Wells Fargo 2006 Annual Report Download

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One team. Pulling together…
Wells Fargo & Company Annual Report 2006

Table of contents

  • Page 1
    One team. Pulling together... Wells Fargo & Company Annual Report 2006

  • Page 2
    .../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. © 2007 Wells Fargo & Company...

  • Page 3
    ... (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...

  • Page 4
    ..., 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...

  • Page 5
    ...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...

  • Page 6
    ... 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: Stockholders' equity to assets Risk-based capital Tier 1 capital Total capital Tier 1 leverage Book value per common share Team...

  • Page 7
    ... 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...

  • Page 8
    ... 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. 7. "Information-Based" Marketing Offer the right product to the right customer at the right time...

  • Page 9
    ... 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...

  • Page 10
    ... 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...

  • Page 11
    ... 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...

  • Page 12
    ... 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...

  • Page 13
    ... 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...

  • Page 14
    ... 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, quali...

  • Page 15
    ... 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...

  • Page 16
    14

  • Page 17
    ...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...

  • Page 18
    ... 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...

  • Page 19
    ...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...

  • Page 20
    ... 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." 18

  • Page 21
    ... 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...

  • Page 22
    20

  • Page 23
    ..., 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." 21

  • Page 24
    ... 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...

  • Page 25
    "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, ...

  • Page 26
    ...-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...

  • Page 27
    ... 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...

  • Page 28
    26

  • Page 29
    ... 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...

  • Page 30
    ...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...

  • Page 31
    ...rst 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...

  • Page 32
    ... Electric SBC 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 Team Members Make the...

  • Page 33
    ... Human Resources * Victor K. Nichols, Technology 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 * Carrie L.Tolstedt, Community Banking * Senior Executive Vice...

  • Page 34
    ...Sanjiv S. Sanghvi, Wells Fargo HSBC Trade Bank, N.A. Norwest Equity Partners John E. Lindahl, Managing Partner Mergers and Acquisitions Jon R. Campbell Gary D. Lorenz, Auto Business Jaime Marti, Puerto Rico Auto Norwest Venture Partners Promod Haque, Managing Partner Enterprise Marketing Sylvia...

  • Page 35
    ...Financial Reporting Report of Independent Registered Public Accounting Firm 121 71 72 120 68 69 70 Financial Statements Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income Consolidated Statement of Cash Flows...

  • Page 36
    ...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...

  • Page 37
    ... 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...

  • Page 38
    ... 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...

  • Page 39
    ... 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...

  • Page 40
    ..., 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...

  • Page 41
    ... 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...

  • Page 42
    ...in the plan portfolio, (3) projections of returns on various asset classes, and (4) current/prospective capital market conditions and economic forecasts. Our expected rate We use the discount rate to determine the present value of our future benefit obligations. It reï¬,ects the rates available on...

  • Page 43
    ... interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interestearning assets minus the interest paid for deposits and longterm and short-term debt. The net interest margin is the average yield on earning assets minus the average interest rate...

  • Page 44
    ... (in millions) Average balance Yields/ rates 2006 Interest income/ expense 2005 Interest income/ expense Average balance Yields/ rates EARNING ASSETS Federal funds sold, securities purchased under resale agreements and other short-term investments Trading assets Debt securities available for sale...

  • Page 45
    ... balances were reï¬,ected 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...

  • Page 46
    ...average rate. 2006 over 2005 Rate Total Volume Year ended December 31, 2005 over 2004 Rate Total 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...

  • Page 47
    ... 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 securities available for sale Net gains from equity investments...

  • Page 48
    ...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...

  • Page 49
    ... 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...

  • Page 50
    ...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...

  • Page 51
    ...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 decentralized management and accountability by our lines of...

  • Page 52
    ...-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...

  • Page 53
    ... total real estate loans * 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. By state: California Texas Arizona Colorado Washington Minnesota Oregon Florida Utah Nevada...

  • Page 54
    ... 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...

  • Page 55
    ... business loans, which have shorter loss emergence periods, as well as home mortgage loans, which tend to have lower credit loss rates that emerge over a longer time frame compared with other consumer products. We have historically experienced the lowest credit losses on our residential real estate...

  • Page 56
    ... Financial integrated 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 guidelines. A portion of these bankruptcy charge-offs...

  • Page 57
    ...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 origination and servicing fees because consumer demand for new mortgages...

  • Page 58
    ...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 reï¬,ects changes in fair value at the end of each quarter and changes are included in net servicing income, a component of mortgage banking...

  • Page 59
    ... 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...

  • Page 60
    ... 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...

  • Page 61
    ...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 repurchase our shares. Our objective is to produce...

  • Page 62
    ... as part of our asset/liability management strategy, we sold the lowest-yielding ARMs on our balance sheet, replacing 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...

  • Page 63
    ...on cross-selling, especially in retail banking and mortgage lending. 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 existing customers. New technologies could require...

  • Page 64
    ... 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...

  • Page 65
    ... 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...

  • Page 66
    ... limiting the activities we may pursue or affecting the competitive balance among banks, savings associations, credit unions, and other financial institutions. As an example, our business model depends on sharing information among the family of Wells Fargo businesses to better satisfy our customers...

  • Page 67
    ..., 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...

  • Page 68
    ... 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...

  • Page 69
    ... 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 ï¬,ows for each of the years in the...

  • Page 70
    ... 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...

  • Page 71
    ... Consolidated Balance Sheet (in millions, except shares) 2006 December 31, 2005 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...

  • Page 72
    Wells Fargo & Company and Subsidiaries Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income (in millions, except shares) Number of common shares 3,396,218,748 Preferred stock Common stock Additional paid-in capital $ 6,749 Retained earnings Cumulative other ...

  • Page 73
    ... 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...

  • Page 74
    ... to Financial Statements Note 1: Summary of Significant Accounting Policies Wells Fargo & Company is a diversified financial services company. We provide banking, insurance, investments, mortgage banking and consumer finance through banking stores, the internet and other distribution channels to...

  • Page 75
    ... off. Nonmarketable equity securities include venture capital equity securities that are not publicly traded and securities acquired for various purposes, such as to meet regulatory requirements (for example, Federal Reserve Bank and Federal Home Loan Bank stock). We review these assets at least...

  • Page 76
    ... reserve for unfunded credit commitments, is management's estimate of credit losses inherent in the loan portfolio at the balance sheet date. AMORTIZED MORTGAGE SERVICING RIGHTS Transfers and Servicing of Financial Assets We account for a transfer of financial assets as a sale when we surrender...

  • Page 77
    .... Leased assets are written down to the fair value of the collateral less cost to sell when 120 days past due. Income Taxes We file a consolidated federal income tax return and, in certain states, combined state tax returns. We determine deferred income tax assets and liabilities using the balance...

  • Page 78
    ... 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) Year ended December 31, 2005 2004 Net income, as reported Add: Stock-based employee compensation expense included in reported net income, net of tax...

  • Page 79
    ..., Vienna, Virginia Fremont National Bank of Canon City/Centennial Bank of Pueblo, Canon City and Pueblo, Colorado Certain assets of the Reilly Mortgage Companies, McLean, Virginia Barrington Associates, Los Angeles, California EFC Partners LP (Evergreen Funding), Dallas, Texas Other (1) January 18...

  • Page 80
    ...provides the detail of federal funds sold, securities purchased under resale agreements and other short-term investments. (in millions) 2006 December 31, 2005 Federal funds sold and securities purchased under resale agreements Interest-earning deposits Other short-term investments Total $5,024 413...

  • Page 81
    ... and federal agencies) with a book value that exceeded 10% of stockholders' equity. The following table shows the unrealized gross losses and fair value of securities in the securities available for sale portfolio at December 31, 2006 and 2005, by length of time (in millions) Less than 12 months...

  • Page 82
    ..., respectively. (in millions) Total Weightedamount average yield 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) 2006 Year ended December 31, 2005 2004 Realized gross...

  • Page 83
    ... 3% of our total loans. Changes in real estate values and underlying economic conditions for these areas are monitored continuously within our credit risk management process. Some of our real estate 1-4 family mortgage loans, including first mortgage and home equity products, include an interest...

  • Page 84
    ..., 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...

  • Page 85
    ... 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...

  • Page 86
    ... pursuant to our servicing agreements 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...

  • Page 87
    ...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...

  • Page 88
    ... 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: Wholesale Banking Wells Fargo Financial Enterprise Consolidated Company December 31, 2005 December 31, 2006...

  • Page 89
    ... 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...

  • Page 90
    ...Following is a summary of our long-term debt based on original maturity (reï¬,ecting unamortized debt discounts and premiums, where applicable): (in millions) Maturity date(s) Wells Fargo & Company (Parent only) Senior Fixed-Rate Notes (1) Floating-Rate Notes Extendable Notes (2) Equity-Linked Notes...

  • Page 91
    ... 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...

  • Page 92
    ... 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...

  • Page 93
    ... 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...

  • Page 94
    ... factors 92 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...

  • Page 95
    ... the following table: Number Weighted-average grant-date fair value $26.92 33.90 24.75 29.53 Nonvested at January 1, 2006 Granted Vested Nonvested at December 31, 2006 212,366 26,580 (91,800) 147,146 Employee Stock Ownership Plan Under the Wells Fargo & Company 401(k) Plan (the 401(k) Plan), a de...

  • Page 96
    ...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...

  • Page 97
    ... 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...

  • Page 98
    ...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...

  • Page 99
    The weighted-average assumptions used to determine the net periodic benefit cost were: Year ended December 31, 2004 Pension Other benefits (1) benefits Pension benefits (1) 2006 Other benefits Pension benefits (1) 2005 Other benefits Discount rate Expected return on plan assets Rate of ...

  • Page 100
    ... 379 53 432 $3,755 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...

  • Page 101
    ... exercise price was higher than the market price, and therefore they were antidilutive. Year ended December 31, 2004 $ 7,014 3,384.4 $ 2.07 3,384.4 41.5 0.8 3,426.7 $ 2.05 (in millions, except per share amounts) 2006 Net income (numerator) EARNINGS PER COMMON SHARE Average common shares outstanding...

  • Page 102
    ...) Before tax Translation adjustments 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...

  • Page 103
    ...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...

  • Page 104
    .../expense in millions, average balances in billions) Community Banking Wholesale Banking Wells Fargo Financial Other (2) Consolidated Company 2006 Net interest income (1) Provision for credit losses Noninterest income Noninterest expense Income before income tax expense Income tax expense Net...

  • Page 105
    ... 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...

  • Page 106
    ... real estate Consumer: Real estate 1-4 family first mortgage Real estate 1-4 family junior lien mortgage Credit card Other revolving credit and installment Total consumer Foreign Total loans owned and securitized Less: Securitized loans Mortgages held for sale Loans held for sale Total loans...

  • Page 107
    ... using the fair value method were: (in millions) 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 Year ended...

  • Page 108
    ... - Net derivative gains (losses): Fair value accounting hedges (4) - Economic hedges (5) (145) Total servicing income, net 893 Net gains on mortgage loan origination/sales activities 1,116 All other 302 Total mortgage banking noninterest income $ 2,311 Market-related valuation changes to MSRs, net...

  • Page 109
    ... Eliminations Consolidated Company Financial Canada Corporation (WFFCC), WFFI's whollyowned 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...

  • Page 110
    ... 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...

  • Page 111
    ...' 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...

  • Page 112
    ...Year ended December 31, 2006 Cash flows from operating activities: Net cash provided by operating activities 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...

  • Page 113
    .../ eliminations Consolidated Company Year ended December 31, 2005 Cash flows from operating activities: 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...

  • Page 114
    ...Year ended December 31, 2004 Cash flows from operating activities: Net cash provided by operating activities Cash flows from investing activities: Securities available for sale: Sales proceeds Prepayments and maturities Purchases Net cash paid for acquisitions Increase in banking subsidiaries' loan...

  • Page 115
    ... 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...

  • Page 116
    ... 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...

  • Page 117
    ...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...

  • Page 118
    ... 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...

  • Page 119
    ..., credit risk amount and estimated net fair value for derivatives were: (in millions) 2006 December 31, 2005 Notional or contractual amount ASSET/LIABILITY MANAGEMENT HEDGES Qualifying hedge contracts accounted for under FAS 133 Interest rate contracts: Swaps Futures Floors and caps purchased...

  • Page 120
    ... for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. LOANS 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...

  • Page 121
    .... Contractual cash ï¬,ows are discounted using rates currently offered for new notes with similar remaining maturities. (in millions) Carrying amount 2006 Estimated fair value Carrying amount FINANCIAL ASSETS Mortgages held for sale Loans held for sale Loans, net Nonmarketable equity investments...

  • Page 122
    ...ed 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...

  • Page 123
    ... 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...

  • Page 124
    ... Yields/ rates 2006 Interest income/ expense Quarter ended December 31, 2005 Average Yields/ Interest balance rates income/ expense EARNING ASSETS Federal funds sold, securities purchased under resale agreements and other short-term investments Trading assets Debt securities available for sale...

  • Page 125
    ... 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 Wells Fargo $180 $160 $140 $120 $100 $ 80 $ 60 2001 $100...

  • Page 126
    ... Registered Public Accounting Firm KPMG LLP San Francisco, CA 415-963-5100 Common Stock 3,377,149,861 common shares outstanding (12/31/06) Contacts Investor Relations 1-888-662-7865 [email protected] Shareholder Services and Transfer Agent Wells Fargo Shareowner Services P.O. Box...

  • Page 127
    ...of funds for lending Mortgage Originations billions includes "co-issue" (servicing acquired, without credit risk) Mortgage Servicing Portfolio billions National Home Equity Group Loans billions Assets Managed, Administered billions, includes brokerage Retaining Customers, Team Member Engagement...

  • Page 128
    OUR VISION: Satisfy all our customers' financial needs and help them succeed financially. NUESTRA VISION: Deseamos ...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 Cert no...