million, consisting of $1,223 million in servicing
assets, $358 million in other interests held and $51 million in
securities. Related to our securitizations, we have committed
to provide up to $33 million in credit enhancements.

representing investments in entities formed to invest in
affordable housing. However, we expect to recover our
investment over time primarily through realization of federal
low-income housing tax credits.

For more information on securitizations, including sales

proceeds and cash ﬂows from securitizations, see Note 20
(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. through an established line of credit and are
subject to speciﬁed underwriting criteria. At December 31,
2006, the total assets of these mortgage origination joint
ventures were approximately $90 million. We provide liquidity
to these joint ventures in the form of outstanding lines of
credit and, at December 31, 2006, these liquidity commit-
ments totaled $383 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, 2006,
total assets of our real estate lending and merchant services
joint ventures were approximately $835 million.

In connection with certain brokerage, asset management,
insurance agency and other 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, 2006, the amount
of additional 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
commitments 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 24 (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 related investment cycle, the period over
which privately-held companies are funded by investors and
ultimately sold or taken public. 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 otherwise become liquid, before the balance of
unfunded equity commitments is used. At December 31, 2006,

these commitments were approximately $705 million. Our
other investment commitments, principally related to affordable
housing, civic and other community development initiatives,
were approximately $400 million at December 31, 2006.

In the ordinary course of business, we enter into indemni-
ﬁcation agreements, including underwriting agreements relating
to our securities, securities lending, acquisition agreements, and
various other business transactions or arrangements. For more
information, see Note 24 (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 11 summarizes these contractual obligations at
December 31, 2006, except obligations for short-term bor-
rowing arrangements and pension and postretirement beneﬁt

Table 11: Contractual Obligations

plans. More information on those obligations is in Note 11
(Short-Term Borrowings) and Note 15 (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 26 (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. We had no related party
transactions required to be reported under FAS 57 for the
years ended December 31, 2006, 2005 and 2004.

(in millions)

Note(s) to
Financial Statements

Less than
1 year

1-3
years

3-5
years

More than
5 years

Indeterminate

maturity (1)

Total

Contractual payments by period:

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

10
7, 12
7

$71,254
14,741
567
326
$86,888

$ 4,753
18,640
870
589
$24,852

$ 1,125
23,941
574
10
$25,650

256
29,823
1,135
2
$31,216

$232,855
—
—
—
$232,855

$310,243
87,145
3,146
927
$401,461

(1) Includes interest-bearing and noninterest-bearing checking, and market rate and other savings accounts.
(2) Includes capital leases of $12 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, judgmental or statistical credit underwriting, fre-
quent and detailed risk measurement and modeling, exten-
sive credit training programs and a continual loan review
and audit 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 prudent approach to credit risk management. We
use detailed tracking and analysis to measure credit perfor-
mance 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 for the consolidated company.
We strive to identify problem loans early and have dedicated,
specialized collection and work-out units.

The Chief Credit Ofﬁcer, who reports directly to the
Chief Executive Ofﬁcer, provides company-wide credit 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, credit performance or busi-
ness requirements. The Chief Credit Ofﬁcer is a member of
the Company’s Management Committee. The Chief Credit
Ofﬁcer provides a quarterly credit review to the Credit
Committee of the Board of Directors and meets with them
periodically.

Our business units and the ofﬁce of the Chief Credit
Ofﬁcer periodically review all credit risk portfolios to ensure
that the risk identiﬁcation processes are functioning properly
and that credit standards are followed. Business units con-
duct quality assurance reviews to ensure that loans meet
portfolio or investor credit standards. Our loan examiners
and internal auditors also independently review portfolios
with credit risk.

Our primary business focus on middle-market commercial
and residential real estate, auto and small consumer lending,
results in portfolio diversiﬁcation. We assess loan portfolios
for geographic, industry or other concentrations and use
mitigation strategies, which may include loan sales, syndica-
tions or third party insurance, to minimize these concentra-
tions, as we deem appropriate.

In our commercial loan, commercial real estate loan and
lease ﬁnancing portfolios, larger or more complex loans are
individually underwritten and judgmentally risk rated. They
are periodically monitored and prompt corrective actions are
taken on deteriorating loans. Smaller, more homogeneous
commercial small business loans are approved and moni-
tored using statistical techniques.

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 and
approves new model implementation and periodic validation.

Residential real estate mortgages are one of our core
products. We offer a broad spectrum of ﬁrst mortgage and
junior lien loans that we consider predominantly prime or
near prime. These loans are almost entirely secured by a
primary residence for the purpose of purchase money,
reﬁnance, debt consolidation, or home equity loans. We
do not believe negative amortization or option ARMs
beneﬁt our customers and have not made or purchased
these loan products.

We originate mortgage loans through a variety of sources,

including our retail sales force, licensed real estate brokers
and correspondent lenders. We apply consistent credit poli-
cies, borrower documentation standards, Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA)
compliant appraisal requirements, and sound underwriting,
regardless of application source. We perform quality control
reviews for third party originated loans and actively manage
or terminate sources that do not meet our credit standards.
We believe our underwriting process is well controlled
and appropriate for the needs of our customers. We offer
interest-only products but ensure that the customer qualiﬁes
for higher payments after the initial interest-only period. The
majority of our reduced documentation loans are initiated
based on our determination that the customer is creditworthy

without having to supply unnecessary paperwork. Appraisals
are ordered and reviewed independently to ensure supportable
property values. We obtain mortgage insurance on higher
loan-to-value ﬁrst mortgage loans, and monitor regional
economic and real estate trends modifying underwriting
standards as needed.

We continue to be among the highest rated loan servicers
for prime and non-prime residential real estate mortgage loans.
High quality servicing improves customer service and has been
demonstrated to result in lower foreclosures and losses.
Each business unit completes quarterly asset quality
forecasts to quantify its intermediate-term outlook for loan
losses and recoveries, nonperforming loans and market trends.
To make sure our overall loss estimates and the 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, stemming from economic
conditions or borrower performance.

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, geographic
locations such as states or Metropolitan Statistical Areas
(MSAs) and specific macroeconomic trends.

LOAN PORTFOLIO CONCENTRATIONS
Loan concentrations may exist when there are borrowers
engaged in similar activities or types of loans extended to a
diverse group of borrowers that could cause those borrowers
or portfolios to be similarly impacted by economic or other
conditions.

The concentrations of real estate 1-4 family mortgage
loans by state are presented in Table 12. Our real estate 1-4
family mortgage loans to borrowers in the state of California
represented approximately 11% of total loans at December 31,
2006, compared with 14% at the end of 2005. These loans
are mostly within the larger metropolitan areas in California,
with no single area consisting of more than 3% of our total
loans. Changes in real estate values and underlying economic
or market conditions for these areas are monitored continu-
ously within the credit risk management process.

Some of our real estate 1-4 family mortgage loans, includ-

ing first mortgage and home equity products, include an
interest-only feature as part of the loan terms. At December 31,
2006, these loans were approximately 19% of total loans,
compared with 26% at the end of 2005. Substantially all of
these loans are considered to be prime or near prime. We do
not offer option adjustable-rate mortgage products, nor do
we offer variable-rate mortgage products with ﬁxed payment
amounts, commonly referred to within the ﬁnancial services
industry as negative amortizing mortgage loans.

Table 12: Real Estate 1-4 Family Mortgage Loans by State

(in millions)

California
Minnesota
Arizona
Florida
Texas
Colorado
Washington
New York
Nevada
Illinois
Other (1)
Total

December 31, 2006
% of total
Real estate
1-4 family
loans
ﬁrst
mortgage

Real estate
1-4 family
junior lien
mortgage

Total real
estate 1-4
family
mortgage

$10,902
2,698
2,200
2,513
3,252
2,034
1,640
1,265
1,275
1,371
24,078

$53,228

$24,994
4,067
3,079
2,616
1,586
2,749
2,576
1,887
1,539
1,394
22,439

$68,926

$ 35,896
6,765
5,279
5,129
4,838
4,783
4,216
3,152
2,814
2,765
46,517

$122,154

11%
2
2
2
1
1
1
*
*
*
15

38%

* Less than 1%.
(1) Consists of 40 states; no state had loans in excess of $2,676 million.

Includes $4,156 million in Government National Mortgage Association
early pool buyouts.

For purposes of portfolio risk management, we aggregate

commercial loans and lease ﬁnancing according to market
segmentation and standard industry codes. Commercial loans
and lease financing are presented by industry in Table 13.
These groupings contain a diverse mix of customer relation-
ships throughout our target markets. Loan types and product
offerings are carefully underwritten and monitored. Credit
policies incorporate speciﬁc industry risks.

Table 13: Commercial Loans and Lease Financing by Industry

(in millions)

December 31, 2006
% of total
loans

Commercial loans
and lease ﬁnancing

Small business
Property investment and services (1)
Agricultural production
Retailers
Financial institutions
Food and beverage
Oil and gas
Industrial equipment
Investment management
Healthcare
Other (2)
Total

$ 9,575
6,452
5,604
4,696
3,870
3,414
2,992
2,883
2,050
2,039
32,443

$76,018

3%
2
2
1
1
1
*
*
*
*
10

24%

* Less than 1%.
(1) Includes loans to builders, developers and operators, trusts and title companies.
(2) No other single category had loans in excess of $1,943 million.

Other real estate mortgages and real estate construction
loans that are diversiﬁed in terms of both the state where the
property is located and by the type of property securing the
loans are presented in Table 14. The composition of these
portfolios was stable throughout 2006 and the distribution
is consistent with our target markets and focus on customer
relationships. Approximately 25% of other real estate and
construction loans are loans to owner-occupants where more
than 50% of the property is used in the conduct of their
business. The largest group of loans in any one state is 5%
of total loans and the largest group of loans secured by one
type of property is 3% of total loans.

Table 14: Commercial Real Estate Loans by State and Property Type

(in millions)

By state:

California
Texas
Arizona
Colorado
Washington
Minnesota
Oregon
Florida
Utah
Nevada
Other (1)
Total (2)

By property type:

Ofﬁce buildings
Retail buildings
Industrial
Land
1-4 family structures
Apartments
1-4 family land
Agriculture
Hotels/motels
Institutional
Other

Total (2)

December 31, 2006
% of
Other real
total
estate
loans
mortgage

Real
estate
construction

Total
commercial
real estate

$11,590
2,904
1,650
1,604
1,587
1,335
782
264
645
608
7,143

$30,112

$ 7,655
5,233
4,960
90
189
2,577
—
1,902
1,443
876
5,187

$30,112

$ 4,495
1,185
1,134
786
720
595
446
881
443
474
4,776

$15,935

$ 1,237
1,351
644
4,031
3,716
984
2,382
29
415
256
890

$15,935

$16,085
4,089
2,784
2,390
2,307
1,930
1,228
1,145
1,088
1,082
11,919

$46,047

$ 8,892
6,584
5,604
4,121
3,905
3,561
2,382
1,931
1,858
1,132
6,077

$46,047

5%
1
*
*
*
*
*
*
*
*
4

14%

3%
2
2
1
1
1
*
*
*
*
2

14%

* Less than 1%.
(1) Consists of 40 states; no state had loans in excess of $1,002 million.
(2) Includes owner-occupied real estate and construction loans of $11,661 million.

NONACCRUAL LOANS AND OTHER ASSETS
Table 15 shows the five-year trend for nonaccrual loans
and other assets. We generally place loans on nonaccrual
status when:

• the full and timely collection of interest or principal

becomes uncertain;

• they are 90 days (120 days with respect to real estate
1-4 family ﬁrst and junior lien mortgages and auto
loans) past due for interest or principal (unless both
well-secured and in the process of collection); or
• part of the principal balance has been charged off.
Note 1 (Summary of Signiﬁcant Accounting Policies) to

Financial Statements describes our accounting policy for
nonaccrual loans.

Consumer loans, primarily residential real estate and
auto, which we believe to have relatively low loss content,
represented about 65% of total nonperforming loans.
Approximately 40% of the $232 million increase in other
foreclosed assets from December 31, 2005, to December 31,
2006, consists of repossessed autos and approximately 60%

is primarily residential real estate loans in foreclosure recorded
at net realizable value. Commercial and commercial real
estate nonperforming loans, $543 million at December 31,
2006, remained at historically low levels and had minimal
land, real estate construction or condo conversion exposure.
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 one loan can
be affected by external factors, such as economic or market
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 nonac-
crual at year end) had been accrued under the original terms,
approximately $120 million of interest would have been
recorded in 2006, compared with payments of $51 million
recorded as interest income.

Substantially all of the foreclosed assets at December 31,

2006, have been in the portfolio one year or less.

Table 15: 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:
GNMA loans (2)
Other

Real estate and other nonaccrual investments (3)

Total nonaccrual loans and other assets

As a percentage of total loans

December 31,
2002

2004

2005

2003

2006

$ 331
105
78
29
543

688
212
180
1,080
43
1,666
0.52%

322
423
5

$2,416

$ 286
165
31
45
527

471
144
171
786
25
1,338

0.43%

—
191
2

$1,531

$ 345
229
57
68
699

386
92
160
638
21
1,358
0.47%

—
212
2

$1,572

$ 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

0.58%

0.78%

—
198
6

$1,662

—
195
4

$1,691

0.76%

0.49%

0.55%

0.66%

0.88%

(1) Includes impaired loans of $230 million, $190 million, $309 million, $629 million and $612 million at December 31, 2006, 2005, 2004, 2003 and 2002, respectively. (See Note 1

(Summary of Signiﬁcant Accounting Policies) and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements for further discussion of impaired loans.)

(2) As a result of a change in regulatory reporting requirements effective January 1, 2006, foreclosed real estate securing GNMA loans has been classiﬁed as nonperforming.

These assets are fully collectible because the corresponding GNMA loans are insured by the FHA or guaranteed by the Department of Veterans Affairs.

(3) Includes real estate investments (contingent interest loans accounted for as investments) that would be classiﬁed as nonaccrual if these assets were recorded as loans.

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 or more past due and still

accruing was $5,073 million, $3,606 million, $2,578 million,
$2,337 million and $672 million at December 31, 2006, 2005,
2004, 2003 and 2002, respectively. At December 31, 2006,
2005, 2004 and 2003, the total included $3,913 million,
$2,923 million, $1,820 million and $1,641 million, respectively,
in advances pursuant to our servicing agreements to GNMA
mortgage pools whose repayments are insured by the FHA
or guaranteed by the Department of Veterans Affairs. Before
clarifying guidance issued in 2003 as to classiﬁcation as loans,
GNMA advances were included in other assets. Table 16
provides detail by loan category excluding GNMA advances.

Table 16: 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

December 31,
2002
2004

2006

2003

2005

$ 18

$ 26

$ 87

$ 92

mortgage

3
Real estate construction 3

13
9

6
6

9
6

7
11

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

102

110

154

103

148

117

104

63
262

616
1,095
44

$1,160

50
159

290
602
41

$683

40
150

306
644
76

$758

29
134

271
551
43

$696

18
130

282
534
28

$672

Loans 90 days or more past due and still accruing for
other revolving credit and installment loans, which includes
auto loans, increased $326 million from $290 million in 2005
to $616 million in 2006, with approximately $235 million
due to the auto portfolio.

ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses, which consists of the
allowance for loan losses and the reserve for unfunded credit
commitments, is 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 nonaccrual loans will change at different
points in time based on credit performance, loan mix and
collateral values. Any loan with past due principal or interest
that is not both well-secured and in the process of collection
generally is charged off (to the extent that it exceeds the fair
value of any related collateral) based on loan category after
a deﬁned period of time. Also, a loan is charged off when
classiﬁed as a loss by either internal loan examiners or regu-
latory examiners. The detail of the changes in the allowance
for credit losses, including charge-offs and recoveries by loan
category, is in Note 6 (Loans and Allowance for Credit
Losses) to Financial Statements.

At December 31, 2006, the allowance for loan losses

was $3.76 billion, or 1.18% of total loans, compared
with $3.87 billion, or 1.25%, at December 31, 2005. The
allowance for credit losses was $3.96 billion, or 1.24% of
total loans, at December 31, 2006, and $4.06 billion, or
1.31%, at December 31, 2005. These ratios ﬂuctuate from
period to period and the decrease in the ratios of the allowance
for loan losses and the allowance for credit losses to total
loans in 2006 was primarily due to a continued shift toward
a higher percentage of consumer loans in our portfolio,
including auto and other consumer loans and some small
business loans, which have shorter loss emergence periods,
as well as home mortgage loans, which tend to have lower
credit loss rates that emerge over a longer time frame compared
with other consumer products. We have historically experi-
enced the lowest credit losses on our residential real estate
secured consumer loan portfolio. The reserve for unfunded
credit commitments was $200 million at December 31,
2006, and $186 million at December 31, 2005.

The ratio of the allowance for credit losses to total nonac-
crual loans was 238% and 303% at December 31, 2006 and
2005, respectively. This ratio may ﬂuctuate signiﬁcantly from
period to period due to such factors as the mix of loan types
in the portfolio, borrower credit strength and the value and
marketability of collateral. Over half of nonaccrual loans
were home mortgages, auto and other consumer loans at
December 31, 2006. Nonaccrual loans are generally written
down to fair value less cost to sell at the time they are placed
on nonaccrual and accounted for on a cost recovery basis.
The provision for credit losses totaled $2.20 billion in
2006, $2.38 billion in 2005 and $1.72 billion in 2004. In
2005, the provision included $100 million in excess of net
charge-offs, which was our estimate of probable credit losses
related to Hurricane Katrina. Since that time, we identiﬁed
and recorded approximately $50 million of Katrina-related
losses. Because we do not anticipate any further credit losses
attributable to Katrina, we released the remaining $50 million
balance in 2006.

Net charge-offs in 2006 were 0.73% of average total
loans, compared with 0.77% in 2005 and 0.62% in 2004.
Credit losses for auto loans increased $160 million in 2006
partially due to growth and seasoning, but largely due to
collection capacity constraints and restrictive payment exten-
sion practices that occurred when Wells Fargo Financial inte-
grated its prime and non-prime auto loan businesses during
2006. Net charge-offs in 2005 included the additional credit
losses from the change in bankruptcy laws and conforming
Wells Fargo Financial’s charge-off practices to FFIEC guide-
lines. A portion of these bankruptcy charge-offs represent an
acceleration of charge-offs that would have likely occurred in
2006. The increase in consumer bankruptcies in 2005 pri-
marily impacted our credit card, unsecured consumer loans
and lines, auto and small business portfolios.

Table 17: Allocation of the Allowance for Credit Losses

(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 allocated

Unallocated component of allowance (1)

Total

2006
Loans
as %
of total
loans

$1,051
225
109

22%
9
5
40 2
38
1,425

186
168
606

17
21
5
1,434 17
2,394
60
145 2
3,964 100%
—
$3,964

Table 17 presents the allocation of the allowance for credit

losses by type of loans. The decrease of $93 million in the
allowance for credit losses from year-end 2005 to year-end
2006 was primarily due to the release of remaining Katrina
reserves of $50 million previously discussed. Changes in the
allowance reﬂect changes in statistically derived loss esti-
mates, historical loss experience, current trends in borrower
risk and/or general economic activity on portfolio perfor-
mance, and management’s estimate for imprecision and
uncertainty. At December 31, 2006, the entire allowance
was assigned to individual portfolio types to better reﬂect
our view of risk in these portfolios. The allowance for credit
losses includes a combination of baseline loss estimates and a
range of imprecision or uncertainty speciﬁc to each portfolio
segment previously categorized as unallocated.

December 31,
2002
Loans
as %
of total
loans

2004
Loans
as %
of total
loans

2003
Loans
as %
of total
loans

2005
Loans
as %
of total
loans

$ 926
253
115
51
1,345

20%
9
4
2
35

25
19
4
15
63
2

229
118
508
1,060
1,915
149
3,409 100%
648
$4,057

19%
$ 940
11
298
3
46
30 2
35
1,314

31
150
18
104
4
466
11
889
1,609
64
139 1
3,062 100%
888
$3,950

19%
$ 917
11
444
63
3
40 2
35
1,464

33
176
15
92
3
443
13
802
1,513
64
95 1
3,072 100%
819
$3,891

24%
$ 865
13
307
4
53
75 2
43
1,300

104
62
386

23
15
4
597 14
1,149
56
86 1
2,535 100%
1,284
$3,819

(1) At December 31, 2006, we changed our estimate of the allocation of the allowance for credit losses. At December 31, 2006, the portion of the allowance assigned to
individual portfolio types includes an amount for imprecision or uncertainty to better reﬂect our view of risk in these portfolios. In prior years, this portion of the
allowance was associated with the portfolio as a whole, rather than with an individual portfolio type and was categorized as unallocated.

We consider the allowance for credit losses of $3.96 billion
adequate to cover credit losses inherent in the loan portfolio,
including unfunded credit commitments, at December 31, 2006.
Given that the majority of our loan portfolio is consumer
loans, for which losses tend to emerge within a relatively
short, predictable timeframe, and that a signiﬁcant portion
of the allowance for credit losses relates to estimated credit
losses associated with consumer loans, management believes
that the provision for credit losses for consumer loans,
absent any signiﬁcant credit event, will closely track the level
of related net charge-offs. 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, including economic or market conditions and ongoing
internal and external examination processes. Our process for
determining the adequacy of the allowance for credit losses
is discussed in “Financial Review – Critical Accounting
Policies – Allowance for Credit Losses” and 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 (for example, 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).

Interest rates may also have a direct or indirect effect on
loan demand, credit losses, mortgage origination volume, the
value of MSRs, 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 simulations 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 exam-
ple, as of December 31, 2006, our most recent simulation
indicated estimated earnings at risk of less than 1% of our
most likely earnings plan over the next 12 months using a
scenario in which the federal funds rate declines 275 basis
points to 2.50% and the 10-year Constant Maturity Treasury
bond yield declines 100 basis points to 3.75%, or a scenario
in which the federal funds rate rises 175 basis points to 7.00%
and the Constant Maturity Treasury bond yield rises 250
basis points to 7.25%, over the same 12-month period.
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. Due to timing differences between
the quarterly valuation of MSRs and the eventual impact of
interest rates on mortgage banking volumes, earnings at risk
in any particular quarter could be higher than the average
earnings at risk over the 12-month simulation period,
depending on the path of interest rates and on our MSRs
hedging strategies. See “Mortgage Banking Interest Rate
Risk” below.

We use exchange-traded and over-the-counter interest rate
derivatives to hedge our interest rate exposures. The notional
or contractual amount, credit risk amount and estimated net
fair values of these derivatives as of December 31, 2006 and
2005, are presented in Note 26 (Derivatives) to Financial
Statements. We use derivatives for asset/liability management
in three ways:

• to convert a major portion of our long-term ﬁxed-rate
debt, which we issue to ﬁnance the Company, from
ﬁxed-rate payments to ﬂoating-rate payments by
entering into receive-ﬁxed swaps;

• to convert the cash flows from selected asset and/or

liability instruments/portfolios from ﬁxed-rate payments
to ﬂoating-rate payments or vice versa; and

• to hedge our mortgage origination pipeline, funded
mortgage loans and MSRs using interest rate swaps,
swaptions, futures, forwards and options.

MORTGAGE BANKING INTEREST RATE RISK
We originate, fund and service mortgage loans, which
subjects us to various risks, including credit, liquidity and
interest rate risks. We reduce unwanted credit and liquidity
risks by selling or securitizing virtually all of the long-term
ﬁxed-rate mortgage loans we originate and most of the
ARMs we originate. From time to time, we hold originated
ARMs in our loan portfolio as an investment for our grow-
ing base of core deposits. We determine whether the loans
will be held for investment or held for sale at the time of
origination. We may subsequently change our intent to hold
loans for investment and sell some or all of our ARMs as
part of our corporate asset/liability management.

While credit and liquidity risks have historically been
relatively low for mortgage banking activities, interest rate
risk can be substantial. Changes in interest rates may poten-
tially impact total origination and servicing fees, the value of
our residential MSRs measured at fair value and the associated
income and loss reﬂected in mortgage banking noninterest
income, the income and expense associated with instruments
(economic hedges) used to hedge changes in the fair value of
MSRs, and the value of derivative loan commitments extended
to mortgage applicants.

Interest rates impact the amount and timing of origina-
tion and servicing fees because consumer demand for new
mortgages and the level of reﬁnancing activity are sensitive
to changes in mortgage interest rates. Typically, a decline in
mortgage interest rates will lead to an increase in mortgage
originations and fees and may also lead to an increase in ser-
vicing fee income, depending on the level of new loans added
to the servicing portfolio and prepayments. Given the time it

takes for consumer behavior to fully react to interest rate
changes, as well as the time required for processing a new
application, providing the commitment, and securitizing and
selling the loan, interest rate changes will impact origination
and servicing fees with a lag. The amount and timing of the
impact on origination and servicing fees will depend on the
magnitude, speed and duration of the change in interest rates.
Under FAS 156, which we adopted January 1, 2006, we

have elected to use the fair value measurement method to
initially measure and carry our residential MSRs, which rep-
resent substantially all of our MSRs. Under this method, the
initial measurement of fair value of MSRs at the time we sell
or securitize mortgage loans is recorded as a component of
net gains on mortgage loan origination/sales activities. The
carrying value of MSRs reﬂects changes in fair value at the
end of each quarter and changes are included in net servicing
income, a component of mortgage banking noninterest
income. If the fair value of the MSRs increases, income is
recognized; if the fair value of the MSRs decreases, a loss is
recognized. We use a dynamic and sophisticated model to
estimate the fair value of our MSRs. While the valuation
of MSRs can be highly subjective and involve complex
judgments by management about matters that are inherently
unpredictable, changes in interest rates inﬂuence a variety
of assumptions included in the periodic valuation of MSRs.
Assumptions affected include prepayment speed, expected
returns and potential risks on the servicing asset portfolio,
the value of escrow balances and other servicing valuation
elements impacted by interest rates.

A decline in interest rates increases the propensity for
reﬁnancing, reduces the expected duration of the servicing
portfolio and therefore reduces the estimated fair value of
MSRs. This reduction in fair value causes a charge to income
(net of any gains on free-standing derivatives (economic
hedges) used to hedge MSRs). We may choose to not fully
hedge all of the potential decline in the value of our MSRs
resulting from a decline in interest rates because the potential
increase in origination/servicing fees in that scenario provides
a partial “natural business hedge.” In a rising rate period,
when the MSRs may not be fully hedged with free-standing
derivatives, the change in the fair value of the MSRs that
can be recaptured into income will typically — although not
always — exceed the losses on any free-standing derivatives
hedging the MSRs. In 2006, the decrease in the fair value of
our MSRs and losses on free-standing derivatives used to
hedge the MSRs totaled $154 million.

Hedging the various sources of interest rate risk in mort-
gage banking is a complex process that requires sophisticated
modeling and constant monitoring. While we attempt to
balance these various aspects of the mortgage business, there
are several potential risks to earnings:

• MSRs valuation changes associated with interest rate
changes are recorded in earnings immediately within
the accounting period in which those interest rate
changes occur, whereas the impact of those same
changes in interest rates on origination and servicing
fees occur with a lag and over time. Thus, the mortgage

business could be protected from adverse changes in
interest rates over a period of time on a cumulative
basis but still display large variations in income from
one accounting period to the next.

• The degree to which the “natural business hedge” off-
sets changes in MSRs valuations is imperfect, varies at
different points in the interest rate cycle, and depends
not just on the direction of interest rates but on the
pattern of quarterly interest rate changes.

• Origination volumes, the valuation of MSRs and hedging
results and associated costs are also impacted by many
factors. Such factors include the mix of new business
between ARMs and ﬁxed-rated mortgages, the relation-
ship between short-term and long-term interest rates,
the degree of volatility in interest rates, the relationship
between mortgage interest rates and other interest rate
markets, and other interest rate factors. Many of these
factors are hard to predict and we may not be able to
directly or perfectly hedge their effect.

• While our hedging activities are designed to balance

our mortgage banking interest rate risks, the ﬁnancial
instruments we use may not perfectly correlate with the
values and income being hedged. For example, the change
in the value of ARMs production held for sale from
changes in mortgage interest rates may or may not be
fully offset by Treasury and LIBOR index-based ﬁnancial
instruments used as economic hedges for such ARMs.

The total carrying value of our residential and commer-

cial MSRs was $18.0 billion at December 31, 2006, and
$12.5 billion, net of a valuation allowance of $1.2 billion, at
December 31, 2005. The weighted-average note rate on the
owned servicing portfolio was 5.92% at December 31, 2006,
and 5.72% at December 31, 2005. Our total MSRs were
1.41% of mortgage loans serviced for others at December
31, 2006, compared with 1.44% at December 31, 2005.

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 in
the balance sheet with changes in their fair values recorded
as part of mortgage banking noninterest income. Consistent
with 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 the 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 not fund within the terms of the commitment
(referred to as a fall-out factor). The value of that loan is

affected primarily by changes in interest rates and the passage
of time. 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 Treasury futures, for-
wards and options, Eurodollar futures and forward contracts
as economic hedges against 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
either fully or partially 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 volatili-
ties. 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 expecta-
tions or to beneﬁt from price differences between ﬁnancial
instruments and markets, subject to risk limits established
and monitored by Corporate ALCO. All securities, foreign
exchange transactions, commodity transactions and deriva-
tives — 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,
2006 and 2005, are included in Note 26 (Derivatives) to
Financial Statements. Open, “at risk” positions for all trading
business are monitored 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.
VAR 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 2006 was $15 million, with a lower bound of
$10 million and an upper bound of $35 million.

MARKET RISK – EQUITY MARKETS
We are directly and indirectly affected by changes in the
equity markets. We make and manage direct equity invest-
ments in start-up businesses, emerging growth companies,
management buy-outs, acquisitions and corporate recapital-
izations. 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). 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 investment and the expectations for
that investment’s cash ﬂows and capital needs, the viability
of its business model and our exit strategy. Private equity
investments totaled $1.67 billion at December 31, 2006,
and $1.54 billion at December 31, 2005.

We also have marketable equity securities in the available
for sale investment portfolio, including securities relating to
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 other-than-temporary impairment may be periodically
recorded when identiﬁed. 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 our investment
horizon in relationship to an anticipated near-term recovery
in the stock price, if any. The fair value of marketable equity
securities was $796 million and cost was $592 million at
December 31, 2006, and $900 million and $558 million,
respectively, at December 31, 2005.

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 these guidelines for both the consolidated
balance sheet and for the Parent 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, securities purchased under resale agreements and other
short-term investments. The weighted-average expected

remaining maturity of the debt securities within this portfolio
was 5.2 years at December 31, 2006. Of the $41.1 billion
(cost basis) of debt securities in this portfolio at December 31,
2006, $5.0 billion, or 12%, is expected to mature or be
prepaid in 2007 and an additional $7.3 billion, or 18%, in
2008. Asset liquidity is further enhanced by our ability to sell
or securitize loans in secondary markets through whole-loan
sales and securitizations. In 2006, we sold mortgage loans of
$271 billion, including home mortgage loans and commercial
mortgage loans of $51 billion that we securitized. The amount
of mortgage loans, home equity loans and other consumer
loans available to be sold or securitized was approximately
$160 billion at December 31, 2006.

Core customer deposits have historically provided a size-
able source of relatively stable and low-cost funds. Average
core deposits and stockholders’ equity funded 62.4% and
63.2% of average total assets in 2006 and 2005, respectively.

The remaining assets were funded by long-term debt
(including trust preferred securities), deposits in foreign
ofﬁces, and short-term borrowings (federal funds purchased,
securities sold under repurchase agreements, commercial
paper and other short-term borrowings). Short-term borrow-
ings averaged $21.5 billion in 2006 and $24.1 billion in
2005. Long-term debt averaged $84.0 billion in 2006 and
$79.1 billion in 2005.

We anticipate making capital expenditures of approxi-
mately $1.2 billion in 2007 for our stores, relocation and
remodeling of Company facilities, and routine replacement
of furniture, equipment and servers. We fund expenditures
from various sources, including cash ﬂows from operations
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. 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.
In September 2003, Moody’s Investors Service rated Wells Fargo
Bank, N.A. as “Aaa,” its highest investment grade, and rated
the Company’s senior debt rating as “Aa1.” In July 2005,
Dominion Bond Rating Service raised the Company’s senior
debt rating to “AA” from “AA(low).” In February 2007,
Standard & Poor’s Ratings Services raised Wells Fargo Bank,
N.A.’s credit rating to “AAA” from “AA+,” and raised the
Company’s senior debt rating to “AA+” from “AA.” Our
bank is now the only U.S. bank to have the highest possible
credit rating from both Moody’s and S&P.

Table 18 provides the credit ratings of the Company and

Wells Fargo Bank, N.A. as of December 31, 2006.

PARENT. Under SEC rules effective December 1, 2005, the
Parent is classiﬁed as a “well-known seasoned issuer,” which
allows it to ﬁle a registration statement that does not have a

Table 18: Credit Ratings

Wells Fargo & Company Wells Fargo Bank, N.A.
Senior Subordinated Commercial Long-term Short-term
borrowings
debt

deposits

paper

debt

Moody’s
Standard &
Poor’s (1)
Fitch, Inc.
Dominion Bond
Rating Service

Aa1

Aa2

AA+ AA
AA-
AA

P-1

A-1+
F1+

Aaa

AAA
AA+

P-1

A-1+
F1+

AA(low)

R-1(middle) AA(high) R-1(high)

(1) Reﬂects February 2007 upgrade of credit ratings.

limit on issuance capacity. “Well-known seasoned issuers”
generally include those companies with a public ﬂoat of
common equity of at least $700 million or those companies
that have issued at least $1 billion in aggregate principal
amount of non-convertible securities, other than common
equity, in the last three years. However, the Parent’s ability
to issue debt and other securities under a registration state-
ment ﬁled with the SEC under these new rules is limited by
the debt issuance authority granted by the Board. The Parent
is currently authorized by the Board to issue $25 billion in
outstanding short-term debt and $95 billion in outstanding
long-term debt, subject to a total outstanding debt limit of
$110 billion. In June 2006, the Parent’s registration state-
ment with the SEC for issuance of senior and subordinated
notes, preferred stock and other securities became effective.
During 2006, the Parent issued a total of $12.1 billion of
registered senior notes, including $3.7 billion (denominated in
euros) sold primarily in Europe and $2.3 billion (denominated
in pounds sterling) sold primarily in the United Kingdom.
The Parent also issued $751 million in junior subordinated
debt (trust preferred securities). Also, in 2006, the Parent
issued $534 million in private placements (denominated
in Australian dollars) under the Parent’s Australian debt
issuance program. We used the proceeds from securities
issued in 2006 for general corporate purposes and expect
that the proceeds in the future will also be used for general
corporate purposes. In January 2007, the Parent issued a
total of $3.7 billion in senior notes, including approximately
$1.5 billion denominated in pounds sterling. The Parent also
issues commercial paper from time to time, subject to its
short-term debt limit.

WELLS FARGO BANK, N.A. Wells Fargo Bank, N.A. is authorized
by its board of directors to issue $20 billion in outstanding
short-term debt and $40 billion in outstanding long-term
debt. In March 2003, Wells Fargo Bank, N.A. established a
$50 billion bank note program under which, subject to any
other debt outstanding under the limits described above, it
may issue $20 billion in outstanding short-term senior notes
and $30 billion in long-term senior notes. Securities are issued
under this program as private placements in accordance with
Ofﬁce of the Comptroller of the Currency (OCC) regulations.
During 2006, Wells Fargo Bank, N.A. issued $3.2 billion in
long-term senior and subordinated notes, which included
long-term senior notes under the bank note program.

WELLS FARGO FINANCIAL. In January 2006, 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 $7.0 billion (Canadian) of issuance

authority. During 2006, WFFCC issued $1.6 billion
(Canadian) in senior notes. At December 31, 2006, the
remaining issuance capacity for WFFCC was $5.4 billion
(Canadian). WFFI also issued $450 million (U.S.) in private
placements in 2006.

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 the Board authorizes the Company
to repurchase shares of our common stock. Although we
announce when the Board authorizes share repurchases, we
typically do not give any public notice before we repurchase
our shares. Various factors determine the amount and timing
of our share repurchases, including our capital requirements,
the number of shares we expect to issue for acquisitions and
employee beneﬁt plans, market conditions (including the
trading price of our stock), and legal considerations. These
factors can change at any time, and there can be no assur-
ance as to the number of shares we will repurchase or when
we will repurchase them.

Historically, our policy has been to repurchase shares
under the “safe harbor” conditions of Rule 10b-18 of the
Exchange Act including a limitation on the daily volume of
repurchases. Rule 10b-18 imposes an additional daily volume
limitation on share repurchases during a pending merger or
acquisition in which shares of our stock will constitute some or
all of the consideration. Our management may determine that
during a pending stock merger or acquisition when the safe
harbor would otherwise be available, it is in our best interest
to repurchase shares in excess of this additional daily volume
limitation. In such cases, we intend to repurchase shares in
compliance with the other conditions of the safe harbor,
including the standing daily volume limitation that applies
whether or not there is a pending stock merger or acquisition.
In 2005, the Board authorized the repurchase of up to
150 million additional shares of our outstanding common

Comparison of 2005 with 2004

stock. In June 2006, the Board authorized the repurchase of
up to 50 million additional shares of our outstanding common
stock. During 2006, we repurchased 59 million shares of our
common stock. At December 31, 2006, the total remaining
common stock repurchase authority was 62 million shares.
On June 27, 2006, the Board declared a two-for-one
stock split in the form of a 100% stock dividend on our
common stock which was distributed August 11, 2006, to
stockholders of record at the close of business August 4, 2006.
We distributed one share of common stock for each share of
common stock issued and outstanding or held in the treasury
of the Company. Also, in June 2006, the Board declared an
increase in the quarterly common stock dividend to 56 cents
per share, up 4 cents, or 8%. The cash dividend was on a
pre-split basis and was payable September 1, 2006, to stock-
holders of record at the close of business August 4, 2006.

Our potential sources of capital include retained earnings
and issuances of common and preferred stock. In 2006, retained
earnings increased $4.7 billion, predominantly as a result
of net income of $8.5 billion less dividends of $3.6 billion.
In 2006, we issued $2.1 billion of common stock (including
shares issued for our ESOP plan) under various employee
beneﬁt and director plans and under our dividend reinvest-
ment and direct stock purchase programs.

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, 2006, the Company and
each of our covered subsidiary banks were “well capitalized”
under applicable regulatory capital adequacy guidelines. See
Note 25 (Regulatory and Agency Capital Requirements) to
Financial Statements for additional information.

Net income in 2005 increased 9% to a record $7.67 billion
from $7.01 billion in 2004. Diluted earnings per common
share increased 10% to a record $2.25 in 2005 from $2.05
in 2004. Our earnings growth in 2005 from 2004 was broad
based, with nearly every consumer and commercial business
line achieving double-digit proﬁt growth, including regional
banking, wealth management, corporate trust, business
direct, asset-based lending, student lending, consumer credit,
commercial real estate and international trade services. Both

net interest income and noninterest income for 2005 grew
solidly from 2004 and virtually all of our fee-based products
had double-digit revenue growth. We took signiﬁcant actions
to reposition our balance sheet in 2005 designed to improve
yields on earning assets, including the sale of $48 billion of
our lowest-yielding ARMs, resulting in $119 million of sales-
related losses, and the sale of $17 billion of debt securities,
including low-yielding ﬁxed-income securities, resulting in
$120 million of losses.

Our growth in earnings per share in 2005 compared with
2004 was driven by revenue growth, operating leverage (rev-
enue growth in excess of expense growth) and credit quality,
which remained solid despite the following credit-related events:

• $171 million of net charge-offs from incremental
consumer bankruptcy ﬁlings nationwide due to a
change in bankruptcy law in October 2005;

• $163 million ﬁrst quarter 2005 initial implementation

of conforming to more stringent FFIEC charge-off rules
at Wells Fargo Financial; and

• $100 million provision for credit losses for our
assessment of the effect of Hurricane Katrina.

Results for 2004 included incremental investments in new

stores, sales-focused team members and technology, as well
as $217 million of charitable contribution expense for the
Wells Fargo Foundation. 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
$174 million for 2004.

Return on average total assets was 1.72% and return on

average stockholders’ equity was 19.59% in 2005, and
1.71% and 19.57%, respectively, in 2004.

Net interest income on a taxable-equivalent basis was
$18.6 billion in 2005, compared with $17.3 billion in 2004,
reﬂecting solid loan growth (excluding ARMs) and a rela-
tively ﬂat net interest margin. Average earning assets grew
8% from 2004, or 15% excluding 1-4 family ﬁrst mortgages
(the loan category impacted by our ARMs sales). Our net
interest margin was 4.86% for 2005, compared with 4.89%
in 2004. Given the prospect of higher short-term interest
rates and a ﬂatter yield curve, beginning in second quarter
2004, as part of our asset/liability management strategy, we
sold the lowest-yielding ARMs on our balance sheet, replac-
ing some of these loans with higher-yielding ARMs. At the
end of 2005, new ARMs being held for investment within
real estate 1-4 family mortgage loans had yields more than
1% higher than the average yield on the ARMs sold since
second quarter 2004.

Noninterest income increased 12% to $14.4 billion in 2005
from $12.9 billion in 2004. Double-digit growth in noninterest
income was driven by growth across our businesses in 2005,
with particular strength in trust, investment and IRA fees,
card fees, loan fees, mortgage banking income and gains on
equity investments.

Mortgage banking noninterest income increased to

$2,422 million in 2005 from $1,860 million in 2004, due to
an increase in net gains on mortgage loan origination/sales
activities partly offset by the decline in net servicing income.
Net gains on mortgage loan origination/sales activities
were $1,085 million in 2005, up from $539 million in 2004,
primarily due to higher origination volume.

Net servicing income was $987 million in 2005 compared

with $1,037 million in 2004. The Company’s portfolio of
loans serviced for others was $871 billion at December 31,
2005, up 27% from $688 billion at year-end 2004. Given a

larger servicing portfolio year over year, the increase in ser-
vicing income was partly offset by higher amortization of
MSRs. Servicing fees increased to $2,457 million in 2005
from $2,101 million in 2004 and amortization of MSRs
increased to $1,991 million in 2005 from $1,826 million in
2004. Servicing income in 2005 also included a higher MSRs
valuation allowance release of $378 million in 2005 com-
pared with $208 million in 2004, due to higher long-term
interest rates in certain quarters of 2005. The increase in fee
revenue and the higher MSRs valuation allowance release
were mostly offset by the decrease in net derivative gains to
$143 million in 2005 from $554 million in 2004.

Revenue, the sum of net interest income and noninterest
income, increased 10% to a record $32.9 billion in 2005
from $30.1 billion in 2004 despite balance sheet repositioning
actions, including losses from the sales of low-yielding ARMs
and debt securities. Home Mortgage revenue increased
$455 million, or 10%, to $4.9 billion in 2005 from $4.4 billion
in 2004. Operating leverage improved during 2005 with
revenue growing 10% and noninterest expense up only 8%.
Noninterest expense in 2005 increased 8% to $19.0 billion
from $17.6 billion in 2004, primarily due to increased mort-
gage production and continued investments in new stores
and additional sales-related team members. Noninterest
expense in 2005 included a $117 million expense to adjust
the estimated lives for certain depreciable assets, primarily
building improvements, $62 million of airline lease write-
downs, $56 million of integration expense and $25 million
for the adoption of FIN 47, which relates to recognition
of obligations associated with the retirement of long-lived
assets, such as building and leasehold improvements. Home
Mortgage expenses increased $426 million from 2004,
reﬂecting higher production costs from an increase in loan
origination volume. For 2004, employee beneﬁts included
a $44 million special 401(k) contribution and charitable
donations included a $217 million contribution to the
Wells Fargo Foundation.

During 2005, net charge-offs were $2.28 billion, or
0.77% of average total loans, compared with $1.67 billion,
or 0.62%, during 2004. Credit losses for 2005 included
$171 million of incremental fourth quarter bankruptcy losses
and increased losses of $163 million for ﬁrst quarter 2005
initial implementation of conforming Wells Fargo Financial’s
charge-off practices to more stringent FFIEC guidelines. The
provision for credit losses was $2.38 billion in 2005, up
$666 million from $1.72 billion in 2004. The 2005 provision
for credit losses also included $100 million for estimated credit
losses related to Hurricane Katrina. The allowance for credit
losses, which consists of the allowance for loan losses and the
reserve for unfunded credit commitments, was $4.06 billion,
or 1.31% of total loans, at December 31, 2005, compared
with $3.95 billion, or 1.37%, at December 31, 2004.

At December 31, 2005, total nonaccrual loans were
$1.34 billion, or 0.43% of total loans, down from $1.36 billion,
or 0.47%, at December 31, 2004. Foreclosed assets were
$191 million at December 31, 2005, compared with
$212 million at December 31, 2004.

Risk Factors

An investment in the Company has risk. We discuss below
and elsewhere in this Report and in other documents we ﬁle
with the SEC various risk factors that could cause our ﬁnan-
cial results and condition to vary signiﬁcantly from period
to period. We refer you to the Financial Review section and
Financial Statements and related Notes in this Report for
more information about credit, interest rate and market risks
and to the “Regulation and Supervision” section of our 2006
Form 10-K for more information about legislative and regu-
latory risks. Any factor described below or elsewhere in this
Report or in our 2006 Form 10-K could, by itself or together
with one or more other factors, have a material adverse effect
on our ﬁnancial results and condition and on the value of an
investment in Wells Fargo. Refer to our quarterly reports on
Form 10-Q that we will ﬁle with the SEC in 2007 for material
changes to the discussion of risk factors.

• future credit losses and nonperforming assets, including
changes in the amount of nonaccrual loans due to portfolio
growth, portfolio seasoning, and other factors;

• the extent to which changes in the fair value of derivative
ﬁnancial instruments will offset changes in the fair value
of derivative loan commitments;

• future short-term and long-term interest rate levels and
their impact on net interest margin, net income, liquidity
and capital;

• anticipated capital expenditures in 2007;
• expectations for unfunded credit and equity investment

commitments;

• the expected impact of pending and threatened legal

actions on our results of operations and stockholders’
equity;

• the anticipated use of proceeds from the issuance

In accordance with the Private Securities Litigation

of securities;

Reform Act of 1995, we caution you that one or more of the
factors discussed below, in the Financial Review section of
this Report, in the Financial Statements and related Notes
included in this Report, in the 2006 Form 10-K, or in other
documents we ﬁle with the SEC from time to time could
cause us to fall short of expectations for our future ﬁnancial
and business performance that we may express in forward-
looking statements. We make forward-looking statements
when we use words such as “believe,” “expect,” “antici-
pate,” “estimate,” “will,” “may,” “can” and similar expres-
sions. Do not unduly rely on forward-looking statements, as
actual results may differ signiﬁcantly from expectations.
Forward-looking statements speak only as of the date made,
and we do not undertake to update them to reﬂect changes
or events that occur after that date.

In this Report we make forward-looking statements about:
• management’s belief that the provision for credit losses
for consumer loans, absent a signiﬁcant credit event,
will closely track the level of related net charge-offs;
• the expected reduction of our net interest expense by

approximately $320 million over the next twenty years
from the extinguishment of trust preferred securities;
• our expectation that we will open 100 regional banking

stores in 2007;

• our belief regarding the loss content of our residential

real estate loans and auto loans;

• the adequacy of our allowance for credit losses;
• our anticipation that we will not incur additional credit

losses attributable to Hurricane Katrina;

• the expected impact of changes in interest rates on loan
demand, credit losses, mortgage origination volume, the
value of MSRs, and other items that may affect earnings;

• the expected time periods over which unrecognized
compensation expense relating to stock options and
restricted share rights will be recognized;

• the expected timing and impact of the adoption of new

accounting standards and policies;

• how and when we intend to repurchase shares of our

common stock;

• the amount and timing of future contributions to the

Cash Balance Plan;

• the recovery of our investment in variable interest entities;
• future reclassiﬁcation to earnings of deferred net gains

on derivatives; and

• the amount of additional consideration payable in

connection with certain acquisitions.

OUR ABILITY TO GROW REVENUE AND EARNINGS WILL SUFFER IF WE
ARE UNABLE TO CROSS-SELL MORE PRODUCTS TO CUSTOMERS.
Selling more products to our customers — or “cross-selling” — is
the foundation of our business model and key to our ability to
grow revenue and earnings. Many of our competitors also focus
on cross-selling, especially in retail banking and mortgage lend-
ing. This can put pressure on us to sell our products at lower
prices, reducing our net interest income and revenue from our
fee-based products. It could also affect our ability to keep exist-
ing customers. New technologies could require us to spend more
to modify or adapt our products to attract and retain customers.
Increasing our cross-sell ratio — or the average number of prod-
ucts sold to existing customers — may become more challenging,
and we might not attain our goal of selling an average of eight
products to each customer.

AN ECONOMIC SLOWDOWN COULD REDUCE DEMAND FOR OUR PRODUCTS
AND SERVICES AND LEAD TO LOWER REVENUE AND LOWER EARNINGS.
We earn revenue from interest and fees we charge on the loans
and other products and services we sell. When the economy slows,
the demand for those products and services can fall, reducing our
interest and fee income and our earnings. An economic downturn
can also hurt the ability of our borrowers to repay their loans,
causing us to incur higher credit losses. Several factors could cause
the economy to slow down or even recede, including higher energy
costs, higher interest rates, reduced consumer or corporate spend-
ing, a slowdown in housing, natural disasters, terrorist activities,
military conﬂicts, and the normal cyclical nature of the economy.

CHANGES IN STOCK MARKET PRICES COULD REDUCE FEE INCOME FROM
OUR BROKERAGE AND ASSET MANAGEMENT BUSINESSES. We earn fee
income from managing assets for others and providing brokerage
services. Because investment management fees are often based on
the value of assets under management, a fall in the market prices
of those assets could reduce our fee income. Changes in stock
market prices could affect the trading activity of investors, reducing
commissions and other fees we earn from our brokerage business.
For more information, refer to “Risk Management – Asset/
Liability and Market Risk Management – Market Risk – Equity
Markets” in the Financial Review section of this Report.

CHANGES IN INTEREST RATES COULD REDUCE OUR NET INTEREST
INCOME AND EARNINGS. Our net interest income is the interest we
earn on loans, debt securities and other assets we hold minus the
interest we pay on our deposits, long-term and short-term debt
and other liabilities. Net interest income reﬂects both our net
interest margin — the difference between the yield we earn on
our assets and the interest rate we pay for deposits and our
other sources of funding — and the amount of earning assets
we hold. As a result, changes in either our net interest margin
or the amount of earning assets we hold could affect our net
interest income and our earnings.

Changes in interest rates — up or down — could adversely
affect our net interest margin. Although the yield we earn on
our assets and our funding costs tend to move in the same direc-
tion in response to changes in interest rates, one can rise or fall
faster than the other, causing our net interest margin to expand
or contract. Our liabilities tend to be shorter in duration than
our assets, so they may adjust faster in response to changes in
interest rates. As a result, when interest rates rise, our funding
costs may rise faster than the yield we earn on our assets, caus-
ing our net interest margin to contract until the yield catches up.
Changes in the slope of the “yield curve” — or the spread
between short-term and long-term interest rates — could also
reduce our net interest margin. Normally, the yield curve is
upward sloping, meaning short-term rates are lower than long-
term rates. Because our liabilities tend to be shorter in duration
than our assets, when the yield curve ﬂattens or even inverts, we
could experience pressure on our net interest margin as our cost
of funds increases relative to the yield we can earn on our assets.
We assess our interest rate risk by estimating the effect on

our earnings under various scenarios that differ based on
assumptions about the direction, magnitude and speed of inter-
est rate changes and the slope of the yield curve. We hedge some
of that interest rate risk with interest rate derivatives. We also
rely on the “natural hedge” that our loan originations and ser-
vicing rights can provide.

We do not hedge all of our interest rate risk. There is always
the risk that changes in interest rates could reduce our net interest
income and our earnings in material amounts, especially if actual
conditions turn out to be materially different than what we assumed.
For example, if interest rates rise or fall faster than we assumed or
the slope of the yield curve changes, we may incur signiﬁcant losses
on debt securities we hold as investments. To reduce our interest
rate risk, we may rebalance our investment and loan portfolios,
reﬁnance our debt and take other strategic actions. We may incur
losses or expenses when we take such actions.

For more information, refer to “Risk Management –
Asset/Liability and Market Risk Management – Interest Rate
Risk” in the Financial Review section of this Report.

CHANGES IN INTEREST RATES COULD ALSO REDUCE THE VALUE OF OUR
MORTGAGE SERVICING RIGHTS AND EARNINGS. We have a sizeable
portfolio of mortgage servicing rights. A mortgage servicing right
(MSR) is the right to service a mortgage loan — collect principal,
interest, escrow amounts, etc. — for a fee. We acquire MSRs
when we keep the servicing rights after we sell or securitize the
loans we have originated or when we purchase the servicing
rights to mortgage loans originated by other lenders. We also
acquire MSRs under co-issuer agreements that provide for us to
service loans that are originated and securitized by third-party
correspondents. Effective January 1, 2006, upon adoption of
FAS 156, we elected to initially measure and carry our residential
MSRs using the fair value measurement method. Fair value is the
present value of estimated future net servicing income, calculated
based on a number of variables, including assumptions about
the likelihood of prepayment by borrowers.

Changes in interest rates can affect prepayment assumptions
and thus fair value. When interest rates fall, borrowers are more
likely to prepay their mortgage loans by reﬁnancing them at a
lower rate. As the likelihood of prepayment increases, the fair
value of our MSRs can decrease. Each quarter we evaluate the
fair value of our MSRs, and any decrease in fair value reduces
earnings in the period in which the decrease occurs.

For more information, refer to “Critical Accounting Policies”

and “Risk Management – Asset/Liability and Market Risk
Management – Mortgage Banking Interest Rate Risk” in the
Financial Review section of this Report.

HIGHER CREDIT LOSSES COULD REQUIRE US TO INCREASE OUR
ALLOWANCE FOR CREDIT LOSSES THROUGH A CHARGE TO EARNINGS.
When we loan money or commit to loan money we incur credit
risk, or the risk of losses if our borrowers do not repay their
loans. We reserve for credit losses by establishing an allowance
through a charge to earnings. The amount of this allowance is
based on our assessment of credit losses inherent in our loan
portfolio (including unfunded credit commitments). The process
for determining the amount of the allowance is critical to our
ﬁnancial results and condition. It requires difﬁcult, subjective
and complex judgments about the future, including forecasts
of economic or market conditions that might impair the ability
of our borrowers to repay their loans.

We might underestimate the credit losses inherent in our
loan portfolio and have credit losses in excess of the amount
reserved. We might increase the allowance because of changing
economic conditions. For example, in a rising interest rate envi-
ronment, borrowers with adjustable rate loans could see their
payments increase. In the absence of offsetting factors such as
increased economic activity and higher wages, this could reduce
their ability to repay their loans, resulting in our increasing the
allowance. We might also increase the allowance because of
unexpected events, as we did in third quarter 2005 for
Hurricane Katrina.

The auto loan portfolio posted losses at elevated levels in the

third and fourth quarters of 2006 partially due to growth and
seasoning, but largely due to collection capacity constraints and
restrictive payment extension practices during Wells Fargo
Financial’s integration of the prime and non-prime auto loan
businesses. We continued to hire and train new collectors and
contract with external collections vendors to increase capacity.
We also adjusted account acquisition strategies to reduce new loan
volumes, particularly in higher-risk tiers. We anticipate these

actions will stabilize losses in early 2007 and lead to improved
loss rates. We monitor vintage credit performance to identify
potential adverse credit or economic trends. We saw higher
delinquency and losses in recent auto vintages, consistent with
industry-wide experience. If current trends do not improve as
expected, we could experience higher credit losses than planned.
For more information, refer to “Critical Accounting Policies
– Allowance for Credit Losses” and “Risk Management – Credit
Risk Management Process” in the Financial Review section of
this Report.

OUR MORTGAGE BANKING REVENUE CAN BE VOLATILE FROM QUARTER
TO QUARTER. We earn revenue from fees we receive for originating
mortgage loans and for servicing mortgage loans. When rates
rise, the demand for mortgage loans tends to fall, reducing the
revenue we receive from loan originations. At the same time,
revenue from our MSRs can increase through increases in fair
value. When rates fall, mortgage originations tend to increase
and the value of our MSRs tends to decline, also with some off-
setting revenue effect. Even though they can act as a “natural
hedge,” the hedge is not perfect, either in amount or timing. For
example, the negative effect on revenue from a decrease in the
fair value of residential MSRs is immediate, but any offsetting
revenue beneﬁt from more originations and the MSRs relating
to the new loans would accrue over time.

We typically use derivatives and other instruments to hedge

our mortgage banking interest rate risk. We generally do not
hedge all of our risk, and the fact that we attempt to hedge any
of the risk does not mean we will be successful. Hedging is a
complex process, requiring sophisticated models and constant
monitoring, and is not a perfect science. We may use hedging
instruments tied to U.S. Treasury rates, LIBOR or Eurodollars
that may not perfectly correlate with the value or income being
hedged. We could incur signiﬁcant losses from our hedging
activities. There may be periods where we elect not to use deriv-
atives and other instruments to hedge mortgage banking interest
rate risk.

For more information, refer to “Risk Management – Asset/
Liability and Market Risk Management – Mortgage Banking
Interest Rate Risk” in the Financial Review section of this Report.

OUR BANK CUSTOMERS COULD TAKE THEIR MONEY OUT OF THE BANK
AND PUT IT IN ALTERNATIVE INVESTMENTS, CAUSING US TO LOSE A
LOWER COST SOURCE OF FUNDING. Checking and savings account
balances and other forms of customer deposits can decrease when
customers perceive alternative investments, such as the stock
market, as providing a better risk/return tradeoff. When customers
move money out of bank deposits and into other investments,
we can lose a relatively low cost source of funds, increasing our
funding costs and reducing our net interest income.

OUR VENTURE CAPITAL BUSINESS CAN ALSO BE VOLATILE FROM QUARTER
TO QUARTER. Earnings from our venture capital investments can
be volatile and hard to predict and can have a signiﬁcant effect
on our earnings from period to period. When — and if — we
recognize gains can depend on a number of factors, including
general economic conditions, the prospects of the companies in
which we invest, when these companies go public, the size of
our position relative to the public ﬂoat, and whether we are
subject to any resale restrictions. Our venture capital invest-
ments could result in signiﬁcant losses.

We assess our private and public equity portfolio at least
quarterly for other-than-temporary impairment based on a number
of factors, including the then current market value of each

investment compared to its carrying value. Our venture capital
investments tend to be in technology, telecommunications and
other volatile industries, so the value of our public and private
equity portfolios can ﬂuctuate widely. If we determine there is
other-than-temporary impairment for an investment, we will
write-down the carrying value of the investment, resulting in a
charge to earnings. The amount of this charge could be signiﬁ-
cant, especially if under accounting rules we were required pre-
viously to write-up the value because of higher market prices.

For more information, refer to “Risk Management –

Asset/Liability and Market Risk Management – Market Risk –
Equity Markets” in the Financial Review section of this Report.

WE RELY ON DIVIDENDS FROM OUR SUBSIDIARIES FOR REVENUE, AND
FEDERAL AND STATE LAW CAN LIMIT THOSE DIVIDENDS. Wells Fargo
& Company, the parent holding company, is a separate and
distinct legal entity from its subsidiaries. It receives a signiﬁcant
portion of its revenue from dividends from its subsidiaries.
We use these dividends to pay dividends on our common and
preferred stock and interest and principal on our debt. Federal
and state laws limit the amount of dividends that our bank and
some of our nonbank subsidiaries may pay to us. Also, our 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 2006 Form 10-K and to Notes 3 (Cash, Loan and
Dividend Restrictions) and 25 (Regulatory and Agency Capital
Requirements) to Financial Statements in this Report.

CHANGES IN ACCOUNTING POLICIES OR ACCOUNTING STANDARDS,
AND CHANGES IN HOW ACCOUNTING STANDARDS ARE INTERPRETED
OR APPLIED, COULD MATERIALLY AFFECT HOW WE REPORT OUR FINANCIAL
RESULTS AND CONDITION. Our accounting policies are fundamental
to understanding our ﬁnancial results and condition. Some of
these policies require use of estimates and assumptions that may
affect the value of our assets or liabilities and ﬁnancial results.
Three of our accounting 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. For a
description of these three policies, refer to “Critical Accounting
Policies” in the Financial Review section of this Report.

From time to time the Financial Accounting Standards Board
(FASB) and the SEC change the ﬁnancial accounting and report-
ing standards that govern the preparation of our external ﬁnan-
cial statements. In addition, accounting standard setters and those
who interpret the accounting standards (such as the FASB, SEC,
banking regulators and our outside auditors) may change or even
reverse their previous interpretations or positions on how these
standards should be applied. Changes in ﬁnancial accounting and
reporting standards and changes in current interpretations may
be beyond our control, can be hard to predict and could materi-
ally impact how we report our ﬁnancial results and condition.
We could be required to apply a new or revised standard
retroactively or apply an existing standard differently, also
retroactively, in each case resulting in our restating prior period
ﬁnancial statements in material amounts.

ACQUISITIONS COULD REDUCE OUR STOCK PRICE UPON ANNOUNCEMENT
AND REDUCE OUR EARNINGS IF WE OVERPAY OR HAVE DIFFICULTY
INTEGRATING THEM. We regularly explore opportunities to acquire
companies in the ﬁnancial services industry. We cannot predict the
frequency, size or timing of our acquisitions, and we typically do
not comment publicly on a possible acquisition until we have signed
a deﬁnitive agreement. When we do announce an acquisition,
our stock price may fall depending on the size of the acquisition
and the purchase price. It is also possible that an acquisition
could dilute earnings per share.

We generally must receive federal regulatory approval before

we can acquire a bank or bank holding company. In deciding
whether to approve a proposed bank acquisition, federal bank
regulators will consider, among other factors, the effect of the
acquisition on competition, ﬁnancial condition, and future
prospects including current and projected capital ratios and
levels, the competence, experience, and integrity of management
and record of compliance with laws and regulations, the conve-
nience and needs of the communities to be served, including
the acquiring institution’s record of compliance under the
Community Reinvestment Act, and the effectiveness of the
acquiring institution in combating money laundering. Also, 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, branches and/or business units 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 other projected beneﬁts
from the acquisition. The integration could result in higher than
expected deposit attrition (run-off), loss of key employees, dis-
ruption of our business or the business of the acquired company,
or otherwise harm our ability to retain customers and employees
or achieve the anticipated beneﬁts of the acquisition. Time and
resources spent on integration may also impair our ability to
grow our existing businesses. Also, the negative effect of any
divestitures required by regulatory authorities in acquisitions
or business combinations may be greater than expected.

FEDERAL AND STATE REGULATIONS CAN RESTRICT OUR BUSINESS, AND
NON-COMPLIANCE COULD RESULT IN PENALTIES, LITIGATION AND DAMAGE
TO OUR REPUTATION. Our parent company, our subsidiary banks
and many of our nonbank subsidiaries are heavily regulated
at the federal and/or state levels. This regulation is to protect
depositors, federal deposit insurance funds, consumers and the
banking system as a whole, not our stockholders. Federal and
state regulations can signiﬁcantly restrict our businesses, and we
could be ﬁned or otherwise penalized if we are found to be out
of compliance.

Recent high-proﬁle corporate scandals and other events have
resulted in additional regulations. For example, Sarbanes-Oxley
limits the types of non-audit services our outside auditors may
provide to us in order to preserve the independence of our auditors
from us. If our auditors were found not to be “independent” of us
under SEC rules, we could be required to engage new auditors
and ﬁle new ﬁnancial statements and audit reports with the SEC.

We could be out of compliance with SEC rules until new ﬁnancial
statements and audit reports were ﬁled, limiting our ability to
raise capital and resulting in other adverse consequences.

Sarbanes-Oxley also requires our management to evaluate
the Company’s disclosure controls and procedures and its inter-
nal control over ﬁnancial reporting and requires our auditors to
issue a report on our internal control over ﬁnancial reporting.
We are required to disclose, in our annual report on Form 10-K
ﬁled with the SEC, the existence of any “material weaknesses”
in our internal control. We cannot assure that we will not ﬁnd
one or more material weaknesses as of the end of any given year,
nor can we predict the effect on our stock price of disclosure of
a material weakness.

The Patriot Act, which was enacted in the wake of the

September 2001 terrorist attacks, requires us to implement new
or revised policies and procedures relating to anti-money laun-
dering, compliance, suspicious activities, and currency transac-
tion reporting and due diligence on customers. The Patriot Act
also requires federal bank regulators to evaluate the effectiveness
of an applicant in combating money laundering in determining
whether to approve a proposed bank acquisition.

A number of states have recently challenged the position of
the OCC as the sole regulator of national banks and their sub-
sidiaries. If these challenges are successful or if Congress acts to
give greater effect to state regulation, the impact on us could be
signiﬁcant, not only because of the potential additional restric-
tions on our businesses but also from having to comply with
potentially 50 different sets of regulations.

From time to time Congress considers legislation that could

signiﬁcantly change our regulatory environment, potentially
increasing our cost of doing business, limiting the activities we
may pursue or affecting the competitive balance among banks,
savings associations, credit unions, and other ﬁnancial institu-
tions. As an example, our business model depends on sharing
information among the family of Wells Fargo businesses to bet-
ter satisfy our customers’ needs. Laws that restrict the ability of
our companies to share information about customers could limit
our ability to cross-sell products and services, reducing our rev-
enue and earnings.

For more information, refer to “Regulation and Supervision”

in our 2006 Form 10-K and to “Report of Independent
Registered Public Accounting Firm” in this Report.

WE MAY INCUR FINES, PENALTIES AND OTHER NEGATIVE CONSEQUENCES
FROM REGULATORY VIOLATIONS, POSSIBLY EVEN INADVERTENT OR
UNINTENTIONAL VIOLATIONS. We maintain systems and procedures
designed to ensure that we comply with applicable laws and
regulations. However, some legal/regulatory frameworks provide
for the imposition of ﬁnes or penalties for noncompliance even
though the noncompliance was inadvertent or unintentional and
even though there was in place at the time systems and proce-
dures designed to ensure compliance. For example, we are sub-
ject to regulations issued by the Ofﬁce of Foreign Assets Control
(OFAC) that prohibit ﬁnancial institutions from participating in
the transfer of property belonging to the governments of certain
foreign countries and designated nationals of those countries.

OFAC may impose penalties for inadvertent or unintentional
violations even if reasonable processes are in place to prevent
the violations. Therefore, the establishment and maintenance of
systems and procedures reasonably designed to ensure compli-
ance cannot guarantee that we will be able to avoid a ﬁne or
penalty for noncompliance. For example, in April 2003 and
January 2005 OFAC reported settlements with Wells Fargo
Bank, N.A. in amounts of $5,500 and $42,833, respectively.
These settlements related to transactions involving inadvertent
acts or human error alleged to have violated OFAC regulations.
There may be other negative consequences resulting from a ﬁnd-
ing of noncompliance, including restrictions on certain activities.
Such a ﬁnding may also damage our reputation (see below) and
could restrict the ability of institutional investment managers to
invest in our securities.

NEGATIVE PUBLICITY COULD DAMAGE OUR REPUTATION. Reputation
risk, or the risk to our earnings and capital from negative public
opinion, is inherent in our business. Negative public opinion
could adversely affect our ability to keep and attract customers
and expose us to adverse legal and regulatory consequences.
Negative public opinion could result from our actual or alleged
conduct in any number of activities, including lending practices,
corporate governance, regulatory compliance, mergers and
acquisitions, and disclosure, sharing or inadequate protection
of customer information, and from actions taken by government
regulators and community organizations in response to that
conduct. Because we conduct most of our businesses under the
“Wells Fargo” brand, negative public opinion about one
business could affect our other businesses.

WE DEPEND ON THE ACCURACY AND COMPLETENESS OF INFORMATION
ABOUT CUSTOMERS AND COUNTERPARTIES. In deciding whether to
extend credit or enter into other transactions, we rely on the
accuracy and completeness of information about our customers,
including ﬁnancial statements and other ﬁnancial information and
reports of independent auditors. For example, in deciding whether
to extend credit, we may assume that a customer’s audited ﬁnan-
cial statements conform with U.S. generally accepted accounting
principles (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. If that information is incorrect or incom-
plete, we may incur credit losses or other charges to earnings.

WE RELY ON OTHERS TO HELP US WITH OUR OPERATIONS. We rely
on outside vendors to provide key components of our business
operations such as internet connections and network access.
Disruptions in communication services provided by a vendor or
any failure of a vendor to handle current or higher volumes of
use could hurt our ability to deliver products and services to our
customers and otherwise to conduct our business. Financial or
operational difﬁculties of an outside vendor could also hurt our
operations if those difﬁculties interfere with the vendor’s ability
to serve us.

FEDERAL RESERVE BOARD POLICIES CAN SIGNIFICANTLY IMPACT
BUSINESS AND ECONOMIC CONDITIONS AND OUR FINANCIAL RESULTS
AND CONDITION. The Federal Reserve Board (FRB) regulates
the supply of money and credit in the United States. Its policies
determine in large part our cost of funds for lending and invest-
ing and the return we earn on those loans and investments, both
of which affect our net interest margin. They also can materially
affect the value of ﬁnancial instruments we hold, such as debt
securities and MSRs. Its policies also can affect our borrowers,
potentially increasing the risk that they may fail to repay their
loans. Changes in FRB policies are beyond our control and can
be hard to predict.

OUR STOCK PRICE CAN BE VOLATILE DUE TO OTHER FACTORS.
Our stock price can ﬂuctuate widely in response to a variety
of factors, in addition to those described above, including:

• general business and economic conditions;
• recommendations by securities analysts;
• new technology used, or services offered, by our competitors;
• 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;
• natural disasters, such as Hurricane Katrina; and
• geopolitical conditions, such as acts or threats of terrorism

or military conﬂicts.

Controls and Procedures

Disclosure Controls and Procedures

As required by SEC rules, the Company’s management evaluated the effectiveness, as of December 31, 2006, 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 chief ﬁnancial
ofﬁcer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2006.

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 GAAP and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reﬂect the transactions

and dispositions of assets of the company;

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

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or

disposition of the 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 2006 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, 2006, 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, 2006, 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, 2006, 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 misstatements.
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 the Company maintained effective internal control over ﬁnancial
reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal
Control – Integrated Framework issued by COSO. Also in our opinion, the Company maintained, in all material
respects, effective internal control over ﬁnancial reporting as of December 31, 2006, based on criteria established
in Internal Control – Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet of the Company as of December 31, 2006 and 2005, and the related
consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash ﬂows for
each of the years in the three-year period ended December 31, 2006, and our report dated February 20, 2007,
expressed an unqualiﬁed opinion on those consolidated ﬁnancial statements.

San Francisco, California
February 20, 2007

Financial Statements

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

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 losses on debt securities available for sale
Net gains 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
Income tax expense

NET INCOME

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.

2006

225
3,278
2,746
47
25,611
332
32,239

7,174
992
4,122
12,288

19,951
2,204
17,747

2,690
2,737
1,747
2,057
2,311
783
1,340
(19)
738
1,356
15,740

7,007
2,885
2,035
1,252
1,405
630
5,528
20,742

12,745
4,263

$ 8,482

2.52

2.49

1.08

3,368.3

3,410.1

Year ended December 31,
2004

2005

$ 190
1,921
2,213
146
21,260
232
25,962

3,848
744
2,866
7,458

18,504
2,383
16,121

2,512
2,436
1,458
1,929
2,422
812
1,215
(120)
511
1,270
14,445

6,215
2,366
1,874
1,267
1,412
635
5,249
19,018

11,548
3,877

$ 7,671

2.27

2.25

1.00

3,372.5

3,410.9

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

2.07

2.05

0.93

3,384.4

3,426.7

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:

Measured at fair value (residential MSRs beginning 2006)
Amortized

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 3,472,762,050 shares

Additional paid-in capital
Retained earnings
Cumulative other comprehensive income
Treasury stock – 95,612,189 shares and 117,595,986 shares
Unearned ESOP shares

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these statements.

December 31,
2005

2006

$ 15,028

$ 15,397

6,078
5,607
42,629
33,097
721

319,116
(3,764)

315,352

17,591
377
4,698
11,275
29,543

$481,996

$ 89,119
221,124

310,243
12,829
25,903
87,145

436,120

5,306
10,905
41,834
40,534
612

310,837
(3,871)

306,966

—
12,511
4,417
10,787
32,472

$481,741

$ 87,712
226,738

314,450
23,892
23,071
79,668

441,081

384

325

5,788
7,739
35,277
302
(3,203)
(411)

45,876

$481,996

5,788
7,040
30,580
665
(3,390)
(348)

40,660

$481,741

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

(in millions, except shares)

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 interests held
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)

Tax beneﬁt upon exercise of stock options
Other, net
Net change

BALANCE DECEMBER 31, 2004
Comprehensive income:
Net income – 2005
Other comprehensive income, net of tax:

Translation adjustments
Net unrealized losses on securities available

for sale and other interests held
Net unrealized gains on derivatives and

hedging activities

Total comprehensive income
Common stock issued
Common stock issued for acquisitions
Common stock repurchased
Preferred stock (363,000) issued to ESOP
Preferred stock released to ESOP
Preferred stock (307,100) converted

to common shares
Common stock dividends
Tax beneﬁt upon exercise of stock options
Other, net
Net change

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

3,396,218,748

$ 214

$ 5,788

$ 6,749

$ 22,842

$ 938

$ (1,833)

$ (229)

$ 34,469

(22)

7,014

(206)

(3,150)

(46)
1

23
(19)

(344)
284

1,523
8
(2,188)

236

______
—

175
______
163

(18)
3,640

_____
12

_______
(414)

_____
(60)

7,014

(22)

22
7,026
1,271
9
(2,188)
—
265

—
(3,150)

7
175
(18)
3,397

5,788

6,912

26,482

950

(2,247)

(289)

37,866

59,939,306
306,964
(76,345,112)

321

9,063,368

(265)

_____________
(7,035,474)

3,389,183,274

_____
56

270

57,528,986
3,909,004
(105,597,728)

362

10,142,528

(307)

______________
(34,017,210)

_____
55

_______
—

(52)
12

25
(21)

143
_______
128

7,671

(198)

(3,375)

_________
4,098

30,580
101

(298)

1,617
110
(3,159)

286

(387)
328

______
(285)

3
(1,143)

_____
(59)

665

(3,390)

(348)

7,671

(298)

8
7,386
1,367
122
(3,159)
—
307

—
(3,375)
143
3
2,794

40,660
101

BALANCE DECEMBER 31, 2005
Cumulative effect from adoption of FAS 156

3,355,166,064

325

5,788

7,040

BALANCE JANUARY 1, 2006
Comprehensive income:

Net income – 2006
Other comprehensive income, net of tax:

Net unrealized losses on securities available

for sale and other interests held
Net unrealized gains on derivatives and

hedging activities
Total comprehensive income
Common stock issued
Common stock repurchased
Preferred stock (414,000) issued to ESOP
Preferred stock released to ESOP
Preferred stock (355,659) converted

to common shares
Common stock dividends
Tax beneﬁt upon exercise of stock options
Stock option compensation expense
Net change in deferred compensation and

related plans

Reclassiﬁcation of share-based plans
Adoption of FAS 158

3,355,166,064

325

5,788

7,040

30,681

665

(3,390)

(348)

40,761

8,482

(245)

(3,641)

(31)

2,076
(1,965)

314

(443)
380

_______

(402)

(27)
(211)
_______

_____

8,482

(31)

70
8,521
1,764
(1,965)
—
355

—
(3,641)
229
134

23
97
(402)

(67)

29
(25)

229
134

50
308
______

70,063,930
(58,534,072)

414

10,453,939

(355)

_____________

_____

______

Net change

21,983,797

—

699

4,596

(363)

187

(63)

5,115

BALANCE DECEMBER 31, 2006

3,377,149,861

$ 384

$5,788

$7,739

$35,277

$ 302

$(3,203)

$(411)

$45,876

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
Reversal of provision for MSRs in excess of fair value
Change in fair value of residential MSRs
Depreciation and amortization
Net gains on securities available for sale
Net gains on mortgage loan origination/sales activities
Other net losses (gains)
Preferred shares released to ESOP
Stock option compensation expense
Excess tax beneﬁts related to stock option payments
Net decrease (increase) in trading assets
Net increase in deferred income taxes
Net increase in accrued interest receivable
Net increase in accrued interest payable
Originations of mortgages held for sale
Proceeds from sales of mortgages originated for sale
Principal collected on mortgages originated for sale
Net decrease (increase) in loans originated for sale
Other assets, net
Other accrued expenses and liabilities, net

Net cash provided (used) by operating activities

Cash ﬂows from investing activities:
Securities available for sale:

Sales proceeds
Prepayments and maturities
Purchases

Net cash acquired from (paid for) acquisitions
Increase in banking subsidiaries’ loan originations, net of collections
Proceeds from sales (including participations) of loans by banking subsidiaries
Purchases (including participations) of loans by banking subsidiaries
Principal collected on nonbank entities’ loans
Loans originated by nonbank entities
Proceeds from sales of foreclosed assets
Net increase in federal funds sold, securities purchased

under resale agreements and other short-term investments

Other changes in MSRs
Other, net

Net cash used by investing activities

Cash ﬂows from ﬁnancing activities:
Net increase (decrease) in deposits
Net increase (decrease) in short-term borrowings
Proceeds from issuance of long-term debt
Long-term debt repayment
Proceeds from issuance of common stock
Common stock repurchased
Cash dividends paid on common stock
Excess tax beneﬁts related to stock option payments
Other, net

Net cash provided (used) by ﬁnancing activities

Net change in cash and due from banks

Cash and due from banks at beginning of year

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 held for sale to loans
Transfers from loans to foreclosed assets
Transfers from mortgages held for sale to securities available for sale

The accompanying notes are an integral part of these statements.

2006

Year ended December 31,

2005

2004

$ 8,482

7,671

7,014

2,204
—
2,453
3,221
(326)
(1,116)
(259)
355
134
(227)
5,271
593
(291)
455
(237,841)
240,517
2,401
(109)
3,570
2,607

2,383
(378)
—
4,161
(40)
(1,085)
(75)
307
—
—
(1,905)
813
(796)
311
(230,897)
214,740
1,426
683
(10,237)
3,585

1,717
(208)
—
3,449
(60)
(539)
9
265
—
—
(81)
432
(196)
47
(221,978)
217,272
1,409
(1,331)
(2,468)
1,732

32,094

(9,333)

6,485

53,304
7,321
(62,462)
(626)
(37,730)
38,343
(5,338)
23,921
(26,974)
593

19,059
6,972
(28,634)
66
(42,309)
42,239
(8,853)
22,822
(33,675)
444

6,322
8,823
(16,583)
(331)
(33,800)
14,540
(5,877)
17,996
(27,751)
419

(717)
(7,657)
(2,678)

(281)
(4,595)
(3,324)

(1,287)
(1,389)
(516)

(20,700)

(30,069)

(39,434)

(4,452)
(11,156)
20,255
(12,609)
1,764
(1,965)
(3,641)
227
(186)

38,961
1,878
26,473
(18,576)
1,367
(3,159)
(3,375)
—
(1,673)

(11,763)

41,896

(369)

15,397

$ 15,028

$ 11,833
3,084

$ 32,383
—
1,918
—

2,494

12,903

$ 15,397

7,769
3,584

$ 41,270
7,444
567
5,490

27,327
(2,697)
29,394
(19,639)
1,271
(2,188)
(3,150)
—
(13)

30,305

(2,644)

15,547

$ 12,903

3,864
2,326

$ 11,225
—
603
—

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, when we refer to
“the Company,” “we,” “our” or “us” we mean Wells Fargo
& Company and Subsidiaries (consolidated). Wells Fargo &
Company (the Parent) is a ﬁnancial holding company and a
bank holding company.

Our accounting and reporting policies conform with
U.S. 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 residential mortgage servicing rights (Notes 20 and
21) and pension accounting (Note 15). Actual results could
differ from those estimates.

In the Financial Statements and related Notes, all common

share and per share disclosures reﬂect the two-for-one stock
split in the form of a 100% stock dividend distributed
August 11, 2006.

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 vari-
able interest entities (VIEs) (deﬁned below) in which we are
the primary beneﬁciary. Signiﬁcant intercompany accounts
and transactions are eliminated in consolidation. If we own
at least 20% of an entity, we generally account for the
investment using the equity method. If we own less than
20% of an entity, we generally carry the investment at cost,
except marketable equity securities, which we carry at fair
value with changes in fair value included in other compre-
hensive income. Assets accounted for under the equity or
cost method are included in other assets.

We are a variable interest holder in certain special-
purpose entities in which we do not have a controlling
ﬁnancial interest or do not have enough equity at risk for the
entity to ﬁnance its activities without additional subordinated
ﬁnancial support from other parties. Our variable interest
arises from contractual, ownership or other monetary interests
in the entity, which change with ﬂuctuations in the entity’s
net asset value. 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. Noninterest
income from trading assets was $544 million, $571 million
and $523 million in 2006, 2005 and 2004, respectively.

Securities
SECURITIES AVAILABLE FOR SALE Debt securities that we might
not hold until maturity and marketable equity securities are
classiﬁed as securities available for sale and reported at esti-
mated 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 credit 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. We conduct other-than-temporary
impairment analysis on a quarterly basis. The initial indica-
tor of other-than-temporary impairment for both debt and
equity securities is a decline in market value below the
amount recorded for an investment, and the severity and
duration of the decline. In determining whether an impair-
ment is other than temporary, we consider the length of time
and the extent to which market value has been less than
cost, any recent events speciﬁc to the issuer and economic
conditions of its industry, and our ability and intent to hold
the investment for a period of time sufﬁcient to allow for
any anticipated recovery.

For marketable equity securities, we also consider the
issuer’s ﬁnancial condition, capital strength, and near-term
prospects.

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

rates and industry and issuer-speciﬁc factors;

• the issuer’s ﬁnancial condition, near term prospects
and current ability to make future payments in a
timely manner;

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

acquisition date and any likely imminent action.

The securities portfolio is an integral part of our asset/
liability management process. We manage these investments
to provide liquidity, manage interest rate risk and maximize

portfolio yield within capital risk limits approved by
management and the Board of Directors 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 identiﬁcation 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 invest-
ment, 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 include residential mortgages that
were originated in accordance with secondary market pricing
and underwriting standards and certain mortgages originated
initially for investment and not underwritten to secondary
market standards, and are stated at the lower of cost or market
value. Gains and losses on loan sales (sales proceeds minus
carrying value) are recorded in noninterest income. Direct
loan origination costs and fees are deferred at origination
of the loan. These deferred costs and fees are recognized in
mortgage banking noninterest income upon sale of the loan.

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

Loans
Loans are reported at their outstanding principal balances
net of any unearned income, charge-offs, unamortized
deferred fees and costs on originated loans and premiums or
discounts on purchased loans, except for certain purchased
loans, which are recorded at fair value on their purchase date.
Unearned income, deferred fees and costs, and discounts and
premiums are amortized to income over the contractual life
of the loan using the interest method.

Lease ﬁnancing assets include aggregate lease rentals, net
of related unearned income, which includes deferred investment
tax credits, and related nonrecourse debt. Leasing income
is recognized as a constant percentage of outstanding lease
ﬁnancing balances over the lease terms.

Loan commitment fees are generally deferred and amor-
tized into noninterest income on a straight-line basis over the
commitment period.

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 when:

• the full and timely collection of interest or principal

becomes uncertain;

Generally, consumer loans not secured by real estate or
autos are placed on nonaccrual status only when part of the
principal has been charged off. These loans are charged off
or charged down to the net realizable value of the collateral
when deemed uncollectible, due to bankruptcy or other fac-
tors, or when they reach a deﬁned number of days past due
based on loan product, industry practice, country, terms and
other factors.

When we place a loan on nonaccrual status, we reverse
the accrued and unpaid interest receivable against interest
income and account for the loan on the cash or cost recovery
method, until it qualiﬁes for return to accrual status. Generally,
we return a loan to accrual status when (a) all delinquent
interest and principal becomes current under the terms of the
loan agreement or (b) the loan is both well-secured and in the
process of collection and collectibility is no longer doubtful.

IMPAIRED LOANS We assess, account for and disclose as impaired
certain nonaccrual commercial and commercial real estate
loans that are over $3 million. We consider a loan to be
impaired when, based on current information and events, we
will probably not be able to collect all amounts due according
to the loan contract, including scheduled interest payments.
When we identify a loan as impaired, we measure the
impairment based on the present value of expected future
cash ﬂows, discounted at the loan’s effective interest rate,
except when the sole (remaining) source of repayment for
the loan is the operation or liquidation of the collateral. In
these cases we use an observable market price or the current
fair value of the collateral, less selling costs when foreclosure
is probable, instead of discounted cash ﬂows.

If we determine that the value of the impaired loan is less
than the recorded investment in the loan (net of previous
charge-offs, deferred loan fees or costs and unamortized
premium or discount), we recognize impairment through an
allowance estimate or a charge-off to the allowance.

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

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. Effective
January 1, 2006, upon adoption of Statement of Financial
Accounting Standards No. 156, Accounting for Servicing of
Financial Assets – an amendment of FASB Statement No. 140
(FAS 156), servicing rights resulting from the sale or securiti-
zation of loans we originate (asset transfers), are initially
measured at fair value at the date of transfer. We recognize
the rights to service mortgage loans for others, or mortgage
servicing rights (MSRs), as assets whether we purchase the
MSRs or the MSRs result from an asset transfer. We also
acquire MSRs under co-issuer agreements that provide for us
to service loans that are originated and securitized by third-
party correspondents. We determine the fair value of servic-
ing rights at the date of transfer using the present value of
estimated future net servicing income, using assumptions
that market participants use in their estimates of values. We
use quoted market prices when available to determine the
value of other interests held. Gain or loss on sale of loans
depends on (a) proceeds received and (b) the previous carry-
ing amount of the ﬁnancial assets transferred and any inter-
ests we continue to hold (such as interest-only strips) based
on relative fair value at the date of transfer.

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.
This model is validated by an independent internal model
validation group operating in accordance with a model vali-
dation policy approved by the Corporate Asset/Liability
Management Committee.

MORTGAGE SERVICING RIGHTS MEASURED AT FAIR VALUE
Effective January 1, 2006, upon adoption of FAS 156, we
elected to initially measure and carry our MSRs related to
residential mortgage loans (residential MSRs) using the fair
value method. Under the fair value method, residential MSRs
are carried in the balance sheet at fair value and the changes
in fair value, primarily due to changes in valuation inputs
and assumptions and to the collection/realization of expected
cash ﬂows, are reported in earnings in the period in which
the change occurs.

Effective January 1, 2006, upon the remeasurement of
our residential MSRs at fair value, we recorded a cumulative
effect adjustment to increase the 2006 beginning balance of
retained earnings by $101 million after tax ($158 million
pre tax) in stockholders’ equity.

AMORTIZED MORTGAGE SERVICING RIGHTS
Amortized MSRs, which include commercial MSRs and,
prior to January 1, 2006, residential MSRs, are carried at
the lower of cost or market. These 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, as well
as other factors.

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 accu-
mulated amortization.

We primarily 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.

We assess goodwill for impairment 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 impair-
ment losses as a charge to noninterest expense (unless related
to discontinued operations) and an adjustment to the carry-
ing value of the goodwill asset. Subsequent reversals of
goodwill impairment are prohibited.

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 per-
manently recognized by writing down the asset to the extent
that the carrying value exceeds the estimated fair value.

Operating Lease Assets
Operating lease rental income for leased assets, generally
autos, 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 recoverable. 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. Leased
assets are written down to the fair value of the collateral less
cost to sell when 120 days past due.

Income Taxes
We ﬁle a consolidated federal income tax return and, in
certain states, combined state tax returns.

FAS 158 was issued on September 29, 2006, and became
effective for us on December 31, 2006. FAS 158 requires us to
recognize the funded status of our pension and postretirement
benefit plans on our balance sheet. Additionally, FAS 158
requires us to use a year-end measurement date beginning
in 2008. We conformed our pension asset and our pension
and postretirement liabilities to FAS 158 and recorded a
corresponding reduction of $402 million (after tax) to the
December 31, 2006, balance of cumulative other comprehensive
income in stockholders’ equity. The adoption of FAS 158
did not change the amount of net periodic beneﬁt expense
recognized in our income statement.

One of the principal components of the net periodic
pension expense calculation is the expected long-term rate
of return on plan assets. The use of an expected long-term
rate of return on plan assets may cause us to recognize
pension income returns that are greater or less than the
actual returns of plan assets in any given year.

The expected long-term rate of return is designed to
approximate the actual long-term rate of return over time
and is not expected to change signiﬁcantly. Therefore, the
pattern of income/expense recognition should closely match
the stable pattern of services provided by our employees over
the life of our pension obligation. To determine if the expected
rate of return is reasonable, we consider such factors as
(1) the actual return earned on plan assets, (2) historical rates
of return on the various asset classes in the plan portfolio,
(3) projections of returns on various asset classes, and
(4) current/prospective capital market conditions and economic
forecasts. Differences in each year, if any, between expected
and actual returns are included in our net actuarial gain or loss
amount, which is recognized in other comprehensive income.
We generally amortize any net actuarial gain or loss in excess
of a 5% corridor (as defined in FAS 87) in net periodic
pension expense calculations over the next ﬁve years.

We use a discount rate to determine the present value of
our future beneﬁt obligations. The discount rate reﬂects the
rates available at the measurement date on long-term high-
quality ﬁxed-income debt instruments and is reset annually
on the measurement date (November 30).

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 more fully discussed in Note 14. Prior to January 1,
2006, we accounted for stock options and stock awards under
the recognition and measurement provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and related interpretations, as permitted
by FAS 123, Accounting for Stock-Based Compensation. Under
this guidance, no stock option expense was recognized in our
income statement for periods prior to January 1, 2006, as all
options granted under our plans had an exercise price equal
to the market value of the underlying common stock on the
date of grant. Effective January 1, 2006, we adopted FAS
123(R), Share-Based Payment, using the modiﬁed-prospective
transition method. Accordingly, compensation cost recognized
in 2006 includes (1) compensation cost for all share-based
payments granted prior to, but not yet vested as of January 1,
2006, based on the grant date fair value estimated in accordance
with FAS 123, and (2) compensation cost for all share-based
awards granted on or after January 1, 2006. Results for prior
periods have not been restated. In calculating the common
stock equivalents for purposes of diluted earnings per share,
we selected the transition method provided by Financial
Accounting Standards Board (FASB) Staff Position FAS 123(R)-3,
Transition Election Related to Accounting for the Tax Effects
of Share-Based Payment Awards.

As a result of adopting FAS 123(R) on January 1, 2006,

our income before income taxes of $12.7 billion and net
income of $8.5 billion for 2006 was $134 million and $84
million lower, respectively, than if we had continued to
account for share-based compensation under APB 25. Basic
and diluted earnings per share for 2006 of $2.52 and $2.49,
respectively, were both $0.025 per share lower than if we
had not adopted FAS 123(R).

Prior to the adoption of FAS 123(R), we presented all
tax beneﬁts of deductions resulting from the exercise of stock
options as operating cash ﬂows in the statement of cash ﬂows.
FAS 123(R) requires the cash ﬂows from the tax beneﬁts
resulting from tax deductions in excess of the compensation
cost recognized for those options (excess tax beneﬁts) to be
classiﬁed as ﬁnancing cash ﬂows. The $227 million excess
tax beneﬁt for 2006 classiﬁed as a ﬁnancing cash inﬂow

would have been classiﬁed as an operating cash inﬂow if
we had not adopted FAS 123(R).

Pro forma net income and earnings per common share

information are provided in the following table as if we
accounted for employee stock option plans under the fair
value method of FAS 123 in 2005 and 2004.

(in millions, except per
share amounts)

Net income, as reported

Year ended December 31,
2004

2005

$7,671

$7,014

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

(188)

$7,484

(275)

$6,741

$ 2.27
2.22

$ 2.25
2.19

$ 2.07
1.99

$ 2.05
1.97

Stock options granted in each of our February 2005
and February 2004 annual grants, under our Long-Term
Incentive Compensation Plan (the Plan), fully vested upon
grant, resulting in full recognition of stock-based compensation
expense for both grants in the year of the grant under the
fair value method in the table above. Stock options granted
in our 2003 and 2002 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 in 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, including hedges of foreign
currency exposure, (“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
accommodation or asset/liability risk management purposes,

including economic hedges not qualifying under FAS 133,
Accounting for Derivative Instruments and Hedging Activities
(“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 earnings 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.

For fair value and cash ﬂow hedges qualifying under FAS

133, we formally document at inception the relationship
between hedging instruments and hedged items, our risk
management objective, strategy and our evaluation of effec-
tiveness for our hedge transactions. This includes linking all
derivatives designated as fair value or cash ﬂow hedges to
speciﬁc assets and liabilities in the balance sheet or to speciﬁc
forecasted transactions. Periodically, as required, we also
formally assess whether the derivative we designated in each
hedging relationship is expected to be and has been highly
effective in offsetting changes in fair values or cash ﬂows of
the hedged item using the regression analysis method or, in
some cases, the dollar offset method.

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 in 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 cash ﬂow hedge accounting because

the hedging 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.

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

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

We occasionally purchase or originate financial instru-
ments that contain an embedded derivative. At inception
of the financial instrument, we assess (1) if the economic
characteristics of the embedded derivative are not 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 not measured at fair value with changes in fair
value reported in earnings, and (3) if a separate instrument
with the same terms as the embedded instrument would meet
the deﬁnition of a derivative. If the embedded derivative
meets all of these conditions, we separate it from the host
contract and carry it as a free-standing derivative at fair
value with changes recorded in current period earnings.

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, consisting of

$24 billion in mutual fund assets and $5 billion in institutional
investment accounts, from Strong Financial Corporation.
Other business combinations completed in 2006, 2005 and
2004 are presented below.

For information on additional consideration related to
acquisitions, which is considered to be a guarantee, see Note 24.

(in millions)

Date

Assets

2006
Secured Capital Corp/Secured Capital LLC, Los Angeles, California
Martinius Corporation, Rogers, Minnesota
Commerce Funding Corporation, Vienna, Virginia
Fremont National Bank of Canon City/Centennial Bank of Pueblo,

Canon City and Pueblo, Colorado

Certain assets of the Reilly Mortgage Companies, McLean, Virginia
Barrington Associates, Los Angeles, California
EFC Partners LP (Evergreen Funding), Dallas, Texas
Other (1)

2005
Certain branches of PlainsCapital Bank, Amarillo, Texas
First Community Capital Corporation, Houston, Texas
Other (2)

2004
Other (3)

(1) Consists of seven acquisitions of insurance brokerage businesses.
(2) Consists of eight acquisitions of insurance brokerage and lockbox processing businesses.
(3) Consists of 13 acquisitions of insurance brokerage and payroll services businesses.

January 18
March 1
April 17

June 7
August 1
October 2
December 15
Various

July 22
July 31
Various

Various

$132
91
82

201
303
65
93
20
$987

$190
644
40
$ 874

$ 74

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 $1.7 billion in 2006 and $1.4 billion in 2005.
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 afﬁliate
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 25.)
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 provi-
sions, our national and state-chartered subsidiary banks
could have declared additional dividends of $4,762 million
at December 31, 2006, without obtaining prior regulatory
approval. Our nonbank subsidiaries are also limited by
certain federal and state statutory provisions and regulations
covering the amount of dividends that may be paid in any
given year. Based on retained earnings at December 31, 2006,
our nonbank subsidiaries could have declared additional
dividends of $3,201 million at December 31, 2006, without
obtaining prior approval.

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,
2005

2006

$5,024

413

641

$6,078

$3,789

847

670

$5,306

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 as of the periods presented.

(in millions)

Securities of U.S. Treasury and federal agencies
Securities of U.S. states and political subdivisions
Mortgage-backed securities:

Federal agencies
Private collateralized

mortgage obligations (1)
Total mortgage-backed securities

Other

Total debt securities

Marketable equity securities

Total (2)

Cost

774
3,387

26,981

3,989
30,970
5,980
41,111
592

$41,703

December 31,
2005
Fair
value

2006
Fair
value

Cost

Unrealized
gross
gains

Unrealized
gross
losses

Unrealized Unrealized
gross
losses

gross
gains

2
148

497

63
560
67
777
210

$987

$ (8)
(5)

768
3,530

$ 845
3,048

$ 4
149

$ (10)
(6)

839
3,191

(15)

27,463

25,304

336

(24)

25,616

(6)
(21)
(21)
(55)
(6)

$(61)

4,046
31,509
6,026
41,833
796

6,628
31,932
4,518
40,343
558

$42,629

$40,901

128
464
75
692
349

$1,041

(6)
(30)
(55)
(101)
(7)

6,750
32,366
4,538
40,934
900

$(108)

$41,834

(1) Substantially all of the private collateralized mortgage obligations are AAA-rated bonds collateralized by 1-4 family residential ﬁrst mortgages.
(2) At December 31, 2006, we held no securities of any single issuer (excluding the U.S.Treasury and federal agencies) with a book value that exceeded 10% of stockholders' equity.

The following table shows the unrealized gross losses
and fair value of securities in the securities available for sale
portfolio at December 31, 2006 and 2005, by length of time

that individual securities in each category had been in a
continuous loss position.

(in millions)

Less than 12 months
Fair
value

Unrealized
gross
losses

12 months or more
Fair
value

Unrealized
gross
losses

December 31, 2006

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

December 31, 2005

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

$ (1)
(4)

(10)

(5)
(15)
(6)
(26)
(6)

$(32)

$ (6)
(3)

(22)

(6)
(28)
(38)
(75)
(7)

$ (82)

$ 164
203

342

67
409
365
1,141
75

$1,216

$ 341
204

2,213

1,494
3,707
890
5,142
185

$ 5,327

$ (7)
(1)

(5)

(1)
(6)
(15)
(29)
—

$(29)

$ (4)
(3)

(2)

—
(2)
(17)
(26)
—

$(26)

$ 316
90

213

68
281
558
1,245
—

$1,245

$ 142
57

—
89
338
626
—

$ 626

Total
Fair
value

$ 480
293

555

135
690
923
2,386
75

$2,461

$ (8)
(5)

(15)

(6)
(21)
(21)
(55)
(6)

$ (61)

$ (10)
(6)

$ 483
261

(24)

2,302

(6)
(30)
(55)
(101)
(7)

$(108)

1,494
3,796
1,228
5,768
185

$ 5,953

The decline in fair value for the debt securities that had
been in a continuous loss position for 12 months or more at
December 31, 2006, was largely due to changes in market
interest rates and not due to the credit quality of the securities.
We believe that the principal and interest on these securities
are fully collectible and we have the intent and ability to
retain our investment for a period of time to allow for any
anticipated recovery in market value. We have reviewed
these securities in accordance with our policy and do not
consider them to be other-than-temporarily impaired.

Securities pledged where the secured party has the right to
sell or repledge totaled $5.3 billion at both December 31, 2006
and 2005. Securities pledged where the secured party does
not have the right to sell or repledge totaled $29.3 billion
at December 31, 2006, and $24.3 billion at December 31,
2005, primarily to secure trust and public deposits and for
other purposes as required or permitted by law. We have
accepted collateral in the form of securities that we have the
right to sell or repledge of $1.8 billion at December 31, 2006,
and $3.4 billion at December 31, 2005, of which we sold or
repledged $1.4 billion and $2.3 billion, respectively.

The following table shows the realized net gains on
the sales of securities from the securities available for sale
portfolio, including marketable equity securities.

(in millions)

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

2006

$ 621

(295)

$ 326

Year ended December 31,
2004

2005

$ 355

(315)

$ 40

$ 168

(108)

$ 60

(1) Includes other-than-temporary impairment of $22 million, $45 million and

$9 million for 2006, 2005 and 2004, 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, 2006
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

Total debt securities at fair value (1)

768

4.56%

$134

5.20% $ 551

4.33% $

4.89% $

7.66%

3,530

27,463

4,046
31,509
6,026

$41,833

7.17

5.91

5.92
5.91
6.45

6.07%

166

7.99

437

6.56

708

6.97

2,219

7.29

—
2
226

$528

7.11

—
7.11
6.38

6.99

5.84

27,350

5.91

—
43
4,289

—
6.99
6.22

—
68
975

— 4,046
31,396
536

5.84
7.18

5.92
5.91
7.00

6.59% $5,320

6.06% $1,829

6.95% $34,156

6.02%

(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
reﬂect unearned income, net deferred loan fees, and unamor-
tized discount and premium totaling $3,113 million and
$3,918 million at December 31, 2006 and 2005, respectively.
Loan concentrations may exist when there are amounts
loaned to borrowers engaged in similar activities or similar
types of loans extended to a diverse group of borrowers that
would cause them to be similarly impacted by economic or
other conditions. At December 31, 2006 and 2005, we did
not have concentrations representing 10% or more of our
total loan portfolio in commercial loans and lease ﬁnancing
by industry or commercial real estate loans (other real estate
mortgage and real estate construction) by state or property
type. Our real estate 1-4 family mortgage loans
to borrowers in the state of California represented approxi-
mately 11% of total loans at December 31, 2006, compared

with 14% at the end of 2005. These loans are diversiﬁed
among the larger metropolitan areas in California, with no
single area consisting of more than 3% of our total loans.
Changes in real estate values and underlying economic con-
ditions for these areas are monitored continuously within
our credit risk management process.

Some of our real estate 1-4 family mortgage loans,
including ﬁrst mortgage and home equity products, include an
interest-only feature as part of the loan terms. At December 31,
2006, such loans were approximately 19% of total loans,
compared with 26% at the end of 2005. Substantially all of
these loans are considered to be prime or near prime. We do
not offer option adjustable-rate mortgage products, nor do
we offer variable-rate mortgage products with ﬁxed payment
amounts, commonly referred to within the ﬁnancial services
industry as negative amortizing mortgage loans.

(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

December 31,
2002

2006

2005

2004

2003

$ 70,404
30,112
15,935
5,614
122,065

53,228
68,926
14,697
53,534
190,385
6,666

$319,116

$ 61,552
28,545
13,406
5,400
108,903

77,768
59,143
12,009
47,462
196,382
5,552

$310,837

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

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

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

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

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

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

$287,586

$253,073

$192,478

For certain extensions of credit, we may require collateral,
based on our assessment of a customer’s credit risk. We hold
various types of collateral, including accounts receivable,
inventory, land, buildings, equipment, autos, ﬁnancial instru-
ments, income-producing commercial properties and residen-
tial 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 com-
mitment to fund at a later date.

A commitment to extend credit is a legally binding agree-
ment 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 signiﬁ-
cant portion of these commitments are expected to expire
without being used. Certain commitments are subject to loan
agreements with covenants regarding the ﬁnancial perfor-
mance of the customer or borrowing base formulas that
must be met before we are required to fund the commitment.
We use the same credit policies in extending credit for
unfunded commitments and letters of credit that we use in
making loans. For information on standby letters of credit,
see Note 24.

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.

loans and a loan equivalent amount for unfunded loan
commitments and letters of credit. These estimates are then
adjusted or supplemented where necessary from additional
analysis of long-term average loss experience, external loss
data, or other risks identiﬁed from current conditions and
trends in selected portfolios, including management's judg-
ment for imprecision and uncertainty. Also, we review indi-
vidual nonperforming loans over $3 million for impairment
based on cash ﬂows or collateral. We include the impairment
on these nonperforming loans in the allowance unless it has
already been recognized as a loss.

The potential risk from unfunded loan commitments and

letters of credit for wholesale loan portfolios is considered
along with the loss analysis of loans outstanding. Unfunded
commercial loan commitments and letters of credit are con-
verted to a loan equivalent factor as part of the analysis. The
reserve for unfunded credit commitments was $200 million
at December 31, 2006, and $186 million at December 31, 2005.
The allowance includes an amount for imprecision or
uncertainty to incorporate the range of probable outcomes
inherent in estimates used for the allowance, which may
change from period to period. This portion of the total
allowance is the result of our judgment of risks inherent in
the portfolio, economic uncertainties, historical loss experi-
ence and other subjective factors, including industry trends.
In 2006, the methodology used to determine this portion of
the allowance was reﬁned so that this method was calculated
for each portfolio type to better reﬂect our view of risk in
these portfolios. In prior years, this element of the allowance
was associated with the portfolio as a whole, rather than with
a speciﬁc portfolio type, and was categorized as unallocated.
Like all national banks, our subsidiary national banks
continue to be subject to examination by their primary regu-
lator, the OCC, and some have OCC examiners in residence.
The OCC examinations occur throughout the year and tar-
get various activities of our subsidiary national banks,
including both the loan grading system and speciﬁc segments
of the loan portfolio (for example, commercial real estate
and shared national credits). The Parent and our nonbank
subsidiaries are examined by the Federal Reserve Board.

We consider the allowance for credit losses of $3.96 billion
adequate to cover credit losses inherent in the loan portfolio,
including unfunded credit commitments, at December 31, 2006.

The total of our unfunded loan commitments, net of all
funds lent and all standby and commercial letters of credit
issued under the terms of these commitments, is summarized
by loan category in the following table:

(in millions)

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,
2005

2006

$ 79,879
2,612
9,600

$ 71,548
2,398
9,369

92,091

83,315

9,708
44,179
55,010
14,679
123,576
824

10,229
37,909
45,270
13,957
107,365
675

$191,355

Total unfunded loan commitments

$216,491

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. We combine estimates of the
allowances needed for loans analyzed on a pooled basis and
loans analyzed individually (including impaired loans) to
determine the adequacy of the total allowance.

A signiﬁcant portion of the allowance, approximately
70% at December 31, 2006, is estimated at a pooled level
for consumer loans and some segments of commercial small
business loans. We use forecasting models to measure the
losses inherent in these portfolios. We independently validate
and update these models at least annually to capture recent
behavioral characteristics of the portfolios, such as updated
credit bureau information, actual changes in underlying eco-
nomic or market conditions and changes in our loss mitiga-
tion or marketing strategies.

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded credit commitments.

Changes in the allowance for credit losses were:

(in millions)

Balance, beginning of year

Provision for credit losses

Loan charge-offs:

Commercial and commercial real estate:

Commercial
Other real estate mortgage
Real estate construction
Lease ﬁnancing

Total commercial and commercial real estate

Consumer:

Real estate 1-4 family ﬁrst mortgage
Real estate 1-4 family junior lien mortgage
Credit card
Other revolving credit and installment

Total consumer

Foreign

Total loan charge-offs

Loan recoveries:

Commercial and commercial real estate:

Commercial
Other real estate mortgage
Real estate construction
Lease ﬁnancing

Total commercial and commercial real estate

Consumer:

Real estate 1-4 family ﬁrst mortgage
Real estate 1-4 family junior lien mortgage
Credit card
Other revolving credit and installment

Total consumer

Foreign

Total loan recoveries

Net loan charge-offs

Other

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

2006

$ 4,057

2,204

(414)
(5)
(2)
(30)
(451)

(103)
(154)
(505)
(1,685)
(2,447)
(281)
(3,179)

111
19
3
21
154

26
36
96
537
695
76
925
(2,254)

(43)

$ 3,964

$ 3,764
200
$ 3,964

2005

$ 3,950

2,383

(406)
(7)
(6)
(35)
(454)

(111)
(136)
(553)
(1,480)
(2,280)
(298)
(3,032)

133
16
13
21
183

21
31
86
365
503
63
749
(2,283)

$ 4,057

$ 3,871
186
$ 4,057

2004

$ 3,891

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

Year ended December 31,
2002

2003

$ 3,819

1,722

$ 3,717

1,684

(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

(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

0.73%

1.18%
1.24

0.77%

1.25%
1.31

0.62%

1.31%
1.37

0.81%

1.54%
1.54

0.96%

1.98%
1.98

(1) Effective September 30, 2004, we transferred the portion of the allowance for loan losses related to commercial lending commitments and letters of credit to other liabilities.

Nonaccrual loans were $1,666 million and $1,338 million

The average recorded investment in impaired loans during

2006, 2005 and 2004 was $173 million, $260 million and
$481 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 2006, 2005 and
2004 under the cash basis method was not signiﬁcant.

at December 31, 2006 and 2005, respectively. Loans past
due 90 days or more as to interest or principal and still
accruing interest were $5,073 million at December 31, 2006,
and $3,606 million at December 31, 2005. The 2006 and
2005 balances included $3,913 million and $2,923 million,
respectively, in advances pursuant to our servicing agree-
ments to the Government National Mortgage Association
mortgage pools whose repayments are insured by the Federal
Housing Administration or guaranteed by the Department of
Veterans Affairs.

The recorded investment in impaired loans and the

methodology used to measure impairment was:

(in millions)

Impairment measurement based on:

Collateral value method
Discounted cash ﬂow method

Total (1)

December 31,
2005
2006

$122
108

$230

$115
75

$190

(1) Includes $146 million and $56 million of impaired loans with a related allowance
of $29 million and $10 million at December 31, 2006 and 2005, respectively.

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

(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

2006

$ 657
3,891
3,786
1,117

60
9,511

4,813

Net book value, premises and equipment $4,698

December 31,
2005

$ 649
3,617
3,425
1,115

60
8,866

4,449

$4,417

Depreciation and amortization expense for premises and
equipment was $737 million, $810 million and $654 million
in 2006, 2005 and 2004, respectively.

Net gains (losses) on dispositions of premises and equipment,

included in noninterest expense, were $13 million, $56 million
and $(5) million in 2006, 2005 and 2004, respectively.

We have obligations under a number of noncancelable
operating leases for premises and equipment. The terms of
these leases are predominantly up to 15 years, with the longest
up to 73 years, and many provide for periodic adjustment
of rentals based on changes in various economic indicators.
Some leases also include a renewal option. The following table
provides 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, 2006.

(in millions)

Operating leases

Capital leases

Year ended December 31,
2007
2008
2009
2010
2011
Thereafter

Total minimum lease payments

Executory costs
Amounts representing interest

Present value of net minimum

lease payments

$ 567
474
396
321
253
1,135

$3,146

$ 3
2
1
1
1
16

(2)
(10)

$ 12

Operating lease rental expense (predominantly for premises),

net of rental income, was $631 million, $583 million and
$586 million in 2006, 2005 and 2004, 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:
GNMA loans (2)
Other

Due from customers on acceptances
Other

December 31,
2005

2006

$ 1,671
1,326
2,240

5,237

3,091
7,522
2,570
383

322
423
103
9,892

$ 1,537
1,402
2,151

5,090

3,414
11,606
2,279
489

—
191
104
9,299

Total other assets

$29,543

$32,472

(1) At December 31, 2006 and 2005, $4.5 billion and $4.4 billion, respectively,
of nonmarketable equity investments, including all federal bank stock,
were accounted for at cost.

(2) As a result of a change in regulatory reporting requirements effective January 1,
2006, foreclosed assets included foreclosed real estate securing Government
National Mortgage Association (GNMA) loans. These assets are fully collectible
because the corresponding GNMA loans are insured by the Federal Housing
Administration or guaranteed by the Department of Veterans Affairs. Such
assets were included in accounts receivable at December 31, 2005.

Income related to nonmarketable equity investments was:

(in millions)

Year ended December 31,
2004

2005

2006

Net gains from private equity

investments

Net gains from all other nonmarketable

equity investments
Net gains from nonmarketable

equity investments

$393

$351

$319

$413

$394

$352

85
85

Note 8:

Intangible Assets

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

The following table provides the current year and
estimated future amortization expense for amortized
intangible assets.

(in millions)

2006
Gross Accumulated
carrying amortization
amount

December 31,
2005
Gross Accumulated
carrying amortization
amount

Amortized intangible assets:
MSRs, before valuation

allowance (1):
Residential
Commercial

Core deposit
intangibles
Credit card and

other intangibles
Total intangible

$ —
457

$ — $24,957
169

$11,382
46

2,374

1,991

2,432

1,943

581

378

567

312

2007
2008
2009
2010
2011

(in millions)

Year ended

December 31, 2006
Estimate for year ended

December 31,

Other (1)

Total

Core
deposit
intangibles

$112

$100

$212

$102
94
86
77
19

$ 93
82
75
70
61

$195
176
161
147
80

assets

$ 3,412

$2,449

$28,125

$13,683

(1) Includes amortized commercial MSRs and credit card and other intangibles.

MSRs (fair value) (1)
Trademark

$17,591
14

$ —
14

(1) Prior to 2006, amortized intangible assets included both residential and commercial
MSRs. Effective January 1, 2006, upon adoption of FAS 156, residential MSRs are
measured at fair value and are no longer amortized. See Note 21 for additional
information on MSRs.

We based our projections of amortization expense shown

above on existing asset balances at December 31, 2006.
Future amortization expense may vary based on additional
core deposit or other 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, 2004

Reduction in goodwill related to divested businesses
Goodwill from business combinations
Realignment of automobile ﬁnancing business
Foreign currency translation adjustments

December 31, 2005

Goodwill from business combinations
Realignment of businesses (primarily insurance)

December 31, 2006

Community
Banking

Wholesale
Banking

Wells Fargo
Financial

Consolidated
Company

$ 7,291
(31)
125
(11)
—

7,374
30
(19)
$7,385

$ 3,037
(3)
13
—
—

3,047
458
19
$3,524

$ 353
—
—
11
2

366
—
—
$366

$ 10,681
(34)
138
—
2

10,787
488
—
$11,275

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 allocation, 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 19 for further information
on management reporting. The balances of goodwill for
management reporting were:

(in millions)

December 31, 2005
December 31, 2006

Community
Banking

$ 3,516
3,538

Wholesale
Banking

$ 1,108
1,574

Wells Fargo
Financial

$366
366

Enterprise

$ 5,797
5,797

Consolidated
Company

$ 10,787
11,275

Note 10: Deposits

The total of time certiﬁcates of deposit and other time
deposits issued by domestic ofﬁces was $51,188 million and
$74,023 million at December 31, 2006 and 2005, respectively.
Substantially all of these deposits were interest bearing.
The contractual maturities of these deposits follow.

Of these deposits, the amount of time deposits with a
denomination of $100,000 or more was $26,522 million
and $56,123 million at December 31, 2006 and 2005,
respectively. The contractual maturities of these
deposits follow.

(in millions)

2007
2008
2009
2010
2011
Thereafter

Total

December 31, 2006

(in millions)

December 31, 2006

$45,054
3,571
1,182
590
535
256
$51,188

Three months or less
After three months through six months
After six months through twelve months
After twelve months

Total

$15,289
6,440
2,943
1,850
$26,522

Time certiﬁcates of deposit and other time deposits issued
by foreign ofﬁces with a denomination of $100,000 or more
represent a major portion of all of our foreign deposit liabilities
of $26,200 million and $14,621 million at December 31,
2006 and 2005, respectively.

Demand deposit overdrafts of $673 million and $618 million

were included as loan balances at December 31, 2006 and
2005, respectively.

Note 11: Short-Term Borrowings

The table below shows selected information for short-term borrowings, which generally mature in less than 30 days.

(in millions)

Amount

2006
Rate

2005
Rate

Amount

2004
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)

$ 1,122

4.06%

$ 3,958

3.80%

$ 6,225

2.40%

11,707

$12,829

4.88

4.81

19,934

$23,892

3.99

3.96

15,737

$21,962

2.04

2.14

$ 7,701

4.61%

$ 9,548

3.09%

$10,010

1.56%

13,770

$21,471

4.62

14,526

$24,074

$14,580

N/A

$15,075

16,910

N/A

22,315

3.09

N/A

16,120

$26,130

$16,492

22,117

1.22

1.35

N/A

N/A – Not applicable.
(1) Highest month-end balance in each of the last three years was in February 2006, January 2005 and July 2004.
(2) Highest month-end balance in each of the last three years was in May 2006, August 2005 and June 2004.

Note 12: Long-Term Debt

Following is a summary of our long-term debt based on original maturity (reﬂecting unamortized debt discounts and premiums,
where applicable):

(in millions)

Wells Fargo & Company (Parent only)

Senior
Fixed-Rate Notes (1)
Floating-Rate Notes
Extendable Notes (2)
Equity-Linked Notes
Convertible Debenture (3)

Total senior debt – Parent

Subordinated
Fixed-Rate Notes (1)
FixFloat Notes

Total subordinated debt – Parent

Junior Subordinated
Fixed-Rate Notes (1)(4)(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 Notes (1)
Floating-Rate Notes
FHLB Notes and Advances
Equity-Linked Notes
Obligations of subsidiaries under capital leases (Note 7)

Total senior debt – WFB, N.A.

Subordinated
Fixed-Rate Notes (1)
Floating-Rate 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)

2007-2035
2007-2046
2008-2015
2007-2014
2033

Stated
interest
rate(s)

2.20-6.75%
Varies
Varies
0.23-4.24%
Varies

2011-2023
2012

4.625-6.65%
4.00% through mid-2007, varies

2031-2036

5.625-7.00%

2007-2011
2007-2034
2012
2007-2019

2010-2036
2016
2007-2013

1.16-5.375%
Varies
5.20%
0.53-5.79%

4.75-7.55%
Varies
4.70-12.00%

2006

December 31,
2005

$21,225
21,917
10,000
372
3,000
56,514

4,560
300
4,860

4,022
4,022
65,396

173
2,174
203
985
12
3,547

6,264
500
13
6,777
10,324

$16,081
21,711
10,000
444
3,000
51,236

4,558
300
4,858

3,247
3,247
59,341

256
3,138
203
229
14
3,840

4,330
—
13
4,343
8,183

2007-2034
2007-2010

2.67-7.47%
Varies

7,654
1,970
$ 9,624

7,159
1,714
$ 8,873

(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 one-month, three-month or six-month London Interbank Offered Rate (LIBOR).

(2) The extendable notes are ﬂoating-rate securities with an initial maturity of 13 months, which can be extended on a rolling monthly basis to a ﬁnal maturity of 5 years

at the investor’s option.

(3) On April 15, 2003, we issued $3 billion of convertible senior debentures as a private placement. In November 2004, we amended the indenture under which the debentures
were issued to eliminate a provision in the indenture that prohibited us from paying cash upon conversion of the debentures if an event of default as deﬁned in the
indenture exists at the time of conversion. We then made an irrevocable election under the indenture on December 15, 2004, that upon conversion of the debentures,
we must satisfy the accreted value of the obligation (the amount accrued to the beneﬁt of the holder exclusive of the conversion spread) in cash and may satisfy the
conversion spread (the excess conversion value over the accreted value) in either cash or stock. We can also redeem all or some of the convertible debt securities for
cash at any time on or after May 5, 2008, at their principal amount plus accrued interest, if any.

(4) Effective December 31, 2003, as a result of the adoption of FIN 46 (revised December 2003), Consolidation of Varible Interest Entities (FIN 46(R)), we deconsolidated certain
wholly-owned trusts formed for the sole purpose of issuing trust preferred securities (the Trusts). The junior subordinated debentures held by the Trusts are included in
the Company’s long-term debt.

(5) On December 5, 2006, Wells Fargo Capital X issued 5.95% Capital Securities and used the proceeds to purchase from the Parent 5.95% Capital Efﬁcient Notes (the Notes)
due 2086 (scheduled maturity 2036). When it issued the Notes, the Parent entered into a Replacement Capital Covenant (the Covenant) in which it agreed for the beneﬁt
of the holders of the Parent’s 5.625% Junior Subordinated Debentures due 2034 that it will not repay, redeem or repurchase, and that none of its subsidiaries will purchase,
any part of the Notes or the Capital Securities on or before December 1, 2066, unless the repayment, redemption or repurchase is made from the net cash proceeds of the
issuance of certain qualiﬁed securities and pursuant to the other terms and conditions set forth in the Covenant. For more information, refer to the Covenant, which was
ﬁled as Exhibit 99.1 to the Company’s Current Report on Form 8-K ﬁled December 5, 2006.

(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

Total senior debt – Other consolidated subsidiaries

Subordinated
Fixed-Rate Notes (1)
Other notes and debentures – Floating-Rate

Total subordinated debt – Other consolidated subsidiaries

Junior Subordinated
Fixed-Rate Notes (4)
Floating-Rate Notes (4)

Total junior subordinated debt – Other consolidated subsidiaries

Total long-term debt – Other consolidated subsidiaries

Total long-term debt

Maturity
date(s)

2007-2049
2008-2009
2012-2037

2008
2011-2016

2029-2031
2027-2034

Stated
interest
rate(s)

0.50-8.00%
Varies
Varies

6.25%
Varies

9.875-10.18%
Varies

2006

December 31,
2005

378
500
404
1,282

209
78
287

56
176
232
1,801
$87,145

502
500
14
1,016

1,138
66
1,204

869
182
1,051
3,271
$79,668

The aggregate annual maturities of long-term debt

The interest rates on ﬂoating-rate notes are determined

obligations (based on ﬁnal maturity dates) as of December 31,
2006, follow.

(in millions)

2007
2008
2009
2010
2011
Thereafter

Total

Parent

$10,815
8,629
5,881
8,383
10,253
21,435

$65,396

Company

$14,741
11,282
7,358
10,472
13,469
29,823
$87,145

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
operational 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, 2006, we were in compliance with
all the covenants.

Note 13: 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 common
shares both as to dividends and liquidation preference but
have no general voting rights. We have not issued any
preference shares under this authorization.

ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All shares of
our ESOP (Employee Stock Ownership Plan) Cumulative
Convertible Preferred Stock (ESOP Preferred Stock) were
issued to a trustee acting on behalf of the Wells Fargo &
Company 401(k) Plan (the 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 for the ESOP Preferred Stock.

ESOP Preferred Stock (1):

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

Total ESOP Preferred Stock
Unearned ESOP shares (2)

Shares issued
and outstanding
December 31,
2005

2006

Carrying amount
(in millions)
December 31,
2005

2006

Adjustable
dividend rate
Maximum

Minimum

115,521

—

$ 116

84,284

65,180

44,843

32,874

22,303

14,142

4,094

563

102,184

74,880

52,643

39,754

28,263

19,282

6,368

1,953

$ —

102

—
383,804

136
325,463

—
$ 384
$(411)

—
$ 325
$(348)

10.75%

9.75

8.50

10.50

11.50

10.30

10.75

9.50

11.75%

10.75

9.50

11.50

12.50

11.30

11.75

10.50

(1) Liquidation preference $1,000. At December 31, 2006 and 2005, additional paid-in capital included $27 million and $23 million, respectively, related to preferred stock.
(2) In accordance with the American Institute of Certiﬁed Public Accountants (AICPA) Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans,
we recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned ESOP shares are reduced as
shares of the ESOP Preferred Stock are committed to be released. For information on dividends paid, see Note 14.

Note 14: Common Stock and Stock Plans

Common Stock
Our reserved, issued and authorized shares of common stock
at December 31, 2006, 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

11,770,843
1,165,176
525,694,478
538,630,497
3,472,762,050
1,988,607,453

6,000,000,000

(1) Includes employee option, restricted shares and restricted share rights, 401(k)

and compensation deferral plans.

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.

Employee Stock Plans
We offer several stock-based employee compensation
plans, which are described below. Effective January 1, 2006,
we adopted FAS 123(R), Share-Based Payment, using the
“modiﬁed prospective” transition method. FAS 123(R)
requires that we measure the cost of employee services
received in exchange for an award of equity instruments,
such as stock options or restricted share rights (RSRs),
based on the fair value of the award on the grant date.
The cost is normally recognized in our income statement
over the vesting period of the award; awards with graded
vesting are expensed on a straight-line method. Awards to
retirement-eligible employees are subject to immediate
expensing upon grant. Total stock option compensation
expense was $134 million in 2006, with a related recognized
tax beneﬁt of $50 million. Stock option expense is based on
the fair value of the awards at the date of grant and includes
expense for awards granted in 2006 and expense for awards
granted prior to January 1, 2006, all or a portion of which
vested in 2006. Prior to January 1, 2006, we did not record
any compensation expense for stock options.

LONG-TERM INCENTIVE COMPENSATION PLANS Our stock incentive
plans provide for awards of incentive and nonqualiﬁed stock
options, stock appreciation rights, restricted shares, RSRs,
performance awards and stock awards without restrictions.
Options must have an exercise price at or above fair market
value (as deﬁned in the plan) of the stock at the date of grant
(except for substitute or replacement options granted in
connection with mergers or other acquisitions) and a term
of no more than 10 years. Options granted in 2003 and
prior generally become exercisable over three years from the

date of grant. Options granted in 2004 and 2005 generally
were fully vested upon grant. Options granted in 2006
generally become exercisable over three years from the date
of 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 granted prior to 2004 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 purchase, 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. Reload grants are
fully vested upon grant and are expensed immediately under
FAS 123(R) beginning in 2006.

The total number of shares of common stock available for
grant under the plans at December 31, 2006, was 187,475,498.
Holders of RSRs are entitled to the related shares of
common stock at no cost generally over three to ﬁve years
after the RSRs were granted. Holders of RSRs generally are
entitled to receive cash payments equal to the cash dividends
that would have been paid had the RSRs been issued and
outstanding shares of common stock. Except in limited
circumstances, RSRs are canceled when employment ends.
The compensation expense for RSRs equals the quoted
market price of the related stock at the date of grant and is
accrued over the vesting period. Total compensation expense
for RSRs was not signiﬁcant in 2006 or 2005.

For various acquisitions and mergers, 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 PLAN In 1996, we adopted the PartnerShares®
Stock Option Plan, a broad-based employee stock option
plan. It covers full- and part-time employees who generally
were not included in the long-term incentive compensation
plans described above. The total number of shares of common
stock authorized for issuance under the plan since inception
through December 31, 2006, was 108,000,000, including
9,557,140 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 10 years after the date of
grant. No options have been granted under the PartnerShares
Plan since 2002. 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 did not recognize any compensation expense in
2005 and prior years. In 2006, under FAS 123(R), we began
to recognize expense related to these grants, based on the
remaining vesting period.

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.

The table below summarizes stock option activity and

related information for 2006.

Number

Weighted-average
exercise price

Weighted-average
remaining contractual
term (in yrs.)

Aggregate
intrinsic value
(in millions)

Long-Term Incentive Compensation Plans

Options outstanding as of December 31, 2005

Granted
Canceled or forfeited
Exercised

Options outstanding as of December 31, 2006

As of December 31, 2006:

221,182,224

46,962,990
(1,371,700)
(43,656,832)

223,116,682

Options exercisable and expected to be exercisable (1)
Options exercisable

221,933,695
185,775,820

Broad-Based Plan

Options outstanding as of December 31, 2005

Canceled or forfeited
Exercised

Options outstanding as of December 31, 2006

As of December 31, 2006:

48,985,522

(2,217,334)
(8,757,398)

38,010,790

Options exercisable and expected to be exercisable (1)
Options exercisable

38,010,790
20,444,040

Director Plans

Options outstanding as of December 31, 2005

Granted
Exercised

Options outstanding as of December 31, 2006

As of December 31, 2006:

Options exercisable and expected to be exercisable (1)
Options exercisable

779,028

91,219
(75,636)

794,611

794,611
791,106

$24.82

32.80
31.18
22.84

26.85

26.82
25.81

$22.75

24.78
20.40

23.18

23.18
21.39

$24.33

32.69
15.21

26.16

26.16
26.12

5.9

5.9
5.2

4.1

4.1
3.1

5.7

5.7
5.7

$1,947

1,943
1,816

$ 471

471
290

7
7

(1) Adjusted for estimated forfeitures.

As of December 31, 2006, there was $89 million of
unrecognized compensation cost related to stock options.
That cost is expected to be recognized over a weighted-
average period of 2.2 years.

The total intrinsic value of options exercised during 2006
and 2005 was $617 million and $384 million, respectively.
Cash received from the exercise of options for 2006 and

2005 was $1,092 million and $819 million, respectively.
The actual tax beneﬁt recognized in stockholders’ equity
for the tax deductions from the exercise of options totaled
$229 million and $143 million, respectively, for 2006
and 2005.

We do not have a speciﬁc policy on repurchasing shares
to satisfy share option exercises. Rather, we have a general
policy on repurchasing shares to meet common stock
issuance requirements for our beneﬁt plans (including share
option exercises), conversion of its convertible securities,
acquisitions, and other corporate purposes. 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.
Effective with the adoption of FAS 123(R), the fair value
of each option award granted on or after January 1, 2006,
is estimated using a Black-Scholes valuation model. The
expected term of options granted is generally based on the
historical exercise behavior of full-term options. Our expected
volatilities are based on a combination of the historical
volatility of our common stock and implied volatilities for
traded options on our common stock. The risk-free rate is
based on the U.S. Treasury zero-coupon yield curve in effect
at the time of grant. Both expected volatility and the risk-
free rates are based on a period commensurate with our

expected term. The expected dividend is based on the current
dividend, our historical pattern of dividend increases and the
current market price of our stock.

Prior to the adoption of FAS 123(R), we also used a
Black-Scholes valuation model to estimate the fair value
of options granted for the pro forma disclosures of net
income and earnings per common share that were required
by FAS 123.

Effective with the adoption of FAS 123(R), we changed
our method of estimating our volatility assumption. Prior
to 2006, we used a volatility based on historical stock price
changes. Effective January 1, 2006, we used a volatility
based on a combination of historical stock price changes
and implied volatilities of traded options as both volatilities
are relevant in estimating our expected volatility.

The following table presents the weighted-average per

share fair value of options granted and the assumptions
used, based on a Black-Scholes option valuation model.

Per share fair value of options granted:

Long-Term Incentive

Compensation Plans

Director Plans
Expected volatility
Expected dividends
Expected term (in years)
Risk-free interest rate

Year ended December 31,
2004
2005

2006

$4.03
4.67
15.9%
3.4
4.3
4.5%

$3.75
3.13
16.1%
3.4
4.4
4.0%

$4.66
4.67
23.8%
3.4
4.4
2.9%

The weighted-average grant-date fair value of RSRs
granted during 2005 was $30.78. At December 31, 2006,
there was $2 million of total unrecognized compensation
cost related to nonvested RSRs. The cost is expected to be
recognized over a weighted-average period of 3.0 years. The
total fair value of RSRs that vested during 2006 and 2005
was $3 million and $4 million, respectively.

A summary of the status of our RSRs at December 31,
2006, and changes during 2006 is in the following table:

Number Weighted-average
grant-date
fair value

Nonvested at January 1, 2006

Granted
Vested

212,366
26,580
(91,800)

Nonvested at December 31, 2006

147,146

$26.92
33.90
24.75

29.53

Employee Stock Ownership Plan
Under the Wells Fargo & Company 401(k) Plan (the 401(k)
Plan), a deﬁned contribution ESOP, the 401(k) Plan may
borrow money to purchase our common or preferred stock.
Since 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 common 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,
2004
2005

2006

Allocated shares (common)
Unreleased shares (preferred)

74,536,040
383,804

73,835,002
325,463

67,843,516
269,563

Fair value of unearned ESOP shares

$384

$325

$270

Dividends paid
Year ended December 31,
2004

2005

$71
39

$61
32

2006

$79
47

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 15: 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 allocated
to participants quarterly based on their accumulated balances.
Employees become vested in their Cash Balance Plan
accounts after completing ﬁve years of vesting service or
reaching age 65, if earlier.

We did not make a contribution in 2006 to our Cash
Balance Plan because a contribution was not required and
the Plan was well-funded. Although we will not be required
to make a contribution in 2007 for the Cash Balance Plan,
our decision on how much to contribute, if any, will be
based on the maximum deductible contribution under the
Internal Revenue Code, which has not yet been determined,
and other factors, including the actual investment performance
of plan assets during 2007. Given these uncertainties,
we cannot estimate at this time the amount that we will
contribute in 2007 to the Cash Balance Plan. The total
amount contributed for our other pension plans in 2006
was $50 million. For the unfunded nonqualiﬁed pension
plans and postretirement beneﬁt plans, we will contribute
the minimum required amount in 2007, which equals the
beneﬁts paid under the plans. In 2006, we paid $74 million
in beneﬁts for the postretirement plans, which included
$35 million in retiree contributions and $33 million for
the unfunded pension plans.

(in millions)

Other assets
Total assets

Accrued expenses and other liabilities
Total liabilities

Cumulative other comprehensive income
Total stockholders’ equity

Total liabilities and stockholders’ equity

We sponsor deﬁned contribution retirement plans
including the 401(k) Plan. Under the 401(k) Plan, after
one month of service, eligible employees may contribute
up to 25% of their pre-tax 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.

Expenses for deﬁned contribution retirement plans were

$373 million, $370 million and $356 million in 2006,
2005 and 2004, 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.

On September 29, 2006, the FASB issued FAS 158,
Employers’ Accounting for Deﬁned Beneﬁt Pension and
Other Postretirement Plans – an amendment of FASB
Statements No. 87, 88, 106, and 132(R), which requires us
to recognize in our balance sheet as of December 31, 2006,
the funded status of our pension and other postretirement
plans. Beginning January 1, 2007, we will be required to
recognize changes in our plans’ funded status in the year
in which the changes occur in other comprehensive income.
We adopted FAS 158 effective December 31, 2006. The
following table provides the incremental effect of adopting
FAS 158 on individual line items in the balance sheet at
December 31, 2006.

Before
adoption
of FAS 158

$ 30,000
482,453

25,958
436,175

704
46,278

482,453

Adjustments

$(457)
(457)

(55)
(55)

(402)
(402)

(457)

After
adoption
of FAS 158

$ 29,543
481,996

25,903
436,120

302
45,876

481,996

The changes in the projected beneﬁt obligation of pension beneﬁts and the accumulated beneﬁt obligation of other beneﬁts
and the fair value of plan assets during 2006 and 2005, the funded status at December 31, 2006 and 2005, and the amounts
recognized in the balance sheet at December 31, 2006, were:

(in millions)

Change in beneﬁt obligation:
Beneﬁt obligation at beginning of year

Service cost
Interest cost
Plan participants’ contributions
Amendments
Actuarial loss (gain)
Beneﬁts paid
Foreign exchange impact
Beneﬁt obligation at end of year

Change in plan assets:
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

Funded status at end of year

Amounts recognized in the balance sheet

at end of year:
Assets
Liabilities

December 31,
2005
2006
Pension beneﬁts
Pension beneﬁts
Non-
Non-
qualiﬁed
qualiﬁed

Other
beneﬁts

Qualiﬁed

$4,045
247
224
—
18
225
(317)
1
$4,443

$4,944
703
20
—
(317)
1
$5,351

$ 908

$ 927
(19)
$ 908

$ 277
16
16
—
—
31
(39)
—
$ 301

$ —
—
39
—
(39)
—
$ —

$(301)

$ —
(301)
$(301)

$ 709
15
39
35
(11)
26
(74)
—
$ 739

$ 370
37
44
35
(74)
—
$ 412

$(327)

$ —
(327)
$(327)

$3,777
208
220
—
37
43
(242)
2
$4,045

$4,457
400
327
—
(242)
2
$4,944

$ 899

$ 228
21
14
—
—
27
(13)
—
$ 277

$ —
—
13
—
(13)
—
$ —

$(277)

$ 751
21
41
29
(44)
(12)
(78)
1
$ 709

$ 329
34
56
29
(78)
—
$ 370

$(339)

Amounts recognized in accumulated other comprehensive

income (pre tax) for the year ended December 31, 2006,
consist of:

(in millions)

December 31, 2006

Net loss
Net prior service credit
Net transition obligation

Pension beneﬁts
Non-
qualiﬁed

Qualiﬁed

$494
(7)
—
$487

$ 76
(21)
—
$ 55

Other
beneﬁts

$144
(46)
3
$101

The net loss and net prior service credit for the deﬁned
beneﬁt pension plans that will be amortized from accumulated
other comprehensive income into net periodic beneﬁt cost
in 2007 are $44 million and $2 million, respectively. The net
loss and net prior service credit for the other deﬁned beneﬁt
postretirement plans that will be amortized from accumulated
other comprehensive income into net periodic beneﬁt cost in
2007 are $5 million and $4 million, respectively.

This table reconciles the funded status of the plans to the amounts included in the balance sheet at December 31, 2005.

(in millions)

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
Accumulated other comprehensive income

Accrued beneﬁt income (cost)

(1) Fair value of plan assets at year end less projected beneﬁt obligation at year end.

December 31, 2005

Pension beneﬁts
Non-
qualiﬁed

Qualiﬁed

Other
beneﬁts

$ 899
—
615
—
(25)
$1,489

$1,489
—
—
$1,489

$(277)
2
42
—
(11)
$(244)

$ —
(245)
1
$(244)

$(339)
4
131
3
(51)
$(252)

$ —
(252)
—
$(252)

The weighted-average assumptions used to determine the

The weighted-average allocation of plan assets was:

projected beneﬁt obligation were:

Percentage of plan assets at December 31,
2005
Other
beneﬁt
plan assets

2006
Other
beneﬁt
plan assets

Pension
plan
assets

Equity securities
Debt securities
Real estate
Other

Total

70%
24
4
2
100%

62%
35
2
1
100%

69%
27
3
1
100%

58%
40
1
1
100%

The table below provides information for pension plans
with beneﬁt obligations in excess of plan assets, substantially
due to our nonqualiﬁed pension plans.

(in millions)

Projected beneﬁt obligation
Accumulated beneﬁt obligation
Fair value of plan assets

December 31,
2005

2006

$399
345
70

$359
297
60

2006
Other
Pension
beneﬁts(1) beneﬁts

Year ended December 31,
2005
Other
Pension
beneﬁts(1) beneﬁts

Discount rate
Rate of compensation increase

5.75%
4.0

5.75% 5.75%

—

4.0

5.75%
—

(1) Includes both qualiﬁed and nonqualiﬁed pension beneﬁts.

The accumulated beneﬁt obligation for the deﬁned beneﬁt

pension plans was $4,550 million and $4,076 million at
December 31, 2006 and 2005, respectively.

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, private equity 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 components of net periodic beneﬁt cost were:

(in millions)

2006

2005

Pension beneﬁts
Non-
qualiﬁed

Qualiﬁed

Other
beneﬁts

Pension beneﬁts
Non-
qualiﬁed

Qualiﬁed

Other
beneﬁts

$ 247
224

(421)

—

2
—
5

$16
16

—

(1)

—
—
3

$ 15
39

(31)

(4)

—
(9)
—

$ 208
220

(393)

(4)

—
—
—

$21
14

—

(2)

—
—
—

$ 21
41

(25)

(1)

—
—
—

Year ended December 31,
2004

Pension beneﬁts
Non-
qualiﬁed

Qualiﬁed

Other
beneﬁts

$ 170
215

(327)

(1)

—
—
(2)

$23
13

—

(1)

—
—
2

$ 17
43

(23)

(1)

—
—
—

$ 113

$40

$ 15

$ 99

$36

$ 42

$ 106

$38

$ 38

Service cost
Interest cost
Expected return
on plan assets
Amortization of

net actuarial loss (1)

Amortization of

prior service cost
Special termination

beneﬁts

Curtailment gain
Settlement

Net periodic

beneﬁt cost

(1) Net actuarial loss is generally amortized over ﬁve years.

The weighted-average assumptions used to determine the net periodic beneﬁt cost were:

Discount rate
Expected return on plan assets
Rate of compensation increase

(1) Includes both qualiﬁed and nonqualiﬁed pension beneﬁts.

Pension
beneﬁts (1)

2006
Other
beneﬁts

2005
Other
beneﬁts

Pension
beneﬁts (1)

Year ended December 31,
2004
Other
beneﬁts

Pension
beneﬁts (1)

5.75%
8.75
4.0

5.75%
8.75
—

6.0%
9.0
4.0

6.0%
9.0
—

6.5%
9.0
4.0

6.5%
9.0
—

The long-term rate of return assumptions above were

Future beneﬁts, reﬂecting expected future service that

derived based on a combination of factors including
(1) long-term historical return experience for major asset
class categories (for example, 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
health care cost trend rates 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 9% (before age 65) and 10% (after age 65)
for health care costs for 2007. The rates of average annual
increases are assumed to trend down 1% each year until the
trend rates reach an ultimate trend of 5% in 2011 (before
age 65) and 2012 (after age 65). Increasing the assumed
health care trend by one percentage point in each year would
increase the beneﬁt obligation as of December 31, 2006,
by $52 million and the total of the interest cost and service
cost components of the net periodic beneﬁt cost for 2006
by $4 million. Decreasing the assumed health care trend by
one percentage point in each year would decrease the beneﬁt
obligation as of December 31, 2006, by $46 million and
the total of the interest cost and service cost components
of the net periodic beneﬁt cost for 2006 by $3 million.
The investment strategy for assets held in the Retiree
Medical Plan Voluntary Employees’ Beneﬁciary Association
(VEBA) trust and other pension plans is maintained separate
from the strategy for the assets in the Cash Balance Plan.
The general target asset mix is 55–65% equities and
35–45% ﬁxed income. In addition, the strategy for the
VEBA trust assets considers the effect of income taxes by
utilizing a combination of variable annuity and low turnover
investment strategies. Members of the EBRC formally review
the investment risk and performance of these assets on a
quarterly basis.

we expect to pay under the pension and other beneﬁt
plans, follow.

(in millions)

Pension beneﬁts
Non-qualiﬁed

Qualiﬁed

Other
beneﬁts

Year ended December 31,
2007
2008
2009
2010
2011
2012-2016

$ 354
410
403
384
325
2,185

$ 33
32
40
34
38
174

$ 54
57
59
62
65
348

Other beneﬁts payments are expected to be reduced by

prescription drug subsidies from the federal government
provided by the Medicare Prescription Drug, Improvement
and Modernization Act of 2003, as follows:

(in millions)

Year ended December 31,
2007
2008
2009
2010
2011
2012-2016

Other beneﬁts
subsidy receipts

$ 7
7
8
8
8
45

Other Expenses
Expenses exceeding 1% of total interest income and noninterest
income that are not otherwise shown separately in the ﬁnancial
statements or Notes to Financial Statements were:

(in millions)

Outside professional services
Contract services
Travel and entertainment
Advertising and promotion
Outside data processing

2006

$942
579
542
456
437

Year ended December 31,
2004

2005

$835
596
481
443
449

$669
626
442
459
418

Note 16:

Income Taxes

The components of income tax expense were:

Year ended December 31,
2004

2005

(in millions)

Current:

Federal
State and local
Foreign

Deferred:

Federal
State and local

Total

2006

$2,993
438
239
3,670

521
72
593

$4,263

$2,627
346
91
3,064

715
98
813
$3,877

$2,815
354
154
3,323

379
53
432
$3,755

The tax beneﬁt related to the exercise of employee stock
options recorded in stockholders’ equity was $229 million,
$143 million and $175 million for 2006, 2005 and
2004, respectively.

We had a net deferred tax liability of $6,018 million and
$5,595 million at December 31, 2006 and 2005, 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
strategies. 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 $19 billion in the carry-
back period, substantial state taxable income in the carry-back
period, as well as a history of growth in earnings.

Deferred Tax Assets

Allowance for loan losses
Deferred compensation

and employee beneﬁts

Other

Total deferred tax assets

Deferred Tax Liabilities

Mortgage servicing rights
Leasing
Mark to market, net
Net unrealized gains on securities

available for sale

Other

Total deferred tax liabilities

December 31,
2005

2006

$1,430

$1,471

484
1,140
3,054

4,234
2,349
972

342
1,175
9,072

156
807
2,434

3,517
2,430
708

368
1,006
8,029

Net Deferred Tax Liability

$6,018

$5,595

Deferred taxes related to net unrealized gains and losses

on securities available for sale and derivatives, and the
implementation of FAS 158, had no effect on income tax
expense as these items, net of taxes, were recorded in
cumulative other comprehensive income.

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
Other

2006
Rate

Amount

2005
Rate

Amount

Year ended December 31,
2004
Rate

Amount

$4,461

35.0%

$4,042

35.0%

$3,769

35.0%

331
(356)
(173)

2.6
(2.8)
(1.4)

289
(327)
(127)

2.5
(2.8)
(1.1)

265
(224)
(55)

2.5
(2.1)
(0.5)

34.9%

Effective income tax expense and rate

$4,263

33.4%

$3,877

33.6%

$3,755

Note 17: 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.

At December 31, 2006, 2005 and 2004, options to
purchase 6.7 million, 9.7 million and 6.7 million shares,
respectively, were outstanding but not included in the
calculation of diluted earnings per common share because
the exercise price was higher than the market price, and
therefore they were antidilutive.

(in millions, except per share amounts)

Net income (numerator)

EARNINGS PER COMMON SHARE
Average common shares outstanding (denominator)

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

2006

$ 8,482

3,368.3

2.52

3,368.3
41.7
0.1
3,410.1

2.49

2005

$ 7,671

3,372.5

2.27

3,372.5
37.8
0.6
3,410.9

2.25

Year ended December 31,
2004

$ 7,014

3,384.4

2.07

3,384.4
41.5
0.8
3,426.7

2.05

Note 18: Other Comprehensive Income

The components of other comprehensive income and the related tax effects were:

(in millions)

2006
Net of
Tax
tax
effect

Before
tax

2005
Net of
Tax
tax
effect

Year ended December 31,
2004
Net of
tax

Tax
effect

Before
tax

Translation adjustments

$ —

$ 3

$ 5

$ 20

$ 12

Securities available for sale and other

interests held:
Net unrealized gains (losses) arising

during the year

Reclassiﬁcation of gains included

in net income

Net unrealized losses arising

during the year

Derivatives and hedging activities:

Net unrealized gains (losses) arising

during the year

Reclassiﬁcation of net losses (gains)
on cash ﬂow hedges included in
net income

Net unrealized gains arising

during the year

Other comprehensive income

264

171

(401)

(143)

(258)

(326)

(124)

(202)

(64)

(24)

(40)

(62)

(31)

(465)

(167)

(298)

(72)

(37)

(27)

(15)

(45)

(22)

110

$ 48

349

134

215

(376)

(137)

(239)

(335)

(128)

(207)

413

152

$ 39

$(443)

$(158)

$(285)

$ 20

261

$ 12

Cumulative other comprehensive income balances were:

Translation
adjustments

Deﬁned
beneﬁt
pension
plans

$12

$ —

12
24

5
29

—
$29

—
—

(402)(1)

$(402)

Net unrealized
gains (losses)
on securities
and other
interests held

Net unrealized
gains on
derivatives and
other hedging
activities

Cumulative
other
comprehensive
income

$ 913

(22)
891

(298)
593

(31)
$ 562

$ 13

22
35

8
43

70
$113

$ 938

12
950

(285)
665

(363)
$ 302

(in millions)

Balance, December 31, 2003

Net change

Balance, December 31, 2004

Net change

Balance, December 31, 2005

Net change

Balance, December 31, 2006

(1) Adoption of FAS 158.

100

Note 19: 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
operating segment. This process is dynamic and, unlike
ﬁnancial accounting, there is no comprehensive, authoritative
guidance 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. To reﬂect the
realignment of our insurance business into Wholesale Banking
in 2006, results for prior periods have been revised.

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
$20 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, securities brokerage through afﬁliates
and venture capital ﬁnancing. These products and services
include the Wells Fargo Advantage FundsSM, a family of
mutual funds, as well as personal trust and agency assets.
Loan products include lines of credit, equity lines and loans,
equipment and transportation (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, Health 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, interest rate, commodity and
equity risk management, online/electronic products such as
the Commercial Electronic Ofﬁce® (CEO®) portal, insurance
and investment banking services. Wholesale Banking manages
and administers institutional investments, employee beneﬁt
trusts and mutual funds, including the Wells Fargo Advantage
Funds. Wholesale Banking includes the majority ownership
interest in the Wells Fargo HSBC Trade Bank, which provides
trade ﬁnancing, 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 commercial 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 and the Paciﬁc
Rim. Automobile ﬁnance operations 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 unallocated goodwill
balances held at the enterprise level. This column also may
include separately identiﬁed transactions recorded at the
enterprise level for management reporting.

101

(income/expense in millions,
average balances in billions)

2006
Net interest income (1)
Provision for credit losses
Noninterest income
Noninterest expense
Income before

income tax expense

Income tax expense

Net income

2005
Net interest income (1)
Provision for credit losses
Noninterest income
Noninterest expense
Income before

income tax expense

Income tax expense

Net income

2004
Net interest income (1)
Provision for credit losses
Noninterest income
Noninterest expense
Income (loss) before income
tax expense (beneﬁt)
Income tax expense (beneﬁt)

Net income (loss)

2006
Average loans
Average assets
Average core deposits

2005
Average loans
Average assets
Average core deposits

Community
Banking

Wholesale
Banking

Wells Fargo
Financial

Other (2)

Consolidated
Company

$13,117
887
9,915
13,822

8,323
2,792

$ 5,531

$ 12,702
895
9,418
12,972

8,253
2,780

$ 5,473

$ 12,018
787
8,212
11,978

7,465
2,633

$ 4,832

$ 178.0
320.2
231.4

$ 187.0
297.7
218.2

$2,924
16
4,310
4,114

3,104
1,018

$2,086

$ 2,393
1
3,756
3,487

2,661
872

$ 1,789

$ 2,210
62
3,432
3,062

2,518
839

$ 1,679

$ 71.4
97.1
28.5

$ 62.2
89.6
24.6

$3,910
1,301
1,515
2,806

1,318
453

$ 865

$ 3,409
1,487
1,271
2,559

634
225

$ —
—
—
—

—
—

$ —

$ —
—
—
—

—
—

$ 409

$ —

$ 2,922
868
1,265
2,357

962
345

$ 617

$ 57.5
62.9
0.1

$ 46.9
52.7
—

$ —
—
—
176

(176)
(62)

$(114)

$ —
5.8
—

$19,951
2,204
15,740
20,742

12,745
4,263

$ 8,482

$ 18,504
2,383
14,445
19,018

11,548
3,877

$ 7,671

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

10,769
3,755

$ 7,014

$ 306.9
486.0
260.0

$ 296.1
445.8
242.8

(1) Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned

on segment assets and, if the segment has excess liabilities, interest credits for providing funding to other segments. The cost of liabilities includes interest expense on
segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of excess liabilities from another segment.
In general, Community Banking has excess liabilities and receives interest credits for the funding it provides to other segments.

(2) In 2004, a $176 million loss on debt extinguishment was recorded at the enterprise level.

102

Note 20: 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 mortgages
and auto receivables. We typically retain the servicing rights
from these sales and may continue to hold other interests.
Through these securitizations, which are structured without
recourse to us and with no restrictions on the other interests
held, we may be exposed to a liability under standard repre-
sentations and warranties we make to purchasers and issuers.
The amount recorded for this liability was not material to
our consolidated ﬁnancial statements at year-end 2006 or
2005. We do not have signiﬁcant credit risks from the other
interests held.

We recognized gains of $399 million from sales of
ﬁnancial assets in securitizations in 2006 and $326 million
in 2005. Additionally, we had the following cash ﬂows with
our securitization trusts.

Mortgage

2006
Other
loans ﬁnancial
assets

Year ended December 31,
2005
Other
ﬁnancial
assets

Mortgage
loans

(in millions)

Sales proceeds from
securitizations

Servicing fees
Cash flows on other
interests held

At December 31, 2005, we also retained some AAA-rated

ﬂoating-rate mortgage-backed securities, which were sold
in 2006. The fair value at the date of securitization was
determined using quoted market prices. The implied CPR,
life, and discount spread to the London Interbank Offered
Rate (LIBOR) curve at the date of securitization is presented
in the following table.

Prepayment speed (annual CPR)
Life (in years)
Discount spread to LIBOR curve

Other interests held – AAA
mortgage-backed securities
2005

26.8%
2.4
0.22%

Key economic assumptions and the sensitivity of the
current fair value to immediate adverse changes in those
assumptions at December 31, 2006, for mortgage servicing
rights, both purchased and retained, and other interests
held related to residential mortgage loan securitizations
are presented in the following table.

$50,767
229

$103
—

$40,982
154

$225
—

259

560

($ in millions)

Mortgage
servicing rights

Other
interests held

Fair value of interests held
Expected weighted-average life (in years)

$18,047
5.6

$367
6.3

In the normal course of creating securities to sell to
investors, we may sponsor special-purpose entities that
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 2006 and 2005, we
used the following assumptions to determine the fair value
of mortgage servicing rights and other interests held at the
date of securitization.

Prepayment speed

(annual CPR (1)) (2)

Life (in years) (2)
Discount rate (2)

Mortgage
servicing rights
2005
2006

Other
interests held
2005
2006

15.7% 16.9%

5.8

5.6

10.5% 10.1%

13.9% 12.7%

7.0

10.0% 10.2%

(1) Constant prepayment rate.
(2) Represents weighted averages for all other interests held resulting from

securitizations completed in 2006 and 2005.

Prepayment speed assumption (annual CPR)

12.4%

10.4%

Decrease in fair value from

10% adverse change

Decrease in fair value from

25% adverse change

616

1,439

$ 14

Discount rate assumption

10.8%

11.3%

Decrease in fair value from

100 basis point adverse change

Decrease in fair value from

200 basis point adverse change

651

1,253

$ 13

The sensitivities in the previous table are hypothetical
and should be relied on 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 table, the effect of a variation in a
particular assumption on the fair value of the other interests
held 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.

103

This table presents information about the principal balances of owned 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:

Total loans owned and securitized

Securitized loans
Mortgages held for sale
Loans held for sale

Total loans held

December 31,

Total loans (1)

Delinquent loans (2)

2006

2005

2006

2005

Year ended December 31,
Net charge-offs (recoveries)
2005
2006

$ 346 $ 304
344
40
45
733

178
81
29
634

929
275
262
804
2,270
94

709
194
159
470
1,532
71

$ 303
(33)
(1)
9
278

77
118
409
1,148
1,752
210

$ 273
11
(7)
14
291

90
105
467
1,115
1,777
239

$2,998 $2,336

$2,240

$2,307

$ 70,779
44,834
15,935
5,614
137,162

$ 61,552
45,042
13,406
5,400
125,400

114,676
68,926
14,697
54,036
252,335
6,983

396,480

43,546
33,097
721

136,261
59,143
12,009
48,287
255,700
5,930

387,030

35,047
40,534
612

$319,116

$310,837

(1) Represents loans in the balance sheet or that have been securitized, but excludes securitized loans that we continue to service but as to which we have no other

continuing involvement.

(2) Includes nonaccrual loans and loans 90 days or more past due and still accruing.

We 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. Our consolidated variable
interest entities (VIEs), substantially all of which were formed
to invest in securities and to securitize real estate investment
trust securities, had approximately $3.4 billion and $2.5 billion
in total assets at December 31, 2006 and 2005, 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 a majority of these consolidated
entities have no recourse against us.

We also hold variable interests greater than 20% but
less than 50% in certain special-purpose entities formed
to provide affordable housing and to securitize corporate
debt that had approximately $2.9 billion in total assets at
both December 31, 2006 and 2005. We are not required to
consolidate these entities. Our maximum exposure to loss
as a result of our involvement with these unconsolidated
variable interest entities was approximately $980 million
and $870 million at December 31, 2006 and 2005, respectively,
predominantly representing investments in entities formed to
invest in affordable housing. However, we expect to recover
our investment over time, primarily through realization of
federal low-income housing tax credits.

104

Note 21: 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.

Effective January 1, 2006, upon adoption of FAS 156,

we remeasured our residential mortgage servicing rights
(MSRs) at fair value and recognized a pre-tax adjustment of
$158 million to residential MSRs and recorded a corresponding
cumulative effect adjustment of $101 million (after tax)
to increase the 2006 beginning balance of retained earnings
in stockholders’ equity. The table below reconciles the
December 31, 2005, and the January 1, 2006, balance of MSRs.

(in millions)

Residential
MSRs

Commercial
MSRs

Total
MSRs

Balance at December 31, 2005

$12,389

$122

$12,511

The changes in amortized MSRs were:

(in millions)

Balance, beginning of year

Purchases (1)
Servicing from securitizations

or asset transfers (1)

Amortization
Write-down
Other (includes changes
due to hedging)

Balance, end of year

Valuation allowance:
Balance, beginning of year

Reversal of provision for

MSRs in excess of fair value

Write-down of MSRs

Year ended December 31,
2004

2005

2006

$122
278

$ 9,466
2,683

$ 8,848
1,353

11
(34)
—

2,652
(1,991)
—

1,769
(1,826)
(169)

—
$377

888
$13,698

(509)
$ 9,466

$ — $ 1,565

$ 1,942

—
—

(378)
—

(208)
(169)

$ — $ 1,187

$ 1,565

$377

$12,511

$ 7,901

$146
457

$ 7,913
12,693

$ 6,914
7,913

Remeasurement upon
adoption of FAS 156

Balance at January 1, 2006

158

$12,547

—

158

$122

$12,669

Balance, end of year

Amortized MSRs, net

The changes in residential MSRs measured using the fair

value method were:

Fair value of amortized MSRs:

Beginning of year
End of year

(in millions)

Year ended December 31, 2006

(1) Based on December 31, 2006, assumptions, the weighted-average amortization

period for MSRs added during the year was approximately 14.9 years.

Fair value, beginning of year

Purchases
Servicing from securitizations

or asset transfers

Sales

Changes in fair value:

Due to changes in valuation

model inputs or assumptions (1)

Other changes in fair value (2)

Fair value, end of year

$12,547
3,859

4,107
(469)

(9)
(2,444)
$17,591

(1) Principally reﬂects changes in discount rates and prepayment speed

assumptions, mostly due to changes in interest rates.

(2) Represents changes due to collection/realization of expected cash ﬂows

over time.

105

The components of our managed servicing portfolio were:

The components of mortgage banking noninterest

income were:

(in millions)

Year ended December 31,
2004

2005

2006

Servicing income, net:
Servicing fees (1)
Changes in fair value

of residential MSRs:
Due to changes in

valuation model inputs
or assumptions (2)

Other changes in fair value (3)

Amortization
Reversal of provision for MSRs
in excess of fair value
Net derivative gains (losses):

Fair value accounting hedges (4)
Economic hedges (5)

Total servicing income, net

Net gains on mortgage loan

origination/sales activities

All other

$ 3,525

$ 2,457

$ 2,101

(9)
(2,444)
(34)

—
—
(1,991)

—
—
(1,826)

—

—
(145)
893

378

(46)
189
987

1,116
302

1,085
350

208

554
—
1,037

539
284

Total mortgage banking
noninterest income

$ 2,311

$ 2,422

$ 1,860

Market-related valuation
changes to MSRs,
net of hedge results (2) + (5)

$ (154)

(1) Includes contractually speciﬁed servicing fees, late charges and other ancillary
revenues. Also includes impairment write-downs on other interests held of
$26 million for 2006. There were no impairment write-downs for 2005 or 2004.
(2) Principally reﬂects changes in discount rates and prepayment speed assumptions,

mostly due to changes in interest rates.

(3) Represents changes due to collection/realization of expected cash ﬂows

over time.

(4) Results related to MSRs fair value hedging activities under FAS 133, Accounting
for Derivative Instruments and Hedging Activities (as amended), consist of gains
and losses excluded from the evaluation of hedge effectiveness and the
ineffective portion of the change in the value of these derivatives. Gains and
losses excluded from the evaluation of hedge effectiveness are those caused
by market conditions (volatility) and the spread between spot and forward
rates priced into the derivative contracts (the passage of time). See Note 26 –
Fair Value Hedges for additional discussion and detail.

(5) Represents results from free-standing derivatives (economic hedges) used to
hedge the risk of changes in fair value of MSRs. See Note 26 – Free-Standing
Derivatives for additional discussion and detail.

(in billions)

Loans serviced for others (1)
Owned loans serviced (2)
Total owned servicing

Sub-servicing

Total managed servicing portfolio

Ratio of MSRs to related loans

serviced for others

December 31,
2005

2006

$1,280
86
1,366
19

$1,385

$ 871
118
989
27

$1,016

1.41%

1.44%

(1) Consists of 1-4 family ﬁrst mortgage and commercial mortgage loans.
(2) Consists of mortgages held for sale and 1-4 family ﬁrst mortgage loans.

106

Note 22: 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). In 2002, the Parent issued a full
and unconditional guarantee of all outstanding term debt
securities and commercial paper of WFFI. WFFI ceased ﬁling
periodic reports under the Securities Exchange Act of 1934
and is no longer a separately rated company. The Parent also
guaranteed all outstanding term debt securities of Wells Fargo

Financial Canada Corporation (WFFCC), WFFI’s wholly-
owned Canadian subsidiary. WFFCC has continued to issue
term debt securities and commercial paper in Canada, fully
guaranteed by the Parent. The Wells Fargo Financial business
segment for management reporting (see Note 19) 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, 2006

Dividends from subsidiaries:

Bank
Nonbank

Interest income from loans
Interest income from subsidiaries
Other interest income

Total interest income

Deposits
Short-term borrowings
Long-term debt

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

$2,176
876
—
3,266
103
6,421

—
436
3,197
3,633

2,788
—
2,788

—
180
180

95
22
117

2,851
(165)
5,466

$8,482

$ —
—
5,283
—
102
5,385

—
381
1,758
2,139
3,246
1,061
2,185

285
259
544

1,128
976
2,104

625
205
—

$ 420

$ —
—
20,370
—
6,428
26,798

7,174
1,065
710
8,949
17,849
1,143
16,706

8,946
6,126
15,072

10,704
8,753
19,457

12,321
4,223
—

$ 8,098

$(2,176)
(876)
(42)
(3,266)
(5)
(6,365)

—
(890)
(1,543)
(2,433)
(3,932)
—
(3,932)

—
(56)
(56)

—
(936)
(936)

(3,052)
—
(5,466)

$(8,518)

$ —
—
25,611
—
6,628
32,239

7,174
992
4,122
12,288
19,951
2,204
17,747

9,231
6,509
15,740

11,927
8,815
20,742

12,745
4,263
—

$ 8,482

107

Condensed Consolidating Statements of Income

(in millions)

Parent

WFFI

Other
consolidating
subsidiaries

Eliminations

Consolidated
Company

Year ended December 31, 2005

Dividends from subsidiaries:

Bank
Nonbank

Interest income from loans
Interest income from subsidiaries
Other interest income

Total interest income

Deposits
Short-term borrowings
Long-term debt

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, 2004

Dividends from subsidiaries:

Bank
Nonbank

Interest income from loans
Interest income from subsidiaries
Other interest income

Total interest income

Deposits
Short-term borrowings
Long-term debt

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

108

$4,675
763
—
2,215
105
7,758

—
256
2,000
2,256

5,502
—
5,502

—
298
298

92
50
142

5,658
145
2,158

$7,671

$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

$ —
—
4,467
—
104
4,571

—
223
1,362
1,585

2,986
1,582
1,404

224
223
447

985
759
1,744

107
(2)
—

$ 109

$ —
—
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

$ —
—
16,809
—
4,493
21,302

3,848
897
598
5,343

15,959
801
15,158

8,111
5,727
13,838

9,378
8,398
17,776

11,220
3,734
—

$ 7,486

$ —
—
13,233
—
4,011
17,244

1,827
458
387
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

$(4,675)
(763)
(16)
(2,215)
—
(7,669)

—
(632)
(1,094)
(1,726)

(5,943)
—
(5,943)

—
(138)
(138)

—
(644)
(644)

(5,437)
—
(2,158)

$(7,595)

$(3,652)
(307)
—
(1,117)
—
(5,076)

—
(258)
(711)
(969)
(4,107)
—
(4,107)

—
(81)
(81)

—
(230)
(230)

(3,958)
—
(2,966)

$(6,924)

$ —
—
21,260
—
4,702
25,962

3,848
744
2,866
7,458

18,504
2,383
16,121

8,335
6,110
14,445

10,455
8,563
19,018

11,548
3,877
—

$ 7,671

$ —
—
16,781
—
4,186
20,967

1,827
353
1,637
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 Balance Sheets

(in millions)

Parent

WFFI

Other
consolidating
subsidiaries

Eliminations

Consolidated
Company

December 31, 2006

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, 2005

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

$ 14,131
78
920
—
—

3,400
48,014
—
51,414

43,098
4,616
5,778
$120,035

—
19
3,762
65,396
4,982
74,159
45,876
$120,035

$ 10,720
74
888
—
1

3,100
44,935
—
48,036

37,298
4,258
6,272
$107,546

—
81
3,480
59,341
3,984
66,886
40,660

Total liabilities and stockholders’ equity

$107,546

146
324
1,725
15
47,136

—
538
(1,193)
46,481

—
—
1,745
$50,436

$ —
7,708
1,323
38,456
—
47,487
2,949
$50,436

255
219
1,763
32
44,598

—
1,003
(1,280)
44,321

—
—
1,247
$47,837

$ —
9,005
1,241
35,087
—
45,333
2,504

$47,837

—
20,704
39,990
33,803
272,339

—
—
(2,571)
269,768

—
—
62,981
$427,246

$324,520
18,793
22,683
16,580
—
382,576
44,670
$427,246

25
20,410
39,189
41,114
267,121

—
—
(2,591)
264,530

—
—
65,336
$430,604

$325,450
28,746
20,856
16,613
—
391,665
38,939

$430,604

$ (14,277)
—
(6)
—
(359)

(3,400)
(48,552)
—
(52,311)

(43,098)
(4,616)
(1,413)
$(115,721)

$ (14,277)
(13,691)
(1,865)
(33,287)
(4,982)
(68,102)
(47,619)
$(115,721)

$ (11,000)
—
(6)
—
(883)

(3,100)
(45,938)
—
(49,921)

(37,298)
(4,258)
(1,763)
$(104,246)

$ (11,000)
(13,940)
(2,506)
(31,373)
(3,984)
(62,803)
(41,443)

$(104,246)

$ —
21,106
42,629
33,818
319,116

—
—
(3,764)
315,352

—
—
69,091
$481,996

$310,243
12,829
25,903
87,145
—
436,120
45,876
$481,996

$ —
20,703
41,834
41,146
310,837

—
—
(3,871)
306,966

—
—
71,092
$481,741

$314,450
23,892
23,071
79,668
—
441,081
40,660

$481,741

109109

Condensed Consolidating Statement of Cash Flows

(in millions)

Parent

WFFI

Other
consolidating
subsidiaries/
eliminations

Consolidated
Company

Year ended December 31, 2006

Cash flows from operating activities:

Net cash provided by operating activities

$ 3,536

$ 1,179

$ 27,379

$ 32,094

Cash flows from investing activities:
Securities available for sale:

Sales proceeds
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 decrease in deposits
Net increase (decrease) in short-term borrowings
Proceeds from issuance of long-term debt
Long-term debt repayment
Proceeds from issuance of common stock
Common stock repurchased
Cash dividends paid on common stock
Excess tax beneﬁts related to stock option payments
Other, net

Net cash provided (used) by ﬁnancing activities

Net change in cash and due from banks

Cash and due from banks at beginning of year

Cash and due from banks at end of year

353
14
(378)
—

—

—
—
—
(500)
(7,805)
4,926
(145)
—
(3,535)

—
931
13,448
(7,362)
1,764
(1,965)
(3,641)
227
12
3,414

3,415

10,794

$14,209

822
259
(1,032)
—

(2,003)

(202)
19,998
(22,382)
—
—
—
—
1,081
(3,409)

—
(1,297)
8,670
(5,217)
—
—
—
—
70
2,226

(4)

474

470

52,129
7,048
(61,052)
(626)

(35,727)

38,293

(5,136)
3,923
(4,592)
500
7,805
(4,926)
145
(11,540)
(13,756)

(4,452)
(10,790)
(1,863)
(30)
—
—
—
—
(268)
(17,403)

(3,780)

4,129

349

53,304
7,321
(62,462)
(626)

(37,730)

38,343

(5,338)
23,921
(26,974)
—
—
—
—
(10,459)
(20,700)

(4,452)
(11,156)
20,255
(12,609)
1,764
(1,965)
(3,641)
227
(186)
(11,763)

(369)

15,397

$ 15,028

110

Condensed Consolidating Statement of Cash Flows

(in millions)

Parent

WFFI

Other
consolidating
subsidiaries/
eliminations

Consolidated
Company

Year ended December 31, 2005

Cash flows from operating activities:

Net cash provided (used) by operating activities

$ 5,396

$ 1,159

$(15,888)

$ (9,333)

Cash flows from investing activities:
Securities available for sale:

Sales proceeds
Prepayments and maturities
Purchases

Net cash acquired from 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
Long-term debt repayment
Proceeds from issuance of common stock
Common stock repurchased
Cash dividends paid 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

631
90
(231)
—

—

—
—
—
(3,166)
(10,751)
2,950
194
—
(10,283)

—
1,048
18,297
(8,216)
1,367
(3,159)
(3,375)
—
5,962

1,075

9,719

281
248
(486)
—

(953)

232

—
19,542
(29,757)
—
—
—
—
(1,059)
(11,952)

—
3,344
11,891
(4,450)
—
—
—
—
10,785

(8)

482

474

$ 10,794

18,147
6,634
(27,917)
66

(41,356)

42,007

(8,853)
3,280
(3,918)
3,166
10,751
(2,950)
(194)
(6,697)
(7,834)

38,961
(2,514)
(3,715)
(5,910)
—
—
—
(1,673)
25,149

1,427

2,702

19,059
6,972
(28,634)
66

(42,309)

42,239

(8,853)
22,822
(33,675)
—
—
—
—
(7,756)
(30,069)

38,961
1,878
26,473
(18,576)
1,367
(3,159)
(3,375)
(1,673)
41,896

2,494

12,903

$ 4,129

$ 15,397

111111

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

$ 3,848

$ 1,297

$ 1,340

$ 6,485

Cash flows from investing activities:
Securities available for sale:

Sales proceeds
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

Net cash used by investing activities

Cash flows from financing activities:
Net increase (decrease) in deposits
Net increase (decrease) in short-term borrowings
Proceeds from issuance of long-term debt
Long-term debt repayment
Proceeds from issuance of common stock
Common stock repurchased
Cash dividends paid on common stock
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

Note 23: Legal Actions

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

482

$ 9,719

5,976
8,511
(15,796)
(331)

(33,800)

14,540

(5,877)
328
27
92
11,676
(896)
353
(2,652)
(17,849)

27,437
(2,549)
(3,135)
(11,110)
—
—
—
(13)
10,630

(5,879)

8,581

6,322
8,823
(16,583)
(331)

(33,800)

14,540

(5,877)
17,996
(27,751)
—
—
—
—
(2,773)
(39,434)

27,327
(2,697)
29,394
(19,639)
1,271
(2,188)
(3,150)
(13)
30,305

(2,644)

15,547

$ 2,702

$ 12,903

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.

112

Note 24: Guarantees

We provide signiﬁcant guarantees to third parties including
standby letters of credit, various indemniﬁcation agreements,
guarantees accounted for as derivatives, additional consider-
ation related to business combinations and contingent
performance guarantees.

We issue standby letters of credit, which include performance

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 $12.0 billion at
December 31, 2006, and $10.9 billion at December 31, 2005,
including ﬁnancial guarantees of $7.2 billion and $6.4 billion,
respectively, that we had issued or purchased participations in.
Standby letters of credit are net of participations sold to
other institutions of $2.8 billion at December 31, 2006, and
$2.1 billion at December 31, 2005. 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
$801 million at December 31, 2006, and $761 million at
December 31, 2005.

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. Periodic settlements
occur on ﬂoors and caps based on market conditions. The
fair value of the written options liability in our balance sheet
was $556 million at December 31, 2006, and $563 million
at December 31, 2005. The aggregate written ﬂoors and caps
liability was $86 million and $169 million, respectively. Our

ultimate obligation under written options, ﬂoors and caps is
based on future market conditions and is only quantiﬁable
at settlement. The notional value related to written options
was $47.3 billion at December 31, 2006, and $45.6 billion
at December 31, 2005, and the aggregate notional value
related to written ﬂoors and caps was $11.9 billion and
$19.5 billion, respectively. 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 obligation.
The carrying amount of the contracts sold was a liability
of $2 million at December 31, 2006, and $6 million at
December 31, 2005. 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 $599 million and $2.7 billion, based
on notional value, at December 31, 2006 and 2005, respectively.
We purchased credit default swaps of comparable notional
amounts to mitigate the exposure of the written credit
default swaps at December 31, 2006 and 2005. These
purchased credit default swaps had terms (i.e., used 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,

insurance agency and other 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, 2006 and 2005,
the amount of additional 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 remaining terms up to 23 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. The extent of our obligations
under these guarantees depends entirely on future events
and was contractually limited to an aggregate liability of
approximately $125 million at December 31, 2006, and
$110 million at December 31, 2005.

113113

Note 25: 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 (FRB) 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 requirements 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 a portion of servicing
assets and the unrealized net gains and losses, after taxes, on
securities available for sale). 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.

We do not consolidate our wholly-owned trusts (the Trusts)
formed solely to issue trust preferred securities. The amount of
trust preferred securities issued by the Trusts that was includable
in Tier 1 capital in accordance with FRB risk-based capital
guidelines was $4.1 billion at December 31, 2006. The junior
subordinated debentures held by the Trusts were included in
the Company’s long-term debt. (See Note 12.)

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 26 for further discussion of off-balance
sheet items.) For certain recourse obligations, direct credit
substitutes, residual interests in asset securitization, and
other securitized transactions that expose institutions
primarily to credit risk, the capital amounts and classiﬁcation
under the guidelines are subject to qualitative judgments
by the regulators about components, risk weightings and
other factors.

(in billions)

As of December 31, 2006:
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.

Actual
Ratio

Amount

For capital
adequacy purposes
Ratio

Amount

To be well capitalized
under the FDICIA prompt
corrective action provisions
Ratio
Amount

$51.4
40.6

$36.8
29.2

12.50%
12.05

8.95%
8.66

> $32.9
> 27.0

>$16.5
> 13.5

>8.00%
>8.00

>4.00%
>4.00

>$33.7

>10.00%

>$20.2

> 6.00%

7.89%
7.46

> $18.7
> 15.7

>4.00%(1)
>4.00 (1)

>$19.6

> 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.

Management believes that, as of December 31, 2006, 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 the table above and not be subject to a
capital directive order. There are no conditions or events

114

since that notiﬁcation that management believes have
changed the risk-based capital category of any of the
covered subsidiary banks.

As an approved seller/servicer, Wells Fargo Bank, N.A.,
through its mortgage banking division, is required to maintain
minimum levels of shareholders’ equity, as speciﬁed by various

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,
2006, Wells Fargo Bank, N.A. met these requirements.

Note 26: 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 the
gain 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,
equity, credit and foreign exchange contracts, to our customers
but usually offset our exposure from such contracts by
purchasing other ﬁnancial contracts. The customer
accommodations 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, including
economic hedge derivatives. To a lesser extent, we take
positions based on market expectations or to beneﬁt from
price differentials between ﬁnancial instruments and markets.
Additionally, free-standing derivatives include embedded
derivatives that are required to be separately accounted
for from their host contracts.

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 counterparty
nonperformance on derivatives have not been signiﬁcant.
Further, we obtain collateral, where appropriate, to reduce
risk. To the extent the master netting arrangements and
other criteria 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
Prior to January 1, 2006, we used derivatives as fair value
hedges to manage the risk of changes in the fair value of
residential MSRs and other interests held. These derivatives
included interest rate swaps, swaptions, Treasury futures
and options, Eurodollar futures and options, and forward
contracts. 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) were excluded from the evaluation of hedge
effectiveness, but were reﬂected in earnings. Upon adoption
of FAS 156, derivatives used to hedge our residential MSRs
are no longer accounted for as fair value hedges under
FAS 133, but as economic hedges. Net derivative gains and
losses related to our residential mortgage servicing activities
are included in “Servicing income, net” in Note 21.

We use interest rate swaps to convert certain of our ﬁxed-

rate long-term debt and certiﬁcates of deposit to ﬂoating
rates to hedge our exposure to interest rate risk. We also
enter into cross-currency swaps and cross-currency interest
rate swaps to hedge our exposure to foreign currency risk
and interest rate risk associated with the issuance of non-
U.S. dollar denominated debt. The ineffective portion of
these fair value hedges is recorded as part of interest expense
in the income statement. In addition, we use derivatives,
such as Treasury and LIBOR futures and swaptions, to
hedge changes in fair value due to changes in interest rates
of our commercial real estate mortgages and franchise loans
held for sale. The ineffective portion of these fair value
hedges is recorded as part of mortgage banking noninterest
income in the income statement. For fair value hedges of
long-term debt and certiﬁcates of deposit, foreign currency,
and commercial real estate and franchise loans, all parts
of each derivative’s gain or loss due to the hedged risk
are included in the assessment of hedge effectiveness.

115115

We enter into equity collars to lock in share prices
between speciﬁed levels for certain equity securities. As
permitted, we include the intrinsic value only (excluding
time value) when assessing hedge effectiveness. The net
derivative gain or loss related to the equity collars is recorded
in other noninterest income in the income statement.

At December 31, 2006, all designated fair value hedges

continued to qualify as fair value hedges.

Cash Flow Hedges
We use derivatives, such as Treasury futures, forwards and
options, Eurodollar futures, and forward contracts, to hedge
forecasted sales of mortgage loans. We also hedge ﬂoating-
rate senior debt against future interest rate increases by using
interest rate swaps to convert ﬂoating-rate senior debt to
ﬁxed rates and by using interest rate caps and ﬂoors to limit
variability of rates. 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 effectiveness. As of December 31, 2006,
all designated cash ﬂow hedges continued to qualify as cash
ﬂow hedges.

We expect that $53 million of deferred net gains on
derivatives in other comprehensive income at December 31,
2006, will be reclassiﬁed as earnings during the next twelve
months, compared with $13 million and $8 million of deferred
net losses at December 31, 2005 and 2004, respectively. We
are hedging our exposure to the variability of future cash
ﬂows for all forecasted transactions for a maximum of
10 years for hedges of ﬂoating-rate senior debt and one
year for hedges of forecasted sales of mortgage loans.

The following table provides derivative gains and losses

related to fair value and cash ﬂow hedges resulting from
the change in value of the derivatives excluded from the
assessment of hedge effectiveness and the change in value
of the ineffective portion of the derivatives.

(in millions)

Gains (losses) from fair

value hedges (1) from:

Change in value of

derivatives excluded
from the assessment
of hedge effectiveness

Ineffective portion of
change in value
of derivatives

Gains from ineffective portion

of change in the value of
cash ﬂow hedges

December 31,
2004

2005

2006

$ (5)

$ 350

$ 933

(399)

(411)

(1) Includes hedges of long-term debt and certiﬁcates of deposit, foreign currency,
commercial real estate and franchise loans, and debt and equity securities, and,
for 2005 and 2004, residential MSRs. Upon adoption of FAS 156, derivatives
used to hedge our residential MSRs are no longer accounted for as fair value
hedges under FAS 133.

116

Free-Standing Derivatives
We use free-standing derivatives (economic hedges), in
addition to debt securities available for sale, to hedge the
risk of changes in the fair value of residential MSRs, with
the resulting gain or loss reﬂected in income. These derivatives
include swaps, swaptions, Treasury futures and options,
Eurodollar futures and options, and forward contracts. Net
derivative losses of $145 million for 2006 from economic
hedges related to our mortgage servicing activities are included
in the income statement in “Mortgage banking.” The
aggregate fair value of these derivatives used as economic
hedges was a net asset of $157 million at December 31,
2006, and $32 million at December 31, 2005, and is
included in the balance sheet in “Other assets.” Changes
in fair value of debt securities available for sale (unrealized
gains and losses) are not included in servicing income,
but are reported in cumulative other comprehensive income
(net of tax) or, upon sale, are reported in net gains (losses)
on debt securities available for sale.

Interest rate lock commitments for residential mortgage

loans that we intend to sell are considered free-standing
derivatives. Our interest rate exposure on these derivative
loan commitments is hedged with free-standing derivatives
(economic hedges) such as Treasury futures, forwards and
options, Eurodollar futures, and forward contracts. The
commitments and free-standing derivatives are carried at
fair value with changes in fair value included in the income
statement in “Mortgage banking.” We record a zero fair
value for a derivative loan commitment at inception consistent
with Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 105, Application of Accounting
Principles to Loan Commitments. Changes subsequent to
inception are based on changes in fair value of the underlying
loan resulting from the exercise of the commitment and
changes in the probability that the loan will not fund within
the terms of the commitment, which is affected primarily
by changes in interest rates and passage of time (referred
to as a fall-out factor). The aggregate fair value of derivative
loan commitments in the balance sheet at December 31, 2006
and 2005, was a net liability of $65 million and $54 million,
respectively, and is included in the caption “Interest rate
contracts” under Customer Accommodation, Trading and
Other Free-Standing Derivatives in the following table.

We also enter into various derivatives primarily to provide

derivative products to customers. To a lesser extent, we take
positions based on market expectations or to beneﬁt from
price differentials between ﬁnancial instruments and markets.
These derivatives are not linked to speciﬁc assets and liabilities
in the balance sheet or to forecasted transactions in an
accounting hedge relationship and, therefore, do not qualify for
hedge accounting. We also enter into free-standing derivatives
for risk management that do not otherwise qualify for hedge
accounting. They are carried at fair value with changes in fair
value recorded as part of other noninterest income in the
income statement.

The total notional or contractual amounts, credit risk amount and estimated net fair value for derivatives were:

December 31,
2005
Estimated
net fair
value

2006
Estimated
net fair
value

Notional or
contractual
amount

Credit
risk
amount (2)

Notional or
contractual
amount

(in millions)

ASSET/LIABILITY MANAGEMENT HEDGES
Qualifying hedge contracts

accounted for under FAS 133
Interest rate contracts:

Swaps
Futures
Floors and caps purchased
Floors and caps written
Options purchased
Forwards
Equity contracts:

Options purchased
Options written
Forwards

Foreign exchange contracts:

Swaps

Free-standing derivatives
(economic hedges) (1)
Interest rate contracts:

Swaps
Futures
Options purchased
Options written
Forwards

Foreign exchange contracts:

Swaps
Forwards

CUSTOMER ACCOMMODATION,
TRADING AND OTHER
FREE-STANDING DERIVATIVES

Interest rate contracts:

Swaps
Futures
Floors and caps purchased
Floors and caps written
Options purchased
Options written
Forwards

Commodity contracts:

Swaps
Futures
Floors and caps purchased
Floors and caps written
Options purchased
Options written

Equity contracts:

Swaps
Futures
Forwards
Options purchased
Options written

Foreign exchange contracts:

Swaps
Futures
Options purchased
Options written
Forwards and spots

Credit contracts:
Swaps

$ 36,840
339
500
—
—
27,781

$ 530
—
5
—
—
86

$ 158
—
5
—
—
36

1
75
4

10,157

29,674
61,339
94,101
11,620
260,751

603
1,000

100,944
16,870
6,929
10,704
8,993
31,237
83,163

3,422
518
839
1,224
184
155

81
90
160
2,732
2,113

4,133
1
2,384
2,145
34,576

1,513

—
—
—

548

164
—
157
—
394

87
49

1,286
—
30
—
102
15
21

277
—
55
—
30
—

4
—
1
295
—

40
—
72
—
194

—
(15)
—

539

39
—
157
(5)
(8)

87
—

230
—
30
(20)
102
(133)
5

34
—
55
(66)
30
(31)

1
—
(7)
295
(302)

(17)
—
72
(55)
19

$ 30,634
15,341
5,250
5,250
26,508
86,985

3
75
15

3,614

6,344
254,114
—
405
37,838

603
1,000

92,462
8,400
7,169
12,653
10,160
41,124
37,968

2,858
455
1,686
1,629
48
203

55
31
54
1,751
1,542

1,078
53
2,280
2,219
21,516

5,454

$ 263
—
87
—
103
95

1
—
2

145
—
—
1
32

81
11

1,175
—
33
—
129
41
17

599
—
195
—
7
—

5
—
—
253
—

35
—
60
—
220

(1) Includes free-standing derivatives (economic hedges) used to hedge the risk of changes in the fair value of residential MSRs, interest rate lock commitments

and other interests held.

(2) Credit risk amounts reﬂect the replacement cost for those contracts in a gain position in the event of nonperformance by all counterparties.

$ 37
—
87
(13)
103
(14)

1
(3)
2

(11)
—
—
(3)
(29)

81
—

133
—
33
(27)
129
(160)
—

(1)
—
195
(130)
7
(33)

(2)
—
—
253
(263)

1
—
60
(59)
22

(33)

117117

Note 27: 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 balance sheet under
the indicated captions.

We base our fair values on the price that would be

received to sell an asset, or paid upon the transfer of a liability,
in an orderly transaction between market participants at the
measurement date. Our fair value measurements are generally
determined based on assumptions that market participants
would use in pricing the asset or liability and are based on
market data obtained from independent sources. However,
in certain cases, we use our own assumptions about
market participant assumptions developed based on the
best information available in the circumstances. 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. Therefore, the results cannot be
determined with precision and may not be realized in an
actual sale or immediate settlement of the instruments. There
may be inherent weaknesses in any calculation technique,
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.

118

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.

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 portfolio’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
prepayment estimates, based on the current rates we offer
for loans with similar characteristics.

Loan commitments, standby letters of credit and commercial

and similar letters of credit not included in the following table
had contractual values of $216.5 billion, $12.0 billion and
$801 million, respectively, at December 31, 2006, and
$191.4 billion, $10.9 billion and $761 million, respectively,
at December 31, 2005. These instruments generate ongoing
fees at our current pricing levels. Of the commitments at
December 31, 2006, 40% mature within one year. Deferred
fees on commitments and standby letters of credit totaled
$39 million and $47 million at December 31, 2006 and 2005,
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,
interest-bearing checking, and market rate and other savings,
is equal to the amount payable on demand at the measurement
date. The amount included for these deposits in the following
table is their carrying value at December 31, 2006 and 2005.
The fair value of other time deposits is calculated based on
the discounted value of contractual cash ﬂows. The discount
rate is estimated using the rates currently offered for like
wholesale deposits with similar remaining maturities.

SHORT-TERM FINANCIAL LIABILITIES
Short-term ﬁnancial liabilities include federal funds purchased
and securities sold under repurchase agreements, commercial
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 26.

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 underlying
value of the Company. The information presented is
based on fair value calculations and market quotes as of
December 31, 2006 and 2005. These amounts have not
been updated since year end; therefore, the valuations may
have changed signiﬁcantly since that point in time.

As discussed above, some of our asset and liability ﬁnancial

instruments are short term, and therefore, the carrying
amounts in the balance sheet approximate fair value. Other
signiﬁcant assets and liabilities that are not considered ﬁnancial
assets or liabilities, and for which fair values have not been
estimated, include mortgage servicing rights, premises and
equipment, goodwill and other intangibles, deferred taxes
and other liabilities.

The table below is a summary of ﬁnancial instruments,
as deﬁned by FAS 107, excluding short-term ﬁnancial assets
and liabilities, for which carrying amounts approximate fair
value, and trading assets, securities available for sale and
derivatives, which are carried at fair value.

(in millions)

FINANCIAL ASSETS
Mortgages held for sale
Loans held for sale
Loans, net
Nonmarketable equity investments (cost method)

FINANCIAL LIABILITIES
Deposits
Long-term debt (1)

December 31,
2005
2006
Estimated
Estimated
fair value
fair value

Carrying
amount

$ 33,097
721
315,352
4,451

$ 33,240
731
315,484
4,711

$ 40,534
612
306,966
4,377

$ 40,666
629
307,721
4,821

$310,243
87,133

$310,116
86,837

$314,450
79,654

$314,301
78,868

(1) The carrying amount and fair value exclude obligations under capital leases of $12 million and $14 million at December 31, 2006 and 2005, respectively.

119119

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 (“the
Company”) as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in
stockholders’ equity and comprehensive income, and cash ﬂows for each of the years in the three-year period ended
December 31, 2006. 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 the Company as of December 31, 2006 and 2005, and the results of its operations and its cash
ﬂows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally
accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of the Company’s internal control over ﬁnancial reporting as of December 31, 2006,
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 20, 2007, expressed an unqualiﬁed
opinion on management’s assessment of, and the effective operation of, internal control over ﬁnancial reporting.

As discussed in Note 1 to the consolidated ﬁnancial statements, the Company changed its method of accounting
for residential mortgage servicing rights, stock-based compensation and pensions in 2006.

San Francisco, California
February 20, 2007

120
120

Quarterly Financial Data
Condensed Consolidated Statement of Income — Quarterly (1) (Unaudited)

(in millions, except per share amounts)

2006
Quarter ended
Mar. 31

Sept. 30

June 30

Dec. 31

2005
Quarter ended
Mar. 31

Sept. 30

June 30

Dec. 31

INTEREST INCOME
INTEREST EXPENSE

NET INTEREST INCOME

$ 8,231
3,181
5,050

$ 8,399
3,352
5,047

$ 8,077
3,093
4,984

$ 7,532
2,662
4,870

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 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
Income tax expense

726
4,324

695
735
481
550
677
190
299
51
256
429
4,363

1,812
793
501
339
367
157
1,442
5,411

3,276
1,095

613
4,434

707
664
464
509
484
192
313
121
159
274
3,887

1,769
710
458
294
357
155
1,338
5,081

3,240
1,046

432
4,552

433
4,437

665
675
418
510
735
200
364
(156)
133
261
3,805

1,754
714
487
284
345
157
1,435
5,176

3,181
1,092

623
663
384
488
415
201
364
(35)
190
392
3,685

1,672
668
589
335
336
161
1,313
5,074

3,048
1,030

$ 7,244
2,405
4,839

703
4,136

$ 6,645
1,969
4,676

641
4,035

655
623
394
478
628
200
272
(124)
93
434
3,653

1,613
663
428
328
344
161
1,346
4,883

2,906
976

654
614
377
520
743
202
248
(31)
146
354
3,827

1,571
676
467
306
354
159
1,356
4,889

2,973
998

$ 6,200
1,664
4,536

454
4,082

625
597
361
478
237
202
358
39
201
231
3,329

1,551
562
432
263
310
157
1,279
4,554

2,857
947

$ 5,873
1,420
4,453

585
3,868

578
602
326
453
814
208
337
(4)
71
251
3,636

1,480
465
547
370
404
158
1,268
4,692

2,812
956

NET INCOME

$ 2,181

$ 2,194

$ 2,089

$ 2,018

$ 1,930

$ 1,975

$ 1,910

$ 1,856

EARNINGS PER COMMON SHARE

DILUTED EARNINGS PER COMMON SHARE

DIVIDENDS DECLARED PER COMMON SHARE

0.65

0.64

0.28

0.65

0.64

0.62

0.61

— $

0.54

0.60

0.26

0.57

0.26

0.59

$ 0.56

$ 0.58

$ 0.56

0.26

0.24

0.55

0.54

0.24

Average common shares outstanding

3,379.4

3,371.9

3,363.8

3,358.3

3,350.8

3,373.5

3,375.4

3,390.8

Diluted average common shares outstanding

3,424.0

3,416.0

3,404.4

3,395.7

3,387.8

3,410.6

3,414.4

3,431.5

Market price per common share (2)

High
Low
Quarter end

$ 36.99
34.90
35.56

$ 36.89
33.36
36.18

$ 34.86
31.90
33.54

$ 32.76
30.31
31.94

$ 32.35
28.81
31.42

$ 31.44
29.00
29.29

$ 31.11
28.89
30.79

$ 31.38
29.08
29.90

(1) All common share and per share disclosures reﬂect the two-for-one split in the form of a 100% stock dividend distributed August 11, 2006.
(2) Based on daily prices reported on the New York Stock Exchange Composite Transaction Reporting System.

121121

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

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 (6)

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

2006
Interest
Yields/
income/
rates
expense

Quarter ended December 31,
2005
Interest
Yields/
income/
rates
expense

Average
balance

$ 7,751
3,950

5.19%
5.12

$ 102
50

$ 5,158
5,061

3.64%
3.82

4.28
7.62

6.20
6.19
6.20
7.20
6.40
6.62
7.60

8.27
7.49
8.07
5.66
7.93

7.53
8.16
13.30
9.67
8.80
11.97
8.54
5.17

8.01

3.11
2.69
4.33
5.27
4.65
3.42
4.77
5.20
3.95
—
3.08

9
62

483
78
561
115
747
627
13

1,426
563
321
78
2,388

961
1,403
457
1,297
4,118
199
6,705
18

8,262

35
918
398
264
286
1,901
162
1,120
3,183
—
3,183

1,051
3,256

23,545
8,060
31,605
4,843
40,755
42,036
603

61,297
28,425
13,040
5,347
108,109

76,233
58,157
11,326
46,593
192,309
5,278
305,696
1,415

$400,724

$ 3,797
132,042
26,610
33,321
14,347
210,117
25,395
79,169
314,681
86,043
$400,724

3.90
8.22

5.94
5.71
5.88
6.79
6.12
5.97
6.41

7.35
6.84
7.26
5.77
7.13

6.75
7.28
12.81
9.13
7.84
13.08
7.68
4.49

7.23

1.79
1.86
3.26
4.07
3.71
2.51
3.79
4.19
3.04
—
2.39

47
48

10
64

347
114
461
82
617
628
10

1,135
489
239
77
1,940

1,291
1,067
363
1,071
3,792
174
5,906
16

7,272

17
619
219
341
135
1,331
242
832
2,405
—
2,405

4.93%

$5,079

4.84%

$4,867

$ 13,508
10,780
43,469

$ 67,757

$ 90,937
23,049
39,814

(86,043)
$ 67,757

$468,481

786
3,406

31,718
5,130
36,848
6,406
47,446
37,878
659

68,402
29,882
15,775
5,500
119,559

50,836
68,208
13,737
53,206
185,987
6,620
312,166
1,333

$411,183

$ 4,477
135,673
36,382
19,838
24,425
220,795
13,470
85,809
320,074
91,109
$411,183

$ 12,379
11,259
47,764

$ 71,402

$ 91,259
25,687
45,565

(91,109)
$ 71,402

$482,585

(1) Our average prime rate was 8.25% and 6.97% for the quarters ended December 31, 2006 and 2005, respectively. The average three-month London Interbank Offered Rate (LIBOR)

was 5.37% and 4.34% 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) 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.

122

Stock Performance

These graphs compare the cumulative total stockholder
return and total compound annual growth rate (CAGR) for
our common stock (NYSE: WFC) for the ﬁve- and ten-year
periods ended December 31, 2006, with the cumulative
total stockholder returns for the same periods for the Keefe,
Bruyette and Woods 50 Total Return Index (the KBW 50
Bank Index) and the S&P 500 Index.

The cumulative total stockholder returns (including
reinvested dividends) in the graphs assume the investment
of $100 in Wells Fargo’s common stock, the KBW 50 Bank
Index and the S&P 500 Index.

FIVE YEARS

$200

$180

$160

$140

$120

$100

$ 80

$ 60

Wells Fargo

KBW 50

S&P 500

2001

$100
100
100

2002

$110
93
78

2003

$143
125
100

2004

$155
137
111

2005

$162
139
117

2006

$190
166
135

5-year
CAGR

14%
11
6

Wells Fargo
KBW 50
S&P 500

TEN YEARS

$500

$400

$300

$200

$100

$ 0

1996*

1997*

1998

1999

2000

2001

2002

2003

2004

2005

2006

Wells Fargo

KBW 50

S&P 500

10-year
CAGR

$100
100
100

$182
146
133

$191
158
171

$197
153
207

$277
183
188

$221
176
166

$244
164
130

$316
219
167

$344
241
185

$359
244
194

$419
291
224

15%
11
8

Wells Fargo
KBW 50
S&P 500

*Reﬂects the results of Norwest Corporation before merger with the former Wells Fargo in 1998.

123

Wells Fargo & Company
America’s 20 Highest Valued Companies
Highest Market Caps, Year-End 2006, Among Fortune 100

Market Cap
(Billions)

Fortune Rank*
(Revenue)

1. Exxon Mobil (XOM)
2. General Electric (GE)
3. Microsoft (MSFT)
4. Citigroup (C)
5. Bank of America (BAC)
6.
7. Wal-Mart Stores (WMT)
8. Pﬁzer (PFE)
9. AIG (AIG)

Johnson & Johnson (JNJ)

10. Altria Group (MO)

*4/06

$470
390
320
277
214
196
192
191
186
179

1
7
48
8
12
32
2
31
9
20

Stock Listing
Wells Fargo & Company is listed and trades on the New York
Stock Exchange: WFC

Common Stock
3,377,149,861 common shares outstanding (12/31/06)

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 enrollment kit including plan prospectus.

Form 10-K
We will send Wells Fargo’s 2006 Annual Report on Form 10-K
(including ﬁnancial statements ﬁled with the Securities and
Exchange Commission) free to any stockholder who asks for a
copy in writing. Stockholders also can ask for copies of any exhibit
to the Form 10-K. We 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.

SEC Filings
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 our website (www.wellsfargo.com),
as soon as reasonably practicable after they are electronically ﬁled
with or furnished to the SEC.Those reports and amendments are
also available free of charge on the SEC’s website at www.sec.gov.

JP Morgan Chase (JPM)

11. Cisco Systems (CSCO)
12.
13. Chevron Texaco (CVX)
14. Procter & Gamble (PG)
IBM (IBM)
15.
16. AT&T (T)
17. Google (GOOG)
18. Wells Fargo (WFC)
19.
20. Hewlett-Packard (HPQ)

Intel (INTC)

173
168
164
159
153
139
135
120
120
117

83
17
4
24
10
39
353
46
49
11

Independent Registered Public Accounting Firm
KPMG LLP
San Francisco, CA
415-963-5100

Contacts
Investor Relations
1-888-662-7865
investorrelations@wellsfargo.com

Shareholder Services and Transfer Agent
Wells Fargo Shareowner Services
P.O. Box 64854
Saint Paul, MN 55164-0854
1-877-840-0492
www.wellsfargo.com/com/shareowner_services

Corporate Information
Annual Stockholders’ Meeting
1:00 p.m., Tuesday, April 24, 2007
420 Montgomery Street
San Francisco, CA

Proxy statement and form of proxy will be mailed to stockholders
beginning on or about March 16, 2007.

Certiﬁcations
Our chief executive ofﬁcer certiﬁed to the New York Stock Exchange
(NYSE) that, as of May 24, 2006, 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 2006 Form 10-K.

Forward-Looking Statements In this report we may make forward-looking statements about our company’s ﬁnancial condition, results of operations,
plans, objectives and future performance and business. We make forward-looking statements when we use words such as “believe,”“expect,”“anticipate,”
“estimate,”“may,”“can,”“will” or similar expressions. Forward-looking statements involve risks and uncertainties. They are based on current expectations.
Several factors could cause actual results to differ signiﬁcantly from expectations including • our ability to sell more products to our customers • the effect
of an economic slowdown on the demand for our products and services • the effect of a fall in stock market prices on fee income from our brokerage and
asset management businesses • the effect of changes in interest rates on our net interest margin and our mortgage originations and mortgage servicing
rights • the adequacy of our allowance for credit losses • changes in the value of our venture capital investments • changes in our accounting policies or in
accounting standards or in how accounting standards are to be applied • mergers and acquisitions • federal and state regulations • reputational damage
from negative publicity • ﬁnes, penalties and other negative consequences from regulatory violations • the loss of checking and saving account deposits
to other investments such as the stock market • ﬁscal and monetary policies of the Federal Reserve Board. Under “Risk Factors” on pages 61-65 of this report
we discuss these and other factors that could cause actual results to differ from expectations. We discuss additional factors in the Financial Review and the
Financial Statements and related Notes in this report and in the “Regulation and Supervision” section of our 2006 Annual Report on Form 10-K ﬁled with
the Securities and Exchange Commission and available on the SEC’s website at www.sec.gov.

124

Which Measures Really Matter?

In our past three annual reports, we said to you, our owners, that
we measure success differently than our competitors—to reflect
more accurately how financial services companies, like ours,

create value for customers and stockholders. Here’s an update
on the progress we’re making in the areas we believe are the best
long-term indicators for success in the financial services industry.

Financial Performance

7
5
3

9
2
3

1
0
3

4
8
2

2
5
2
$

9
4
2

5
2
2

5
0
2

3
8
1

6
6
1
$

4
9
1

6
9
1

7
9
1

%
7
8
1

0
2
5 1
0
1

5
0
1

0
0
1

9
7
$

02
Revenue billions
20-year compound annual growth rate: 12%

02
Earnings Per Share diluted*
20-year compound annual growth rate: 14%
* reflects two-for-one stock split 8/11/06

02
Return on Equity (ROE)
cents earned for every dollar
stockholders invest in the company

02
04
Market Capitalization
billions

Sales

9
3
1

7
1
1

5
0
1

7
8
9 1
5
1

7
4

8
4

9
4

0
5

3
4

2
4

6
3 4
4

2
8 5
4

9
4

0
7 6

3 5

0 5
5

02
Product Solutions (Sales)
Retail Banking
millions

02
Product Solutions (Sales)
Per Banker* Per Day
* platform full-time equivalent (FTE)
team member

02
04
Products Per Banking
Household

02
Commercial/Corporate
Products Per Banking
Customer

Managing Risk

Moody’s

Number of S&P 500
companies with
higher rating

The higher a company’s credit rating
(based on its ability to meet debt obli-
gations), the less interest it has to
pay to borrow money. Wells Fargo Bank
has highest credit rating from Moody’s
and highest credit rating for a U.S. bank
from S&P.

Wells Fargo Bank, N.A.
Issuer
Long-term Deposits
Financial Strength
Wells Fargo & Company
Subordinated Debt
Issuer
Senior Debt

Aaa
Aaa
A

Aa2
Aa1
Aa1

None
None
None

One
Five
Five

1
5
3

1
3
3

1
1
9 3
6
% 2
7
3
2

02
05
Retail Banking Households
with Credit Cards

%
8
7
0

8
5
0

7
4
0

2
5
3 0
4
0

02
Nonperforming Loans*
/Total Loans
* loans not earning interest

Earning More Business

0
7
2

3
5
0 2
3
2

1
1
2

8
9
1
$

0
7
4

3
3
3
$

8
9
2

8
9
3

6
6
3

6
6
3
1

9
8
5 9
0
8

0
1
1 7
8
5
$

9
7

0
7

2
7

9
4

4
3
$

8
9
0
0 1
8
1 8
9
4 7
5
6

8
7
5
$

02
Core Deposits
billions
acquired in our markets, stable source
of funds for lending

02
Mortgage Originations
billions
includes “co-issue” (servicing acquired,
without credit risk)

06
04
02
Mortgage Servicing
Portfolio
billions

Retaining Customers, Team Member Engagement

Online

04
02
National Home Equity
Group Loans
billions

02
Assets Managed,
Administered
billions, includes brokerage

1
7

9
5

8
5

6
5

03
05
Retaining Households
annual percent of high-value* banking
households that leave us

* top 20 percent of banking households
based on balances

1
1
1 7
8
5

1
4

5
2

9
1.

9
4

5
3

5
8

2
7

2
6

2
3

8
2

5
2

2
2

8
1

3
3
8

6
6
6

1
3
5

5
1
4

7
9
2

National Avg
03
06
Team Member Engagement
ratio of engaged to actively disengaged
Gallup survey of Wells Fargo Regional
Banking team members

02
Active Online
Banking Customers
millions

02
05
Active Online Middle-Market/
Large Corporate Customers
thousands

02
Active Online
Small Business Customers
thousands

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.

NOTRE VISION:
Satisfaire tous les besoins financiers de nos
clients et les aider à atteindre le succès financier.

Wells Fargo & Company
420 Montgomery Street
San Francisco, California 94104

1-866-878- 5865
wellsfargo.com

America’s “Most Admired”
Large Bank Fortune

25%25%

Cert no. SCS-COC-00949
Cert no. SCS-COC-00949