Cover

Wells Fargo & Company Annual Report 2005

How Do We Picture the

Next Stage of Success?

3 To Our Owners

For 20 years,Wells Fargo has achieved

double-digit growth in almost every

economic environment.Chairman/CEO

Dick Kovacevich explains how our

team did it.

11 How Do We Picture the

Next Stage of Success?

We believe—and many industry

observers agree—that we have the

strongest management team in all

of ﬁnancial services. Here’s how they

picture success for their customers,

their businesses and their teams.

24 Picturing the Next Stage of Success

for Our Communities

We’re one of corporate America’s top

10 givers—but it’s the time, talent

and creativity of our team member

volunteers that really sets us apart.

31 Board of Directors, Senior Management

33 Financial Review

58 Controls, Procedures

60 Financial Statements

112 Report of Independent Registered

Public Accounting Firm

116 Stockholder Information

Which Measures Really Matter?

2005 Update (inside back cover)

Wells Fargo & Company

Wells Fargo & Company (NYSE:WFC)

is a diversiﬁed ﬁnancial services company

providing banking, insurance,investments,

mortgage loans and consumer ﬁnance. Our

corporate headquarters is in San Francisco,

but we’re decentralized so all Wells Fargo

“convenience points”—including stores,

regional commercial banking centers,

ATMs, Wells Fargo Phone Bank

centers,

internet—are headquarters for satisfying

all our customers’ﬁnancial needs and

helping them succeed ﬁnancially.

“Aaa”

Wells Fargo Bank, N.A. is the only U.S. bank to

receive the highest possible credit rating from

Moody’s Investors Service.

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

Market value of stock: $105 billion

(4th among U.S. peers)

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

Team members: 153,500

(one of U.S.’s 40 largest private employers)

Customers: 23+ million

Stores: 6,250

Reputation

Barron’s

World’s most admired ﬁnancial

services company

Business Ethics

Ranked top 10 corporate citizen

BusinessWeek

Among corporate America’s top 10

corporate givers

Fortune

“Most Admired Megabank”

52nd in revenue among all U.S.

companies in all industries

World’s 29th most proﬁtable company

Mergent,Inc.

“Dividend Achiever”*

Moody’s Investors Service

Only U.S. bank rated “Aaa,”

highest possible credit rating

Watchﬁre GomezPro

#1 internet bank

Our Market Leadership

#1, 2 or 3 in deposit market share in 15 of

our 23 banking states; #4 nationally

(6/30/05)

#1 retail mortgage originator;

#2 mortgage servicer

#2 in mortgages to low-to-moderate income

home buyers

#1 home equity lender

#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

insurance brokerage)

#1 agricultural lender

#1 ﬁnancial services provider to

middle-market businesses in

our banking states

#2 debit card issuer

#2 bank auto lender

#3 ATM network

One of U.S.’s leading commercial

real estate lenders

One of North America’s premier

consumer ﬁnance companies

Our Earnings Diversity

Earnings based on historical averages and near future year expectations

Banking, insurance, investments,

mortgage loans,and consumer ﬁnance—

we span North America and beyond.

Community Banking . . . . . . . . . . . . . 34%

Home Mortgage/Home Equity . . . 20%

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

Specialized Lending . . . . . . . . . . . . . . 15%

Wholesale Banking/

Commercial Real Estate . . . 9%

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

* Publicly traded companies that increased dividends for last

10+ consecutive years;Wells Fargo has increased dividends

for 18 consecutive years, 23 increases since 1988.

Our vision—as it has been for 20 years—is to satisfy all our customers’ financial needs and

help them succeed financially. A vision by itself, however, is not enough.You must have a

plan to achieve that vision and a time-tested business model that can perform successfully

in any economic cycle.You have to execute against that plan efﬁciently and effectively.

In fact, it’s all about execution.To be successful, you need leaders who can establish,

share and communicate that vision, motivate others to embrace, believe in and follow

that vision, and execute in a superior fashion each day, every day, one customer at a time.

How Do We Picture the Next Stage of Success?

(l to r): Karen Johnson-Norman, Commercial Real Estate

Group,Washington, DC; Christian Chan,Wells Fargo Funds,

San Francisco,California; Edgar Ramirez,Payment Operations,

Irving,Texas; Dick Kovacevich, Chairman and CEO;

Amy McSpadden,Wells Fargo Financial,Alpharetta, Georgia

This year’s outstanding results prove it once again.We have

the most talented, professional, caring, committed, ethical,

“customer first”team in all of financial services. Guided by

our vision, values, our time-tested business model,our

diversity of businesses and our conservative risk management

—all in place for 20 years—our team once again produced

outstanding, industry-leading results.That included double-

digit growth in revenue and earnings per share—which we

achieved not just this year, but also for the past 20, 15, 10 and

five years. Over all these periods, our total stockholder return

was about double the S&P 500

.Amazing!

To Our Owners,

It’s all the more amazing because our team achieved these

record results the past 20 years, while dealing with almost

every economic cycle and every economic condition a ﬁnancial

institution can experience. High and low interest rates. Bubbles

and recessions. All types of yield curves (steep, ﬂat and inverted).

High and low unemployment. No one can accurately predict

how the economy will perform in 2006 or in any year but for

Wells Fargo to achieve double-digit growth we must continue to

focus on our primary strategy, consistent for 20 years, which is

to satisfy all our customers’ ﬁnancial needs, help them succeed

ﬁnancially, and through cross-selling, gain wallet share and earn

100 percent of their business.

Among our 2005 achievements:

• Revenue growth of 10 percent—double-digits once again—

the most important measure of success in our industry—

outpacing our single-digit expense growth.

• Diluted earnings per share—a record $4.50, up 10 percent—

despite the $0.07 per share cost for increased bankruptcy

ﬁlings before the October change in federal bankruptcy laws.

• Net income—a record $7.7 billion, up 9 percent.

• Our stock price reached a record high close of $64.34 on

November 25, 2005.

Our Performance

Double-digit growth: earnings per share, revenue,loans and retail core deposits

$ in millions, except per share amounts 2005 2004 Change

FOR THE YEAR

Net income $ 7,671 $ 7,014 9%

Diluted earnings per common share 4.50 4.09 10

Proﬁtability ratios

Net income to average total assets (ROA) 1.72% 1.71% 1

Net income applicable to common stock to

average common stockholders’equity (ROE) 19.57 19.56 —

Efﬁciency ratio

57.7 58.5 (1)

Total revenue $ 32,949 $ 30,059 10

Dividends declared per common share 2.00 1.86 8

Average common shares outstanding 1,686.3 1,692.2 —

Diluted average common shares outstanding 1,705.5 1,713.4 —

Average loans $296,106 $269,570 10

Average assets 445,790 410,579 9

Average core deposits

242,754 223,359 9

Average retail core deposits

201,867 183,716 10

Net interest margin 4.86% 4.89% (1)

AT YEAR END

Securities available for sale $ 41,834 $ 33,717 24

Loans 310,837 287,586 8

Allowance for loan losses 3,871 3,762 3

Goodwill 10,787 10,681 1

Assets 481,741 427,849 13

Core deposits

253,341 229,703 10

Stockholders’ equity 40,660 37,866 7

Tier 1 capital 31,724 29,060 9

Total capital 44,687 41,706 7

Capital ratios

Stockholders’ equity to assets 8.44% 8.85% (5)

Risk-based capital

Tier 1 capital 8.26 8.41 (2)

Total capital 11.64 12.07 (4)

Tier 1 leverage 6.99 7.08 (1)

Book value per common share $ 24.25 $ 22.36 8

Team members (active, full-time equivalent) 153,500 145,500 5

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.

• At year-end, the total value of our stock was $105 billion—

again making us one of the nation’s 20 most valuable companies.

• Return on equity, 19.57 percent; return on assets, 1.72 percent.

• Our credit quality remained excellent. Nonperforming loans

were at or near historic lows.

• Fortune ranked Wells Fargo “Most Admired Megabank”;

Barron’s ranked us the world’s most admired ﬁnancial services

company and we continue to be the only U.S. bank with the

highest possible credit rating, “Aaa.”

• Community Banking achieved record proﬁt of $5.53 billion,

up 13 percent with revenue increasing nine percent.

• In consumer banking, we sold almost 16 million products

(or “solutions”)—checking, savings, debit cards, loans, etc.—

to our customers, up 15 percent.

• Our loans to small businesses, primarily less than $100,000,

grew 18 percent. For the third consecutive year, we were the

nation’s #1 small business lender in total dollars. In the past

10 years, we’ve loaned more than $26 billion to small

businesses owned by African-Americans, Asian-Americans,

Latinos and women, exceeding our publicly-stated goals.

• For the seventh consecutive year, our cross-sell reached record

highs—4.8 products per retail banking household, 5.7 products

per Wholesale Banking customer. Our average middle-market,

commercial banking customer now has almost 7.0 products

with us—up from almost ﬁve just two years ago. In fact, more

than one of every ﬁve of our commercial banking ofﬁces

nationwide averaged eight products per customer.

• For the seventh consecutive year, Wholesale Banking achieved

record net income of $1.73 billion—with double-digit loan

growth this year across its businesses.

• Our Wholesale Banking business now is truly coast-to-coast,

with more than 600 ofﬁces nationwide. Across the Eastern

U.S., we have 175 ofﬁces for commercial banking, commercial

real estate, corporate banking, asset-based lending and

equipment ﬁnance. We’re attracting new commercial

customers in markets such as Atlanta, Boston, Cleveland,

Hartford (Conn.), Indianapolis, New York and Tampa.

Our primary strategy, consistent for 20 years,

is to satisfy all our customers’financial needs,

help them succeed financially, and through

cross-selling earn 100 percent of their business.

• We funded $366 billion in mortgages—our second highest

annual total ever—and continued to be the nation’s #1 retail

mortgage originator. Our owned mortgage servicing portfolio,

the nation’s second largest, rose 23 percent to $989 billion. The

housing market remained strong because new home construction

continued to lag the pace of new household formation.

• Our National Home Equity Group’s loans were $72 billion at

year-end with continued very strong credit quality—ranking

us the nation’s #1 home equity lender for the fourth consec-

utive year.

• Wells Fargo Financial—our consumer ﬁnance business—

grew average receivables 25 percent.

• Watchﬁre GomezPro ranked Wells Fargo internet banking

#1 among all U.S. banks. Global Finance magazine named

wellsfargo.com best in the U.S. in six categories including

“best corporate/institutional internet bank.” Information

technology magazine CIO named Wells Fargo one of its

100 Bold winners for our innovative Commercial Electronic

Ofﬁce

(CEO

) portal, now used by almost three-fourths of

our commercial customers for everything from loan payments

to foreign exchange.

Top 10 Consumer Internet Banks

1. Wells Fargo 6. First National Bank of Omaha

2. Citibank 7. HSBC

3. Bank of America 8. U.S. Bank

4. E*Trade Bank 9. Chase

5. Huntington 10. Wachovia

Source: Watchﬁre GomezPro,3Q05

• To be the ﬁnancial services company of choice for remittance

customers, we expanded that service beyond Mexico, India

and the Philippines into El Salvador and Guatemala. The

number of accounts we opened for Mexican Nationals using

the Matricula Consular card as a form of identiﬁcation

surpassed 600,000. We were the ﬁrst ﬁnancial institution

in the nation to promote the use of this card as a form of

identiﬁcation to help these customers move from the risky,

cash economy to secure, reliable ﬁnancial services.

• In Los Angeles and Orange counties, we launched a pilot

program to offer mortgage loans to employed, taxpaying cus-

tomers who have an individual taxpayer identiﬁcation number

(ITIN) issued by the IRS but do not have a Social Security

number.

If successful, we hope to roll this mortgage product

out across all 23 of our community banking states.

• We increased the Company’s quarterly dividend more than

8 percent to 52 cents a share, the 18th consecutive year we’ve

increased our dividend, our 23rd dividend increase since 1988.

We’re the nation’s 13th largest dividend payer and one of less

than 3 percent of more than 10,000 North American-listed,

dividend-paying common stocks classiﬁed as a “Dividend

Achiever”—a publicly-traded company that has increased its

dividends for the last 10 or more consecutive years.

If you

had invested $10,000 in 1986 in our predecessor company,

Norwest Corporation, it would have been worth $435,000

at year-end 2005 with dividends reinvested.

• Our total managed and administered assets rose 6 percent

to $880 billion. The new Wells Fargo Advantage Funds

—

the result of the merger of Wells Fargo Funds

and Strong

Funds

—is the nation’s 18th-largest mutual fund company,

managing $108 billion in assets, with 120 funds spanning

almost all asset classes and investment styles.

• We announced a 10-point commitment to integrate

environmental responsibility into our business practices.

This includes a pledge to provide more than $1 billion in the

next ﬁve years, in lending, investments and other ﬁnancial

commitments to environmentally-beneﬁcial business oppor-

tunities including sustainable forestry, renewable energy,

water-resource management, waste management, “green

home” construction and development, and energy efﬁciency.

1 Qualiﬁed individuals must have been customers of Wells Fargo Bank for six months, paid U.S. taxes

for two years,must be able to prove two years of California residence.

2 Mergent,Inc.

Double-Digit Annual Compound

Growth – for 20 Years

Total Stockholder Return

Years EPS Revenue Wells Fargo S&P 500

5 14% 10% 5% 0.5%

10 11 13 17 9

15 12 12 21 11

20 14 12 21 12

Impressive results, indeed. We’re very proud of them. But, believe

it or not, we can do even better. In recent annual reports, we told

you that we’ve not been growing our business banking and

investment businesses at a rate consistent with their potential.

I’m pleased to report we’re making signiﬁcant progress.

Business Banking

Just two years ago, our average Business Banking customer—

businesses with annual revenue up to $20 million—had only

about 2.7 products with us—dead last in cross-sell among all

our businesses. Also, less than one of every four of our Business

Banking customers did their personal banking with Wells Fargo.

Less than one of every 10 gave us their investment business.

Two years ago we said that by 2008 we wanted to double rev-

enue and cross-sell and dramatically increase our market share

for both deposits and loans from our small business customers.

I’m pleased to report that our Business Banking cross-sell grew

11 percent for the year. Our Business Banking team surpassed

an average of 3.0 products (or “solutions”) per customer.

The number of business customers actively using online banking

grew 24 percent. Our Business Banking deposits—which grew

10 percent in 2004—rose another 9 percent in 2005. During

those same years our loans and lines of credit—primarily less

than $100,000, sold to our small business customers through

our banking stores, online, direct mail, teleconsulting and

in-bound calls—rose 17 percent and 18 percent, respectively.

Our business customers are buying their ﬁnancial products

from someone. Since we believe we can offer them a superior

value, there’s no reason we shouldn’t earn all their ﬁnancial

services business—business, personal and investments. In 2004

Wells Fargo was #1 for the third year in a row in loans under

$100,000 to small businesses, with 15 percent market share

nationally. We also were the #1 lender to small businesses in

low-to-moderate income neighborhoods, with almost 16 percent

market share, nationwide.

commission discounts with a linked WellsTrade

account. In

just ﬁve months, balances across all our deposit and brokerage

accounts increased over $4 billion.

Our Investment Management and Trust businesses are growing,

too. In addition to more basic wealth planning services—such as

trust and estate services —we’ve added alternative asset classes

and we’re offering “best of class” outside money managers for

our high net worth clients. They, in turn, have given us more

of their business. As a result, we’ve achieved ﬁve consecutive

quarters of record sales, a 40 percent increase in revenue year

over year from wealth planning and insurance.

Good progress but, here again, we can and must do better,

faster. Our market share of our customers’ investment business

should be two to three times higher than it is. There’s no reason

why we can’t attract many more new customers. More of our

Private Banking and Personal Trust customers should want to give

us their investment management and brokerage business. We also

should be satisfying more of the investment needs of our small

business customers and the executives of our middle-market, real

estate, and large corporate customers. We should be their ﬁrst

choice for personal investment and banking business.

Preparing for more growth

We continue to invest in new stores and operation centers to

help satisfy all our customers’ ﬁnancial needs. During 2005,

we opened 92 banking stores, remodeled another 485 banking

stores to improve customer service, and opened 47 mortgage

stores, 20 consumer ﬁnance stores, seven regional commercial

banking ofﬁces and two commercial real estate ofﬁces. We also

completed four major operations facilities (and are about to

complete a ﬁfth):

• West Des Moines, Iowa Our mortgage and consumer credit

group opened a 281,000 square foot center for about 1,500

team members. Two more buildings are scheduled to open

in mid-2006 and in 2007—for a total of almost one million

square feet—on a 160-acre campus, large enough to accom-

modate even more expansion.

Top 10 U.S. Full-Service Online Brokers

1. Smith Barney 6. Piper Jaffray

2. Wells Fargo 7. DB Alex Brown

3. UBS 8. A.G. Edwards

4. Wachovia 9. McDonald Investments

5. Merrill Lynch 10. Edward Jones

Source: Watchﬁre GomezPro 10/31/05

Private Client Services

Our private banking and investment business—Private Client

Services—also is growing. It ended 2005 with double-digit

revenue growth in the fourth quarter. We built the foundation for

this growth by integrating all banking, investment and insurance

services to serve all of our clients’ wealth management needs.

We’ve signiﬁcantly increased the number of investment

professionals serving clients. We now have more than 700 private

bankers in our banking stores and wealth management ofﬁces,

up 150 percent the past two years—and 2,500 licensed bankers

and ﬁnancial consultants, up more than 85 percent in three years.

In 2005, we were the ﬁrst in our industry to announce low- and

no-cost online stock and mutual fund trades to beneﬁt our most

loyal customers. Watchﬁre GomezPro ranked us the nation’s

second best, full-service on-line brokerage.

As a result, we’re earning more of our clients’ business. Our

loans to Private Banking customers grew 15 to 20 percent each

of the last ﬁve years. The last two years, deposits rose 38 percent,

and brokerage assets 14 percent. More than one million of our

customers now have a Wells Fargo Portfolio Management

Account

, or PMA

account—which combines all a customer’s

relationships with Wells Fargo, including checking, savings,

mortgage, personal loans, trust and brokerage. This relationship

product offers rewards, discounts, competitive money market

rates, bonus interest rates on linked savings accounts and CDs,

no monthly service fees on linked accounts, a Wells Fargo Visa

Credit Card with waived fee for the Retention Rewards

program,

no annual fees on select line of credit accounts, free checks, and

Wells Fargo has achieved double-digit,

annual compound growth in revenue and

earnings per share, with total stockholder

return about double the S&P 500 for the

past five, 10, 15 and 20 years.

• Des Moines,Iowa Later in 2006 Wells Fargo Financial is

scheduled to complete a 360,000 square foot, nine-story

building for 1,500 team members, connected via skyway

to its downtown headquarters;

• Minneapolis,Minnesota A $175 million conversion and

expansion of the former Honeywell Campus near downtown

Minneapolis. It consolidates a dozen Twin Cities area

mortgage operations centers and is expected to accommodate

about 4,600 team members by year-end 2006;

• Shoreview, Minnesota A new 160,000 square foot data

center in a northern Twin Cities suburb;

• Chandler, Arizona A new operations, technology and

call center campus near Phoenix has two, 200,000 square

foot, four-story buildings, now home to about 2,100 team

members in operations and technology. This site is large

enough to accommodate four more buildings totaling

800,000 square feet.

The quality of our leadership

Our vision—as it has been for 20 years—is to satisfy all our

customers’ ﬁnancial needs and help them succeed ﬁnancially.

A vision by itself, however, is not enough. You must have a plan

to achieve that vision and a time-tested business model that can

perform successfully in any economic cycle. You have to execute

against that plan efﬁciently and effectively. In fact, it’s all about

execution. To be successful, you need leaders who can establish,

share and communicate the vision, motivate others to embrace,

believe in and follow that vision, and execute in a superior

fashion each day, every day, one customer at a time.

At Wells Fargo, we’re fortunate to have what I believe—

and many industry observers agree—is the best team of senior

leaders in the entire ﬁnancial services and banking industry.

They’re the CEOs of our diverse businesses—spanning virtually

every segment of our industry. They’re responsible. They’re

accountable. They and their teams have produced outstanding

results you’ve come to expect from Wells Fargo year after year

after year. They partner together unselﬁshly. Each and every one

is a great coach. They realize, as every great coach does, that

“At Wells Fargo, we’re fortunate to have what

I believe—and many industry observers

agree—is the best team of senior leaders in

the entire financial services and banking

industry.They lead with integrity.They know

how to build high-performing teams.They

all own the customer experience—together.”

success is not about their own self-interest. It’s about what’s

best for their teams, their customers and their partners in other

Wells Fargo businesses. They give their teams the tools, training

and resources they need to achieve our goal of industry-leading,

double-digit growth in revenue, proﬁt and earnings per share.

They help create our vision and values. They help us achieve our

vision every day with every customer. They cause our success to

happen. They drive our business results. They inﬂuence, direct

and inspire their teams. They make sure our 153,000 team

members understand, support and live that vision and those

values. They’re role models for leadership. They lead with

integrity. When they make a mistake, they accept responsibility

and learn from it. They’re big picture thinkers with a broad

perspective—company-wide and industry-wide. They’re open

to new ideas, know how to learn and they learn from each other

and share best practices. They’re mentors for emerging, diverse

management talent across the company. They’re collaborators.

They know how to build high-performing teams. They and their

teams have fun together. They thrive on change. They care about

their people. They value diversity. They all own the customer

experience—together.

They’re not just good leaders, they’re great leaders. What’s

the difference? A good leader inspires a team to have conﬁdence

in her or him. A great leader inspires a team to have conﬁdence

in themselves. They teach and coach others to lead. Most of all,

they believe in our most important value: people as a competitive

advantage. They make every business decision with that value

in mind. They know that somewhere on their teams is the answer

to every problem, challenge and opportunity. Their job is to

ﬁnd the people on their teams who have the answers, regardless

of rank or stripes, and help translate those answers into action.

The people with the answers most often are those closest

to our customers.

How do we picture the next stage of success?

Therefore, in our report to you this year, we want you to get to

know this great team of senior business leaders better. We want

you to fully appreciate, as I do, their outstanding talent, skill,

experience, integrity, ethics, innovation, insight and caring—

and how they picture success for their businesses in the coming

years. Beginning on page 11, our leaders describe their vision

of success for their businesses, how they and their talented teams

intend to partner to grow market share and wallet share, and

earn all of our customers’ business. I’m very fortunate to be

playing with the best team in ﬁnancial services. I’m very proud

to share their stories with you in this report.

The National Bank Act—the law of the land

Mobility is a way of life for most of our more than 23 million

customers. They commute, do business, relocate, travel and

vacation, often coast to coast. Many have a second home in

different states. They buy goods and services globally. When it

comes to commerce, state boundaries are meaningless for them.

They assume that anywhere they go in the United States (or the

world) they can access their money, make ﬁnancial transactions

and get information about their accounts through their national

bank governed by uniform, consistent federal oversight. Thanks

to this national oversight, they can receive credit decisions almost

instantly, a mortgage in just a few days.

They take this national freedom of ﬁnancial access for

granted. But it’s not a birthright. It’s the result of a series of laws

and court decisions going back almost a century and a half.

The most important of those laws, by far, is the National Bank

Act of 1864. This visionary law—enacted just 12 years after our

company was founded—brought economic order out of a costly,

chaotic patchwork of state laws. It created uniform national

standards for safety and soundness governing an association of

national banks with national charters. When the telegraph was

the internet of its day, this law encouraged the free ﬂow of capital

and labor across state lines in an increasingly mobile society. It

created the federal Ofﬁce of the Comptroller of the Currency

and gave it exclusive powers to examine national banks such as

today’s Wells Fargo Bank, N.A. States could still regulate state

banks. The federal government would regulate national banks.

Unfortunately, the last few years several states have tried to

turn back the clock and challenge the authority of the Comptroller

to set uniform federal law for national banking and to supervise,

exclusively, national banks and their operating subsidiaries.

One Nation. One Economy.

Consistent National Standards.

Here are just six recent rulings that each upheld the principle that

the National Bank Act preempts state attempts to regulate national

banks—whether a state does this by restricting their banking

activities or through regulatory supervision:

January 2006 The U.S. Supreme Court, in an 8-0 ruling, holds that relevant

federal banking laws do not deny national banks the right to have cases

heard in federal court merely because the bank does business in a partic-

ular state.Justice Ruth Bader Ginsburg wrote in the ruling that a lower court

ruling was wrong because national banks would be “singularly disfavored”

in their access to federal courts.

October 2005 Federal District Court rules in favor of a ﬁnancial services

trade association. It blocks the New York Attorney General’s Ofﬁce from

demanding information from national banks and investigating their lending

practices.The Court rules that the National Bank Act preempts state

investigations of this type over a national bank such as Wells Fargo Bank, N.A.,

leaving such oversight to national regulators such as the Ofﬁce of the

Comptroller of the Currency and the Federal Reserve Board.

August 2005 Federal Ninth Circuit Court of Appeals rules in favor of

Wells Fargo. It holds that the National Bank Act preempts state licensing

requirements and state supervisory authority over national bank subsidiaries.

The California Department of Corporations had tried to exercise authority

over Wells Fargo Home Mortgage,Inc., part of Wells Fargo Bank, N.A.

July 2005 A Federal Circuit Court of Appeals holds that the National Bank

Act preempts state regulation of a national bank’s operating subsidiary.

The case arose when a national bank and its mortgage subsidiary sued

the State of Connecticut to avoid having to obtain a state license and

follow certain state laws.

February 2003 Federal Fifth Circuit Court of Appeals rules in favor of

Wells Fargo and other national banks.It holds that the National Bank Act

preempts state laws that ban certain check-cashing fees to non-customers.

October 2002 Federal Ninth Circuit Court of Appeals rules in favor of

Wells Fargo and other national banks.It holds that the National Bank Act

preempts local ordinances that try to stop national banks from charging

non-customers a convenience fee for using their ATMs. San Francisco

and Santa Monica had ordinances to prohibit these fees.

Fortunately for our customers, every single one of these misguided

attempts has failed. When states and local governments announce

these lawsuits, they often attract signiﬁcant media coverage.

But when they’re adjudicated in the courts—which have

consistently ruled in favor of national banks on these issues—

the stories are buried or not reported at all.

2006: The Economy

This coming year will be challenging for the banking industry.

Asset yields do not seem to account for risk. Credit quality

can’t get much better. The yield curve—the difference between

short-term and long-term interest rates—is likely to be ﬂat, even

inverted. Banking competitors are, once again, relaxing loan

terms while not fully pricing for this risk. However, Wells Fargo’s

business model, now in place for nearly 20 years, focuses on

selling more products to existing customers and, therefore,

gaining both market share and wallet share. Perhaps that’s why

Wells Fargo produced consistent double-digit increases in both

revenue and earnings per share over the past 20, 15, 10 and

ﬁve years, which included almost every economic condition

a ﬁnancial institution can face, not unlike those that may exist

in 2006.

The Next Stage

Once again, we thank our 153,000 talented team members

for their outstanding accomplishments and record results not

just for this year but for the past 20 years. 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 155th year (March 1852).

A special thank you

Two members of our Board will retire this April after a total of

three decades of service to our company.

Dr. Reatha Clark King, retired president

and board chair of the General Mills

Foundation, Minneapolis, Minnesota,

joined the Board 20 years ago when the

former Norwest Corporation had assets

of just over $21 billion. Most recently she

served on the audit and examination, and

the ﬁnance committees.

Gus Blanchard, chairman of ADC

Telecommunications, Inc., Eden Prairie,

Minnesota, joined our Board 10 years

ago, when we had assets of just over

$80 billion. Most recently, he served on

the audit and examination, credit, and

governance and nominating committees.

Their wise counsel and thoughtful guidance has helped our

company achieve remarkable growth during their tenures while

we built a reputation as one of the world’s most admired ﬁnancial

services companies. Thank you, Reatha and Gus!

The “Next Stage” of success is just down the road—for our team

members, our customers, our communities and our stockholders.

It’s going to be a great ride!

Richard M. Kovacevich, Chairman and CEO

How Do We Picture the

Next Stage of Success?

Each of our senior leaders has a vision for the

future success of their businesses—how they

and their talented teams intend to partner to

grow market share and earn all of their customers’

business.As you can see on the following pages,

they’re unanimous on one key point—people

as a competitive advantage.

(l to r): Howard Atkins, Senior EVP,Chief

Financial Ofﬁcer; Dave Hoyt,Senior EVP,

Wholesale Banking; John Stumpf, President

and Chief Operating Ofﬁcer; Mark Oman,

Senior EVP, Home and Consumer Finance

“The way our team partners together, cares about each other, cares

about customers and solves their ﬁnancial needs is rare in any

company.‘Culture’makes it happen. It’s instinctive. It’s knowing the

right thing to do without having to be told.Financial services is very

complex. Our company has more than 80 businesses,so winning

all our customers’business is a team sport.The star of our team…

is the team!

We’re a circle not a hierarchy. At the center of the circle—our

customers.Alongside them—our customer-contact team members.

Farther out in the circle are our managers.At the outside of the circle

are senior managers like me.All of us partner together to do the

best job we can for our customers.

If we grow the top line—revenue—the bottom line takes care

of itself.We’re not just expanding our franchise, we’re expanding our

thinking.We’re not just adding new stores,we’re adding more team

members to serve and sell our customers and offer them the best

solutions. Our success is the result of habits and focused execution,

not random acts. Our people are our competitive advantage.Our

product is service.Our value-added is advice.Our customers come

to us because of what we know, so they can learn how to save time

and money. If we think like a customer and focus our team on

serving customers, then everyone beneﬁts.”

John Stumpf, President and Chief Operating Ofﬁcer

Years in ﬁnancial services: 30

Star of Our Team: The Team!

(l to r): Patti Hoversen,Technology

Information Group,Minneapolis,

Minnesota; Lori LoCascio,Wells Fargo

Phone Bank,Lubbock,Texas;

John Stumpf

“Our picture of success begins with talented people.Our customers

think of them ﬁrst when they think of Wells Fargo.Diverse, seasoned

leaders who make decisions locally, close to the customer. Our

relationship managers make sure we completely understand the

customer’s needs before we offer any products to satisfy their

ﬁnancial needs.The scope of our group is amazing—55 national

businesses,coast to coast,revenue the equal of a Fortune 350

company, as impressive an array of products and services as you’ll

ﬁnd anywhere.

We know how to serve and sell—we lead the company in

products per customer. For example, we deliver credit products

many different ways—a straight commercial loan,an asset-based

loan, a commercial mortgage loan, a franchisee loan, a loan for

equipment-ﬁnance or equipment-leasing, or a private placement

or a syndicated credit.Almost three of every four of our customers

now use our internet portal—Commercial Electronic Ofﬁce—to

run their business more efﬁciently. It continues to be the best in

the industry.Customers sign on just once to access more than

40 products. Our new Desktop Deposit

service lets customers

make deposits electronically from their own ofﬁce,no more

hauling paper to our banking stores.“

Dave Hoyt, Senior EVP,Wholesale Banking

Years in ﬁnancial services: 28

Knowing How to Serve and Sell

Team members: 15,000

Customers: 78,000

Locations: 600

Products per customer: 5.7

(l to r): Dave Hoyt; Patti Rosenthal,

Wholesale Services,San Francisco,

California; Ray Orquiola,Wholesale

University, San Francisco, California

“Our team serves virtually all the credit needs of individual

customers—mortgage loans,home equity loans, personal credit,

and consumer ﬁnance.So, success for us is satisfying all these needs

smoothly for our customers whether it’s through our stores, on the

phone or via the internet.We span all 50 states,Canada and parts of

the Caribbean, and we’re #1 nationally in many products, but our

market share is still relatively small.That gives us lots of opportunity

for future growth.

A mortgage is the largest, most complex ﬁnancial transaction

most of our customers ever make.It’s also a core product—

customers value it so much they’re more likely to give us even

more of their ﬁnancial services business—not just home equity

loans and banking products but their investments and insurance.

We’ve proven this works:cross-sell among our mortgage customers

has grown about 30 percent a year for the last several years.Our

mortgage business is the Company’s second largest source of

checking accounts and new credit card customers.Our group

accounts for almost two of every three of Wells Fargo’s new

customers.We’ll be even more successful when we can earn

more business from our consumer ﬁnance customers.

We service the mortgage and home equity loans of more than

ﬁve million households.That’s a monthly relationship that positions

us to be there when they need their next ﬁnancial product.We also

have to be best at managing risk.We can’t avoid all risk and still

make a proﬁt. It’s how well we manage interest-rate risk, credit risk,

operations risk and compliance risk that makes the difference.”

Mark Oman, Senior EVP, Home and Consumer Finance

Years in ﬁnancial services: 26

Turning Vision into Reality

Team members: 52,000

Customers: 12.3 million

Stores: 2,388

(l to r): Mark Oman; Phil Hall,

Home and Consumer Finance,

Des Moines,Iowa; Michael Levine,

Wells Fargo Home Mortgage,

Minneapolis,Minnesota

“Our ﬁnancial success begins with our time-tested business model.

More than 80 businesses.We cover virtually every facet of ﬁnancial

services.This diversity gives us 80 different ways to grow, helps us

manage the risk of unforeseen changes in the economy or ﬁnancial

markets, and helps us earn more business from our customers

wherever they are in their ﬁnancial life cycle. Success for us also

means excelling at managing risk in asset quality, interest rates,

accounting and operations,and capital.

Our credit ratings are very high. Our approach to risk has always

been very disciplined.We don’t take unacceptable risks even if

some competitors are willing to do so.We’re consistent—with our

customers and with Wall Street.As good as our business model and

track record is, however, our strong and consistent ﬁnancial results

cannot happen without…great people! I believe we have the best

in the industry.”

Howard Atkins, Senior EVP, Chief Financial Ofﬁcer

Years in ﬁnancial services: 31

Consistency

Team members: 1,200

Finance, Corporate Development,

Investor Relations,Treasury,

Corporate Properties, Investment

Portfolio, Controllers

(l to r): Howard Atkins; Nancy Lee,

Investor Relations,San Francisco,

California; Cindy Garcia, Corporate

Properties,Phoenix, Arizona

Carrie Tolstedt, Regional Banking

Years in ﬁnancial services: 20

Energized, Diverse, Caring

Clyde Ostler, Private Client Services (PCS), Internet Services

Years in ﬁnancial services: 35

Great Service Every Time

Team members: 51,000

Households: 10.3 million

Stores: 3,120 (92 opened in ’05)

Products per customer: 4.8

(l to r): Carrie Tolstedt; Joey Davis,

Regional Banking,Omaha,

Nebraska; Laurie Doretti, Regional

Banking,Scottsdale, Arizona

Team members: 8,000

PCS clients: 820,000

Active online consumers: 7.1 million

#1 consumer internet bank

(l to r): Katie Kellen, PCS,

Denver, Colorado; Clyde Ostler;

Lisa Robinson, Internet Services,

San Francisco,California

“Our success begins with our great team.When our diverse and

caring team is doing what they do best, they connect with our

customers to create a special relationship that lasts a lifetime. Our

engaged team is the link between our vision and the customer

experience.Supported by talented leaders in our local markets,

our team responds quickly to their customers,on the spot, doing

what’s right for them.They know their stores, their customers and

communities better than anyone.

We develop tools centrally to support our team—training,

measurement, marketing, reporting,products and systems.We want

to earn 100 percent of our customers’ business by partnering with

other teams,such as Home Mortgage, Private Client Services and

Wells Fargo Financial.Our customers are at the center of everything

we do. Our team is our competitive advantage.”

“Our picture of success for Private Client Services is very simple—

exceptional service for each client every time.We start with the

client’s aspirations, goals, and the legacy they want to leave for future

generations.Our value-added is our ﬁnancial advice.

Our team of professionals should understand our clients’ ﬁnancial

needs so well—and deliver such great service—that they will want

to bring all their business to Wells Fargo. Partnering with our banking

store teams, we provide investment and insurance services by

putting our customers’needs ﬁrst, and giving them great, individual

service and advice that distinguishes us from our competitors.

We’re rated America’s best internet bank, but we measure

internet success by what our customers tell us—and they tell us

they appreciate the convenience and beneﬁts of wellsfargo.com

by giving us more of their business.”

“We’re a diverse group of businesses that share one vision

for success—to help our team members and customers

achieve their goals.

For team members,this means knowing how their work

connects to the Wells Fargo vision,knowing they have the tools,

work environment and partnering spirit to go as far as their talent

and skill can take them. For customers, it means helping them

achieve ﬁnancial success.

Having the right products and services is important, but

to satisfy all our customers’ﬁnancial needs we have to build

relationships with them, as trusted advisors, so they’ll want to

give us all their business.”

Mike James, Diversiﬁed Products

Years in ﬁnancial services: 33

Trusted Advisors

“To succeed as an insurance provider we must be consistently

superior in helping customers identify their speciﬁc risks,

understand their insurance choices, select cost-effective protection,

and be comfortable with their choice.Success in all of these helps

them, and us, be ﬁnancially successful.

Like checking, investments and a mortgage, insurance is a core

Wells Fargo product: when customers buy it from us they’re more

likely to buy more products from us.That’s why we’re a full-service

provider of insurance solutions through our insurance agencies,

banking stores, phone, mail and internet.

We’re the world’s ﬁfth largest insurance brokerage company,

and America’s largest crop insurance provider—but we have

unlimited potential for growth and more success.Only four percent

of our banking customers buy their insurance through us!”

Pete Wissinger, Insurance

Years in ﬁnancial services: 30

Insurance: Core Product

Team members: 5,000

#1 U.S. small business lender

#2 U.S. debit card issuer

Student loan customers: 1 million

(l to r): Ciony Catangui, Education

Finance Services,Sioux Falls,

South Dakota; Danny Ayala,Global

Remittances,Concord, California;

Mike James

Team members: 2,000

Customers: 300,000

World’s 5th largest insurance broker

#1 U.S. crop insurer

#1 bank-owned insurance agency

(l to r): Pete Wissinger; John Tebbs,

Rural Community Insurance Services,

Winchester, Kentucky; Paul Gauro,

Wells Fargo Insurance, Minneapolis,

Minnesota

“Our business is all about relationships.If we earn our customers’ trust

then they’ll rely on us as their ﬁnancial institution and we can earn all

their business.We offer valued advice to deepen every relationship, to

help every customer be ﬁnancially successful. Relationship managers

are key in building successful partnerships. Our talented team of

bankers is trained and equipped with extensive product knowledge.

We know our customers well.We listen and respond by

customizing speciﬁc solutions tailored to each customer’s ﬁnancial

needs.We anticipate challenges and design solutions they may not

have even thought about.The more they value our relationship, the

more resources we can provide them—credit for their operations,

a term loan for capital expenditures or acquisitions, investment

alternatives, insurance solutions, or treasury management.When

our customers succeed, we succeed.”

Iris Chan, Commercial Banking

Years in ﬁnancial services: 30

Growing with Customers

“We’re a diverse, complex group—22 businesses and 150 locations

nationwide.Our team members do everything from making loans

and leases to investing in securities and providing capital markets

advice.Our customers range from tribal governments and local school

districts to real estate developers and Fortune 1000 companies.

Our picture of success: understand our customers’businesses

better than anyone else and offer them great ideas and sophisticated

solutions so they can be more successful.We ring the bell when we

help create value for them.”

Tim Sloan, Specialized Financial Services

Years in ﬁnancial services: 21

Ringing the Bell

Team members: 1,100

Customers: 8,200

#1 ﬁnancial services provider

to middle-market companies in

western U.S.

(l to r): Richard Gan, Commercial

Banking,Austin,Texas; Iris Chan;

Gary Dyshaw,Commercial Banking,

St. Paul,Minnesota

Team members: 1,800

Customers: 33,000

Assets: $30 billion

(l to r): Alex Idichandy,Corporate

Banking,Atlanta, Georgia;

Kristine Netjes,Media Finance,

Minneapolis,Minnesota;

Tim Sloan

“Success happens when we deliver terriﬁc results for our clients

and help them meet their investment goals.When we do that, they

entrust us with even more of their money.The more high quality

investment choices we offer—such as more funds that carry 4-star

or 5-star ratings from Morningstar and those top-ranked by Lipper

—the more successful we are.

For us,great service is a given. Successful investment management

is the result of our talented team delivering superior performance.”

Mike Niedermeyer, Asset Management

Years in ﬁnancial services: 22

Results

“In our group, deﬁnitions of success are as varied as the wide

range of business customers we serve.They look to us to give

them alternatives to cash ﬂow loans that help them achieve their

objectives, and the ﬁnancial ﬂexibility they need to move from

one phase to the next in the life cycle of their business.

Success for us is providing this ﬂexibility but balancing the

common sense of a lender with the innovative spirit of an

entrepreneur.”

Peter Schwab, Asset-Based Lending

Years in ﬁnancial services: 30

Staying Flexible

Team members: 3,300

Customers: 32,000

Assets managed: $219 billion

17th largest U.S.mutual fund

company

(l to r): Mike Niedermeyer;

Tom Hooley, Institutional Trust,

Minneapolis,Minnesota; James

Alexander, Institutional Brokerage

and Sales,Chicago, Illinois

Team members: 1,100

Customers: 1,200

Among top U.S. asset-based lenders

(l to r): Peter Schwab; Eileen

Quinn,Wells Fargo Foothill,Boston,

Massachusetts; Paz Hernandez,

Wells Fargo Foothill,Los Angeles,

California

“Success means helping our domestic customers succeed wherever

they do business in the world—to grow their earnings,seize global

opportunities, and be their one-stop shop through our internet

portal, Commercial Electronic Ofﬁce.

We can open bank accounts for them in 66 countries, facilitate

trade in 80 countries,and help reduce currency risk, payment

processing risk, regulatory risk, and cultural risk.We succeed when

We Make the Complex Simple®!”

Dave Zuercher, International, Correspondent Banking, Insurance

Years in ﬁnancial services: 36

Making the Complex Simple

“For our team—even before real estate and credit—people come

ﬁrst.That’s what creates success for our customers, our communities,

Wells Fargo and our stockholders.

We work with our partners across Wells Fargo to develop creative

ﬁnancial solutions—such as ﬂexible acquisition, re-hab and

construction loans—to help our customers build communities that

provide people with housing, ofﬁces, factories, warehouses, schools,

stores,shopping,recreation, lodging and jobs.”

Larry Chapman, Real Estate

Years in ﬁnancial services: 32

People First

Team members: 5,000

Customers: 2,300

Includes Foreign Exchange,Treasury

Management,Wells Fargo HSBC Trade Bank

(l to r): Lillie Axelrod, Acordia,

Atlanta,Georgia; Dave Zuercher;

Sara Wardell-Smith,

International Group,

San Francisco,California

Team members: 360

Customers: 485

One of U.S.’s leading lenders

to developers and investors

(l to r): Larry Chapman;

Debora Welsh, Real Estate, Atlanta,

Georgia; Juan Carlos Wallace,

Real Estate,San Francisco, California

“Our mission is homeownership. Our team members believe

passionately in that mission.They live it every day.They believe and

know that homeownership provides a rich, stable foundation upon

which to achieve personal and ﬁnancial success. It’s the primary

source of ﬁnancial net worth for most American households.They

know that working together, we can help people reach their

personal and ﬁnancial goals—through homeownership.

We’re privileged to work in a business that helps people build

wealth and provide a safe,secure environment for their families.

Businesses measure success with numbers and so do we—but our

most important measure is how we feel every time we know we’ve

helped someone achieve the dream of homeownership.That’s how

we picture success.It comes from the home and from the heart.”

Cara Heiden and Mike Heid, Mortgage

Years in ﬁnancial services: 25 and 26

Home and Heart

Team members: 28,000

Customers: 5.7 million

#1 U.S. retail mortgage originator

#2 U.S. mortgage servicer

(l to r): Christiaan Lidstrom, Wells Fargo

Home Mortgage, Des Moines,Iowa;

Cara Heiden; Patrick Carey, Wells Fargo

Home Mortgage, Fort Mill, South

Carolina; Mike Heid

“Our success starts with attracting, keeping and growing the

best team of professionals in ﬁnancial services.We’ve built a high-

performing business model based on many partnerships.This allows

us to deliver our products and services through our banking stores,

mortgage stores,Wells Fargo Financial, wellsfargo.com,direct mail,

telesales,Wells Fargo Phone Bank centers,brokers and correspondents.

We listen to and educate customers.We guide them to the

home equity and personal credit solutions that help them succeed

ﬁnancially with smart management of their home asset and

personal credit. Our innovative products and solutions sustain our

lead in market share and earning more business from loyal

customers helps grow it.”

Doreen Woo Ho, Consumer Credit, Corporate Trust

Years in ﬁnancial services: 32

Right Solutions

“Our business model has changed profoundly the last few years.So has

our picture of success.We’ve moved from offering small,unsecured

loans to larger,secured loans, auto loans and ﬁrst mortgage products

—and we’ve expanded credit card offerings to our best customers.

To be more efﬁcient and give our customers faster service,we’ve

freed up our store team members to spend most of their time

serving and selling to customers—we now score all our loans

electronically and collect all payments centrally. Our goal: common

where possible,custom where it counts.

These fundamental changes in our business model have driven

unprecedented growth for Wells Fargo Financial—19 percent annual

compound growth in receivables for the last six years—but they’ve

also reduced our cost per loan which helps us lower interest rates

for customers.”

Tom Shippee, Wells Fargo Financial

Years in ﬁnancial services: 32

Serving and Selling

Team members: 21,000

Customers: 6.7 million

Stores: 1,307

One of North America’s premier

consumer ﬁnance companies

(l to r): Stephanie D’Itri, Wells Fargo

Financial Canada Corporation,

Mississauga, Ontario; Susan Hack,

Auto Finance, Chester,

Pennsylvania; Tom Shippee

Team members: 6,000

Households: 2.4 million

#1 home equity lender, personal

credit provider in U.S.

(l to r): Doreen Woo Ho; Jody Bhagat,

Consumer Credit,San Francisco,

California;Tracy Schaefbauer,

Home and Consumer Finance,

Minneapolis,Minnesota

“We’ve partnered with entrepreneurs for 45 years to build great

technology businesses.We pride ourselves on doing whatever

it takes to help them build leading companies—facilitating

customer and partner relationships for these companies,helping

entrepreneurs evolve their business strategies, or working with

CEOs to drive their recruiting processes. If our portfolio companies

are successful, then we’re successful.What characterizes this

success? Extreme dedication to these entrepreneurs.Deep

operating experience.High integrity. And,a strong network of

domestic and international relationships.”

John Lindahl, Norwest Equity Partners

Years in ﬁnancial services: 39

Resourceful, Approachable

“Our success is built on strong partnerships. Strong partnerships

with our portfolio companies. Strong partnerships with experienced

management teams to acquire leading middle-market companies.

To these relationships our investment professionals bring signiﬁcant

resources to help management grow their business—including

adequate capital to grow organically and by acquisition.We can

supplement the company’s management team, provide operating

expertise, and,when we exit the investment,guidance to maximize

shareholder value. Our success,built on our 45-year history, requires

skill, ability and integrity — the skill to recognize great companies,

the ability to offer valuable expertise,the integrity to be resourceful,

resilient and reliable partners.We succeed when,during our time as

owners,the investors and our management partners create an even

better company.”

Promod Haque, Norwest Venture Partners

Years in ﬁnancial services: 15

Dedicated Partners

Early stage investments in information

technology including semiconductor

and components, systems, software,

services and consumer/internet

technologies.

Invests in management buyouts,

recapitalizations, and growth ﬁnancing

for middle-market companies; one of

oldest private equity ﬁrms in U.S.

Picturing the Next Stage of Success

for Our Communities

Our picture of success for our communities begins with our team

members.They know their cities,towns and neighborhoods

better than anyone else because they live and work there—so

they’re the major voice in deciding how Wells Fargo responds to

the distinct needs of their own community.We want them to care

as much about their community’s quality of life as they do about

their business’s bottom-line because the two are related. A report

on our achievements in corporate citizenship for 2005 is available

at www.wellsfargo.com/about/csr.

St. Paul, Minnesota

Once a polluted industrial site,

these 200 acres now are home to

indigenous plants and animals.

Duane Ostlund,

Business Banking Manager

Eleven years ago, the Phalen Corridor was an environmental mess—

11 contaminated industrial sites covering 200 acres in a distressed

community on the east side of St. Paul, Minnesota.Wells Fargo and

60 other public and private organizations came together to restore

Phalen Corridor.The result: today it’s a thriving neighborhood with

parks,wetlands, new homes, retailers and jobs.

Wells Fargo team members Duane Ostlund (opposite page) and

Judy Chapman serve on the Phalen Corridor Steering Committee.

Thanks to their leadership, hundreds of hours volunteered by more

than 30 other team members,and thousands of dollars in corporate

contributions,the Phalen Corridor is now a revitalized community

with 19 new businesses,2,100 new jobs and 1,100 new homes.

“This is a great example of tremendous results that can be achieved

through a public,private and community partnership,”said Ostlund.

As part of the extensive environmental cleanup,Wells Fargo

helped restore Ames Lake wetlands, once ﬁlled-in with asphalt and

used as a parking lot.Today Ames Lake is a habitat for hundreds of

indigenous plants and animals.

Other examples of Wells Fargo’s commitment to the environ-

ment include:

• A 10-point commitment to more effectively integrate

environmental responsibility into our business practices.

• A $1 billion lending, investment and other ﬁnancial commitment

target for environmentally-beneﬁcial businesses.

• Reducing in paper, energy and water consumption through

services such as online statements and e-bills.

• Promoting environmental responsibility for team members

through an awareness campaign called “everyday actions.”

Cleaning Up Polluted Land

Oklahoma City, Oklahoma

As the nation’s #1 retail mortgage

originator, we work with non-proﬁts

to help build and renovate homes

for low-income families.

(l to r): Wells Fargo Home

Mortgage team members

Chris Hunter,John Snodgrass and

Shelley Pruitt with homeowner

Clara Myers (second from left)

The dream of living in a clean, warm, safe home can be a challenge

for homeowners who are low-income,elderly or who have

disabilities.Who do they turn to if the roof leaks or a handrail

breaks? Over the past nine years,thanks in part to Wells Fargo’s

partnership with Rebuilding Together, many seniors and families are

now living independently and comfortably in their own homes.

Wells Fargo has contributed over $650,000 and hundreds of team

member volunteer hours to Rebuilding Together in 27 cities.

Last April, a platoon of more than 20 Wells Fargo team members

in Oklahoma City, Oklahoma, descended upon 10 houses on

National Rebuilding Day for a hands-on renovation project.They

helped install windows,ﬁx porches,paint, and add grab-bars and

railings.“Everyone deserves to live in their own home,”said

Wells Fargo team member Shelley Pruitt, board member for the

local chapter of Rebuilding Together.“We’re fortunate to help

improve the quality of life for residents in our community.”

Since 1993, the Wells Fargo Housing

Foundation has teamed up with

hundreds of local housing non-profits

such as Rebuilding Together and Habitat

for Humanity to help make the dream of

homeownership a reality for low-income

families.The Foundation, through grants

and the volunteerism of Wells Fargo team

members,has helped build or renovate

more than 1,900 homes.

Who Do You Turn to When the Roof Leaks?

Santa Ana, California

Seeking to increase student academic

performance by encouraging

parents to be active participants

in their child's education.

Wells Fargo team member and

mentor Gabriela Cachua

and student

Colorado Springs, Colorado

Educating and inspiring young

people to become learners

and leaders.

Fifth grader Lucia (below),who attends Willard Intermediate School in

Santa Ana, California, probably wouldn’t be reading the American

classic “Tom Sawyer”if it weren’t for Wells Fargo team member

Gabriela Cachua, Regional Banking,Orange County, California.

She’s just one of the eight volunteer mentors who visited the school

every week for a 10-week Reading Club.

Two years ago,Wells Fargo connected with the Santa Ana

Foundation to help out with Avanzando Familias Program,which

engages parents in their child’s education to improve student

academic performance. Mentors also teach students and their parents

about budgeting,the importance of saving, bank accounts,and credit

through Wells Fargo’s ﬁnancial literacy curriculum,Hands on Banking®.

More than 5,000 team members have been trained to teach the

Hands on Banking curriculum, available in both English and Spanish,

in schools and community groups (handsonbanking.com).

“It is never too early, or too late,to learn—whether it’s about

enjoying a new book, or the basics of banking,”said Cachua.

Engaging Parents in Education

“Stay in school and you’ll be more successful on the job.” That’s been

the message to eighth grade students for the past several years

during Junior Achievement’s Job Shadow Day. Students interested

in learning more about careers in banking visit a Wells Fargo store in

Colorado Springs,Colorado to see a typical day in the banking world

up close.More importantly, they learn about teamwork and how

math, problem solving and communication skills are used each day

on the job.

Wells Fargo has partnered with Junior Achievement for more

than 11 years and is one of the top three largest providers of

volunteers to Junior Achievement in the nation.In 2005, over 1,500

team members volunteered in 1,630 classrooms nationwide to

teach ﬁnancial literacy, leadership skills,and life lessons such as

self conﬁdence and the importance of staying in school. First

grader Sierra (below),Whittier Elementary School, participated in

Junior Achievement workshops with Wells Fargo team member

Doug Brewer last year.

The Economics of Life

Portland, Oregon

Helping satisfy the basic needs of

the homeless as they transition

to housing.

Why spend time helping others? Just ask any of the several

thousand team members at Wells Fargo who volunteer in their

communities.They’ll say that every smile, hug and “thank you”

they receive makes it more than worthwhile. Every day, hundreds

of team members across the country give their time,talent and

resources to improve the quality of life in their communities.

In 2005,Wells Fargo created a company-wide process

to better manage and measure the company’s volunteer efforts.

VolunteerWellsFargo! is an internet-based tool that helps connect

team members with volunteer activities that match their interests

and time.They use it to ﬁnd projects and recruit colleagues for

beach clean ups,Habitat for Humanity house builds, fun runs, and

tutoring projects, and to record their volunteer hours or board

membership activities.

Team members in Portland,Oregon use VolunteerWellsFargo!

to organize groups of volunteers to prepare and serve hot meals to

90 homeless individuals at Transition Projects Inc.,a non-proﬁt that

provides shelter and helps the homeless get back on their feet.

Team members (below, from left) Kellie Pearse, Mary Hills,

Denise Sandefur, Robin Thomas,Fe Dolor, Charlie Jones,

Michelle Troﬁtter and Karen Schmidt are among over 30 team

members who take turns volunteering every month to plan,

provide, prepare and serve meals at the shelter.

So far, over 20 percent of our team members have logged

onto the VolunteerWellsFargo! website and over nine percent

have recorded their hours.“This new tool will give us a better

understanding of how we make our communities even better

places to live and work,”said Tim Schreck, community support

manager.“It will also show us for the ﬁrst time the incredible

quantity and quality of all our volunteer efforts, which we believe

are just as important if not more important than the $95 million

our company contributed to non-proﬁts this year.We can now

track our progress toward becoming one of the top contributors

in team member volunteerism in all of corporate America.”

VolunteerWellsFargo!

Wells Fargo Receives Highest Possible

Rating for Community Reinvestment

Wells Fargo Bank, N.A. received an “Outstanding”rating—the highest

rating possible,earned by less than one of every ﬁve national banks

—in its most recent Community Reinvestment Act examination by

the Ofﬁce of the Comptroller of the Currency (OCC).The Bank met

or exceeded community needs in areas such as affordable housing,

ﬁnancial education and small business lending.For Wells Fargo,

community reinvestment is not just about meeting the requirements

of a law, it’s about helping our communities grow and prosper. It’s

just good business.We’d do it even if there was no CRA!

Here are just some of the more than

15,000 non-proﬁts we supported in 2005:

Arts

Santa Rosa, California – $3.75 million in ﬁnancial support over

10 years. Wells Fargo provided a grant to the Luther Burbank Center

for the Arts to help renovate and operate the 140,000 square foot

art and performance venue.Greg Morgan, community banking

president, serves on the board.

Des Moines,Iowa – $1.2 million in ﬁnancial support and 56 prints

by American artists to the Des Moines Art Center.The project

is one reason Wells Fargo was recognized as one of the “Ten Best

Companies Supporting the Arts in America”by the New York-based

Business Committee for the Arts.

Billings,Montana – 33 years as lead sponsor of Symphony in the

Park,a free cultural event for the community showcasing the Billings

Symphony and other local musicians. Last year 55 team members

helped staff the event.

Lincoln, Nebraska – For the second year in a row, Wells Fargo

sponsored Celebrate Lincoln, an outdoor cultural event featuring

live music,dancing,arts and crafts,and food from around the globe.

Over 40 Wells Fargo team members volunteered at the event.

Hurricane Katrina:

The “Next Stage”

Hurricane Katrina caused unprecedented devastation in the

Gulf States.Our response to help our affected customers also

was unprecedented:

• We allowed them to defer mortgage payments for an initial

90 days,through November 2005.

• We then extended that mortgage deferral period another

90 days,through February 2006.

• During those deferral periods,we suspended all late fees,

negative credit reports and collection calls for them.

• Using dedicated toll-free phone numbers,we helped

affected customers with personal ﬁnancial counseling to

determine the most reasonable payment solution after

the deferral period ended.

• Residents of Alabama, Louisiana and Mississippi could make

free withdrawals from any Wells Fargo ATM, nationwide through

year-end 2005, whether or not they had a Wells Fargo account.

• We increased the daily spending limit for our ATM and Check

Card customers in affected areas of those states.

• Our affected small business customers could get emergency

increases in their credit lines,bridge loans, term loans, credit

protection, deferred loan payments and fee waivers.

• We deferred credit card payments for affected customers

through year-end 2005, waived over-limit,late,or non-sufﬁcient

funds fees,and suspended collection calls and negative

credit bureau reporting.

• Our Company and team members contributed a total

of $1.5 million to the American Red Cross and United Way

Hurricane Katrina Relief Funds.

$66

Wells Fargo Contributions – 2005

(millions, cash basis)

Corporate America’s 10 Largest Givers–2004

(dollars in millions)

1. Wal-Mart Stores $188.0

2. Johnson & Johnson 121.8

3. Altria Group 113.4

4. Citigroup 111.3

5. Ford Motor 109.8

6. Bank of America 108.0

7. Target 107.8

8. Exxon Mobil 106.5

9. Wells Fargo 93.0

10. Wachovia 81.7

Source: BusinessWeek 11/28/05

Community Development

Anchorage,Alaska – $100,000 grant for affordable housing

through the Wells Fargo Housing Foundation’s seventh annual

Focus Communities Initiative.Wells Fargo team members raised

an additional $1,400 for Cook Inlet Housing Authority.

Oakland,California – $6 million investment in the East Bay Asian

Local Development Corporation for Preservation Park,a renovated

Victorian-style business park that provides affordable ofﬁce space

to non-proﬁts facing eviction.

Pueblo, Colorado – 35 home improvement projects. Wells Fargo

partnered with NeighborWorks, a non-proﬁt that provides affordable

housing,education and down payment assistance.Team member

Brad Ahl led a group of co-workers to help paint the trims and

garages of 35 homes during their annual Operation Paintbrush event.

Mission, South Dakota – $125,000 to help families of the Rosebud

Sioux Tribe.Wells Fargo team members are working with Habitat for

Humanity to build ﬁve homes on the Rosebud Indian Reservation.

Team member Samantha Keller used the company’s new online

tool, VolunteerWellsFargo!,to recruit over 75 volunteers.

Austin,Texas – $20,000 so far to help 10 families buy ﬁrst homes.

Wells Fargo supports the Austin Area Urban League’s new down

payment assistance program.Low-income individuals who complete

a free,monthly workshop receive $2,000 in down payment assistance.

Brigham City, Utah – $17,500 grant and eight new homes. Wells Fargo

provided a grant to the Neighborhood Nonproﬁt Housing Agency

for affordable housing.Wells Fargo team members volunteered

every Saturday for seven weeks to help build homes.

Richmond,Virginia – 700 African American adults attended a free

workshop on practical approaches to ﬁnancial management,

including homeownership and saving for retirement.This was one

of 23 wealth-building seminars held around the country in 2005.

Education

Phoenix, Arizona – Every week, two dozen Wells Fargo team members

visit students at Lowell Elementary School as part of the Big Brothers

and Big Sisters “Lunch Buddy” mentoring program.Team members

also raised $15,000 to renovate the school’s playground.

Fort Wayne,Indiana – For the tenth year in a row, Wells Fargo

sponsored the YMCA Celebration of Youth event. Every year eight

students receive a $700 college scholarship from Wells Fargo in

honor of their community involvement activities.

Las Vegas, Nevada – $50,000 to teachers in 17 schools. Wells Fargo’s

“Grant a Wish for Your School” program awarded up to $3,000 each

to teachers across the state for special classroom projects focused

on ﬁnancial literacy, math, technology and careers.

Chester, Pennsylvania – 720 backpacks and $5,000 grant. Team

members from Wells Fargo Auto Finance partnered with the Junior

League to kick off the school year in style.Team members visited

Columbus Elementary School and gave each student a backpack

ﬁlled with school supplies.

Milwaukee,Wisconsin – A decade of support. Wells Fargo worked

with the Greater Milwaukee Committee and other business leaders

to create the School Partnership Program.The program helps

prepare young people for their future by teaching them healthy

ﬁnancial habits and other life-skills. During the past 10 years, over

100 team members have volunteered.

Environment

San Francisco, California – Energy consumption reduced by

20 percent at Wells Fargo’s buildings throughout California since

2001.Wells Fargo modernized the energy management technology

at its headquarters building and earned the Energy Star Award

from the Environmental Protection Agency for being among the

top 10 percent of the nation’s most energy-efﬁcient buildings.

Santa Ana, California – For the second year, Wells Fargo participated

in the California Coastal Commission’s Coastal Cleanup Day.Thirty-

two team members helped clean up two miles of coastline,picking

up over 50 bags of trash and debris.

Beaverton, Oregon – 15,000+ red wiggler worms are helping

reduce and recycle waste at Wells Fargo’s William Barnhart Center

(operations and customer service).The “worm ranch”residents

eat up to 20 pounds of fruits,vegetables,coffee grounds and

other leftovers every day from the cafeteria, and their castings are

recycled for fertilizer.

Human Services

Los Angeles,California – $20,000 grant and seven school makeovers.

240 Wells Fargo team members helped celebrate Mayor Villaraigosa’s

100th day in ofﬁce by lending a hand during a “Day of Service.”

Volunteers helped seven local schools get a much-needed face lift

by planting ﬂowers, cleaning up grafﬁti and painting classrooms.

Boise, Idaho – 114 computers for K-12 students thanks in part to a

donation from Wells Fargo to Computers for Kids, a non-proﬁt that

upgrades computers for children in need.Fourteen Wells Fargo

team members volunteered to deliver the computers.

Minneapolis, Minnesota – $50,000 to help the developmentally

disabled become more independent. Team member Gary Johnson

won the Wells Fargo Volunteer Service Award on behalf of Reach

for Resources, where he volunteers and serves on the board. He is

one of 164 team members awarded $321,000 in grants in 2005

for their designated non-proﬁts.

McKinney,Texas – 2,000 hurricane evacuees sheltered. When

Jack Haye of Wholesale Banking learned that his community

would be providing shelter to Hurricane Katrina evacuees,he

stepped up to the plate. Haye managed a shelter and helped

coordinate hundreds of volunteers to collect and distribute

donations and provide disaster relief services.

Seattle,Washington – Two years of board participation and $25,000

in ﬁnancial support. Wells Fargo donated a 9,000 square foot former

banking store to Domestic Abuse Women’s Network for its ofﬁce

space.Team member Jennifer Politakis serves as a board member.

Casper,Wyoming – $33,500 raised for United Way. Wells Fargo regional

president Michael Matthews rallied team members to donate funds

during the annual Community Support Campaign. Each donation

earned them a two-foot section of duct tape which was later used

to tape community bank president,Tom Kugler, to a wall.

Newfoundland, Canada – 1 new laptop. When Wells Fargo Financial

Canada team member Valerie Clarke heard about a bedridden

young man with Crohn’s disease whose computer broke down,

she teamed up with Lion’s Club to give him a new laptop.

Board of Directors

Executive Ofﬁcers and Corporate Staff

Richard M. Kovacevich, Chairman, CEO *

John G. Stumpf,President, COO *

Senior Executive Vice Presidents

Howard I. Atkins, Chief Financial Ofﬁcer *

David A. Hoyt, Wholesale Banking *

Mark C. Oman, Home and Consumer Finance *

Paul R.Ackerman,Treasurer

Patricia R.Callahan, Compliance and

Risk Management *

Bruce E. Helsel, Corporate Development

Lawrence P. Haeg, Corporate Communications

Ellen Haude, Investment Portfolio

Laurel A. Holschuh, Corporate Secretary

Richard D.Levy, Controller *

Kevin McCabe, Chief Auditor

Avid Modjtabai, Human Resources *

David J. Munio, Chief Credit Ofﬁcer *

Michael J. Loughlin, Deputy Chief Credit Ofﬁcer

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, Regional Banking *

J.A. Blanchard III 1, 2 , 4

Chairman

ADC Telecommunications

Eden Prairie, Minnesota

(Communications equipment,

services)

Robert L. Joss 2,3

Philip H. Knight

Professor and Dean

Stanford U. Graduate

School of Business

Palo Alto, California

(Higher education)

Philip J. Quigley 1, 2 , 4

Retired Chairman,

President,CEO

Paciﬁc Telesis Group

San Francisco,California

(Telecommunications)

Reatha Clark King 1, 3

Retired President, Board Chair

General Mills Foundation

Minneapolis, Minnesota

(Corporate foundation)

Donald B.Rice 4, 5

Chairman, President, CEO

Agensys, Inc.

Santa Monica, California

(Biotechnology)

Lloyd H.Dean 1, 3

President,CEO

Catholic Healthcare West

San Francisco,California

(Health care)

Richard M. Kovacevich

Chairman, CEO

Wells Fargo & Company

San Francisco,California

Judith M. Runstad 1, 3

Of Counsel

Foster Pepper &

Shefelman PLLC

Seattle,Washington

(Law ﬁrm)

Susan E. Engel 2, 3, 5

Chairwoman, CEO

Lenox Group Inc.

Eden Prairie, Minnesota

(Specialty retailer)

Stephen W. Sanger 3,5

Chairman, CEO

General Mills, Inc.

Minneapolis, Minnesota

(Packaged foods)

Enrique Hernandez, Jr. 1, 3

Chairman, CEO

Inter-Con Security Systems, Inc.

Pasadena,California

(Security services)

Cynthia H.Milligan 1, 4

Dean

College of Business

Administration

University of Nebraska –

Lincoln

(Higher education)

Susan G. Swenson 1, 2 , 4

Former COO

T-Mobile USA, Inc.

Bellevue,Washington

(Wireless communications)

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

Michael W. Wright 2,4, 5

Retired Chairman, CEO

SUPERVALU INC.

Eden Prairie, Minnesota

(Food distribution,retailing)

*“Executive ofﬁcers”according to Securities

and Exchange Commission rules

Richard D. McCormick 3

Chairman Emeritus

US WEST, Inc.

Denver, Colorado

(Communications)

COMMUNITY BANKING

Regional Banking

Carrie L.Tolstedt

Regional Presidents

James O.Prunty, Great Lakes and Plains

Debra J. Paterson, Metro Minnesota

Norbert D. Harrington, Greater Minnesota

J. Lanier Little, Illinois, Michigan, Wisconsin

Carl A. Miller,Jr., Indiana,Ohio

Daniel P. Murphy, South Dakota

Peter J.Fullerton, North Dakota

Paul W.“Chip”Carlisle,Texas

George W. Cone, Heart of Texas

John T. Gavin, Dallas-Fort Worth

Glenn V. Godkin, Houston

Don C. Kendrick, Central Texas

Kenneth A.Telg,West Texas

Thomas W. Honig,Colorado,Montana,

Utah,Wyoming

Joy N. Ott, Montana

Robert A. Hatch, Utah

Matthew J. Lynett, Metro Denver

Donald R. Sall, Greater Colorado

Michael J. Matthews,Wyoming

H. Lynn Horak, Iowa, Nebraska

Kirk L. Kellner,Nebraska

J. Scott Johnson, Iowa

Laura A. Schulte,Western Banking

Michael F. Billeci, Greater San Francisco

Bay Area

Nathan E. Christian, Southern California,

Border Banking

William J. Dewhurst, Central California

Felix S.Fernandez, Northern California

Shelley Freeman,Los Angeles Metro

Alan V. Johnson, Oregon

J. Pat McMurray, Idaho

Lisa J. Stevens, San Francisco Metro

Richard Strutz, Alaska

Robert D.Worth, California Business Banking

Patrick G.Yalung, Washington State

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

Business Banking Support Group

Timothy J. Coughlon

Marketing

Sylvia L. Reynolds

Senior Business Ofﬁcers

Private Client Services/

Internet Services

Clyde W. Ostler

Jay Welker, Private Client Services

Regional Managing Directors

Anne D.Copeland, Northern California,

Central California,Nevada

Joe W. DeFur, Los Angeles Metro

James Cimino,Southern California,

Orange County, Arizona

Jeffrey Grubb,Washington, Oregon,

Idaho,Alaska

David J. Kasper,Colorado, Utah,

Montana,Wyoming

Russell A. Labrasca,Texas, New Mexico

David J. Pittman, Illinois,Iowa, Nebraska

Timothy N.Traudt,Minnesota,

North Dakota, South Dakota, Wisconsin,

Indiana, Ohio, Michigan

Tracey B.Warson, San Francisco Bay Area

Lance P. Fox, Credit Administration

Diversiﬁed Products

Michael R. James

Marc L. Bernstein, Business Direct Lending

Louis M. Cosso,Auto Finance

Jerry E. Gray, SBA Lending

Michael T. Borchert, Payroll Services

Rebecca Macieira-Kaufmann,

Small Business Segment

Kevin A. Rhein, Wells Fargo Card Services

Daniel I. Ayala, Global Remittance Services

Edward M. Kadletz, Debit Card

Debra B. Rossi, Payment Solutions

Jon A.Veenis, Education Finance Services

HOME AND CONSUMER FINANCE

Mark C. Oman

Wells Fargo Home Mortgage

Michael J. Heid, Division President, Capital

Markets, Finance,Administration

Cara K. Heiden, Division President,National

Consumer Lending, Institutional Lending

Susan A. Davis, Centralized Retail/

Retail Administration

Michael Lepore,Institutional Lending

Consumer Credit

Doreen Woo Ho,President

Brian J. Bartlett, Corporate Trust

John W. Barton, Regional Banking/Personal

Credit Management

Scott Gable, Personal Credit Management

Meheriar M. Hasan, Direct to Consumer

Kathleen L.Vaughan,Equity Direct,

Institutional Lending

Wells Fargo Financial,Inc.

Thomas P. Shippee, CEO,President

Greg M. Janasko, Commercial Business

David R. Kvamme, Consumer Business

Gary D. Lorenz, Auto Business

Jaime Marti, Latin American Auto

Oriol Segarra, Latin American Consumer

and U.S. Hispanic

WHOLESALE BANKING

David A. Hoyt

Commercial Banking

Iris S. Chan

John C. Adams, Northern California

JoAnn N. Bertges,Western

Robert A. Chereck,Texas

Albert F. (Rick) Ehrke, Southern California

Mark D.Howell,Intermountain/Southwest

Paul D. Kalsbeek, Southeast

Richard J. Kerbis, Northeast

Edmund O.Lelo, Greater Los Angeles

Perry G. Pelos, Midwest

John V. Rindlaub,Paciﬁc Northwest

Credit Administration

Thomas J. Davis, Real Estate

David J.Weber, Commercial/Corporate

Specialized Financial Services

Timothy J. Sloan

J. Edward Blakey,Commercial Mortgage

David B.Marks, Corporate Banking,

Shareowner Services

John P. Hullar, Wells Fargo Securities

Jay Kornmayer, Gaming

Mark L. Myers, Real Estate Merchant Banking,

Homebuilder Finance

J. Michael Johnson, Financial Sponsors,

Leveraged, Media and Mezzanine Finance,

Distribution

John M. McQueen, Wells Fargo Equipment

Finance

John R. Shrewsberry, Securities Investment

Real Estate

A. Larry Chapman

Charles H. Fedalen, Jr.,Southern

California/Southwest

Shirley O.Grifﬁn, Real Estate Portfolio Services

Christopher J. Jordan, Mid-Atlantic/

New England

Robin W. Michel, Northern California/Northwest

James H. Muir,Eastern/Midwest

Stephen P. Prinz, Central/Texas

International and Insurance Services

David J. Zuercher

Peter J.Wissinger, President, CEO, Acordia, Inc.

Michael E. Connealy,Rural Community

Insurance Services

Neal Aton,Wells Fargo Insurance

Ronald A. Caton, Global Correspondent Banking

Peter P. Connolly, Foreign Exchange/

International Financial Services

Sanjiv S. Sanghvi,Wells Fargo HSBC Trade Bank

Asset-Based Lending

John F. Nickoll

Peter E.Schwab,Wells Fargo Foothill

Henry K. Jordan,Wells Fargo Foothill

Thomas Pizzo,Wells Fargo Century

Martin J. McKinley,Wells Fargo Business Credit

Jeffrey T. Nikora, Alternative Investment

Management

Eastdil Secured,LLC

Benjamin V. Lambert, Chairman

Roy H. March, CEO

D.Michael Van Konynenburg,President

W. Jay Borzi, Managing Director

Asset Management

Michael J. Niedermeyer

Robert W. Bissell,Wells Capital Management

James W. Paulsen,Wells Capital

Management

John S. McCune, Institutional Brokerage

Laurie B. Nordquist, Institutional Trust

Karla M. Rabusch,Wells Fargo Funds

Wholesale Services

Stephen M. Ellis

Norwest Equity Partners

John E. Lindahl, Managing Partner

Norwest Venture Partners

Promod Haque,Managing Partner

Financial Review

34 Overview

38 Critical Accounting Policies

41 Earnings Performance

41 Net Interest Income

44 Noninterest Income

45 Noninterest Expense

45 Income Tax Expense

45 Operating Segment Results

46 Balance Sheet Analysis

46 Securities Available for Sale

(table on page 71)

46 Loan Portfolio (table on page 73)

46 Deposits

47 Off-Balance Sheet Arrangements and

Aggregate Contractual Obligations

47 Off-Balance Sheet Arrangements,

Variable Interest Entities, Guarantees

and Other Commitments

48 Contractual Obligations

48 Transactions with Related Parties

49 Risk Management

49 Credit Risk Management Process

49 Nonaccrual Loans and Other Assets

50 Loans 90 Days or More Past Due

and Still Accruing

51 Allowance for Credit Losses

(table on page 75)

52 Asset/Liability and

Market Risk Management

52 Interest Rate Risk

52 Mortgage Banking Interest Rate Risk

54 Market Risk – Trading Activities

54 Market Risk – Equity Markets

54 Liquidity and Funding

56 Capital Management

57 Comparison of 2004 with 2003

Controls and Procedures

58 Disclosure Controls and Procedures

58 Internal Control over Financial Reporting

58 Management’s Report on Internal Control

over Financial Reporting

59 Report of Independent Registered Public

Accounting Firm

Financial Statements

60 Consolidated Statement of Income

61 Consolidated Balance Sheet

62 Consolidated Statement of

Changes in Stockholders’ Equity

and Comprehensive Income

63 Consolidated Statement of Cash Flows

64 Notes to Financial Statements

112 Report of Independent Registered

Public Accounting Firm

113 Quarterly Financial Data

115 Glossary

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 con-

sumers, businesses and institutions in all 50 states of the

U.S. and in other countries. We ranked ﬁfth in assets and

fourth in market value of our common stock among U.S.

bank holding companies at December 31, 2005. When we

refer to “the Company,” “we,” “our” and “us” in this

Report, we mean Wells Fargo & Company and Subsidiaries

(consolidated). When we refer to “the Parent,” we mean

Wells Fargo & Company.

We had another exceptional year in 2005, with record

diluted earnings per share of $4.50, record net income of

$7.7 billion and solid market share growth across our more

than 80 businesses. Our earnings growth from a year ago was

broad based, with nearly every consumer and commercial

business line achieving double-digit proﬁt growth, including

regional banking, private client services, 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 last year 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 adjustable rate mortgages (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 was driven by revenue

growth, operating leverage (revenue growth in excess of

expense growth) and credit quality, which remained solid

despite the following credit-related events:

• $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 Federal Financial

Institutions Examination Council (FFIEC) charge-off

rules at Wells Fargo Financial; and

• $100 million provision for credit losses for our

assessment of the effect of Hurricane Katrina.

Our primary sources of earnings are driven by lending

and deposit taking activities, which generate net interest

income, and providing ﬁnancial services that generate fee

income.

Revenue grew 10% from 2004. In addition to double-digit

growth in earnings per share, we also had double-digit growth

in average loans. We have been achieving these results not just

for one year, but for the past ﬁve, 10, 15 and 20 years. Our

total shareholder return the past ﬁve years was 10 times that

of the S&P 500

, and almost double the S&P 500 including

the past 10, 15 and 20 years. These periods included almost

every economic cycle and economic condition a ﬁnancial

institution can experience, including high and low interest

rates, high and low unemployment, bubbles and recessions

and all types of yield curves – steep, ﬂat and inverted. For us

to achieve double-digit growth through different economic

cycles, 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.

We have stated in the past that to consistently grow

over the long term, successful companies must invest in their

core businesses and in maintaining strong balance sheets.

We continued to make investments in 2005 by opening 92

banking stores, seven commercial banking ofﬁces, 47 mortgage

stores and 20 consumer ﬁnance stores. We continued to

be #1 nationally in retail mortgage originations, home

equity lending, small business lending, agricultural lending,

consumer internet banking, and providing ﬁnancial services

to middle-market companies in the western U.S.

Overview

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. Some of these factors are described in the Financial

Review and in the Financial Statements and related Notes. For a discussion of other factors, refer to the “Risk Factors” and

“Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2005, ﬁled with

the Securities and Exchange Commission (SEC) and available on the SEC’s website at www.sec.gov.

-5

10 15 205 years

(percent)

Wells Fargo Common Stock

S&P 500

LONG-TERM PERFORMANCE – TOTAL COMPOUND ANNUAL

STOCKHOLDER RETURN (Including reinvestment of dividends)

Financial Review

Our solid ﬁnancial performance enables us to be one

of the top givers to non-proﬁts among all U.S. companies.

We continued to have the only “Aaa” rated bank in the

U.S., the highest possible credit rating issued by Moody’s

Investors Service.

Our vision is to satisfy all the ﬁnancial needs of our

customers, help them succeed ﬁnancially, be recognized as

the premier ﬁnancial services company in our markets and

be one of America’s great companies. Our primary strategy

to achieve this vision is to increase the number of products

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. At

year-end 2005, our average cross-sell set new records for the

Company – our average retail banking household now has

4.8 products with us, up from 4.6 a year ago and our average

Wholesale Banking customer now has a record 5.7 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 10%;

• Average retail core deposits grew by 10%

(average core deposits grew by 9%); and

• Assets managed and administered were up 11%.

We believe it is important to maintain a well controlled

environment as we continue to grow our businesses. We

manage our credit risk by maintaining prudent credit policies

for underwriting with effective procedures for monitoring and

review. We have 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 and the prudent way we attempt

to manage our business risks.

Our ﬁnancial results included the following:

Net income in 2005 increased 9% to $7.7 billion from

$7.0 billion in 2004. Diluted earnings per common share

increased 10% to $4.50 in 2005 from $4.09 in 2004. Return

on average total assets was 1.72% and return on average

common equity was 19.57% in 2005, and 1.71% and

19.56%, respectively, in 2004.

Net interest income on a taxable-equivalent basis was

$18.6 billion in 2005, compared with $17.3 billion a year

ago, reﬂecting solid loan growth (other than ARMs) and a

relatively ﬂat net interest margin. Average earning assets

grew 8% from a year ago, or 15% excluding 1-4 family ﬁrst

mortgages. 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, 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 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 busi-

nesses, with particular strength in trust, investment and IRA

fees, card fees, loan fees, mortgage banking income and

gains on equity investments.

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 reposition-

ing actions, including losses from the sales of low-yielding

ARMs and debt securities. For the year, Wells Fargo Home

Mortgage (Home Mortgage) revenue increased $455 million,

or 10%, from $4.4 billion in 2004 to $4.9 billion in 2005.

Operating leverage improved during 2005 with revenue

growing 10% and noninterest expense up only 8%.

Noninterest expense was $19.0 billion in 2005, up 8%

from $17.6 billion in 2004, primarily due to increased

mortgage production and continued investments in new

stores and additional sales-related team members. Noninterest

expense also 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. We began expensing stock options,

as required, on January 1, 2006. Taking into account our

February 2006 option grant, we anticipate that total stock

option expense will reduce earnings by approximately

$.06 per share for 2006.

During 2005, net charge-offs were $2.28 billion, or .77%

of average total loans, compared with $1.67 billion, or .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 to more stringent FFIEC

charge-off timing rules at Wells Fargo Financial. 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 .43% of total loans, down from $1.36 billion,

or .47%, at December 31, 2004. Foreclosed assets were

$191 million at December 31, 2005, compared with

$212 million at December 31, 2004.

The ratio of stockholders’ equity to total assets was

8.44% at December 31, 2005, compared with 8.85% at

December 31, 2004. Our total risk-based capital (RBC)

ratio at December 31, 2005, was 11.64% and our Tier 1

RBC ratio was 8.26%, exceeding the minimum regulatory

guidelines of 8% and 4%, respectively, for bank holding

companies. Our RBC ratios at December 31, 2004, were

12.07% and 8.41%, respectively. Our Tier 1 leverage ratios

were 6.99% and 7.08% at December 31, 2005 and 2004,

respectively, exceeding the minimum regulatory guideline of

3% for bank holding companies.

stock plans, performance-based awards, stock appreciation

rights, and employee stock purchase plans. FAS 123R requires

that we measure the cost of employee services received in

exchange for an award of equity instruments based on the

fair value of the award on the grant date. That cost must be

recognized in the income statement over the vesting period

of the award. Under the “modiﬁed prospective” transition

method, awards that are granted, modiﬁed or settled begin-

ning at the date of adoption will be measured and accounted

for in accordance with FAS 123R. In addition, expense must

be recognized in the income statement for unvested awards

that were granted prior to the date of adoption. The expense

will be based on the fair value determined at the grant date.

Taking into account our February 2006 option grant, we

anticipate that total stock option expense will reduce 2006

earnings by approximately $.06 per share.

On March 30, 2005, the FASB issued Interpretation No. 47,

Accounting for Conditional Asset Retirement Obligations –

An Interpretation of FASB Statement No. 143 (FIN 47). FIN

47 was issued to address diverse accounting practices that

developed with respect to the timing of liability recognition

for legal obligations associated with the retirement of tangible

long-lived assets, such as building and leasehold improvements,

when the timing and/or method of settlement of the obligations

are conditional on a future event. FIN 47 requires companies

to recognize a liability for the fair value of a conditional asset

retirement obligation when incurred if the liability’s fair value

can be reasonably estimated. We adopted FIN 47 in 2005

and recorded a $25 million charge to noninterest expense.

We continuously monitor emerging accounting issues,

including proposed standards issued by the FASB, for any

impact on our ﬁnancial statements. We are currently aware

of a proposed FASB Staff Position (FSP) related 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 leveraged lease transac-

tions 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 to as “Lease-In,

Lease-Out” (LILO) transactions, we have previously invested

in certain leveraged lease transactions that the IRS labels as

“Sale-In, Lease-Out” (SILO) transactions. We have paid the

IRS the 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. If the draft FSP had been effective at

December 31, 2005, we would have been required to record

a pre-tax charge of approximately $125 million as a cumula-

tive effect of change in accounting principle. However, subse-

quent deliberations by the FASB could signiﬁcantly change

the draft FSP, which, in turn, could affect our estimate and

the method of adoption. We will continue to monitor the

FASB’s deliberations regarding this proposal.

Table 1: Ratios and Per Common Share Data

Year ended December 31,

2005 2004 2003

PROFITABILITY RATIOS

Net income to average total assets (ROA) 1.72%

1.71% 1.64%

Net income applicable to common stock to

average common stockholders’ equity (ROE) 19.57

19.56 19.36

Net income to average stockholders’ equity 19.59

19.57 19.34

EFFICIENCY RATIO

(1)

57.7

58.5 60.6

CAPITAL RATIOS

At year end:

Stockholders’ equity to assets 8.44

8.85 8.89

Risk-based capital

(2)

Tier 1 capital 8.26

8.41 8.42

Total capital 11.64

12.07 12.21

Tier 1 leverage

(2)

6.99

7.08 6.93

Average balances:

Stockholders’ equity to assets 8.78

8.73 8.49

PER COMMON SHARE DATA

Dividend payout

(3)

44.0

44.8 40.7

Book value $24.25

$22.36 $20.31

Market price

(4)

High $64.70

$64.04 $59.18

Low 57.62

54.32 43.27

Year end 62.83

62.15 58.89

(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.

Current Accounting Developments

On December 16, 2004, the Financial Accounting Standards

Board (FASB) issued Statement of Financial Accounting

Standards No. 123 (revised 2004), Share-Based Payment

(FAS 123R), which replaced FAS 123, Accounting for Stock-

Based Compensation, and superceded Accounting Principles

Board Opinion No. 25, Accounting for Stock Issued to

Employees. We adopted FAS 123R on January 1, 2006,

using the “modiﬁed prospective” transition method. The

scope of FAS 123R includes a wide range of stock-based

compensation arrangements including stock options, restricted

On August 11, 2005, the FASB issued for public

comment an Exposure Draft that would amend FAS 140,

Accounting for Transfers and Servicing of Financial Assets

and Extinguishments of Liabilities. This Exposure Draft,

Accounting for Servicing of Financial Assets – An Amendment

of FASB Statement No. 140, would require that all separately

recognized servicing rights be initially measured at fair value,

if practicable. For each class of separately recognized servicing

assets and liabilities, this proposed standard would permit an

entity to choose from two subsequent measurement methods.

Specifically, an entity could amortize servicing assets and

liabilities in proportion to and over the period of estimated

net servicing income or servicing loss (effectively the existing

requirement in FAS 140) or an entity could report servicing

assets or liabilities at fair value at each reporting date with

any changes reported currently in operations. We expect this

guidance to be ﬁnalized and issued in early 2006. Based on

the guidance in the current Exposure Draft, it is likely that

we will adopt the fair value alternative upon issuance of

the standard. We will continue to monitor this emerging

guidance in order to ﬁnalize our decision and determine

the impact on our ﬁnancial statements.

Table 2: Six-Year Summary of Selected Financial Data

(in millions, except % Change Five-year

per share amounts) 2005/ compound

2005 2004 2003 2002 2001 2000 2004 growth rate

INCOME STATEMENT

Net interest income $ 18,504 $ 17,150 $ 16,007 $ 14,482 $ 11,976 $ 10,339 8% 12%

Noninterest income 14,445 12,909 12,382 10,767 9,005 10,360 12 7

Revenue 32,949 30,059 28,389 25,249 20,981 20,699 10 10

Provision for credit losses 2,383 1,717 1,722 1,684 1,727 1,284 39 13

Noninterest expense 19,018 17,573 17,190 14,711 13,794 12,889 88

Before effect of change in

accounting principle

(1)

Net income $ 7,671 $ 7,014 $ 6,202 $ 5,710 $ 3,411 $ 4,012 914

Earnings per common share 4.55 4.15 3.69 3.35 1.99 2.35 10 14

Diluted earnings

per common share 4.50 4.09 3.65 3.32 1.97 2.32 10 14

After effect of change in

accounting principle

Net income $ 7,671 $ 7,014 $ 6,202 $ 5,434 $ 3,411 $ 4,012 914

Earnings per common share 4.55 4.15 3.69 3.19 1.99 2.35 10 14

Diluted earnings

per common share 4.50 4.09 3.65 3.16 1.97 2.32 10 14

Dividends declared

per common share 2.00 1.86 1.50 1.10 1.00 .90 817

BALANCE SHEET

(at year end)

Securities available for sale $ 41,834 $ 33,717 $ 32,953 $ 27,947 $ 40,308 $ 38,655 24 2

Loans 310,837 287,586 253,073 192,478 167,096 155,451 815

Allowance for loan losses 3,871 3,762 3,891 3,819 3,717 3,681 31

Goodwill 10,787 10,681 10,371 9,753 9,527 9,303 13

Assets 481,741 427,849 387,798 349,197 307,506 272,382 13 12

Core deposits

(2)

253,341 229,703 211,271 198,234 182,295 156,710 10 10

Long-term debt 79,668 73,580 63,642 47,320 36,095 32,046 820

Guaranteed preferred beneﬁcial

interests in Company’s

subordinated debentures

(3)

— — — 2,885 2,435 935 ——

Stockholders’ equity 40,660 37,866 34,469 30,319 27,175 26,461 79

(1) Change in accounting principle is for a transitional goodwill impairment charge recorded in 2002 upon adoption of FAS 142, Goodwill and Other Intangible Assets.

(2) Core deposits consist of noninterest-bearing deposits, interest-bearing checking, savings certiﬁcates and market rate and other savings.

(3) At December 31, 2003, upon adoption of FIN 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R), these balances were reﬂected in long-term

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

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 management

to make difﬁcult, subjective and complex judgments about

matters that are inherently uncertain and because it is likely

that materially different amounts would be reported under

different conditions or using different assumptions. These

policies govern the allowance for credit losses, the valuation

of mortgage servicing rights and pension accounting.

Management has reviewed and approved these critical

accounting policies and has discussed these policies with

the Audit and Examination Committee.

Allowance for Credit Losses

The allowance for credit losses, which 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 allocate a portion of the allowance to speciﬁc loan

categories (the allocated allowance), the entire allowance

(both allocated and unallocated) is used to absorb credit

losses inherent in the total loan portfolio.

Approximately two-thirds of the allocated allowance is

determined at a pooled level for consumer loans and some

segments of commercial small business loans. We use

forecasting models to measure the losses inherent in these

portfolios. We frequently validate and update these models to

capture recent behavioral characteristics of the portfolios, as

well as changes in our loss mitigation or marketing strategies.

The remaining allocated allowance is for commercial

loans, commercial real estate loans and lease ﬁnancing. We

initially estimate this portion of the allocated allowance by

applying historical loss factors statistically derived from

tracking loss content associated with actual portfolio move-

ments 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. Also, we

individually review nonperforming loans over $3 million for

impairment based on cash ﬂows or collateral. We include

impairment on these nonperforming loans in the allocated

allowance unless it has already been recognized as a loss.

The allocated allowance is supplemented by the unallo-

cated allowance to adjust for imprecision and to incorporate

the range of probable outcomes inherent in estimates used

for the allocated allowance. The unallocated allowance is

the result of our judgment of risks inherent in the portfolio,

economic uncertainties, historical loss experience and other

subjective factors, including industry trends, not reﬂected in

the allocated allowance.

The ratios of the allocated allowance and the unallocated

allowance to the total allowance may change from period to

period. The total allowance reﬂects management’s estimate

of credit losses inherent in the loan portfolio at the balance

sheet date.

The allowance for credit losses, and the resulting provision,

is based on judgments and assumptions, including:

• general economic conditions;

• loan portfolio composition;

• loan loss experience;

• management’s evaluation of the credit risk relating to

pools of loans and individual borrowers;

• sensitivity analysis and expected loss models; and

• observations from our internal auditors, internal loan

review staff or banking regulators.

To estimate the possible range of allowance required at

December 31, 2005, and the related change in provision

expense, we assumed the following scenarios of a reasonably

possible deterioration or improvement in loan credit quality.

Assumptions for deterioration in loan credit quality were:

• for retail loans, a 12 basis point increase in estimated

loss rates from actual 2005 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 retail loans, an 8 basis point decrease in estimated

loss rates from actual 2005 loss levels, adjusting for

incremental consumer bankruptcy losses; and

• for wholesale loans, no change from the essentially zero

2005 net loss performance.

Under the assumptions for deterioration in loan credit

quality, another $550 million in expected losses could occur

and under the assumptions for improvement, a $170 million

reduction in expected losses could occur.

Changes in the estimate of the allowance for credit

losses can materially affect net income. The example above

is only one of a number of reasonably possible scenarios.

Determining the allowance for credit losses requires us to

make forecasts that are highly uncertain and require a high

degree of judgment.

Valuation of Mortgage Servicing Rights

We recognize as assets the rights to service mortgage loans

for others, or mortgage servicing rights (MSRs), whether we

purchase the servicing rights, or keep them after the sale or

securitization of loans we originate. Purchased MSRs are

capitalized at cost. Originated MSRs are recorded based on

the relative fair value of the retained servicing right and the

mortgage loan on the date the mortgage loan is sold. Both

purchased and originated MSRs are carried at the lower of

(1) the capitalized amount, net of accumulated amortization

and hedge accounting adjustments, or (2) fair value. If MSRs

are designated as a hedged item in a fair value hedge, the

MSRs’ carrying value is adjusted for changes in fair value

resulting from the application of hedge accounting. The

carrying value of these MSRs is subject to a fair value test

under FAS 140, Accounting for Transfers and Servicing of

Financial Assets and Extinguishments of Liabilities.

MSRs are amortized in proportion to and over the period

of estimated net servicing income. We analyze the amortization

of MSRs monthly and adjust amortization to reﬂect changes

in prepayment speeds, discount rates and other factors that

affect estimated net servicing income.

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.

At the end of each quarter, we evaluate MSRs for possible

impairment based on the difference between the carrying

amount and current estimated fair value. To evaluate and

measure impairment, we stratify the portfolio based on

certain risk characteristics, including loan type and note rate.

If temporary impairment exists, we establish a valuation

allowance through a charge to income for those risk

stratiﬁcations with an excess of amortized cost over the

current fair value. If we later determine that all or part of

the temporary impairment no longer exists for a particular

risk stratiﬁcation, we may reduce the valuation allowance

through an increase to income.

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

impairment of MSRs by considering both historical and pro-

jected trends in interest rates, pay-off activity and whether

the impairment could be recovered through interest rate

increases. We recognize a direct write-down if we determine

that the recoverability of a recorded valuation allowance

is remote. A direct write-down permanently reduces the

carrying value of the MSRs, while a valuation allowance

(temporary impairment) can be reversed.

To reduce the sensitivity of earnings to interest rate and

market value ﬂuctuations, we hedge the change in value of

MSRs primarily with derivative contracts. Reductions or

increases in the value of the MSRs are generally offset by

gains or losses in the value of the derivatives. We immediately

recognize a gain or loss for the amount of change in the

value of MSRs that is not offset by the change in value of

the hedge instrument (i.e., hedge ineffectiveness). We may

choose not to fully hedge MSRs partly because origination

volume tends to act as a “natural hedge” (for example, as

interest rates decline, servicing values decrease and fees from

origination volume increase). Conversely, as interest rates

increase, the value of the MSRs increases, while fees from

origination volume tend to decline.

Servicing income—net of amortization, provision for

impairment and net derivative gains and losses—is recorded

in mortgage banking noninterest income.

We use a dynamic and sophisticated model to estimate

the value of our MSRs. Mortgage loan prepayment speed—a

key assumption in the model—is the annual rate at which

borrowers are forecasted to repay their mortgage loan

principal. The discount rate—another key assumption in

the model—is the required rate of return 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 and

annual valuations as market conditions and interest rates

change. Senior management reviews all assumptions quarterly.

Our key economic assumptions and the sensitivity of the

current fair value of MSRs to an immediate adverse change

in those assumptions are shown in Note 20 (Securitizations

and Variable Interest Entities) to Financial Statements.

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.

Pension Accounting

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. Including 2005, we

have used an expected rate of return of 9% on plan assets

for the past nine years. In light of the market conditions in

recent years, including a marked increase in volatility, we

reduced the expected long-term rate of return on plan assets

to 8.75% for 2006. Differences in each year, if any, between

expected and actual returns are included in our unrecognized

net actuarial gain or loss amount. We generally amortize any

unrecognized net actuarial gain or loss in excess of a 5%

corridor (as deﬁned in FAS 87, Employers’ Accounting for

Pensions) in net periodic pension expense calculations over

the next ﬁve years. Our average remaining service period is

approximately 11 years. See Note 15 (Employee Beneﬁts and

Other Expenses) to Financial Statements for information on

funding, changes in the pension beneﬁt obligation, and plan

assets (including the investment categories, asset allocation

and the fair value).

We use November 30 as the measurement date for our

pension assets and projected beneﬁt obligations. If we were

to assume a 1% increase/decrease in the expected long-term

rate of return, holding the discount rate and other actuarial

assumptions constant, pension expense would decrease/increase

by approximately $50 million.

DISCOUNT RATE

We use the discount rate to determine the present value of

our future beneﬁt obligations. It reﬂects the rates available

on long-term high-quality ﬁxed-income debt instruments,

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 lowered our discount rate to 5.75% in 2005 from

6% in 2004 and 6.5% in 2003, reﬂecting the decline in

market interest rates during these periods.

If we were to assume a 1% increase in the discount rate,

and keep the expected long-term rate of return and other

actuarial assumptions constant, pension expense would

decrease by approximately $59 million. If we were to

assume a 1% decrease in the discount rate, and keep other

assumptions constant, pension expense would increase

by approximately $104 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

$18.6 billion in 2005, compared with $17.3 billion in 2004,

an increase of 8%, reﬂecting solid loan growth (other than

ARMs) and a relatively ﬂat net interest margin.

Our net interest margin was 4.86% for 2005 and 4.89%

for 2004. During a year in which the Federal Reserve raised

rates eight times and the yield curve ﬂattened, our net interest

margin remained essentially ﬂat compared with a year ago.

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, replacing some

of these loans with higher-yielding ARMs. Over the last

seven quarters, we sold $65 billion in ARMs at an average

yield of 4.28%. As a result, the average yield on our 1-4

family ﬁrst mortgage portfolio—which includes ARMs —

increased from 5.19% on an average balance of $89.4 billion

in second quarter 2004 to 6.75% on an average balance

of $76.2 billion in fourth quarter 2005. At year-end 2005,

yields on new ARMs being held for investment within real

estate 1-4 family mortgage loans were more than 1% higher

than the average yield on the ARMs sold since second quarter

2004. Our net interest margin has performed better than our

peers’ due to our balance sheet repositioning actions and our

ability to grow transaction and savings deposits while main-

taining our deposit pricing discipline.

Average earning assets increased $29.2 billion to

$383.5 billion in 2005 from $354.3 billion in 2004. Loans

averaged $296.1 billion in 2005, compared with $269.6 billion

in 2004. Average mortgages held for sale were $39.0 billion

in 2005 and $32.3 billion in 2004. Debt securities available

for sale averaged $33.1 billion in both 2005 and 2004.

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 9% from 2004. Average

core deposits were $242.8 billion and $223.4 billion and

funded 54.5% and 54.4% of average total assets in 2005

and 2004, respectively. Total average retail core deposits,

which exclude Wholesale Banking core deposits and retail

mortgage escrow deposits, for 2005 grew $18.2 billion,

or 10%, from a year ago. Average mortgage escrow

deposits were $16.7 billion in 2005 and $14.1 billion in

2004. Savings certiﬁcates of deposits increased on average

from $18.9 billion in 2004 to $22.6 billion in 2005 and

noninterest-bearing checking accounts and other core

deposit categories increased on average from $204.5 billion

in 2004 to $220.1 billion in 2005. Total average interest-

bearing deposits increased to $194.6 billion in 2005 from

$182.6 billion a year ago. Total average noninterest-bearing

deposits increased to $87.2 billion in 2005 from $79.3 billion

a year ago.

Table 3 presents the individual components of net interest

income and the net interest margin.

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

(1)(2)

(in millions) 2005 2004

Average Yields/ Interest Average Yields/ Interest

balance rates income/ balance rates income/

expense expense

EARNING ASSETS

Federal funds sold, securities purchased under

resale agreements and other short-term investments $ 5,448 3.01% $ 164 $ 4,254 1.49% $ 64

Trading assets 5,411 3.52 190 5,286 2.75 145

Debt securities available for sale

(3)

Securities of U.S. Treasury and federal agencies 997 3.81 38 1,161 4.05 46

Securities of U.S. states and political subdivisions 3,395 8.27 266 3,501 8.00 267

Mortgage-backed securities:

Federal agencies 19,768 6.02 1,162 21,404 6.03 1,248

Private collateralized mortgage obligations 5,128 5.60

283

3,604 5.16

180

Total mortgage-backed securities 24,896 5.94 1,445 25,008 5.91 1,428

Other debt securities

(4)

3,846 7.10 266 3,395 7.72

236

Total debt securities available for sale

(4)

33,134 6.24 2,015 33,065 6.24 1,977

Mortgages held for sale

(3)

38,986 5.67 2,213 32,263 5.38 1,737

Loans held for sale

(3)

2,857 5.10 146 8,201 3.56 292

Loans:

Commercial and commercial real estate:

Commercial 58,434 6.76 3,951 49,365 5.77 2,848

Other real estate mortgage 29,098 6.31 1,836 28,708 5.35 1,535

Real estate construction 11,086 6.67 740 8,724 5.30 463

Lease ﬁnancing 5,226 5.91 309 5,068 6.23 316

Total commercial and commercial real estate 103,844 6.58 6,836 91,865 5.62 5,162

Consumer:

Real estate 1-4 family ﬁrst mortgage 78,170 6.42 5,016 87,700 5.44 4,772

Real estate 1-4 family junior lien mortgage 55,616 6.61 3,679 44,415 5.18 2,300

Credit card 10,663 12.33 1,315 8,878 11.80 1,048

Other revolving credit and installment 43,102 8.80 3,794 33,528 9.01 3,022

Total consumer 187,551 7.36 13,804 174,521 6.38 11,142

Foreign 4,711 13.49 636 3,184 15.30 487

Total loans

(5)

296,106 7.19 21,276 269,570 6.23 16,791

Other 1,581

4.34

1,709 3.81

Total earning assets $383,523 6.81 26,072 $354,348 5.97 21,071

FUNDING SOURCES

Deposits:

Interest-bearing checking $ 3,607 1.43 51 $ 3,059 .44 13

Market rate and other savings 129,291 1.45 1,874 122,129 .69 838

Savings certiﬁcates 22,638 2.90 656 18,850 2.26 425

Other time deposits 27,676 3.29 910 29,750 1.43 427

Deposits in foreign ofﬁces 11,432

3.12 357 8,843 1.40 124

Total interest-bearing deposits 194,644 1.98 3,848 182,631 1.00 1,827

Short-term borrowings 24,074 3.09 744 26,130 1.35 353

Long-term debt 79,137 3.62 2,866 67,898 2.41 1,637

Guaranteed preferred beneﬁcial interests in Company’s

subordinated debentures

(6)

— — — — — —

Total interest-bearing liabilities 297,855 2.50 7,458 276,659 1.38 3,817

Portion of noninterest-bearing funding sources 85,668 — — 77,689 — —

Total funding sources $383,523 1.95 7,458 $354,348 1.08 3,817

Net interest margin and net interest income on

a taxable-equivalent basis

(7)

4.86% $18,614 4.89% $17,254

NONINTEREST-EARNING ASSETS

Cash and due from banks $ 13,173 $ 13,055

Goodwill 10,705 10,418

Other 38,389 32,758

Total noninterest-earning assets $ 62,267 $ 56,231

NONINTEREST-BEARING FUNDING SOURCES

Deposits $ 87,218 $ 79,321

Other liabilities 21,559 18,764

Stockholders’ equity 39,158 35,835

Noninterest-bearing funding sources used to

fund earning assets (85,668) (77,689)

Net noninterest-bearing funding sources $ 62,267 $ 56,231

TOTAL ASSETS $445,790 $410,579

(1) Our average prime rate was 6.19%, 4.34%, 4.12%, 4.68% and 6.91% for 2005, 2004, 2003, 2002 and 2001, respectively.The average three-month London Interbank

Offered Rate (LIBOR) was 3.56%, 1.62%, 1.22%, 1.80% and 3.78% for the same years, respectively.

(2) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.

(3) Yields are based on amortized cost balances computed on a settlement date basis.

(4) Includes certain preferred securities.

2003 2002 2001

Average Yields/ Interest Average Yields/ Interest Average Yields/ Interest

balance rates income/ balance rates income/ balance rates income/

expense expense expense

$ 4,174 1.16% $ 49 $ 2,961 1.73% $ 51 $ 2,741 3.72% $ 102

6,110 2.56 156 4,747 3.58 169 2,580 4.44 115

1,286 4.74 58 1,770 5.57 95 2,158 6.55 137

2,424 8.62 196 2,106 8.33 167 2,026 7.98 154

18,283 7.37 1,276 26,718 7.23 1,856 27,433 7.19 1,917

2,001 6.24

120

2,341 7.18 163 1,766 8.55

148

20,284 7.26 1,396 29,059 7.22 2,019 29,199 7.27 2,065

3,302 7.75

240

3,029 7.74 232

3,343 7.80 254

27,296 7.32 1,890 35,964 7.25 2,513 36,726 7.32 2,610

58,672 5.34 3,136 39,858 6.13 2,450 23,677 6.72 1,595

7,142 3.51 251 5,380 4.69 252 4,820 6.58 317

47,279 6.08 2,876 46,520 6.80 3,164 48,648 8.01 3,896

25,846 5.44 1,405 25,413 6.17 1,568 24,194 7.99 1,934

7,954 5.11 406 7,925 5.69 451 8,073 8.10 654

4,453 6.22 277 4,079 6.32 258 4,024 6.90 278

85,532 5.80 4,964 83,937 6.48 5,441 84,939 7.96 6,762

56,252 5.54 3,115 32,669 6.69 2,185 23,359 7.54 1,761

31,670 5.80 1,836 25,220 7.07 1,783 17,587 9.20 1,619

7,640 12.06 922 6,810 12.27 836 6,270 13.36 838

29,838 9.09 2,713 24,072 10.28 2,475 23,459 11.40 2,674

125,400 6.85 8,586 88,771 8.20 7,279 70,675 9.75 6,892

2,200 18.00 396 1,774 18.90 335 1,603 20.82 333

213,132 6.54 13,946 174,482 7.48 13,055 157,217 8.90 13,987

1,626 4.57

74 1,436 4.87 72 1,262 5.50 69

$318,152 6.16 19,502

$264,828 7.04

18,562 $229,023 8.24 18,795

$ 2,571 .27 7 $ 2,494 .55 14 $ 2,178 1.59 35

106,733 .66 705 93,787 .95 893 80,585 2.08 1,675

20,927 2.53 529 24,278 3.21 780 29,850 5.13 1,530

25,388 1.20 305 8,191 1.86 153 1,332 5.04 67

6,060 1.11 67 5,011 1.58 79 6,209 3.96 246

161,679 1.00 1,613 133,761 1.43 1,919 120,154 2.96 3,553

29,898 1.08 322 33,278 1.61 536 33,885 3.76 1,273

53,823 2.52 1,355 42,158 3.33 1,404 34,501 5.29 1,826

3,306 3.66 121 2,780 4.23 118 1,394 6.40 89

248,706 1.37 3,411 211,977 1.88 3,977 189,934 3.55 6,741

69,446 — — 52,851 — — 39,089 — —

$318,152 1.08 3,411 $264,828 1.51 3,977 $229,023 2.95 6,741

5.08% $16,091 5.53% $14,585 5.29% $12,054

$ 13,433 $ 13,820 $ 14,608

9,905 9,737 9,514

36,123 33,340 32,222

$ 59,461 $ 56,897 $ 56,344

$ 76,815 $ 63,574 $ 55,333

20,030 17,054 13,214

32,062 29,120 26,886

(69,446) (52,851) (39,089)

$ 59,461 $ 56,897 $ 56,344

$377,613 $321,725 $285,367

(5) Nonaccrual loans and related income are included in their respective loan categories.

(6) At December 31, 2003, upon adoption of FIN 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R), these balances were reﬂected in

long-term debt. See Note 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.

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, 2005, these assets totaled $783 billion, up 11%

from $705 billion at December 31, 2004. At December 31, 2004,

we acquired $24 billion in mutual fund assets and $5 billion

in institutional investment accounts from Strong Financial

Corporation (Strong Financial). When the Wells Fargo

Funds

and certain Strong Financial funds merged in April

2005, we renamed our mutual fund family the Wells Fargo

Advantage Funds

. 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

was due to additional revenue from the December 31, 2004,

acquisition of assets from the Strong Financial transaction

and our successful efforts to grow our investment businesses.

Also, we receive commissions and other fees for providing

services for retail and discount brokerage customers. At

December 31, 2005 and 2004, brokerage balances were

$97 billion and $86 billion, respectively. Generally, these

fees are based on the number of transactions executed at

the customer’s direction.

Card fees increased 19% to $1,458 million in 2005 from

$1,230 million in 2004, predominantly due to increases in credit

card accounts and credit and debit card transaction volume.

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. Originations were

$366 billion in 2005 and $298 billion in 2004. The 1-4 family

first mortgage unclosed pipeline was $50 billion at both

year-end 2005 and 2004.

Net servicing income was $987 million in 2005 compared

with $1,037 million in 2004. Servicing income includes net

derivative gains and losses and is net of amortization and

impairment of MSRs, which are all inﬂuenced by both the

level and direction of mortgage interest rates. 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 servicing 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 compared 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.

Net losses on debt securities were $120 million for 2005,

compared with $15 million for 2004. Net gains from equity

investments were $511 million in 2005, compared with

$394 million in 2004, 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, but new

information or economic developments in the future could

result in recognition of additional impairment.

Noninterest Income

Table 4: Noninterest Income

(in millions)

Year ended D

ember 31,___% Change

2005 2004 2003 2005/ 2004/

2004 2003

Service charges on

deposit accounts $ 2,512

$ 2,417 $ 2,297 4% 5%

Trust and investment fees:

Trust, investment and IRA fees 1,855

1,509 1,345 23 12

Commissions and all other fees

581 607

592

(4) 3

Total trust and

investment fees

2,436 2,116 1,937 15 9

Card fees

1,458 1,230 1,079 19 14

Other fees:

Cash network fees

180 180 179 — 1

Charges and fees on loans

1,022 921 756 11 22

All other

727 678 625 7 8

Total other fees

1,929 1,779 1,560 8 14

Mortgage banking:

Servicing income,net of amortization

and provision for impairment

987 1,037 (954) (5) —

Net gains on mortgage loan

origination/sales activities

1,085 539 3,019 101 (82)

All other

350 284 447 23 (36)

Total mortgage banking

2,422 1,860 2,512 30 (26)

Operating leases

812 836 937 (3) (11)

Insurance

1,215 1,193 1,071 2 11

Trading assets

571 523 502 9 4

Net gains (losses) on debt

securities available for sale

(120) (15) 4 700 —

Net gains from

equity investments

511 394 55 30 616

Net gains on sales of loans

5 11 28 (55) (61)

Net gains (losses) on dispositions

of operations

14 (15) 29 — —

All other

680 580 371 17 56

Total

$14,445 $12,909 $12,382 12 4

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.

See “Current Accounting Developments” for information

on accounting for share-based awards, such as stock option

grants. On January 1, 2006, we adopted FAS 123R, which

requires that we include the cost of such grants in our

income statement over the vesting period of the award.

Income Tax Expense

Our effective income tax rate for 2005 decreased to 33.57%

from 34.87% for 2004, due primarily to higher tax-exempt

income and income tax credits, and the tax beneﬁt associated

with our donation of appreciated securities.

Noninterest Expense Operating Segment Results

Our lines of business for management reporting are 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.

COMMUNITY BANKING’S net income increased 13% to

$5.5 billion in 2005 from $4.9 billion in 2004. Total

revenue for 2005 increased 9%, driven by loan and deposit

growth and higher mortgage origination volumes. The

provision for credit losses for 2005 increased $108 million,

or 14%, reﬂecting incremental consumer bankruptcy ﬁlings

before the mid-October legislative reform. Noninterest

expense for 2005 increased $982 million, or 8%, driven

by mortgage production, growth in other businesses, and

investments in new stores, sales staff and technology.

Average loans were $187.0 billion in 2005, up 5% from

$178.9 billion in 2004.

WHOLESALE BANKING’S net income was a record $1.73 billion

in 2005, up 8% from $1.60 billion in 2004, driven largely

by a 15% increase in earning assets, as well as very low loan

losses. Average loans increased 17% to $62.2 billion in 2005

from $53.1 billion in 2004, with double-digit increases

across wholesale lending businesses. The provision for credit

losses decreased to $1 million in 2005 from $62 million in

2004, with loan charge-offs at very low levels throughout

2005. Noninterest income increased 13% to $3.4 billion

in 2005 from $3.0 billion in 2004, largely due to the

Strong Financial acquisition completed at the end of 2004.

Noninterest expense increased 16% to $3.17 billion in 2005

from $2.73 billion in 2004, due to the Strong Financial

acquisition and airline lease writedowns.

WELLS FARGO FINANCIAL’S net income decreased 34% to

$409 million in 2005 from $617 million in 2004. Net

income was reduced by incremental bankruptcies related

to the change in bankruptcy law and the $163 million ﬁrst

quarter 2005 initial implementation of conforming to more

stringent FFIEC charge-off timing rules. Also, a $100 million

provision for credit losses was taken in third quarter 2005

for estimated losses from Hurricane Katrina. Total revenue

rose 12% in 2005, reaching $4.7 billion, compared with

$4.2 billion in 2004, due to higher net interest income.

Noninterest expense increased $202 million, or 9%, in 2005

from 2004, reﬂecting investments in new consumer ﬁnance

stores and additional team members.

Segment results for prior periods have been revised due

to the realignment of our automobile ﬁnancing businesses

into Wells Fargo Financial in 2005, designed to leverage the

expertise, systems and resources of the existing businesses.

Table 5: Noninterest Expense

(in millions) Year ended December 31,_ _ % Change

2005 2004 2003 2005/ 2004/

2004 2003

Salaries $ 6,215 $ 5,393 $ 4,832 15% 12%

Incentive compensation 2,366 1,807 2,054 31 (12)

Employee beneﬁts 1,874 1,724 1,560 9 11

Equipment 1,267 1,236 1,246 3 (1)

Net occupancy 1,412 1,208 1,177 17 3

Operating leases 635 633 702 — (10)

Outside professional services 835 669 509 25 31

Contract services 596 626 866 (5) (28)

Travel and entertainment 481 442 389 9 14

Outside data processing 449 418 404 7 3

Advertising and promotion 443 459 392 (3) 17

Postage 281 269 336 4 (20)

Telecommunications 278 296 343 (6) (14)

Insurance 224 247 197 (9) 25

Stationery and supplies 205 240 241 (15) —

Operating losses 194 192 193 1 (1)

Security 167 161 163 4 (1)

Core deposit intangibles 123 134 142 (8) (6)

Charitable donations 61 248 237 (75) 5

Net losses from debt

extinguishment 11 174 — (94) —

All other

901 997

1,207

(10) (17)

Total $19,018 $17,573 $17,190 8 2

Balance Sheet Analysis

Table 6: Mortgage-Backed Securities

(in billions) Fair Net unrealized Remaining

value gain (loss) maturity

At December 31, 2005 $32.4 $ .4 5.3 yrs.

At December 31, 2005,

assuming a 200 basis point:

Increase in interest rates 29.9 (2.1) 7.5 yrs.

Decrease in interest rates 33.5 1.5 2.0 yrs.

Table 8: Deposits

(in millions) December 31,%

2005 2004 Change

Noninterest-bearing $ 87,712 $ 81,082 8%

Interest-bearing checking 3,324 3,122 6

Market rate and

other savings 134,811 126,648 6

Savings certiﬁcates 27,494 18,851 46

Core deposits 253,341 229,703 10

Other time deposits 46,488 36,622 27

Deposits in foreign ofﬁces 14,621 8,533 71

Total deposits $314,450 $274,858 14

Table 7: Maturities for Selected Loan Categories

(in millions) D

ecember 3

1, 2005

Within After After Total

one one year ﬁve

year through years

ﬁveyears

Selected loan maturities:

Commercial $18,748 $31,627 $11,177 $ 61,552

Other real estate mortgage 3,763 11,777 13,005 28,545

Real estate construction 5,081 6,887 1,438 13,406

Foreign 525 3,995 1,032 5,552

Total selected loans $28,117 $54,286 $26,652 $109,055

Sensitivity of loans due after

one year to changes in

interest rates:

Loans at ﬁxed interest rates $11,145 $ 7,453

Loans at ﬂoating/variable

interest rates 43,141

19,199

Total selected loans $54,286 $26,652

2005 from $32.3 billion in 2004, due to higher origination

volume. Residential mortgage originations of $366 billion

were up 23% from $298 billion in 2004. Loans held for

sale decreased to $612 million at December 31, 2005, from

$8.7 billion a year ago, due to the transfer of student loans

held for sale to the held for investment portfolio. Our decision

to hold these loans for investment was based on present yields

and our intent and ability to hold this portfolio for the

foreseeable future.

Table 7 shows contractual loan maturities and interest

rate sensitivities for selected loan categories.

Deposits

Year-end deposit balances are in Table 8. Comparative

detail of average deposit balances is included in Table 3.

Average core deposits funded 54.5% and 54.4% of average

total assets in 2005 and 2004, respectively. Total average

interest-bearing deposits rose from $182.6 billion in 2004

to $194.6 billion in 2005. Total average noninterest-bearing

deposits rose from $79.3 billion in 2004 to $87.2 billion

in 2005. Savings certiﬁcates increased on average from

$18.9 billion in 2004 to $22.6 billion in 2005.

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, 2005, we held

$40.9 billion of debt securities available for sale, compared

with $33.0 billion at December 31, 2004, with a net unrealized

gain of $591 million and $1.2 billion for the same periods,

respectively. We also held $900 million of marketable equity

securities available for sale at December 31, 2005, and

$696 million at December 31, 2004, with a net unrealized

gain of $342 million and $189 million for the same

periods, respectively.

The weighted-average expected maturity of debt securities

available for sale was 5.9 years at December 31, 2005. Since

79% of this portfolio is mortgage-backed securities, the

expected remaining maturity may differ from contractual

maturity because borrowers may have the right to prepay

obligations before the underlying mortgages mature.

The estimated effect of a 200 basis point increase or

decrease in interest rates on the fair value and the expected

remaining maturity of the mortgage-backed securities

available for sale portfolio is shown in Table 6.

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.

Loans averaged $296.1 billion in 2005, compared with

$269.6 billion in 2004, an increase of 10%. Total loans at

December 31, 2005, were $310.8 billion, compared with

$287.6 billion at year-end 2004, an increase of 8%. Average

1-4 family ﬁrst mortgages decreased $9.5 billion, or 11%,

and average junior liens increased $11.2 billion, or 25%, in

2005 compared with a year ago. Average commercial and

commercial real estate loans increased $12.0 billion, or 13%,

in 2005 compared with a year ago. Average mortgages held

for sale increased $6.7 billion, or 21%, to $39.0 billion in

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements,Variable Interest

Entities, Guarantees and Other Commitments

We consolidate our majority-owned subsidiaries and sub-

sidiaries in which we are the primary beneﬁciary. Generally,

we use the equity method of accounting if we own at least

20% of an 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 on the balance sheet, or

may be recorded on the balance sheet in amounts that are

different than the full contract or notional amount of the

transaction. These transactions are designed to (1) meet the

ﬁnancial needs of customers, (2) manage our credit, market

or liquidity risks, (3) diversify our funding sources or

(4) optimize capital, and are accounted for in accordance

with 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 automobile receiv-

ables. We normally structure loan securitizations as sales,

in accordance with FAS 140. This involves the transfer of

ﬁnancial assets to certain qualifying special-purpose entities

that we are not required to consolidate. In a securitization,

we can convert the assets into cash earlier than if we held

the assets to maturity. Special-purpose entities used in these

types of securitizations obtain cash to acquire assets by

issuing securities to investors. In a securitization, we record

a liability 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, 2005, securitization arrangements

sponsored by the Company consisted of $121 billion in

securitized loan receivables, including $75 billion of home

mortgage loans. At December 31, 2005, the retained servicing

rights and other beneﬁcial interests related to these securiti-

zations were $4,426 million, consisting of $3,501 million in

securities, $784 million in servicing assets and $141 million

in other retained interests. Related to our securitizations,

we have committed to provide up to $40 million in

credit enhancements.

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 $3 billion in total assets at

December 31, 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 $870 million at December 31, 2005,

predominantly representing investments in entities formed to

invest in affordable housing. We, however, 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., or an afﬁliated entity, through an established line

of credit and are subject to speciﬁed underwriting criteria.

At December 31, 2005, the total assets of these mortgage

origination joint ventures were approximately $55 million.

We provide liquidity to these joint ventures in the form of

outstanding lines of credit and, at December 31, 2005, these

liquidity commitments totaled $358 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, 2005,

total assets of our real estate lending and merchant services

joint ventures were approximately $715 million.

When we acquire brokerage, asset management and

insurance agencies, the terms of the acquisitions may provide

for deferred payments or additional consideration, based

on certain performance targets. At December 31, 2005, the

amount of contingent consideration we expected to pay was

not signiﬁcant to our ﬁnancial statements.

As a ﬁnancial services provider, we routinely commit to

extend credit, including loan commitments, standby letters

of credit and ﬁnancial guarantees. A signiﬁcant portion of

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 venture capital investment cycle, the period

over which privately-held companies are funded by venture

capital investors and ultimately sold or taken public. This

Table 9: Contractual Obligations

(in millions) Note(s) to Less than 1-3 3-5 More than Indeterminate Total

Financial Statements 1 year years years 5 years maturity

(1)

Contractual payments by period:

Deposits 10 $80,461 $ 5,785 $ 1,307 $ 231 $226,666 $314,450

Long-term debt

(2)

7, 12 11,124 27,704 15,869 24,971 — 79,668

Operating leases 7 514 786 535 898 — 2,733

Purchase obligations

(3)

548 244 28 — — 820

Total contractual obligations $92,647 $34,519 $17,739 $26,100 $226,666 $397,671

(1) Represents interest-bearing and noninterest-bearing checking, market rate and other savings accounts.

(2) Includes capital leases of $14 million.

(3) Represents agreements to purchase goods or services.

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, 2005, these commitments were

approximately $650 million. Our other investment commit-

ments, principally related to affordable housing, civic and

other community development initiatives, were approximately

$465 million at December 31, 2005.

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

niﬁcation agreements, including underwriting agreements

relating to offers and sales of our securities, acquisition

agreements, and various other business transactions or

arrangements, such as relationships arising from service as

a director or ofﬁcer of the Company. For more information,

see Note 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 9 summarizes these contractual obligations at

December 31, 2005, except obligations for short-term

borrowing arrangements and pension and postretirement

beneﬁt plans. More information on these 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. The Company had no related

party transactions required to be reported under FAS 57 for

the years ended December 31, 2005, 2004 and 2003.

Credit Risk Management Process

Our credit risk management process provides for decentral-

ized management and accountability by our lines of business.

Our overall credit process includes comprehensive credit

policies, frequent and detailed risk measurement and model-

ing, extensive credit training programs and a continual loan

audit review process. In addition, regulatory examiners

review and perform detailed tests of our credit underwriting,

loan administration and allowance processes.

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

credit policies for all banking and nonbanking operations

incurring credit risk with customers or counterparties that

provide a consistent, prudent approach to credit risk man-

agement. We use detailed tracking and analysis to measure

credit performance and exception rates and we routinely

review and modify credit policies as appropriate. We have

corporate data integrity standards to ensure accurate and

complete credit performance reporting. We strive to identify

problem loans early and have dedicated, specialized collec-

tion and work-out units.

The Chief Credit Ofﬁcer, who reports directly to the

Chief Executive Ofﬁcer, provides company-wide credit over-

sight. Each business unit with direct credit risks has a credit

ofﬁcer and has the primary responsibility for managing its

own credit risk. The Chief Credit Ofﬁcer delegates authority,

limits and other requirements to the business units. These

delegations are routinely reviewed and amended if there are

signiﬁcant changes in personnel, credit performance, or busi-

ness requirements. The Chief Credit Ofﬁcer is a member of

the Company’s Management Committee.

Our business units and the ofﬁce of the Chief Credit

Ofﬁcer periodically review all credit risk portfolios to ensure

that the risk identiﬁcation processes are functioning properly

and that credit standards are followed. Business units 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 in middle-market commercial

and residential real estate, auto and small consumer lending,

results in portfolio diversiﬁcation. We ensure that we use

appropriate methods to understand and underwrite risk.

In our wholesale portfolios, 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 loans are approved and monitored 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.

Each business unit completes quarterly asset quality fore-

casts to quantify its intermediate-term outlook for loan losses

and recoveries, nonperforming loans and market trends. To

make sure our overall allowance for credit losses is adequate

we conduct periodic stress tests. This includes a portfolio loss

simulation model that simulates a range of possible losses

for various sub-portfolios assuming various trends in loan

quality. We assess loan portfolios for geographic, industry,

or other concentrations and use mitigation strategies, which

may include loan sales, syndications or third party insurance,

to minimize these concentrations, as we deem necessary.

We routinely review and evaluate risks that are not

borrower speciﬁc but that may inﬂuence the behavior of a

particular credit, group of credits or entire sub-portfolios. We

also assess risk for particular industries, geographic locations

such as states or Metropolitan Statistical Areas (MSAs) and

speciﬁc macroeconomic trends.

NONACCRUAL LOANS AND OTHER ASSETS

Table 10 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) 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.

The decrease in nonaccrual loans was primarily due

to payoffs of commercial and commercial real estate

nonaccrual loans.

We expect that the amount of nonaccrual loans will

change due to portfolio growth, portfolio seasoning, routine

problem loan recognition and resolution through collections,

sales or charge-offs. The performance of any one loan can

be affected by external factors, such as economic conditions,

or factors particular to a borrower, such as actions of a

borrower’s management.

If interest due on the book balances of all nonaccrual

loans (including loans that were but are no longer on nonac-

crual at year end) had been accrued under the original terms,

approximately $85 million of interest would have been

recorded in 2005, compared with payments of $35 million

recorded as interest income.

Most of the foreclosed assets at December 31, 2005, have

been in the portfolio one year or less.

Risk Management

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING

Loans 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 $3,606 million, $2,578 million, $2,337 million,

$672 million and $698 million at December 31, 2005, 2004,

2003, 2002 and 2001, respectively. At December 31, 2005, 2004,

and 2003, the total included $2,923 million, $1,820 million

and $1,641 million, respectively, in advances pursuant to

our servicing agreements to Government National Mortgage

Association (GNMA) mortgage pools whose repayments are

insured by the Federal Housing Administration 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 11 provides

detail by loan category excluding GNMA advances.

Table 11: Loans 90 Days or More Past Due and Still Accruing

(Excluding Insured/Guaranteed GNMA Advances)

(in millions) December 31,

2005 2004 2003 2002 2001

Commercial and

commercial real estate:

Commercial $18 $26 $87 $92 $60

Other real estate

mortgage 13 69 722

Real estate construction 9 6

11 47

Total commercial

and commercial

real estate 40 38 102 110 129

Consumer:

Real estate

1-4 family

ﬁrst mortgage 103 148 117 104 145

Real estate

1-4 family junior

lien mortgage 50 40 29 18 17

Credit card 159 150 134 130 116

Other revolving credit

and installment 290 306 271 282 268

Total consumer 602 644 551 534 546

Foreign

41 76

43 28 23

Total $683 $758 $696 $672 $698

Table 10: Nonaccrual Loans and Other Assets

(in millions) December 31,

2005 2004 2003 2002 2001

Nonaccrual loans:

Commercial and commercial real estate:

Commercial $ 286 $ 345 $ 592 $ 796 $ 827

Other real estate mortgage 165 229 285 192 210

Real estate construction 31 57 56 93 145

Lease ﬁnancing 45 68

73 79

163

Total commercial and commercial real estate 527 699 1,006 1,160 1,345

Consumer:

Real estate 1-4 family ﬁrst mortgage 471 386 274 230 205

Real estate 1-4 family junior lien mortgage 144 92 87 49 22

Other revolving credit and installment

171

160

88 48 59

Total consumer 786 638 449 327 286

Foreign 25 21 3

Total nonaccrual loans

(1)

1,338 1,358 1,458 1,492 1,640

As a percentage of total loans .43% .47% .58% .78% .98%

Foreclosed assets 191 212 198 195 160

Real estate investments

(2)

2 2 6 4 2

Total nonaccrual loans and other assets $1,531 $1,572 $1,662 $1,691 $1,802

As a percentage of total loans .49% .55% .66% .88% 1.08%

(1) Includes impaired loans of $190 million, $309 million, $629 million, $612 million and $823 million at December 31, 2005, 2004, 2003, 2002 and 2001, 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) Real estate investments (contingent interest loans accounted for as investments) that would be classiﬁed as nonaccrual if these assets were recorded as loans.

Real estate investments totaled $84 million, $4 million, $9 million, $9 million and $24 million at December 31, 2005, 2004, 2003, 2002 and 2001, respectively.

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 clas-

siﬁed as a loss by either internal loan examiners or regulatory

examiners. The detail of the changes in the allowance for

credit losses, including charge-offs and recoveries by loan

category, is in Note 6 (Loans and Allowance for Credit

Losses) to Financial Statements.

At December 31, 2005, the allowance for loan losses

was $3.87 billion, or 1.25% of total loans, compared

with $3.76 billion, or 1.31%, at December 31, 2004, and

$3.89 billion, or 1.54%, at December 31, 2003. The decrease

in the ratio of the allowance for loan losses to total loans was

primarily due to a continued shift toward a higher percentage

of consumer loans in our portfolio, including consumer loans

and some small business loans, which have shorter loss

emergence periods, and home mortgage loans, which have

inherently lower losses that emerge over a longer time frame

compared to other consumer products. We have historically

experienced lower losses on our residential real estate secured

consumer loan portfolio.

The allowance for credit losses was $4.06 billion at

December 31, 2005, and $3.95 billion at December 31, 2004.

The ratio of the allowance for credit losses to net charge-offs

was 178% and 237% at December 31, 2005 and 2004,

respectively. This ratio ﬂuctuates from period to period and

the decrease in 2005 reﬂects increased loss rates within the

various consumer and small business portfolios impacted by

higher consumer bankruptcies in fourth quarter 2005.

The ratio of the allowance for credit losses to total nonac-

crual loans was 303% and 291% at December 31, 2005 and

2004, 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 and other consumer loans at

December 31, 2005. Nonaccrual loans are generally written

down to a net realizable value at the time they are placed on

nonaccrual and accounted for on a cost recovery basis.

The provision for credit losses totaled $2.38 billion in

2005, and $1.72 billion in both 2004 and 2003. 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. We continue to work with customers

under various payment moratoriums and forbearance

programs to re-evaluate and reﬁne our estimates as more

information becomes available and can be conﬁrmed in

subsequent quarters.

Net charge-offs in 2005 were .77% of average total

loans, compared with .62% in 2004 and .81% in 2003.

Higher net charge-offs in 2005 included the additional credit

losses from the change in bankruptcy laws and conforming

Wells Fargo Financial to FFIEC charge-off rules. 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 primarily impacted our

credit card, unsecured consumer loans and lines, auto and

small business portfolios.

The reserve for unfunded credit commitments was

$186 million at December 31, 2005, and $188 million at

December 31, 2004, less than 5% of the total allowance for

credit losses related to this potential risk for both years.

The allocated component of the allowance for credit losses

was $3.41 billion at December 31, 2005, and $3.06 billion at

December 31, 2004, an increase of $347 million year over

year. Changes in the allocated allowance reﬂect changes in

statistically derived loss estimates, historical loss experience,

and current trends in borrower risk and/or general economic

activity on portfolio performance. The unallocated allowance

decreased to $648 million, or 16% of the allowance for credit

losses, at December 31, 2005, from $888 million, or 22%, at

December 31, 2004.

We consider the allowance for credit losses of $4.06 billion

adequate to cover credit losses inherent in the loan portfolio,

including unfunded credit commitments, at December 31, 2005.

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 conditions and ongoing internal and

external examination processes. Our process for determining

the adequacy of the allowance for credit losses is discussed

in Note 6 (Loans and Allowance for Credit Losses) to

Financial Statements.

Asset/Liability and Market Risk Management

Asset/liability management involves the evaluation, monitoring

and management of interest rate risk, market risk, liquidity

and funding. The Corporate Asset/Liability Management

Committee (Corporate ALCO)—which oversees these

risks and reports periodically to the Finance Committee

of the Board of Directors—consists of senior financial

and business executives. Each of our principal business

groups—Community Banking (including Mortgage Banking),

Wholesale Banking and Wells Fargo Financial—have

individual asset/liability management committees and

processes linked to the Corporate ALCO process.

INTEREST RATE RISK

Interest rate risk, which potentially can have a signiﬁcant

earnings impact, is an integral part of being a ﬁnancial inter-

mediary. 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, 2005, 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 dropped 200 basis

points to 2.25% and the 10-year Constant Maturity Treasury

bond yield dropped 125 basis points to 3.25% over the

same 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 twelve

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, 2005 and

2004, 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 avoid unwanted credit and liquidity risks by selling

or securitizing virtually all of the long-term ﬁxed-rate mort-

gage loans we originate and most of the ARMs we originate.

From time to time, we hold originated ARMs in portfolio as

an investment for our growing base of core deposits, and we

may subsequently sell some or all of these ARMs as part of

our corporate asset/liability management.

While credit and liquidity risks are relatively low

for mortgage banking activities, interest rate risk can be

substantial. Changes in interest rates may potentially impact

origination and servicing fees, the value of our MSRs, the

income and expense associated with instruments used to hedge

changes in the 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, depending on our ability to retain

market share, may also lead to an increase in servicing fees.

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 GAAP, MSRs are adjusted at the end of each

quarter to the lower of cost or market. 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 value of MSRs.

This reduction in value causes a charge to income as a result

of increasing the valuation allowance for potential MSRs

impairment (net of any gains on derivatives used to hedge

MSRs). We typically do not fully hedge with financial

instruments (derivatives or securities) all of the potential

decline in the value of our MSRs to 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 valuation is not fully

hedged with derivatives, the amount of valuation allowance

that can be recaptured into income will typically—although

not always—exceed the losses on any derivatives hedging

the MSRs.

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 in any

accounting period.

• 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. For example,

given the relatively high level of reﬁnancing activity in

recent years and the increase in interest rates in 2005,

any signiﬁcant increase in reﬁnancing activity would

likely occur only if rates drop substantially from year-

end 2005 levels.

• 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, including mortgage, U.S. Treasury,

and LIBOR-based futures, forwards, swaps and options,

may not perfectly correlate with the values and income

being hedged.

Our MSRs totaled $12.5 billion, net of a valuation

allowance of $1.2 billion at December 31, 2005, and

$7.9 billion, net of a valuation allowance of $1.6 billion, at

December 31, 2004. The weighted-average note rate of our

owned servicing portfolio was 5.72% at December 31, 2005,

and 5.75% at December 31, 2004. Our MSRs were 1.44%

of mortgage loans serviced for others at December 31, 2005,

and 1.15% at December 31, 2004.

As part of our mortgage banking activities, we enter into

commitments to fund residential mortgage loans at speciﬁed

times in the future. A mortgage loan commitment is an interest

rate lock that binds us to lend funds to a potential borrower

at a speciﬁed interest rate and within a speciﬁed period of

time, generally up to 60 days after inception of the rate lock.

These loan commitments are derivative loan commitments if

the loans that will result from the exercise of the commitments

will be held for sale. Under FAS 133, Accounting for Derivative

Instruments and Hedging Activities (as amended), these

derivative loan commitments are recognized at fair value

on the consolidated balance sheet with changes in their fair

values recorded as part of income from mortgage banking

operations. Consistent with EITF 02-3, Issues Involved

in Accounting for Derivative Contracts Held for Trading

Purposes and Contracts Involved in Energy Trading and Risk

Management Activities, and SEC Staff Accounting Bulletin

No. 105, Application of Accounting Principles to Loan

Commitments, we record no value for the loan commitment

at inception. Subsequent to inception, we recognize fair

value of the derivative loan commitment based on estimated

changes in the fair value of the underlying loan that would

result from the exercise of that commitment and on changes

in the probability that the loan will fund within the terms of

the commitment. The value of that loan is affected primarily

by changes in interest rates and the passage of time. We also

apply a fall-out factor to the valuation of the derivative loan

commitment for the probability that the loan will not fund

within the terms of the commitments. The value of the MSRs is

recognized only after the servicing asset has been contractually

separated from the underlying loan by sale or securitization.

Outstanding derivative loan commitments expose us to

the risk that the price of the loans underlying the commitments

might decline due to increases in mortgage interest rates from

inception of the rate lock to the funding of the loan. To

minimize this risk, we utilize options, futures and forwards

to economically hedge the potential decreases in the values

of the loans that could result from the exercise of the loan

commitments. We expect that these derivative ﬁnancial

instruments will experience changes in fair value that will

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

volatilities. The primary purpose of our trading businesses

is to accommodate customers in the management of their

market price risks. Also, we take positions based on market

expectations or to beneﬁt from price differences between

ﬁnancial instruments and markets, subject to risk limits

established and monitored by Corporate ALCO. All securities,

foreign exchange transactions, commodity transactions and

derivatives—transacted with customers or used to hedge

capital market transactions with customers—are carried at

fair value. The Institutional Risk Committee establishes and

monitors counterparty risk limits. The notional or contractual

amount, credit risk amount and estimated net fair value of

all customer accommodation derivatives at December 31, 2005

and 2004, 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 2005 was $18 million, with a lower bound

of $11 million and an upper bound of $24 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 $1,537 million at December 31, 2005,

and $1,449 million at December 31, 2004.

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, to a lesser degree,

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 $900 million and cost

was $558 million at December 31, 2005, and $696 million

and $507 million, respectively, at December 31, 2004.

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 and

securities purchased under resale agreements. The weighted-

average expected remaining maturity of the debt securities

within this portfolio was 5.9 years at December 31, 2005. Of

the $40.3 billion (cost basis) of debt securities in this portfolio

at December 31, 2005, $5.1 billion, or 13%, is expected to

mature or be prepaid in 2006 and an additional $5.5 billion,

or 14%, in 2007. Asset liquidity is further enhanced by our

ability to sell or securitize loans in secondary markets through

whole-loan sales and securitizations. In 2005, we sold mortgage

loans of approximately $435 billion, including securitized

home mortgage loans and commercial mortgage loans of

approximately $190 billion. The amount of mortgage loans,

home equity loans and other consumer loans available to

be sold or securitized was approximately $150 billion at

December 31, 2005.

Core customer deposits have historically provided a sizeable

source of relatively stable and low-cost funds. Average core

deposits and stockholders’ equity funded 63.2% and 63.1%

of average total assets in 2005 and 2004, respectively.

The remaining assets were funded by long-term debt,

deposits in foreign ofﬁces, short-term borrowings (federal

funds purchased, securities sold under repurchase agreements,

commercial paper and other short-term borrowings) and

trust preferred securities. Short-term borrowings averaged

$24.1 billion in 2005 and $26.1 billion in 2004. Long-term

debt averaged $79.1 billion in 2005 and $67.9 billion in 2004.

We anticipate making capital expenditures of approxi-

mately $900 million in 2006 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,

retained earnings and borrowings.

Liquidity is also available through our ability to raise

funds in a variety of domestic and international money and

capital markets. We access capital markets for long-term

funding by issuing registered debt, private placements and

asset-backed secured funding. 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).”

Table 12 provides the credit ratings of the Company and

Wells Fargo Bank, N.A. as of December 31, 2005.

Table 12: Credit Ratings

Wells F

argo & Company Wells Fargo Bank, N.A.

Senior Subordinated Commercial Long-term Short-term

debt debt paper deposits borrowings

Moody’s Aa1 Aa2 P-1 Aaa P-1

Standard &

Poor’s AA- A+ A-1+ AA A-1+

Fitch, Inc. AA AA- F1+ AA+ F1+

Dominion Bond

Rating Service AA AA(low) R-1(middle) AA(high) R-1(high)

On June 29, 2005, the SEC adopted amendments to its

rules with respect to the registration, communications and

offerings processes under the Securities Act of 1933. The rules,

which became effective December 1, 2005, facilitate access

to the capital markets by well-established public companies,

modernize the existing restrictions on corporate communications

during a securities offering and further integrate disclosures

under the Securities Act of 1933 and the Securities Exchange

Act of 1934. The amended rules provide the most ﬂexibility

to “well-known seasoned issuers” (Seasoned Issuers),

including the option of automatic effectiveness upon ﬁling

of shelf registration statements and relief under the less

restrictive communications rules. 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. Based on each of these criteria calculated

as of December 1, 2005, the Company met the eligibility

requirements to qualify as a Seasoned Issuer.

PARENT. In July 2005, the Parent’s registration statement with

the SEC for issuance of $30 billion in senior and subordinated

notes, preferred stock and other securities became effective.

During 2005, the Parent issued a total of $16.0 billion of senior

notes, including approximately $1.3 billion (denominated

in pounds sterling) sold primarily in the United Kingdom.

Also, in 2005, the Parent issued $1.5 billion (denominated

in Australian dollars) in senior notes under the Parent’s

Australian debt issuance program. At December 31, 2005,

the Parent’s remaining authorized issuance capacity under its

effective registration statements was $24.8 billion. We used the

proceeds from securities issued in 2005 for general corporate

purposes and expect that the proceeds in the future will

also be used for general corporate purposes. In January and

February 2006, the Parent issued a total of $3.6 billion in senior

notes, including approximately $900 million denominated

in pounds sterling. The Parent also issues commercial paper

from time to time.

Capital Management

We have an active program for managing stockholder capital.

We use capital to fund organic growth, acquire banks and

other ﬁnancial services companies, pay dividends and repur-

chase our shares. Our objective is to produce above-market

long-term returns by opportunistically using capital when

returns are perceived to be high and issuing/accumulating

capital when such costs are perceived to be low.

From time to time our Board of Directors authorizes

the Company to repurchase shares of our common stock.

Although we announce when our Board authorizes share

repurchases, we typically do not give any public notice

before we repurchase our shares. Various factors determine

the amount and timing of our share repurchases, including

our capital requirements, the number of shares we expect

to issue for acquisitions and employee beneﬁt plans, market

conditions (including the trading price of our stock), and

legal considerations. These factors can change at any time,

and there can be no assurance as to the number of shares

we will repurchase or when we will repurchase them.

Historically, our policy has been to repurchase shares

under the “safe harbor” conditions of Rule 10b-18 of the

Exchange Act including a limitation on the daily volume of

repurchases. 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 the

Company’s best interest to repurchase shares in excess of

this additional daily volume limitation. In such cases, we

intend to repurchase shares in compliance with the other

conditions of the safe harbor, including the standing daily

volume limitation that applies whether or not there is a

pending stock merger or acquisition.

In 2005, the Board of Directors authorized the repurchase

of up to 75 million additional shares of our outstanding

common stock. During 2005, we repurchased approximately

53 million shares of our common stock. At December 31, 2005,

the total remaining common stock repurchase authority was

approximately 35 million shares.

Our potential sources of capital include retained earnings,

and issuances of common and preferred stock and subordi-

nated debt. In 2005, retained earnings increased $4.1 billion,

predominantly as a result of net income of $7.7 billion less

dividends of $3.4 billion. In 2005, we issued $1.9 billion of

common stock under various employee beneﬁt and director

plans and under our dividend reinvestment 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, 2005, 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.

WELLS FARGO BANK, N.A. In March 2003, Wells Fargo Bank, N.A.

established a $50 billion bank note program under which

it may issue up to $20 billion in short-term senior notes

outstanding at any time and up to a total of $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

2005, Wells Fargo Bank, N.A. issued $2.3 billion in long-term

senior notes. At December 31, 2005, the remaining long-term

issuance authority was $6.7 billion. Wells Fargo Bank, N.A.

also issued $1.5 billion in subordinated debt in 2005.

WELLS FARGO FINANCIAL. In November 2003, Wells Fargo

Financial Canada Corporation (WFFCC), a wholly-owned

Canadian subsidiary of Wells Fargo Financial, Inc. (WFFI),

qualiﬁed for distribution with the provincial securities

exchanges in Canada $1.5 billion (Canadian) of issuance

authority. In December 2004, WFFCC amended its existing

shelf registration by adding $2.5 billion (Canadian) of

issuance authority. During 2005, WFFCC issued $2.2 billion

(Canadian) in senior notes. The remaining issuance capacity

for WFFCC of $700 million (Canadian) expired in

December 2005. In January 2006, a $7.0 billion (Canadian)

shelf registration became effective. In 2005, WFFI entered

into a secured borrowing arrangement for $1 billion (U.S.).

Under the terms of the arrangement, WFFI pledged auto

loans as security for the borrowing.

Comparison of 2004 with 2003

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

$6.2 billion in 2003. Diluted earnings per common share

increased 12% to $4.09 in 2004 from $3.65 in 2003. In

addition to incremental investments in new stores, sales-

focused team members and technology, 2004 results included

$217 million ($.08 per share) of charitable contribution

expense for the Wells Fargo Foundation, $44 million ($.02

per share) for a special 401(k) contribution and $19 million

($.01 per share) in integration expense related to the Strong

Financial transaction. We also took signiﬁcant actions to

reposition our balance sheet in 2004 designed to improve

earning asset yields and to reduce long-term debt costs. The

extinguishment of high interest rate debt reduced earnings by

$174 million ($.06 per share) for 2004. Return on average

assets was 1.71% and return on average common equity was

19.56% in 2004, up from 1.64% and 19.36%, respectively,

for 2003.

Net interest income on a taxable-equivalent basis was

$17.3 billion in 2004, compared with $16.1 billion in 2003,

an increase of 7%. The increase was primarily due to strong

consumer loan growth, especially in mortgage products. The

beneﬁt of this growth was partially offset by lower loan yields

as new volumes were added below the portfolio average.

The net interest margin for 2004 decreased to 4.89%

from 5.08% in 2003. The decrease was primarily due to

lower investment portfolio yields following maturities and

prepayments of higher yielding mortgage-backed securities,

and the addition of new consumer and commercial loans

with yields below the existing portfolio average. These

factors were partially offset by the beneﬁts of balance

sheet repositioning actions taken in 2004.

Noninterest income was $12.9 billion in 2004, compared

with $12.4 billion in 2003, an increase of 4%, driven by

growth across our business, with particular strength in trust,

investment and IRA fees, card fees, loan fees and gains on

equity investments.

Mortgage banking noninterest income was $1,860 million

in 2004, compared with $2,512 million in 2003. Net servicing

income was $1,037 million in 2004, compared with losses

of $954 million in 2003. The increase in net servicing income

in 2004, compared with 2003, reﬂected a reduction of

$934 million in amortization due to an increase in average

interest rates and higher gross servicing fees resulting from

growth in the servicing portfolio. In addition, to reﬂect the

higher value of our MSRs, we reversed $208 million of the

valuation allowance in 2004, compared with an impairment

provision of $1,092 million in 2003. Net derivative gains on

fair value hedges of our MSRs were $554 million and

$1,111 million in 2004 and 2003, respectively.

Net gains on mortgage loan origination/sales activities

were $539 million in 2004, compared with $3,019 million

for 2003. Lower gains in 2004 compared with 2003 reﬂected

lower origination volume and a decrease in margins, due

primarily to the increase in average interest rates and lower

consumer demand. Originations during 2004 declined to

$298 billion from $470 billion in 2003.

Revenue, the sum of net interest income and noninterest

income, increased 6% to a record $30.1 billion in 2004 from

$28.4 billion in 2003, despite a 37% decrease in mortgage

originations as the reﬁnance driven market declined from its

exceptional 2003 level. Despite our balance sheet reposition-

ing actions in 2004, which reduced 2004 revenue growth by

approximately 1 percentage point due to the loss on sale of

lower yielding assets, and our signiﬁcant level of investment

spending, operating leverage improved during 2004 with

revenue growing 6% and noninterest expense up only 2%.

For the year, Home Mortgage revenue declined $807 million,

or 16%, from $5.2 billion in 2003 to $4.4 billion in 2004.

Noninterest expense was $17.6 billion in 2004, compared

with $17.2 billion in 2003, an increase of 2%.

During 2004, net charge-offs were $1.67 billion, or

.62% of average total loans, compared with $1.72 billion,

or .81%, during 2003. The provision for credit losses was

$1.72 billion in 2004, ﬂat compared with 2003. The allowance

for credit losses, which consists of the allowance for loan

losses and the reserve for unfunded credit commitments, was

$3.95 billion, or 1.37% of total loans, at December 31, 2004,

and $3.89 billion, or 1.54%, at December 31, 2003.

At December 31, 2004, total nonaccrual loans were

$1.36 billion, or .47% of total loans, down from $1.46 billion,

or .58%, at December 31, 2003. Foreclosed assets were

$212 million at December 31, 2004, compared with

$198 million at December 31, 2003.

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 2005 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, 2005, 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, 2005, 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.

Internal Control over Financial Reporting

Controls and Procedures

Disclosure Controls and Procedures

As required by SEC rules, the Company’s management evaluated the effectiveness, as of December 31, 2005, of the

Company’s disclosure controls and procedures. The Company’s chief executive ofﬁcer and chief ﬁnancial ofﬁcer

participated in the evaluation. Based on this evaluation, the Company’s chief executive ofﬁcer and the chief ﬁnancial

ofﬁcer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2005.

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, 2005, 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, 2005, 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, 2005, 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, 2005 and 2004, 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, 2005, and our report dated February 21, 2006,

expressed an unqualiﬁed opinion on those consolidated ﬁnancial statements.

San Francisco, California

February 21, 2006

Wells Fargo & Company and Subsidiaries

Consolidated Statement of Income

(in millions, except per share amounts) Year ended December 31,

2005 2004 2003

INTEREST INCOME

Trading assets $ 190 $ 145 $ 156

Securities available for sale 1,921 1,883 1,816

Mortgages held for sale 2,213 1,737 3,136

Loans held for sale 146 292 251

Loans 21,260 16,781 13,937

Other interest income 232 129 122

Total interest income 25,962 20,967 19,418

INTEREST EXPENSE

Deposits 3,848 1,827 1,613

Short-term borrowings 744 353 322

Long-term debt 2,866 1,637 1,355

Guaranteed preferred beneﬁcial interests

in Company’s subordinated debentures

— — 121

Total interest expense 7,458 3,817 3,411

NET INTEREST INCOME 18,504 17,150 16,007

Provision for credit losses

2,383 1,717 1,722

Net interest income after provision for credit losses

16,121 15,433 14,285

NONINTEREST INCOME

Service charges on deposit accounts 2,512 2,417 2,297

Trust and investment fees 2,436 2,116 1,937

Card fees 1,458 1,230 1,079

Other fees 1,929 1,779 1,560

Mortgage banking 2,422 1,860 2,512

Operating leases 812 836 937

Insurance 1,215 1,193 1,071

Net gains (losses) on debt securities available for sale (120) (15) 4

Net gains from equity investments 511 394 55

Other

1,270 1,099 930

Total noninterest income

14,445 12,909 12,382

NONINTEREST EXPENSE

Salaries 6,215 5,393 4,832

Incentive compensation 2,366 1,807 2,054

Employee beneﬁts 1,874 1,724 1,560

Equipment 1,267 1,236 1,246

Net occupancy 1,412 1,208 1,177

Operating leases 635 633 702

Other 5,249 5,572 5,619

Total noninterest expense 19,018 17,573 17,190

INCOME BEFORE INCOME TAX EXPENSE 11,548 10,769 9,477

Income tax expense 3,877 3,755 3,275

NET INCOME $ 7,671 $ 7,014 $ 6,202

EARNINGS PER COMMON SHARE $ 4.55 $ 4.15 $ 3.69

DILUTED EARNINGS PER COMMON SHARE $ 4.50 $ 4.09 $ 3.65

DIVIDENDS DECLARED PER COMMON SHARE $ 2.00 $ 1.86 $ 1.50

Average common shares outstanding 1,686.3 1,692.2 1,681.1

Diluted average common shares outstanding 1,705.5 1,713.4 1,697.5

The accompanying notes are an integral part of these statements.

Financial Statements

Wells Fargo & Company and Subsidiaries

Consolidated Balance Sheet

(in millions, except shares) December 31,

2005 2004

ASSETS

Cash and due from banks $ 15,397 $ 12,903

Federal funds sold, securities purchased under

resale agreements and other short-term investments 5,306 5,020

Trading assets 10,905 9,000

Securities available for sale 41,834 33,717

Mortgages held for sale 40,534 29,723

Loans held for sale 612 8,739

Loans 310,837 287,586

Allowance for loan losses (3,871) (3,762)

Net loans 306,966 283,824

Mortgage servicing rights, net 12,511 7,901

Premises and equipment, net 4,417 3,850

Goodwill 10,787 10,681

Other assets

32,472 22,491

Total assets $481,741 $427,849

LIABILITIES

Noninterest-bearing deposits $ 87,712 $ 81,082

Interest-bearing deposits 226,738 193,776

Total deposits 314,450 274,858

Short-term borrowings 23,892 21,962

Accrued expenses and other liabilities 23,071 19,583

Long-term debt

79,668 73,580

Total liabilities

441,081 389,983

STOCKHOLDERS’ EQUITY

Preferred stock 325 270

Common stock – $1

3 par value, authorized 6,000,000,000 shares;

issued 1,736,381,025 shares 2,894 2,894

Additional paid-in capital 9,934 9,806

Retained earnings 30,580 26,482

Cumulative other comprehensive income 665 950

Treasury stock – 58,797,993 shares and 41,789,388 shares (3,390) (2,247)

Unearned ESOP shares (348) (289)

Total stockholders’ equity 40,660 37,866

Total liabilities and stockholders’ equity $481,741 $427,849

The accompanying notes are an integral part of these statements.

Wells Fargo & Company and Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income

(in millions, except shares)

Number Preferred Common Additional Retained Cumulative Treasury Unearned Total

of common stock stock paid-in earnings other stock ESOP stock-

shares capital comprehensive shares holders’

income equity

BALANCE DECEMBER 31, 2002

1,685,906,507 $ 251 $ 2,894 $ 9,498 $ 19,355 $ 976 $ (2,465)$(190)$ 30,319

Comprehensive income

Net income

– 2003 6,202 6,202

Other comprehensive income, net of tax:

Translation adjustments 26 26

Net unrealized losses on securities available

for sale and other retained interests (117) (117)

Net unrealized gains on derivatives and

hedging activities 53

Total comprehensive income 6,164

Common stock issued 26,063,731 63 (190) 1,221 1,094

Common stock issued for acquisitions 12,399,597 66 585 651

Common stock repurchased (30,779,500) (1,482) (1,482)

Preferred stock (260,200) issued to ESOP 260 19 (279) —

Preferred stock released to ESOP (16) 240 224

Preferred stock (223,660) converted

to common shares 4,519,039 (224) 13 211 —

Preferred stock (1,460,000) redeemed (73) (73)

Preferred stock dividends (3) (3)

Common stock dividends (2,527) (2,527)

Change in Rabbi trust assets and similar

arrangements (classiﬁed as treasury stock) 97 97

Other, net

___________ ____ ______ ______ 5 _____ ______ _____ 5

Net change 12,202,867 (37) — 145 3,487 (38) 632 (39) 4,150

BALANCE DECEMBER 31, 2003 1,698,109,374

214 2,894 9,643 22,842 938 (1,833) (229) 34,469

Comprehensive income

Net income – 2004 7,014 7,014

Other comprehensive income, net of tax:

Translation adjustments 12 12

Net unrealized losses on securities available

for sale and other retained interests (22) (22)

Net unrealized gains on derivatives and

hedging activities 22

Total comprehensive income 7,026

Common stock issued 29,969,653 129 (206) 1,523 1,446

Common stock issued for acquisitions 153,482 1 8 9

Common stock repurchased (38,172,556) (2,188) (2,188)

Preferred stock (321,000) issued to ESOP 321 23 (344) —

Preferred stock released to ESOP (19) 284 265

Preferred stock (265,537) converted

to common shares 4,531,684 (265) 29 236 —

Common stock dividends (3,150) (3,150)

Change in Rabbi trust assets and similar

arrangements (classiﬁed as treasury stock) 77

Other, net ______________ _____ _______ _______

(18)____ _ _ _________ ______ (18)

Net change

(3,517,737) 56 — 163 3,640 12 (414) (60) 3,397

BALANCE DECEMBER 31, 2004 1,694,591,637 270 2,894 9,806 26,482 950 (2,247) (289) 37,866

Comprehensive income

Net income – 2005 7,671 7,671

Other comprehensive income, net of tax:

Translation adjustments 55

Net unrealized losses on securities available

for sale and other retained interests (298) (298)

Net unrealized gains on derivatives and

hedging activities 8

Total comprehensive income 7,386

Common stock issued 28,764,493 91 (198) 1,617 1,510

Common stock issued for acquisitions 1,954,502 12 110 122

Common stock repurchased (52,798,864) (3,159) (3,159)

Preferred stock (363,000) issued to ESOP 362 25 (387) —

Preferred stock released to ESOP (21) 328 307

Preferred stock (307,100) converted

to common shares 5,071,264 (307) 21 286 —

Common stock dividends (3,375) (3,375)

Other, net _____________ _____ ______ ______ ________ _____

3 _____ 3

Net change (17,008,605) 55 — 128 4,098 (285) (1,143) (59) 2,794

BALANCE DECEMBER 31, 2005 1,677,583,032 $325 $2,894 $9,934 $30,580 $ 665 $(3,390) $(348) $40,660

The accompanying notes are an integral part of these statements.

Wells Fargo & Company and Subsidiaries

Consolidated Statement of Cash Flows

(in millions) Year ended December 31,

2005 2004 2003

Cash ﬂows from operating activities:

Net income $ 7,671 $ 7,014 $ 6,202

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for credit losses 2,383 1,717 1,722

Provision (reversal of provision) for mortgage servicing rights in excess of fair value (378) (208) 1,092

Depreciation and amortization 4,161 3,449 4,305

Net gains on securities available for sale (40) (60) (62)

Net gains on mortgage loan origination/sales activities (1,085) (539) (3,019)

Other net losses (gains) (75) 9 (11)

Preferred shares released to ESOP 307 265 224

Net decrease (increase) in trading assets (1,905) (81) 1,248

Net increase in deferred income taxes 813 432 1,698

Net increase in accrued interest receivable (796) (196) (148)

Net increase (decrease) in accrued interest payable 311 47 (63)

Originations of mortgages held for sale (230,897) (221,978) (382,335)

Proceeds from sales of mortgages originated for sale 214,740 217,272 404,207

Principal collected on mortgages originated for sale 1,426 1,409 3,136

Net decrease (increase) in loans originated for sale 683 (1,331) (832)

Other assets, net (10,237) (2,468) (5,099)

Other accrued expenses and liabilities, net

3,585 1,732 (1,070)

Net cash provided (used) by operating activities (9,333) 6,485 31,195

Cash ﬂows from investing activities:

Securities available for sale:

Sales proceeds 19,059 6,322 7,357

Prepayments and maturities 6,972 8,823 13,152

Purchases (28,634) (16,583) (25,131)

Net cash acquired from (paid for) acquisitions 66 (331) (822)

Increase in banking subsidiaries’ loan originations, net of collections (42,309) (33,800) (36,235)

Proceeds from sales (including participations) of loans by banking subsidiaries 42,239 14,540 1,590

Purchases (including participations) of loans by banking subsidiaries (8,853) (5,877) (15,087)

Principal collected on nonbank entities’ loans 22,822 17,996 17,638

Loans originated by nonbank entities (33,675) (27,751) (21,792)

Purchases of loans by nonbank entities — — (3,682)

Proceeds from sales of foreclosed assets 444 419 264

Net increase in federal funds sold, securities purchased

under resale agreements and other short-term investments (281) (1,287) (208)

Net increase in mortgage servicing rights (4,595) (1,389) (3,875)

Other, net (3,324) (516) 3,852

Net cash used by investing activities (30,069) (39,434) (62,979)

Cash ﬂows from ﬁnancing activities:

Net increase in deposits 38,961 27,327 28,643

Net increase (decrease) in short-term borrowings 1,878 (2,697) (8,901)

Proceeds from issuance of long-term debt 26,473 29,394 29,490

Long-term debt repayment (18,576) (19,639) (17,931)

Proceeds from issuance of guaranteed preferred beneﬁcial interests

in Company’s subordinated debentures — — 700

Proceeds from issuance of common stock 1,367 1,271 944

Preferred stock redeemed — — (73)

Common stock repurchased (3,159) (2,188) (1,482)

Cash dividends paid on preferred and common stock (3,375) (3,150) (2,530)

Other, net (1,673) (13) 651

Net cash provided by ﬁnancing activities 41,896 30,305 29,511

Net change in cash and due from banks 2,494 (2,644) (2,273)

Cash and due from banks at beginning of year

12,903 15,547 17,820

Cash and due from banks at end of year $ 15,397 $ 12,903 $ 15,547

Supplemental disclosures of cash ﬂow information:

Cash paid during the year for:

Interest $ 7,769 $ 3,864 $ 3,348

Income taxes 3,584 2,326 2,713

Noncash investing and ﬁnancing activities:

Net transfers from loans to mortgages held for sale 41,270 11,225 368

Net transfers from loans held for sale to loans 7,444 ——

Transfers from loans to foreclosed assets 567 603 411

Transfers from mortgages held for sale to securities available for sale 5,490 ——

The accompanying notes are an integral part of these statements.

Notes to Financial Statements

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

consumers, businesses and institutions in all 50 states of

the U.S. and in other countries. In this Annual Report,

Wells Fargo & Company and Subsidiaries (consolidated)

are called the Company. Wells Fargo & Company (the Parent)

is a ﬁnancial holding company and a bank holding company.

Our accounting and reporting policies conform with

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 mortgage servicing rights (Notes 20 and 21) and

pension accounting (Note 15). Actual results could differ

from those estimates.

The following is a description of our signiﬁcant

accounting policies.

Consolidation

Our consolidated ﬁnancial statements include the accounts

of the Parent and our majority-owned subsidiaries and 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 pur-

pose 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 ﬁnan-

cial 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 ben-

eﬁciary because we will absorb a majority of the entity’s

expected losses, receive a majority of the entity’s expected

residual returns, or both.

Trading Assets

Trading assets are primarily securities, including corporate

debt, U.S. government agency obligations and other securities

that we acquire for short-term appreciation or other trading

purposes, and the fair value of derivatives held for customer

accommodation purposes or proprietary trading. Trading

assets are carried at fair value, with realized and unrealized

gains and losses recorded in noninterest income.

Securities

SECURITIES AVAILABLE FOR SALE Debt securities that we might

not hold until maturity and marketable equity securities are

classiﬁed as securities available for sale and reported at 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 securi-

ties to be other-than-temporary and record the estimated loss

in noninterest income. The initial indicator of impairment

for both debt and marketable equity securities is a sustained

decline in market price below the amount recorded for that

investment. We consider the length of time and the extent

to which market value has been less than cost, any recent

events speciﬁc to the issuer and economic conditions of its

industry and our investment horizon in relationship to an

anticipated near-term recovery in the stock or bond price,

if any.

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.

Note 1: Summary of Signiﬁcant Accounting Policies

We manage these investments 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 the 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;

• they are 90 days (120 days with respect to real estate

1-4 family ﬁrst and junior lien mortgages) past due for

interest or principal (unless both well-secured and in

the process of collection); or

• part of the principal balance has been charged off.

Generally, consumer loans not secured by real estate are

placed on nonaccrual status only when part of the principal

has been charged off. These loans are entirely charged off

when deemed uncollectible or when they reach a deﬁned

number of days past due based on loan product, industry

practice, country, terms and other factors.

When we place a loan on nonaccrual status, we reverse the

accrued and unpaid interest receivable against interest income

and account for the loan on the cash or cost recovery method,

until it qualiﬁes for return to accrual status. Generally, we

return a loan to accrual status 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,

after a period of demonstrated performance.

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, instead of dis-

counted cash ﬂows.

If we determine that the value of the impaired loan is less

than the recorded investment in the loan (net of previous

charge-offs, deferred loan fees or costs and unamortized

premium or discount), we recognize impairment through an

allocated reserve or a charge-off to the allowance.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses,

which 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. Our determination of the allowance, and the

resulting provision, is based on judgments and assumptions,

including:

• general economic conditions;

• loan portfolio composition;

• loan loss experience;

• management’s evaluation of credit risk relating to pools

of loans and individual borrowers;

• sensitivity analysis and expected loss models; and

• observations from our internal auditors, internal loan

review staff or banking regulators.

Transfers and Servicing of Financial Assets

We account for a transfer of ﬁnancial assets as a sale when

we surrender control of the transferred assets. Servicing

rights and other retained interests in the sold assets are

recorded by allocating the previously recorded investment

between the assets sold and the interest retained based on

their relative fair values at the date of transfer. We determine

the fair values of servicing rights and other retained interests

at the date of transfer using the present value of estimated

future cash ﬂows, using assumptions that market partici-

pants use in their estimates of values. We use quoted market

prices when available to determine the value of other

retained interests.

We recognize the rights to service mortgage loans for oth-

ers, or mortgage servicing rights (MSRs), as assets whether

we purchase the servicing rights or sell or securitize loans we

originate and retain servicing rights. MSRs are amortized in

proportion to, and over the period of, estimated net servicing

income. The amortization of MSRs is analyzed monthly and

is adjusted to reﬂect changes in prepayment speeds, as well

as other factors.

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.

At the end of each quarter, we evaluate MSRs for possible

impairment based on the difference between the carrying

amount and current fair value, in accordance with Statement

of Financial Accounting Standards No. 140, Accounting for

Transfers and Servicing of Financial Assets and Extinguishments

of Liabilities (FAS 140). To evaluate and measure impairment

we stratify the portfolio based on certain risk characteristics,

including loan type and note rate. If temporary impairment

exists, we establish a valuation allowance through a charge to

income for those risk stratiﬁcations with an excess of amortized

cost over the current fair value. If we later determine that all

or a portion of the temporary impairment no longer exists

for a particular risk stratiﬁcation, we will reduce the valuation

allowance through an increase to income.

Under our policy, we evaluate other-than-temporary

impairment of MSRs by considering both historical and

projected trends in interest rates, pay off activity and whether

the impairment could be recovered through interest rate

increases. We recognize a direct write-down when we

determine that the recoverability of a recorded valuation

allowance is remote. A direct write-down permanently

reduces the carrying value of the MSRs, while a valuation

allowance (temporary impairment) can be reversed.

Premises and Equipment

Premises and equipment are carried at cost less accumulated

depreciation and amortization. Capital leases are included

in premises and equipment at the capitalized amount less

accumulated amortization.

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

permanently 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

automobiles, is recognized in other income on a straight-line

basis over the lease term. Related depreciation expense is

recorded on a straight-line basis over the life of the lease,

taking into account the estimated residual value of the leased

asset. On a periodic basis, leased assets are reviewed for

impairment. Impairment loss is recognized if the carrying

amount of leased assets exceeds fair value and is not recover-

able. The carrying amount of leased assets is not recoverable

if it exceeds the sum of the undiscounted cash ﬂows expected

to result from the lease payments and the estimated residual

value upon the eventual disposition of the equipment. Auto

lease receivables are written off when 120 days past due.

Pension Accounting

We account for our deﬁned beneﬁt pension plans using an

actuarial model required by FAS 87, Employers’ Accounting

for Pensions. This model allocates pension costs over the

service period of employees in the plan. The underlying

principle is that employees render service ratably over this

period and, therefore, the income statement effects of

pensions should follow a similar pattern.

One of the principal components of the net periodic

pension calculation is the expected long-term rate of return on

plan assets. The use of an expected long-term rate of return

on plan assets may cause us to recognize pension income

returns that are greater or less than the actual returns of

plan assets in any given year.

The expected long-term rate of return is designed to

approximate the actual long-term rate of return over time

and is not expected to change signiﬁcantly. Therefore, the

pattern of income/expense recognition 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 unrecognized

net actuarial gain or loss amount. We generally amortize

any unrecognized net actuarial gain or loss in excess of a

5% corridor (as deﬁned in FAS 87) in net periodic pension

calculations over the next ﬁve years.

We use a discount rate to determine the present value

of our future beneﬁt obligations. The discount rate reﬂects

the rates available at the measurement date on long-term

high-quality ﬁxed-income debt instruments and is reset

annually on the measurement date (November 30).

Income Taxes

We ﬁle a consolidated federal income tax return and, in

certain states, combined state tax returns.

We determine deferred income tax assets and liabilities

using the balance sheet method. Under this method, the net

deferred tax asset or liability is based on the tax effects of

the differences between the book and tax bases of assets and

liabilities, and recognizes enacted changes in tax rates and

laws. Deferred tax assets are recognized subject to manage-

ment judgment that realization is more likely than not.

Foreign taxes paid are generally applied as credits to reduce

federal income taxes payable.

Stock-Based Compensation

We have several stock-based employee compensation plans,

which are described more fully in Note 14. As permitted by

FAS 123, Accounting for Stock-Based Compensation, we have

elected to apply the intrinsic value method of Accounting

Principles Board Opinion 25, Accounting for Stock Issued to

Employees (APB 25), in accounting for stock-based employee

compensation plans through December 31, 2005. Pro forma

net income and earnings per common share information is

provided below, as if we accounted for employee stock

option plans under the fair value method of FAS 123.

On December 16, 2004, the FASB issued FAS 123

(revised 2004), Share-Based Payment (FAS 123R), which

replaced FAS 123 and superceded APB 25. We adopted FAS

123R on January 1, 2006, which requires us to measure the

cost of employee services received in exchange for an award

of equity instruments, such as stock options or restricted

stock, based on the fair value of the award on the grant

date. This cost must be recognized in the income statement

over the vesting period of the award.

(in millions, except per

Year ended December 31,

share amounts) 2005 2004 2003

Net income, as reported $7,671 $7,014 $6,202

Add: Stock-based employee

compensation expense

included in reported net

income, net of tax 1 23

Less:Total stock-based

employee compensation

expense under the fair value

method for all awards,

net of tax (188) (275) (198)

Net income, pro forma $7,484 $6,741 $6,007

Earnings per common share

As reported $4.55 $ 4.15 $ 3.69

Pro forma 4.44 3.99 3.57

Diluted earnings per common share

As reported $4.50 $ 4.09 $ 3.65

Pro forma 4.38 3.93 3.53

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 compensa-

tion expense for both grants in the year of the grant under

the fair value method in the table on the previous page.

Stock options granted in our 2003, 2002 and 2001 annual

grants under the Plan vest over a three-year period, and

expense reﬂected in the table for these grants is recognized

over the vesting period.

Earnings Per Common Share

We present earnings per common share and diluted earnings

per common share. We compute earnings per common share

by dividing net income (after deducting dividends on preferred

stock) by the average number of common shares outstanding

during the year. We compute diluted earnings per common

share by dividing net income (after deducting dividends on

preferred stock) by the average number of common shares

outstanding during the year, plus the effect of common stock

equivalents (for example, stock options, restricted share

rights and convertible debentures) that are dilutive.

Derivatives and Hedging Activities

We recognize all derivatives on the balance sheet at fair

value. On the date we enter into a derivative contract, we

designate the derivative as (1) a hedge of the fair value of

a recognized asset or liability (“fair value” hedge), (2) a

hedge of a forecasted transaction or of the variability of

cash ﬂows to be received or paid related to a recognized

asset or liability (“cash ﬂow” hedge) or (3) held for trading,

customer accommodation or for risk management not

qualifying for hedge accounting (“free-standing derivative”).

For a fair value hedge, we record changes in the fair value of

the derivative and, to the extent that it is effective, changes

in the fair value of the hedged asset or liability attributable

to the hedged risk, in current period 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 compre-

hensive income. We subsequently reclassify these changes

in fair value to net income in the same period(s) that the

hedged transaction affects net income in the same ﬁnancial

statement category as the hedged item. For free-standing

derivatives, we report changes in the fair values in current

period noninterest income.

We formally document 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 on 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 either the dollar offset or the

regression analysis method. If we determine that a derivative is

not highly effective as a hedge, we discontinue hedge accounting.

We discontinue hedge accounting prospectively when

(1) a derivative is no longer highly effective in offsetting

changes in the fair value or cash ﬂows of a hedged item,

(2) a derivative expires or is sold, terminated, or exercised,

(3) a derivative is dedesignated as a hedge, because it is

unlikely that a forecasted transaction will occur, or (4) we

determine that designation of a derivative as a hedge is no

longer appropriate.

When we discontinue hedge accounting because a deriva-

tive no longer qualiﬁes as an effective fair value hedge, we

continue to carry the derivative on the balance sheet at its

fair value with changes in fair value included in earnings,

and no longer adjust the previously hedged asset or liability

for changes in fair value. Previous adjustments to the hedged

item are accounted for in the same manner as other compo-

nents of the carrying amount of the asset or liability.

When we discontinue hedge accounting because it is

probable that a forecasted transaction will not occur, we

continue to carry the derivative on the balance sheet at its

fair value with changes in fair value included in earnings,

and immediately recognize gains and losses that were

accumulated in other comprehensive income in earnings.

When we discontinue hedge accounting because the hedg-

ing instrument is sold, terminated, or no longer designated

(dedesignated), the amount reported in other comprehensive

income up to the date of sale, termination or dedesignation

continues to be reported in other comprehensive income

until the forecasted transaction affects earnings.

In all other situations in which we discontinue hedge

accounting, the derivative will be carried at its fair value on

the balance sheet, with changes in its fair value recognized in

current period earnings.

We occasionally purchase or originate ﬁnancial 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 clearly and

closely related to the economic characteristics of the ﬁnancial

instrument (host contract), (2) if the ﬁnancial instrument

that embodies both the embedded derivative and the host

contract is measured at fair value with changes in fair value

reported in earnings, or (3) if a separate instrument with

the same terms as the embedded instrument would meet the

deﬁnition of a derivative. If the embedded derivative does

not meet any of these conditions, we separate it from the

host contract and carry it at fair value with changes recorded

in current period earnings.

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 2005, 2004 and

2003 are presented below.

Note 2: Business Combinations

At December 31, 2005, we had three pending business

combinations with total assets of approximately $278 million.

We expect to complete these transactions by second

quarter 2006.

For information on contingent consideration related

to acquisitions, which is considered to be a guarantee, see

Note 24.

(in millions) Date Assets

2005

Certain branches of PlainsCapital Bank, Amarillo,Texas July 22 $ 190

First Community Capital Corporation, Houston, Texas July 31 644

Other

(1)

Various 40

$ 874

2004

Other

(2)

Various $ 74

2003

Certain assets of Telmark, LLC, Syracuse, New York February 28 $ 660

Paciﬁc Northwest Bancorp, Seattle,Washington October 31 3,245

Two Rivers Corporation, Grand Junction, Colorado October 31 74

Other

(3)

Various 136

$ 4,115

(1) Consists of 8 acquisitions of insurance brokerage and lockbox processing businesses.

(2) Consists of 13 acquisitions of insurance brokerage and payroll services businesses.

(3) Consists of 14 acquisitions of asset management, commercial real estate brokerage, bankruptcy and insurance brokerage businesses.

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) December 31,

2005 2004

Federal funds sold and securities

purchased under resale agreements $3,789 $3,009

Interest-earning deposits 847 1,397

Other short-term investments 670 614

Total $5,306 $5,020

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 $1.4 billion in 2005 and $1.2 billion in 2004.

Federal law restricts the amount and the terms of both

credit and non-credit transactions between a bank and its

nonbank afﬁliates. They may not exceed 10% of the bank’s

capital and surplus (which for this purpose represents Tier 1

and Tier 2 capital, as calculated under the risk-based capital

guidelines, plus the balance of the allowance for credit losses

excluded from Tier 2 capital) with any single nonbank afﬁli-

ate and 20% of the bank’s capital and surplus with all its

nonbank afﬁliates. Transactions that are extensions of credit

may require collateral to be held to provide added security to

the bank. (For further discussion of risk-based capital, see

Note 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

Note 3: Cash, Loan and Dividend Restrictions

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 $1,185 million

at December 31, 2005, without obtaining prior regulatory

approval. Our nonbank subsidiaries are also limited by cer-

tain 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 year-end 2005,

our nonbank subsidiaries could have declared additional

dividends of $2,411 million at December 31, 2005, without

obtaining prior approval.

The following table shows the unrealized gross losses

and fair value of securities in the securities available for

sale portfolio at December 31, 2005 and 2004, by length

of time that individual securities in each category had been

in a continuous loss position.

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, 2005, was primarily due to changes in market

The following table provides the cost and fair value for the

major categories of securities available for sale carried at fair

Note 5: Securities Available for Sale

value. There were no securities classiﬁed as held to maturity

as of the periods presented.

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.

(in millions) December 31,

2005

2004

Cost Unrealized Unrealized Fair Cost Unrealized Unrealized Fair

gross gross value gross gross value

gains losses gains losses

Securities of U.S. Treasury and federal agencies $ 845 $ 4 $ (10) $ 839 $ 1,128 $ 16 $ (4) $ 1,140

Securities of U.S. states and political subdivisions 3,048 149 (6) 3,191 3,429 196 (4) 3,621

Mortgage-backed securities:

Federal agencies 25,304 336 (24) 25,616 20,198 750 (4) 20,944

Private collateralized

mortgage obligations

(1)

6,628

128 (6)

6,750

4,082 121

(4) 4,199

Total mortgage-backed securities 31,932 464 (30) 32,366 24,280 871 (8) 25,143

Other 4,518 75 (55) 4,538 2,974 157 (14) 3,117

Total debt securities 40,343 692 (101) 40,934 31,811 1,240 (30) 33,021

Marketable equity securities

558 349 (7) 900 507 198 (9) 696

Total

(2)

$40,901 $1,041 $(108) $41,834 $32,318 $1,438 $(39) $33,717

(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, 2005, 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.

(in millions) Less than 12 months 12 months or more Total

Unrealized Fair Unrealized Fair Unrealized Fair

gross value gross value gross value

losses losses losses

December 31, 2005

Securities of U.S. Treasury and federal agencies $ (6) $ 341 $ (4) $142 $ (10) $ 483

Securities of U.S. states and political subdivisions (3) 204 (3) 57 (6) 261

Mortgage-backed securities:

Federal agencies (22) 2,213 (2) 89 (24) 2,302

Private collateralized

mortgage obligations (6) 1,494 — — (6) 1,494

Total mortgage-backed securities (28) 3,707 (2) 89 (30) 3,796

Other (38) 890 (17) 338 (55) 1,228

Total debt securities (75) 5,142 (26) 626 (101) 5,768

Marketable equity securities

(7) 185 — — (7) 185

Total $(82) $5,327 $(26) $626 $(108) $5,953

December 31, 2004

Securities of U.S. Treasury and federal agencies $ (4) $ 304 $ — $ — $ (4) $ 304

Securities of U.S. states and political subdivisions (1) 65 (3) 62 (4) 127

Mortgage-backed securities:

Federal agencies (4) 450 — — (4) 450

Private collateralized

mortgage obligations

(4) 981 — — (4) 981

Total mortgage-backed securities (8) 1,431 — — (8) 1,431

Other

(11) 584 (3) 56 (14) 640

Total debt securities (24) 2,384 (6) 118 (30) 2,502

Marketable equity securities (9) 44 — — (9) 44

Total $(33) $ 2,428 $ (6) $118 $ (39) $ 2,546

(in millions) December 31, 2005

Total Weighted-

Remaining contractual principal maturity

amount average After one year After five years

yield

Within one y

ear through ﬁ

ve years through ten years After ten years

Amount Yield Amount Yield Amount Yield Amount Yield

Securities of U.S. Treasury

and federal agencies $ 839 4.38% $ 50 5.11% $ 677 4.21% $ 93 4.69% $ 19 6.88%

Securities of U.S. states and

political subdivisions 3,191 7.57 86 6.63 281 6.06 560 7.25 2,264 7.87

Mortgage-backed securities:

Federal agencies 25,616 5.68 33 6.02 49 6.51 69 5.91 25,465 5.68

Private collateralized

mortgage obligations 6,750 5.40 — — — — 42 6.45 6,708 5.40

Total mortgage-backed securities 32,366 5.62 33 6.02 49 6.51 111 6.12 32,173 5.62

Other

4,538 6.11 225 5.80 2,773 5.70 953 7.13 587 6.53

Total debt securities at fair value

(1)

$40,934 5.80% $394 5.91% $3,780 5.47% $1,717 6.97% $35,043 5.78%

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

(in millions)

Year ended D

ecember 31,

2005 2004 2003

Realized gross gains $ 355 $ 168 $ 178

Realized gross losses

(1)

(315) (108)

(116)

Realized net gains $40 $60 $62

(1) Includes other-than-temporary impairment of $45 million, $9 million and

$50 million for 2005, 2004 and 2003, respectively.

Securities pledged where the secured party has the right

to sell or repledge totaled $5.3 billion at December 31, 2005,

and $2.3 billion at December 31, 2004. Securities pledged

where the secured party does not have the right to sell or

repledge totaled $24.3 billion at December 31, 2005, and

$19.4 billion at December 31, 2004, 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

$3.4 billion at December 31, 2005, and $2.5 billion at

December 31, 2004, of which we sold or repledged

$2.3 billion and $1.7 billion, 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.

The following table shows the realized net gains on the

sales of securities from the securities available for sale

portfolio, including marketable equity securities.

14% of total loans at December 31, 2005, compared with

18% at the end of 2004. 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 conditions for

these areas are monitored continuously within our credit

risk management process.

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

ﬁrst mortgage and home equity products, include an interest-

only feature as part of the loan terms. At December 31, 2005,

such loans were approximately 26% of total loans, compared

with 28% at the end of 2004. 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.

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 $3,918 million and

$3,766 million at December 31, 2005 and 2004, respectively.

Loan concentrations may exist when there are amounts

loaned to a multiple number of 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, 2005 and

2004, we did not have concentrations representing 10% or

more of our total loan portfolio in commercial loans (by

industry); commercial real estate loans (other real estate

mortgage and real estate construction) (by state or property

type); or other revolving credit and installment loans (by

product type). Our real estate 1-4 family mortgage loans to

borrowers in the state of California represented approximately

Note 6: Loans and Allowance for Credit Losses

(in millions) December 31,

2005 2004 2003 2002 2001

Commercial and commercial real estate:

Commercial $ 61,552 $ 54,517 $ 48,729 $ 47,292 $ 47,547

Other real estate mortgage 28,545 29,804 27,592 25,312 24,808

Real estate construction 13,406 9,025 8,209 7,804 7,806

Lease ﬁnancing 5,400 5,169 4,477 4,085 4,017

Total commercial and commercial real estate 108,903 98,515 89,007 84,493 84,178

Consumer:

Real estate 1-4 family ﬁrst mortgage 77,768 87,686 83,535 44,119 29,317

Real estate 1-4 family junior lien mortgage 59,143 52,190 36,629 28,147 21,801

Credit card 12,009 10,260 8,351 7,455 6,700

Other revolving credit and installment 47,462 34,725 33,100 26,353 23,502

Total consumer 196,382 184,861 161,615 106,074 81,320

Foreign

5,552 4,210 2,451 1,911 1,598

Total loans $310,837 $287,586 $253,073 $192,478 $167,096

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, automobiles, ﬁnancial

instruments, income-producing commercial properties and

residential real estate. Collateral requirements for each customer

may vary according to the speciﬁc credit underwriting, terms

and structure of loans funded immediately or under a

commitment to fund at a later date.

A commitment to extend credit is a legally binding 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 signiﬁcant

portion of these commitments are expected to expire without

being used. Certain commitments are subject to loan agree-

ments with covenants regarding the ﬁnancial performance

of the customer that must be met before we are required to

fund the commitment. We use the same credit policies 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 millions)

December 31,

2005 2004

Commercial and commercial real estate:

Commercial $ 71,548 $ 59,603

Other real estate mortgage 2,398 2,788

Real estate construction 9,369 7,164

Total commercial and

commercial real estate 83,315 69,555

Consumer:

Real estate 1-4 family ﬁrst mortgage 10,229 9,009

Real estate 1-4 family junior lien mortgage 37,909 31,396

Credit card 45,270 38,200

Other revolving credit and installment 13,957 15,427

Total consumer 107,365 94,032

Foreign 675 407

Total unfunded loan commitments $191,355 $163,994

In addition, we manage the potential risk in credit com-

mitments by limiting the total amount of arrangements, both

by individual customer and in total, by monitoring the size

and maturity structure of these portfolios and by applying

the same credit standards for all of our credit activities.

The total of our unfunded loan commitments, net of all

funds lent and all standby and commercial letters of credit

issued under the terms of these commitments, is summarized

by loan category in the following table:

We have an established process to determine the adequacy

of the allowance for credit losses that assesses the risks and

losses inherent in our portfolio. This process supports an

allowance consisting of two components, allocated and

unallocated. For the allocated component, we combine

estimates of the allowances needed for loans analyzed on

a pooled basis and loans analyzed individually (including

impaired loans).

Approximately two-thirds of the allocated allowance

is determined at a pooled level for consumer loans and some

segments of commercial small business loans. We use fore-

casting models to measure inherent loss in these portfolios.

We frequently validate and update these models to capture

recent behavioral characteristics of the portfolios, as well as

changes in our loss mitigation or marketing strategies.

The remaining allocated allowance is for commercial loans,

commercial real estate loans and lease ﬁnancing. We initially

estimate this portion of the allocated allowance by applying

historical loss factors statistically derived from tracking loss

content 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. Also, we

individually review nonperforming loans over $3 million

for impairment based on cash ﬂows or collateral. We include

the impairment on these nonperforming loans in the allocated

allowance unless it has already been recognized as a loss.

The potential risk from unfunded loan commitments and

letters of credit for wholesale loan portfolios is considered

along with the loss analysis of loans outstanding. Unfunded

commercial loan commitments and letters of credit are

converted to a loan equivalent factor as part of the analysis.

The reserve for unfunded credit commitments was $186 million

at December 31, 2005, and $188 million at December 31, 2004,

both representing less than 5% of the total allowance for

credit losses.

The allocated allowance is supplemented by the unallo-

cated allowance to adjust for imprecision and to incorporate

the range of probable outcomes inherent in estimates used

for the allocated allowance. The unallocated allowance is

the result of our judgment of risks inherent in the portfolio,

economic uncertainties, historical loss experience and other

subjective factors, including industry trends.

No material changes in estimation methodology for the

allowance for credit losses were made in 2005.

The ratios of the allocated allowance and the unallocated

allowance to the total allowance may change from period to

period. The total allowance reﬂects management’s estimate

of credit losses inherent in the loan portfolio, including

unfunded credit commitments, at December 31, 2005.

Like all national banks, our subsidiary national banks

continue to be subject to examination by their primary

regulator, the Ofﬁce of the Comptroller of the Currency

(OCC), and some have OCC examiners in residence. The

OCC examinations occur throughout the year and target

various activities of our subsidiary national banks, including

both the loan grading system and speciﬁc segments of the

loan portfolio (for example, commercial real estate and

shared national credits). The Parent and its nonbank

subsidiaries are examined by the Federal Reserve Board.

We consider the allowance for credit losses of $4.06 billion

adequate to cover credit losses inherent in the loan portfolio,

including unfunded credit commitments, at December 31, 2005.

(in millions) Year ended December 31,

2005 2004 2003 2002 2001

Balance, beginning of year $ 3,950 $ 3,891 $ 3,819 $ 3,717 $ 3,681

Provision for credit losses 2,383 1,717 1,722 1,684 1,727

Loan charge-offs:

Commercial and commercial real estate:

Commercial (406) (424) (597) (716) (692)

Other real estate mortgage (7) (25) (33) (24) (32)

Real estate construction (6) (5) (11) (40) (37)

Lease ﬁnancing (35) (62)

(41) (21)

(22)

Total commercial and commercial real estate (454) (516) (682) (801) (783)

Consumer:

Real estate 1-4 family ﬁrst mortgage (111) (53) (47) (39) (40)

Real estate 1-4 family junior lien mortgage (136) (107) (77) (55) (36)

Credit card (553) (463) (476) (407) (421)

Other revolving credit and installment

(1,480) (919) (827) (770) (770)

Total consumer (2,280) (1,542) (1,427) (1,271) (1,267)

Foreign (298) (143) (105) (84) (78)

Total loan charge-offs (3,032) (2,201) (2,214) (2,156) (2,128)

Loan recoveries:

Commercial and commercial real estate:

Commercial 133 150 177 162 96

Other real estate mortgage 16 17 11 16 22

Real estate construction 13 61119 3

Lease ﬁnancing 21 26 8 — —

Total commercial and commercial real estate 183 199 207 197 121

Consumer:

Real estate 1-4 family ﬁrst mortgage 21 61086

Real estate 1-4 family junior lien mortgage 31 24 13 10 8

Credit card 86 62 50 47 40

Other revolving credit and installment 365 220 196 205 203

Total consumer 503 312 269 270 257

Foreign

63 24 19 14 18

Total loan recoveries 749 535 495 481 396

Net loan charge-offs

(2,283) (1,666) (1,719

)

(1,675) (1,732)

Other

7 8 69 93 41

Balance, end of year $ 4,057 $ 3,950 $ 3,891 $ 3,819 $ 3,717

Components:

Allowance for loan losses $ 3,871 $ 3,762 $ 3,891 $ 3,819 $ 3,717

Reserve for unfunded credit commitments

(1)

186 188 — — —

Allowance for credit losses $ 4,057 $ 3,950 $ 3,891 $ 3,819 $ 3,717

Net loan charge-offs as a percentage of average total loans .77% .62% .81% .96% 1.10%

Allowance for loan losses as a percentage of total loans 1.25% 1.31% 1.54% 1.98% 2.22%

Allowance for credit losses as a percentage of total loans 1.31 1.37 1.54 1.98 2.22

(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.

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) December 31,

2005 2004

Impairment measurement based on:

Collateral value method $115 $183

Discounted cash ﬂow method 75 126

Total

(1)

$190 $309

(1) Includes $56 million and $107 million of impaired loans with a related allowance

of $10 million and $17 million at December 31, 2005 and 2004, respectively.

The average recorded investment in impaired loans during

2005, 2004 and 2003 was $260 million, $481 million and

$668 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 2005, 2004 and 2003 under

the cash basis method was not signiﬁcant.

Nonaccrual loans were $1,338 million and $1,358 million

at December 31, 2005 and 2004, respectively. Loans past due

90 days or more as to interest or principal and still accruing

interest were $3,606 million at December 31, 2005, and

$2,578 million at December 31, 2004. The 2005 and 2004

balances included $2,923 million and $1,820 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

Veteran Affairs.

The recorded investment in impaired loans and the

methodology used to measure impairment was:

(in millions)

Year ended Dec

ember 31,

2005 2004 2003

Net gains (losses) from private equity

investments $351 $319 $ (3)

Net gains from all other nonmarketable

equity investments 43 33 116

Net gains from nonmarketable

equity investments $394 $352 $113

(1) At December 31, 2005 and 2004, $3.1 billion and $3.3 billion, respectively,

of nonmarketable equity investments, including all federal bank stock,

were accounted for at cost.

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

Operating lease rental expense (predominantly for premises),

net of rental income, was $583 million, $586 million and

$574 million in 2005, 2004 and 2003, respectively.

The components of other assets were:

Depreciation and amortization expense for premises and

equipment was $810 million, $654 million and $666 million

in 2005, 2004 and 2003, respectively.

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

included in noninterest expense, were $56 million, $(5) million

and $(46) million in 2005, 2004 and 2003, respectively.

We have obligations under a number of noncancelable

operating leases for premises (including vacant premises)

and equipment. The terms of these leases, including renewal

options, are predominantly up to 15 years, with the longest

up to 72 years, and many provide for periodic adjustment

of rentals based on changes in various economic indicators.

The future minimum payments under noncancelable operating

leases and capital leases, net of sublease rentals, with terms

greater than one year as of December 31, 2005, were:

Income related to nonmarketable equity investments was:

(in millions) December 31,

2005 2004

Land $ 649 $ 585

Buildings 3,617 2,974

Furniture and equipment 3,425 3,110

Leasehold improvements 1,115 1,049

Premises and equipment leased

under capital leases 60 60

Total premises and equipment 8,866 7,778

Less: Accumulated depreciation

and amortization 4,449 3,928

Net book value,premises and equipment $4,417 $3,850

(in millions) Operating leases Capital leases

Year ended December 31,

2006 $ 514 $ 4

2007 426 2

2008 360 2

2009 298 1

2010 237 1

Thereafter 898 14

Total minimum lease payments $2,733 24

Executory costs (2)

Amounts representing interest (8)

Present value of net minimum

lease payments $14

(in millions)

December 3

2005 2004

Nonmarketable equity investments:

Private equity investments $ 1,537 $ 1,449

Federal bank stock 1,402 1,713

All other

2,151 2,067

Total nonmarketable equity

investments

(1)

5,090 5,229

Operating lease assets 3,414 3,642

Accounts receivable 11,606 2,682

Interest receivable 2,279 1,483

Core deposit intangibles 489 603

Foreclosed assets 191 212

Due from customers on acceptances 104 170

Other 9,299 8,470

Total other assets $32,472 $22,491

The gross carrying amount of intangible assets and

accumulated amortization was:

Note 8: Intangible Assets

We based the projections of amortization expense for

mortgage servicing rights shown above on existing asset

balances and the existing interest rate environment as

of December 31, 2005. Future amortization expense may

be signiﬁcantly different depending upon changes in the

mortgage servicing portfolio, mortgage interest rates and

market conditions. We based the projections of amortization

expense for core deposit intangibles shown above on existing

asset balances at December 31, 2005. Future amortization

expense may vary based on additional core deposit

intangibles acquired through business combinations.

(in millions) December 31,

2005

2004

Gross Accumulated Gross Accumulated

carrying amortization carrying amortization

amount amount

Amortized intangible assets:

Mortgage servicing

rights, before

valuation

allowance

(1)

$ 25,126 $11,428 $ 18,903 $ 9,437

Core deposit

intangibles 2,432 1,943 2,426 1,823

Other 567 312 567 296

Total amortized

intangible assets $28,125 $13,683 $21,896 $11,556

Unamortized

intangible asset

(trademark) $14 $14

(1) See Note 21 for additional information on MSRs and the related

valuation allowance.

(in millions) Mortgage Core Other Total

servicing deposit

rights intangibles

Year ended

December 31, 2005 $1,991 $123 $55 $2,169

Estimate for year ended

December 31,

2006 $ 1,959 $111 $ 48 $ 2,118

2007 1,659 101 46 1,806

2008 1,426 93 30 1,549

2009 1,246 85 25 1,356

2010 1,068 77 23 1,168

As of December 31, 2005, the current year and estimated

future amortization expense for amortized intangible

assets was:

The changes in the carrying amount of goodwill as allocated to our operating segments for goodwill impairment analysis were:

Note 9: Goodwill

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) Community Wholesale Wells Fargo Enterprise Consolidated

Banking Banking Financial Company

December 31, 2004 $ 3,433 $ 1,087 $364 $ 5,797 $ 10,681

December 31, 2005 $3,527 $1,097 $366 $5,797 $10,787

(in millions) Community Wholesale Wells Fargo Consolidated

Banking Banking Financial Company

December 31, 2003 $ 7,286 $ 2,735 $350 $ 10,371

Goodwill from business combinations 5 302 — 307

Foreign currency translation adjustments

—

3 3

December 31, 2004 7,291 3,037 353

10,681

Reduction in goodwill related to divested businesses (31) (3)

— (34)

Goodwill from business combinations 125 13

— 138

Realignment of automobile ﬁnancing business (11)

—11—

Foreign currency translation adjustments

— —

2 2

December 31, 2005 $7,374 $3,047

$366 $10,787

(in millions) December 31, 2005

Three months or less $45,763

After three months through six months 2,154

After six months through twelve months 5,867

After twelve months

2,339

Total $56,123

The total of time certiﬁcates of deposit and other time

deposits issued by domestic ofﬁces was $74,023 million

and $55,495 million at December 31, 2005 and 2004,

respectively. Substantially all of those deposits were

interest bearing. The contractual maturities of those

deposits were:

Note 10: Deposits

Of those deposits, the amount of time deposits with a

denomination of $100,000 or more was $56,123 million

and $41,851 million at December 31, 2005 and 2004,

respectively. The contractual maturities of these

deposits were:

(in millions) December 31, 2005

2006 $66,700

2007 3,886

2008 1,899

2009 769

2010 538

Thereafter

231

Total $74,023

Time certiﬁcates of deposit and other time deposits issued

by foreign ofﬁces with a denomination of $100,000 or more

represent the majority of all of our foreign deposit liabilities

of $14,621 million and $8,533 million at December 31, 2005

and 2004, respectively.

Demand deposit overdrafts of $618 million and $470 mil-

lion were included as loan balances at December 31, 2005

and 2004, respectively.

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

Note 11: Short-Term Borrowings

(in millions) 2005

2004 2003

Amount Rate Amount Rate Amount Rate

As of December 31,

Commercial paper and other short-term borrowings $ 3,958 3.80% $ 6,225 2.40% $ 6,709 1.26%

Federal funds purchased and securities sold under

agreements to repurchase 19,934 3.99 15,737 2.04 17,950 .84

Total $23,892 3.96 $21,962 2.14 $24,659 .95

Year ended December 31,

Average daily balance

Commercial paper and other short-term borrowings $ 9,548 3.09% $10,010 1.56% $11,506 1.22%

Federal funds purchased and securities sold under

agreements to repurchase 14,526 3.09 16,120 1.22 18,392 .99

Total $24,074 3.09 $26,130 1.35 $29,898 1.08

Maximum month-end balance

Commercial paper and other short-term borrowings

(1)

$15,075 N/A $16,492 N/A $14,462 N/A

Federal funds purchased and securities sold under

agreements to repurchase

(2)

22,315 N/A 22,117 N/A 24,132 N/A

N/A – Not applicable.

(1) Highest month-end balance in each of the last three years was in January 2005, July 2004 and January 2003.

(2) Highest month-end balance in each of the last three years was in August 2005, June 2004 and April 2003.

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

where applicable):

Note 12: Long-Term Debt

(in millions) December 31,

Maturity Stated 2005 2004

date(s) interest

rate(s)

Wells Fargo & Company (Parent only)

Senior

Fixed-Rate Notes

(1)

2006-2035 2.20-6.875% $16,081 $12,970

Floating-Rate Notes 2006-2015 Varies 21,711 20,155

Extendable Notes

(2)

2008-2015 Varies 10,000 5,500

Equity-Linked Notes

(3)

2006-2014 Varies 444 472

Convertible Debenture

(4)

2033 Varies 3,000

3,000

Total senior debt – Parent 51,236 42,097

Subordinated

Fixed-Rate Notes

(1)

2011-2023 4.625-6.65% 4,558 4,502

FixFloat Notes 2012 4.00% through 2006, varies 300

299

Total subordinated debt – Parent 4,858

4,801

Junior Subordinated

Fixed-Rate Notes

(1)(5)

2031-2034 5.625-7.00% 3,247 3,248

Total junior subordinated debt – Parent 3,247 3,248

Total long-term debt – Parent 59,341

50,146

Wells Fargo Bank, N.A. and its subsidiaries (WFB, N.A.)

Senior

Fixed-Rate Notes

(1)

2006-2019 1.16-4.24% 256 218

Floating-Rate Notes 2006-2034 Varies 3,138 7,615

Floating-Rate Federal Home Loan Bank (FHLB) Advances

(6)

—— — 1,400

FHLB Notes and Advances 2012 5.20% 203 200

Equity-Linked Notes

(3)

2006-2014 Varies 229 40

Notes payable by subsidiaries —— — 79

Obligations of subsidiaries under capital leases (Note 7) 14 19

Total senior debt – WFB, N. A. 3,840 9,571

Subordinated

FixFloat Notes

(7)

—— — 998

Fixed-Rate Notes

(1)

2010-2015 4.07-7.55% 4,330 2,821

Other notes and debentures 2006-2013 4.50-12.00% 13 11

Total subordinated debt – WFB, N.A. 4,343

3,830

Total long-term debt – WFB, N.A. 8,183 13,401

Wells Fargo Financial, Inc., and its subsidiaries (WFFI)

Senior

Fixed-Rate Notes 2006-2034 2.06-7.47% 7,159 5,343

Floating-Rate Notes 2007-2010 Varies 1,714 1,303

Total long-term debt – WFFI $ 8,873 $ 6,646

(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 or 2 years, which can be extended, respectively, on a rolling monthly basis,

to a ﬁnal maturity of 5 or 6 years, or, on a 6 month rolling basis, to a ﬁnal maturity of 10 years, at the investor’s option.

(3) These notes are linked to baskets of equities, commodities or equity indices.

(4) On April 15, 2003, we issued $3 billion of convertible senior debentures as a private placement. In November 2004, we amended the indenture under which the

debentures were issued to eliminate a provision in the indenture that prohibited us from paying cash upon conversion of the debentures if an event of default

as deﬁned in the indenture exists at the time of conversion. We then made an irrevocable election under the indenture on December 15, 2004, that upon conversion

of the debentures, we must satisfy the accreted value of the obligation (the amount accrued to the beneﬁt of the holder exclusive of the conversion spread) in cash

and may satisfy the conversion spread (the excess conversion value over the accreted value) in either cash or stock.We can also redeem all or some of the convertible

debt securities for cash at any time on or after May 5, 2008, at their principal amount plus accrued interest, if any.

(5) Effective December 31, 2003, as a result of the adoption of FIN 46R we deconsolidated certain wholly-owned trusts formed for the sole purpose of issuing trust

preferred securities (the Trusts).The junior subordinated debentures held by the Trusts are included in the Company’s long-term debt.

(6) During 2005, the FHLB exercised their put options on all outstanding ﬂoating-rate advances.

(7) Note was called in June 2005.

(continued on following page)

(in millions)

December 31,

Maturity Stated 2005

2004

date(s)

interest

rate(s)

Other consolidated subsidiaries

Senior

Fixed-Rate Notes 2006-2045 1.50-6.90% $ 502 $ 564

Floating-Rate FHLB Advances 2008-2009 Varies 500 500

Other notes and debentures – Floating-Rate 2012 Varies 14 1

Obligations of subsidiaries under capital leases (Note 7) —

Total senior debt – Other consolidated subsidiaries 1,016

1,066

Subordinated

Fixed-Rate Notes

(1)

2006-2009 1.00-13.87% 1,138 1,194

Other notes and debentures – Floating-Rate 2011-2015 Varies 66

Total subordinated debt – Other consolidated subsidiaries 1,204

1,289

Junior Subordinated

Fixed-Rate Notes

(5)

2026-2031 7.73-10.18% 869 865

Floating-Rate Notes

(5)

2027-2034 Varies 182 167

Total junior subordinated debt – Other consolidated subsidiaries 1,051 1,032

Total long-term debt – Other consolidated subsidiaries 3,271 3,387

Total long-term debt $79,668 $73,580

At December 31, 2005, aggregate annual maturities of

long-term debt obligations (based on ﬁnal maturity dates)

were as follows:

(in millions) Parent Company

2006 $ 7,309 $11,124

2007 10,557 13,962

2008 11,648 13,742

2009 5,904 6,926

2010 6,911 8,943

Thereafter 17,012

24,971

Total $59,341 $79,668

(continued from previous page)

The interest rates on ﬂoating-rate notes are determined

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, 2005, we were in compliance with

all the covenants.

We are authorized to issue 20 million shares of preferred

stock and 4 million shares of preference stock, both without

par value. Preferred shares outstanding rank senior to com-

mon shares both as to dividends and liquidation preference

but have no general voting rights. We have not issued any

preference shares under this authorization.

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

Note 13: Preferred Stock

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.

(1) Liquidation preference $1,000.

(2) In accordance with the American Institute of Certiﬁed Public Accountants (AICPA) Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership

Plans, we recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock.The unearned ESOP shares are

reduced as shares of the ESOP Preferred Stock are committed to be released. For information on dividends paid, see Note 14.

Shares issued Carrying amount

and outstanding (in millions) Adjustable

December 31, December 31, dividend rate

2005 2004 2005 2004 Minimum Maximum

ESOP Preferred Stock

(1)

2005 102,184 — $ 102 $ — 9.75% 10.75%

2004 74,880 89,420 75 90 8.50 9.50

2003 52,643 60,513 53 61 8.50 9.50

2002 39,754 46,694 40 47 10.50 11.50

2001 28,263 34,279 28 34 10.50 11.50

2000 19,282 24,362 19 24 11.50 12.50

1999 6,368 8,722 6 9 10.30 11.30

1998 1,953 2,985 2 3 10.75 11.75

1997 136 2,206 — 2 9.50 10.50

1996

— 382

— — 8.50 9.50

Total ESOP Preferred Stock 325,463 269,563 $ 325 $ 270

Unearned ESOP shares

(2)

$(348) $(289)

Note 14: Common Stock and Stock Plans

Common Stock

Our reserved, issued and authorized shares of common stock

at December 31, 2005, were:

Options also may include the right to acquire a “reload”

stock option. If an option contains the reload feature and

if a participant pays all or part of the exercise price of the

option with shares of stock purchased in the market or

held by the participant for at least six months, upon exercise

of the option, the participant is granted a new option to

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. Options granted after 2003 did

not include a reload feature.

We did not record any compensation expense for the

options granted under the plans during 2005, 2004 and

2003, as the exercise price was equal to the quoted market

price of the stock at the date of grant. The total number of

shares of common stock available for grant under the plans

at December 31, 2005, was 116,604,733.

Holders of restricted shares and restricted share rights

are entitled to the related shares of common stock at no cost

generally over three to ﬁve years after the restricted shares

or restricted share rights were granted. Holders of restricted

shares generally are entitled to receive cash dividends paid

on the shares. Holders of restricted share rights generally are

entitled to receive cash payments equal to the cash dividends

that would have been paid had the restricted share rights

been issued and outstanding shares of common stock. Except

in limited circumstances, restricted shares and restricted

share rights are canceled when employment ends.

In 2005, 26,400 restricted shares and restricted share

rights were granted with a weighted-average grant-date

per share fair value of $61.59. In 2004, no restricted shares

or restricted share rights were granted. In 2003, 61,740

restricted shares and restricted share rights were granted

with a weighted-average grant-date per share fair value

of $56.05. At December 31, 2005, 2004 and 2003, there

were 353,022, 448,150 and 577,722 restricted shares

and restricted share rights outstanding, respectively. The

compensation expense for the restricted shares and restricted

share rights equals the quoted market price of the related

stock at the date of grant and is accrued over the vesting

period. We recognized total compensation expense for the

restricted shares and restricted share rights of $2 million

in 2005, $3 million in 2004 and $4 million in 2003.

For various acquisitions and mergers since 1992, we

converted employee and director stock options of acquired

or merged companies into stock options to purchase our

common stock based on the terms of the original stock

option plan and the agreed-upon exchange ratio.

Dividend Reinvestment and Common Stock Purchase Plans

Participants in our dividend reinvestment and common stock

direct purchase plans may purchase shares of our common

stock at fair market value by reinvesting dividends and/or

making optional cash payments, under the plan’s terms.

Director Plans

We provide a stock award to non-employee directors as

part of their annual retainer under our director plans. We

also provide annual grants of options to purchase common

stock to each non-employee director elected or re-elected

at the annual meeting of stockholders. The options can be

exercised after six months and through the tenth anniversary

of the grant date.

Employee Stock Plans

LONG-TERM INCENTIVE PLANS Our stock incentive plans provide

for awards of incentive and nonqualiﬁed stock options, stock

appreciation rights, restricted shares, restricted share rights,

performance awards and stock awards without restrictions.

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 the beginning

of 2005 generally were fully vested upon grant. Effective

April 26, 2005, options granted under our plan generally

cannot fully vest in less than one year. Options granted

generally have a contractual term of 10 years. 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.

Number of shares

Dividend reinvestment and

common stock purchase plans 3,088,307

Director plans 651,102

Stock plans

(1)

307,357,126

Total shares reserved 311,096,535

Shares issued 1,736,381,025

Shares not reserved 3,952

,522,440

Total shares authorized 6,000,000,000

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

proﬁt sharing and compensation deferral plans.

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. 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 have not recognized any compensation

expense in 2005 and prior years.

The following table summarizes stock option activity

and related information for the three years ended

December 31, 2005.

Director P

lans

Long-Term Incentive Plans

Broad-Based Plans

Number Weighted-average Number Weighted-average Number Weighted-average

exercise price exercise price exercise price

Options outstanding as of December 31, 2002 349,108 $ 36.78 93,379,737 $ 40.35 50,088,196 $ 43.25

2003:

Granted 62,346 47.22 23,052,384

(1)

46.04 — —

Canceled — — (1,529,868) 46.76 (4,293,930) 46.85

Exercised (59,707) 26.90 (13,884,561) 31.96 (6,408,797) 34.09

Acquisitions 4,769 31.42 889,842 25.89 — —

Options outstanding as of December 31, 2003

356,516 40.19 101,907,534

42.56 39,385,469 44.35

2004:

Granted 50,960 56.39 21,983,690

(1)

57.41 — —

Canceled — — (1,241,637) 48.06 (2,895,200) 48.26

Exercised

(21,427

) 18.81

(

18,574,660

) 37.89

(3,792,605) 34.84

Options outstanding as of December 31, 2004 386,049 43.51 104,074,927 46.46 32,697,664 45.10

2005:

Granted 64,252 59.33 21,601,697

(1)

60.12 — —

Canceled (3,594) 19.93 (623,384) 51.80 (2,475,617) 47.51

Exercised (57,193) 27.66 (14,514,952) 42.20 (5,729,286) 42.78

Acquisitions — — 52,824 27.35 — —

Options outstanding as of December 31, 2005 389,514 $48.67 110,591,112 $49.65 24,492,761 $45.51

Outstanding options exercisable as of:

December 31, 2003 353,131 $ 40.08 63,257,541 $ 40.33 12,063,244 $ 35.21

December 31, 2004 386,049 43.51 84,702,073 46.64 8,590,539 35.99

December 31, 2005 389,514 48.67 103,053,320 49.80 14,444,786 42.10

(1) Includes 4,014,597, 4,909,864 and 2,311,824 reload grants in 2005, 2004 and 2003, respectively.

The following table presents the weighted-average per

share fair value of options granted estimated using a Black-

Scholes option-pricing model and the weighted-average

assumptions used.

2005 2004 2003

Per share fair value of options granted:

Director Plans $6.27 $9.34 $9.59

Long-Term Incentive Plans 7.50 9.32 9.48

Expected life (years) 4.4 4.4 4.3

Expected volatility 16.1% 23.8% 29.2%

Risk-free interest rate 4.0 2.9 2.5

Expected annual dividend yield 3.4 3.4 2.9

BROAD-BASED PLANS In 1996, we adopted the PartnerShares

Stock Option Plan, a broad-based employee stock option

plan. It covers full- and part-time employees who were

generally not included in the long-term incentive plans

described on the preceding page. The total number of

shares of common stock authorized for issuance under the

plan since inception through December 31, 2005, was

54,000,000, including 3,669,903 shares available for grant.

No options have been granted under the PartnerShares Plan

since 2002. The exercise date of options granted under the

PartnerShares Plan is the earlier of (1) ﬁve years after the

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

This table is a summary of our stock option plans described on the preceding page.

(in millions, except shares) Shares outstanding Dividends paid

__________December 31, Year ended December 31,

2005 2004 2003 2005 2004 2003

Allocated shares (common) 36,917,501 33,921,758 31,927,982 $71 $61 $46

Unreleased shares (preferred) 325,463 269,563 214,100 39 32 26

Fair value of unearned ESOP shares $325 $270 $214

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 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:

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.

December 31, 2005

Options outstanding

Options exercisable

Range of exercise prices Number Weighted-average Weighted-average Number Weighted-average

exercise price remaining contractual exercise price

life (in yrs.)

Director Plans

$13.49-$16.00 2,530 $13.49 1.01 2,530 $13.49

$16.01-$25.04 17,010 24.09 .49 17,010 24.09

$25.05-$38.29 34,620 33.09 1.88 34,620 33.09

$38.30-$51.00 197,942 46.51 5.60 197,942 46.51

$51.01-$69.01 137,412 59.38 7.69 137,412 59.38

Long-Term Incentive Plans

$3.37-$5.06 29,012 $ 4.23 6.50 29,012 $ 4.23

$5.07-$7.60 4,366 5.84 20.02 4,366 5.84

$11.42-$17.13 101,430 16.53 .60 101,430 16.53

$17.14-$25.71 57,574 23.33 3.53 57,574 23.33

$25.72-$38.58 16,442,280 34.24 2.98 16,277,280 34.22

$38.59-$71.30 93,956,450 52.41 5.99 86,583,658 52.80

Broad-Based Plans

$16.56 287,403 $16.56 .56 287,403 $16.56

$24.85-$37.81 5,107,673 35.35 2.42 5,107,673 35.35

$37.82-$46.50 8,661,248 46.44 4.86 8,540,348 46.50

$46.51-$51.15 10,436,437 50.50 6.22 509,362 50.50

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.

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.

Although we were not required to make a contribution

in 2005 for our Cash Balance Plan, we funded the maximum

amount deductible under the Internal Revenue Code, or

$288 million. The total amount contributed for our pension

plans was $340 million. We expect that we will not be

required to make a contribution in 2006 for the Cash

Balance Plan. The maximum we can contribute in 2006 for

the Cash Balance Plan depends on several factors, including

the ﬁnalization of participant data. Our decision on how

much to contribute, if any, depends on other factors,

including the actual investment performance of plan assets.

Given these uncertainties, we cannot at this time reliably

estimate the maximum deductible contribution or the

amount that we will contribute in 2006 to the Cash

Balance Plan. For the unfunded nonqualiﬁed pension plans

and postretirement beneﬁt plans, we will contribute the

minimum required amount in 2006, which equals the beneﬁts

paid under the plans. In 2005, we paid $78 million in beneﬁts

for the postretirement plans, which included $29 million

in retiree contributions, and $13 million for the unfunded

pension plans.

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 pretax certiﬁed compensation, although

there may be a lower limit for certain highly compensated

employees in order to maintain the qualiﬁed status of the

401(k) Plan. Eligible employees who complete one year

of service are eligible for matching company contributions,

which are generally a 100% match up to 6% of an employee’s

certiﬁed compensation. The matching contributions generally

vest over four years.

Expenses for deﬁned contribution retirement plans were

$370 million, $356 million and $257 million in 2005, 2004

and 2003, 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.

(in millions) Year ended December 31,

2005 2004

Pension beneﬁts Pension beneﬁts

Non- Other Non- Other

Qualiﬁed qualiﬁed beneﬁts

Qualiﬁed

qualiﬁed beneﬁts

Fair value of plan assets at beginning of year $4,457 $ — $329 $3,690 $ — $272

Actual return on plan assets 400 — 34 450 — 27

Employer contribution 327 13 56 555 25 74

Plan participants’ contributions ——29 ——26

Beneﬁts paid (242) (13) (78) (240) (25) (70)

Foreign exchange impact 2 — — 2 — —

Fair value of plan assets at end of year $4,944 $ — $370 $4,457 $ — $329

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 weighted-average assumptions used to determine the

projected beneﬁt obligation were:

Year ended December 31,

2005 2004

Pension Other Pension Other

beneﬁts

(1)

beneﬁts beneﬁts

(1)

beneﬁts

Discount rate 5.75% 5.75% 6.0% 6.0%

Rate of compensation increase 4.0 — 4.0 —

The accumulated beneﬁt obligation for the deﬁned beneﬁt

pension plans was $4,076 million and $3,786 million at

December 31, 2005 and 2004, respectively.

(in millions) December 31,

2005 2004

Pension beneﬁts Pension beneﬁts

Non- Other Non- Other

Qualiﬁed qualiﬁed beneﬁts

Qualiﬁed

qualiﬁed beneﬁts

Projected beneﬁt obligation at beginning of year $3,777 $228 $751 $3,387 $202 $698

Service cost 208 21 21 170 23 17

Interest cost 220 14 41 215 13 43

Plan participants’ contributions ——29 ——26

Amendments 37 — (44) (54) (12) (1)

Actuarial gain (loss) 43 27 (12) 296 27 37

Beneﬁts paid (242) (13) (78) (240) (25) (70)

Foreign exchange impact 2 — 1

—

Projected beneﬁt obligation at end of year $4,045 $277 $709 $3,777 $228 $751

The changes in the projected beneﬁt obligation during 2005 and 2004 and the amounts included in the Consolidated Balance

Sheet at December 31, 2005 and 2004, were:

(1) Includes both qualiﬁed and nonqualiﬁed pension beneﬁts.

The changes in the fair value of plan assets during 2005 and 2004 were:

The table to the right provides information for pension

plans with beneﬁt obligations in excess of plan assets,

substantially due to our nonqualiﬁed pension plans.

(in millions) December 31,

2005 2004

Projected beneﬁt obligation $359 $294

Accumulated beneﬁt obligation 297 247

Fair value of plan assets 60 55

Percentage of plan assets at December 31,

2005 2004

Pension Other Pension Other

plan beneﬁt plan beneﬁt

assets plan assets assets plan assets

Equity securities 69% 58% 63% 51%

Debt securities 27 40 33 46

Real estate 31 31

Other 1 1

Total 100% 100% 100% 100%

This table reconciles the funded status of the plans to the amounts included in the Consolidated Balance Sheet.

(in millions)

Decemb

er 31,

2005 2004

Pension beneﬁts Pension beneﬁts

Non- Other Non- Other

Qualiﬁed qualiﬁed beneﬁts

Qualiﬁed

qualiﬁed beneﬁts

Funded status

(1)

$ 899 $(277) $(339) $ 680 $(228) $(422)

Employer contributions in December —24 —1 5

Unrecognized net actuarial loss 615 42 131 647 25 158

Unrecognized net transition asset —— 3 ——3

Unrecognized prior service cost (25

) (11) (51) (67) (20) (8)

Accrued beneﬁt income (cost) $1,489 $(244) $(252) $1,260 $(222) $(264)

Amounts recognized in the balance sheet

consist of:

Prepaid beneﬁt cost $1,489 $ — $ — $1,260 $— $—

Accrued beneﬁt liability — (245) (252) — (223) (264)

Accumulated other

comprehensive income

— 1 — — 1 —

Accrued beneﬁt income (cost) $ 1,489 $(244) $(252) $1,260 $(222) $(264)

(1) Fair value of plan assets at year end less projected beneﬁt obligation at year end.

The weighted-average allocation of plan assets was:

The net periodic beneﬁt cost was:

(in millions) Year ended December 31,

2005 2004 2003

Pension beneﬁts Pension beneﬁts Pension beneﬁts

Non- Other Non- Other Non- Other

Qualiﬁed qualiﬁed beneﬁts Qualiﬁed qualiﬁed beneﬁts Qualiﬁed qualiﬁed beneﬁts

Service cost $ 208 $21 $ 21 $ 170 $23 $ 17 $ 164 $22 $ 15

Interest cost 220 14 41 215 13 43 209 14 42

Expected return

on plan assets (393) — (25) (327) — (23) (275) — (18)

Recognized

net actuarial

loss (gain)

(1)

68 3 6 51 1 2 85 7 (3)

Amortization of

prior service cost (4) (2) (1) (1) (1) (1) 16 — (1)

Amortization of

unrecognized

transition asset ——— ——— — — 1

Settlement — — — (2) 2 — — — —

Net periodic

beneﬁt cost $ 99 $36 $ 42 $ 106 $38 $ 38 $ 199 $43 $ 36

(1) Net actuarial loss (gain) is generally amortized over ﬁve years.

(in millions)

Year ended Dec

ember 31,

2005 2004 2003

Outside professional services $835 $669 $509

Contract services 596 626 866

Travel and entertainment 481 442 389

Outside data processing 449 418 404

Advertising and promotion 443 459 392

Postage 281 269 336

Telecommunications 278 296 343

Year ended December 31,

2005 2004 2003

Pension Other Pension Other Pension Other

beneﬁts

(1)

beneﬁts beneﬁts

(1)

beneﬁts beneﬁts

(1)

beneﬁts

Discount rate 6.0% 6.0% 6.5% 6.5% 7.0% 7.0%

Expected

return on

plan assets 9.0 9.0 9.0 9.0 9.0 9.0

Rate of

compensation

increase 4.0 — 4.0 — 4.0 —

(1) Includes both qualiﬁed and nonqualiﬁed pension beneﬁts.

The weighted-average assumptions used to determine the

net periodic beneﬁt cost were:

The long-term rate of return assumptions above were

derived based on a combination of factors including

(1) long-term historical return experience for major asset

class categories (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 a

health care cost trend rate to recognize the effect of expected

changes in future health care costs due to medical inﬂation,

utilization changes, new technology, regulatory requirements

and Medicare cost shifting. We assumed average annual

increases of 9.5% for health care costs for 2006. The rate

of average annual increases is assumed to trend down 1%

each year between 2006 and 2010. By 2010 and thereafter,

we assumed rates of 5.5% for HMOs and for all other types

of coverage. Increasing the assumed health care trend by

one percentage point in each year would increase the beneﬁt

obligation as of December 31, 2005, by $52 million and

the total of the interest cost and service cost components

of the net periodic beneﬁt cost for 2005 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, 2005, by $48 million and the total of the

interest cost and service cost components of the net periodic

beneﬁt cost for 2005 by $4 million.

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)

Pension beneﬁts Other

Qualiﬁed

Non-qualiﬁed beneﬁts

Year ended December 31,

2006 $ 288 $ 24 $ 54

2007 315 27 55

2008 366 28 56

2009 329 34 57

2010 339 33 62

2011-2015 1,986 158 313

The investment strategy for the postretirement plans is

maintained separate from the strategy for the pension plans.

The general target asset mix is 55–65% equities and 35–45%

ﬁxed income. In addition, the Retiree Medical Plan Voluntary

Employees’ Beneﬁciary Association (VEBA) 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 the postretirement plans on a quarterly basis.

Future beneﬁts, reﬂecting expected future service that

we expect to pay under the pension and other beneﬁt

plans, were:

(in millions) December 31,

2005 2004

Deferred Tax Assets

Allowance for loan losses $1,471 $1,430

Net tax-deferred expenses 179 217

Other 461

402

Total deferred tax assets 2,111

2,049

Deferred Tax Liabilities

Core deposit intangibles 153 188

Leasing 2,430 2,461

Mark to market 708 448

Mortgage servicing 3,517 2,848

FAS 115 adjustment 368 535

FAS 133 adjustment 29 23

Other 501

486

Total deferred tax liabilities 7,706 6,989

Net Deferred Tax Liability $5,595 $4,940

The components of income tax expense were:

The tax beneﬁt related to the exercise of employee

stock options recorded in stockholders’ equity was

$143 million, $175 million and $148 million for 2005,

2004 and 2003, respectively.

We had a net deferred tax liability of $5,595 million and

$4,940 million at December 31, 2005 and 2004, 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 $17 billion in the carry-back

period, substantial state taxable income in the carry-back

period, as well as a history of growth in earnings.

Note 16: Income Taxes

(in millions) Year ended December 31,

2005 2004 2003

Current:

Federal $2,627 $2,815 $1,298

State and local 346 354 165

Foreign 91

154

114

3,064

3,323 1,577

Deferred:

Federal 715 379 1,492

State and local 98

206

813

432 1,698

Total $3,877 $3,755 $3,275

The deferred tax liability related to 2005, 2004 or 2003

unrealized gains and losses on securities available for sale

along with the deferred tax liability related to certain derivative

and hedging activities for 2005 and 2004, had no effect on

income tax expense as these gains and losses, 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) Year ended December 31,

2005 2004 2003

Amount Rate Amount Rate Amount Rate

Statutory federal income tax expense and rate $4,042 35.0% $3,769 35.0% $3,317 35.0%

Change in tax rate resulting from:

State and local taxes on income, net of

federal income tax benefit 289 2.5 265 2.5 241 2.5

Tax-exempt income and tax credits (327) (2.8) (224) (2.1) (161) (1.7)

Donations of appreciated securities (33) (.3) — — (90) (.9)

Other (94) (.8) (55) (.5) (32) (.3)

Effective income tax expense and rate $3,877 33.6% $3,755 34.9% $3,275 34.6%

(in millions, except per share amounts) Y

ear ended December 31,

2005 2004 2003

Net income $ 7,671 $ 7,014 $ 6,202

Less: Preferred stock dividends —

—

Net income applicable to common stock (numerator) $ 7,671 $ 7,014 $ 6,199

EARNINGS PER COMMON SHARE

Average common shares outstanding (denominator) 1,686.3 1,692.2 1,681.1

Per share $4.55 $ 4.15 $ 3.69

DILUTED EARNINGS PER COMMON SHARE

Average common shares outstanding 1,686.3 1,692.2 1,681.1

Add: Stock options 18.9 20.8 16.0

Restricted share rights .3 .4 .4

Diluted average common shares outstanding (denominator) 1,705.5 1,713.4 1,697.5

Per share $4.50 $ 4.09 $ 3.65

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.

Note 17: Earnings Per Common Share

At December 31, 2005, 2004 and 2003, options to purchase

4.9 million, 3.3 million and 4.4 million shares, respectively,

were outstanding but not included in the calculation of earn-

ings per common share because the exercise price was higher

than the market price, and therefore they were antidilutive.

(in millions) Translation Net unrealized Net unrealized Cumulative other

adjustments gains (losses) on gains (losses) on comprehensive income

securities and other derivatives and other

retained interests hedging activities

Balance, December 31, 2002 $(14)$1,030 $(40)$ 976

Net change

26 (117) 53 (38)

Balance, December 31, 2003 12 913 13 938

Net change 12 (22) 22 12

Balance, December 31, 2004 $ 24 $ 891 $ 35 $ 950

Net change 5 (298) 8 (285)

Balance, December 31, 2005 $ 29 $ 593 $ 43 $ 665

(in millions) Year ended December 31,

2005 2004 2003

Before Tax Net of Before Tax Net of Before Tax Net of

tax effect tax tax effect tax tax effect tax

Translation adjustments $

8 $ 3 $ 5

20 $

8 $ 12

42 $

16 $

Securities available for sale and other

retained interests:

Net unrealized gains (losses) arising

during the year (401) (143) (258) 35 12 23 (117) (42) (75)

Reclassiﬁcation of gains included

in net income (64

) (24) (40) (72)

(27) (45

)

(68)

(26)

(42)

Net unrealized losses arising

during the year

(465

) (167) (298) (37) (15) (22) (185) (68) (117)

Derivatives and hedging activities:

Net unrealized gains (losses) arising

during the year 349 134 215 (376) (137) (239) (1,629) (603) (1,026)

Reclassiﬁcation of net losses (gains)

on cash ﬂow hedges included in

net income

(335) (128) (207) 413 152 261 1,707 628 1,079

Net unrealized gains arising

during the year 14 6 8 37 15 22 78 25 53

Other comprehensive income $(443) $(158) $(285) $ 20 $ 8 $ 12 $ (65) $ (27) $ (38)

Note 18: Other Comprehensive Income

The components of other comprehensive income and the related tax effects were:

Cumulative other comprehensive income balances were:

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 automobile ﬁnancing businesses into

Wells Fargo Financial in 2005, segment results for prior

periods have been revised.

The Community Banking Group offers a complete line

of banking and 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, insurance, securities brokerage through

afﬁliates and venture capital ﬁnancing. These products and

services include the Wells Fargo Advantage Funds

, 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 Bank

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

brokerage services 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, Latin America,

the Caribbean, Guam and Saipan. Automobile ﬁnance oper-

ations specialize in purchasing sales ﬁnance contracts directly

from automobile dealers and making loans secured by auto-

mobiles 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.

(income/expense in millions,

average balances in billions) Community Wholesale Wells Fargo Other

(2)

Consolidated

Banking Banking Financial

Company

2005

Net interest income

(1)

$12,708 $2,387 $3,409 $ — $18,504

Provision for credit losses 895 1 1,487 — 2,383

Noninterest income 9,822 3,352 1,271 — 14,445

Noninterest expense

13,294

3,165 2,559 — 19,018

Income before income

tax expense 8,341 2,573 634 — 11,548

Income tax expense

2,812

840 225 — 3,877

Net income $ 5,529 $1,733 $ 409 $ — $ 7,671

2004

Net interest income

(1)

$ 12,019 $ 2,209 $ 2,922 $ — $17,150

Provision for credit losses 787 62 868 — 1,717

Noninterest income 8,670 2,974 1,265 — 12,909

Noninterest expense

12,312 2,728 2,357 176 17,573

Income (loss) before income

tax expense (beneﬁt) 7,590 2,393 962 (176) 10,769

Income tax expense (beneﬁt)

2,678 794 345 (62) 3,755

Net income (loss) $ 4,912 $ 1,599 $ 617 $(114) $ 7,014

2003

Net interest income

(1)

$11,360 $ 2,228 $ 2,435 $ (16) $16,007

Provision for credit losses 817 177 698 30 1,722

Noninterest income 8,336 2,707 1,339 — 12,382

Noninterest expense 12,332 2,579 2,228 51 17,190

Income (loss) before income

tax expense (beneﬁt) 6,547 2,179 848 (97) 9,477

Income tax expense (beneﬁt)

2,259 733 317 (34) 3,275

Net income (loss) $ 4,288 $ 1,446 $ 531 $ (63) $ 6,202

2005

Average loans $ 187.0 $ 62.2 $ 46.9 $ — $ 296.1

Average assets 298.6 88.7 52.7 5.8 445.8

Average core deposits 218.2 24.6 — — 242.8

2004

Average loans $ 178.9 $ 53.1 $ 37.6 $ — $ 269.6

Average assets 284.2 77.6 43.0 5.8 410.6

Average core deposits 197.8 25.5 .1 — 223.4

(1) Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned

on segment assets and, if the segment has excess liabilities, interest credits for providing funding to other segments.The cost of liabilities includes interest expense on

segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of excess liabilities from another segment.

In general, Community Banking has excess liabilities and receives interest credits for the funding it provides the other segments.

(2) The items recorded at the enterprise level included a $176 million loss on debt extinguishment for 2004 and a $30 million non-recurring loss on sale of a sub-prime

credit card portfolio and $51 million of other charges related to employee beneﬁts and software for 2003.

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 2005 and 2004, we

used the following assumptions to determine the fair value

of mortgage servicing rights and other retained interests at

the date of securitization.

Key economic assumptions and the sensitivity of the

current fair value to immediate adverse changes in those

assumptions at December 31, 2005, for the AAA-rated

ﬂoating-rate mortgage-backed securities related to residential

mortgage loan securitizations are presented in the table on

the next page. The fair value of these securities was determined

using quoted market prices.

(in millions) Year ended December 31,

2005 2004

Mortgage Other Mortgage Other

loans ﬁnancial loans ﬁnancial

assets assets

Sales proceeds from

securitizations $40,982 $225 $33,550 $ —

Servicing fees 154 — 88 —

Cash flows on other

retained interests 560 6 138 11

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 mortgage

loans, home equity loans, auto receivables and securities.

We typically retain the servicing rights and may retain

other beneﬁcial interests from these sales. Through these

securitizations, which are structured without recourse to

us and with no restrictions on the retained interests, we may

be exposed to a liability under standard representations 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 2005 or 2004. We do not

have signiﬁcant credit risks from the retained interests.

We recognized gains of $326 million from sales of

ﬁnancial assets in securitizations in 2005 and $199 million

in 2004. Additionally, we had the following cash ﬂows with

our securitization trusts.

Key economic assumptions and the sensitivity of the

current fair value to immediate adverse changes in those

assumptions at December 31, 2005, for mortgage servicing

rights, both purchased and retained, and other retained

interests related to residential mortgage loan securitizations

are presented in the following table.

($ in millions) Mortgage Other retained

servicing rights interests

Fair value of retained interests $12,687 $ 223

Expected weighted-average life (in years) 5.8 6.4

Prepayment speed assumption (annual CPR) 11.6% 8.6%

Decrease in fair value from

10% adverse change $ 441 $ 7

Decrease in fair value from

25% adverse change 1,032 17

Discount rate assumption 10.5% 10.5%

Decrease in fair value from

100 basis point adverse change $ 476 $ 7

Decrease in fair value from

200 basis point adverse change 916 14

Mortgage Other retained

ser

vicing rights interests

2005 2004 2005 2004

Prepayment speed

(annual CPR

(1)

)

(2)

16.9% 16.8% 12.7% 14.9%

Life (in years)

(2)

5.6 4.9 7.0 3.9

Discount rate

(2)

10.1% 9.9% 10.2% 10.3%

(1) Constant prepayment rate.

(2) Represents weighted averages for all retained interests resulting from

securitizations completed in 2005 and 2004.

Retained interest – AAA

mor

tgage-backed secur

ities

2005 2004

Prepayment speed (annual CPR) 26.8% 34.8%

Life (in years) 2.4 2.2

Discount spread to LIBOR curve .22% .32%

We also retained some AAA-rated ﬂoating-rate mortgage-

backed securities. The fair value at the date of securitization

was determined using quoted market prices. The implied

CPR, life, and discount spread to the London Interbank

Offered Rate (LIBOR) curve at the date of securitization

is presented in the following table.

(in millions) December 31, Year ended December 31,

Total loans

(1)

elinquent loans

(2)

et charge-offs (recoveries)

2005 2004 2005 2004 2005 2004

Commercial and commercial real estate:

Commercial $ 61,552 $ 54,517 $ 304 $ 371 $ 273 $ 274

Other real estate mortgage 45,042 48,402 344 370 11 32

Real estate construction 13,406 9,025 40 63 (7) (1)

Lease ﬁnancing

5,400 5,169 45 68 14 36

Total commercial and commercial real estate 125,400 117,113 733 872 291 341

Consumer:

Real estate 1-4 family first mortgage 136,261 132,703 709 724 90 47

Real estate 1-4 family junior lien mortgage 59,143 52,190 194 132 105 83

Credit card 12,009 10,260 159 150 467 401

Other revolving credit and installment 48,287 43,744 470 476 1,115 699

Total consumer 255,700 238,897 1,532 1,482 1,777 1,230

Foreign 5,930

4,527

239

122

Total loans owned and securitized 387,030

360,537

$2,336 $2,453 $2,307 $1,693

Less:

Securitized loans 35,047 34,489

Mortgages held for sale 40,534 29,723

Loans held for sale 612

8,739

Total loans held $310,837 $287,586

(1) Represents loans on the balance sheet or that have been securitized, but excludes securitized loans that we continue to service but as to which we have no other

continuing involvement.

(2) Includes nonaccrual loans and loans 90 days or more past due and still accruing.

This table presents information about the principal balances of owned and securitized loans.

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 $2.5 billion

and $6 billion in total assets at December 31, 2005 and

2004, 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 most 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 $3 billion in total assets at

December 31, 2005 and 2004. We are not required to

consolidate these entities. Our maximum exposure to loss

as a result of our involvement with these unconsolidated

variable interest entities was approximately $870 million

and $950 million at December 31, 2005 and 2004, respectively,

predominantly representing investments in entities formed to

invest in affordable housing. We, however, expect to recover

our investment over time primarily through realization of

federal low-income housing tax credits.

($ in millions) Retained

interest – AAA

mortgage-

backed

securities

Fair value of retained interests $3,358

Expected weighted-average life (in years) 2.2

Prepayment speed assumption (annual CPR) 28.1%

Decrease in fair value from 10% adverse change $ —

Decrease in fair value from 25% adverse change —

Discount spread to LIBOR curve assumption .22%

Decrease in fair value from 10 basis point adverse change $ 7

Decrease in fair value from 20 basis point adverse change 14

The sensitivities in the previous tables 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 tables, the effect of a variation in a

particular assumption on the fair value of the retained

interest 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.

Mortgage banking activities, included in the Community

Banking and Wholesale Banking operating segments,

consist of residential and commercial mortgage originations

and servicing.

The components of mortgage banking noninterest

income were:

Note 21: Mortgage Banking Activities

(in millions)

Year ended December 3

2005 2004 2003

Servicing income, net:

Servicing fees

(1)

$ 2,457 $ 2,101 $ 1,787

Amortization (1,991) (1,826) (2,760)

Reversal of provision (provision)

for mortgage servicing rights

in excess of fair value 378 208 (1,092)

Net derivative gains (losses):

Fair value hedges

(2)

(46) 554 1,111

Other

(3)

189 — —

Total servicing

income, net 987 1,037 (954)

Net gains on mortgage loan

origination/sales activities 1,085 539 3,019

All other 350 284 447

Total mortgage banking

noninterest income $ 2,422 $ 1,860 $ 2,512

At the end of each quarter, we evaluate MSRs for possible

impairment based on the difference between the carrying

amount and current fair value of the MSRs by risk stratiﬁcation.

If a temporary impairment exists, we establish a valuation

allowance for any excess of amortized cost, as adjusted

for hedge accounting, over the current fair value through

a charge to income. We have a policy of reviewing MSRs

for other-than-temporary impairment each quarter and

recognize a direct write-down when the recoverability of

a recorded valuation allowance is determined to be remote.

Unlike a valuation allowance, a direct write-down permanently

reduces the carrying value of the MSRs and the valuation

allowance, precluding subsequent reversals. (See Note 1 –

Transfers and Servicing of Financial Assets for additional

discussion of our policy for valuation of MSRs.)

(in millions) Year ended December 31,

2005 2004 2003

Mortgage servicing rights:

Balance, beginning of year $ 9,466 $ 8,848 $ 6,677

Originations

(1)

2,652 1,769 3,546

Purchases

(1)

2,683 1,353 2,140

Amortization (1,991) (1,826) (2,760)

Write-down — (169) (1,338)

Other (includes changes in

mortgage servicing rights

due to hedging) 888

(509)

583

Balance, end of year $13,698 $ 9,466 $ 8,848

Valuation allowance:

Balance, beginning of year $ 1,565 $ 1,942 $ 2,188

Provision (reversal of provision)

for mortgage servicing rights

in excess of fair value (378) (208) 1,092

Write-down of mortgage

servicing rights

—

(169) (1,338)

Balance, end of year $ 1,187 $ 1,565 $ 1,942

Mortgage servicing rights, net $12,511 $ 7,901 $ 6,906

Ratio of mortgage servicing rights to

related loans serviced for others 1.44% 1.15% 1.15%

(in billions) December 31,

2005 2004

Loans serviced for others

(1)

$ 871 $688

Owned loans serviced

(2)

118 117

Total owned servicing 989 805

Sub-servicing 27 27

Total managed servicing portfolio $1,016 $832

(1) Consists of 1-4 family ﬁrst mortgage and commercial mortgage loans.

(2) Consists of mortgages held for sale and 1-4 family ﬁrst mortgage loans.

(1) Based on December 31, 2005, assumptions, the weighted-average amortization

period for mortgage servicing rights added during the year was approximately

5.6 years.

(1) Includes impairment write-downs on other retained interests of $79 million

for 2003.There were no impairment write-downs on other retained interests

for 2005 and 2004.

(2) Results related to mortgage servicing rights fair value hedging activities

consist of gains (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.

(3) Other consists of results from free-standing derivatives used to economically

hedge the risk of changes in fair value of mortgage servicing rights. See Note

26 – Free-Standing Derivatives for additional discussion and detail.

The changes in mortgage servicing rights were:

The components of our managed servicing portfolio were:

Note 22: Condensed Consolidating Financial Statements

Condensed Consolidating Statement of Income

(in millions) Parent WFFI Other Eliminations Consolidated

consolidating Company

subsidiaries

Year ended December 31, 2005

Dividends from subsidiaries:

Bank $4,675 $

—

$ — $(4,675) $ —

Nonbank 763

—

— (763) —

Interest income from loans — 4,467 16,809 (16) 21,260

Interest income from subsidiaries 2,215 — — (2,215) —

Other interest income

105 104 4,493 — 4,702

Total interest income

7,758 4,571 21,302 (7,669) 25,962

Deposits — — 3,848

—

3,848

Short-term borrowings 256 223 897 (632) 744

Long-term debt 2,000 1,362 598 (1,094) 2,866

Total interest expense 2,256 1,585 5,343 (1,726) 7,458

NET INTEREST INCOME 5,502 2,986 15,959 (5,943) 18,504

Provision for credit losses — 1,582 801 — 2,383

Net interest income after provision for credit losses 5,502 1,404 15,158 (5,943) 16,121

NONINTEREST INCOME

Fee income – nonafﬁliates

—

224 8,111 — 8,335

Other 298

223 5,727

(138) 6,110

Total noninterest income 298

447 13,838

(138) 14,445

NONINTEREST EXPENSE

Salaries and beneﬁts 92 985 9,378 — 10,455

Other 50 759 8,398 (644) 8,563

Total noninterest expense 142 1,744 17,776 (644) 19,018

INCOME BEFORE INCOME TAX EXPENSE

(BENEFIT) AND EQUITY IN UNDISTRIBUTED

INCOME OF SUBSIDIARIES 5,658 107 11,220 (5,437) 11,548

Income tax expense (beneﬁt) 145 (2) 3,734 — 3,877

Equity in undistributed income of subsidiaries 2,158 — — (2,158) —

NET INCOME $7,671 $ 109 $ 7,486 $(7,595) $ 7,671

Following are the condensed consolidating ﬁnancial

statements of the Parent and Wells Fargo Financial, Inc.

and its wholly-owned subsidiaries (WFFI). The Wells Fargo

Financial business segment for management reporting

(see Note 19) consists of WFFI and other afﬁliated consumer

ﬁnance entities managed by WFFI that are included within

other consolidating subsidiaries in the following tables.

100

Condensed Consolidating Statements of Income

(in millions) Parent WFFI Other Eliminations Consolidated

consolidating Company

subsidiaries

Year ended December 31, 2004

Dividends from subsidiaries:

Bank $3,652 $ — $ — $(3,652) $ —

Nonbank 307 — — (307) —

Interest income from loans — 3,548 13,233 — 16,781

Interest income from subsidiaries 1,117 — — (1,117) —

Other interest income

91 84

4,011

—

4,186

Total interest income

5,167

3,632 17,244 (5,076)

20,967

Deposits — — 1,827 — 1,827

Short-term borrowings 106 47 458 (258) 353

Long-term debt

872

1,089 387 (711

) 1,637

Total interest expense

978 1,136

2,672

(969)

3,817

NET INTEREST INCOME 4,189 2,496 14,572 (4,107) 17,150

Provision for credit losses

— 833 884 — 1,717

Net interest income after provision for credit losses 4,189 1,663 13,688 (4,107) 15,433

NONINTEREST INCOME

Fee income – nonafﬁliates — 223 7,319 — 7,542

Other

139 256 5,053 (81) 5,367

Total noninterest income

139 479 12,372 (81) 12,909

NONINTEREST EXPENSE

Salaries and beneﬁts 64 944 7,916 — 8,924

Other

313 746 7,820 (230) 8,649

Total noninterest expense

377 1,690 15,736 (230) 17,573

INCOME BEFORE INCOME TAX EXPENSE

(BENEFIT) AND EQUITY IN UNDISTRIBUTED

INCOME OF SUBSIDIARIES 3,951 452 10,324 (3,958) 10,769

Income tax expense (beneﬁt) (97) 159 3,693 — 3,755

Equity in undistributed income of subsidiaries

2,966 — — (2,966) —

NET INCOME $7,014 $ 293 $ 6,631 $(6,924) $ 7,014

Year ended December 31, 2003

Dividends from subsidiaries:

Bank $5,194 $ — $ — $(5,194) $ —

Nonbank 841 — — (841) —

Interest income from loans 2 2,799 11,136 — 13,937

Interest income from subsidiaries 567 — — (567) —

Other interest income

75 77 5,329 — 5,481

Total interest income

6,679 2,876 16,465 (6,602) 19,418

Short-term borrowings 81 73 413 (245) 322

Long-term debt 560 730 321 (256) 1,355

Other interest expense

— — 1,734 — 1,734

Total interest expense 641 803 2,468 (501) 3,411

NET INTEREST INCOME 6,038 2,073 13,997 (6,101) 16,007

Provision for credit losses — 814 908 — 1,722

Net interest income after provision for credit losses 6,038 1,259 13,089 (6,101) 14,285

NONINTEREST INCOME

Fee income – nonafﬁliates — 209 6,664 — 6,873

Other 167 239 5,195 (92) 5,509

Total noninterest income 167 448 11,859 (92) 12,382

NONINTEREST EXPENSE

Salaries and beneﬁts 134 745 7,567 — 8,446

Other 18 583 8,301 (158) 8,744

Total noninterest expense 152 1,328 15,868 (158) 17,190

INCOME BEFORE INCOME TAX EXPENSE

(BENEFIT) AND EQUITY IN UNDISTRIBUTED

INCOME OF SUBSIDIARIES 6,053 379 9,080 (6,035) 9,477

Income tax expense (beneﬁt) (48) 143 3,180 — 3,275

Equity in undistributed income of subsidiaries

101 — — (101) —

NET INCOME $6,202 $ 236 $ 5,900 $(6,136) $ 6,202

101

Condensed Consolidating Balance Sheets

(in millions) Parent WFFI Other Eliminations Consolidated

consolidating Company

subsidiaries

December 31, 2005

ASSETS

Cash and cash equivalents due from:

Subsidiary banks $ 10,720 $ 255 $ 25 $ (11,000) $ —

Nonafﬁliates 74 219 20,410 — 20,703

Securities available for sale 888 1,763 39,189 (6) 41,834

Mortgages and loans held for sale — 32 41,114 — 41,146

Loans 1 44,598 267,121 (883) 310,837

Loans to subsidiaries:

Bank 3,100 — — (3,100) —

Nonbank 44,935 1,003 — (45,938) —

Allowance for loan losses

— (1,280)

(2,591) —

(3,871)

Net loans

48,036 44,321 264,530 (49,921

) 306,966

Investments in subsidiaries:

Bank 37,298 — — (37,298) —

Nonbank 4,258 — — (4,258) —

Other assets

6,272 1,247 65,336 (1,763) 71,092

Total assets $107,546 $47,837 $430,604 $(104,246) $481,741

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits $ — $ — $325,450 $ (11,000) $314,450

Short-term borrowings 81 9,005 28,746 (13,940) 23,892

Accrued expenses and other liabilities 3,480 1,241 20,856 (2,506) 23,071

Long-term debt 59,341 35,087 16,613 (31,373) 79,668

Indebtedness to subsidiaries

3,984 — — (3,984) —

Total liabilities 66,886 45,333 391,665 (62,803) 441,081

Stockholders’ equity

40,660 2,504 38,939 (41,443) 40,660

Total liabilities and stockholders’ equity $107,546 $47,837 $430,604 $(104,246) $481,741

December 31, 2004

ASSETS

Cash and cash equivalents due from:

Subsidiary banks $ 9,493 $ 171 $ — $ (9,664) $ —

Nonafﬁliates 226 311 17,386 — 17,923

Securities available for sale 1,419 1,841 30,463 (6) 33,717

Mortgages and loans held for sale — 23 38,439 — 38,462

Loans 1 33,624 253,961 — 287,586

Loans to subsidiaries:

Bank 700 — — (700) —

Nonbank 36,368 856 — (37,224) —

Allowance for loan losses

— (952) (2,810) — (3,762)

Net loans

37,069 33,528 251,151 (37,924) 283,824

Investments in subsidiaries:

Bank 35,357 — — (35,357) —

Nonbank 4,413 — — (4,413) —

Other assets

4,720 807 48,997 (601) 53,923

Total assets $ 92,697 $36,681 $386,436 $ (87,965) $427,849

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits $ — $ — $284,522 $ (9,664) $274,858

Short-term borrowings 65 5,662 27,985 (11,750) 21,962

Accrued expenses and other liabilities 2,535 1,103 17,342 (1,397) 19,583

Long-term debt 50,146 27,508 19,354 (23,428) 73,580

Indebtedness to subsidiaries

2,085 — — (2,085) —

Total liabilities 54,831 34,273 349,203 (48,324) 389,983

Stockholders’ equity

37,866 2,408 37,233 (39,641) 37,866

Total liabilities and stockholders’ equity $ 92,697 $36,681 $386,436 $ (87,965) $427,849

102

Condensed Consolidating Statement of Cash Flows

(in millions) Parent WFFI Other Consolidated

consolidating Company

subsidiaries/

eliminations

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 631 281 18,147 19,059

Prepayments and maturities 90 248 6,634 6,972

Purchases (231) (486) (27,917) (28,634)

Net cash acquired from acquisitions — — 66 66

Increase in banking subsidiaries’ loan

originations, net of collections — (953) (41,356) (42,309)

Proceeds from sales (including participations) of loans by

banking subsidiaries — 232 42,007 42,239

Purchases (including participations) of loans by

banking subsidiaries — — (8,853) (8,853)

Principal collected on nonbank entities’loans — 19,542 3,280 22,822

Loans originated by nonbank entities — (29,757) (3,918) (33,675)

Net advances to nonbank entities (3,166) — 3,166 —

Capital notes and term loans made to subsidiaries (10,751) — 10,751 —

Principal collected on notes/loans made to subsidiaries 2,950 — (2,950) —

Net decrease (increase) in investment in subsidiaries 194 — (194) —

Other, net

— (1,059) (6,697) (7,756)

Net cash used by investing activities (10,283) (11,952) (7,834) (30,069)

Cash flows from financing activities:

Net increase in deposits — — 38,961 38,961

Net increase (decrease) in short-term borrowings 1,048 3,344 (2,514) 1,878

Proceeds from issuance of long-term debt 18,297 11,891 (3,715) 26,473

Long-term debt repayment (8,216) (4,450) (5,910) (18,576)

Proceeds from issuance of common stock 1,367 — — 1,367

Common stock repurchased (3,159) — — (3,159)

Cash dividends paid on common stock (3,375) — — (3,375)

Other, net

— — (1,673) (1,673)

Net cash provided by ﬁnancing activities 5,962 10,785 25,149 41,896

Net change in cash and due from banks 1,075 (8) 1,427 2,494

Cash and due from banks at beginning of year

9,719 482 2,702 12,903

Cash and due from banks at end of year $ 10,794 $ 474 $ 4,129 $ 15,397

103

Condensed Consolidating Statement of Cash Flows

(in millions) Parent WFFI Other Consolidated

consolidating Company

subsidiaries/

eliminations

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 78 268 5,976 6,322

Prepayments and maturities 160 152 8,511 8,823

Purchases (207) (580) (15,796) (16,583)

Net cash paid for acquisitions — — (331) (331)

Increase in banking subsidiaries’ loan

originations, net of collections — — (33,800) (33,800)

Proceeds from sales (including participations) of loans by

banking subsidiaries — — 14,540 14,540

Purchases (including participations) of loans by

banking subsidiaries — — (5,877) (5,877)

Principal collected on nonbank entities’loans — 17,668 328 17,996

Loans originated by nonbank entities — (27,778) 27 (27,751)

Net advances to nonbank entities (92) — 92 —

Capital notes and term loans made to subsidiaries (11,676) — 11,676 —

Principal collected on notes/loans made to subsidiaries 896 — (896) —

Net decrease (increase) in investment in subsidiaries (353) — 353 —

Other, net

— (121) (2,652) (2,773)

Net cash used by investing activities (11,194) (10,391) (17,849) (39,434)

Cash flows from financing activities:

Net increase (decrease) in deposits — (110) 27,437 27,327

Net increase (decrease) in short-term borrowings (831) 683 (2,549) (2,697)

Proceeds from issuance of long-term debt 19,610 12,919 (3,135) 29,394

Long-term debt repayment (4,452) (4,077) (11,110) (19,639)

Proceeds from issuance of common stock 1,271 — — 1,271

Common stock repurchased (2,188) — — (2,188)

Cash dividends paid on common stock (3,150) — — (3,150)

Other, net

— — (13) (13)

Net cash provided by ﬁnancing activities 10,260 9,415 10,630 30,305

Net change in cash and due from banks 2,914 321 (5,879) (2,644)

Cash and due from banks at beginning of year

6,805 161 8,581 15,547

Cash and due from banks at end of year $ 9,719 $ 482 $ 2,702 $ 12,903

104

Note 23: Legal Actions

In the normal course of business, we are subject to pending

and threatened legal actions, some for which the relief or

damages sought are substantial. After reviewing pending

and threatened actions with counsel, and any speciﬁc

reserves established for such matters, management believes

that the outcome of such actions will not have a material

adverse effect on the results of operations or stockholders’

equity. We are not able to predict whether the outcome of

such actions may or may not have a material adverse effect

on results of operations in a particular future period as the

timing and amount of any resolution of such actions and its

relationship to the future results of operations are not known.

Condensed Consolidating Statement of Cash Flows

(in millions) Parent WFFI Other Consolidated

consolidating Company

subsidiaries/

eliminations

Year ended December 31, 2003

Cash flows from operating activities:

Net cash provided by operating activities $

6,352 $ 1,271 $ 23,572 $

31,195

Cash flows from investing activities:

Securities available for sale:

Sales proceeds 146 347 6,864 7,357

Prepayments and maturities 150 223 12,779 13,152

Purchases (655) (732) (23,744) (25,131)

Net cash paid for acquisitions (55) (600) (167) (822)

Increase in banking subsidiaries’ loan

originations, net of collections — — (36,235) (36,235)

Proceeds from sales (including participations) of loans by

banking subsidiaries — — 1,590 1,590

Purchases (including participations) of loans by

banking subsidiaries — — (15,087) (15,087)

Principal collected on nonbank entities’loans 3,683 13,335 620 17,638

Loans originated by nonbank entities — (21,035) (757) (21,792)

Purchases of loans by nonbank entities (3,682) — — (3,682)

Net advances to nonbank entities (2,570) — 2,570 —

Capital notes and term loans made to subsidiaries (14,614) — 14,614 —

Principal collected on notes/loans made to subsidiaries 6,160 — (6,160) —

Net decrease (increase) in investment in subsidiaries 122 — (122) —

Other, net — 107 (74) 33

Net cash used by investing activities

(11,315) (8,355) (43,309) (62,979)

Cash flows from financing activities:

Net increase in deposits — 22 28,621 28,643

Net decrease in short-term borrowings (1,182) (676) (7,043) (8,901)

Proceeds from issuance of long-term debt 15,656 10,355 3,479 29,490

Long-term debt repayment (3,425) (2,151) (12,355) (17,931)

Proceeds from issuance of guaranteed preferred beneﬁcial

interests in Company’s subordinated debentures 700 — — 700

Proceeds from issuance of common stock 944 — — 944

Preferred stock redeemed (73) — — (73)

Common stock repurchased (1,482) — — (1,482)

Cash dividends paid on preferred and common stock (2,530) (600) 600 (2,530)

Other, net

— — 651 651

Net cash provided by ﬁnancing activities

8,608 6,950 13,953 29,511

Net change in cash and due from banks 3,645 (134) (5,784) (2,273)

Cash and due from banks at beginning of year 3,160 295 14,365 17,820

Cash and due from banks at end of year $ 6,805 $ 161 $ 8,581 $ 15,547

105

Note 24: Guarantees

We provide signiﬁcant guarantees to third parties including

standby letters of credit, various indemniﬁcation agreements,

guarantees accounted for as derivatives, contingent consider-

ation related to business combinations and contingent

performance guarantees.

We issue standby letters of credit, which include 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 $10.9 billion at

December 31, 2005, and $9.4 billion at December 31, 2004,

including ﬁnancial guarantees of $6.4 billion and $5.3 billion,

respectively, that we had issued or purchased participations

in. Standby letters of credit are net of participations sold to

other institutions of $2.1 billion at December 31, 2005,

and $1.7 billion at December 31, 2004. 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 $761 million at December 31, 2005,

and $731 million at December 31, 2004. At December 31,

2004, we also provided a back-up liquidity facility to a

commercial paper conduit that we considered to be a ﬁnancial

guarantee. This credit facility, which was terminated in

2005, would have required us to advance, under certain

conditions, up to $860 million at December 31, 2004. This

back-up liquidity facility was included within our commercial

loan commitments at December 31, 2004, and was substantially

collateralized in the event it was drawn upon.

We enter into indemniﬁcation agreements in the ordinary

course of business under which we agree to indemnify third

parties against any damages, losses and expenses incurred in

connection with legal and other proceedings arising from

relationships or transactions with us. These relationships or

transactions include those arising from service as a director

or ofﬁcer of the Company, underwriting agreements relating to

our securities, securities lending, acquisition agreements, and

various other business transactions or arrangements. Because

the extent of our obligations under these agreements depends

entirely upon the occurrence of future events, our potential

future liability under these agreements is not determinable.

We write options, ﬂoors and caps. Options are exercisable

based on favorable market conditions. Periodic settlements

occur on ﬂoors and caps based on market conditions. The

fair value of the written options liability in our balance sheet

was $563 million at December 31, 2005, and $374 million

at December 31, 2004. The aggregate written ﬂoors and caps

liability was $169 million and $227 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 $45.5 billion at December 31, 2005, and $29.7 billion

at December 31, 2004, and the aggregate notional value

related to written ﬂoors and caps was $24.3 billion and

$34.7 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 $6 million at December 31, 2005, and $2 million at

December 31, 2004. The maximum amount we would be

required to pay under the swaps in which we sold protection,

assuming all reference obligations default at a total loss,

without recoveries, was $2.7 billion and $2.6 billion

based on notional value at December 31, 2005 and 2004,

respectively. We purchased credit default swaps of comparable

notional amounts to mitigate the exposure of the written

credit default swaps at December 31, 2005 and 2004. 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

and insurance agency acquisitions we have made, the terms

of the acquisition agreements provide for deferred payments

or additional consideration based on certain performance

targets. At December 31, 2005 and 2004, the amount of

contingent consideration we expected to pay was not

signiﬁcant to our ﬁnancial statements.

We have entered into various contingent performance

guarantees through credit risk participation arrangements

with remaining terms ranging from one to 24 years. We will

be required to make payments under these guarantees if a

customer defaults on its obligation to perform under certain

credit agreements with third parties. Because the extent of

our obligations under these guarantees depends entirely

on future events, our potential future liability under these

agreements is not fully determinable. However, our exposure

under most of the agreements can be quantiﬁed and for

those agreements our exposure was contractually limited

to an aggregate liability of approximately $110 million at

December 31, 2005, and $370 million at December 31, 2004.

106

(in billions) To be well

capitalized under

the FDICIA

For capital prompt corrective

Actual adequacy purposes action provisions

Amount Ratio Amount Ratio Amount Ratio

As of December 31, 2005:

Total capital (to risk-weighted assets)

Wells Fargo & Company $44.7 11.64% >$30.7 >8.00%

Wells Fargo Bank, N.A. 34.7 11.04 > 25.2 >8.00 >$31.5 >10.00%

Tier 1 capital (to risk-weighted assets)

Wells Fargo & Company $31.7 8.26% >$15.4 >4.00%

Wells Fargo Bank, N.A. 25.2 8.01 > 12.6 >4.00 >$18.9 > 6.00%

Tier 1 capital (to average assets)

(Leverage ratio)

Wells Fargo & Company $31.7 6.99% >$18.1 >4.00%

(1)

Wells Fargo Bank, N.A. 25.2 6.61 > 15.3 >4.00

(1)

>$19.1 > 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.

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 $4.2 billion at December 31,

2005. 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.

107

Our approach to managing interest rate risk includes the

use of derivatives. This helps minimize signiﬁcant, unplanned

ﬂuctuations in earnings, fair values of assets and liabilities,

and cash ﬂows caused by interest rate volatility. This

approach involves modifying the repricing characteristics of

certain assets and liabilities so that changes in interest rates

do not have a signiﬁcant adverse effect on the net interest

margin and cash ﬂows. As a result of interest rate ﬂuctuations,

hedged assets and liabilities will gain or lose market value.

In a fair value hedging strategy, the effect of this unrealized

gain or loss will generally be offset by income or loss on the

derivatives linked to the hedged assets and liabilities. In a

cash ﬂow hedging strategy, we manage the variability of

cash payments due to interest rate ﬂuctuations by the effective

use of derivatives linked to hedged assets and liabilities.

We use derivatives as part of our interest rate risk

management, including interest rate swaps, caps and ﬂoors,

futures and forward contracts, and options. We also offer

various derivatives, including interest rate, commodity,

equity, credit and foreign exchange contracts, to our customers

but usually offset our exposure from such contracts by

purchasing other ﬁnancial contracts. The customer accom-

modations and any offsetting ﬁnancial contracts are treated

as free-standing derivatives. Free-standing derivatives also

include derivatives we enter into for risk management that

do not otherwise qualify for hedge accounting. To a lesser

extent, we take positions based on market expectations

or to beneﬁt from price differentials between ﬁnancial

instruments and markets.

By using derivatives, we are exposed to credit risk if

counterparties to ﬁnancial instruments do not perform as

expected. If a counterparty fails to perform, our credit risk

is equal to the fair value gain in a derivative contract. We

minimize credit risk through credit approvals, limits and

monitoring procedures. Credit risk related to derivatives is

considered and, if material, provided for separately. As we

generally enter into transactions only with counterparties

that carry high quality credit ratings, losses from counterparty

nonperformance on derivatives have not been signiﬁcant.

Further, we obtain collateral, where appropriate, to reduce

risk. To the extent the master netting arrangements meet the

requirements of FASB Interpretation No. 39, Offsetting of

Amounts Related to Certain Contracts, as amended by

FASB Interpretation No. 41, Offsetting of Amounts Related

to Certain Repurchase and Reverse Repurchase Agreements,

amounts are shown net in the balance sheet.

Our derivative activities are monitored by the Corporate

Asset/Liability Management Committee. Our Treasury

function, which includes asset/liability management, is

responsible for various hedging strategies developed

through analysis of data from ﬁnancial models and other

internal and industry sources. We incorporate the resulting

hedging strategies into our overall interest rate risk

management and trading strategies.

Fair Value Hedges

We use derivatives, such as interest rate swaps, swaptions,

Treasury futures and options, Eurodollar futures and options,

and forward contracts, to manage the risk of changes in the

fair value of MSRs and other retained interests. Derivative

gains or losses caused by market conditions (volatility) and

the spread between spot and forward rates priced into the

derivative contracts (the passage of time) are excluded from

the evaluation of hedge effectiveness, but are reﬂected in

earnings. Net derivative gains and losses related to our

mortgage servicing activities are included in “Servicing

income, net” in Note 21.

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. We also enter

into interest rate swaps, designated as fair value hedges, to

convert certain of our ﬁxed-rate long-term debt to ﬂoating-

rate debt. In addition, we 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.

For commercial real estate, long-term debt and foreign

currency hedges, all parts of each derivative’s gain or loss

are included in the assessment of hedge effectiveness.

At December 31, 2005, all designated fair value hedges

continued to qualify as fair value hedges.

Note 26: Derivatives

Management believes that, as of December 31, 2005, 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 on the previous page and not be

subject to a capital directive order. There are no conditions

or events since that notiﬁcation that management believes

have changed the risk-based capital category of any of the

covered subsidiary banks.

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,

2005, Wells Fargo Bank, N.A. met these requirements.

108

Cash Flow Hedges

We 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. We also use derivatives,

such as Treasury futures, forwards and options, Eurodollar

futures, and forward contracts, to hedge forecasted sales

of mortgage loans. 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,

2005, all designated cash ﬂow hedges continued to qualify

as cash ﬂow hedges.

At December 31, 2005, we expected that $13 million of

deferred net losses on derivatives in other comprehensive

income will be reclassiﬁed as earnings during the next twelve

months, compared with $8 million and $9 million of deferred

net losses at December 31, 2004 and 2003, respectively.

We are hedging our exposure to the variability of future

cash ﬂows for all forecasted transactions for a maximum

of one year for hedges converting ﬂoating-rate loans to ﬁxed

rates, 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) December 31,

2005 2004 2003

Gains (losses) from derivatives related to MSRs

and other retained interests from change in value of:

Derivatives excluded from the assessment of

hedge effectiveness $ 338 $ 944 $ 908

Ineffective portion of derivatives

(384) (390) 203

Net derivative gains (losses) related to MSRs

and other retained interests $ (46) $ 554 $1,111

Losses from ineffective portion of change in

the value of other fair value hedges

(1)

$ (15) $ (21) $ (22)

Gains from ineffective portion of change in

the value of cash ﬂow hedges $23 $ 10 $ 72

(1) Includes commercial real estate, long-term debt and foreign currency.

Free-Standing Derivatives

We enter into various derivatives primarily to provide

derivative products to customers. To a lesser extent, we

take positions based on market expectations or to beneﬁt

from price differentials between ﬁnancial instruments and

markets. These derivatives are not linked to speciﬁc assets

and liabilities on the balance sheet or to forecasted transactions

in an accounting hedge relationship and, therefore, do not

qualify for hedge accounting. 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.

Interest rate lock commitments for residential mortgage

loans that we intend to resell are considered free-standing

derivatives. Our interest rate exposure on these derivative

loan commitments is economically hedged with 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 recorded as a part of mortgage banking noninterest

income in the income statement. We record a zero fair value

for a derivative loan commitment at inception consistent

with EITF 02-3, Issues Involved in Accounting for Derivative

Contracts Held for Trading Purposes and Contracts

Involved in Energy Trading and Risk Management Activities,

and 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 fund within the

terms of the commitment, which is affected primarily by

changes in interest rates and passage of time. The aggregate

fair value of derivative loan commitments on the consolidated

balance sheet at December 31, 2005 and 2004, was a net

liability of $54 million and $38 million, respectively; and

is included in the caption “Interest rate contracts – Options

written” under Customer Accommodations and Trading

in the following table.

In 2005, we also used derivatives, such as swaps,

swaptions, Treasury futures and options, Eurodollar futures

and options, and forward contracts, to economically hedge

the risk of changes in the fair value of MSRs and other

retained interests, with the resulting gain or loss reﬂected

in income. Net derivative gains of $189 million for 2005

from economic hedges related to our mortgage servicing

activities are included on the income statement in “Mortgage

Banking – Servicing income, net.” The aggregate fair value

of these economic hedges was a net asset of $32 million

at December 31, 2005, and is included on the balance

sheet in “Other assets.”

109

(in millions) December 31,

2005 2004

Notional or Credit Estimated Notional or Credit Estimated

contractual risk net fair contractual risk net fair

amount amount

(1)

value amount amount

(1)

value

ASSET/LIABILITY MANAGEMENT

HEDGES

Interest rate contracts:

Swaps $ 36,978 $ 409 $ 26 $ 27,145 $ 626 $ 524

Futures 25,485 — — 10,314 — —

Floors and caps purchased 5,250 87 87 1,400 25 25

Floors and caps written 5,250 — (13) ———

Options purchased 26,508 103 103 51,670 49 49

Options written 405 1 (3) ———

Forwards 106,146 126 18 103,948 137 113

Equity contracts:

Options purchased 31 1 25 1 1

Options written 75 — (3) 99 — (18)

Forwards 15 2 2 19 1 —

Foreign exchange contracts:

Swaps 4,217 142 93 ———

Forwards 1,000 11 — ———

CUSTOMER ACCOMMODATIONS

AND TRADING

Interest rate contracts:

Swaps 92,462 1,175 133 74,659 1,631 28

Futures 251,534 — — 152,943 — —

Floors and caps purchased 7,169 33 33 32,715 170 170

Floors and caps written 12,653 — (27) 34,119 1 (189)

Options purchased 10,160 129 129 699 4 4

Options written 41,124 41 (160) 26,418 45 (45)

Forwards 56,644 17 (61) 46,167 13 (19)

Commodity contracts:

Swaps 20,633 599 (1) 4,427 141 (27)

Futures 555 — — 230 — —

Floors and caps purchased 5,464 195 195 391 39 39

Floors and caps written 6,356 — (130) 609 — (37)

Options purchased 12 7 7 35 17 17

Options written 52 — (33) 42 — (6)

Equity contracts:

Swaps 55 5 (2) 4——

Futures 480 — — 730 — —

Options purchased 1,810 253 253 1,011 189 189

Options written 1,601 — (263) 935 — (181)

Foreign exchange contracts:

Swaps 1,078 35 1 673 53 52

Futures 53 — — 24 — —

Options purchased 2,280 60 60 2,211 79 79

Options written 2,219 — (59) 2,187 — (79)

Forwards and spots 21,516 220 22 25,788 489 19

Credit contracts:

Swaps 5,454 23 (33) 5,443 36 (22)

The total notional or contractual amounts, credit risk amount and estimated net fair value for derivatives were:

(1) Credit risk amounts reﬂect the replacement cost for those contracts in a gain position in the event of nonperformance by all counterparties.

110

Note 27: Fair Value of Financial Instruments

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 $191.4 billion, $10.9 billion

and $761 million, respectively, at December 31, 2005, and

$164.0 billion, $9.4 billion and $731 million, respectively,

at December 31, 2004. These instruments generate ongoing

fees at our current pricing levels. Of the commitments at

December 31, 2005, 40% mature within one year. Deferred

fees on commitments and standby letters of credit totaled

$47 million and $46 million at December 31, 2005 and 2004,

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.

FAS 107, Disclosures about Fair Value of Financial

Instruments, requires that we disclose estimated fair values

for our ﬁnancial instruments. This disclosure should be read

with the ﬁnancial statements and Notes to Financial Statements

in this Annual Report. The carrying amounts in the following

table are recorded in the Consolidated Balance Sheet under

the indicated captions.

We base fair values on estimates or calculations using

present value techniques when quoted market prices are not

available. Because broadly-traded markets do not exist for

most of our ﬁnancial instruments, we try to incorporate

the effect of current market conditions in the fair value

calculations. These valuations are our estimates, and are

often calculated based on current pricing policy, the economic

and competitive environment, the characteristics of the

ﬁnancial instruments and other such factors. These calculations

are subjective, involve uncertainties and signiﬁcant judgment

and do not include tax ramiﬁcations. Therefore, the results

cannot be determined with precision, substantiated by

comparison to independent markets and may not be realized

in an actual sale or immediate settlement of the instruments.

There may be inherent weaknesses in any calculation 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.

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.

111

(in millions)

December 31,

2005

2004

Carrying Estimated Carrying Estimated

amount fair value amount fair value

FINANCIAL ASSETS

Mortgages held for sale $ 40,534 $ 40,666 $ 29,723 $ 29,888

Loans held for sale 612 629 8,739 8,972

Loans, net 306,966 307,721 283,824 285,488

Nonmarketable equity investments 5,090 5,533 5,229 5,494

FINANCIAL LIABILITIES

Deposits 314,450 314,301 274,858 274,900

Long-term debt

(1)

79,654 78,868 73,560 74,085

(1) The carrying amount and fair value exclude obligations under capital leases of $14 million and $20 million at December 31, 2005 and 2004, respectively.

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, 2005 and 2004.

The fair value of other time deposits is calculated based on

the discounted value of contractual cash ﬂows. The discount

rate is estimated using the rates currently offered for like

wholesale deposits with similar remaining maturities.

SHORT-TERM FINANCIAL LIABILITIES

Short-term ﬁnancial liabilities include federal funds pur-

chased 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 man-

agement’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, 2005

and 2004. 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 Consolidated Balance Sheet approximate fair value.

Other signiﬁcant assets and liabilities, which are not consid-

ered 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.

This table is a summary of ﬁnancial instruments, as

deﬁned by FAS 107, excluding short-term ﬁnancial assets

and liabilities, for which carrying amounts approximate

fair value, and trading assets, securities available for sale

and derivatives, which are carried at fair value.

112

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, 2005 and 2004, 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, 2005. 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, 2005 and 2004, and the results of their operations and their

cash ﬂows for each of the years in the three-year period ended December 31, 2005, 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, 2005,

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 21, 2006, expressed an unqualiﬁed

opinion on management’s assessment of, and the effective operation of, internal control over ﬁnancial reporting.

San Francisco, California

February 21, 2006

Report of Independent Registered Public Accounting Firm

113

Quarterly Financial Data

Condensed Consolidated Statement of Income — Quarterly (Unaudited)

(in millions, except per share amounts) 2005 2004

Quarter ended Quarter ended

Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31

INTEREST INCOME $ 7,244 $ 6,645 $ 6,200 $ 5,873 $ 5,635 $ 5,405 $ 5,069 $ 4,858

INTEREST EXPENSE 2,405

1,969 1,664

1,420

1,179

987

843

808

NET INTEREST INCOME 4,839 4,676 4,536 4,453 4,456 4,418 4,226 4,050

Provision for credit losses 703

641

454 585

465

408

440

404

Net interest income after provision for credit losses 4,136

4,035 4,082

3,868

3,991

4,010 3,786

3,646

NONINTEREST INCOME

Service charges on deposit accounts 655 654 625 578 594 618 611 594

Trust and investment fees 623 614 597 602 543 508 530 535

Card fees 394 377 361 326 321 319 308 282

Other fees 478 520 478 453 479 452 437 411

Mortgage banking 628 743 237 814 790 262 493 315

Operating leases 200 202 202 208 211 207 209 209

Insurance 272 248 358 337 265 264 347 317

Net gains (losses) on debt securities available for sale (124) (31) 39 (4) 3 10 (61) 33

Net gains from equity investments 93 146 201 71 170 48 81 95

Other 434

354

231 251

336

212 245 306

Total noninterest income 3,653

3,827

3,329

3,636

3,712 2,900

3,200 3,097

NONINTEREST EXPENSE

Salaries 1,613 1,571 1,551 1,480 1,438 1,383 1,295 1,277

Incentive compensation 663 676 562 465 526 449 441 391

Employee beneﬁts 428 467 432 547 451 390 391 492

Equipment 328 306 263 370 410 254 271 301

Net occupancy 344 354 310 404 301 309 304 294

Operating leases 161 159 157 158 164 158 156 155

Other 1,346

1,356

1,279

1,268

1,681

1,277

1,495 1,119

Total noninterest expense 4,883 4,889 4,554 4,692 4,971 4,220 4,353 4,029

INCOME BEFORE INCOME TAX EXPENSE 2,906 2,973 2,857 2,812 2,732 2,690 2,633 2,714

Income tax expense 976

998 947 956

947

942 919 947

NET INCOME $ 1,930 $ 1,975 $ 1,910 $ 1,856 $ 1,785 $ 1,748 $ 1,714 $ 1,767

EARNINGS PER COMMON SHARE $ 1.15 $ 1.17 $ 1.14 $ 1.09 $ 1.06 $ 1.03 $ 1.02 $ 1.04

DILUTED EARNINGS PER COMMON SHARE $ 1.14 $ 1.16 $ 1.12 $ 1.08 $ 1.04 $ 1.02 $ 1.00 $ 1.03

DIVIDENDS DECLARED PER COMMON SHARE $ .52 $ .52 $ .48 $ .48 $ .48 $ .48 $ .45 $ .45

Average common shares outstanding 1,675.4 1,686.8 1,687.7 1,695.4 1,692.7 1,688.9 1,688.1 1,699.3

Diluted average common shares outstanding 1,693.9 1,705.3 1,707.2 1,715.7 1,715.0 1,708.7 1,708.3 1,721.2

Market price per common share

(1)

High $ 64.70 $ 62.87 $ 62.22 $ 62.75 $ 64.04 $ 59.86 $ 59.72 $ 58.98

Low 57.62 58.00 57.77 58.15 57.55 56.12 54.32 55.97

Quarter end 62.83 58.57 61.58 59.80 62.15 59.63 57.23 56.67

(1) Based on daily prices reported on the New York Stock Exchange Composite Transaction Reporting System.

114

Average Balances,Yields and Rates Paid (Taxable-Equivalent Basis) — Quarterly

(1)(2)

(Unaudited)

(in millions)

uarter ended December 31,

2005 2004

Average Yields/ Interest Average Yields/ Interest

balance rates income/ balance rates income/

expense expense

EARNING ASSETS

Federal funds sold, securities purchased

under resale agreements and other

short-term investments $ 5,158 3.64% $ 47 $ 4,967 2.01% $ 26

Trading assets 5,061 3.82 48 5,040 2.73 34

Debt securities available for sale

(3)

Securities of U.S. Treasury and federal agencies 1,051 3.90 10 1,101 3.72 10

Securities of U.S. states and political subdivisions 3,256 8.22 64 3,624 8.31 71

Mortgage-backed securities:

Federal agencies 23,545 5.94 347 21,916 6.08 321

Private collateralized mortgage obligations 8,060 5.71

114 3,787 5.35 49

Total mortgage-backed securities 31,605 5.88 461 25,703 5.97 370

Other debt securities

(4)

4,843 6.79

82 3,246 7.91

Total debt securities available for sale

(4)

40,755 6.12 617 33,674 6.32 510

Mortgages held for sale

(3)

42,036 5.97 628 32,373 5.48 443

Loans held for sale

(3)

603 6.41 10 8,536 4.05 87

Loans:

Commercial and commercial real estate:

Commercial 61,297 7.35 1,135 51,896 5.93 774

Other real estate mortgage 28,425 6.84 489 29,412 5.67 419

Real estate construction 13,040 7.26 239 9,246 5.80 135

Lease ﬁnancing 5,347 5.77 77 5,109 5.84 75

Total commercial and commercial real estate 108,109 7.13 1,940 95,663 5.84 1,403

Consumer:

Real estate 1-4 family ﬁrst mortgage 76,233 6.75 1,291 86,389 5.70 1,233

Real estate 1-4 family junior lien mortgage 58,157 7.28 1,067 50,909 5.54 709

Credit card 11,326 12.81 363 9,706 11.57 281

Other revolving credit and installment 46,593 9.13 1,071 34,475 8.99 779

Total consumer 192,309 7.84 3,792 181,479 6.59 3,002

Foreign 5,278 13.08 174 4,025 14.00 141

Total loans

(5)

305,696 7.68 5,906 281,167 6.44 4,546

Other 1,415

4.49 16

1,698 4.19 17

Total earning assets $400,724 7.23 7,272 $367,455 6.16 5,663

FUNDING SOURCES

Deposits:

Interest-bearing checking $ 3,797 1.79 17 $ 3,244 .68 5

Market rate and other savings 132,042 1.86 619 125,350 .83 262

Savings certiﬁcates 26,610 3.26 219 18,697 2.32 108

Other time deposits 33,321 4.07 341 30,460 1.98 152

Deposits in foreign ofﬁces 14,347 3.71

135 10,026

1.95 49

Total interest-bearing deposits 210,117 2.51 1,331 187,777 1.22 576

Short-term borrowings 25,395 3.79 242 26,315 1.90 126

Long-term debt 79,169 4.19

832 70,646 2.70

477

Total interest-bearing liabilities 314,681 3.04 2,405 284,738 1.65 1,179

Portion of noninterest-bearing funding sources 86,043 — — 82,717 — —

Total funding sources $400,724 2.39 2,405 $367,455 1.28 1,179

Net interest margin and net interest income on

a taxable-equivalent basis

(6)

4.84% $4,867 4.88% $4,484

NONINTEREST-EARNING ASSETS

Cash and due from banks $ 13,508 $ 13,366

Goodwill 10,780 10,436

Other

43,469 34,002

Total noninterest-earning assets $ 67,757 $ 57,804

NONINTEREST-BEARING FUNDING SOURCES

Deposits $ 90,937 $ 82,958

Other liabilities 23,049 20,336

Stockholders’ equity 39,814 37,227

Noninterest-bearing funding sources used to

fund earning assets (86,043

) (82,717)

Net noninterest-bearing funding sources $ 67,757 $ 57,804

TOTAL ASSETS $468,481 $425,259

(1) Our average prime rate was 6.97% and 4.94% for the quarters ended December 31, 2005 and 2004, respectively. The average three-month London Interbank Offered Rate (LIBOR)

was 4.34% and 2.30% 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.

114

115

Collateralized debt obligations: Securitized corporate debt.

Core deposits: Deposits acquired in a bank’s natural market area,

counted as a stable source of funds for lending.These deposits

generally have a predictable cost and customer loyalty.

Core deposit intangibles: The present value of the difference in cost of

funding provided by core deposit balances compared with alternative

funding with similar terms assigned to acquired core deposit balances

by a buyer.

Cost method of accounting: Investment in the subsidiary is carried at

cost, and the parent company accounts for the subsidiary’s operations

only to the extent that the subsidiary declares dividends. Generally

used if investment ownership is less than 20%.

Derivatives: Financial contracts whose value is derived from publicly

traded securities, interest rates, currency exchange rates or market

indices. Derivatives cover a wide assortment of ﬁnancial contracts,

including forward contracts, futures, options and swaps.

Diluted earnings per share: Net income divided 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.

Earnings per share: Net income divided by the average number of

common shares outstanding during the year.

Effectiveness/ineffectiveness (of derivatives): Effectiveness is the

gain or loss on a hedging instrument that exactly offsets the loss or

gain on the hedged item. Any difference would be the effect of hedge

ineffectiveness, which is recognized currently in earnings.

Equity method of accounting: Investment in the subsidiary is

originally recorded at cost, and the value of the investment is

increased or decreased based on the investor’s proportional share

of the change in the subsidiary’s net worth. Generally used if

investment ownership is 20% or more but less than 50%.

Federal Reserve Board (FRB): The Board of Governors of the Federal

Reserve System, charged with supervising and regulating bank holding

companies, including ﬁnancial holding companies.

Futures and forward contracts: Contracts in which the buyer agrees to

purchase and the seller agrees to deliver a speciﬁc ﬁnancial instrument

at a predetermined price or yield. May be settled either in cash or by

delivery of the underlying ﬁnancial instrument.

GAAP (Generally accepted accounting principles): Accounting rules

and conventions deﬁning acceptable practices in recording transactions

and preparing ﬁnancial statements. U.S. GAAP is primarily determined

by the Financial Accounting Standards Board (FASB).

Hedge: Financial technique to offset the risk of loss from price ﬂuctuations

in the market by offsetting the risk in another transaction.The risk in

one position counterbalances the risk in another transaction.

Interest rate ﬂoors and caps: Interest rate protection instruments

where the seller pays the buyer an interest differential, which

represents the difference between a short-term rate (e.g., three-

month LIBOR) and an agreed-upon rate (the strike rate) applied

to a notional principal amount.

Interest rate swap contracts: Primarily an asset/liability management

strategy to reduce interest rate risk. Interest rate swap contracts are

exchanges of interest rate payments, such as ﬁxed-rate payments for

ﬂoating-rate payments, based on notional principal amounts.

Glossary

Mortgage servicing rights: The rights to service mortgage loans for

others, which are acquired through purchases or kept after sales or

securitizations of originated loans.

Net interest margin: The average yield on earning assets minus the

average interest rate paid for deposits and debt.

Notional amount: A number of currency units, shares, or other units

speciﬁed in a derivative contract.

Ofﬁce of the Comptroller of the Currency (OCC): Part of the U.S.

Treasury department and the primary regulator for banks with

national charters.

Options: Contracts that grant the purchaser, for a premium payment,

the right, but not the obligation, to either purchase or sell the

associated ﬁnancial instrument at a set price during a period or

at a speciﬁed date in the future.

Other-than-temporary impairment: A write-down of certain assets

recorded when a decline in the fair market value below the carrying

value of the asset is considered not to be temporary. Applies to

goodwill, mortgage servicing rights, other intangible assets, securities

available for sale and nonmarketable equity securities. (See Note 1 –

Summary of Signiﬁcant Accounting Policies for impairment policies

for speciﬁc categories of assets.)

Qualifying special-purpose entities (QSPE): A trust or other legal

vehicle that meets certain conditions, including (1) that it is distinct

from the transferor, (2) activities are limited, and (3) the types of assets

it may hold and conditions under which it may dispose of noncash

assets are limited. A QSPE is not consolidated on the balance sheet.

Securitize/securitization: The process and the result of pooling

ﬁnancial assets together and issuing liability and equity obligations

backed by the resulting pool of assets to convert those assets into

marketable securities.

Special-purpose entities (SPE): A legal entity, sometimes a trust or a

limited partnership, created solely for the purpose of holding assets.

Taxable-equivalent basis: Basis of presentation of net interest income

and the net interest margin adjusted to consistently reﬂect income

from taxable and tax-exempt loans and securities based on a 35%

marginal tax rate.The yield that a tax-free investment would provide

to an investor if the tax-free yield was “grossed up” by the amount of

taxes not paid.

Underlying: A speciﬁed interest rate, security price, commodity price,

foreign exchange rate, index of prices or rates or other variable. An

underlying may be the price or rate of an asset or liability, but is not

the asset or liability itself.

Value at risk: The amount or percentage of value that is at risk of being

lost from a change in prevailing interest rates.

Variable interest entity (VIE): An entity in which the equity investors

(1) do not have a controlling ﬁnancial interest, or (2) do not have

sufﬁcient equity at risk for the entity to ﬁnance its activities without

subordinated ﬁnancial support from other parties.

Yield curve (shape of the yield curve, ﬂat yield curve): A graph

showing the relationship between the yields on bonds of the same

credit quality with different maturities. For example, a “normal”,or

“positive”, yield curve exists when long-term bonds have higher yields

than short-term bonds. A “ﬂat” yield curve exists when yields are the

same for short-term and long-term bonds. A “steep” yield curve exists

when yields on long-term bonds are signiﬁcantly higher than on

short-term bonds.

116

Wells Fargo & Company

Stock Listing

Wells Fargo & Company is listed and trades on the New York Stock

Exchange and the Chicago Stock Exchange in the United States.

Our trading symbol is WFC.

Common Stock

1,677,583,032 common shares outstanding (12/31/05)

Stock Purchase and Dividend Reinvestment

You can buy Wells Fargo stock directly from Wells Fargo, even if you’re

not a Wells Fargo stockholder, through optional cash payments or

automatic monthly deductions from a bank account.You can also have

your dividends reinvested automatically. It’s a convenient, economical

way to increase your Wells Fargo investment.

Call 1-877-840-0492 for an enrollment kit including a plan prospectus.

Form 10-K

We will send the Wells Fargo’s 2005 Annual Report on Form 10-K

(including the ﬁnancial statements ﬁled with the Securities and

Exchange Commission) without charge to any stockholder who

asks for a copy in writing. Stockholders also can ask for copies of

any exhibit to the Form 10-K. 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.

Independent Registered

Public Accounting Firm

KPMG LLP

San Francisco, CA

415-963-5100

Contacts

Investor Relations

1-888-662-7865

investorrelations@wellsfargo.com

Stockholder Communications

Shareholder Services and Transfer Agent

Wells Fargo Shareowner Services

P.O. Box 64854

Saint Paul, MN 55164-0854

1-877-840-0492

www.wellsfargo.com/com/shareowner_services

Corporate Information

Annual Stockholders’ Meeting

1:30 p.m.,Tuesday, April 25, 2006

The Stanford Court Hotel

905 California Street

San Francisco, CA

Proxy statement and form of proxy will be mailed to stockholders

beginning on or about March 17, 2006.

Certiﬁcations

Our chief executive ofﬁcer certiﬁed to the New York Stock Exchange

(NYSE) that, as of May 23, 2005, 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 2005 Form 10-K.

Market Fortune Rank*

Cap (Revenue)

1. General Electric (GE) $372 billion 5 11. Altria Group (MO) 157 17

2. Exxon Mobil (XOM) 363 2 12. Procter & Gamble (PG) 140 26

3. Microsoft (MSFT) 287 41 13. JP Morgan Chase (JPM) 139 20

4. Citigroup (C) 246 8 14. Berkshire Hathaway 138 12

5. Wal-Mart Stores (WMT) 190 1 15. ChevronTexaco (CVX) 131 6

6. Bank of America (BAC) 187 18 16. IBM (IBM) 130 10

7. Johnson & Johnson (JNJ) 185 30 17. Cisco Systems (CSCO) 113 91

8. AIG (AIG) 181 9 18. Wells Fargo (WFC) 105 52

9. Pﬁzer (PFE) 181 24 19. PepsiCo (PEP) 99 61

10. Intel (INTC) 158 50 20. Coca-Cola (KO) 98 92

*4/05

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 grow revenue by selling 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 loan loss allowance • changes in the value of our venture capital investments • changes in our accounting policies or in

accounting standards • mergers and acquisitions • federal and state regulations • reputational damage from negative publicity • 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. For more information

about factors that could cause actual results to differ from expectations, refer to the Financial Review and the Financial Statements and related Notes in this

report and to the “Risk Factors” and “Regulation and Supervision” sections of our 2005 Annual Report on Form 10-K ﬁled with the Securities and Exchange

Commission and available on the SEC’s website at www.sec.gov.

Highest Market Caps,Year-End 2005,

among Fortune 100

01 02 03 04 05

Revenue (billions)

20-year compound annual growth rate:

12%

$21.0

25.2

28.4

30.1

32.9

02 03 04 05

Active Online Middle-Market/

Large Corporate Customers

(thousands)

02 03 04 05

Active Online

Small Business Customers

(thousands)

297

185

415

531

666

01 02 03 04 05

Deposits

(billions)

$187

217

248

275

314

01 02 03 04 05

Mortgage Originations

(billions)

$202

333

470

298

366

01 02 03 04 05

Mortgage Servicing

Portfolio

(billions)

$462

581

710

805

989

National Home Equity

Group Loans

(billions)

01 02 03 04 05

$25

Which Measures Really Matter? 2005 Update

01 02 03 04 05

Earnings Per Share diluted**

20-year compound annual growth rate:

14%

$1.97

3.32

3.65

4.09

4.50

01 02 03 04 05

Return on Equity (ROE)

ROE: cents earned for every dollar

stockholders invest in the company

12.7%

18.7

19.4

19.6

01 02 03 04 05

Retaining Team Members

(annual percent of team members who leave us)

** excludes Wells Fargo Financial

(consumer finance)

34%

01 02 03 04 05

Retaining Customers

(annual percent of high-value* checking

account customers who leave us)

10.4% (est.)

8.9

8.0

* top 20 percent of banking customers

based on balances

7.5

02 03 04 05

Assets Managed,

Administered

(billions) includes brokerage

$578

654

791

880

02 03 04 05

Nonperforming Assets

(NPAs)/Total Loans

0.88

1.08%

0.66

0.55

0.49

02 03 04 05

Products Per Banking

Household

4.2

3.8

4.3

4.6

4.8

02 03 04 05

Product Solutions (Sales)

Per Banker

Per Day

4.3

4.0

4.7

* platform full-time equivalent (FTE) team member

4.8

4.9

03 04 05

Team Member Engagement

Ratio of engaged to actively disengaged

Gallup survey of Wells Fargo Regional

Banking team members

2.5:1

4.1:1

5.8 :1

1. 7 : 1

National average

01 02 03 04 05

Market Capitalization

(billions)

$74

100

105

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:

only U.S. bank rated “Aaa.”

Number of S&P companies

Moody’s with higher rating

Wells Fargo Bank,N.A.

Issuer Aaa None

Long-term deposits Aaa None

Financial Strength A None

Wells Fargo & Company

Subordinated Debt Aa2 One

Issuer Aa1 Six

Senior Debt Aa1 Six

Financial Performance*

Retaining Customers,Team Members

Sales

Online

Earning More Business

Managing Risk

In our past two 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 future success in the ﬁnancial services industry.

02 03 04 05

Commercial/Corporate

Products Per Banking

Customer

4.9

4.6

5.0

5.3

5.7

02 03 04 05

Retail Banking Households

with Credit Cards

23.7

23.2%

26.9

31.1

33.1

02 03 04 05

Retail Checking Households

with Debit Cards

85.4

83.3%

85.9

88.7

90.5

* before effect of change in accounting principles,2001 includes venture capital impairment

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

Wells Fargo & Company

420 Montgomery Street

San Francisco, California 94104

1-866-878-5865

wellsfargo.com

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.

America’s “Most admired”

Large Bank Fortune