Edgar Filing: WELLS FARGO & CO/MN

e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011

Commission file number 001-2979

WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)


Delaware		No. 41-0449260
(State of incorporation)		(I.R.S. Employer Identification No.)

420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 1-866-249-3302

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ		Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


	Shares Outstanding
	April 29, 2011
Common stock, $1-2/3 par value		5,289,099,076

FORM 10-Q
CROSS-REFERENCE INDEX


PART I	Financial Information
Item 1.	Financial Statements	Page
	Consolidated Statement of Income		49
	Consolidated Balance Sheet		50
	Consolidated Statement of Changes in Equity and Comprehensive Income		51
	Consolidated Statement of Cash Flows		53
	Notes to Financial Statements
	1 - Summary of Significant Accounting Policies		54
	2 - Business Combinations		55
	3 - Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments		55
	4 - Securities Available for Sale		56
	5 - Loans and Allowance for Credit Losses		65
	6 - Other Assets		81
	7 - Securitizations and Variable Interest Entities		82
	8 - Mortgage Banking Activities		93
	9 - Intangible Assets		96
	10 - Guarantees, Pledged Assets and Collateral		97
	11 - Legal Actions		99
	12 - Derivatives		100
	13 - Fair Values of Assets and Liabilities		107
	14 - Preferred Stock		120
	15 - Employee Benefits		123
	16 - Earnings Per Common Share		124
	17 - Operating Segments		125
	18 - Condensed Consolidating Financial Statements		127
	19 - Regulatory and Agency Capital Requirements		130

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data		1
	Overview		2
	Earnings Performance		4
	Balance Sheet Analysis		9
	Off-Balance Sheet Arrangements		12
	Risk Management		13
	Capital Management		42
	Critical Accounting Policies		44
	Current Accounting Developments		45
	Forward-Looking Statements		46
	Risk Factors		47
	Glossary of Acronyms		131

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		38

Item 4.	Controls and Procedures		48

PART II	Other Information
Item 1.	Legal Proceedings		132

Item 1A.	Risk Factors		132

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		132

Item 6.	Exhibits		133

Signature			133

Exhibit Index			134
EX-3.A
EX-10.C
EX-10.D
EX-12.A
EX-12.B
EX-31.A
EX-31.B
EX-32.A
EX-32.B
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW

Summary Financial Data


										% Change
	Quarter ended									Mar. 31, 2011 from

	Mar. 31		,	Dec. 31		,	Mar. 31		,	Dec. 31		,		Mar. 31		,
($ in millions, except per share amounts)	2011			2010			2010			2010				2010


For the Period
Wells Fargo net income	$	3,759			3,414			2,547			10		%		48
Wells Fargo net income applicable to common stock		3,570			3,232			2,372			10				51
Diluted earnings per common share		0.67			0.61			0.45			10				49
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)		1.23	%		1.09			0.84			13				46
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders’ equity (ROE)		11.98			10.95			8.96			9				34
Efficiency ratio (1)		62.6			62.1			56.5			1				11
Total revenue	$	20,329			21,494			21,448			(5	)			(5	)
Pre-tax pre-provision profit (PTPP) (2)		7,596			8,154			9,331			(7	)			(19	)
Dividends declared per common share		0.12			0.05			0.05			140				140
Average common shares outstanding		5,278.8			5,256.2			5,190.4			-				2
Diluted average common shares outstanding		5,333.1			5,293.8			5,225.2			1				2
Average loans	$	754,077			753,675			797,389			-				(5	)
Average assets		1,241,176			1,237,037			1,226,120			-				1
Average core deposits (3)		796,826			794,799			759,169			-				5
Average retail core deposits (4)		584,100			573,843			573,653			2				2
Net interest margin		4.05	%		4.16			4.27			(3	)			(5	)
At Period End
Securities available for sale	$	167,906			172,654			162,487			(3	)			3
Loans		751,155			757,267			781,430			(1	)			(4	)
Allowance for loan losses		21,983			23,022			25,123			(5	)			(12	)
Goodwill		24,777			24,770			24,819			-				-
Assets		1,244,666			1,258,128			1,223,630			(1	)			2
Core deposits (3)		795,038			798,192			756,050			-				5
Wells Fargo stockholders’ equity		133,471			126,408			116,142			6				15
Total equity		134,943			127,889			118,154			6				14
Tier 1 capital (5)		110,761			109,353			98,329			1				13
Total capital (5)		147,311			147,142			137,600			-				7
Capital ratios:
Total equity to assets		10.84	%		10.16			9.66			7				12
Risk-based capital (5):
Tier 1 capital		11.50			11.16			9.93			3				16
Total capital		15.30			15.01			13.90			2				10
Tier 1 leverage (5)		9.27			9.19			8.34			1				11
Tier 1 common equity (6)		8.93			8.30			7.09			8				26
Book value per common share	$	23.18			22.49			20.76			3				12
Team members (active, full-time equivalent)		270,200			272,200			267,400			(1	)			1
Common stock price:
High	$	34.25			31.61			31.99			8				7
Low		29.82			23.37			26.37			28				13
Period end		31.71			30.99			31.12			2				2


(1)		The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).

(2)		Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.

(3)		Core deposits are noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits (Eurodollar sweep balances).

(4)		Retail core deposits are total core deposits excluding Wholesale Banking core deposits and retail mortgage escrow deposits.

(5)		See Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.

(6)		See the “Capital Management” section in this Report for additional information.

This Report on Form 10-Q for the quarter ended March 31, 2011, including the Financial Review and the Financial Statements and related Notes, contains 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 may differ materially from our forward-looking statements 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 “Forward-Looking Statements” section in this Report and to the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2010 (2010 Form 10-K), filed with the Securities and Exchange Commission (SEC) and available on the SEC’s website at www.sec.gov.

See the Glossary of Acronyms at the end of this Report for terms used throughout this Report.

Financial Review

Overview

Wells Fargo & Company is a $1.2 trillion diversified financial services company providing banking, insurance, trust and investments, mortgage banking, investment banking, retail banking, brokerage and consumer finance through banking stores, the internet and other distribution channels to individuals, businesses and institutions in all 50 states, the District of Columbia (D.C.) and in other countries. We ranked fourth in assets and second in the market value of our common stock among our large bank peers at March 31, 2011. When we refer to “Wells Fargo,” “the Company,” “we,” “our” or “us” in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the “Parent,” we mean Wells Fargo & Company. When we refer to “legacy Wells Fargo,” we mean Wells Fargo excluding Wachovia Corporation (Wachovia).

Our Vision and Strategy

Our vision is to satisfy all our customers’ financial needs, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. Our primary strategy to achieve this vision is to increase the number of products our customers buy from us and to offer them all of the financial products that fulfill their needs. Our cross-sell strategy, diversified business model and the breadth of our geographic reach facilitate growth in both strong and weak economic cycles, as we can grow by expanding the number of products our current customers have with us, gain new customers in our extended markets, and increase market share in many businesses.

Our combined company retail bank household cross-sell was 5.79 products per household in first quarter 2011, up from 5.60 a year ago. We believe there is more opportunity for cross-sell as we continue to earn more business from our Wachovia customers. Our goal is eight products per customer, which is approximately half of our estimate of potential demand for an average U.S. household. One of every four of our retail banking households has eight or more products. Business banking cross-sell offers another potential opportunity for growth, with cross-sell of 4.09 products in our Western footprint (including legacy Wells Fargo and converted Wachovia customers), up from 4.04 in fourth quarter 2010.

Our pursuit of growth and earnings performance is influenced by our belief that it is important to maintain a well controlled operating environment as we complete the integration of the Wachovia businesses and grow the combined company. We manage our credit risk by establishing what we believe are sound credit policies for underwriting new business, while monitoring and reviewing the performance of our loan portfolio. We manage the interest rate and market risks inherent in our asset and liability balances within established ranges, while ensuring adequate liquidity and funding. We maintain strong capital levels to facilitate future growth.

Financial Performance

Wells Fargo net income was a record $3.8 billion in first quarter 2011, up 48% from a year ago, and diluted earnings per common share were $0.67, up 49%. Our results included contributions from each of our three business segments: Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement. In first quarter 2011, credit quality improved, capital ratios increased and cross-selling reached new highs. Reflecting the significant improvement in our credit portfolios, the provision for credit losses was $1.0 billion less than net charge-offs for first quarter 2011. Revenue was down 5% from a year ago, reflecting a decline in mortgage banking income and lower service charges on deposits due to regulatory changes, as well as a decline in average loans as we continued to reduce our non-strategic and liquidating loan portfolios. Noninterest expense was up 5% primarily due to higher commission and incentive compensation.

Our average core deposits grew 5% from a year ago to $796.8 billion at March 31, 2011. Average core deposits were 106% of total average loans in first quarter 2011, up from 95% a year ago. We continued to attract high quality core deposits in the form of checking and savings deposits, which grew 9% to $722.5 billion at March 31, 2011, from $664.4 billion a year ago, as we added new customers and deepened our relationships with existing customers.

Wells Fargo remained one of the largest providers of credit to the U.S. economy. We continued to lend to creditworthy customers and made $151 billion in new loan commitments to consumer, small business and commercial customers, including

Overview (continued)

$84 billion of residential mortgage originations in first quarter 2011, up from a total of $128 billion a year ago. We are an industry leader in loan modifications for homeowners. As of March 31, 2011, approximately 665,000 Wells Fargo mortgage customers were in active trial or had completed loan modifications since the beginning of 2009.

Credit Quality

We experienced significant improvement in our credit portfolio with lower net charge-offs, lower nonperforming assets and improved delinquency trends. The improvement in our credit portfolio was due in part to the continued decline in our non-strategic and liquidating loan portfolios (primarily from the Wachovia acquisition), which decreased $6.5 billion in first quarter 2011, and $65.0 billion in total since the Wachovia acquisition, to $126.8 billion at March 31, 2011.

Reflecting the improved performance in our loan portfolios, the provision for credit losses was $1.0 billion less than net charge-offs for first quarter 2011. Absent significant deterioration in the economy, we expect future reductions in the allowance for credit losses. First quarter 2011 marked the fifth consecutive quarter of declining loan losses and the second consecutive quarter of reduced nonperforming assets. Net charge-offs decreased significantly to $3.2 billion in first quarter 2011 from $3.8 billion in fourth quarter 2010, and $5.3 billion a year ago. Nonperforming assets decreased to $30.6 billion at March 31, 2011, from $32.4 billion at December 31, 2010, and $31.5 billion a year ago. Loans 90 days or more past due and still accruing (excluding government insured/guaranteed loans) decreased to $2.4 billion at March 31, 2011, from $2.6 billion at December 31, 2010, and $4.9 billion a year ago. In addition, the portfolio of purchased credit-impaired (PCI) loans acquired in the Wachovia merger has performed better than originally expected.

Capital

We continued to build capital in first quarter 2011, with total shareholders’ equity up $7.1 billion from year-end 2010. In first quarter 2011, our Tier 1 common equity ratio grew more than 60 basis points to 8.93% of risk-weighted assets under Basel I, reflecting strong internal capital generation. Under our interpretation of current Basel III capital proposals, we estimate that our Tier 1 common equity ratio grew to 7.2% in first quarter 2011. Our other regulatory capital ratios also continued to grow with the Tier 1 capital ratio reaching 11.50% and Tier 1 leverage ratio reaching 9.27% at March 31, 2011. See the “Capital Management” section in this Report for more information regarding our capital, including Tier 1 common equity.

We took several capital actions in first quarter 2011. Reflecting our strong capital position, we returned more capital to shareholders in first quarter 2011, with an increase in our quarterly common stock dividend to $0.12 per share. We also increased our share repurchase authority by 200 million shares. In addition, we issued notice to call $3.2 billion of high-cost trust preferred securities and expect to call additional trust preferred securities.

Wachovia Merger Integration

On December 31, 2008, Wells Fargo acquired Wachovia, one of the nation’s largest diversified financial services companies. At the beginning of our third year of the Wachovia integration, our progress to date is on track and on schedule, and business and revenue synergies have exceeded our expectations at the time the merger was announced. First quarter 2011 marked further milestones in our integration of legacy Wells Fargo and Wachovia: we completed our conversion to one common retail brokerage platform and we converted retail banking stores in several eastern states, including Connecticut, Delaware, New Jersey, and New York. With our April conversion of the Pennsylvania retail banking stores, 74% of our banking customers are now on a single deposit system. The Wachovia merger has already proven to be a financial success, with substantially all of the originally expected savings already realized and growing revenue synergies reflecting market share gains in many businesses, including mortgage, auto dealer services and investment banking.

As a result of PCI accounting for loans acquired in the Wachovia merger, ratios of the Company, including the growth rate in nonperforming assets (NPAs) since December 31, 2008, may not be directly comparable with periods prior to the merger or with credit-related ratios of other financial institutions. In particular:

•		Wachovia’s high risk loans were written down pursuant to PCI accounting at the time of merger. Therefore, the allowance for credit losses is lower than otherwise would have been required without PCI loan accounting; and

•		Because we virtually eliminated Wachovia’s nonaccrual loans at December 31, 2008, the quarterly growth rate in our nonaccrual loans following the merger was higher than it would have been without PCI loan accounting. Similarly, our net charge-offs rate was lower than it otherwise would have been.

Market and Industry Developments

The Board of Governors of the Federal Reserve System (FRB) and the Office of the Comptroller of the Currency (OCC) recently issued consent orders that will require us to promptly correct deficiencies in our residential mortgage loan servicing and foreclosure practices that were identified by federal banking regulators in their review conducted in fourth quarter 2010. The consent orders also require that we improve our servicing and foreclosure practices. We are committed to compliance with the consent orders and support the development of national servicing standards that will provide greater clarity for servicers, investors and customers. We continue to be committed to modifying mortgages for at-risk customers. We have been working with our regulators for an extended period to improve our processes and have already begun making some of the operational changes that will result from the expanded servicing responsibilities outlined in the consent orders.

In 2009, the FRB announced regulatory changes to debit card and ATM overdraft practices, which have reduced our service charges on deposit accounts. The Dodd-Frank Act, among other things, authorizes the FRB to issue regulations

governing debit card interchange fees, which are expected to be implemented in 2011. We continue to refine our estimate of the potential impact on our income of these regulations, if implemented in 2011. Based on the current FRB proposals, we

currently expect that our quarterly income would be reduced by approximately $325 million (after tax), before the impact of any offsetting actions.

Earnings Performance

Net income for first quarter 2011 was $3.8 billion ($0.67 diluted per share) with $3.6 billion applicable to common stock, compared with net income of $2.5 billion ($0.45 diluted per share) with $2.4 billion applicable to common stock for first quarter 2010. Our first quarter 2011 earnings reflected the benefit of continued improvements in credit quality, partially offset by a decrease in total loans and elevated balances of lower yielding earning assets.

Revenue, the sum of net interest income and noninterest income, was $20.3 billion in first quarter 2011 compared with $21.4 billion in first quarter 2010. The decline in revenue was predominantly due to lower net interest income and lower mortgage banking revenue. However, many businesses generated year over year revenue growth, including corporate banking, commercial mortgage servicing, fixed income and equity sales and trading, global remittance, real estate capital markets, retail brokerage, auto dealer services and wealth management. Net interest income of $10.7 billion in first quarter 2011 declined 4% from a year ago compared with a 5% decline in average loans. The decline in average loans reflected continued reductions in the non-strategic/liquidating portfolios and soft consumer loan demand.

Noninterest expense was $12.7 billion (63% of revenue) in first quarter 2011, compared with $12.1 billion (56% of revenue) a year ago. First quarter 2011 included $440 million of merger integration costs (up from $380 million a year ago), $472 million of operating losses (up from $208 million a year ago) substantially all from additional litigation accruals for foreclosure-related matters, and higher incentive compensation expenses caused by sales increases in commission-based business units as well as other earnings-based incentives. Certain expenses remained elevated year over year, including loan resolution costs and merger costs. As we conclude the integration process, and as the economy continues to recover, we expect these expenses to decline.

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, short-term borrowings and long-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 in Table 1 to consistently reflect income from taxable and tax-exempt loans and securities based on a 35% federal statutory tax rate.

Net interest income on a taxable-equivalent basis was $10.8 billion in first quarter 2011, compared with $11.3 billion a year ago. The net interest margin was 4.05% in first quarter 2011,

down 22 basis points from 4.27% in first quarter 2010. Net interest margin was compressed relative to first quarter 2010 as lower-yielding cash and short-term investments increased as loan balances declined. The impact of these factors was somewhat mitigated by continued disciplined deposit pricing and reduced long-term debt.

The mix of earning assets and their yields are important drivers of net interest income. Soft consumer loan demand and the impact of liquidating certain loan portfolios reduced average loans in first quarter 2011 to 70% of average earning assets from 74% in first quarter 2010. Average short-term investments and trading account assets increased to 11% of earning assets in first quarter 2011, up from 6% of earning assets in first quarter 2010.

Core deposits are a low-cost source of funding and thus an important contributor to both net interest income and the net interest margin. Core deposits include noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits (Eurodollar sweep balances). Average core deposits rose to $796.8 billion in first quarter 2011 from $759.2 billion in first quarter 2010 and funded 106% and 95% of average loans, respectively. Average core deposits increased to 74% of average earning assets in first quarter 2011, up from 71% a year ago, yet the cost of these deposits declined significantly as the mix shifted from higher cost certificates of deposit to checking and savings products, which were also at lower yields relative to first quarter 2010. About 90% of our core deposits are now in checking and savings deposits, one of the highest percentages in the industry.

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


	Quarter ended March 31,

	2011								2010

							Interest								Interest
	Average			Yields/			income/		Average			Yields/			income/
(in millions)	balance			rates			expense		balance			rates			expense


Earning assets
Federal funds sold, securities purchased under resale agreements and other short-term investments	$	83,386			0.35	%	$	72		40,833			0.33	%	$	33
Trading assets		37,403			3.81			356		27,911			3.91			272
Debt securities available for sale (3):
Securities of U.S. Treasury and federal agencies		1,575			2.87			11		2,278			3.62			20
Securities of U.S. states and political subdivisions		19,570			5.45			270		13,696			6.60			221
Mortgage-backed securities:
Federal agencies		73,466			4.72			832		79,730			5.39			1,023
Residential and commercial		32,934			9.68			732		32,768			9.67			790


Total mortgage-backed securities		106,400			6.21			1,564		112,498			6.67			1,813
Other debt securities (4)		35,920			5.55			465		32,346			6.51			492


Total debt securities available for sale (4)		163,465			5.94			2,310		160,818			6.59			2,546
Mortgages held for sale (5)		38,742			4.51			437		31,368			4.93			387
Loans held for sale (5)		975			4.88			12		6,406			2.15			34
Loans:
Commercial:
Commercial and industrial		150,047			4.65			1,723		156,466			4.51			1,743
Real estate mortgage		99,797			3.92			967		97,967			3.68			889
Real estate construction		24,281			4.26			255		35,852			3.07			272
Lease financing		13,020			7.83			255		14,008			9.22			323
Foreign		33,638			2.83			235		28,561			3.62			256


Total commercial		320,783			4.33			3,435		332,854			4.23			3,483


Consumer:
Real estate 1-4 family first mortgage		229,570			5.01			2,867		245,024			5.26			3,210
Real estate 1-4 family junior lien mortgage		94,708			4.35			1,018		105,640			4.47			1,168
Credit card		21,509			13.18			709		23,345			13.15			767
Other revolving credit and installment		87,507			6.36			1,371		90,526			6.40			1,427


Total consumer		433,294			5.54			5,965		464,535			5.70			6,572


Total loans (5)		754,077			5.03			9,400		797,389			5.09			10,055
Other		5,228			3.90			50		6,069			3.36			50


Total earning assets	$	1,083,276			4.73	%	$	12,637		1,070,794			5.06	%	$	13,377


Funding sources
Deposits:
Interest-bearing checking	$	58,503			0.10	%	$	14		62,021			0.15	%	$	23
Market rate and other savings		443,586			0.22			237		403,945			0.29			286
Savings certificates		74,371			1.39			255		94,763			1.36			317
Other time deposits		13,850			2.24			76		15,878			2.03			80
Deposits in foreign offices		57,473			0.23			33		55,434			0.21			29


Total interest-bearing deposits		647,783			0.38			615		632,041			0.47			735
Short-term borrowings		54,751			0.22			30		45,081			0.18			19
Long-term debt		150,144			2.95			1,104		209,008			2.45			1,276
Other liabilities		9,472			3.24			76		5,664			3.43			49


Total interest-bearing liabilities		862,150			0.85			1,825		891,794			0.94			2,079
Portion of noninterest-bearing funding sources		221,126			-			-		179,000			-			-


Total funding sources	$	1,083,276			0.68			1,825		1,070,794			0.79			2,079


Net interest margin and net interest income on a taxable-equivalent basis (6)					4.05	%	$	10,812					4.27	%	$	11,298

Noninterest-earning assets
Cash and due from banks	$	17,360								18,049
Goodwill		24,775								24,816
Other		115,765								112,461


Total noninterest-earning assets	$	157,900								155,326


Noninterest-bearing funding sources
Deposits	$	193,100								172,039
Other liabilities		55,316								44,739
Total equity		130,610								117,548
Noninterest-bearing funding sources used to fund earning assets		(221,126	)							(179,000	)


Net noninterest-bearing funding sources	$	157,900								155,326


Total assets	$	1,241,176								1,226,120


(1)		Our average prime rate was 3.25% for the quarters ended March 31, 2011 and 2010. The average three-month London Interbank Offered Rate (LIBOR) was 0.31% and 0.26% for the same quarters, respectively.

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

(3)		Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts include the effects of any unrealized gain or loss marks but those marks carried in other comprehensive income are not included in yield determination of affected earning assets. Thus 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 of $161 million and $151 million for March 31, 2011 and 2010, respectively, primarily related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 35% for the periods presented.

Noninterest Income


Table 2: Noninterest Income

	Quarter ended March 31,					%

(in millions)	2011			2010		Change


Service charges on deposit accounts	$	1,012			1,332		(24	)	%
Trust and investment fees:
Trust, investment and IRA fees		1,060			1,049		1
Commissions and all other fees		1,856			1,620		15


Total trust and investment fees		2,916			2,669		9


Card fees		957			865		11
Other fees:
Cash network fees		81			55		47
Charges and fees on loans		397			419		(5	)
Processing and all other fees		511			467		9


Total other fees		989			941		5


Mortgage banking:
Servicing income, net		866			1,366		(37	)
Net gains on mortgage loan origination/sales activities		1,150			1,104		4


Total mortgage banking		2,016			2,470		(18	)


Insurance		503			621		(19	)
Net gains from trading activities		612			537		14
Net gains (losses) on debt securities available for sale		(166	)		28	NM
Net gains from equity investments		353			43		721
Operating leases		77			185		(58	)
All other		409			610		(33	)


Total	$	9,678			10,301		(6	)

NM - Not meaningful

Noninterest income was $9.7 billion for first quarter 2011, compared with $10.3 billion for first quarter 2010, representing 48% of revenue for both periods. The decrease from March 31, 2010 was due largely to lower mortgage banking net servicing income and lower service charges on deposit accounts.

Our service charges on deposit accounts decreased in first quarter by $320 million from a year ago. This decrease was primarily the result of changes to Regulation E and related overdraft policy changes.

We earn trust, investment and IRA (Individual Retirement Account) fees from managing and administering assets, including mutual funds, corporate trust, personal trust, employee benefit trust and agency assets. At March 31, 2011, these assets totaled $2.2 trillion, up 10% from $2.0 trillion at March 31, 2010. Trust, investment and IRA fees are largely based on a tiered scale relative to the market value of the assets under management or administration. These fees were $1.1 billion in first quarter 2011, up 1% from a year ago.

We receive commissions and other fees for providing services to full-service and discount brokerage customers as well as from investment banking activities including equity and bond underwriting. These fees increased to $1.9 billion in first quarter 2011 from $1.6 billion a year ago. These fees include transactional commissions, which are based on the number of

transactions executed at the customer’s direction, and asset-based fees, which are based on the market value of the customer’s assets. Brokerage client assets totaled $1.2 trillion at March 31, 2011, up from $1.1 trillion a year ago.

Card fees increased to $957 million in first quarter 2011, from $865 million a year ago, mainly due to growth in purchase volume and new accounts growth driven by improvements in the economy.

Mortgage banking noninterest income consists of net servicing income and net gains on loan origination/sales activities and totaled $2.0 billion in first quarter 2011, compared with $2.5 billion a year ago. The reduction year over year in mortgage banking noninterest income was primarily driven by a decline in net servicing income.

Net servicing income includes both changes in the fair value of mortgage servicing rights (MSRs) during the period as well as changes in the value of derivatives (economic hedges) used to hedge the MSRs. Net servicing income for first quarter 2011 included a $379 million net MSR valuation gain that was recorded to earnings ($499 million increase in the fair value of the MSRs offset by a $120 million hedge loss) and for first quarter 2010 included a $989 million net MSR valuation gain ($777 million decrease in the fair value of MSRs offset by a $1.8 billion hedge gain). The valuation of our MSRs at the end of first quarter 2011 reflected our assessment of changes in servicing and foreclosure costs, including the estimated impact from regulatory consent orders. See the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section and Note 11 (Legal Actions) to Financial Statements in this Report for information on the regulatory consent orders. The $610 million decline in net MSR valuation gain results for first quarter 2011 compared with first quarter 2010 was primarily due to a decline in hedge carry income. See the “Risk Management – Mortgage Banking Interest Rate and Market Risk” section of this Report for a detailed discussion of our MSRs risks and hedging approach. Our portfolio of loans serviced for others was $1.86 trillion at March 31, 2011, and $1.84 trillion at December 31, 2010. At March 31, 2011, the ratio of MSRs to related loans serviced for others was 0.92%, compared with 0.86% at December 31, 2010.

Income from loan origination/sale activities was $1.2 billion in first quarter 2011 compared with $1.1 billion a year ago. The slight increase in first quarter 2011 was driven by lower provision for loan repurchase losses and higher loan origination volume, offset by lower margins on loan originations.

Net gains on mortgage loan origination/sales activities include the cost of any additions to the mortgage repurchase liability. Mortgage loans are repurchased from third parties based on standard representations and warranties and early payment default clauses in mortgage sale contracts. Additions to the mortgage repurchase liability that were charged against net gains on mortgage loan origination/sales activities during first quarter 2011 totaled $249 million (compared with $402 million for first quarter 2010), of which $214 million ($358 million for first quarter 2010) was for subsequent increases in estimated losses on prior year’s loan sales because of the current economic environment. For additional information about mortgage loan

repurchases, see the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” section in this Report.

Residential real estate originations were $84 billion in first quarter 2011 compared with $76 billion a year ago and mortgage applications were $102 billion in first quarter 2011 compared with $125 billion a year ago. The 1-4 family first mortgage unclosed pipeline was $45 billion at March 31, 2011, and $59 billion at March 31, 2010. For additional detail, see the “Risk Management – Mortgage Banking Interest Rate and Market Risk” section and Note 8 (Mortgage Banking Activities) and Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.

Net gains on debt and equity securities totaled $187 million for first quarter 2011 and $71 million for first quarter 2010, after other-than-temporary impairment (OTTI) write-downs of $121 million for first quarter 2011 and $197 million a year ago.

Noninterest Expense


Table 3: Noninterest Expense

	Quarter ended Mar. 31,				%

(in millions)	2011		2010		Change


Salaries	$	3,454		3,314		4		%
Commission and incentive compensation		2,347		1,992		18
Employee benefits		1,392		1,322		5
Equipment		632		678		(7	)
Net occupancy		752		796		(6	)
Core deposit and other intangibles		483		549		(12	)
FDIC and other deposit assessments		305		301		1
Outside professional services		580		484		20
Contract services		369		347		6
Foreclosed assets		408		386		6
Operating losses		472		208		127
Outside data processing		220		272		(19	)
Postage, stationery and supplies		235		242		(3	)
Travel and entertainment		206		171		20
Advertising and promotion		116		112		4
Telecommunications		134		143		(6	)
Insurance		133		148		(10	)
Operating leases		24		37		(35	)
All other		471		615		(23	)


Total	$	12,733		12,117		5

Noninterest expense was $12.7 billion in first quarter 2011, up 5% from $12.1 billion in first quarter 2010, mostly due to performance-based compensation in brokerage and mortgage, as well as higher operating losses. Commission and incentive compensation expense increased proportionately more than salaries due to higher revenues generated by businesses with revenue-based compensation including the brokerage and mortgage businesses. Volume-related mortgage personnel expense reductions initiated in first quarter 2011 were not fully realized in the first quarter as team member displacement notification periods can lag volume declines. Operating losses of $472 million were substantially all from litigation accruals for foreclosure-related matters.

Merger integration costs totaled $440 million and $380 million in first quarter 2011 and 2010, respectively. Integration expense drove the majority of the increase in outside professional services. First quarter 2011 marked further milestones in our integration of legacy Wells Fargo and Wachovia: we completed our conversion to one common retail brokerage platform and we converted retail banking stores in several eastern states, including Connecticut, Delaware, New Jersey, and New York. With our April conversion of the Pennsylvania retail banking stores, 74% of our banking customers are now on a single deposit system.

Income Tax Expense

Our effective tax rate was 29.5% for first quarter 2011, which included the benefit associated with the realization for tax purposes of a previously written-down investment. Our current estimate of the effective tax rate for the full year 2011 is 32%.

Operating Segment Results

We define our operating segments by product and customer. In fourth quarter 2010, we aligned certain lending businesses into Wholesale Banking from Community Banking to reflect our previously announced restructuring of Wells Fargo Financial. In first quarter 2011, we realigned a private equity business into Wholesale Banking from Community Banking. Prior periods

have been revised to reflect these changes. Table 4 and the following discussion present our results by operating segment. For a more complete description of our operating segments, including additional financial information and the underlying management accounting process, see Note 17 (Operating Segments) to Financial Statements in this Report.

Table 4: Operating Segment Results – Highlights

Wealth, Brokerage

Community Banking

Wholesale Banking

and Retirement

(in billions)

2011

2010

2011

2010

2011

2010

Quarter ended March 31,

Revenue

12.6

14.0

5.5

5.4

3.2

2.9

Net income

2.2

1.4

1.7

1.2

0.3

0.3

Average loans

509.8

550.4

234.7

237.0

42.7

43.8

Average core deposits

548.1

531.5

184.8

161.6

125.4

121.1

Community Banking offers a complete line of diversified financial products and services for consumers and small businesses including investment, insurance and trust services in 39 states and D.C., and mortgage and home equity loans in all 50 states and D.C. through its Regional Banking and Wells Fargo Home Mortgage business units.

Community Banking reported net income of $2.2 billion and revenue of $12.6 billion in first quarter 2011. Revenue declined $1.4 billion from first quarter 2010 driven primarily by a decrease in mortgage banking income due to a decrease in servicing income, lower deposit service charges due to Regulation E and related overdraft policy changes, and lower net interest income from the planned reduction in certain liquidating loan portfolios. Average core deposits increased $16.6 billion, or 3%, as growth in liquid deposits more than offset planned certificates of deposit run-off. We generated strong growth in the number of consumer and business checking accounts (up 7.4% and 5.3%, respectively, from March 31, 2010). Noninterest expense increased from first quarter 2010 due primarily to higher operating losses due to litigation-related accruals and volume driven mortgage-related expenses. The provision for credit losses decreased $2.5 billion from first quarter 2010 and credit quality indicators in most of our consumer and business loan portfolios generally continued to improve. Net credit losses declined in almost all portfolios and we released $850 million in reserves in first quarter 2011, compared with no reserve release a year ago.

Wholesale Banking provides financial solutions across the U.S. and globally to middle market and large corporate customers with annual revenue generally in excess of $20 million. Products and businesses include commercial banking, investment banking and capital markets, securities investment, government and institutional banking, corporate banking, commercial real estate, treasury management, capital finance, international, insurance, real estate capital markets, commercial mortgage servicing, corporate trust, equipment finance, asset backed finance, and asset management.

Wholesale Banking reported net income of $1.7 billion, up $415 million, or 34%, from first quarter 2010. Revenue increased $37 million, or 1%, from the prior year, driven by growth in net interest income due to stronger earning assets, solid deposit growth and higher loan portfolio yields. Noninterest income declined $164 million, or 6%, from prior year as growth in investment banking and capital markets, corporate banking, foreign exchange and real estate capital markets was more than offset by reduced levels of PCI portfolio recoveries, crop insurance gains and trading portfolio income. Noninterest expense increased $115 million, or 4%, from prior year related to higher personnel expenses. Total provision for credit losses of $134 million declined $676 million, or 83%, from first quarter 2010. The decrease included a $150 million allowance release along with a $526 million improvement in credit losses, compared with no allowance release a year ago.

Wealth, Brokerage and Retirement provides a full range of financial advisory services to clients using a planning approach to meet each client’s needs. Wealth Management provides affluent and high net worth clients with a complete range of wealth management solutions including financial planning, private banking, credit, investment management and trust. Family Wealth meets the unique needs of the ultra high net worth customers. Brokerage serves customers’ advisory, brokerage and financial needs as part of one of the largest full-service brokerage firms in the United States. Retirement is a national leader in providing institutional retirement and trust services (including 401(k) and pension plan record keeping) for businesses, retail retirement solutions for individuals, and reinsurance services for the life insurance industry.

Wealth, Brokerage and Retirement earned net income of $339 million in first quarter 2011. Revenue of $3.2 billion included a mix of brokerage commissions, asset-based fees and net interest income. Net interest income was up $32 million compared with first quarter 2010 as higher investment income was driven by solid deposits growth. Noninterest income was up $208 million, or 9%, as higher asset-based fees were partially

offset by lower brokerage transaction revenue and miscellaneous fees. Noninterest expense was up $169 million, or 7%, from first

quarter 2010, primarily due to increased broker commissions from increased production levels.

Balance Sheet Analysis

During first quarter 2011, our total assets, loans and core deposits each declined slightly from December 31, 2010, but the strength of our business model produced record earnings and high rates of internal capital generation as reflected in our improved capital ratios. Tier 1 capital increased to 11.50% as a percentage of total risk-weighted assets, total capital to 15.30%, Tier 1 leverage to 9.27% and Tier 1 common equity to 8.93% at March 31, 2011, up from 11.16%, 15.01%, 9.19% and 8.30%, respectively, at December 31, 2010. At March 31, 2011, core

deposits funded 106% of the loan portfolio, and we have significant capacity to add loans and higher yielding long-term MBS to generate future revenue and earnings growth.

The following discussion provides additional information about the major components of our balance sheet. Information about changes in our asset mix and about our capital is included in the “Earnings Performance – Net Interest Income” and “Capital Management” sections of this Report.

Securities Available for Sale

Table 5: Securities Available for Sale – Summary

March 31, 2011

December 31, 2010

Net

Net

unrealized

Fair

unrealized

Fair

(in millions)

Cost

gain

value

Cost

gain

value

Debt securities available for sale

155,147

7,751

162,898

160,071

7,394

167,465

Marketable equity securities

3,883

1,125

5,008

4,258

931

5,189

Total securities available for sale

159,030

8,876

167,906

164,329

8,325

172,654

Table 5 presents a summary of our securities available-for-sale portfolio. Securities available for sale consist of both debt and marketable equity securities. We hold debt securities available for sale primarily for liquidity, interest rate risk management and long-term yield enhancement. Accordingly, this portfolio consists primarily of very liquid, high quality federal agency debt and privately issued MBS. The total net unrealized gains on securities available for sale were $8.9 billion at March 31, 2011, up from net unrealized gains of $8.3 billion at December 31, 2010, primarily due to narrowing of credit spreads.

We analyze securities for OTTI quarterly or more often if a potential loss-triggering event occurs. Of the $121 million OTTI write-downs in first quarter 2011, $80 million related to debt securities. There were no OTTI write-downs for marketable equity securities and there were $41 million in OTTI write-downs related to nonmarketable equity securities. For a discussion of our OTTI accounting policies and underlying considerations and analysis see Note 1 (Summary of Significant Accounting Policies – Securities) in our 2010 Form 10-K and Note 4 (Securities Available for Sale) to Financial Statements in this Report.

At March 31, 2011, debt securities available for sale included $21 billion of municipal bonds, of which 84% were rated “A-” or better, based on external, and in some cases internal, ratings. Additionally, some of these bonds are guaranteed against loss by bond insurers. These bonds are predominantly investment grade and were generally underwritten in accordance with our own investment standards prior to the determination to

purchase, without relying on the bond insurer’s guarantee in making the investment decision. These municipal bonds will continue to be monitored as part of our ongoing impairment analysis of our securities available for sale.

The weighted-average expected maturity of debt securities available for sale was 6.5 years at March 31, 2011. Because 66% of this portfolio is MBS, the expected remaining maturity may differ from contractual maturity because borrowers generally 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 MBS available for sale are shown in Table 6.

Table 6: Mortgage-Backed Securities



						Expected

			Net			remaining

	Fair		unrealized			maturity

(in billions)	value		gain (loss)			(in years)


At March 31, 2011	$	108.3		5.9			5.0

At March 31, 2011, assuming a 200 basis point:

Increase in interest rates		97.2		(5.2	)		6.4

Decrease in interest rates		115.6		13.2			3.6

See Note 4 (Securities Available for Sale) to Financial Statements in this Report for securities available for sale by security type.

Balance Sheet Analysis (continued)

Loan Portfolio

Table 7: Loan Portfolios


	Mar. 31,		Dec. 31,

(in millions)	2011		2010


Commercial	$	323,222		322,058

Consumer		427,933		435,209


Total loans	$	751,155		757,267

A discussion of average loan balances and a comparative detail of average loan balances is included in Table 1 under “Earnings Performance – Net Interest Income” earlier in this Report. Year-end balances and other loan related information

are in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Deposits

Deposits totaled $837.7 billion at March 31, 2011, compared with $847.9 billion at December 31, 2010. Table 8 provides additional detail regarding deposits. Comparative detail of average deposit balances is provided in Table 1 under “Earnings Performance – Net Interest Income” earlier in this Report. Total core deposits were $795.0 billion at March 31, 2011, down $3.2 billion from $798.2 billion at December 31, 2010.

Table 8: Deposits


				% of						% of

	March 31		,	total			December 31		,	total			%

(in millions)	2011			deposits			2010			deposits			Change


Noninterest-bearing	$	190,935			23	%	$	191,231			23	%		—

Interest-bearing checking		55,632			6			63,440			7			(12	)

Market rate and other savings		441,383			53			431,883			51			2

Savings certificates		73,063			9			77,292			9			(5	)

Foreign deposits (1)		34,025			4			34,346			4			(1	)


Core deposits		795,038			95			798,192			94			—
Other time and savings deposits		19,288			2			19,412			2			(1	)

Other foreign deposits		23,336			3			30,338			4			(23	)


Total deposits	$	837,662			100	%	$	847,942			100	%		(1	)


(1)		Reflects Eurodollar sweep balances included in core deposits.

Fair Valuation of Financial Instruments

We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. See our 2010 Form 10-K for a description of our critical accounting policy related to fair valuation of financial instruments.

We may use independent pricing services and brokers to obtain fair values based on quoted prices. We determine the most appropriate and relevant pricing service for each security class and generally obtain one quoted price for each security. For certain securities, we may use internal traders to obtain quoted prices. Quoted prices are subject to our internal price verification procedures. We validate prices received using a variety of methods, including, but not limited to, comparison to pricing services, corroboration of pricing by reference to other independent market data such as secondary broker quotes and relevant benchmark indices, and review of pricing by Company personnel familiar with market liquidity and other market-related conditions.

Table 9 presents the summary of the fair value of financial instruments recorded at fair value on a recurring basis, and the amounts measured using significant Level 3 inputs (before derivative netting adjustments). The fair value of the remaining assets and liabilities were measured using valuation methodologies involving market-based or market-derived information, collectively Level 1 and 2 measurements.

Table 9: Fair Value Level 3 Summary



	March 31, 2011					December 31, 2010

	Total					Total

($ in billions)	balance			Level 3 (1)		balance		Level 3 (1)


Assets carried at fair value	$	277.1			47.6		293.1		47.9

As a percentage of total assets		22	%		4		23		4

Liabilities carried at fair value	$	24.7			5.7		21.2		6.4

As a percentage of total liabilities		2	%		1		2		1


(1)		Before derivative netting adjustments.

See Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for a complete discussion on our use of fair valuation of financial instruments, our related measurement techniques and the impact to our financial statements.

Off-Balance Sheet Arrangements

In the ordinary course of business, we engage in financial transactions that are not recorded in the balance sheet, or may be recorded in the balance sheet in amounts that are different from 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, and/or (4) optimize capital.

Off-Balance Sheet Transactions with Unconsolidated Entities

We routinely enter into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which are corporations, trusts or partnerships that are established for a limited purpose. Historically, the majority of SPEs were formed in connection with securitization transactions. For more information on securitizations, including sales proceeds and cash flows from securitizations, see Note 7 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.

Risk Management

All financial institutions must manage and control a variety of business risks that can significantly affect their financial performance. Key among those are credit, asset/liability and market risk.

For more information about how we manage these risks, see the “Risk Management” section in our 2010 Form 10-K. The discussion that follows is intended to provide an update on these risks.

Credit Risk Management

Table 10: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable


	Mar. 31		,	Dec. 31		,

(in millions)	2011			2010


Commercial:

Commercial and industrial	$	150,857			151,284

Real estate mortgage		101,084			99,435

Real estate construction		22,868			25,333

Lease financing		12,937			13,094

Foreign (1)		35,476			32,912


Total commercial		323,222			322,058


Consumer:

Real estate 1-4 family first mortgage		226,509			230,235

Real estate 1-4 family junior lien mortgage		93,041			96,149

Credit card		20,996			22,260

Other revolving credit and installment		87,387			86,565


Total consumer		427,933			435,209


Total loans	$	751,155			757,267


(1)		Substantially all of our foreign loan portfolio is commercial loans. Loans are classified as foreign if the borrower’s primary address is outside of the United States.

Our credit risk management process is governed centrally, but provides for decentralized management and accountability by our lines of business. Our overall credit process includes comprehensive credit policies, judgmental or statistical credit underwriting, frequent and detailed risk measurement and modeling, extensive credit training programs, and a continual loan review and audit process. In addition, banking regulatory examiners review and perform detailed tests of our credit underwriting, loan administration and allowance processes.

A key to our credit risk management is adhering to a well controlled underwriting process, which we believe is appropriate for the needs of our customers as well as investors who purchase the loans or securities collateralized by the loans. We approve applications and make loans only if we believe the customer has the ability to repay the loan or line of credit according to all its terms. Our underwriting of loans collateralized by residential real property includes appraisals or automated valuation models (AVMs) to support property values. AVMs are computer-based tools used to estimate the market value of homes. AVMs are a lower-cost alternative to

appraisals and support valuations of large numbers of properties in a short period of time. AVMs estimate property values based on processing large volumes of market data including market comparables and price trends for local market areas. The primary risk associated with the use of AVMs is that the value of an individual property may vary significantly from the average for the market area. We have processes to periodically validate AVMs and specific risk management guidelines addressing the circumstances when AVMs may be used. Generally AVMs are used in underwriting to support property values on loan originations only where the loan amount is under $250,000. For underwriting residential property loans of $250,000 or more, we generally require property visitation appraisals by qualified independent appraisers.

Non-Strategic and Liquidating Portfolios We continually evaluate and modify our credit policies to address appropriate levels of risk. Accordingly, from time to time, we designate certain portfolios and loan products as non-strategic or high risk to limit or cease their continued origination as we actively work to limit losses and reduce our exposures.

Table 11 identifies our non-strategic and liquidating loan portfolios. These portfolios have decreased 34% since the merger with Wachovia at December 31, 2008, and decreased 5% from the end of 2010. They consist primarily of the Pick-a-Pay mortgage portfolio and non Pick-a-Pay PCI loans acquired in our acquisition of Wachovia as well as some portfolios from legacy Wells Fargo home equity and Wells Fargo Financial. Effective first quarter 2011, we added our education finance government guaranteed loan portfolio to the non-strategic and liquidating portfolios as there is no longer a U.S. Government guaranteed student loan program available to private financial institutions pursuant to legislation in 2010.

The legacy Wells Fargo Financial debt consolidation portfolio included $1.2 billion of loans at March 31, 2011, and December 31, 2010, that were considered prime based on secondary market standards. The remainder is non-prime but was originated with standards to reduce credit risk.

Analysis of the Pick-a-Pay and the commercial and industrial and CRE domestic PCI portfolios is presented below in the Significant Credit Concentrations and Portfolios Reviews section.

Risk Management – Credit Risk Management (continued)

Table 11: Non-Strategic and Liquidating Loan Portfolios


	Outstanding balance

	Mar. 31		,	Dec. 31		,	Dec. 31		,	Dec. 31		,
(in millions)	2011			2010			2009			2008


Commercial:
Commercial and industrial, CRE and foreign PCI loans (1)	$	7,507			7,935			12,988			18,704


Total commercial		7,507			7,935			12,988			18,704


Consumer:
Pick-a-Pay mortgage (1)		71,506			74,815			85,238			95,315
Liquidating home equity		6,568			6,904			8,429			10,309
Legacy Wells Fargo Financial indirect auto		4,941			6,002			11,253			18,221
Legacy Wells Fargo Financial debt consolidation		18,344			19,020			22,364			25,299
Education Finance - government guaranteed (2)		16,907			17,510			21,150			20,465
Other PCI loans (1)		1,048			1,118			1,688			2,478


Total consumer		119,314			125,369			150,122			172,087


Total non-strategic and liquidating loan portfolios	$	126,821			133,304			163,110			190,791


(1)		Net of purchase accounting adjustments related to PCI loans.

(2)		Effective first quarter 2011, we included our education finance government guaranteed loan portfolio as there is no longer a U. S. Government guaranteed student loan program available to private financial institutions, pursuant to legislation in 2010. Prior periods have been adjusted to reflect this change.

Significant Credit Concentrations and Portfolio Reviews Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, FICO scores, economic trends by geographic areas, loan-level risk grading for certain portfolios (typically commercial) and other indications of credit risk. Our credit risk monitoring process is designed to enable early identification of developing risk and to support our determination of an adequate allowance for credit losses. The following analysis reviews the relevant concentrations and certain credit metrics of our significant portfolios. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information.

COMMERCIAL REAL ESTATE (CRE) The CRE portfolio consists of both CRE mortgage loans and CRE construction loans. The combined CRE loans outstanding totaled $124.0 billion at March 31, 2011, or 17% of total loans. CRE construction loans totaled $22.9 billion at March 31, 2011, or 3% of total loans. CRE mortgage loans totaled $101.1 billion at March 31, 2011, or 14% of total loans, of which over 38% was to owner-occupants. Table 12 summarizes CRE loans by state and property type with the related nonaccrual totals. CRE nonaccrual loans totaled 6% of the non-PCI CRE outstanding balance at March 31, 2011. The portfolio is diversified both geographically and by property type. The largest geographic concentrations of combined CRE loans are in California and Florida, which represented 24% and 10% of the total CRE portfolio, respectively. By property type, the largest concentrations are office buildings at 25% and industrial/warehouse at 11% of the portfolio.

The underwriting of CRE loans primarily focuses on cash flows and creditworthiness of the customer, in addition to collateral valuations. To identify and manage newly emerging problem CRE loans, we employ a high level of surveillance and regular customer interaction to understand and manage the risks associated with these assets, including regular loan reviews and appraisal updates. As issues are identified, management is engaged and dedicated workout groups are put in place to manage problem assets. At March 31, 2011, the recorded investment in PCI CRE loans totaled $5.4 billion, down from $12.3 billion at December 31, 2008, reflecting the reduction resulting from loan resolutions and write-downs.

Table 12: CRE Loans by State and Property Type


	March 31, 2011

	Real estate mortgage					Real estate construction				Total					% of

	Nonaccrual		Outstanding			Nonaccrual		Outstanding		Nonaccrual		Outstanding			total
(in millions)	loans		balance (1)			loans		balance (1)		loans		balance (1)			loans


By state:
PCI loans (1):
Florida	$	-		449			-		436		-		885			*	%
California		-		606			-		174		-		780			*
New York		-		288			-		223		-		511			*
Virginia		-		212			-		241		-		453			*
North Carolina		-		98			-		307		-		405			*
Other		-		1,311			-		1,066		-		2,377	(2)		*


Total PCI loans	$	-		2,964			-		2,447		-		5,411			*	%


All other loans:
California	$	1,201		25,343			323		3,262		1,524		28,605			4	%
Florida		858		9,493			348		2,083		1,206		11,576			2
Texas		370		6,825			140		1,978		510		8,803			1
North Carolina		377		4,497			224		1,322		601		5,819			*
New York		58		3,953			13		1,069		71		5,022			*
Virginia		88		3,380			44		1,423		132		4,803			*
Georgia		393		3,587			111		789		504		4,376			*
Arizona		231		3,557			93		673		324		4,230			*
Colorado		109		3,039			59		482		168		3,521			*
Washington		60		2,907			32		440		92		3,347			*
Other		1,494		31,539			852		6,900		2,346		38,439	(3)		5


Total all other loans	$	5,239		98,120			2,239		20,421		7,478		118,541			16	%


Total	$	5,239		101,084			2,239		22,868		7,478		123,952			17	%


By property:
PCI loans (1):
Apartments	$	-		737			-		583		-		1,320			*	%
Office buildings		-		938			-		281		-		1,219			*
1-4 family land		-		239			-		429		-		668			*
Retail (excluding shopping center)		-		288			-		94		-		382			*
Land (excluding 1-4 family)		-		50			-		290		-		340			*
Other		-		712			-		770		-		1,482			*


Total PCI loans	$	-		2,964			-		2,447		-		5,411			*	%


All other loans:
Office buildings	$	1,203		27,386			107		2,139		1,310		29,525			4	%
Industrial/warehouse		727		13,175			45		802		772		13,977			2
Apartments		387		9,515			282		3,200		669		12,715			2
Retail (excluding shopping center)		612		10,584			90		819		702		11,403			2
Shopping center		337		8,010			188		1,587		525		9,597			1
Real estate - other		302		8,629			17		342		319		8,971			1
Hotel/motel		497		6,168			46		852		543		7,020			*
Land (excluding 1-4 family)		47		442			596		6,553		643		6,995			*
Institutional		84		2,657			9		190		93		2,847			*
Agriculture		142		2,551			-		27		142		2,578			*
Other		901		9,003			859		3,910		1,760		12,913			2


Total all other loans	$	5,239		98,120			2,239		20,421		7,478		118,541			16	%


Total	$	5,239		101,084	(4)		2,239		22,868		7,478		123,952			17	%


*		Less than 1%.

(1)		For PCI loans, amounts represent carrying value. PCI loans are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.

(2)		Includes 35 states; no state had loans in excess of $405 million.

(3)		Includes 40 states; no state had loans in excess of $3.0 billion.

(4)		Includes $38.6 billion of loans to owner-occupants where 51% or more of the property is used in the conduct of their business.

Risk Management – Credit Risk Management (continued)

COMMERCIAL AND INDUSTRIAL LOANS AND LEASE FINANCING For purposes of portfolio risk management, we aggregate commercial and industrial loans and lease financing according to market segmentation and standard industry codes. Table 13 summarizes commercial and industrial loans and lease financing by industry with the related nonaccrual totals. We believe this portfolio has experienced less credit deterioration than our CRE portfolios. For the quarter ended March 31, 2011, the commercial and industrial loans and lease financing portfolios had (1) a lower percentage of loans 90 days or more past due and still accruing of 0.21%; 0.27% for CRE, (2) a lower percentage of nonperforming loans to total loans outstanding of 1.68%; 6.03% for CRE. Also, the annualized loss rate for both portfolios declined from first quarter 2010. We believe this portfolio is well underwritten and is diverse in its risk with relatively even concentrations across several industries. Our credit risk management process for this portfolio primarily focuses on a customer’s ability to repay the loan through their cash flow. Generally, the collateral securing this portfolio represents a secondary source of repayment.

A majority of our commercial and industrial loans and lease financing portfolio is secured by short-term liquid assets, such as accounts receivable, inventory and securities, as well as long-lived assets, such as equipment and other business assets.

Table 13: Commercial and Industrial Loans and Lease Financing by Industry


	March 31, 2011

						% of
	Nonaccrual		Outstanding			total
(in millions)	loans		balance (1)			loans


PCI loans (1):
Insurance	$	-		94			*	%
Investors		-		81			*
Technology		-		67			*
Cyclical retailers		-		51			*
Healthcare		-		38			*
Residential construction		-		38			*
Other		-		239	(2)		*


Total PCI loans	$	-		608			*	%


All other loans:
Financial institutions	$	138		11,285			2	%
Cyclical retailers		52		9,683			1
Food and beverage		66		8,423			1
Oil and gas		142		7,911			1
Healthcare		74		7,693			1
Industrial equipment		87		6,773			*
Transportation		25		6,451			*
Business services		69		5,923			*
Investors		92		5,678			*
Real estate		96		5,654			*
Technology		21		5,432			*
Utilities		2		4,712			*
Other		1,884		77,568	(3)		10


Total all other loans	$	2,748		163,186			22	%


Total	$	2,748		163,794			22	%


*		Less than 1%.

(1)		For PCI loans, amounts represent carrying value. PCI loans are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.

(2)		No other single category had loans in excess of $32.7 million.

(3)		No other single category had loans in excess of $4.6 billion. The next largest categories included public administration, hotel/restaurant, securities firms, non-residential construction and leisure.

During the recent credit cycle, we have experienced an increase in requests for extensions of commercial and industrial and CRE loans. All extensions granted are based on a re-underwriting of the loan and our assessment of the borrower’s ability to perform under the agreed-upon terms. At the time of extension, borrowers are generally performing in accordance with the contractual loan terms. Extension terms generally range from six to thirty-six months and may require that the borrower provide additional economic support in the form of partial repayment, amortization or additional collateral or guarantees. In cases where the value of collateral or financial condition of the borrower is insufficient to repay our loan, we may rely upon the support of an outside repayment guarantee in providing the extension. In considering the impairment status of the loan, we evaluate the collateral and future cash flows as well as the anticipated support of any repayment guarantor. When performance under a loan is not reasonably assured, including the performance of the guarantor, we place the loan on nonaccrual status and we charge-off all or a portion of the loan based on the fair value of the collateral securing the loan.

Our ability to seek performance under a guarantee is directly related to the guarantor’s creditworthiness, capacity and willingness to perform, which is evaluated on an annual basis, or more frequently as warranted. Our evaluation is based on the most current financial information available and is focused on various key financial metrics, including net worth, leverage, and current and future liquidity. We consider the guarantor’s reputation, creditworthiness, and willingness to work with us based on our analysis as well as other lenders’ experience with the guarantor. Our assessment of the guarantor’s credit strength is reflected in our loan risk ratings for such loans. The loan risk rating is an important factor in our allowance methodology for commercial and industrial and CRE loans.

Risk Management – Credit Risk Management (continued)

REAL ESTATE 1-4 FAMILY MORTGAGE LOANS The concentrations of real estate 1-4 family mortgage loans by state are presented in Table 14. Our real estate 1-4 family mortgage loans to borrowers in California represented approximately 14% of total loans (3% of this amount were PCI loans from Wachovia) at March 31, 2011, mostly within the larger metropolitan areas, with no single area consisting of more than 3% of total loans. Changes in real estate values and underlying economic or market conditions for these areas are monitored continuously within our credit risk management process.

Some of our real estate 1-4 family mortgage loans (representing first mortgage and home equity products) include an interest-only feature as part of the loan terms. At March 31, 2011, these interest-only loans were approximately 24% of total commercial and consumer loans, compared with 25% at December 31, 2010. Substantially all of these interest-only loans are considered to be prime or near prime. We believe we have manageable adjustable-rate mortgage (ARM) reset risk across our Wells Fargo originated and owned mortgage loan portfolios. We do not offer option ARM 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. Our option ARM portfolio was acquired in the Wachovia merger on December 31, 2008.

Table 14: Real Estate 1-4 Family Mortgage Loans by State


	March 31, 2011

	Real estate		Real estate		Total real
	1-4 family		1-4 family		estate 1-4		% of
	first		junior lien		family		total
(in millions)	mortgage		mortgage		mortgage		loans


PCI loans:
California	$	21,139		47		21,186		3	%
Florida		3,169		50		3,219		*
New Jersey		1,344		31		1,375		*
Other (1)		6,589		111		6,700		*


Total PCI loans	$	32,241		239		32,480		4	%


All other loans:
California	$	55,137		25,626		80,763		11	%
Florida		16,848		7,808		24,656		3
New Jersey		8,917		6,412		15,329		2
New York		8,348		3,718		12,066		2
Virginia		6,048		4,623		10,671		1
Pennsylvania		6,126		4,032		10,158		1
North Carolina		5,797		3,479		9,276		1
Georgia		4,725		3,520		8,245		1
Texas		6,531		1,423		7,954		1
Other (2)		75,791		32,161		107,952		14


Total all other loans	$	194,268		92,802		287,070		38	%


Total	$	226,509		93,041		319,550		43	%


*		Less than 1%.

(1)		Consists of 46 states; no state had loans in excess of $786 million.

(2)		Consists of 41 states; no state had loans in excess of $6.9 billion. Includes $15.9 billion in loans which are insured by the Federal Housing Authority (FHA) or guaranteed by the Department of Veterans Affairs (VA).

PURCHASED CREDIT-IMPAIRED (PCI) LOANS As of December 31, 2008, certain of the loans acquired from Wachovia had evidence of credit deterioration since their origination, and it was probable that we would not collect all contractually required principal and interest payments. Such loans identified at the time of the acquisition were accounted for in the acquisition using the measurement provisions for PCI loans. PCI loans were recorded at fair value at the date of acquisition, and the historical allowance for credit losses related to these loans was not carried over. Such loans are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.

A nonaccretable difference was established in purchase accounting for PCI loans to absorb losses expected at that time on those loans. Amounts absorbed by the nonaccretable difference do not affect the income statement or the allowance for credit losses.

Substantially all commercial and industrial, CRE and foreign PCI loans are accounted for as individual loans. Conversely, Pick-a-Pay and other consumer PCI loans have been aggregated into several pools based on common risk characteristics. Each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Resolutions of loans may include sales to third parties, receipt of payments in settlement with the borrower, or foreclosure of the collateral. Our policy is to remove an individual loan from a pool based on comparing the amount received from its resolution with its contractual amount. Any difference between these amounts is absorbed by the nonaccretable difference. This removal method assumes that the amount received from resolution approximates pool performance expectations. The accretable yield percentage is unaffected by the resolution and any changes in the effective yield for the remaining loans in the pool are addressed by our quarterly cash flow evaluation process for each pool. For loans that are resolved by payment in full, there is no release of the nonaccretable difference for the pool because there is no difference between the amount received at resolution and the contractual amount of the loan. Modified PCI loans are not removed from a pool even if those loans would otherwise be deemed TDRs. Modified PCI loans that are accounted for individually are considered TDRs, and removed from PCI accounting, if there has been a concession granted in excess of the original nonaccretable difference.

During first quarter 2011, we recognized in income $71 million released from nonaccretable difference related to commercial PCI loans due to payoffs and dispositions of these loans. We also transferred $115 million from the nonaccretable difference to the accretable yield and $393 million of losses from loan resolutions and write-downs were absorbed by the nonaccretable difference. Table 15 provides an analysis of changes in the nonaccretable difference related to principal that is not expected to be collected.

Risk Management – Credit Risk Management (continued)

Table 15: Changes in Nonaccretable Difference for PCI Loans


							Other
(in millions)	Commercial			Pick-a-Pay			consumer			Total


Balance at December 31, 2008	$	10,410			26,485			4,069			40,964
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)		(330	)		-			-			(330	)
Loans resolved by sales to third parties (2)		(86	)		-			(85	)		(171	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(138	)		(27	)		(276	)		(441	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)		(4,853	)		(10,218	)		(2,086	)		(17,157	)


Balance at December 31, 2009		5,003			16,240			1,622			22,865
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)		(817	)		-			-			(817	)
Loans resolved by sales to third parties (2)		(172	)		-			-			(172	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(726	)		(2,356	)		(317	)		(3,399	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)		(1,698	)		(2,959	)		(391	)		(5,048	)


Balance at December 31, 2010		1,590			10,925			914			13,429
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)		(53	)		-			-			(53	)
Loans resolved by sales to third parties (2)		(18	)		-			-			(18	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(94	)		-			(21	)		(115	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)		(30	)		(299	)		(64	)		(393	)


Balance at March 31, 2011	$	1,395			10,626			829			12,850


(1)		Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases due to pool accounting for those loans, which assumes that the amount received approximates the pool performance expectations.

(2)		Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.

(3)		Reclassification of nonaccretable difference to accretable yield for loans with increased cash flow estimates will result in increased interest income as a prospective yield adjustment over the remaining life of the loan or pool of loans.

(4)		Write-downs to net realizable value of PCI loans are absorbed by the nonaccretable difference when severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.

Since the Wachovia acquisition, we have released $5.5 billion in nonaccretable difference for certain PCI loans and pools of PCI loans, including $4.0 billion transferred from the nonaccretable difference to the accretable yield and $1.5 billion released to income through loan resolutions. We have provided $1.6 billion in the allowance for credit losses for certain PCI loans or pools of PCI loans that have had credit-related decreases to cash flows expected to be collected. The net result is a $3.9 billion reduction from December 31, 2008 through March 31, 2011, in our initial expected losses on all PCI loans.

At March 31, 2011, the allowance for credit losses in excess of nonaccretable difference on certain PCI loans was $257 million. The allowance is necessary to absorb credit-related decreases in cash flows expected to be collected since acquisition and primarily relates to individual PCI loans. Table 16 analyzes the actual and projected loss results on PCI loans since the acquisition of Wachovia on December 31, 2008, through March 31, 2011.

Table 16: Actual and Projected Loss Results on PCI Loans


						Other
(in millions)	Commercial			Pick-a-Pay		consumer			Total


Release of unneeded nonaccretable difference due to:
Loans resolved by settlement with borrower (1)	$	1,200			-		-			1,200
Loans resolved by sales to third parties (2)		276			-		85			361
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		958			2,383		614			3,955


Total releases of nonaccretable difference due to better than expected losses		2,434			2,383		699			5,516
Provision for worse than originally expected losses (4)		(1,573	)		-		(61	)		(1,634	)


Actual and projected losses on PCI loans less than originally expected	$	861			2,383		638			3,882


(1)		Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference releases due to pool accounting for those loans, which assumes that the amount received approximates the pool performance expectations.

(2)		Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.

(3)		Reclassification of nonaccretable difference to accretable yield for loans with increased cash flow estimates will result in increased interest income as a prospective yield adjustment over the remaining life of the loan or pool of loans.

(4)		Provision for additional losses recorded as a charge to income, when it is estimated that the cash flows expected to be collected for a PCI loan or pool of loans have decreased subsequent to the acquisition.

For further detail on PCI loans, see Note 5 (Loans and Allowance
for Credit Losses) to Financial Statements in this Report.

Risk Management – Credit Risk Management (continued)

PICK-A-PAY PORTFOLIO The Pick-a-Pay portfolio was one of the consumer residential first mortgage portfolios we acquired from Wachovia. We considered a majority of the Pick-a-Pay loans to be PCI loans. The Pick-a-Pay portfolio is a liquidating portfolio, as Wachovia ceased originating new Pick-a-Pay loans in 2008.

Real estate 1-4 family junior lien mortgages and lines of credit associated with Pick-a-Pay loans are reported in the Home Equity core portfolio. The Pick-a-Pay portfolio includes loans

that offer payment options (Pick-a-Pay option payment loans), and also includes loans that were originated without the option payment feature, loans that no longer offer the option feature as a result of our modification efforts since the acquisition, and loans where the customer voluntarily converted to a fixed-rate product. The Pick-a-Pay portfolio is included in the consumer real estate 1-4 family first mortgage class of loans throughout this Report. Table 17 provides balances over time related to the types of loans included in the portfolio.

Table 17: Pick-a-Pay Portfolio – Balances Over Time


	March 31,					December 31,
	2011					2010					2008
	Adjusted					Adjusted					Adjusted
	unpaid					unpaid					unpaid
	principal					principal					principal
(in millions)	balance		% of total			balance		% of total			balance		% of total


Option payment loans (1)	$	46,908		58	%	$	49,958		59	%	$	99,937		86	%
Non-option payment adjustable-rate and fixed-rate loans (1)		10,900		14			11,070		13			15,763		14
Full-term loan modifications (1)		22,779		28			23,132		28			-		-


Total adjusted unpaid principal balance (1)	$	80,587		100	%	$	84,160		100	%	$	115,700		100	%


Total carrying value	$	71,506				$	74,815				$	95,315


(1)		Adjusted unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.

PCI loans in the Pick-a-Pay portfolio had an adjusted unpaid principal balance of $40.7 billion and a carrying value of $31.4 billion at March 31, 2011. The carrying value of the PCI loans is net of remaining purchase accounting write-downs, which reflected their fair value at acquisition. Upon acquisition, we recorded a $22.4 billion write-down in purchase accounting on Pick-a-Pay loans that were impaired.

Due to the sustained positive performance observed on the Pick-a-Pay portfolio compared with the original acquisition estimates, we have reclassified $2.4 billion from the nonaccretable difference to the accretable yield since the Wachovia merger. This improvement in the lifetime credit outlook for this portfolio is primarily attributable to the significant modification efforts as well as the portfolio’s delinquency stabilization. This improvement in the credit outlook is expected to be realized over the remaining life of the portfolio, which is estimated to have a weighted-average life of approximately nine years. The accretable yield percentage in first quarter 2011 was 4.54%, consistent with fourth quarter 2010. Fluctuations in the accretable yield are driven by changes in interest rate indices for variable rate PCI loans, prepayment assumptions, and expected principal and interest payments over the estimated life of the portfolio. Changes in the projected timing of cash flow events, including loan liquidations, modifications and short sales, can also affect the accretable yield percentage and the estimated weighted-average life of the portfolio.

Pick-a-Pay option payment loans may be adjustable or fixed rate. They are home mortgages on which the customer has the option each month to select from among four payment options: (1) a minimum payment as described below, (2) an interest-only payment, (3) a fully amortizing 15-year payment, or (4) a fully amortizing 30-year payment.

The minimum monthly payment for substantially all of our Pick-a-Pay loans is reset annually. The new minimum monthly payment amount usually cannot increase by more than 7.5% of the then-existing principal and interest payment amount. The minimum payment may not be sufficient to pay the monthly interest due and in those situations a loan on which the customer has made a minimum payment is subject to “negative amortization,” where unpaid interest is added to the principal balance of the loan. The amount of interest that has been added to a loan balance is referred to as “deferred interest.” Total deferred interest of $2.5 billion at March 31, 2011, was down from $2.7 billion at December 31, 2010, due to loan modification efforts as well as falling interest rates resulting in the minimum payment option covering the interest and some principal on many loans. At March 31, 2011, approximately 76% of customers choosing the minimum payment option did not defer interest.

Deferral of interest on a Pick-a-Pay loan may continue as long as the loan balance remains below a pre-defined principal cap, which is based on the percentage that the current loan balance represents to the original loan balance. Loans with an original loan-to-value (LTV) ratio equal to or below 85% have a cap of 125% of the original loan balance, and these loans represent substantially all the Pick-a-Pay portfolio. Loans with an original LTV ratio above 85% have a cap of 110% of the original loan balance. Most of the Pick-a-Pay loans on which there is a deferred interest balance re-amortize (the monthly payment amount is reset or “recast”) on the earlier of the date when the loan balance reaches its principal cap, or the 10-year anniversary of the loan. For a small population of Pick-a-Pay loans, the recast occurs at the five-year anniversary. After a recast, the customers’ new payment terms are reset to the amount necessary to repay the balance over the remainder of the original loan term.

Due to the terms of the Pick-a-Pay portfolio, there is little recast risk over the next three years. Based on assumptions of a flat rate environment, if all eligible customers elect the minimum payment option 100% of the time and no balances prepay, we would expect the following balances of loans to recast based on reaching the principal cap: $1 million for the remainder of 2011, $3 million in 2012, and $30 million in 2013. In first quarter 2011, the amount of loans recast based on reaching the principal cap was $2 million. In addition, in a flat rate environment, we would expect the following balances of loans to start fully amortizing due to reaching their recast anniversary date and also having a payment change at the recast date greater than the annual 7.5% reset: $22 million for the remainder of 2011, $65 million in 2012, and $265 million in 2013. In first quarter 2011, the amount of loans reaching their recast anniversary date and also having a payment change over the annual 7.5% reset was $3 million.

Table 18 reflects the geographic distribution of the Pick-a-Pay portfolio broken out between PCI loans and all other loans. In stressed housing markets with declining home prices and increasing delinquencies, the LTV ratio is a useful metric in predicting future real estate 1-4 family first mortgage loan performance, including potential charge-offs. Because PCI loans were initially recorded at fair value, including write-downs for expected credit losses, the ratio of the carrying value to the current collateral value will be lower compared with the LTV based on the adjusted unpaid principal balance. For informational purposes, we have included both ratios for PCI loans in the following table.

Risk Management – Credit Risk Management (continued)

Table 18: Pick-a-Pay Portfolio (1)


	March 31, 2011

	PCI loans										All other loans

								Ratio of
	Adjusted							carrying
	unpaid		Current					value to					Current
	principal		LTV			Carrying		current			Carrying		LTV
(in millions)	balance (2)		ratio (3)			value (4)		value			value (4)		ratio (3)


California	$	27,645		119	%	$	20,952		90	%	$	19,571		83	%
Florida		3,782		125			2,878		90			4,152		103
New Jersey		1,409		93			1,235		80			2,512		78
Texas		365		79			332		72			1,636		65
New York		781		92			682		79			1,087		81
Other states		6,692		109			5,353		86			11,116		86

Total Pick-a-Pay loans	$	40,674				$	31,432				$	40,074


(1)		The individual states shown in this table represent the top five states based on the total net carrying value of the Pick-a-Pay loans at the beginning of 2011.

(2)		Adjusted unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.

(3)		The current LTV ratio is calculated as the adjusted unpaid principal balance divided by the collateral value. Collateral values are generally determined using automated valuation models (AVM) and are updated quarterly. AVMs are computer-based tools used to estimate market values of homes based on processing large volumes of market data including market comparables and price trends for local market areas.

(4)		Carrying value, which does not reflect the allowance for loan losses, includes remaining purchase accounting adjustments, which, for PCI loans may include the nonaccretable difference and the accretable yield and, for all other loans, an adjustment to mark the loans to a market yield at date of merger less any subsequent charge-offs.

To maximize return and allow flexibility for customers to avoid foreclosure, we have in place several loss mitigation strategies for our Pick-a-Pay loan portfolio. We contact customers who are experiencing difficulty and may in certain cases modify the terms of a loan based on a customer’s documented income and other circumstances.

We also have taken steps to work with customers to refinance or restructure their Pick-a-Pay loans into other loan products. For customers at risk, we offer combinations of term extensions of up to 40 years (from 30 years), interest rate reductions, forbearance of principal, and, in geographies with substantial property value declines, we may offer permanent principal reductions.

We offer proprietary modification programs and the U.S. Treasury Department’s Home Affordability Modification Program (HAMP) to our real estate 1-4 family mortgage borrowers. In first quarter 2011, we completed more than 4,600 proprietary and HAMP Pick-a-Pay loan modifications and have completed more than 85,000 modifications since the Wachovia acquisition, resulting in $3.9 billion of principal forgiveness to our Pick-a-Pay customers. The majority of the loan modifications were concentrated in our PCI Pick-a-Pay loan portfolio. As part of the modification process, the loans are re-underwritten, income is documented and the negative amortization feature is eliminated. Most of the modifications result in material payment reduction to the customer. Because of the write-down of the PCI loans in purchase accounting, our post-merger modifications to PCI Pick-a-Pay loans have not resulted in any provision for credit losses. To the extent we modify loans not in the PCI Pick-a-Pay portfolio, we separately estimate impairment to the extent loans have been modified in a TDR.

HOME EQUITY PORTFOLIOS The deterioration in specific segments of the legacy Wells Fargo Home Equity portfolios, which began in 2007, required a targeted approach to managing these assets. In fourth quarter 2007, a liquidating portfolio was identified, consisting of home equity loans generated through the wholesale channel not behind a Wells Fargo first mortgage, and home equity loans acquired through correspondents. The liquidating portfolio was $6.6 billion at March 31, 2011, compared with $6.9 billion at December 31, 2010. The loans in this liquidating portfolio represent less than 1% of our total loans outstanding at March 31, 2011, and contain some of the highest risk in our $114.1 billion Home Equity portfolio, with a loss rate of 10.10% compared with 3.44% for the core Home Equity portfolio.

The loans in the liquidating portfolio are largely concentrated in geographic markets that have experienced the most abrupt and steepest declines in housing prices. The core portfolio was $107.6 billion at March 31, 2011, of which 98% was originated through the retail channel and approximately 20% of the outstanding balance was in a first lien position. Table 19 shows the credit attributes of the Home Equity core and liquidating portfolios. California loans represent the largest state concentration in each of these portfolios and have experienced among the highest early-term delinquency and loss rates.

Table 19: Home Equity Portfolios (1)


							% of loans								Loss rate
							two payments							(annualized)
	Outstanding balance						or more past due							Quarter ended
	Mar. 31		,	Dec. 31		,	Mar. 31		,		Dec. 31		,	Mar. 31		,	Dec. 31		,
(in millions)	2011			2010			2011				2010			2011			2010


Core portfolio (2)
California	$	27,048			27,850			3.17		%		3.30			3.98			3.95
Florida		11,742			12,036			5.07				5.46			6.16			5.84
New Jersey		8,460			8,629			3.24				3.44			2.83			1.83
Virginia		5,535			5,667			2.30				2.33			1.91			1.70
Pennsylvania		5,304			5,432			2.42				2.48			1.49			1.11
Other		49,491			50,976			2.65				2.83			2.97			2.86

Total		107,580			110,590			3.06				3.24			3.44			3.24


Liquidating portfolio
California		2,421			2,555			6.11				6.66			13.19			13.48
Florida		312			330			7.16				8.85			15.15			10.59
Arizona		139			149			6.25				6.91			20.02			18.45
Texas		118			125			2.15				2.02			3.39			2.95
Minnesota		87			91			4.24				5.39			8.94			8.73
Other		3,491			3,654			3.98				4.53			7.36			6.46

Total		6,568			6,904			4.94				5.54			10.10			9.49


Total core and liquidating portfolios	$	114,148			117,494			3.17				3.37			3.83			3.61


(1)		Consists predominantly of real estate 1-4 family junior lien mortgages and first and junior lines of credit secured by real estate, excluding PCI loans.

(2)		Includes $1.6 billion and $1.7 billion at March 31, 2011, and December 31, 2010, respectively, associated with the Pick-a-Pay portfolio.

CREDIT CARDS Our credit card portfolio totaled $21.0 billion at March 31, 2011, which represented 3% of our total outstanding loans. The quarterly net charge-off rate (annualized) for our credit card loans declined throughout 2010 and was 7.21% for first quarter 2011 compared with 11.17% for first quarter 2010.

OTHER REVOLVING CREDIT AND INSTALLMENT Other revolving credit and installment loans totaled $87.4 billion at March 31, 2011, and predominantly include automobile, student and security-based margin loans. Education finance government guaranteed student loans totaled $16.8 billion of this group of loans at March 31, 2011, and are included in our non-strategic and liquidating portfolios as discussed earlier in this Report. The quarterly net charge-off rate (annualized) for other revolving credit and installment loans was 1.42% for first quarter 2011 compared with 2.45% for first quarter 2010.

For further credit quality details on our loan portfolios, see Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Risk Management — Credit Risk Management (continued)

NONACCRUAL LOANS AND OTHER NONPERFORMING 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 and no restructuring has occurred.

Table 20 shows a quarterly trend for nonaccrual loans and other NPAs, and, for fourth quarter 2010, shows a decline in the total balance from the prior quarter for the first time since the acquisition of Wachovia. The decline continued in first quarter 2011.

Table 20: Nonaccrual Loans and Other Nonperforming Assets


	March 31, 2011						December 31, 2010						September 30, 2010					June 30, 2010

				% of						% of					% of					% of
				total						total					total					total
($ in millions)		Balances		loans				Balances		loans				Balances	loans				Balances	loans


Commercial:
Commercial and industrial	$	2,653			1.76	%	$	3,213			2.12	%	$	4,103		2.79	%	$	3,843		2.63	%
Real estate mortgage		5,239			5.18			5,227			5.26			5,079		5.14			4,689		4.71
Real estate construction		2,239			9.79			2,676			10.56			3,198		11.46			3,429		11.10
Lease financing		95			0.73			108			0.82			138		1.06			163		1.21
Foreign		86			0.24			127			0.39			126		0.42			115		0.38


Total commercial (1)		10,312			3.19			11,351			3.52			12,644		3.99			12,239		3.82

Consumer:
Real estate 1-4 family first mortgage (2)		12,143			5.36			12,289			5.34			12,969		5.69			12,865		5.50
Real estate 1-4 family junior lien mortgage		2,235			2.40			2,302			2.39			2,380		2.40			2,391		2.36
Other revolving credit and installment		275			0.31			300			0.35			312		0.35			316		0.36


Total consumer		14,653			3.42			14,891			3.42			15,661		3.58			15,572		3.49

Total nonaccrual loans (3)(4)(5)		24,965			3.32			26,242			3.47			28,305		3.76			27,811		3.63


Foreclosed assets:
Government insured/guaranteed (6)		1,457						1,479						1,492					1,344
Non-government insured/guaranteed		4,055						4,530						4,635					3,650


Total foreclosed assets		5,512						6,009						6,127					4,994

Other (7)		140						120						141					131


Total nonaccrual loans and other nonperforming assets	$	30,617			4.08	%	$	32,371			4.27	%	$	34,573		4.59	%	$	32,936		4.30	%


Change from prior quarter	$	(1,754	)					(2,202	)					1,637					1,436


(1)		Includes LHFS of $17 million, $3 million, $89 million and $19 million at March 31, 2011, and December 31, September 30, and June 30, 2010, respectively.

(2)		Includes MHFS of $430 million, $426 million, $448 million and $450 million at March 31, 2011, and December 31, September 30, and June 30, 2010, respectively.

(3)		Excludes loans acquired from Wachovia that are accounted for as PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.

(4)		Real estate 1-4 family mortgage loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veteran Affairs (VA) and student loans predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the Federal Family Education Loan Program are not placed on nonaccrual status because they are insured or guaranteed.

(5)		See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in our 2010 Form 10-K for further information on impaired loans.

(6)		Consistent with regulatory reporting requirements, foreclosed real estate securing government insured/guaranteed loans is classified as nonperforming. Both principal and interest for government insured/guaranteed loans secured by the foreclosed real estate are collectible because the loans are insured by the FHA or guaranteed by the VA.

(7)		Includes real estate investments (loans for which any yield is based on performance of the underlying real estate collateral and are accounted for as investments) that would be classified as nonaccrual if these assets were recorded as loans, and nonaccrual debt securities.

Total NPAs were $30.6 billion (4.08% of total loans) at March 31, 2011, and included $25.0 billion of nonaccrual loans and $5.5 billion of foreclosed assets. Since the peak in third quarter 2010, NPAs have declined for all loan and other asset types through March 31, 2011, except commercial real estate

mortgages which increased slightly. Nonaccruals in all other loan portfolios were essentially flat or down year over year. New inflows to nonaccrual loans continued to decline. Table 21 provides an analysis of the changes in nonaccrual loans.

Table 21: Analysis of Changes in Nonaccrual Loans


	Quarter ended

	Mar. 31		,	Dec. 31		,	Sept. 30		,	June 30		,	Mar. 31		,
(in millions)	2011			2010			2010			2010			2010


Commercial nonaccrual loans
Balance, beginning of quarter	$	11,351			12,644			12,239			12,265			11,723
Inflows		1,881			2,329			2,807			2,560			2,763
Outflows		(2,920	)		(3,622	)		(2,402	)		(2,586	)		(2,221	)


Balance, end of quarter		10,312			11,351			12,644			12,239			12,265


Consumer nonaccrual loans
Balance, beginning of quarter		14,891			15,661			15,572			15,036			12,695
Inflows		3,955			4,357			4,866			4,733			6,169
Outflows		(4,193	)		(5,127	)		(4,777	)		(4,197	)		(3,828	)


Balance, end of quarter		14,653			14,891			15,661			15,572			15,036


Total nonaccrual loans	$	24,965			26,242			28,305			27,811			27,301

Typically, changes to nonaccrual loans period-over-period represent inflows for loans that reach a specified past due status, offset by reductions for loans that are charged off, sold, transferred to foreclosed properties, or are no longer classified as nonaccrual because they return to accrual status. We continue to modify loans to assist homeowners and other borrowers in the current difficult economic cycle.

Loans are re-underwritten at the time of the modification in accordance with underwriting guidelines established for governmental and proprietary loan modification programs. For an accruing loan that has been modified, if the borrower has demonstrated performance under the previous terms and shows the capacity to continue to perform under the restructured terms, the loan will remain in accruing status. Otherwise, the loan will be placed in a nonaccrual status generally until the borrower has made six consecutive months of payments, or equivalent, inclusive of consecutive payments made prior to modification.

Loans are placed on nonaccrual status when it is probable that we will not collect the contractual value of the asset. While nonaccrual loans are not free of loss content, we believe exposure to loss is significantly mitigated by four factors. First, 99% of consumer nonaccrual loans and 96% of commercial nonaccrual loans are secured. Second, losses have already been recognized on 55% of the remaining balance of consumer nonaccruals and commercial nonaccruals have been written down by $2.8 billion. Residential nonaccrual loans are written down to net realizable value (fair value of collateral less estimated costs to sell) at 180 days past due, except for loans that go into trial modification prior to becoming 180 days past due, and which are not written down in the trial period (three months) as long as trial payments are being made on time. Third, as of March 31, 2011, 54% of commercial nonaccrual loans were current on interest. Fourth, the inherent risk of loss

in all nonaccruals has been considered and we believe is adequately covered by the allowance for loan losses.

Commercial nonaccrual loans, net of write-downs, amounted to $10.3 billion at March 31, 2011, compared with $12.3 billion a year ago. Consumer nonaccrual loans amounted to $14.7 billion at March 31, 2011, compared with $15.0 billion a year ago. Federal government modification programs, such as HAMP, and Wells Fargo proprietary modification programs, such as the Company’s Pick-a-Pay Mortgage Assistance program, require customers to provide updated documentation, and some programs require completion of trial payment periods to demonstrate sustained performance, before the loan can be removed from nonaccrual status. In addition, for loans in foreclosure, many states, including California, Florida and New Jersey, have enacted legislation that significantly increases the time frames to complete the foreclosure process, meaning that loans will remain in nonaccrual status for longer periods. At the conclusion of the foreclosure process, we continue to sell real estate owned in a timely fashion.

Generally, when a consumer real estate loan is 120 days past due, we move it to nonaccrual status. When the loan reaches 180 days past due it is our policy to write these loans down to net realizable value, except for modifications in their trial period. Thereafter, we revalue each loan regularly and recognize additional charges if needed. Of the $14.7 billion of consumer nonaccrual loans at March 31, 2011, 98% are secured by real estate and 32% have a combined LTV (CLTV) ratio of 80% or below.

Table 22 provides a summary of foreclosed assets.

Risk Management – Credit Risk Management (continued)

Table 22: Foreclosed Assets


	Mar. 31		,	Dec. 31		,	Sept. 30		,	June 30		,	Mar. 31		,
(in millions)	2011			2010			2010			2010			2010


Government insured/guaranteed (1)	$	1,457			1,479			1,492			1,344			1,111
PCI loans:
Commercial		1,005			967			1,043			940			697
Consumer		741			1,068			1,109			722			490


Total PCI loans		1,746			2,035			2,152			1,662			1,187


All other loans:
Commercial		1,408			1,412			1,343			1,087			820
Consumer		901			1,083			1,140			901			963


Total all other loans		2,309			2,495			2,483			1,988			1,783


Total foreclosed assets	$	5,512			6,009			6,127			4,994			4,081


(1)		Consistent with regulatory reporting requirements, foreclosed real estate securing government insured/guaranteed loans is classified as nonperforming. Both principal and interest for government insured/guaranteed loans secured by the foreclosed real estate are collectible because the loans are insured by the FHA or guaranteed by the VA.

NPAs at March 31, 2011, included $1.5 billion of foreclosed real estate that is FHA insured or VA guaranteed and expected to have little to no loss content, and $4.0 billion of foreclosed assets, which have been written down to net realizable value. Foreclosed assets increased $1.4 billion, or 35%, year over year in first quarter 2011. Of this increase, $559 million were foreclosed loans from the PCI portfolio that are now recorded as foreclosed assets. At March 31, 2011, substantially all of our foreclosed assets of $5.5 billion have been in the foreclosed assets portfolio one year or less.

Given our real estate-secured loan concentrations and current economic conditions, we anticipate continuing to hold a high level of NPAs on our balance sheet. The loss content in the nonaccrual loans has been recognized through charge-offs or provided for in the allowance for credit losses at March 31, 2011. The performance of any one loan can be affected by external factors, such as economic or market conditions, or factors affecting a particular borrower. We are maintaining increased staffing in our workout and collection organizations to ensure troubled borrowers receive the attention and help they need. See the “Risk Management – Allowance for Credit Losses” section in this Report for additional information.

We process foreclosures on a regular basis for the loans we service for others as well as those we hold in our loan portfolio. However, we utilize foreclosure only as a last resort for dealing with borrowers who are experiencing financial hardships. We employ extensive contact and restructuring procedures to attempt to find other solutions for our borrowers.

TROUBLED DEBT RESTRUCTURINGS (TDRs)

Table 23: Troubled Debt Restructurings (TDRs)


	Mar. 31		,	Dec. 31		,	Sept. 30		,	June 30		,	Mar. 31		,
(in millions)	2011			2010			2010			2010			2010


Consumer TDRs:
Real estate 1-4 family first mortgage	$	12,261			11,603			10,951			9,525			7,972
Real estate 1-4 family junior lien mortgage		1,824			1,626			1,566			1,469			1,563
Other revolving credit and installment		859			778			674			502			310


Total consumer TDRs		14,944			14,007			13,191			11,496			9,845


Commercial TDRs		2,352			1,751			1,350			656			386


Total TDRs	$	17,296			15,758			14,541			12,152			10,231


TDRs on nonaccrual status	$	5,041			5,185			5,177			3,877			2,738
TDRs on accrual status		12,255			10,573			9,364			8,275			7,493


Total TDRs	$	17,296			15,758			14,541			12,152			10,231

Table 23 provides information regarding the recorded investment of loans modified in TDRs. The allowance for TDR loans was $4.2 billion at March 31, 2011, and $3.9 billion at December 31, 2010. Total charge-offs related to loans modified in a TDR were $349 million for first quarter 2011 and $322 million for first quarter 2010.

Our nonaccrual policies are generally the same for all loan types when a restructuring is involved. We underwrite loans at the time of restructuring to determine whether there is sufficient evidence of sustained repayment capacity based on the borrower’s documented income, debt to income ratios, and other factors. Any loans lacking sufficient evidence of sustained repayment capacity at the time of modification are charged down to the fair value of the collateral, if applicable. If the borrower has demonstrated performance under the previous terms and the underwriting process shows the capacity to continue to perform under the restructured terms, the loan will remain in accruing status. Otherwise, the loan will be placed in nonaccrual status generally until the borrower demonstrates a sustained period of performance, generally six consecutive months of payments, or equivalent, inclusive of consecutive payments made prior to modification. Loans will also be placed on nonaccrual, and a corresponding charge-off is recorded to the loan balance, if we believe that principal and interest contractually due under the modified agreement will not be collectible.

We do not forgive principal for a majority of our TDRs, but in those situations where principal is forgiven, the entire amount of such principal forgiveness is immediately charged off to the extent not done so prior to the modification. We sometimes delay the required timing of a portion of principal (principal forbearance) and charge off the amount of forbearance if that amount is not considered fully collectible. When a TDR performs in accordance with its modified terms, the loan either continues to accrue interest (for performing loans), or will return to accrual status after the borrower demonstrates a sustained period of performance.

Risk Management – Credit Risk Management (continued)

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Loans included in this category are 90 days or more past due as to interest or principal and still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $10.8 billion at March 31, 2011, and $11.6 billion at December 31, 2010, are excluded from this disclosure even though they are 90 days or more contractually past due. These PCI loans are considered to be accruing due to the existence of the accretable

yield and not based on consideration given to contractual interest payments.

Excluding insured/guaranteed loans, loans 90 days or more past due and still accruing at March 31, 2011, were down $221 million, or 8%, from December 31, 2010. The decline was due to loss mitigation activities including modifications and increased collection capacity/process improvements, charge-offs, lower early stage delinquency levels and credit stabilization.

Table 24 reflects non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.

Table 24: Loans 90 Days or More Past Due and Still Accruing


	Mar. 31		,	Dec. 31		,	Sept. 30		,	June 30		,	Mar. 31		,
(in millions)	2011			2010			2010			2010			2010


Total (excluding PCI):	$	17,901			18,488			18,815			19,384			21,822
Less: FHA insured/guaranteed by the VA (1)		14,353			14,733			14,529			14,387			15,865
Less: Student loans guaranteed under the FFELP (2)		1,120			1,106			1,113			1,122			1,072


Total, not government insured/guaranteed	$	2,428			2,649			3,173			3,875			4,885


By segment and class, not insured/guaranteed:
Commercial:
Commercial and industrial	$	338			308			222			540			561
Real estate mortgage		177			104			463			654			947
Real estate construction		156			193			332			471			787
Foreign		16			22			27			21			29


Total commercial		687			627			1,044			1,686			2,324


Consumer:
Real estate 1-4 family first mortgage (3)		858			941			1,016			1,049			1,281
Real estate 1-4 family junior lien mortgage (3)		325			366			361			352			414
Credit card		413			516			560			610			719
Other revolving credit and installment		145			199			192			178			147


Total consumer		1,741			2,022			2,129			2,189			2,561


Total, not government insured/guaranteed	$	2,428			2,649			3,173			3,875			4,885


(1)		Represents loans whose repayments are insured by the FHA or guaranteed by the VA.

(2)		Represents loans whose repayments are predominantly guaranteed by agencies on behalf of the U.S. Department of Education under the Federal Family Education Loan Program (FFELP).

(3)		Includes mortgages held for sale 90 days or more past due and still accruing.

NET CHARGE-OFFS

Table 25: Net Charge-offs


	Quarter ended

	March 31, 2011					December 31, 2010					September 30, 2010					June 30, 2010					March 31, 2010

	Net loan		% of			Net loan		% of			Net loan		% of			Net loan		% of			Net loan		% of
	charge-		avg.			charge-		avg.			charge-		avg.			charge-		avg.			charge-		avg.
($ in millions)	offs		loans(1)			offs		loans (1)			offs		loans (1)			offs		loans (1)			offs		loans (1)


Commercial:
Commercial and industrial	$	354		0.96	%	$	500		1.34	%	$	509		1.38	%	$	689		1.87	%	$	650		1.68	%
Real estate mortgage		152		0.62			234		0.94			218		0.87			360		1.47			271		1.12
Real estate construction		83		1.38			171		2.51			276		3.72			238		2.90			394		4.45
Lease financing		6		0.18			21		0.61			23		0.71			27		0.78			29		0.85
Foreign		28		0.34			28		0.36			39		0.52			42		0.57			36		0.52


Total commercial		623		0.79			954		1.19			1,065		1.33			1,356		1.69			1,380		1.68


Consumer:
Real estate 1-4 family first mortgage		904		1.60			1,024		1.77			1,034		1.78			1,009		1.70			1,311		2.17
Real estate 1-4 family junior lien mortgage		994		4.25			1,005		4.08			1,085		4.30			1,184		4.62			1,449		5.56
Credit card		382		7.21			452		8.21			504		9.06			579		10.45			643		11.17
Other revolving credit and installment		307		1.42			404		1.84			407		1.83			361		1.64			547		2.45


Total consumer		2,587		2.42			2,885		2.63			3,030		2.72			3,133		2.79			3,950		3.45


Total	$	3,210		1.73	%	$	3,839		2.02	%	$	4,095		2.14	%	$	4,489		2.33	%	$	5,330		2.71	%


(1)		Quarterly net charge-offs as a percentage of average respective loans are annualized.

Risk Management – Credit Risk Management (continued)

Table 25 presents net charge-offs for first quarter 2011 and each of the four quarters of 2010. Net charge-offs in first quarter 2011 were $3.2 billion (1.73% of average total loans outstanding) compared with $5.3 billion (2.71%) in first quarter 2010.

Net charge-offs in the 1-4 family first mortgage portfolio totaled $904 million in first quarter 2011. Our 1-4 family first mortgage portfolio continued to reflect relatively low loss rates, although until housing prices fully stabilize, these credit losses will continue to remain elevated.

Net charge-offs in the real estate 1-4 family junior lien portfolio were $994 million in first quarter 2011. More information about the Home Equity portfolio, which includes substantially all of our real estate 1-4 family junior lien mortgage loans, is available in Table 19 in this Report and the related discussion.

Credit card net charge-offs of $382 million in first quarter 2011 decreased $261 million from a year ago.

Commercial and CRE net charge-offs were $623 million in first quarter 2011 compared with $1.4 billion a year ago. Commercial business line credit results continued to improve from first quarter 2010 as market liquidity and improving market conditions helped stabilize performance results. Increased lending activity in first quarter 2011 in the majority of our commercial business lines further supported our belief of a turn in the demand for credit.

ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments, is management’s estimate of credit losses inherent in the loan portfolio and unfunded credit commitments at the balance sheet date, excluding loans carried at fair value. The detail of the changes in the allowance for credit losses by portfolio segment (including charge-offs and recoveries by loan class) is in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

We employ a disciplined process and methodology to establish our allowance for credit losses each quarter. This process takes into consideration many factors, including historical and forecasted loss trends, loan-level credit quality ratings and loan grade-specific loss factors. The process involves subjective as well as complex judgments. In addition, we review a variety of credit metrics and trends. However, these trends do not solely determine the adequacy of the allowance as we use several analytical tools in determining its adequacy. For additional information on our allowance for credit losses, see the “Critical Accounting Policies – Allowance for Credit Losses” section in our 2010 Form 10-K and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

At March 31, 2011, the allowance for loan losses totaled $22.0 billion (2.93% of total loans), compared with $23.0 billion (3.04%), at December 31, 2010. The allowance for credit losses was $22.4 billion (2.98% of total loans) at March 31, 2011, and $23.5 billion (3.10%) at December 31, 2010. The allowance for credit losses included $257 million at March 31, 2011, and $298 million at December 31, 2010, related to PCI loans acquired from Wachovia. The allowance for unfunded credit commitments was $400 million at March 31, 2011, and $441 million at December 31, 2010. In addition to the allowance for credit losses, at March 31, 2011, and December 31, 2010, there was $12.9 billion and $13.4 billion, respectively, of nonaccretable difference to absorb losses for PCI loans. For additional information on PCI loans, see the “Risk Management – Credit Risk Management – Purchased Credit-Impaired Loans” section and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

The ratio of the allowance for credit losses to total nonaccrual loans was 90% at March 31, 2011, and 89% at December 31, 2010. This ratio may fluctuate significantly from period to period due to such factors as the mix of loan types in the portfolio, borrower credit strength and the value and marketability of collateral. Over half of nonaccrual loans were home mortgages, auto and other consumer loans at March 31, 2011.

The ratio of the allowance for loan losses to annualized net charge-offs was 169% at March 31, 2011, and 130% at December 31, 2010. The $1.0 billion decline in the allowance for loan losses in first quarter 2011 reflected continued improvement in delinquencies and portfolio performance primarily in consumer portfolios. As a result of significant levels of previous charge-offs, the loan portfolio at March 31, 2011, consisted of higher percentages of more recent vintage loans subjected to tightened underwriting standards.

Total provision for credit losses was $2.2 billion in first quarter 2011, compared with $5.3 billion a year ago. The first quarter 2011 provision was $1.0 billion less than net charge-offs, compared with a provision that equaled net charge-offs in first quarter 2010. Absent significant deterioration in the economy, we expect future allowance releases.

In determining the appropriate allowance attributable to our residential real estate portfolios, the loss rates used in our analysis include the impact of our established loan modification programs. When modifications occur or are probable to occur, our allowance considers the impact of these modifications, taking into consideration the associated credit cost, including re-defaults of modified loans and projected loss severity. The loss content associated with existing and probable loan modifications has been considered in our allowance methodology.

Changes in the allowance reflect changes in statistically derived loss estimates, historical loss experience, current trends in borrower risk and/or general economic activity on portfolio performance, and management’s estimate for imprecision and uncertainty.

We believe the allowance for credit losses of $22.4 billion was adequate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at March 31, 2011. The allowance for credit losses is subject to change and considers existing factors at the time, including economic or market conditions and ongoing internal and external examination processes. Due to the sensitivity of the allowance for credit losses to changes in the economic environment, it is possible that unanticipated economic deterioration would create incremental credit losses not anticipated as of the balance sheet date. Our process for determining the allowance for credit losses is discussed in the “Critical Accounting Policies – Allowance for Credit Losses” section in our 2010 Form 10-K and Note 5 (Loans and Allowance for Credit Losses) to the Financial Statements in this Report.

Risk Management – Credit Risk Management (continued)

LIABILITY FOR MORTGAGE LOAN REPURCHASE LOSSES We sell residential mortgage loans to various parties, including (1) Freddie Mac and Fannie Mae (GSEs) who include the mortgage loans in GSE-guaranteed mortgage securitizations, (2) special purpose entities (SPEs) that issue private label mortgage-backed securities (MBS), and (3) other financial institutions that purchase mortgage loans for investment or private label securitization. In addition, we pool FHA-insured and VA-guaranteed mortgage loans that back securities guaranteed by GNMA. We may be required to repurchase these mortgage loans, indemnify the securitization trust, investor or insurer, or reimburse the securitization trust, investor or insurer for credit losses incurred on loans (collectively “repurchase”) in the event of a breach of contractual representations or warranties that is not remedied within a period (usually 90 days or less) after we receive notice of the breach. For further detail see our 2010 Form 10-K.

We have established a mortgage repurchase liability related to various representations and warranties that reflect management’s estimate of losses for loans for which we could have a repurchase obligation, whether or not we currently service those loans, based on a combination of factors. Currently, repurchase demands primarily relate to 2006 through 2008 vintages and to GSE-guaranteed MBS.

During first quarter 2011, we observed a decline in our level of repurchases and losses as we continued to work through the remaining risk associated with the 2006 through 2008 vintages. We repurchased or reimbursed investors for incurred losses on mortgage loans with original balances of $805 million. We incurred net losses on repurchased loans and investor reimbursements totaling $331 million in first quarter 2011.

Table 26 provides the number of unresolved repurchase demands and mortgage insurance rescissions. We generally do not have unresolved repurchase demands from the FHA or VA for loans in GNMA-guaranteed securities because those demands are relatively few and we quickly resolve them.

Table 26: Unresolved Repurchase Demands and Mortgage Insurance Rescissions


	Government								Mortgage insurance
	sponsored entities (1)				Private				rescissions with no demand (2)				Total

	Number of		Original loan		Number of		Original loan		Number of		Original loan		Number of		Original loan
($ in millions)	loans		balance (3)		loans		balance (3)		loans		balance (3)		loans		balance (3)


March 31, 2011		6,210	$	1,395		1,973	$	424		2,885	$	674		11,068	$	2,493

2010
December 31,		6,501		1,467		2,899		680		3,248		801		12,648		2,948
September 30,		9,887		2,212		3,605		882		3,035		748		16,527		3,842
June 30,		12,536		2,840		3,160		707		2,979		760		18,675		4,307
March 31,		10,804		2,499		2,320		519		2,843		737		15,967		3,755

December 31, 2009		8,354		1,911		2,929		886		2,965		859		14,248		3,656


(1)		Includes repurchase demands of 685 and $132 million, 1,495 and $291 million, 2,263 and $437 million, 2,141 and $417 million, and 1,824 and $372 million, for March 31, 2011, and December 31, September 30, June 30, and March 31, 2010, respectively, received from investors on mortgage servicing rights acquired from other originators. We generally have the right of recourse against the seller and may be able to recover losses related to such repurchase demands subject to counterparty risk associated with the seller.

(2)		As part of our representations and warranties in our loan sales contracts, we represent that certain loans have mortgage insurance. To the extent the mortgage insurance is rescinded by the mortgage insurer, the lack of insurance may result in a repurchase demand from an investor. Similar to repurchase demands, we evaluate mortgage insurance rescission notices for validity and appeal for reinstatement if the rescission was not based on a contractual breach.

(3)		While original loan balance related to these demands is presented above, the establishment of the repurchase reserve is based on a combination of factors, such as our appeals success rates, reimbursement by correspondent and other third party originators, and projected loss severity, which is driven by the difference between the current loan balance and the estimated collateral value less costs to sell the property.

The level of repurchase demands outstanding at March 31, 2011, was generally down from a year ago in both number of outstanding loans and in total dollar balances as we continued to work through the demands. Customary with industry practice, we have the right of recourse against correspondent lenders from whom we have purchased loans with respect to representations and warranties. Of the repurchase demands presented in Table 26, approximately 20% relate to loans purchased from correspondent lenders. Due primarily to the financial difficulties of some correspondent lenders, we typically recover on average approximately 50% of losses from these lenders. Historical recovery rates as well as projected lender performance are incorporated in the establishment of our mortgage repurchase liability.

Our liability for repurchases, included in “Accrued expenses and other liabilities” in our consolidated financial statements, was $1.2 billion at March 31, 2011, and $1.3 billion at December 31, 2010. In the quarter ended March 31, 2011, $249 million of additions to the liability were recorded, which reduced net gains on mortgage loan origination/sales activities. Our additions to the repurchase liability in the quarter ended March 31, 2011, reflect updated assumptions about the repurchase rate on outstanding demands, particularly on the 2006-2008 vintages.

We believe we have a high quality residential mortgage loan servicing portfolio. Of the $1.8 trillion in the residential mortgage loan servicing portfolio at March 31, 2011, 93% was current, less than 2% was subprime at origination, and approximately 1% was home equity securitizations. Our combined delinquency and foreclosure rate on this portfolio was 7.22% at March 31, 2011, compared with 8.02% at December 31, 2010. In this portfolio 6% are private securitizations where we originated the loan and therefore have some repurchase risk. For this private securitization segment of our residential mortgage loan servicing portfolio, 58% are loans from 2005 vintages or earlier (weighted average age of 66 months); 80% were prime at origination; and approximately 70% are jumbo loans. The weighted-average LTV as of March 31, 2011, for this private securitization segment was 77%. We believe the highest risk segment of these private securitizations are the subprime loans originated in 2006 and 2007. These subprime loans have seller representations and warranties and currently have LTVs close to or exceeding 100%, and represent 8% of the 6% private securitization portion of the residential mortgage servicing portfolio. We had only $21 million of repurchases related to private securitizations in first quarter 2011. Of the servicing portfolio, 4% is non-agency acquired servicing and 3% is private whole loan sales. We did not underwrite and securitize the non-agency acquired servicing and therefore we have no obligation on that portion of our servicing portfolio to the investor for any repurchase demands arising from origination practices.

Table 27 summarizes the changes in our mortgage repurchase liability.

Risk Management – Credit Risk Management (continued)

Table 27: Changes in Mortgage Repurchase Liability


	Quarter ended

	Mar. 31		,	Dec. 31		,	Sept. 30		,	June 30		,	Mar. 31		,
(in millions)	2011			2010			2010			2010			2010


Balance, beginning of period	$	1,289			1,331			1,375			1,263			1,033
Provision for repurchase losses:
Loan sales		35			35			29			36			44
Change in estimate – primarily due to credit deterioration		214			429			341			346			358


Total additions		249			464			370			382			402
Losses		(331	)		(506	)		(414	)		(270	)		(172	)


Balance, end of period	$	1,207			1,289			1,331			1,375			1,263

The mortgage repurchase liability of $1.2 billion at March 31, 2011, represents our best estimate of the probable loss that we may incur for various representations and warranties in the contractual provisions of our sales of mortgage loans. A range of reasonably possible losses in excess of the estimated liability may exist, but cannot be estimated with confidence. Because the level of mortgage loan repurchase losses depends upon economic factors, investor demand strategies and other external conditions that may change over the life of the underlying loans, the level of the liability for mortgage loan repurchase losses is difficult to estimate and requires considerable management judgment. We maintain regular contact with the GSEs and other significant investors to monitor and address their repurchase demand practices and concerns. For additional information on our repurchase liability, see the “Critical Accounting Policies – Liability for Mortgage Loan Repurchase Losses” section in our 2010 Form 10-K and Note 8 (Mortgage Banking Activities) to Financial Statements in this Report.

The repurchase liability is primarily applicable to loans we originated and sold with representations and warranties. Most of these loans are included in our servicing portfolio. Our repurchase liability estimate considers many factors that influence the key assumptions of what our repurchase volume may be and what loss on average we may incur. Those key assumptions and the sensitivity of the liability to immediate adverse changes in them at March 31, 2011, are presented in Table 28.


Table 28: Mortgage Repurchase Liability – Sensitivity/Assumptions

	Mortgage
	repurchase
(in millions)	liability

Balance at March 31, 2011	$	1,207

Loss on repurchases (1)		39.0	%
Increase in liability from:
10% higher losses	$	114
25% higher losses		285

Repurchase rate assumption		0.3	%
Increase in liability from:
10% higher repurchase rates	$	109
25% higher repurchase rates		273


(1)		Represents total estimated average loss rate on repurchased loans, net of recovery from third party originators, based on historical experience and current economic conditions. The average loss rate includes the impact of repurchased loans for which no loss is expected to be realized.

To the extent that economic conditions and the housing market do not recover or future investor repurchase demands and appeals success rates differ from past experience, we could continue to have increased demands and increased loss severity on repurchases, causing future additions to the repurchase liability. However, some of the underwriting standards that were permitted by the GSEs for conforming loans in the 2006 through 2008 vintages, which significantly contributed to recent levels of repurchase demands, were tightened starting in mid to late 2008. Accordingly, we do not expect a similar rate of repurchase requests from the 2009 and prospective vintages, absent deterioration in economic conditions or changes in investor behavior.

RISKS RELATING TO SERVICING ACTIVITIES In addition to servicing loans in our portfolio, we act as servicer and/or master servicer of residential mortgage loans included in GSE-guaranteed mortgage securitizations, GNMA-guaranteed mortgage securitizations and private label mortgage securitizations, as well as for unsecuritized loans owned by institutional investors. The loans we service were originated by us or by other mortgage loan originators. As servicer, our primary duties are typically to (1) collect payment due from borrowers, (2) advance certain delinquent payments of principal and interest, (3) maintain and administer any hazard, title or primary mortgage insurance policies relating to the mortgage loans, (4) maintain any required escrow accounts for payment of taxes and insurance and administer escrow payments, and (5) foreclose on defaulted mortgage loans or, to the extent consistent with the documents governing a securitization, consider alternatives to foreclosure, such as loan modifications or short sales. As master servicer, our primary duties are typically to (1) supervise, monitor and oversee the servicing of the mortgage loans by the servicer, (2) consult with each servicer and use reasonable efforts to cause the servicer to observe its servicing obligations, (3) prepare monthly distribution statements to security holders and, if required by the securitization documents, certain periodic reports required to be

filed with the Securities and Exchange Commission (SEC), (4) if required by the securitization documents, calculate distributions and loss allocations on the mortgage-backed securities, (5) prepare tax and information returns of the securitization trust, and (6) advance amounts required by non-affiliated servicers who fail to perform their advancing obligations.

Each agreement under which we act as servicer or master servicer generally specifies a standard of responsibility for actions we take in such capacity and provides protection against expenses and liabilities we incur when acting in compliance with the specified standard. For example, most private label securitization agreements under which we act as servicer or master servicer typically provide that the servicer and the master servicer are entitled to indemnification by the securitization trust for taking action or refraining from taking action in good faith or for errors in judgment. However, we are not indemnified, but rather are required to indemnify the securitization trustee, against any failure by us, as servicer or master servicer, to perform our servicing obligations or any of our acts or omissions that involve wilful misfeasance, bad faith or gross negligence in the performance of, or reckless disregard of, our duties. In addition, if we commit a material breach of our obligations as servicer or master servicer, we may be subject to termination if the breach is not cured within a specified period following notice, which can generally be given by the securitization trustee or a specified percentage of security holders. Whole loan sale contracts under which we act as servicer generally include similar provisions with respect to our actions as servicer. The standards governing servicing in GSE-guaranteed securitizations, and the possible remedies for violations of such standards, vary, and those standards and remedies are determined by servicing guides maintained by the GSEs, contracts between the GSEs and individual servicers and topical guides published by the GSEs from time to time. Such remedies could include indemnification or repurchase of an affected mortgage loan.

For additional information regarding risks relating to our servicing activities, see pages 75-76 in our 2010 Form 10-K.

The FRB and OCC completed a joint interagency horizontal examination of foreclosure processing at large mortgage servicers, including Wells Fargo, to evaluate the adequacy of their controls and governance over bank foreclosure processes, including compliance with applicable federal and state law. The OCC and other federal banking regulators published this review on April 13, 2011. We have entered into consent orders with the OCC and FRB, both of which were made public on April 13, 2011. These orders incorporate remedial requirements for identified deficiencies; however civil money penalties have not been assessed at this time. We have been working with our regulators for an extended period on servicing improvements and have already instituted enhancements. For additional information, see the discussion of mortgage-related regulatory investigations in Note 11 (Legal Actions) to Financial Statements in this Report. Changes in servicing and foreclosure practices will increase the Company’s costs of servicing mortgage loans. As part of our quarterly MSR valuation process, we assess changes in servicing and foreclosure costs, which in first quarter 2011,

Risk Management – Credit Risk Management (continued)

included the estimated impact from the regulatory consent orders.

Asset/Liability 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 (Board), consists of senior financial and business executives. Each of our principal business groups has its own asset/liability management committee and process linked to the Corporate ALCO process.

INTEREST RATE RISK Interest rate risk, which potentially can have a significant earnings impact, is an integral part of being a financial intermediary. We 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 example, as of March 31, 2011, 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 rises to 4.25% and the 10-year Constant Maturity Treasury bond yield rises to 5.55%. Simulation estimates depend on, and will change with, the size and mix of our actual and projected balance sheet at the time of each simulation. Due to timing differences between the quarterly valuation of MSRs and the eventual impact of interest rates on mortgage banking volumes, earnings at risk in any particular quarter could be higher than the average earnings at risk over the 12-month simulation period, depending on the path of interest rates and on our hedging strategies for MSRs. See the “Risk Management – Mortgage Banking Interest Rate and Market Risk” section in this Report for more information.

We use exchange-traded and over-the-counter (OTC) interest rate derivatives to hedge our interest rate exposures. The notional or contractual amount, credit risk amount and estimated net fair value of these derivatives as of March 31, 2011, and December 31, 2010, are presented in Note 12 (Derivatives) to Financial Statements in this Report.

For additional information regarding interest rate risk, see page 76 of our 2010 Form 10-K.

MORTGAGE BANKING INTEREST RATE AND MARKET RISK We originate, fund and service mortgage loans, which subjects us to various risks, including credit, liquidity and interest rate risks. For a discussion of mortgage banking interest rate and market risk, see pages 76-78 of our 2010 Form 10-K.

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

economic hedges for the MSRs may not continue if the spread between short-term and long-term rates decreases, we shift composition of the hedge to more interest rate swaps, or there are other changes in the market for mortgage forwards that affect the implied carry.

The total carrying value of our residential and commercial MSRs was $17.1 billion at March 31, 2011, and $15.9 billion at December 31, 2010. The weighted-average note rate on our portfolio of loans serviced for others was 5.31% at March 31, 2011, and 5.39% at December 31, 2010. Our total MSRs were 0.92% of mortgage loans serviced for others at March 31, 2011, compared with 0.86% at December 31, 2010.

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 credit risk amount and estimated net fair value of all customer accommodation derivatives are included in Note 12 (Derivatives) to Financial Statements in this Report. Trading positions and market risk exposure are monitored by the Market Risk Committee and Corporate ALCO.

The standardized approach for monitoring and reporting market risk for the trading activities consists of value-at-risk (VaR) metrics complemented with sensitivity 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 a 99% confidence interval based on actual changes in rates and prices over the past 250 trading days. The analysis captures all financial instruments that are considered trading positions. The average one-day VaR throughout first quarter 2011 was $25 million, with a lower bound of $19 million and an upper bound of $32 million. For additional information regarding market risk related to trading activities, see pages 78-79 of our 2010 Form 10-K.

MARKET RISK – EQUITY MARKETS We are directly and indirectly affected by changes in the equity markets. For additional information regarding market risk related to equity markets, see page 79 of our 2010 Form 10-K.

Table 29 provides information regarding our marketable and nonmarketable equity investments.

Table 29: Marketable and Nonmarketable Equity Investments


		Mar. 31	,	Dec. 31		,
(in millions)	2011			2010


Nonmarketable equity investments:
Private equity investments:
Cost method	$	3,117			3,240
Equity method		7,692			7,624
Federal bank stock		5,129			5,254
Principal investments		302			305


Total nonmarketable equity investments (1)	$	16,240			16,423


Marketable equity securities:
Cost	$	3,883			4,258
Net unrealized gains		1,125			931


Total marketable equity securities (2)	$	5,008			5,189


(1)		Included in other assets on the balance sheet. See Note 6 (Other Assets) to Financial Statements in this Report for additional information.

(2)		Included in securities available for sale. See Note 4 (Securities Available for Sale) to Financial Statements in this Report for additional information.

Risk Management – Asset/Liability Management (continued)

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 efficiently under both normal operating conditions and under unpredictable circumstances of industry or market stress. To achieve this objective, the 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.

Unencumbered debt and equity securities in the securities available-for-sale portfolio provide asset liquidity, in addition to the immediately liquid resources of cash and due from banks

and federal funds sold, securities purchased under resale agreements and other short-term investments. Asset liquidity is further enhanced by our ability to sell or securitize loans in secondary markets and to pledge loans to access secured borrowing facilities through the Federal Home Loan Banks (FHLB) and the FRB.

Core customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. Average core deposits funded 64.2% and 61.9% of average total assets in first quarter 2011 and 2010, respectively.

Additional funding is provided by long-term debt (including trust preferred securities), other foreign deposits, and short-term borrowings.

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

Table 30: Short-Term Borrowings


	Quarter ended

	Mar. 31		,	Dec. 31		,	Sept. 30		,	June 30		,	Mar. 31,
(in millions)	2011			2010			2010			2010			2010


Balance, period end
Commercial paper and other short-term borrowings	$	17,228			17,454			16,856			16,604			17,646
Federal funds purchased and securities sold under agreements to repurchase		37,509			37,947			33,859			28,583			28,687


Total	$	54,737			55,401			50,715			45,187			46,333


Average daily balance for period
Commercial paper and other short-term borrowings	$	17,005			16,370			15,761			16,316			16,885
Federal funds purchased and securities sold under agreements to repurchase		37,746			34,239			30,707			28,766			28,196


Total	$	54,751			50,609			46,468			45,082			45,081


Maximum month-end balance for period
Commercial paper and other short-term borrowings (1)	$	17,597			17,454			16,856			17,388			17,646
Federal funds purchased and securities sold under agreements to repurchase (2)		37,509			37,947			33,859			28,807			29,270


(1)		Highest month-end balance in each of the last five quarters was in February 2011, and December, September, April and March 2010.

(2)		Highest month-end balance in each of the last five quarters was in March 2011, and December, September, May and February 2010.

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 through issuances of registered debt securities, private placements and asset-backed secured funding. Investors in the long-term capital markets generally will consider, among other factors, a company’s debt rating in making investment decisions. Rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, the level and quality of earnings, and rating agency assumptions regarding the probability and extent of Federal financial assistance or support for certain large financial institutions. Adverse changes in these factors could result in a reduction of our credit rating; however, a reduction in credit rating would not cause us to violate any of our debt covenants. See the “Risk Factors” section in our 2010 Form 10-K for additional information regarding recent legislative developments and our credit ratings.

We continue to evaluate the potential impact on liquidity management of regulatory proposals, including Basel III and

those required under the Dodd-Frank Act, throughout the rule-making process.

Parent Under SEC rules, the Parent is classified as a “well-known seasoned issuer,” which allows it to file a registration statement that does not have a limit on issuance capacity. In June 2009, the Parent filed a registration statement with the SEC for the issuance of senior and subordinated notes, preferred stock and other securities. The Parent’s ability to issue debt and other securities under this registration statement is limited by the debt issuance authority granted by the Board. The Parent is currently authorized by the Board to issue $60 billion in outstanding short-term debt and $170 billion in outstanding long-term debt. During first quarter 2011, the Parent issued $5.7 billion in registered senior notes. The Parent also took several actions related to Wachovia’s 2006 issuance of 5.80% fixed-to-floating rate trust preferred securities. In February 2011, the Parent remarketed $2.5 billion of junior subordinated notes owned by an unconsolidated, wholly-owned trust. The purchasers of the junior subordinated notes exchanged them

with the Parent for newly issued senior notes, which are included in the Parent issuances described above. Proceeds of the remarketed junior subordinated securities were used by the trust to purchase $2.5 billion of Class A, Series I Preferred Stock issued by the Parent.

Parent’s proceeds from securities issued in first quarter 2011 were used for general corporate purposes, and we expect that the proceeds from securities issued in the future will also be used for the same purposes.

Table 31 provides information regarding the Parent’s medium-term note (MTN) programs. The Parent may issue senior and subordinated debt securities under Series I & J, and the European and Australian programmes. Under Series K, the Parent may issue senior debt securities linked to one or more indices.

Table 31: Medium-Term Note (MTN) Programs

March 31, 2011

Debt

Available

Date

issuance

for

(in billions)

established

authority

issuance

MTN program:

Series I & J (1)

August 2009

25.0

18.8

Series K (1)

April 2010

25.0

24.5

European (2)

December 2009

25.0

Australian (2)(3)

June 2005

AUS

10.0

6.8


(1)		SEC registered.

(2)		Not registered with the SEC. May not be offered in the United States without applicable exemptions from registration.

(3)		As amended in October 2005 and March 2010.

Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. is authorized by its board of directors to issue $100 billion in outstanding short-term debt and $125 billion in outstanding long-term debt. In December 2007, Wells Fargo Bank, N.A. established a $100 billion bank note program under which, subject to any other debt outstanding under the limits described above, it may issue $50 billion in outstanding short-term senior notes and $50 billion in long-term senior or subordinated notes. At March 31, 2011, Wells Fargo Bank, N.A. had remaining issuance capacity on the bank note program of $50 billion in short-term senior notes and $50 billion in long-term senior or subordinated notes. Securities are issued under this program as private placements in accordance with OCC regulations.

Wells Fargo Financial Canada Corporation In January 2010, Wells Fargo Financial Canada Corporation (WFFCC), an indirect wholly owned Canadian subsidiary of the Parent, qualified with the Canadian provincial securities commissions CAD$7.0 billion in medium-term notes for distribution from time to time in Canada. During first quarter 2011, WFFCC issued CAD$500 million in medium-term notes. At March 31,2011, CAD$6.5 billion remained available for future issuance. All medium-term notes issued by WFFCC are unconditionally guaranteed by the Parent.

FEDERAL HOME LOAN BANK MEMBERSHIP We are a member of the Federal Home Loan Banks based in Dallas, Des Moines and San Francisco (collectively, the FHLBs). Each member of each of the FHLBs is required to maintain a minimum investment in capital stock of the applicable FHLB. The board of directors of each FHLB can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Board. Because the extent of any obligation to increase our investment in any of the FHLBs depends entirely upon the occurrence of a future event, potential future payments to the FHLBs are not determinable.

Capital Management

We have an active program for managing stockholders’ equity and regulatory capital and we maintain a comprehensive process for assessing the Company’s overall capital adequacy. We generate capital internally primarily through the retention of earnings net of dividends. Our objective is to maintain capital levels at the Company and its bank subsidiaries above the regulatory “well-capitalized” thresholds by an amount commensurate with our risk profile and risk tolerance objectives. Our potential sources of stockholders’ equity include retained earnings and issuances of common and preferred stock. Retained earnings increased $2.9 billion from December 31, 2010, predominantly from Wells Fargo net income of $3.8 billion, less common and preferred dividends of $822 million. During first quarter 2011, we issued approximately 40 million shares of common stock, with net proceeds of $634 million.

On March 18, 2011, the Company was notified by the FRB that it did not object to the capital plan the Company submitted on January 7, 2011, as part of the Comprehensive Capital Analysis and Review (CCAR). Following that notification, the Company initiated several capital actions contemplated in its capital plan, including increasing the quarterly common stock dividend to $0.12 a share, authorizing the repurchase of an additional 200 million shares of our common stock, and issuing notice to call $3.2 billion of trust preferred securities that will no longer count as Tier 1 capital under the Dodd-Frank Act and the proposed Basel III capital standards. The Company will participate in any future CCAR activities to demonstrate that proposed capital actions are consistent with the existing supervisory guidance, including demonstrating that our internal capital assessment process is consistent with the complexity of our activities and risk profile.

From time to time the Board authorizes the Company to repurchase shares of our common stock. Although we announce when the Board authorizes share repurchases (including the authorization announced on March 18, 2011), 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 regulatory and legal considerations.

In 2008, the Board authorized the repurchase of up to 25 million additional shares of our outstanding common stock. In first quarter 2011, the Board authorized the repurchase of an additional 200 million shares. During first quarter 2011, we repurchased 1.7 million shares of our common stock, all from our employee benefit plans. At March 31, 2011, the remaining common stock repurchase authority from the 2008 and 2011 authorizations was approximately 201 million shares. For more information about share repurchases during first quarter 2011, see Part II, Item 2 of this Report.

Historically, our policy has been to repurchase shares under the “safe harbor” conditions of Rule 10b-18 of the Securities

Exchange Act of 1934 including a limitation on the daily volume of repurchases. Rule 10b-18 imposes an additional daily volume limitation on share repurchases during a pending merger or acquisition in which shares of our stock will constitute some or all of the consideration. Our management may determine that during a pending stock merger or acquisition when the safe harbor would otherwise be available, it is in our best interest to repurchase shares in excess of this additional daily volume limitation. In such cases, we intend to repurchase shares in compliance with the other conditions of the safe harbor, including the standing daily volume limitation that applies whether or not there is a pending stock merger or acquisition.

In connection with our participation in the Troubled Asset Relief Program (TARP) Capital Purchase Program (CPP), we issued to the U.S. Treasury Department warrants to purchase 110,261,688 shares of our common stock with an exercise price of $34.01 per share expiring on October 28, 2018. The Board has authorized the repurchase by the Company of up to $1 billion of the warrants. On May 26, 2010, in an auction by the U.S. Treasury, we purchased 70,165,963 of the warrants at a price of $7.70 per warrant. We have purchased an additional 651,244 warrants since the U.S. Treasury auction; however, no purchases were made during first quarter 2011. At March 31, 2011, there were 39,444,481 warrants outstanding and exercisable and $455 million of unused warrant repurchase authority. Depending on market conditions, we may purchase from time to time additional warrants and/or our outstanding debt securities in privately negotiated or open market transactions, by tender offer or otherwise.

Subsequent to the remarketing of certain junior subordinated notes issued in connection with Wachovia’s 2006 issuance of 5.80% fixed-to-floating rate trust preferred securities, the Company issued 25,010 shares of Class A, Series I Preferred Stock, with a par value of $2,501 million to Wachovia Capital Trust III (Trust), an unconsolidated wholly-owned trust. The action completed the Company’s and the Trust’s obligations under an agreement dated February 1, 2006, as amended, between the Trust and the Company (as successor to Wachovia Corporation). The Series I Preferred Stock replaces the trust preferred securities that will no longer count as Tier 1 capital under the Dodd-Frank Act.

The Company and each of our subsidiary banks are subject to various regulatory capital adequacy requirements administered by the FRB and the OCC. Risk-based capital (RBC) guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures. At March 31, 2011, the Company and each of our subsidiary banks were “well-capitalized” under applicable regulatory capital adequacy guidelines. See Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.

Current regulatory RBC rules are based primarily on broad credit-risk considerations and limited market-related risks, but do not take into account other types of risk a financial company may be exposed to. Our capital adequacy assessment process

Capital Management (continued)

contemplates a wide range of risks that the Company is exposed to and also takes into consideration our performance under a variety of stressed economic conditions, as well as regulatory expectations and guidance, rating agency viewpoints and the view of capital market participants.

In July 2009, the Basel Committee on Bank Supervision published an additional set of international guidelines for review known as Basel III and finalized these guidelines in December 2010. The additional guidelines were developed in response to the financial crisis of 2009 and 2010 and address many of the weaknesses identified in the banking sector as contributing to the crisis including excessive leverage, inadequate and low quality capital and insufficient liquidity buffers. The U.S. regulatory bodies are reviewing the final international standards and final U.S. rulemaking is expected to be completed in 2011. Although uncertainty exists regarding the final rules, we evaluate the impact of Basel III on our capital ratios based on our interpretation of the proposed capital requirements and we estimate that our Tier 1 common equity ratio under the proposal exceeded the fully-phased in minimum of 7.0% by 20 basis points at the end of first quarter 2011. This estimate is subject to

change depending on final promulgation of Basel III capital rulemaking and interpretations thereof by regulatory authorities.

We are well underway toward Basel II and Basel III implementation and are currently on schedule to enter the parallel run phase of Basel II in 2012 with regulatory approval. Our delayed entry into the parallel run phase was approved by the FRB in 2010 as a result of the acquisition of Wachovia.

At March 31, 2011, stockholders’ equity and Tier 1 common equity levels were higher than the quarter ending prior to the Wachovia acquisition. During 2009, as regulators and the market focused on the composition of regulatory capital, the Tier 1 common equity ratio gained significant prominence as a metric of capital strength. There is no mandated minimum or “well-capitalized” standard for Tier 1 common equity; instead the RBC rules state voting common stockholders’ equity should be the dominant element within Tier 1 common equity. Tier 1 common equity was $86.0 billion at March 31, 2011, or 8.93% of risk-weighted assets, an increase of $4.7 billion from December 31, 2010. Table 32 provides the details of the Tier 1 common equity calculation.

Table 32: Tier 1 Common Equity (1)


		Mar. 31		,		Dec. 31		,
(in billions)		2011				2010


Total equity		$	134.9				127.9

Noncontrolling interests			(1.5	)			(1.5	)


Total Wells Fargo stockholders’ equity			133.4				126.4


Adjustments:

Preferred equity (2)			(10.6	)			(8.1	)

Goodwill and intangible assets (other than MSRs)			(35.1	)			(35.5	)

Applicable deferred taxes			4.2				4.3

MSRs over specified limitations			(0.9	)			(0.9	)

Cumulative other comprehensive income			(4.9	)			(4.6	)

Other			(0.1	)			(0.3	)


Tier 1 common equity	(A)	$	86.0				81.3


Total risk-weighted assets (3)	(B)	$	962.9				980.0


Tier 1 common equity to total risk-weighted assets	(A)/(B)		8.93		%		8.30


(1)		Tier 1 common equity is a non-generally accepted accounting principle (GAAP) financial measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Tier 1 common equity includes total Wells Fargo stockholders’ equity, less preferred equity, goodwill and intangible assets (excluding MSRs), net of related deferred taxes, adjusted for specified Tier 1 regulatory capital limitations covering deferred taxes, MSRs, and cumulative other comprehensive income. Management reviews Tier 1 common equity along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation to total equity, because of current interest in such information on the part of market participants.

(2)		In March 2011, we issued $2.5 billion of Series I Preferred Stock to an unconsolidated wholly-owned trust.

(3)		Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets.

Critical Accounting Policies

Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2010 Form 10-K) are fundamental to understanding our results of operations and financial condition because they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Six 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;

•		purchased credit-impaired (PCI) loans;

•		the valuation of residential mortgage servicing rights (MSRs);

•		liability for mortgage loan repurchase losses;

•		the fair valuation of financial instruments; and

•		income taxes.

Management has reviewed and approved these critical accounting policies and has discussed these policies with the Board’s Audit and Examination Committee. These policies are described further in the “Financial Review – Critical Accounting Policies” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2010 Form 10-K.

Current Accounting Developments

The following accounting pronouncement has been issued by the Financial Accounting Standards Board (FASB) but is not yet effective:

•

Accounting Standards Update (ASU or Update) 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.

ASU 2011-02 provides guidance clarifying under what circumstances a creditor should classify a restructured receivable as a troubled debt restructuring (TDR). A receivable is a TDR if both of the following exist: 1) a creditor has granted a concession to the debtor, and 2) the debtor is experiencing financial difficulties. The Update clarifies that a creditor should consider all aspects of a restructuring when evaluating whether it has granted a concession, which include determining whether a debtor can obtain funds from another source at market rates and assessing the value of additional collateral and guarantees obtained at the time of restructuring. The Update also provides factors a creditor should consider when determining if a debtor is experiencing financial difficulties, such as probability of payment default and bankruptcy declarations. The Update is effective for us in third quarter 2011 with retrospective application to January 1, 2011. Early adoption is permitted. We are evaluating the impact these accounting changes may have on our consolidated financial statements.

Forward-Looking Statements

This Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” “outlook,” “forecast,” “will,” “may,” “could,” “should,” “can” and similar references to future periods. Examples of forward-looking statements in this Report include, but are not limited to, statements we make about: (i) future results of the Company; (ii) future credit quality and expectations regarding future loan losses in our loan portfolios and life-of-loan estimates; the level and loss content of NPAs and nonaccrual loans; the adequacy of the allowance for credit losses, including our current expectation of future reductions in the allowance for credit losses; and the reduction or mitigation of risk in our loan portfolios and the effects of loan modification programs; (iii) the merger integration of the Company and Wachovia, including merger costs, expense savings, revenue synergies and store conversions; (iv) our mortgage repurchase exposure and exposure relating to our foreclosure practices; (v) our current estimate of our effective tax rate for 2011; (vi) our estimated future expenses, including loan resolution costs; (vii) future capital levels and our expectations regarding our estimated Tier 1 common equity ratio under proposed Basel III capital standards; (viii) the expected outcome and impact of legal, regulatory and legislative developments, including Dodd-Frank Act and FRB restrictions on debit interchange fees; and (ix) the Company’s plans, objectives and strategies.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:

•		current and future economic and market conditions, including the effects of further declines in housing prices and high unemployment rates;

•		our capital and liquidity requirements (including under regulatory capital standards, such as the proposed Basel III capital standards, as determined and interpreted by applicable regulatory authorities) and our ability to generate capital internally or raise capital on favorable terms;

•		financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and legislation and regulation relating to overdraft fees (and changes to our overdraft practices as a

		result thereof), debit card interchange fees, credit cards, and other bank services;

•		legislative proposals to allow mortgage cram-downs in bankruptcy or require other loan modifications;

•		the extent of our success in our loan modification efforts, as well as the effects of regulatory requirements or guidance regarding loan modifications or changes in such requirements or guidance;

•		the amount of mortgage loan repurchase demands that we receive and our ability to satisfy any such demands without having to repurchase loans related thereto or otherwise indemnify or reimburse third parties, and the credit quality of or losses on such repurchased mortgage loans;

•		negative effects relating to mortgage foreclosures, including changes in our procedures or practices and/or industry standards or practices, regulatory or judicial requirements, penalties or fines, increased costs, or delays or moratoriums on foreclosures;

•		our ability to successfully integrate the Wachovia merger and realize all of the expected cost savings and other benefits and the effects of any delays or disruptions in systems conversions relating to the Wachovia integration;

•		our ability to realize the efficiency initiatives to lower expenses when and in the amount expected;

•		recognition of OTTI on securities held in our available-for-sale portfolio;

•		the effect of changes in interest rates on our net interest margin and our mortgage originations, MSRs and MHFS;

•		hedging gains or losses;

•		disruptions in the capital markets and reduced investor demand for mortgage loans;

•		our ability to sell more products to our customers;

•		the effect of the economic recession on the demand for our products and services;

•		the effect of the fall in stock market prices on our investment banking business and our fee income from our brokerage, asset and wealth management businesses;

•		our election to provide support to our mutual funds for structured credit products they may hold;

•		changes in the value of our venture capital investments;

•		changes in our accounting policies or in accounting standards or in how accounting standards are to be applied or interpreted;

•		mergers, acquisitions and divestitures;

•		changes in the Company’s credit ratings and changes in the credit quality of the Company’s customers or counterparties;

•		reputational damage from negative publicity, fines, penalties and other negative consequences from regulatory violations and legal actions;

•		the loss of checking and savings account deposits to other investments such as the stock market, and the resulting increase in our funding costs and impact on our net interest margin;

•		fiscal and monetary policies of the FRB; and

•

the other risk factors and uncertainties described under “Risk Factors” in our 2010 Form 10-K and in this Report.

In addition to the above factors, we also caution that there is no assurance that our allowance for credit losses will be adequate to cover future credit losses, especially if credit markets, housing prices and unemployment do not continue to stabilize or improve. Increases in loan charge-offs or in the allowance for

credit losses and related provision expense could materially adversely affect our financial results and condition.

Any forward-looking statement made by us in this Report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Risk Factors

An investment in the Company involves risk, including the possibility that the value of the investment could fall substantially and that dividends or other distributions on the investment could be reduced or eliminated. We discuss previously under “Forward-Looking Statements” and elsewhere in this Report, as well as in other documents we file with the SEC, risk factors that could adversely affect our financial results and condition and the value of, and return on, an investment in the Company. We refer you to the Financial Review section and Financial Statements (and related Notes) in this Report for more information about credit, interest rate, market, and litigation risks and to the “Risk Factors” and “Regulation and Supervision” sections in our 2010 Form 10-K for more information about risks. Any factor described in this Report or in our 2010 Form 10-K could by itself, or together with other factors, adversely affect our financial results and condition, or the value of an investment in the Company. There are factors not discussed in this Report or in our 2010 Form 10-K that could adversely affect our financial results and condition.

Controls and Procedures

Disclosure Controls and Procedures

As required by SEC rules, the Company’s management evaluated the effectiveness, as of March 31, 2011, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2011.

Internal Control Over Financial Reporting

Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board, 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 U.S. generally accepted accounting principles (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 first quarter 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Wells Fargo & Company and Subsidiaries

Consolidated Statement of Income (Unaudited)


	Quarter ended March 31,

(in millions, except per share amounts)		2011			2010


Interest income
Trading assets		$	350			267
Securities available for sale			2,164			2,415
Mortgages held for sale			437			387
Loans held for sale			12			34
Loans			9,387			10,038
Other interest income			122			84


Total interest income			12,472			13,225


Interest expense
Deposits			615			735
Short-term borrowings			26			18
Long-term debt			1,104			1,276
Other interest expense			76			49


Total interest expense			1,821			2,078


Net interest income			10,651			11,147
Provision for credit losses			2,210			5,330


Net interest income after provision for credit losses			8,441			5,817


Noninterest income
Service charges on deposit accounts			1,012			1,332
Trust and investment fees			2,916			2,669
Card fees			957			865
Other fees			989			941
Mortgage banking			2,016			2,470
Insurance			503			621
Net gains from trading activities			612			537
Net gains (losses) on debt securities available for sale (1)			(166	)		28
Net gains from equity investments (2)			353			43
Operating leases			77			185
Other			409			610


Total noninterest income			9,678			10,301


Noninterest expense
Salaries			3,454			3,314
Commission and incentive compensation			2,347			1,992
Employee benefits			1,392			1,322
Equipment			632			678
Net occupancy			752			796
Core deposit and other intangibles			483			549
FDIC and other deposit assessments			305			301
Other			3,368			3,165


Total noninterest expense			12,733			12,117


Income before income tax expense			5,386			4,001
Income tax expense			1,572			1,401


Net income before noncontrolling interests			3,814			2,600
Less: Net income from noncontrolling interests			55			53


Wells Fargo net income		$	3,759			2,547


Less: Preferred stock dividends and other			189			175


Wells Fargo net income applicable to common stock		$	3,570			2,372


Per share information
Earnings per common share		$	0.68			0.46
Diluted earnings per common share			0.67			0.45
Dividends declared per common share			0.12			0.05
Average common shares outstanding			5,278.8			5,190.4
Diluted average common shares outstanding			5,333.1			5,225.2


(1)		Includes other-than-temporary impairment (OTTI) credit-related losses of $80 million and $92 million recognized in earnings for the quarters ended March 31, 2011 and 2010, respectively. Total OTTI losses (gains) were $(76) million and $154 million, net of $(156) million and $62 million recognized as non-credit related OTTI in other comprehensive income) for the quarters ended March 31, 2011 and 2010, respectively.

(2)		Includes OTTI losses of $41 million and $105 million for the quarters ended March 31, 2011 and 2010, respectively.

The accompanying notes are an integral part of these statements.

Wells Fargo & Company and Subsidiaries

Consolidated Balance Sheet (Unaudited)


	Mar. 31,			Dec. 31,

(in millions, except shares)	2011			2010


Assets
Cash and due from banks	$	16,978			16,044
Federal funds sold, securities purchased under resale agreements and other short-term investments		93,041			80,637
Trading assets		57,890			51,414
Securities available for sale		167,906			172,654
Mortgages held for sale (includes $28,931 and $47,531 carried at fair value)		33,121			51,763
Loans held for sale (includes $1,003 and $873 carried at fair value)		1,428			1,290

Loans (includes $98 and $309 carried at fair value)		751,155			757,267
Allowance for loan losses		(21,983	)		(23,022	)


Net loans		729,172			734,245


Mortgage servicing rights:
Measured at fair value		15,648			14,467
Amortized		1,423			1,419
Premises and equipment, net		9,545			9,644
Goodwill		24,777			24,770
Other assets		93,737			99,781


Total assets (1)	$	1,244,666			1,258,128


Liabilities
Noninterest-bearing deposits	$	190,959			191,256
Interest-bearing deposits		646,703			656,686


Total deposits		837,662			847,942
Short-term borrowings		54,737			55,401
Accrued expenses and other liabilities		68,721			69,913
Long-term debt (includes $99 and $306 carried at fair value)		148,603			156,983


Total liabilities (2)		1,109,723			1,130,239


Equity
Wells Fargo stockholders’ equity:
Preferred stock		11,897			8,689
Common stock – $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,312,696,671 shares and 5,272,414,622 shares		8,854			8,787
Additional paid-in capital		54,815			53,426
Retained earnings		54,855			51,918
Cumulative other comprehensive income		5,021			4,738
Treasury stock – 11,818,765 shares and 10,131,394 shares		(541	)		(487	)
Unearned ESOP shares		(1,430	)		(663	)


Total Wells Fargo stockholders’ equity		133,471			126,408
Noncontrolling interests		1,472			1,481


Total equity		134,943			127,889


Total liabilities and equity	$	1,244,666			1,258,128


(1)		Our consolidated assets at March 31, 2011 and December 31, 2010, include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash and due from banks, $154 million and $200 million; Trading assets, $98 million and $143 million; Securities available for sale, $2.4 billion and $2.2 billion; Loans held for sale, $53 million and $0; Net loans, $15.4 billion and $16.7 billion; Other assets, $1.4 billion and $2.0 billion, and Total assets, $19.6 billion and $21.2 billion, respectively.

(2)		Our consolidated liabilities at March 31, 2011 and December 31, 2010, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Short-term borrowings, $31 million and $7 million; Accrued expenses and other liabilities, $90 million and $71 million; Long-term debt, $7.1 billion and $8.3 billion; and Total liabilities, $7.2 billion and $8.4 billion, respectively.

The accompanying notes are an integral part of these statements.

Wells Fargo & Company and Subsidiaries

Consolidated Statement of Changes in Equity and Comprehensive Income (Unaudited)

Preferred stock

Common stock

(in millions, except shares)

Shares

Amount

Shares

Amount

Balance January 1, 2010

9,980,940

8,485

5,178,624,593

8,743

Cumulative effect from change in accounting for VIEs

Comprehensive income:

Net income

Other comprehensive income, net of tax:

Translation adjustments

Net unrealized gains on securities available for sale,
net of reclassification of $40 million of net gains included in net income

Net unrealized gains on derivatives and hedging activities, net of reclassification
of $88 million of net gains on cash flow hedges included in net income

Unamortized losses under defined benefit plans, net of amortization

Total comprehensive income

Noncontrolling interests

Common stock issued

21,683,461

Common stock repurchased

(1,312,992

)

Preferred stock issued to ESOP

1,000,000

1,000

Preferred stock released by ESOP

Preferred stock converted to common shares

(209,008

)

(209

)

6,716,195

Common stock dividends

Preferred stock dividends

Tax benefit upon exercise of stock options

Stock incentive compensation expense

Net change in deferred compensation and related plans

Net change

790,992

791

27,086,664

Balance March 31, 2010

10,771,932

9,276

5,205,711,257

8,743

Balance January 1, 2011

10,185,303

8,689

5,262,283,228

8,787

Comprehensive income:

Net income

Other comprehensive income, net of tax:

Translation adjustments

Net unrealized gains on securities available for sale,
net of reclassification of $32 million of net losses included in net income

Net unrealized losses on derivatives and hedging activities, net of reclassification of $100 million of net gains on cash flow hedges included in net income

Unamortized gains under defined benefit plans, net of amortization

Total comprehensive income

Noncontrolling interests

Common stock issued

24,788,653

Common stock repurchased

(1,687,371

)

Preferred stock issued to ESOP

1,200,000

1,200

Preferred stock released by ESOP

Preferred stock converted to common shares

(492,873

)

(493

)

15,493,396

Preferred stock issued

25,010

2,501

Common stock dividends

Preferred stock dividends

Tax benefit upon exercise of stock options

Stock incentive compensation expense

Net change in deferred compensation and related plans

Net change

732,137

3,208

38,594,678

Balance March 31, 2011

10,917,440

11,897

5,300,877,906

8,854

The accompanying notes are an integral part of these statements.


Wells Fargo stockholders’ equity
						Cumulative									Total
Additional						other						Unearned			Wells Fargo
paid-in			Retained			comprehensive			Treasury			ESOP			stockholders’			Noncontrolling			Total
capital			earnings			income			stock			shares			equity			interests			equity

	52,878			41,563			3,009			(2,450	)		(442	)		111,786			2,573			114,359

				183												183						183


				2,547												2,547			53			2,600


							5									5						5


							984									984			1			985


							73									73						73

							16									16						16

																3,625			54			3,679

	16															16			(615	)		(599	)

	(13	)		(213	)					690						464						464

										(38	)					(38	)					(38	)

	80												(1,080	)		-						-

	(17	)											226			209						209

	(4	)								213						-						-

				(260	)											(260	)					(260	)

				(184	)											(184	)					(184	)

	51															51						51

	175															175						175

	(10	)								125						115						115

	278			2,073			1,078			990			(854	)		4,356			(561	)		3,795

	53,156			43,636			4,087			(1,460	)		(1,296	)		116,142			2,012			118,154


	53,426			51,918			4,738			(487	)		(663	)		126,408			1,481			127,889


				3,759												3,759			55			3,814


							15									15						15


							352									352			(4	)		348


							(99	)								(99	)					(99	)

							15									15						15

																4,042			51			4,093

	(35	)														(35	)		(60	)		(95	)

	593															634						634

										(55	)					(55	)					(55	)

	102												(1,302	)		-						-

	(42	)											535			493						493

	467															-						-

																2,501						2,501

	4			(638	)											(634	)					(634	)

				(184	)											(184	)					(184	)

	54															54						54

	261															261						261

	(15	)								1						(14	)					(14	)

	1,389			2,937			283			(54	)		(767	)		7,063			(9	)		7,054

	54,815			54,855			5,021			(541	)		(1,430	)		133,471			1,472			134,943

Wells Fargo & Company and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)


	Quarter ended March 31,
(in millions)		2011			2010

Cash flows from operating activities:
Net income before noncontrolling interests		$	3,814			2,600
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses			2,210			5,330
Changes in fair value of MSRs, MHFS and LHFS carried at fair value			(586	)		(80	)
Depreciation and amortization			477			713
Other net losses (gains)			(1,354	)		319
Preferred stock released by ESOP			493			209
Stock incentive compensation expense			261			175
Excess tax benefits related to stock option payments			(55	)		(51	)
Originations of MHFS			(79,389	)		(74,290	)
Proceeds from sales of and principal collected on mortgages originated for sale			88,264			81,466
Originations of LHFS			-			(3,155	)
Proceeds from sales of and principal collected on LHFS			2,299			6,036
Purchases of LHFS			(2,313	)		(2,407	)
Net change in:
Trading assets			5,826			(3,834	)
Deferred income taxes			539			1,199
Accrued interest receivable			(156	)		690
Accrued interest payable			14			(142	)
Other assets, net			2,389			3,431
Other accrued expenses and liabilities, net			(5,522	)		(9,328	)

Net cash provided by operating activities			17,211			8,881

Cash flows from investing activities:
Net change in:
Federal funds sold, securities purchased under resale agreements and other short-term investments			(12,404	)		(13,307	)
Securities available for sale:
Sales proceeds			15,361			1,795
Prepayments and maturities			11,651			9,295
Purchases			(18,831	)		(4,191	)
Loans:
Loans originated by banking subsidiaries, net of principal collected			(214	)		15,532
Proceeds from sales (including participations) of loans originated for investment by banking subsidiaries			2,165			1,341
Purchases (including participations) of loans by banking subsidiaries			(644	)		(566	)
Principal collected on nonbank entities’ loans			2,546			4,286
Loans originated by nonbank entities			(1,904	)		(2,861	)
Proceeds from sales of foreclosed assets			1,642			1,109
Changes in MSRs from purchases and sales			(45	)		(8	)
Other, net			1,909			270

Net cash provided by investing activities			1,232			12,695

Cash flows from financing activities:
Net change in:
Deposits			(10,280	)		(19,125	)
Short-term borrowings			(664	)		2,240
Long-term debt:
Proceeds from issuance			5,217			1,415
Repayment			(13,933	)		(16,508	)
Preferred stock:
Proceeds from issuance			2,501			-
Cash dividends paid			(251	)		(251	)
Common stock:
Proceeds from issuance			634			464
Repurchased			(55	)		(38	)
Cash dividends paid			(634	)		(260	)
Excess tax benefits related to stock option payments			55			51
Net change in noncontrolling interests			(99	)		(343	)

Net cash used by financing activities			(17,509	)		(32,355	)

Net change in cash and due from banks			934			(10,779	)
Cash and due from banks at beginning of period			16,044			27,080

Cash and due from banks at end of period		$	16,978			16,301

Supplemental cash flow disclosures:
Cash paid for interest		$	1,807			2,220
Cash paid for income taxes			144			325

The accompanying notes are an integral part of these statements. See Note 1 for noncash activities.

See the Glossary of Acronyms at the end of this Report for terms used throughout the Financial Statements and related Notes of this Form 10-Q.

Note 1: Summary of Significant Accounting Policies

Wells Fargo & Company is a nation-wide diversified, community-based financial services company. We provide banking, insurance, investments, mortgage banking, investment banking, retail banking, brokerage, and consumer finance through banking stores, the internet and other distribution channels to consumers, businesses and institutions in all 50 states, the District of Columbia, and in other countries. When we refer to “Wells Fargo,” “the Company,” “we,” “our” or “us” in this Form 10-Q, we mean Wells Fargo & Company and Subsidiaries (consolidated). Wells Fargo & Company (the Parent) is a financial holding company and a bank holding company. We also hold a majority interest in a real estate investment trust, which has publicly traded preferred stock outstanding.

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 based on assumptions about future economic and market conditions (for example, unemployment, market liquidity, real estate prices, etc.) that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period and the related disclosures. Although our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates in several areas, including other-than-temporary impairment (OTTI) on investment securities (Note 4), allowance for credit losses and purchased credit-impaired (PCI) loans (Note 5), valuations of residential mortgage servicing rights (MSRs) (Notes 7 and 8) and financial instruments (Note 13), liability for mortgage loan repurchase losses (Note 8) and income taxes. Actual results could differ from those estimates.

The information furnished in these unaudited interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The results of operations in the interim statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010 (2010 Form 10-K).

Accounting Standards Adopted in 2011
In first quarter 2011, we adopted certain provisions of Accounting Standards Update (ASU or Update) 2010-6, Improving Disclosures about Fair Value Measurements.

ASU 2010-6 amends the disclosure requirements for fair value measurements. Companies are required to disclose significant transfers in and out of Levels 1 and 2 of the fair value hierarchy. The Update also clarifies that fair value measurement disclosures should be presented for each asset and liability class, which is generally a subset of a line item in the statement of financial position. In the rollforward of Level 3 activity, companies must present information on purchases, sales, issuances, and settlements on a gross basis rather than on a net basis. Companies should also provide information about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring instruments classified as either Level 2 or Level 3. In first quarter 2011, we adopted the requirement for gross presentation in the Level 3 rollforward with prospective application. The remaining provisions were effective for us in first quarter 2010. Our adoption of the Update did not affect our consolidated financial statement results since it amends only the disclosure requirements for fair value measurements.

Note 1: Summary of Significant Accounting Policies (continued)

SUPPLEMENTAL CASH FLOW INFORMATION Noncash activities are presented below, including information on transfers affecting MHFS, LHFS, and MSRs.


	Quarter ended March 31,

(in millions)		2011			2010


Transfers from loans to securities available for sale		$	-			2,057

Trading assets retained from securitization of MHFS			12,302			-
Capitalization of MSRs from sale of MHFS			1,291			1,065
Transfers from MHFS to foreclosed assets			40			51
Transfers from loans to MHFS			25			46
Transfers from (to) loans to (from) LHFS			106			(149	)
Transfers from loans to foreclosed assets			1,237			2,697
Changes in consolidations of variable interest entities:
Trading assets			-			155
Securities available for sale			9			(7,590	)
Loans			(210	)		25,657
Other assets			-			193
Short-term borrowings			-			5,127
Long-term debt			(204	)		13,134
Accrued expenses and other liabilities			-			(32	)
Decrease in noncontrolling interests due to deconsolidation of subsidiaries			-			239

SUBSEQUENT EVENTS We have evaluated the effects of subsequent events that have occurred subsequent to period end March 31, 2011, and there have been no material events that

would require recognition in our first quarter 2011 consolidated financial statements or disclosure in the Notes to the financial statements.

Note 2: Business Combinations

We regularly explore opportunities to acquire financial services companies and businesses. Generally, we do not make a public announcement about an acquisition opportunity until a definitive agreement has been signed. For information on additional consideration related to acquisitions, which is considered to be a guarantee, see Note 10.

We did not complete any acquisitions in first quarter 2011. At March 31, 2011, we had one pending business combination with total assets of approximately $5 million. We expect to complete this transaction in 2011.

Note 3: Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments

The following table provides the detail of federal funds sold, securities purchased under resale agreements and other short-term investments.


	Mar. 31,		Dec. 31,

(in millions)	2011		2010


Federal funds sold and securities purchased under resale agreements	$	20,868		24,880
Interest-earning deposits		70,058		53,433
Other short-term investments		2,115		2,324


Total	$	93,041		80,637

We receive collateral from other entities under resale agreements and securities borrowings. For additional information, see Note 10.

Note 4: Securities Available for Sale

The following table provides the cost and fair value for the major categories of securities available for sale carried at fair value. The net unrealized gains (losses) are reported on an after-tax basis as

a component of cumulative OCI. There were no securities classified as held to maturity as of the periods presented.


			Gross		Gross
			unrealized		unrealized			Fair
(in millions)	Cost		gains		losses			value


March 31, 2011

Securities of U.S. Treasury and federal agencies	$	1,483		43		(19	)		1,507
Securities of U.S. states and political subdivisions		21,374		616		(831	)		21,159
Mortgage-backed securities:
Federal agencies		72,475		3,207		(130	)		75,552
Residential		17,119		2,188		(359	)		18,948
Commercial		12,823		1,343		(386	)		13,780


Total mortgage-backed securities		102,417		6,738		(875	)		108,280


Corporate debt securities		9,506		1,412		(90	)		10,828
Collateralized debt obligations (1)		5,322		478		(184	)		5,616
Other (2)		15,045		642		(179	)		15,508


Total debt securities		155,147		9,929		(2,178	)		162,898


Marketable equity securities:
Perpetual preferred securities		3,290		287		(66	)		3,511
Other marketable equity securities		593		905		(1	)		1,497


Total marketable equity securities		3,883		1,192		(67	)		5,008


Total	$	159,030		11,121		(2,245	)		167,906


December 31, 2010

Securities of U.S. Treasury and federal agencies	$	1,570		49		(15	)		1,604
Securities of U.S. states and political subdivisions		18,923		568		(837	)		18,654
Mortgage-backed securities:
Federal agencies		78,578		3,555		(96	)		82,037
Residential		18,294		2,398		(489	)		20,203
Commercial		12,990		1,199		(635	)		13,554


Total mortgage-backed securities		109,862		7,152		(1,220	)		115,794


Corporate debt securities		9,015		1,301		(37	)		10,279
Collateralized debt obligations (1)		4,638		369		(229	)		4,778
Other (2)		16,063		576		(283	)		16,356


Total debt securities		160,071		10,015		(2,621	)		167,465


Marketable equity securities:
Perpetual preferred securities		3,671		250		(89	)		3,832
Other marketable equity securities		587		771		(1	)		1,357


Total marketable equity securities		4,258		1,021		(90	)		5,189


Total	$	164,329		11,036		(2,711	)		172,654


(1)		Includes collateralized loan obligations with a cost basis and fair value of $4.7 billion and $5.0 billion, respectively, at March 31, 2011, and $4.0 billion and $4.2 billion, respectively, at December 31, 2010.

(2)		Included in the “Other” category are asset-backed securities collateralized by auto leases or loans and cash reserves with a cost basis and fair value of $4.4 billion and $4.4 billion, respectively, at March 31, 2011, and $6.2 billion and $6.4 billion, respectively, at December 31, 2010. Also included in the “Other” category are asset-backed securities collateralized by home equity loans with a cost basis and fair value of $900 million and $1.1 billion, respectively, at March 31, 2011, and $927 million and $1.1 billion, respectively, at December 31, 2010. The remaining balances primarily include asset-backed securities collateralized by credit cards and student loans.

Note 4: Securities Available for Sale (continued)

Gross Unrealized Losses and Fair Value
The following table shows the gross unrealized losses and fair value of securities in the securities available-for-sale portfolio by length of time that individual securities in each category had been in a continuous loss position. Debt securities on which we

have taken only credit-related OTTI write-downs are categorized as being “less than 12 months” or “12 months or more” in a continuous loss position based on the point in time that the fair value declined to below the cost basis and not the period of time since the credit-related OTTI write-down.


	Less than 12 months					12 months or more					Total
	Gross					Gross					Gross
	unrealized			Fair		unrealized			Fair		unrealized			Fair
(in millions)	losses			value		losses			value		losses			value


March 31, 2011

Securities of U.S. Treasury and federal agencies	$	(19	)		583		-			-		(19	)		583
Securities of U.S. states and political subdivisions		(319	)		6,358		(512	)		3,002		(831	)		9,360
Mortgage-backed securities:
Federal agencies		(121	)		15,690		(9	)		701		(130	)		16,391
Residential		(32	)		1,068		(327	)		3,870		(359	)		4,938
Commercial		(15	)		607		(371	)		4,021		(386	)		4,628


Total mortgage-backed securities		(168	)		17,365		(707	)		8,592		(875	)		25,957


Corporate debt securities		(7	)		459		(83	)		193		(90	)		652
Collateralized debt obligations		(15	)		844		(169	)		473		(184	)		1,317
Other		(13	)		933		(166	)		782		(179	)		1,715


Total debt securities		(541	)		26,542		(1,637	)		13,042		(2,178	)		39,584


Marketable equity securities:
Perpetual preferred securities		(9	)		490		(57	)		672		(66	)		1,162
Other marketable equity securities		-			-		(1	)		5		(1	)		5


Total marketable equity securities		(9	)		490		(58	)		677		(67	)		1,167


Total	$	(550	)		27,032		(1,695	)		13,719		(2,245	)		40,751


December 31, 2010

Securities of U.S. Treasury and federal agencies	$	(15	)		544		-			-		(15	)		544
Securities of U.S. states and political subdivisions		(322	)		6,242		(515	)		2,720		(837	)		8,962
Mortgage-backed securities:
Federal agencies		(95	)		8,103		(1	)		60		(96	)		8,163
Residential		(35	)		1,023		(454	)		4,440		(489	)		5,463
Commercial		(9	)		441		(626	)		5,141		(635	)		5,582


Total mortgage-backed securities		(139	)		9,567		(1,081	)		9,641		(1,220	)		19,208


Corporate debt securities		(10	)		477		(27	)		157		(37	)		634
Collateralized debt obligations		(13	)		679		(216	)		456		(229	)		1,135
Other		(13	)		1,985		(270	)		757		(283	)		2,742


Total debt securities		(512	)		19,494		(2,109	)		13,731		(2,621	)		33,225


Marketable equity securities:
Perpetual preferred securities		(41	)		962		(48	)		467		(89	)		1,429
Other marketable equity securities		-			-		(1	)		7		(1	)		7


Total marketable equity securities		(41	)		962		(49	)		474		(90	)		1,436


Total	$	(553	)		20,456		(2,158	)		14,205		(2,711	)		34,661

We do not have the intent to sell any securities included in the previous table. For debt securities included in the table, we have concluded it is more likely than not that we will not be required to sell prior to recovery of the amortized cost basis. We have assessed each security for credit impairment. For debt securities, we evaluate, where necessary, whether credit impairment exists by comparing the present value of the expected cash flows to the securities amortized cost basis. For equity securities, we consider numerous factors in determining whether impairment exists, including our intent and ability to hold the securities for a period of time sufficient to recover the cost basis of the securities.

For complete descriptions of the factors we consider when analyzing debt securities for impairment, see Note 5 in our 2010 Form 10-K. There have been no material changes to our methodologies for assessing impairment in first quarter 2011.

SECURITIES OF U.S. TREASURY AND FEDERAL AGENCIES AND FEDERAL AGENCY MORTGAGE-BACKED SECURITIES (MBS) The unrealized losses associated with U.S. Treasury and federal agency securities and federal agency MBS are primarily driven by changes in interest rates and not due to credit losses given the explicit or implicit guarantees provided by the U.S. government.

SECURITIES OF U.S. STATES AND POLITICAL SUBDIVISIONS The unrealized losses associated with securities of U.S. states and political subdivisions are primarily driven by changes in interest rates and not due to the credit quality of the securities. Substantially all of these investments are investment grade. The securities were generally underwritten in accordance with our own investment standards prior to the decision to purchase, without relying on a bond insurer’s guarantee in making the investment decision. These investments will continue to be monitored as part of our ongoing impairment analysis, but are expected to perform, even if the rating agencies reduce the credit rating of the bond insurers. As a result, we expect to recover the entire amortized cost basis of these securities.

RESIDENTIAL AND COMMERCIAL MORTGAGE-BACKED SECURITIES (MBS) The unrealized losses associated with private residential MBS and commercial MBS are primarily driven by changes in projected collateral losses, credit spreads and interest rates. We assess for credit impairment using a cash flow model. The key assumptions include default rates, severities and prepayment rates. We estimate losses to a security by forecasting the underlying mortgage loans in each transaction. We use forecasted loan performance to project cash flows to the various tranches in the structure. We also consider cash flow forecasts and, as applicable, independent industry analyst reports and forecasts, sector credit ratings, and other independent market data. Based upon our assessment of the expected credit losses of the security given the performance of the underlying collateral compared with our credit enhancement, we expect to recover the entire amortized cost basis of these securities.

CORPORATE DEBT SECURITIES The unrealized losses associated with corporate debt securities are primarily related to securities backed by commercial loans and individual issuer

companies. For securities with commercial loans as the underlying collateral, we have evaluated the expected credit losses in the security and concluded that we have sufficient credit enhancement when compared with our estimate of credit losses for the individual security. For individual issuers, we evaluate the financial performance of the issuer on a quarterly basis to determine that the issuer can make all contractual principal and interest payments. Based upon this assessment, we expect to recover the entire amortized cost basis of these securities.

COLLATERALIZED DEBT OBLIGATIONS (CDOs) The unrealized losses associated with CDOs relate to securities primarily backed by commercial, residential or other consumer collateral. The losses are primarily driven by changes in projected collateral losses, credit spreads and interest rates. We assess for credit impairment using a cash flow model. The key assumptions include default rates, severities and prepayment rates. We also consider cash flow forecasts and, as applicable, independent industry analyst reports and forecasts, sector credit ratings, and other independent market data. Based upon our assessment of the expected credit losses of the security given the performance of the underlying collateral compared with our credit enhancement, we expect to recover the entire amortized cost basis of these securities.

OTHER DEBT SECURITIES The unrealized losses associated with other debt securities primarily relate to other asset-backed securities, which are primarily backed by home equity and student loans. The losses are primarily driven by changes in projected collateral losses, credit spreads and interest rates. We assess for credit impairment using a cash flow model. The key assumptions include default rates, severities and prepayment rates. Based upon our assessment of the expected credit losses of the security given the performance of the underlying collateral compared with our credit enhancement, we expect to recover the entire amortized cost basis of these securities.

MARKETABLE EQUITY SECURITIES Our marketable equity securities include investments in perpetual preferred securities, which provide very attractive tax-equivalent yields. We evaluated these hybrid financial instruments with investment-grade ratings for impairment using an evaluation methodology similar to that used for debt securities. Perpetual preferred securities are not considered to be other-than-temporarily impaired if there is no evidence of credit deterioration or investment rating downgrades of any issuers to below investment grade, and we expect to continue to receive full contractual payments. We will continue to evaluate the prospects for these securities for recovery in their market value in accordance with our policy for estimating OTTI. We have recorded impairment write-downs on perpetual preferred securities where there was evidence of credit deterioration.

Note 4: Securities Available for Sale (continued)

The fair values of our investment securities could decline in the future if the underlying performance of the collateral for the residential and commercial MBS or other securities deteriorate and our credit enhancement levels do not provide sufficient protection to our contractual principal and interest. As a result, there is a risk that significant OTTI may occur in the future.

The following table shows the gross unrealized losses and fair value of debt and perpetual preferred securities available for sale by those rated investment grade and those rated less than investment grade, according to their lowest credit rating by Standard & Poor’s Rating Services (S&P) or Moody’s Investors Service (Moody’s). Credit ratings express opinions about the credit quality of a security. Securities rated investment grade, that is those rated BBB- or higher by S&P or Baa3 or higher by Moody’s, are generally considered by the rating agencies and

market participants to be low credit risk. Conversely, securities rated below investment grade, labeled as “speculative grade” by the rating agencies, are considered to be distinctively higher credit risk than investment grade securities. We have also included securities not rated by S&P or Moody’s in the table below based on the internal credit grade of the securities (used for credit risk management purposes) equivalent to the credit rating assigned by major credit agencies. The unrealized losses and fair value of unrated securities categorized as investment grade based on internal credit grades were $201 million and $1.9 billion, respectively, at March 31, 2011, and $83 million and $1.3 billion, respectively, at December 31, 2010. If an internal credit grade was not assigned, we categorized the security as non-investment grade.



	Investment grade					Non-investment grade

	Gross					Gross

	unrealized			Fair		unrealized			Fair

(in millions)	losses			value		losses			value


March 31, 2011

Securities of U.S. Treasury and federal agencies	$	(19	)		583		-			-
Securities of U.S. states and political subdivisions		(733	)		8,911		(98	)		449
Mortgage-backed securities:
Federal agencies		(130	)		16,391		-			-
Residential		(21	)		714		(338	)		4,224
Commercial		(200	)		3,725		(186	)		903


Total mortgage-backed securities		(351	)		20,830		(524	)		5,127

Corporate debt securities		(13	)		339		(77	)		313
Collateralized debt obligations		(42	)		954		(142	)		363
Other		(158	)		1,477		(21	)		238


Total debt securities		(1,316	)		33,094		(862	)		6,490
Perpetual preferred securities		(63	)		1,052		(3	)		110


Total	$	(1,379	)		34,146		(865	)		6,600


December 31, 2010

Securities of U.S. Treasury and federal agencies	$	(15	)		544		-			-
Securities of U.S. states and political subdivisions		(722	)		8,423		(115	)		539
Mortgage-backed securities:
Federal agencies		(96	)		8,163		-			-
Residential		(23	)		888		(466	)		4,575
Commercial		(299	)		4,679		(336	)		903


Total mortgage-backed securities		(418	)		13,730		(802	)		5,478


Corporate debt securities		(22	)		330		(15	)		304
Collateralized debt obligations		(42	)		613		(187	)		522
Other		(180	)		2,510		(103	)		232


Total debt securities		(1,399	)		26,150		(1,222	)		7,075
Perpetual preferred securities		(81	)		1,327		(8	)		102


Total	$	(1,480	)		27,477		(1,230	)		7,177

Contractual Maturities
The following table shows the remaining contractual maturities and contractual yields of debt securities available for sale. The remaining contractual principal maturities for MBS do not consider prepayments. Remaining expected maturities will differ

from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature.

Remaining contractual maturity

Weighted-

After one year

After five years

Total

average

Within one year

through five years

through ten years

After ten years

(in millions)

amount

yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

March 31, 2011

Securities of U.S. Treasury and federal agencies

1,507

3.05

4.99

583

2.86

816

3.04

100

4.04

Securities of U.S. states and political subdivisions

21,159

5.66

339

3.12

4,565

3.07

1,935

5.85

14,320

6.52

Mortgage-backed securities:

Federal agencies

75,552

5.06

6.57

6.09

529

5.06

74,984

5.06

Residential

18,948

5.02

660

2.04

18,288

5.13

Commercial

13,780

5.39