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 June 30, 2011

Commission file number 001-2979

WELLS FARGO & COMPANY

(Exact name of registrant as specified in its charter)


Delaware (State of incorporation)		No. 41-0449260 (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 o

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 o

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 o

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

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

Yes o 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
		July 29, 2011
Common stock, $1-2/3 par value		5,279,840,998

FORM 10-Q
CROSS-REFERENCE INDEX


PART I	Financial Information
Item 1.	Financial Statements				Page
	Consolidated Statement of Income				71
	Consolidated Balance Sheet				72
	Consolidated Statement of Changes in Equity and Comprehensive Income				73
	Consolidated Statement of Cash Flows				75
	Notes to Financial Statements
		1	-	Summary of Significant Accounting Policies	76
		2	-	Business Combinations	77
		3	-	Federal Funds Sold, Securities Purchased under Resale Agreements and Other
				Short-Term Investments	77
		4	-	Securities Available for Sale	78
		5	-	Loans and Allowance for Credit Losses	87
		6	-	Other Assets	103
		7	-	Securitizations and Variable Interest Entities	104
		8	-	Mortgage Banking Activities	115
		9	-	Intangible Assets	118
		10	-	Guarantees, Pledged Assets and Collateral	119
		11	-	Legal Actions	121
		12	-	Derivatives	123
		13	-	Fair Values of Assets and Liabilities	130
		14	-	Preferred Stock	146
		15	-	Employee Benefits	149
		16	-	Earnings Per Common Share	150
		17	-	Operating Segments	151
		18	-	Condensed Consolidating Financial Statements	153
		19	-	Regulatory and Agency Capital Requirements	157

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				11
	Off-Balance Sheet Arrangements				16
	Risk Management				17
	Capital Management				49
	Critical Accounting Policies				52
	Current Accounting Developments				53
	Regulatory and Other Developments				54
	Forward-Looking Statements				55
	Risk Factors				57
	Glossary of Acronyms				158

Item 3.	Quantitative and Qualitative Disclosures About Market Risk				45

Item 4.	Controls and Procedures				70

PART II	Other Information
Item 1.	Legal Proceedings				159

Item 1A.	Risk Factors				159

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds				159

Item 6.	Exhibits				160

Signature					160

Exhibit Index					161
Exhibit 10(a)
Exhibit 12(a)
Exhibit 12(b)
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)
Exhibit 99(a)
Exhibit 99(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							June 30, 2011 from						Six months ended
	June 30,			Mar. 31,		June 30,		Mar. 31,			June 30,			June 30,		June 30,		%
($ in millions, except per share amounts)	2011			2011		2010		2011			2010			2011		2010		Change

For the Period
Wells Fargo net income	$	3,948			3,759		3,062		5	%		29			7,707		5,609		37	%
Wells Fargo net income applicable to common stock		3,728			3,570		2,878		4			30			7,298		5,250		39
Diluted earnings per common share		0.70			0.67		0.55		4			27			1.37		1.00		37
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)		1.27	%		1.23		1.00		3			27			1.25		0.92		36
Wells Fargo net income applicable to common stock to average
Wells Fargo common stockholders’ equity (ROE)		11.92			11.98		10.40		-			15			11.95		9.69		23
Efficiency ratio (1)		61.2			62.6		59.6		(2	)		3			61.9		58.0		7
Total revenue	$	20,386			20,329		21,394		-			(5	)		40,715		42,842		(5	)
Pre-tax pre-provision profit (PTPP)(2)		7,911			7,596		8,648		4			(9	)		15,507		17,979		(14	)
Dividends declared per common share		0.12			0.12		0.05		-			140			0.24		0.10		140
Average common shares outstanding		5,286.5			5,278.8		5,219.7		-			1			5,282.7		5,205.1		1
Diluted average common shares outstanding		5,331.7			5,333.1		5,260.8		-			1			5,329.9		5,243.0		2
Average loans	$	751,253			754,077		772,460		-			(3	)		752,657		784,856		(4	)
Average assets		1,250,945			1,241,176		1,224,180		1			2			1,246,088		1,225,145		2
Average core deposits (3)		807,483			796,826		761,767		1			6			802,184		760,475		5
Average retail core deposits (4)		592,974			584,100		574,436		2			3			588,561		574,059		3
Net interest margin		4.01	%		4.05		4.38		(1	)		(8	)		4.03		4.33		(7	)
At Period End
Securities available for sale	$	186,298			167,906		157,927		11			18			186,298		157,927		18
Loans		751,921			751,155		766,265		-			(2	)		751,921		766,265		(2	)
Allowance for loan losses		20,893			21,983		24,584		(5	)		(15	)		20,893		24,584		(15	)
Goodwill		24,776			24,777		24,820		-			-			24,776		24,820		-
Assets		1,259,734			1,244,666		1,225,862		1			3			1,259,734		1,225,862		3
Core deposits (3)		808,970			795,038		758,680		2			7			808,970		758,680		7
Wells Fargo stockholders’ equity		136,401			133,471		119,772		2			14			136,401		119,772		14
Total equity		137,916			134,943		121,398		2			14			137,916		121,398		14
Tier 1 capital (5)		113,466			110,761		101,992		2			11			113,466		101,992		11
Total capital (5)		149,538			147,311		141,088		2			6			149,538		141,088		6
Capital ratios:
Total equity to assets		10.95	%		10.84		9.90		1			11			10.95		9.90		11
Risk-based capital (5):
Tier 1 capital		11.69			11.50		10.51		2			11			11.69		10.51		11
Total capital		15.41			15.30		14.53		1			6			15.41		14.53		6
Tier 1 leverage (5)		9.43			9.27		8.66		2			9			9.43		8.66		9
Tier 1 common equity (6)		9.15			8.93		7.61		2			20			9.15		7.61		20
Common shares outstanding		5,278.2			5,300.9		5,231.4		-			1			5,278.2		5,231.4		1
Book value per common share	$	23.84			23.18		21.35		3			12			23.84		21.35		12
Common stock price:
High		32.63			34.25		34.25		(5	)		(5	)		34.25		34.25		-
Low		25.26			29.82		25.52		(15	)		(1	)		25.26		25.52		(1	)
Period end		28.06			31.71		25.60		(12	)		10			28.06		25.60		10
Team members (active, full-time equivalent)		266,600			270,200		267,600		(1	)		-			266,600		267,600		-


(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 Quarterly Report, 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. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” and “Risk Factors” sections, as well as in the “Regulation and Supervision” section of our Annual Report on Form 10-K for the year ended December 31, 2010 (2010 Form 10-K).

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). 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 diversified financial services company with $1.3 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, insurance, trust and investments, mortgage banking, investment banking, retail banking, brokerage services and consumer and commercial finance through more than 9,000 banking stores, 12,000 ATMs, 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. With approximately 275,000 team members, we serve one in three households in America and ranked No. 23 on Fortune’s 2011 rankings of America’s largest corporations. We ranked fourth in assets and second in the market value of our common stock among our large bank peers at June 30, 2011.

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 5.84 products per household in second quarter 2011, up from 5.64 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 4.17 products in our Western footprint in second quarter

2011 (including legacy Wells Fargo and converted Wachovia customers), up from 3.88 a year ago.

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.

Expense management is important to us, but we approach this in a manner intended to help ensure our revenue is not adversely affected. Our current company-wide expense management initiative is focused on removing unnecessary complexity and eliminating duplication as a way to improve the customer experience and the work process of our team members. We are still in the early stages of this initiative and expect meaningful cost savings over time. With this initiative and the completion of merger-related activities, we are targeting to reduce quarterly noninterest expense to $11 billion by fourth quarter 2012 from $12.5 billion in second quarter 2011. The target reflects expense savings initiatives that will be executed over the next six quarters. Quarterly expense trends may vary due to cyclical or seasonal factors, particularly in the first quarter of each year when higher incentive compensation and employee benefit expenses typically occur.

Financial Performance

Wells Fargo net income was $3.9 billion in second quarter 2011, up 29% from a year ago, and diluted earnings per common share were $0.70, up 27%. Our net income growth from a year ago included contributions from each of our three business segments: Community Banking (up 22%); Wholesale Banking (up 32%); and Wealth, Brokerage and Retirement (up 23%).

On a linked-quarter basis, total revenues, loans, deposits and capital and capital ratios increased; our credit quality improved;

Overview (continued)

and our noninterest expense decreased. On a year-over-year basis, revenue was down 5% in second quarter 2011, 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 down 2% from a year ago reflecting the benefit of reduced core deposit amortization and lower litigation accruals.

Our average core deposits grew 6% from a year ago to $807.5 billion at June 30, 2011. Average core deposits were 107% of total average loans in second quarter 2011, up from 99% a year ago. We continued to attract high quality core deposits in the form of checking and savings deposits, which grew 9% to $735.4 billion in second quarter 2011, from $672.0 billion a year ago, as we added new customers and deepened our relationships with existing customers.

Credit Quality

We continued to experience significant improvement in our credit portfolio with lower net charge-offs, lower nonperforming assets (NPAs) and improved delinquency trends from first quarter 2011. 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 $5.1 billion in second quarter 2011, and $69.0 billion in total since the Wachovia acquisition, to $121.8 billion at June 30, 2011.

Reflecting the improved performance in our loan portfolios, the $1.8 billion provision for credit losses for second quarter 2011 was $2.2 billion less than a year ago. The provision for credit losses was $1 billion less than net charge-offs in second quarter 2011 and $500 million less than net charge-offs for the same period a year ago. Absent significant deterioration in the economy, we expect future allowance releases. Second quarter 2011 marked the sixth consecutive quarter of decline in net charge-offs and the third consecutive quarter of reduced NPAs. Net charge-offs decreased significantly to $2.8 billion in second quarter 2011 from $3.2 billion in first quarter 2011, and $4.5 billion a year ago. NPAs decreased to $27.9 billion at June 30, 2011, from $30.5 billion at March 31, 2011, and $32.8 billion a year ago. Loans 90 days or more past due and still accruing (excluding government insured/guaranteed loans) decreased to $1.8 billion at June 30, 2011, from $2.4 billion at March 31, 2011, and $3.9 billion a year ago. In addition, the portfolio of purchased credit-impaired (PCI) loans acquired in the Wachovia merger continued to perform better than expected at the time of the merger.

Capital

We continued to build capital in second quarter 2011, with total stockholders’ equity up $10.0 billion from year-end 2010. In second quarter 2011, our Tier 1 common equity ratio grew 22 basis points to 9.15% of risk-weighted assets under Basel I, reflecting strong internal capital generation. Under current Basel III capital proposals, we estimate that our Tier 1 common equity ratio was 7.35% at the end of second quarter 2011. Our

other regulatory capital ratios also continued to grow with the Tier 1 capital ratio reaching 11.69% and Tier 1 leverage ratio reaching 9.43% at June 30, 2011. Additional capital requirements applicable to certain global systemically important financial institutions are under consideration by the Basel Committee. See the “Capital Management” section in this Report for more information regarding our capital, including Tier 1 common equity.

We redeemed $3.4 billion of trust preferred securities and re-started our open market common stock repurchase program. During second quarter 2011, we repurchased 35 million shares of our common stock. We also paid a quarterly dividend of $0.12 per common share.

Wachovia Merger Integration

On December 31, 2008, Wells Fargo acquired Wachovia, one of the nation’s largest diversified financial services companies. Our integration progress to date is on track and on schedule, and business and revenue synergies have exceeded our expectations since the merger was announced. To date we have converted 2,215 Wachovia stores and 23.7 million customer accounts, including mortgage, deposit, trust, brokerage and credit card accounts. With our conversion of retail banking stores in Pennsylvania and Florida (completed in early July), 83% of our banking customers company-wide are now on a single deposit system. The remaining Eastern banking markets are scheduled to convert by year-end 2011.

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. Some examples of merger revenue synergies include the following:

•		Consumer checking account sales in the Eastern retail banking stores were up over 30% from a year ago.
•		Credit card new account growth in the East was up over 140% from a year ago.
•		Wachovia had a well-run auto business that has enabled us to increase our auto loan market share. As a result, we continue to be the largest used car lender and are now the second largest auto lender in the industry.
•		Our investment banking market share increased to 4.7% for the first half of 2011 from 3.7% for the first half of 2009, and our investment banking revenue from corporate and commercial customers increased 53% in the first half of 2011 compared with the same period last year.
•		We have experienced a 27% increase in client assets in our Wealth, Brokerage and Retirement segment and our broker loan originations have grown 47% since the merger.

As a result of PCI accounting for loans acquired in the Wachovia merger, ratios of the Company, including the growth rate in 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.

Earnings Performance

Wells Fargo net income for second quarter 2011 was $3.9 billion ($0.70 diluted per common share) with $3.7 billion applicable to common stock, compared with net income of $3.1 billion ($0.55 diluted per common share) with $2.9 billion applicable to common stock for second quarter 2010. Net income for the first half of 2011 was $7.7 billion, up 37% from the same period a year ago. Our June 30, 2011, quarter-to-date and year-to-date earnings compared with the same periods a year ago reflected strong business fundamentals with diversified sources of fee income, increased deposits, lower operating costs, improved credit quality and higher capital levels.

Revenue, the sum of net interest income and noninterest income, was $20.4 billion in second quarter 2011 compared with $21.4 billion in second quarter 2010. Revenue for the first half of 2011 was $40.7 billion, down 5% from the same period a year ago. The decline in revenue in the first half of 2011 was predominantly due to lower net interest income and lower mortgage banking revenue. However, many businesses generated year over year quarterly revenue growth, including commercial banking, corporate banking, commercial real estate, international, debit card, global remittance, retail brokerage, auto dealer services and wealth management. Net interest income of $10.7 billion in second quarter 2011 declined 7% from a year ago driven by a 37 basis point decline in the net interest margin and a 3% decline in average loans. The decline in average loans reflected continued reductions in the non-strategic/liquidating portfolios. Continued success in generating low-cost deposits enabled the Company to grow assets while reducing long-term debt since December 31, 2010, including the redemption of $3.4 billion of higher-yielding trust preferred securities.

Noninterest expense was $12.5 billion (61% of revenue) in second quarter 2011, compared with $12.7 billion (60% of revenue) a year ago. Noninterest expense was $25.2 billion for the first half of 2011 compared with $24.9 billion for the same period a year ago. The second quarter and first half of 2011 included $484 million and $924 million, respectively, of merger integration costs (down from $498 million in second quarter 2010 and up from $878 million in the first half of 2010), and $428 million and $900 million, respectively, of operating losses (down from $627 million in second quarter 2010 and up from $835 million in the first half of 2010).

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 $10.9 billion and $21.7 billion in the second quarter and first half of 2011, compared with $11.6 billion and $22.9 billion for the same periods a year ago. The net interest margin was 4.01% and 4.03% in the second quarter and first half of 2011, respectively, down from 4.38% and 4.33% for the same periods a year ago. Net interest margin was compressed relative to second quarter and first half of 2010 as lower-yielding cash and short-term investments increased as loan balances declined. The impact of these factors was somewhat mitigated by reduced long-term debt expense and continued disciplined deposit pricing.

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 second quarter 2011 to 69% (69% in the first half of 2011) of average earning assets from 72% in second quarter 2010 (73% in the first half of 2010). Average short-term investments and trading account assets were 12% of earning assets in both the second quarter and first half of 2011, up from 9% and 8%, respectively, for the same periods a year ago.

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 $807.5 billion in second quarter 2011 ($802.2 billion in the first half of 2011) from $761.8 billion in second quarter 2010 ($760.5 billion in the first half of 2010) and funded 107% and 99% (107% and 97% for the first half of the year) of average loans, respectively. Average core deposits increased to 74% of average earning assets in the second quarter and first half of 2011 compared with 71% for each respective period 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 the second quarter and first half of 2010. About 91% of our average 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 June 30,
	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	$	98,519			0.32	%	$	80		67,712			0.33	%	$	56
Trading assets		38,015			3.71			352		28,760			3.79			272
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies		2,091			2.33			12		2,094			3.50			18
Securities of U.S. states and political subdivisions		22,610			5.35			302		16,192			6.48			255
Mortgage-backed securities:
Federal agencies		74,402			4.76			844		72,876			5.39			930
Residential and commercial		32,536			8.86			664		33,197			9.59			769


Total mortgage-backed securities		106,938			5.98			1,508		106,073			6.72			1,699
Other debt and equity securities		37,037			5.81			502		33,270			7.21			562


Total securities available for sale		168,676			5.81			2,324		157,629			6.75			2,534
Mortgages held for sale (4)		30,674			4.73			362		32,196			5.04			405
Loans held for sale (4)		1,356			5.05			17		4,386			2.73			30
Loans:
Commercial:
Commercial and industrial		153,630			4.60			1,761		147,965			5.44			2,009
Real estate mortgage		101,437			4.16			1,051		97,731			3.89			949
Real estate construction		21,987			4.64			254		33,060			3.44			284
Lease financing		12,899			7.72			249		13,622			9.54			325
Foreign		36,445			2.65			241		29,048			3.62			262


Total commercial		326,398			4.37			3,556		321,426			4.78			3,829


Consumer:
Real estate 1-4 family first mortgage		224,873			4.97			2,792		237,500			5.24			3,108
Real estate 1-4 family junior lien mortgage		91,934			4.25			975		102,678			4.53			1,162
Credit card		20,954			12.97			679		22,239			13.24			736
Other revolving credit and installment		87,094			6.32			1,372		88,617			6.57			1,452


Total consumer		424,855			5.48			5,818		451,034			5.74			6,458


Total loans (4)		751,253			5.00			9,374		772,460			5.34			10,287
Other		4,997			4.10			52		6,082			3.44			53


Total earning assets	$	1,093,490			4.64	%	$	12,561		1,069,225			5.14	%	$	13,637


Funding sources
Deposits:
Interest-bearing checking	$	53,344			0.09	%	$	12		61,212			0.13	%	$	19
Market rate and other savings		455,126			0.20			226		412,062			0.26			267
Savings certificates		72,100			1.42			256		89,773			1.44			323
Other time deposits		12,988			2.03			67		14,936			1.90			72
Deposits in foreign offices		57,899			0.23			33		57,461			0.23			33


Total interest-bearing deposits		651,457			0.37			594		635,444			0.45			714
Short-term borrowings		53,340			0.18			24		45,082			0.22			25
Long-term debt		145,431			2.78			1,009		195,440			2.52			1,233
Other liabilities		10,978			3.03			83		6,737			3.33			55


Total interest-bearing liabilities		861,206			0.80			1,710		882,703			0.92			2,027
Portion of noninterest-bearing funding sources		232,284			-			-		186,522			-			-


Total funding sources	$	1,093,490			0.63			1,710		1,069,225			0.76			2,027


Net interest margin and net interest income on a taxable-equivalent basis (5)					4.01	%	$	10,851					4.38	%	$	11,610


Noninterest-earning assets
Cash and due from banks	$	17,373								17,415
Goodwill		24,773								24,820
Other		115,309								112,720


Total noninterest-earning assets	$	157,455								154,955


Noninterest-bearing funding sources
Deposits	$	199,339								176,908
Other liabilities		53,169								43,713
Total equity		137,231								120,856
Noninterest-bearing funding sources used to fund earning assets		(232,284	)							(186,522	)


Net noninterest-bearing funding sources	$	157,455								154,955


Total assets	$	1,250,945								1,224,180


(1)		Our average prime rate was 3.25% for the quarters ended June 30, 2011 and 2010. The average three-month London Interbank Offered Rate (LIBOR) was 0.26% and 0.44% 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)		Nonaccrual loans and related income are included in their respective loan categories.

(5)		Includes taxable-equivalent adjustments of $173 million and $161 million for June 30, 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.


	Six months ended June 30,
	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	$	90,994			0.34	%	$	152		54,347			0.33	%	$	89
Trading assets		37,711			3.76			708		28,338			3.85			544
Securities available for sale (3):
Securities of U.S. Treasury and federal agencies		1,834			2.56			23		2,186			3.56			38
Securities of U.S. states and political subdivisions		21,098			5.39			572		14,951			6.53			476
Mortgage-backed securities:
Federal agencies		73,937			4.74			1,676		76,284			5.39			1,953
Residential and commercial		32,734			9.28			1,396		32,984			9.63			1,559


Total mortgage-backed securities		106,671			6.10			3,072		109,268			6.70			3,512
Other debt and equity securities		36,482			5.68			967		32,810			6.86			1,054


Total securities available for sale		166,085			5.87			4,634		159,215			6.67			5,080
Mortgages held for sale (4)		34,686			4.61			799		31,784			4.99			792
Loans held for sale (4)		1,167			4.98			29		5,390			2.39			64
Loans:
Commercial:
Commercial and industrial		151,849			4.62			3,484		152,192			4.97			3,752
Real estate mortgage		100,621			4.04			2,018		97,848			3.79			1,839
Real estate construction		23,128			4.44			509		34,448			3.25			555
Lease financing		12,959			7.78			504		13,814			9.38			648
Foreign		35,050			2.73			476		28,807			3.62			518


Total commercial		323,607			4.35			6,991		327,109			4.50			7,312


Consumer:
Real estate 1-4 family first mortgage		227,208			4.99			5,659		241,241			5.25			6,318
Real estate 1-4 family junior lien mortgage		93,313			4.30			1,993		104,151			4.50			2,330
Credit card		21,230			13.08			1,388		22,789			13.20			1,503
Other revolving credit and installment		87,299			6.34			2,743		89,566			6.49			2,879


Total consumer		429,050			5.51			11,783		457,747			5.72			13,030


Total loans (4)		752,657			5.01			18,774		784,856			5.21			20,342
Other		5,111			4.00			102		6,075			3.40			103


Total earning assets	$	1,088,411			4.69	%	$	25,198		1,070,005			5.10	%	$	27,014


Funding sources
Deposits:
Interest-bearing checking	$	55,909			0.09	%	$	26		61,614			0.14	%	$	42
Market rate and other savings		449,388			0.21			463		408,026			0.27			553
Savings certificates		73,229			1.41			511		92,254			1.40			640
Other time deposits		13,417			2.14			143		15,405			1.97			152
Deposits in foreign offices		57,687			0.23			66		56,453			0.22			62


Total interest-bearing deposits		649,630			0.38			1,209		633,752			0.46			1,449
Short-term borrowings		54,041			0.20			54		45,082			0.20			44
Long-term debt		147,774			2.86			2,113		202,186			2.48			2,509
Other liabilities		10,230			3.13			159		6,203			3.38			104
-

Total interest-bearing liabilities		861,675			0.82			3,535		887,223			0.93			4,106
Portion of noninterest-bearing funding sources		226,736			-			-		182,782			-			-


Total funding sources	$	1,088,411			0.66			3,535		1,070,005			0.77			4,106
-

Net interest margin and net interest income on a taxable-equivalent basis (5)					4.03	%	$	21,663					4.33	%	$	22,908


Noninterest-earning assets
Cash and due from banks	$	17,367								17,730
Goodwill		24,774								24,818
Other		115,536								112,592


Total noninterest-earning assets	$	157,677								155,140
-

Noninterest-bearing funding sources
Deposits	$	196,237								174,487
Other liabilities		54,237								44,224
Total equity		133,939								119,211
Noninterest-bearing funding sources used to fund earning assets		(226,736	)							(182,782	)


Net noninterest-bearing funding sources	$	157,677								155,140


Total assets	$	1,246,088								1,225,145

Noninterest Income

Table 2: Noninterest Income


									Six months
	Quarter ended June 30,					%			ended June 30,					%
(in millions)	2011			2010		Change			2011			2010		Change


Service charges on deposit accounts	$	1,074			1,417		(24)	%	$	2,086			2,749		(24	) %
Trust and investment fees:
Trust, investment and IRA fees		1,020			1,035		(1	)		2,080			2,084		-
Commissions and all other fees		1,924			1,708		13			3,780			3,328		14


Total trust and investment fees		2,944			2,743		7			5,860			5,412		8


Card fees		1,003			911		10			1,960			1,776		10
Other fees:
Cash network fees		94			58		62			175			113		55
Charges and fees on loans		404			401		1			801			820		(2	)
Processing and all other fees		525			523		-			1,036			990		5


Total other fees		1,023			982		4			2,012			1,923		5


Mortgage banking:
Servicing income, net		877			1,218		(28	)		1,743			2,584		(33	)
Net gains on mortgage loan origination/sales activities		742			793		(6	)		1,892			1,897		-


Total mortgage banking		1,619			2,011		(19	)		3,635			4,481		(19	)


Insurance		568			544		4			1,071			1,165		(8	)
Net gains from trading activities		414			109		280			1,026			646		59
Net gains (losses) on debt securities available for sale		(128	)		30	NM				(294	)		58	NM
Net gains (losses) from equity investments		724			288		151			1,077			331		225
Operating leases		103			329		(69	)		180			514		(65	)
All other		364			581		(37	)		773			1,191		(35	)


Total	$	9,708			9,945		(2	)	$	19,386			20,246		(4	)


NM — Not meaningful

Noninterest income was $9.7 billion and $9.9 billion for second quarter 2011 and 2010, respectively, and $19.4 billion and $20.2 billion for the first half of 2011 and 2010, respectively. Noninterest income represented 48% of revenue for both periods in 2011. The decrease in total noninterest income in the second quarter and first half of 2011 from the same periods a year ago was due largely to lower mortgage banking net servicing income and lower service charges on deposit accounts.

Our service charges on deposit accounts decreased 24% in the second quarter and first half of 2011 from the same periods a year ago, primarily due to changes mandated by 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 June 30, 2011, these assets totaled $2.2 trillion, up 16% from $1.9 trillion at June 30, 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 $1.0 billion and $2.1 billion in the second quarter and first half of 2011, respectively, flat from a year ago for both periods.

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 second

quarter 2011 from $1.7 billion a year ago and increased to $3.8 billion for the first half of 2011 from $3.3 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 June 30, 2011, up from $1.1 trillion a year ago.

Card fees increased to $1.0 billion in second quarter 2011, from $911 million in second quarter 2010. For the first six months of 2011, these fees increased to $2.0 billion from $1.8 billion a year ago. The increase is mainly due to growth in purchase volume and new accounts growth. With the final FRB rules regarding debit card interchange fees, we estimate a quarterly reduction in earnings of approximately $250 million (after tax), before the impact of any offsetting actions, starting in fourth quarter 2011. We expect to recapture at least half of this earnings reduction over time through volume and product changes.

Mortgage banking noninterest income consists of net servicing income and net gains on loan origination/sales activities and totaled $1.6 billion in second quarter 2011, compared with $2.0 billion a year ago. The first half of 2011 showed a decrease to $3.6 billion from $4.5 billion for the same period 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 second quarter 2011 included a $374 million net MSR valuation gain ($1.08 billion decrease in the fair value of the MSRs offset by a $1.45 billion hedge gain) and for second quarter 2010 included a $626 million net MSR valuation gain ($2.7 billion decrease in the fair value of MSRs offset by a $3.3 billion hedge gain). For the first half of 2011, it included a $753 million net MSR valuation gain ($576 million decrease in the fair value of MSRs offset by a $1.33 billion hedge gain) and for the same period of 2010, included a $1.6 billion net MSR valuation gain ($3.44 billion decrease in the fair value of MSRs offset by a $5.05 billion hedge gain). The valuation of our MSRs at the end of second quarter 2011 reflected our assessment of expected future levels 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 in this Report for information on the regulatory consent orders. The $252 million and $862 million decline in net MSR valuation gain results for the second quarter and first half of 2011, respectively, compared with the same periods last year 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 $1.87 trillion at June 30, 2011, and $1.84 trillion at December 31, 2010. At June 30, 2011, the ratio of MSRs to related loans serviced for others was 0.87%, compared with 0.86% at December 31, 2010.

Income from loan origination/sale activities was $742 million in second quarter 2011 compared with $793 million a year ago. The decrease in second quarter 2011 was driven by lower loan origination volume and margins on loan originations, offset by lower provision for mortgage loan repurchase losses. Income of $1.9 billion from loan origination/sales activities for the first half of 2011 remained flat from a year ago.

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 second quarter 2011 totaled $242 million (compared with $382 million for second quarter 2010), of which $222 million ($346 million for second quarter 2010) was for subsequent increases in estimated losses on prior period loan sales. 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 $64 billion in second quarter 2011 compared with $81 billion a year ago and mortgage applications were $109 billion in second quarter 2011 compared with $143 billion a year ago. The 1-4 family first mortgage unclosed pipeline was $51 billion at June 30, 2011, and

$68 billion a year ago. 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 from trading activities, which reflect unrealized and realized net gains due to changes in fair value of our trading positions, were $414 million and $1.0 billion in the second quarter and first half of 2011, respectively, compared with $109 million and $646 million for the same periods a year ago. The year over year increase for the second quarter and first half of 2011 was driven by improved valuation of certain contracts utilized in some of our customer accommodation trading activity. Net gains from trading activities do not include interest income and other fees earned from related activities. Those amounts are reported within interest income from trading assets and other fees within noninterest income line items of the income statement. Net gains from trading activities are primarily from trading done on behalf of or driven by the needs of our customers (customer accommodation trading) and also include the results of certain economic hedging and proprietary trading. Net losses from proprietary trading totaled $23 million and $9 million in the second quarter and first half of 2011, respectively, compared with $199 million and $228 million for the same periods a year ago. These net proprietary trading losses were offset by interest and fees reported in their corresponding income statement line items. Proprietary trading activities are not significant to our client focused business model. Our trading activities and what we consider to be customer accommodation, economic hedging and proprietary trading are further discussed in the “Asset/Liability Management — Market Risk — Trading Activities” section in this Report.

Net gains on debt and equity securities totaled $596 million for second quarter 2011 and $318 million for second quarter 2010, after other-than-temporary impairment (OTTI) write-downs of $205 million and $168 million for the same periods, respectively.

Operating lease income was $103 million and $180 million in the second quarter and first half of 2011, respectively, down from $329 million and $514 million for the same periods a year ago, due to gains on early lease terminations in second quarter 2010.

Noninterest Expense

Table 3: Noninterest Expense


								Six months
	Quarter ended June 30,				%			ended June 30,				%
(in millions)	2011		2010		Change			2011		2010		Change

Salaries	$	3,584		3,564		1	%	$	7,038		6,878		2	%
Commission and incentive compensation		2,171		2,225		(2	)		4,518		4,217		7
Employee benefits		1,164		1,063		10			2,556		2,385		7
Equipment		528		588		(10	)		1,160		1,266		(8	)
Net occupancy		749		742		1			1,501		1,538		(2	)
Core deposit and other intangibles		464		553		(16	)		947		1,102		(14	)
FDIC and other deposit assessments		315		295		7			620		596		4
Outside professional services		659		572		15			1,239		1,056		17
Contract services		341		384		(11	)		710		731		(3	)
Foreclosed assets		305		333		(8	)		713		719		(1	)
Operating losses		428		627		(32	)		900		835		8
Outside data processing		232		276		(16	)		452		548		(18	)
Postage, stationery and supplies		236		230		3			471		472		-
Travel and entertainment		205		196		5			411		367		12
Advertising and promotion		166		156		6			282		268		5
Telecommunications		132		156		(15	)		266		299		(11	)
Insurance		201		164		23			334		312		7
Operating leases		31		27		15			55		64		(14	)
All other		564		595		(5	)		1,035		1,210		(14	)


Total	$	12,475		12,746		(2	)	$	25,208		24,863		1

Noninterest expense was $12.5 billion in second quarter 2011, down 2% from $12.7 billion a year ago, reflecting the benefit of reduced core deposit amortization and lower operating losses in second quarter 2011 as well as $137 million of expense in second quarter 2010 for Wells Fargo Financial severance costs. For the first half of 2011, noninterest expense was nearly flat compared with the same period a year ago.

Personnel expenses were flat for second quarter 2011 compared with the same quarter last year. They were up, however, for the first half of 2011, compared with the same period of 2010, primarily due to higher variable compensation paid in first quarter 2011 by businesses with revenue-based compensation, including brokerage. Mortgage personnel expenses declined in second quarter 2011 reflecting a decrease in mortgage loan originations.

Outside professional services included increased investments by our businesses this year in their service delivery systems.

Operating losses of $428 million in second quarter 2011 were substantially all for litigation accruals for mortgage foreclosure-related matters and were down from second quarter 2010, which was elevated predominantly due to additional accrual for litigation matters.

Merger integration costs totaled $484 million and $498 million in second quarter 2011 and 2010, respectively, and $924 million and $878 million for the first six months of 2011 and 2010, respectively. Second quarter 2011 marked further milestones in our integration of legacy Wells Fargo and Wachovia, including the conversion of retail banking stores in Pennsylvania and Florida (completed in early July), one of our largest East Coast states. After these conversions, 83% of

banking customers company-wide are on a single deposit system.

With our current expense management initiative and the completion of merger-related activities, we are targeting to reduce quarterly noninterest expense to $11 billion by fourth quarter 2012 from $12.5 billion in second quarter 2011. The target reflects expense savings initiatives that will be executed over the next six quarters. Quarterly expense trends may vary due to cyclical or seasonal factors, particularly in the first quarter of each year when higher incentive compensation and employee benefit expenses typically occur.

Income Tax Expense

Our effective tax rate was 33.6% in second quarter 2011, up from 33.1% in second quarter 2010 and 29.5% in first quarter 2011. The higher effective rate in second quarter 2011 reflected the tax cost associated with accruals for mortgage foreclosure related matters. Our effective tax rate was 31.7% in the first half of 2011, down from 34.2% in the first half of 2010. The decrease for the first half of 2011 from the first half of 2010 was primarily related to a tax benefit recognized in first quarter 2011 associated with the realization for tax purposes of a previously written down investment. Our current estimate for the full year 2011 effective tax rate is approximately 32.5%.

Operating Segment Results

We are organized for management reporting purposes into three operating segments: Community Banking; Wholesale Banking; and Wealth, Brokerage and Retirement. These segments are defined by product type and customer segment and their results are based on our management accounting process, for which there is no comprehensive, authoritative guidance equivalent to generally accepted accounting principles (GAAP) for financial accounting. 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 June 30,
Revenue	$	12.6		13.6		5.6		5.8		3.1		2.9
Net income		2.1		1.7		1.9		1.5		0.3		0.3


Average loans		498.2		534.3		243.1		228.2		43.5		42.6
Average core deposits		552.0		532.6		190.6		162.3		126.0		121.5


Six months ended June 30,
Revenue	$	25.2		27.6		11.1		11.2		6.2		5.8
Net income		4.3		3.1		3.6		2.7		0.7		0.6


Average loans		504.0		542.3		238.9		232.6		43.1		43.2
Average core deposits		550.1		532.0		187.7		162.0		125.7		121.3

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 $2.1 billion and revenue of $12.6 billion in second quarter 2011. Revenue declined $1.0 billion from second quarter 2010, driven primarily by a decrease in mortgage banking income from lower originations/sales activities and hedge valuations, and by lower interest income primarily attributed to reductions in the home equity loan portfolio. These declines were partially mitigated by gains on equity sales as well as lower deposit costs. Net interest income decreased $1.4 billion, or 9%, for the first half of 2011 compared with the same period a year ago, mostly due to lower average loans (down $38.3 billion) as a result of intentional run-off within the portfolios (including Home Equity and Pick-A-Pay) combined with softer loan demand, and a shift in earning assets mix towards lower-yielding investment securities portfolios. This decline in interest income was mitigated by continued low funding cost. Average core deposits increased $19.4 billion, or 4%, as growth in liquid deposits more than offset planned certificates of deposit run-off. We generated strong growth in the number of consumer checking accounts (up a net 7% from second quarter 2010). Non-interest expense decreased $260 million from second quarter 2010 due to reduced personnel costs (lower mortgage sales-related incentives and second quarter 2010 Wells Fargo Financial exit expense accruals), a decrease in software license expense, lower

litigation-related operating losses, and reduced intangible amortization. The provision for credit losses decreased $1.4 billion from second quarter 2010 and credit quality indicators in most of our consumer and business loan portfolios continued to improve. Net credit losses declined in almost all portfolios, which resulted in the release of $700 million in allowance for loan losses in second quarter 2011, compared with $389 million released a year ago. The provision for credit losses declined $3.9 billion for the first half of 2011 compared with the first half of 2010. Charge-offs decreased $2.7 billion, showing improvement primarily in the Home Equity, Credit Card, and Dealer Services portfolios. Additionally, we released $1.6 billion of the allowance in the first half of 2011, compared with $389 million released 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 $1.9 billion in second quarter 2011, up $469 million, or 32%, from second quarter 2010. Net income increased to $3.6 billion for the first half of 2011 from $2.7 billion a year ago. The year over year increases in net income for the second quarter and first six

months were the result of decreases in the provision for credit losses and noninterest expenses more than offsetting decreases in revenues. Revenue in second quarter 2011 decreased $143 million, or 2%, from second quarter 2010 as strong growth across most businesses, including loan and deposit growth, was more than offset by lower PCI-related resolutions and other gains. Average loans of $243.1 billion in second quarter 2011 increased 7% from second quarter 2010 driven by increases across most lending areas. Average core deposits of $190.6 billion in second quarter 2011 increased 17% from second quarter 2010, reflecting continued strong customer liquidity. Noninterest expense in second quarter 2011 decreased $107 million, or 4%, from second quarter 2010 related to lower litigation and foreclosed asset expenses. The provision for credit losses in second quarter 2011 declined $732 million from second quarter 2010, and included a $300 million allowance release compared with a $111 million release a year ago along with a $543 million improvement in net credit losses.

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 $333 million in second quarter 2011, up $63 million, or 23%, from second quarter 2010. Revenue of $3.1 billion predominantly consisted of brokerage commissions, asset-based fees and net interest income. Net interest income was up $7 million, or 1%, compared with second quarter 2010 as higher investment income was driven by higher deposits and loan growth offset by lower yields. Noninterest income increased $212 million, or 10%, and $420 million, or 9%, from the second quarter 2010 and first half of 2010, respectively, as higher asset-based fees and securities gains in the brokerage business were partially offset by lower brokerage transaction revenue. Noninterest expense was up $137 million, or 6%, and $306 million, or 6%, from second quarter 2010 and the first half of 2010, respectively, primarily due to growth in personnel cost driven by higher broker commissions.

Balance Sheet Analysis

At June 30, 2011, our total loans were down slightly from December 31, 2010 while our core deposits were up over the same period. At June 30, 2011, core deposits funded 108% 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 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 11.69% as a percentage of total risk-weighted assets, total

capital to 15.41%, Tier 1 leverage to 9.43% and Tier 1 common equity to 9.15% at June 30, 2011, up from 11.16%, 15.01%, 9.19% and 8.30%, respectively, at December 31, 2010.

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

June 30, 2011

December 31, 2010

Net

Net

unrealized

Fair

unrealized

Fair

(in millions)

Cost

gain

value

Cost

gain

value

Debt securities available for sale

173,526

8,417

181,943

160,071

7,394

167,465

Marketable equity securities

3,499

856

4,355

4,258

931

5,189

Total securities available for sale

177,025

9,273

186,298

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 $9.3 billion at June 30, 2011, up from net unrealized gains of $8.3 billion at December 31, 2010, primarily due to lower interest rates and narrowing of credit spreads.

We analyze securities for OTTI quarterly or more often if a potential loss-triggering event occurs. Of the $326 million OTTI write-downs recognized in the first half of 2011, $269 million

related to debt securities. There were no OTTI write-downs for marketable equity securities and there were $57 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.

We apply the cost recovery method for debt securities available for sale where future cash flows cannot be reliably estimated. Under this method, cash flows received are applied against the amortized cost basis, and interest income is not recognized until such basis has been fully recovered. The respective cost basis and fair value of these securities was $71 million and $255 million at June 30, 2011, and $96 million and $296 million at December 31, 2010.

At June 30, 2011, debt securities available for sale included $24 billion of municipal bonds, of which 82% 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 6.4 years at June 30, 2011. Because 61% 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 June 30, 2011	$	111.4		6.2			4.8

At June 30, 2011, assuming a 200 basis point:

Increase in interest rates		101.2		(4.0	)		6.1

Decrease in interest rates		119.7		14.5			3.4

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

Total loans were $751.9 billion at June 30, 2011, down $5.3 billion from December 31, 2010. Increased balances in many commercial loan portfolios offset most of the continued planned reduction in the non-strategic and liquidating portfolios, which have declined $11.6 billion since December 31,

2010. Additional information on the non-strategic and liquidating portfolios is included in Table 11 in the “Credit Risk Management” section of this Report.

Table 7: Loan Portfolios

June 30, 2011

December 31, 2010

(in millions)

Core

Liquidating

Total

Core

Liquidating

Total

Commercial

323,673

7,016

330,689

314,123

7,935

322,058

Consumer

306,495

114,737

421,232

309,840

125,369

435,209

Total loans

630,168

121,753

751,921

623,963

133,304

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. Additional information on total loans outstanding by portfolio segment and class of financing receivable is included in the “Credit Risk Management” section in this Report. Period-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 $853.6 billion at June 30, 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 $809.0 billion at June 30, 2011, up $10.8 billion from $798.2 billion at December 31, 2010.

Table 8: Deposits


			% of					% of
	June 30,		total			December 31,		total			%
(in millions)	2011		deposits			2010		deposits			Change


Noninterest-bearing	$	202,116		24	%	$	191,231		23	%		6
Interest-bearing checking		47,635		6			63,440		7			(25	)
Market rate and other savings		453,635		53			431,883		51			5
Savings certificates		70,596		8			77,292		9			(9	)
Foreign deposits (1)		34,988		4			34,346		4			2


Core deposits		808,970		95			798,192		94			1
Other time and savings deposits		18,872		2			19,412		2			(3	)
Other foreign deposits		25,793		3			30,338		4			(15	)


Total deposits	$	853,635		100	%	$	847,942		100	%		1


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

Balance Sheet Analysis (continued)

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 estimated fair values, which 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


	June 30, 2011					December 31, 2010
	Total					Total
($ in billions)	balance			Level 3(1)		balance		Level 3 (1)


Assets carried at fair value	$	287.3			48.2		293.1		47.9

As a percentage of total assets		23	%		4		23		4

Liabilities carried at fair value	$	23.7			5.3		21.2		6.4

As a percentage of total liabilities		2	%		-		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


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


Commercial:
Commercial and industrial	$	157,095		151,284
Real estate mortgage		101,458		99,435
Real estate construction		21,374		25,333
Lease financing		12,907		13,094
Foreign (1)		37,855		32,912


Total commercial		330,689		322,058


Consumer:
Real estate 1-4 family first mortgage		222,874		230,235
Real estate 1-4 family junior lien mortgage		89,947		96,149
Credit card		21,191		22,260
Other revolving credit and installment		87,220		86,565


Total consumer		421,232		435,209


Total loans	$	751,921		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.

We employ various credit risk management and monitoring activities to mitigate risks associated with multiple risk factors affecting loans we hold or could acquire or originate including:

•		Loan concentrations and related credit quality
•		Counterparty credit risk
•		Economic and market conditions
•		Legislative or regulatory mandates
•		Changes in interest rates
•		Merger and acquisition activities
•		Reputation risk

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, disciplined credit underwriting, frequent and detailed risk measurement and modeling, extensive credit training programs, and a continual loan review and audit process. The Credit Committee of our Board of Directors (Board) receives reports from management,

including our Chief Risk Officer and Chief Credit Officer, and its responsibilities include oversight of the administration and effectiveness of, and compliance with, our credit policies and the adequacy of the allowance for credit losses. 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.

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. They consist primarily of the Pick-a-Pay mortgage portfolio and non Pick-a-Pay PCI loans acquired from 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 non-strategic and liquidating loan portfolios have decreased 36% since the merger with Wachovia at December 31, 2008, and decreased 9% from the end of 2010. The loss rate was 2.24% on these portfolios for the first half of 2011.

Table 11: Non-Strategic and Liquidating Loan Portfolios


	Outstanding balance

	June 30,		Dec. 31,		Dec. 31,		Dec. 31,
(in millions)	2011		2010		2009		2008


Commercial:
Commercial and industrial, CRE and foreign PCI loans (1)	$	7,016		7,935		12,988		18,704


Total commercial		7,016		7,935		12,988		18,704


Consumer:
Pick-a-Pay mortgage (1)		69,587		74,815		85,238		95,315
Liquidating home equity		6,266		6,904		8,429		10,309
Legacy Wells Fargo Financial indirect auto		3,881		6,002		11,253		18,221
Legacy Wells Fargo Financial debt consolidation		17,730		19,020		22,364		25,299
Education Finance — government guaranteed (2)		16,295		17,510		21,150		20,465
Other PCI loans (1)		978		1,118		1,688		2,478


Total consumer		114,737		125,369		150,122		172,087


Total non-strategic and liquidating loan portfolios	$	121,753		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.

The legacy Wells Fargo Financial debt consolidation portfolio included $1.2 billion of loans at both June 30, 2011, and December 31, 2010, which were considered prime based on secondary market standards. The remainder is non-prime but was originated with standards to reduce credit risk. Legacy Wells Fargo Financial ceased originating loans and leases through its indirect auto business channel by the end of 2008.

The home equity liquidating portfolio was designated in fourth quarter 2007 from loans generated through third party channels. This portfolio is discussed in more detail below in the “Credit Risk Management — Home Equity Portfolios” section of this Report.

Information about the liquidating PCI and Pick-a-Pay loan portfolios is provided in the discussion of loan portfolios that follows.

Risk Management — Credit Risk Management (continued)

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 and are liquidating portfolios. 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. We include these TDRs in our impaired loans.

In the first six months of 2011, we recognized in income $114 million released from nonaccretable difference related to commercial PCI loans due to payoffs and dispositions of these loans. We also transferred $210 million from the nonaccretable difference to the accretable yield and $1.0 billion of losses from loan resolutions and write-downs were absorbed by the nonaccretable difference. Table 12 provides an analysis of changes in the nonaccretable difference.

Table 12: 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)		(89	)		-			-			(89	)
Loans resolved by sales to third parties (2)		(25	)		-			-			(25	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(189	)		-			(21	)		(210	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)		(95	)		(789	)		(160	)		(1,044	)


Balance at June 30, 2011	$	1,192			10,136			733			12,061




Balance at March 31, 2011	$	1,395			10,626			829			12,850
Release of nonaccretable difference due to:
Loans resolved by settlement with borrower (1)		(36	)		-			-			(36	)
Loans resolved by sales to third parties (2)		(7	)		-			-			(7	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(95	)		-			-			(95	)
Use of nonaccretable difference due to:
Losses from loan resolutions and write-downs (4)		(65	)		(490	)		(96	)		(651	)


Balance at June 30, 2011	$	1,192			10,136			733			12,061


(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.

Risk Management — Credit Risk Management (continued)

Since the Wachovia acquisition, we have released $5.6 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 $1.6 billion released to income through loan resolutions. We have provided $1.7 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 June 30, 2011, in our initial expected losses on all PCI loans.

At June 30, 2011, the allowance for credit losses in excess of nonaccretable difference on certain PCI loans was $273 million. The allowance is necessary to absorb credit-related decreases since acquisition in cash flows expected to be collected and primarily relates to individual PCI loans. Table 13 analyzes the actual and projected loss results on PCI loans since acquisition through June 30, 2011.

Table 13: 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)	$	(1,236	)		-			-			(1,236	)
Loans resolved by sales to third parties (2)		(283	)		-			(85	)		(368	)
Reclassification to accretable yield for loans with improving credit-related cash flows (3)		(1,053	)		(2,383	)		(614	)		(4,050	)

Total releases of nonaccretable difference due to better than expected losses		(2,572	)		(2,383	)		(699	)		(5,654	)
Provision for losses due to credit deterioration (4)		1,617			-			100			1,717

Actual and projected losses on PCI loans less than originally expected	$	(955	)		(2,383	)		(599	)		(3,937	)


(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 is 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 may not support full realization of the carrying value.

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

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 at June 30, 2011, represented 16% of total loans. CRE construction loans totaled $21.4 billion at June 30, 2011, or 3% of total loans. CRE mortgage loans totaled $101.5 billion at June 30, 2011, or 13% of total loans, of which over 36% was to owner-occupants. Table 14 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 June 30, 2011, a decline of 10% from the prior quarter. 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 25% 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 quarter ended with $26.8 billion of criticized CRE mortgage and $10.6 billion of criticized construction loans. Criticized CRE mortgage loans decreased 6% and criticized CRE construction loans decreased 24% since December 31, 2010. Total criticized CRE loans remained relatively high as a result of the current conditions in the real estate market. CRE delinquencies totaled $1.9 billion or 2% of total non-PCI CRE loans at quarter end. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for further detail on criticized loans.

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 loans, including regular loan reviews and appraisal updates. As issues are identified, management is engaged and dedicated workout groups are in place to manage problem loans. At June 30, 2011, the recorded investment in PCI CRE loans totaled $5.0 billion, down from $12.3 billion at December 31, 2008, reflecting the reduction resulting from loan resolutions and write-downs.

Risk Management – Credit Risk Management (continued)

Table 14: CRE Loans by State and Property Type


	June 30, 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):
California	$	-		595			-		190		-		785			*	%
Florida		-		451			-		316		-		767			*
New York		-		301			-		205		-		506			*
Virginia		-		204			-		209		-		413			*
North Carolina		-		85			-		327		-		412			*
Other		-		1,164			-		941		-		2,105	(2)		*


Total PCI loans	$	-		2,800			-		2,188		-		4,988			*	%


All other loans:
California	$	1,167		26,258			353		3,332		1,520		29,590			4	%
Florida		734		9,362			236		1,862		970		11,224			1
Texas		362		7,054			138		1,812		500		8,866			1
North Carolina		322		4,375			154		1,136		476		5,511			*
New York		34		4,183			9		970		43		5,153			*
Virginia		86		3,491			40		1,489		126		4,980			*
Georgia		289		3,694			205		753		494		4,447			*
Arizona		244		3,694			53		660		297		4,354			*
Colorado		100		3,006			48		477		148		3,483			*
Washington		61		2,932			27		493		88		3,425			*
Other		1,292		30,609			780		6,202		2,072		36,811	(3)		5


Total all other loans	$	4,691		98,658			2,043		19,186		6,734		117,844			16	%


Total	$	4,691		101,458			2,043		21,374		6,734		122,832			16	%


By property:
PCI loans (1):
Office buildings	$	-		967			-		200		-		1,167			*	%
Apartments		-		707			-		443		-		1,150			*
1-4 family land		-		179			-		400		-		579			*
Retail (excluding shopping center)		-		270			-		90		-		360			*
Land (excluding 1-4 family)		-		15			-		288		-		303			*
Other		-		662			-		767		-		1,429			*


Total PCI loans	$	-		2,800			-		2,188		-		4,988			*	%


All other loans:
Office buildings	$	1,139		27,322			87		2,041		1,226		29,363			4	%
Industrial/warehouse		619		13,207			58		700		677		13,907			2
Apartments		333		9,705			177		2,696		510		12,401			2
Retail (excluding shopping center)		651		10,615			51		829		702		11,444			2
Shopping center		291		9,243			149		1,418		440		10,661			1
Real estate — other		327		8,491			14		192		341		8,683			1
Hotel/motel		357		6,357			27		872		384		7,229			*
Land (excluding 1-4 family)		61		434			556		6,275		617		6,709			*
Institutional		92		2,762			6		234		98		2,996			*
Agriculture		156		2,589			-		24		156		2,613			*
Other		665		7,933			918		3,905		1,583		11,838			2


Total all other loans	$	4,691		98,658			2,043		19,186		6,734		117,844			16	%


Total	$	4,691		101,458	(4)		2,043		21,374		6,734		122,832			16	%


*		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 $356 million.
(3)		Includes 40 states; no state had loans in excess of $3.1 billion.
(4)		Includes $37.0 billion of loans to owner-occupants where 51% or more of the property is used in the conduct of their business.

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 15 summarizes commercial and industrial loans and lease financing by industry with the related nonaccrual totals. Across our non-PCI commercial loans and leases, the commercial and industrial loans and lease financing portfolios experienced less credit deterioration than our CRE portfolios in the second quarter 2011. Of the total commercial and industrial loans and lease financing non-PCI portfolios, 0.06% was 90 days or more past due and still accruing, 1.46% was nonaccruing and 13.8% were criticized. In comparison, of the total non-PCI CRE portfolio, 0.19% was 90 days or more past due and still accruing, 5.71% was nonaccruing and 28.1% was criticized. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report. Also, the annualized net-charge off rate for both portfolios declined from second 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 15: Commercial and Industrial Loans and Lease Financing by Industry


	June 30, 2011
							% of
		Nonaccrual		Outstanding			total
(in millions)		loans		balance (1)			loans


PCI loans (1):
Insurance		$	-		91			*	%
Investors			-		74			*
Technology			-		66			*
Residential construction			-		62			*
Healthcare			-		46			*
Aerospace and defense			-		37			*
Other			-		151	(2)		*


Total PCI loans		$	-		527			*	%


All other loans:
Financial institutions		$	143		10,561			1	%
Cyclical retailers			46		9,603			1
Food and beverage			63		9,048			1
Oil and gas			128		8,272			1
Healthcare			74		7,983			1
Industrial equipment			63		7,165			*
Real estate			68		6,414			*
Transportation			29		6,410			*
Investors			74		5,580			*
Technology			75		5,552			*
Public administration			46		5,322			*
Business services			51		5,163			*
Other			1,612		82,402	(3)		11


Total all other loans		$	2,472		169,475			23	%


Total		$	2,472		170,002			23	%


*		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 $23.4 million.
(3)		No other single category had loans in excess of $4.9 billion. The next largest categories included utilities, hotel/restaurant, securities firms, non-residential construction and leisure.

Risk Management – Credit Risk Management (continued)

During the recent credit cycle, we have experienced an increase in loans requiring risk mitigation activities including the restructuring of loan terms and requests for extensions of commercial and industrial and CRE loans. All actions are based on a re-underwriting of the loan and our assessment of the borrower’s ability to perform under the agreed-upon terms. For loans that are granted an 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, 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. In many cases the strength of the guarantor provides sufficient assurance that full repayment of the loan is expected. When full and timely collection of the loan becomes uncertain, 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, if any.

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 and accruing status are important factors in our allowance methodology for commercial and industrial and CRE loans.

FOREIGN LOANS At June 30, 2011, foreign loans represented approximately 5% of our total consolidated loans outstanding and approximately 3% of our total assets. The United Kingdom was the only individual foreign country with cross-border outstandings, defined to include loans, acceptances, interest-bearing deposits with other banks, other interest bearing investments and any other monetary assets that exceeded 0.75% of our consolidated assets at June 30, 2011. The United Kingdom cross-border outstandings amounted to approximately $9.5 billion, or 0.75% of our consolidated assets, and included $1.7 billion of sovereign claims. Recently, there has been increased focus on the exposure of U.S. banks to Greece, Ireland, Italy, Portugal and Spain, which have experienced credit deterioration due to economic weakness and their respective fiscal situations. At June 30, 2011, our gross outside exposure to these five countries, including cross-border claims on an ultimate risk basis, and foreign exchange and derivative products, aggregated approximately $3.2 billion. Of this amount, we held approximately $100 million in sovereign claims, substantially all for Ireland, and no sovereign claims for Greece, Portugal and Spain. We did not have any sovereign credit default swaps that we have written or received associated with Greece, Ireland, Italy, Portugal and Spain.

Our foreign country risk monitoring process incorporates frequent dialogue with our foreign financial institution customers, counterparties and regulatory agencies, enhanced by centralized monitoring of macroeconomic and capital markets conditions. We establish exposure limits for each country via a centralized oversight process based on the needs of our customers, and in consideration of relevant economic, political, social, legal, and transfer risks. We monitor exposures closely and adjust our limits in response to changing conditions.

Risk Management – Credit Risk Management (continued)

REAL ESTATE 1-4 FAMILY MORTGAGE LOANS Our real estate 1-4 family mortgage loans primarily include loans that we have made to customers and retained as part of our asset liability management strategy. These loans also include the Pick-a-Pay Portfolio acquired from Wachovia and the Home Equity Portfolio, which are discussed below. In addition, these loans include other purchased loans and loans included on our balance sheet due to the adoption of consolidation accounting guidance related to VIEs.

Our underwriting of loans collateralized by residential real property includes appraisals or estimates from 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 using 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. AVMs are generally used in underwriting to support property values on loan originations only where the loan amount is under $250,000. We generally require property visitation appraisals by a qualified independent appraiser for larger residential property loans.

Some of our real estate 1-4 family first and junior lien mortgage loans include an interest-only feature as part of the loan terms. These interest-only loans were approximately 25% of total loans at both June 30, 2011 and December 31, 2010. Substantially all of these interest-only loans at origination were considered to be prime or near prime.

We believe we have manageable adjustable-rate mortgage (ARM) reset risk across our Wells Fargo 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 acquisition.

We continue to modify real estate 1-4 family mortgage loans to assist homeowners and other borrowers in the current difficult economic cycle. Loans are underwritten at the time of the modification in accordance with underwriting guidelines established for governmental and proprietary loan modification programs. As a participant in the U.S. Treasury’s Making Home Affordable (MHA) programs, we are focused on helping customers stay in their homes. The MHA programs create a standardization of modification terms including incentives paid to borrowers, servicers, and investors. MHA includes the Home Affordable Modification Program (HAMP) for first lien loans and the Second Lien Modification Program (2MP) for junior lien loans. Under both our proprietary programs and the MHA programs, we may provide concessions such as interest rate reductions, forbearance of principal, and in some cases, principal forgiveness. These programs generally include trial periods of three months, and after successful completion and compliance with terms during this period, the loan is considered to be modified. See the “Allowance for Credit Losses” section in this Report for discussion on how we determine the allowance attributable to our modified residential real estate portfolios.

The concentrations of real estate 1-4 family first and junior lien mortgage loans by state are presented in Table 16. 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 June 30, 2011, mostly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 3% of total loans. We continuously monitor changes in real estate values and underlying economic or market conditions for all geographic areas of our real estate 1-4 family mortgage portfolio as part of our credit risk management process.

Part of our credit monitoring includes tracking delinquency, FICO scores and collateral values (LTV/CLTV) on the entire real estate 1-4 family mortgage loan portfolio. All three credit risk metrics showed improvement in second quarter 2011, on the non-PCI mortgage portfolio. Loans 30 days or more delinquent at June 30, 2011, totaled $18.4 billion, or 7%, of total non-PCI mortgages, down 9% from December 31, 2010. Loans with FICO scores lower than 640 totaled $47.0 billion at June 30, 2011 or 17% of all non-PCI mortgages, a decline of 8% from year-end. Mortgages with a LTV/CLTV greater than 100% totaled $79.4 billion at June 30, 2011 or 28% of total non-PCI mortgages, a 7% decline from year-end. Information regarding credit risk trends can be found in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 16: Real Estate 1-4 Family Mortgage Loans by State


	June 30, 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	$	20,540		45		20,585		3	%
Florida		2,899		46		2,945		*
New Jersey		1,294		29		1,323		*
Other (1)		6,715		109		6,824		*


Total PCI loans	$	31,448		229		31,677		4	%


All other loans:
California	$	54,622		25,126		79,748		11	%
Florida		16,636		7,962		24,598		3
New Jersey		9,038		6,364		15,402		2
New York		8,431		3,695		12,126		2
Virginia		5,962		4,541		10,503		1
Pennsylvania		6,102		4,021		10,123		1
North Carolina		5,804		3,617		9,421		1
Georgia		4,696		3,499		8,195		1
Texas		6,447		1,435		7,882		1
Other (2)		73,688		29,458		103,146		15


Total all
other loans	$	191,426		89,718		281,144		38	%


Total	$	222,874		89,947		312,821		42	%


*		Less than 1%.

(1)		Consists of 46 states; no state had loans in excess of $733 million.

(2)		Consists of 41 states; no state had loans in excess of $6.7 billion. Includes $15.7 billion in loans that are insured by the Federal Housing Authority (FHA) or guaranteed by the Department of Veterans Affairs (VA).

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.

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. Real estate 1-4 family junior lien mortgages and lines of credit associated with Pick-a-Pay loans are reported in the Home Equity portfolio. Table 17 provides balances over time related to the types of loans included in the portfolio since acquisition.

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


	June 30,					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)	$	44,157		56	%	$	49,958		59	%	$	99,937		86	%
Non-option payment adjustable-rate and fixed-rate loans (1)		10,577		14			11,070		13			15,763		14
Full-term loan modifications (1)		23,481		30			23,132		28			-		-


Total adjusted unpaid principal balance (1)	$	78,215		100	%	$	84,160		100	%	$	115,700		100	%


Total carrying value	$	69,587				$	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 $39.5 billion and a carrying value of $30.7 billion at June 30, 2011. The carrying value of the PCI loans is net of remaining purchase accounting write-downs, which reflected their fair value at acquisition. At acquisition, we recorded a $22.4 billion write-down in purchase accounting on Pick-a-Pay loans that were impaired.

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 $2.3 billion at June 30, 2011, down from $2.7 billion at December 31, 2010, was due to loan modification efforts as well as falling interest rates resulting in the minimum payment option covering interest and some principal on many loans. Approximately 79% of the Pick-a-Pay customers making a minimum payment in June 2011 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 in the near term. 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 second quarter 2011, no loans were recast based on reaching the principal cap. 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:

$11 million for the remainder of 2011, $66 million in 2012, and $289 million in 2013. In second quarter 2011, the amount of loans reaching their recast anniversary date and also having a payment change over the annual 7.5% reset was $4 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.

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


	June 30, 2011

	PCI loans										All other loans

								Ratio of					Ratio of
	Adjusted							carrying					carrying
	unpaid		Current					value to					value to
	principal		LTV			Carrying		current			Carrying		current
(in millions)	balance (2)		ratio (3)			value (4)		value (5)			value (4)		value (5)


California	$	26,851		119	%	$	20,464		90	%	$	19,011		84	%
Florida		3,621		124			2,759		89			4,002		103
New Jersey		1,384		93			1,231		82			2,450		79
Texas		356		79			325		72			1,589		65
New York		772		92			681		80			1,062		81
Other states		6,499		110			5,239		88			10,774		87


Total Pick-a-Pay loans	$	39,483				$	30,699				$	38,888


(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.

(5)		The ratio of carrying value to current value is calculated as the carrying value divided by the collateral value.

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.

In second quarter 2011, we completed more than 5,000 proprietary and HAMP Pick-a-Pay loan modifications and have completed more than 90,000 modifications since the Wachovia acquisition, resulting in $4.0 billion of principal forgiveness to our Pick-a-Pay customers. As announced in October 2010, we entered into agreements with certain state attorneys general whereby we agreed to offer loan modifications to eligible Pick-a-Pay customers through June 2013. These agreements cover the majority of our option payment loan portfolio and require that we offer modifications (both HAMP and proprietary) to eligible

customers with the option payment loan product. In response to these agreements, we developed an enhanced proprietary modification product that allows for various means of principal forgiveness along with changes to other loan terms. Given that these agreements cover all modification efforts to eligible customers for the applicable states, a majority of our modifications (both HAMP and proprietary) for our Pick-a-Pay loan portfolio performed in second quarter 2011 are consistent with these agreements.

Due to better than expected 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 acquisition. Our performance is primarily attributable to significant modification efforts as well as the portfolio’s delinquency stabilization. The resulting increase in the accretable yield will be realized over the remaining life of the portfolio, which is estimated to have a weighted-average life of approximately ten years. The accretable yield percentage in second 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

Risk Management — Credit Risk Management (continued)

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.

HOME EQUITY PORTFOLIOS Our Home Equity Portfolios consist of real estate 1-4 family junior lien mortgages and first and junior lines of credit secured by real estate. Our first lien lines of credit represent 19% of our home equity portfolio and are included in real estate 1-4 family first mortgages. The majority of our junior lien loan products are amortizing payment loans with fixed interest rates and repayment periods between 5 to 30 years. Junior lien loans with balloon payments at the end of the repayment term represent a small portion of our junior lien loans.

Our first and junior lien lines of credit products generally have a draw period of 10 years with variable interest rates and payment options during the draw period of (1) interest only or (2) 1.5% of total outstanding balance. During the draw period, the borrower has the option of converting all or a portion of the line from a variable interest rate to a fixed rate with terms including interest-only payments for a fixed period between three to seven years or a fully amortizing payment with a fixed period between five to 30 years. At the end of the draw period, a line of credit generally converts to an amortizing payment loan with repayment terms of up to 30 years based on the balance at time of conversion. The draw periods for a majority of our lines of credit end after 2015.

We continuously monitor the credit performance of our junior lien mortgage portfolio for trends and factors that influence the frequency and severity of loss. We have observed that the severity of loss for junior lien mortgages is high and generally not affected by whether we or a third party own or service the related first mortgage, but that the frequency of loss is lower when we own or service the first mortgage. Although we have observed that delinquency and default rates are lower when we own or service the related first mortgage, we have limited information available to identify which of our junior liens are behind delinquent third party originated or serviced first mortgages. To capture this loss content, we refined our allowance process during second quarter 2011 utilizing the experience of our junior lien mortgages behind delinquent first liens that are owned or serviced by us adjusted for observed higher delinquency rates associated with junior lien mortgages behind third party first mortgages. We then incorporated this expected loss content into our allowance for loan losses, which added $210 million to our allowance. Table 19 summarizes delinquency and loss rates by the holder of the lien.

Table 19: Home Equity Portfolios Performance by Holder of 1st Lien (1)


			% of
			loans two			Loss rate
			payments			(annualized)
	Outstanding		or more			quarter
(in millions)	balance		past due			ended


June 30, 2011
First lien lines	$	20,941		2.85	%		0.82
Junior lien behind Wells Fargo owned or serviced first lien		44,963		2.78			3.76
Junior lien behind Third party first lien		44,779		3.53			4.32


Total	$	110,683		3.09			3.43


(1)		Excludes PCI loans and includes $1.6 billion at June 30, 2011, associated with the Pick-a-Pay portfolio.

We also monitor the number of borrowers paying the minimum amount due on a monthly basis. In June 2011, approximately 93% of our borrowers with outstanding balances paid at least the minimum amount due, which included 46% of our borrowers paying only the minimum amount due.

The home equity liquidating portfolio includes home equity loans generated through third party channels, including correspondent loans. This liquidating portfolio represents less than 1% of our total loans outstanding at June 30, 2011, and

contains some of the highest risk in our home equity portfolio, with a loss rate of 9.22% compared with 3.08% for the core (non-liquidating) home equity portfolio. Table 20 shows the credit attributes of the core and liquidating home equity portfolios and lists the top five states in each portfolio showing that California loans represent the largest state concentration in each of these portfolios. The decrease in outstanding balances primarily reflects loan paydowns and charge-offs.

Table 20: Home Equity Portfolios (1)


					% of loans					Loss rate
					two payments					(annualized)
	Outstanding balance				or more past due					quarter ended
	June 30,		Dec. 31,		June 30,			Dec. 31,		June 30,		Dec. 31,
(in millions)	2011		2010		2011			2010		2011		2010


Core portfolio (2)
California	$	26,651		27,850		2.98	%		3.30		3.69		3.95
Florida		11,200		12,036		4.91			5.46		5.23		5.84
New Jersey		8,010		8,629		3.57			3.44		2.05		1.83
Virginia		5,358		5,667		2.19			2.33		1.85		1.70
Pennsylvania		5,161		5,432		2.39			2.48		1.49		1.11
Other		48,037		50,976		2.60			2.83		2.70		2.86


Total		104,417		110,590		2.99			3.24		3.08		3.24


Liquidating portfolio
California		2,233		2,555		5.69			6.66		12.73		13.48
Florida		288		330		6.97			8.85		10.52		10.59
Arizona		127		149		7.01			6.91		14.01		18.45
Texas		106		125		1.12			2.02		3.40		2.95
Minnesota		80		91		3.87			5.39		7.83		8.73
Other		3,432		3,654		4.04			4.53		6.73		6.46


Total		6,266		6,904		4.77			5.54		9.22		9.49


Total core and liquidating portfolios	$	110,683		117,494		3.09			3.37		3.43		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 June 30, 2011, and December 31, 2010, respectively, associated with the Pick-a-Pay portfolio.

CREDIT CARDS Our credit card portfolio totaled $21.2 billion at June 30, 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 5.63% for second quarter 2011 compared with 10.45% for second quarter 2010.

OTHER REVOLVING CREDIT AND INSTALLMENT Other revolving credit and installment loans totaled $87.2 billion at June 30, 2011, and predominantly include automobile, student and security-based margin loans. The quarterly loss rate (annualized) for other revolving credit and installment loans was 1.03% for second quarter 2011 compared with 1.63% for second quarter 2010. Excluding government guaranteed student loans, the loss rates were 1.23% and 2.02% for second quarter 2011 and 2010, respectively.

Risk Management — Credit Risk Management (continued)

NONACCRUAL LOANS AND FORECLOSED ASSETS We generally place loans on nonaccrual status when:

•

the full and timely collection of interest or principal becomes uncertain (generally based on an assessment of the borrower’s financial condition and the adequacy of collateral, if any);

•

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 21 shows a quarterly trend for nonaccrual loans and foreclosed assets, and, beginning in 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 the first two quarters of 2011.

Table 21: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)


	June 30, 2011						March 31, 2011						December 31, 2010						September 30, 2010
				% of						% of						% of					% of
				total						total						total					total
($ in millions)	Balances			loans			Balances			loans			Balances			loans			Balances		loans

Commercial:
Commercial and industrial	$	2,393			1.52	%	$	2,653			1.76	%	$	3,213			2.12	%	$	4,103		2.79	%
Real estate mortgage		4,691			4.62			5,239			5.18			5,227			5.26			5,079		5.14
Real estate construction		2,043			9.56			2,239			9.79			2,676			10.56			3,198		11.46
Lease financing		79			0.61			95			0.73			108			0.82			138		1.06
Foreign		59			0.16			86			0.24			127			0.39			126		0.42

Total commercial (1)		9,265			2.80			10,312			3.19			11,351			3.52			12,644		3.99

Consumer:
Real estate 1-4 family first mortgage (2)		11,427			5.13			12,143			5.36			12,289			5.34			12,969		5.69
Real estate 1-4 family junior lien mortgage		2,098			2.33			2,235			2.40			2,302			2.39			2,380		2.40
Other revolving credit and installment		255			0.29			275			0.31			300			0.35			312		0.35

Total consumer		13,780			3.27			14,653			3.42			14,891			3.42			15,661		3.58

Total nonaccrual loans (3)(4)(5)		23,045			3.06			24,965			3.32			26,242			3.47			28,305		3.76

Foreclosed assets:
Government insured/guaranteed (6)		1,320						1,457						1,479						1,492
Non-government insured/guaranteed		3,541						4,055						4,530						4,635

Total foreclosed assets		4,861						5,512						6,009						6,127

Total nonperforming assets	$	27,906			3.71	%	$	30,477			4.06	%	$	32,251			4.26	%	$	34,432		4.57	%

Change from prior quarter	$	(2,571	)					(1,774	)					(2,181	)					1,627


(1)		Includes LHFS of $52 million, $17 million, $3 million and $89 million at June 30 and March 31, 2011, and December 31, and September 30, 2010, respectively.

(2)		Includes MHFS of $304 million, $430 million, $426 million and $448 million at June 30 and March 31, 2011, and December 31 and September 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.

Total NPAs were $27.9 billion (3.71% of total loans) at June 30, 2011, and included $23.0 billion of nonaccrual loans and $4.9 billion of foreclosed assets. Since the peak in third quarter 2010, NPAs have declined for all loan and other asset types

through June 30, 2011. New inflows to nonaccrual loans continued to decline. Table 22 provides an analysis of the changes in nonaccrual loans.

Table 22: Analysis of Changes in Nonaccrual Loans


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


Commercial nonaccrual loans
Balance, beginning of quarter	$	10,312			11,351			12,644			12,239			12,265
Inflows		1,622			1,881			2,329			2,807			2,560
Outflows		(2,669	)		(2,920	)		(3,622	)		(2,402	)		(2,586	)

Balance, end of quarter		9,265			10,312			11,351			12,644			12,239


Consumer nonaccrual loans
Balance, beginning of quarter		14,653			14,891			15,661			15,572			15,036
Inflows		3,443			3,955			4,357			4,866			4,733
Outflows		(4,316	)		(4,193	)		(5,127	)		(4,777	)		(4,197	)


Balance, end of quarter		13,780			14,653			14,891			15,661			15,572


Total nonaccrual loans	$	23,045			24,965			26,242			28,305			27,811

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.

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 95% of commercial nonaccrual loans are secured. Of the $13.8 billion of consumer nonaccrual loans at June 30, 2011, 98% are secured by real estate and 36% have a combined LTV (CLTV) ratio of 80% or below. Second, losses have already been recognized on 52% of the remaining balance of consumer nonaccruals and commercial nonaccruals have been written down by $2.4 billion. Generally, when a consumer real estate loan is 120 days past due, we transfer 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 (fair value of collateral less estimated costs to sell), except for modifications in their trial period which are not written down as long as trial payments are made on time. Thereafter, we revalue each loan regularly and recognize additional write-downs if needed. Third, as of June 30, 2011, 57% 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.

Under both our proprietary modification programs and the MHA programs, customers may be required 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 manner.

Table 23 provides a summary of foreclosed assets and an analysis of the changes.

Risk Management – Credit Risk Management (continued)

Table 23: Foreclosed Assets


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


Balance, period end
Government insured/guaranteed (1)	$	1,320			1,457			1,479			1,492			1,344
PCI loans:
Commercial		993			1,005			967			1,043			940
Consumer		469			741			1,068			1,109			722


Total PCI loans		1,462			1,746			2,035			2,152			1,662


All other loans:
Commercial		1,409			1,408			1,412			1,343			1,087
Consumer		670			901			1,083			1,140			901


Total all other loans		2,079			2,309			2,495			2,483			1,988


Total foreclosed assets	$	4,861			5,512			6,009			6,127			4,994


Analysis of changes in foreclosed assets
Balance, beginning of quarter	$	5,512			6,009			6,127			4,994			4,081
Foreclosed assets acquired		862			1,340			2,072			2,837			2,337
Reductions:
Sales		(1,413	)		(1,657	)		(1,776	)		(1,304	)		(1,246	)
Write-downs and loss on sales		(100	)		(180	)		(414	)		(400	)		(178	)


Total reductions		(1,513	)		(1,837	)		(2,190	)		(1,704	)		(1,424	)


Balance, end of quarter	$	4,861			5,512			6,009			6,127			4,994


(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 June 30, 2011, included $1.3 billion of foreclosed real estate that is FHA insured or VA guaranteed and expected to have little to no loss content, and $3.6 billion of foreclosed assets, which have been written down to net realizable value. Foreclosed assets decreased $133 million, or 3%, year over year in second quarter 2011. Of this decrease, $200 million were foreclosed loans from the PCI portfolio that are now recorded as foreclosed assets. At June 30, 2011, most of our foreclosed assets of $4.9 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 June 30, 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. 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. We utilize foreclosure, however, only as a last resort for dealing with borrowers experiencing financial hardships. We employ extensive contact and restructuring procedures to attempt to find other solutions for our borrowers. We maintain appropriate staffing in our workout and collection teams to ensure troubled borrowers receive appropriate attention and assistance.

TROUBLED DEBT RESTRUCTURINGS (TDRs)

Table 24: Troubled Debt Restructurings (TDRs)


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


Consumer TDRs:
Real estate 1-4 family first mortgage	$	12,938		12,261		11,603		10,951		9,525
Real estate 1-4 family junior lien mortgage		1,910		1,824		1,626		1,566		1,469
Other revolving credit and installment		838		859		778		674		502


Total consumer TDRs		15,686		14,944		14,007		13,191		11,496


Commercial TDRs		2,595		2,352		1,751		1,350		656


Total TDRs	$	18,281		17,296		15,758		14,541		12,152


TDRs on nonaccrual status	$	5,308		5,041		5,185		5,177		3,877
TDRs on accrual status		12,973		12,255		10,573		9,364		8,275


Total TDRs	$	18,281		17,296		15,758		14,541		12,152

Table 24 provides information regarding the recorded investment of loans modified in TDRs. The allowance for TDR loans was $4.5 billion at June 30, 2011, and $3.9 billion at December 31, 2010. Total charge-offs related to loans modified in a TDR that were still held on the balance sheet at period end were $491 million and $486 million for the first half of 2011 and 2010, respectively.

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 timing on the repayment of a portion of principal (principal forbearance) and charge off the amount of forbearance if that amount is not considered fully collectible.

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. For an accruing loan that has been modified, 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.

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 $9.8 billion, $10.8 billion, $11.6 billion, $13.0 billion, and $15.1 billion at June 30 and March 31, 2011, and December 31, September 30 and June 30, 2010, respectively, 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 June 30, 2011, were down $819 million, or 31%, 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 25 reflects non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed. For additional information on delinquencies by loan class, see Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 25: Loans 90 Days or More Past Due and Still Accruing


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


Total (excluding PCI):	$	17,318		17,901		18,488		18,815		19,384
Less: FHA insured/guaranteed by the VA (1)		14,474		14,353		14,733		14,529		14,387
Less: Student loans guaranteed under the FFELP (2)		1,014		1,120		1,106		1,113		1,122


Total, not government insured/guaranteed	$	1,830		2,428		2,649		3,173		3,875


By segment and class, not government insured/guaranteed:
Commercial:
Commercial and industrial	$	110		338		308		222		540
Real estate mortgage		137		177		104		463		654
Real estate construction		86		156		193		332		471
Foreign		12		16		22		27		21


Total commercial		345		687		627		1,044		1,686


Consumer:
Real estate 1-4 family first mortgage (3)		728		858		941		1,016		1,049
Real estate 1-4 family junior lien mortgage (3)		286		325		366		361		352
Credit card		334		413		516		560		610
Other revolving credit and installment		137		145		199		192		178


Total consumer		1,485		1,741		2,022		2,129		2,189


Total, not government insured/guaranteed	$	1,830		2,428		2,649		3,173		3,875


(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 26: Net Charge-offs


	Quarter ended
	June 30, 2011					March 31, 2011					December 31, 2010					September 30, 2010					June 30, 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	$	254		0.66	%	$	354		0.96	%	$	500		1.34	%	$	509		1.38	%	$	689		1.87	%
Real estate mortgage		128		0.50			152		0.62			234		0.94			218		0.87			360		1.47
Real estate construction		72		1.32			83		1.38			171		2.51			276		3.72			238		2.90
Lease financing		1		0.01			6		0.18			21		0.61			23		0.71			27		0.78
Foreign		47		0.52			28		0.34			28		0.36			39		0.52			42		0.57

Total commercial		502		0.62			623		0.79			954		1.19			1,065		1.33			1,356		1.69

Consumer:
Real estate 1-4 family first mortgage		909		1.62			904		1.60			1,024		1.77			1,034		1.78			1,009		1.70
Real estate 1-4 family junior lien mortgage		909		3.97			994		4.25			1,005		4.08			1,085		4.30			1,184		4.62
Credit card		294		5.63			382		7.21			452		8.21			504		9.06			579		10.45
Other revolving credit and installment		224		1.03			307		1.42			404		1.84			407		1.83			361		1.64

Total consumer		2,336		2.21			2,587		2.42			2,885		2.63			3,030		2.72			3,133		2.79

Total	$	2,838		1.52	%	$	3,210		1.73	%	$	3,839		2.02	%	$	4,095		2.14	%	$	4,489		2.33	%

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

Table 26 presents net charge-offs for second quarter 2011 and the previous four quarters. Net charge-offs in second quarter 2011 were $2.8 billion (1.52% of average total loans outstanding) compared with $4.5 billion (2.33%) in second quarter 2010.

Net charge-offs in the 1-4 family first mortgage portfolio totaled $909 million in second 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 $909 million in second 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 20 in this Report and the related discussion.

Credit card net charge-offs of $294 million in second quarter 2011 decreased $285 million from a year ago.

Commercial net charge-offs were $502 million in second quarter 2011 compared with $1.4 billion a year ago. Commercial credit results continued to improve from second quarter 2010 as market liquidity and improving market conditions helped stabilize performance results.

Risk Management — Credit Risk Management (continued)

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. Table 27 provides a summary of our allowance for credit losses.

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. These trends, however, 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.

Table 27: Allowance for Credit Losses


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

Components:
Allowance for loan losses	$	20,893			21,983		23,022		23,939		24,584
Allowance for unfunded credit commitments		369			400		441		433		501

Allowance for credit losses		21,262			22,383		23,463		24,372		25,085

Allowance for credit losses related to PCI loans	$	273			257		298		379		225

Allowance for loan losses as a percentage of total loans		2.78	%		2.93		3.04		3.18		3.21
Allowance for loan losses as a percentage of annualized net charge-offs		184			169		151		147		137
Allowance for credit losses as a percentage of total loans		2.83			2.98		3.10		3.23		3.27
Allowance for credit losses as a percentage of total nonaccrual loans		92			90		89		86		90

In addition to the allowance for credit losses, there was $12.1 billion at June 30, 2011, and $12.9 billion at March 31, 2011, 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 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 at June 30, 2011.

The $1.1 billion linked-quarter decline in the allowance for loan losses in second quarter 2011 reflected continued improvement in consumer delinquency trends, reduced nonperforming loans and improved portfolio performance. Additionally, the loan portfolio at June 30, 2011, consisted of higher percentages of more recent vintage loans subjected to tightened underwriting standards.

Total provision for credit losses was $1.8 billion in second quarter 2011, compared with $4.0 billion a year ago. The second quarter 2011 provision was $1.0 billion less than net charge-offs, compared with a provision that was $500 million less than net charge-offs in second quarter 2010.

In determining the appropriate allowance attributable to our residential mortgage portfolio, we incorporate the default rates and high severity of loss for junior lien mortgages behind

delinquent first lien mortgages into our loss forecasting calculations. In addition, the loss rates we use in determining our allowance 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. Accordingly, the loss content associated with the effects of existing and probable loan modifications and junior lien mortgages behind delinquent first lien mortgages has been captured 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, including ongoing discussions with regulatory and government agencies regarding mortgage foreclosure-related matters.

We believe the allowance for credit losses of $21.3 billion is adequate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at June 30, 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 our external business environment, it is possible that we will have to record incremental credit losses not anticipated as of the balance sheet date. However, absent significant deterioration in the economy, we expect future reserve releases. 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) government-sponsored entities 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 additional information 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 have a repurchase obligation, whether or not we currently service those loans, based on a combination of factors. Our mortgage repurchase liability estimation process also incorporates projected and on hand mortgage insurance rescissions that we deem to be probable to result in a repurchase demand. Currently, repurchase demands primarily relate to 2006 through 2008 vintages and to GSE-guaranteed MBS.

During second quarter 2011, we observed a decline in our level of total 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 $598 million. In second quarter 2011, we also negotiated a settlement on a pool of mortgage loans with original sold balances of $302 million. This settlement occurred with a private investor to whom we had sold the loans and settled all future mortgage repurchase requests for this pool of loans with this counterparty. We incurred net losses on repurchased loans, investor reimbursements and loan pool global settlements of $261 million in second quarter 2011.

Table 28 provides the number of unresolved repurchase demands and mortgage insurance rescissions. We do not typically receive repurchase requests from GNMA, FHA/HUD or VA. As an originator of an FHA insured or VA guaranteed loan, we are responsible for obtaining the insurance with FHA or the guarantee with the VA. To the extent we are not able to obtain the insurance or the guarantee we can request to repurchase the loan from the GNMA pool. Such repurchases from GNMA pools typically represent a self-initiated process upon discovery of the uninsurable loan (usually within 180 days from funding of the loan). Alternatively, in lieu of repurchasing loans from GNMA pools, we may be asked by the FHA/HUD or the VA to indemnify loans due to defects found in the Post Endorsement Technical Review process or audits performed by FHA/HUD or the VA. Our liability for mortgage loan repurchase losses incorporates probable losses associated with indemnified loans in GNMA pools and uninsurable loans.

Table 28: 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)

2011
June 30,		6,876	$	1,565		695	$	230		2,019	$	444		9,590	$	2,239
March 31,		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


(1)		Includes repurchase demands of 892 and $179 million, 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 June 30 and 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 typically represent to GSEs and private investors that certain loans have mortgage insurance to the extent there are loans that have loan to value ratios in excess of 80% which require 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. When investor demands are received due to lack of mortgage insurance, they are reported as unresolved repurchase demands based on the applicable investor category for the loan (GSE or private). Over the last year, approximately 20% of our repurchase demands from GSEs had mortgage insurance rescission as one of the reasons for the repurchase demand. Of all the mortgage insurance rescissions notices received in 2010, approximately 70% have resulted in repurchase demands through June of 2011. Not all mortgage insurance rescissions received in 2010 have been completed through the appeals process with the mortgage insurer and upon successful appeal, we work with the investor to rescind the repurchase demand.
(3)		While original loan balance related to these demands is presented above, the establishment of the repurchase liability 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 June 30, 2011, was down from a year ago in both number of outstanding loans and in total dollar balances as we continued to work through the demands. While GSE repurchase demands outstanding have increased from December 31, 2010, due to an acceleration of timing of demand requests, which can fluctuate, we do not expect these demands to remain elevated and we do not believe these demands indicate an increased frequency of demands in the future. 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 28, 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 June 30 and March 31, 2011. In the quarter ended June 30, 2011, $242 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 June 30, 2011, reflect updated assumptions about repurchase risk 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 June 30, 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 7.44% at June 30, 2011, compared with 7.22% at March 31, 2011. 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 69 months); 80% were prime at origination; and approximately 70% are jumbo loans. The weighted-average LTV as of June 30, 2011, for this private securitization segment was 77%. We believe the highest risk segment of these private securitizations is 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 $72 million of repurchased loans related to private securitizations in second quarter 2011. Of the servicing portfolio, 4% is non-agency acquired servicing and 2% 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. For the private whole loan segment, while we do have repurchase risk on these prior loan sales, less than 3% were subprime at origination and loans that were sold and subsequently securitized are included in the private securitization segment discussed above.

Table 29 summarizes the changes in our mortgage repurchase liability.

Risk Management — Credit Risk Management (continued)

Table 29: Changes in Mortgage Repurchase Liability


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


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

Provision for repurchase losses:

Loan sales		20			35			35			29			36

Change in estimate — primarily due to credit deterioration		222			214			429			341			346


Total additions		242			249			464			370			382

Losses		(261	)		(331	)		(506	)		(414	)		(270	)


Balance, end of period	$	1,188			1,207			1,289			1,331			1,375

The mortgage repurchase liability of $1.2 billion at June 30, 2011, represents our best estimate of the probable loss that we will incur related to representations and warranties in the contractual provisions of our sales of mortgage loans. 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. Because of the uncertainty in the various estimates underlying the mortgage repurchase liability, there is a range of losses in excess of the recorded mortgage repurchase liability that are reasonably possible. The estimate of the range of possible loss for representations and warranties does not represent a probable loss, and is based on currently available information, significant judgment, and a number of assumptions that are subject to change. The high end of this range of reasonably possible losses in excess of our recorded liability was $1.8 billion at June 30, 2011, and was determined based upon modifying the assumptions utilized in our best estimate of probable loss to reflect what we believe to be the high end of reasonably possible adverse assumptions. 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.

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 expected future servicing and foreclosure costs, which in the first half of 2011, includes the estimated impact from the regulatory consent orders.

Risk Management — Credit Risk Management (continued)

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, 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 June 30, 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 5.50%. 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 June 30, 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 $16.2 billion at June 30, 2011, and $15.9 billion at December 31, 2010. The weighted-average note rate on our portfolio of loans serviced for others was 5.26% at June 30, 2011, and 5.39% at December 31, 2010. Our total MSRs represented 0.87% of mortgage loans serviced for others at June 30, 2011, and 0.86% at December 31, 2010.

MARKET RISK — TRADING ACTIVITIES From a market risk perspective, our net gains from trading activities are impacted by changes in interest rates, credit spreads, foreign exchange rates, equity and commodity prices and their implied volatilities. We are exposed to market risk through customer accommodation trading, certain economic hedges classified as trading positions and, to a lesser extent, proprietary trading. Trading positions and related market risk exposure are subject to risk limits established and monitored by the Market Risk Committee and Corporate ALCO. These trading positions consist of both securities and derivative instruments. The primary purpose of our trading businesses is to accommodate customers in management of their market price risk. Net gains from trading activities are attributable to the following types of activity:

Table 30: Trading Activities


							Six months
	Quarter ended June 30,						ended June 30,
(in millions)	2011			2010			2011			2010

Customer accommodation	$	190			281			687			826
Economic hedging		247			(127	)		348			(167	)
Proprietary		(23	)		(45	)		(9	)		(13	)

Total net trading gains	$	414			109			1,026			646

The amounts reflected in the table above capture only gains (losses) due to changes in fair value of our trading positions and are reported within net gains on trading activities within noninterest income line item of the income statement. These amounts do not include interest income and other fees earned from related activities, which are reported within interest income from trading assets and other fees within noninterest income line items of the income statement. Categorization of net gains from trading activities in the table above is based on our own definition of those categories, as further described below, because no uniform definitions currently exist.

Customer accommodation trading consists of security or derivative transactions conducted in an effort to help customers manage their market price risks which are done on their behalf or driven by their investment needs. For the majority of our customer accommodation trading we serve as intermediary between buyer and seller. For example, we may enter into financial instruments with customers that use the instruments for risk management purposes and offset our exposure on such contracts by entering into separate instruments. Customer accommodation trading

also includes net gains related to market-making activities in which we take positions to facilitate expected customer order flow.

Economic hedges consist primarily of cash or derivative positions used to facilitate certain of our balance sheet risk management activities that did not qualify for hedge accounting or were not designated in a hedge accounting relationship. Economic hedges may also include securities which we elected to carry at fair value with changes in fair value recorded to earnings in order to mitigate accounting measurement mismatches or avoid embedded derivative accounting complexities.

Proprietary trading consists of security or derivative positions executed for our own account based on market expectations or to benefit from price differences between financial instruments and markets. Proprietary trading activity is expected to be restricted by the Dodd-Frank Act section known as the “Volcker Rule,” which has not yet been finalized. Given that future rule-making is required by various governmental regulatory agencies to define proprietary trading within the context of the final “Volcker Rule,” our definition of proprietary trading may change. However, we have reduced or exited certain business activities in anticipation of the final “Volcker Rule.” As discussed within the noninterest income section of our financial results, proprietary trading activity is not significant to our financial results.

The fair value of our trading derivatives is reported in Notes 12 (Derivatives) and 13 (Fair Value) to Financial Statements in this Report. The fair value of our trading securities is reported in Note 13 (Fair Value) to Financial Statements in this Report.

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 second quarter 2011 was $28 million, with a lower bound of $19 million and an upper bound of $37 million.

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 31 provides information regarding our marketable and nonmarketable equity investments.

Table 31: Nonmarketable and Marketable Equity Investments


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

Nonmarketable equity investments:
Private equity investments:
Cost method	$	3,143		3,240
Equity method		7,758		7,624
Federal bank stock		4,886		5,254
Principal investments		291		305


Total nonmarketable equity investments (1)	$	16,078		16,423


Marketable equity securities:
Cost	$	3,499		4,258
Net unrealized gains		856		931


Total marketable equity securities (2)	$	4,355		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. At June 30, 2011, core deposits funded 108% of total loans compared with 99% a year ago. Additional funding is provided by long-term debt, other foreign deposits, and short-term borrowings.

Table 32 shows selected information for short-term borrowings, which generally mature in less than 30 days.

Table 32: Short-Term Borrowings


	Quarter ended

	June 30,		Mar. 31,		Dec. 31,		Sept. 30,		June 30,

(in millions)	2011		2011		2010		2010		2010


Balance, period end
Commercial paper and other short-term borrowings	$	17,357		17,228		17,454		16,856		16,604
Federal funds purchased and securities sold under agreements to repurchase		36,524		37,509		37,947		33,859		28,583


Total	$	53,881		54,737		55,401		50,715		45,187


Average daily balance for period
Commercial paper and other short-term borrowings	$	17,105		17,005		16,370		15,761		16,316
Federal funds purchased and securities sold under agreements to repurchase		36,235		37,746		34,239		30,707		28,766


Total	$	53,340		54,751		50,609		46,468		45,082


Maximum month-end balance for period
Commercial paper and other short-term borrowings (1)	$	18,234		17,597		17,454		16,856		17,388
Federal funds purchased and securities sold under agreements to repurchase (2)		36,524		37,509		37,947		33,859		28,807


(1)		Highest month-end balance in each of the last five quarters was in April and February 2011 and December, September and April 2010.
(2)		Highest month-end balance in each of the last five quarters was in June and March 2011 and December, September and May 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 this Report for additional information regarding the potential effect of the Dodd-Frank Act on 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 the first half of 2011, the Parent issued $6.4 billion in registered senior notes. 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 notes 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 the first half of 2011 were used for general corporate purposes, and, unless otherwise specified in the applicable prospectus or prospectus supplement, we expect that the proceeds from securities issued in the future will also be used for the same purposes.

Table 33 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 33: Medium-Term Note (MTN) Programs

June 30, 2011

Debt

Available

Date

issuance

for

(in billions)

established

authority

issuance

MTN program:

Series I & J (1)

August 2009

25.0

18.3

Series K (1)

April 2010

25.0

24.4

European (2)

December 2009

25.0

Australian (2)(3)

June 2005

AUD

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. At June 30, 2011, Wells Fargo Bank, N.A. had available $100 billion in short-term debt issuance authority and $99.2 billion in long-term debt issuance authority.

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 the first half of 2011, WFFCC issued CAD$500 million in medium-term notes. At June 30, 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 $6.0 billion from December 31, 2010, predominantly from Wells Fargo net income of $7.7 billion, less common and preferred stock dividends of $1.7 billion. During the first half of 2011, we issued approximately 53 million shares of common stock, with net proceeds of $801 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 $3.4 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. Consistent with the CCAR process and the FRB’s existing supervisory guidance regarding internal capital assessment, planning and adequacy, the FRB recently proposed rules that will require large bank holding companies such as the Company to submit annual capital plans to the FRB and to provide prior notice to the FRB before making a capital distribution under certain circumstances, including if the FRB objected to a capital plan or if certain minimum capital requirements were not maintained.

From time to time the Board authorizes the Company to repurchase shares of our common stock. Although we announce when the Board authorizes share repurchases, we typically do not give any public notice before we repurchase our shares. Future stock repurchases may be private or open-market repurchases, including block transactions, accelerated or delayed block transactions, forward transactions, and similar transactions. Additionally, we may enter into plans to purchase stock that satisfy the conditions of Rule 10b5-1 of the Securities Exchange Act of 1934. 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 second quarter 2011, we

repurchased 35 million shares of our common stock in the open market and from our employee benefit plans. At June 30, 2011, we had utilized all previously remaining common stock repurchase authority from the 2008 authorization and had remaining authority from the 2011 authorization to purchase approximately 166 million shares. For more information about share repurchases during second 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 the first half of 2011. At June 30, 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 $2.5 billion 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) and the Series I preferred stock replaces the trust preferred securities.

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 June 30, 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 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 2008 and 2009 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 guidelines, among other things, increase minimum capital requirements and when fully phased in require bank holding companies to maintain a minimum ratio of Tier 1 common equity to risk-weighted assets of at least 7.0%. The U.S. regulatory bodies are reviewing the final international standards and final U.S. rulemaking is expected to be completed in 2011. The Basel Committee recently proposed additional Tier 1 common equity surcharge requirements for global systemically important banks ranging from 1% to 3.5% depending on the bank’s systemic importance to be determined under an indicator-based approach that would consider five broad categories including cross-jurisdictional activity, size, inter-connectedness, substitutability and complexity. These additional capital requirements, which would be phased in beginning in January 2016 and become fully effective on January 1, 2019, would be in addition to the Basel III 7.0% Tier 1 common equity requirement finalized in December 2010. Regulatory authorities have not yet determined the global systemically important banks that would be subject to the surcharge and the amount of the surcharge for these banks. The Dodd-Frank Act also requires the FRB to adopt rules subjecting large bank holding companies, such as the Company, to more stringent capital requirements, including stress testing requirements and enhanced capital and liquidity requirements, and these rules may be similar to or more restrictive than those proposed by the Basel Committee. Although uncertainty exists regarding final capital rules, including the FRB’s approach to capital requirements, 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 Basel III proposal exceeded the fully-phased in minimum of 7.0% by 35 basis points at the end of second 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 June 30, 2011, stockholders’ equity and Tier 1 common equity levels were higher than the quarter ended 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 $88.8 billion at June 30, 2011, or 9.15% of risk-weighted assets, an increase of $7.5 billion from December 31, 2010. Table 34 and Table 35 provide the details of the Tier 1 common equity calculation under Basel I and as estimated under Basel III, respectively.

Capital Management (continued)

Table 34: Tier 1 Common Equity Under Basel I (1)


			June 30,			Dec. 31,

(in billions)			2011			2010


Total equity			$	137.9			127.9
Noncontrolling interests				(1.5	)		(1.5	)


Total Wells Fargo stockholders’ equity				136.4			126.4


Adjustments:
Preferred equity (2)				(10.6	)		(8.1	)
Goodwill and intangible assets (other than MSRs)				(34.6	)		(35.5	)
Applicable deferred taxes				4.1			4.3
MSRs over specified limitations				(0.9	)		(0.9	)
Cumulative other comprehensive income				(5.3	)		(4.6	)
Other				(0.3	)		(0.3	)


Tier 1 common equity	(A)		$	88.8			81.3


Total risk-weighted assets (3)	(B)		$	970.2			980.0


Tier 1 common equity to total risk-weighted assets	(A)/	(B)		9.15	%		8.30


(1)		Tier 1 common equity is a non-GAAP financial measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. 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.

Table 35: Tier 1 Common Equity Under Basel III (Estimated) (1)


			June 30,

(in billions)			2011


Tier 1 common equity under Basel I			$	88.8


Adjustments from Basel I to Basel III:
Cumulative other comprehensive income (1)				5.3
Threshold deductions defined under Basel III (1) (2)				(4.6	)
Other				(0.3	)


Tier 1 common equity under Basel III	(C)		$	89.2


Total risk-weighted assets anticipated under Basel III (3)	(D)		$	1,212.9


Tier 1 common equity to total risk-weighted assets anticipated under Basel III	(C)/	(D)		7.35	%


(1)		Volatility in interest rates can have a significant impact on the valuation of cumulative other comprehensive income and MSRs and therefore, impact adjustments under Basel III in future reporting periods.
(2)		Threshold deductions under Basel III include individual and aggregate limitations, as a percentage of Tier 1 common equity (as defined under Basel III), with respect to MSRs, deferred tax assets and investments in unconsolidated financial companies.
(3)		Under current Basel proposals, risk-weighted assets incorporate different classifications of assets, with certain risk weights based on a borrower’s credit rating or Wells Fargo’s own risk models, along with adjustments to address a combination of credit/counterparty, operational and market risks, and other Basel III elements. The amount of risk-weighted assets anticipated under Basel III is preliminary and subject to change depending on final promulgation of Basel III capital rulemaking and interpretations thereof by regulatory authorities.

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 pronouncements have been issued by the Financial Accounting Standards Board (FASB) but are not yet effective:

•		Accounting Standards Update (ASU or Update) 2011-05, Presentation of Comprehensive Income;

•		ASU 2011-4, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs;

•		ASU 2011-3, Reconsideration of Effective Control for Repurchase Agreements; and

•		ASU 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.

ASU 2011-05 eliminates the option for companies to include the components of other comprehensive income in the statement of changes in stockholders’ equity. The Update requires entities to present the components of comprehensive income in either a single statement or in two separate statements, with the statement of other comprehensive income immediately following the statement of income. This guidance is effective for us in first quarter 2012 with retrospective application. Early adoption is permitted. The Update will not affect our financial results as it amends only the presentation of comprehensive income.

ASU 2011-04 modifies accounting guidance and expands existing disclosure requirements for fair value measurements. The Update clarifies how fair values should be measured for instruments classified in stockholders’ equity and under what circumstances premiums and discounts should be applied in fair value measurements. The guidance also permits entities to measure fair value on a net basis for financial instruments that are managed based on net exposure to market risks and/or counterparty credit risk. Required new disclosures for financial instruments classified as Level 3 include: 1) quantitative information about unobservable inputs used in measuring fair value, 2) qualitative discussion of the sensitivity of fair value measurements to changes in unobservable inputs, and 3) a description of valuation processes used. The Update also requires disclosure of fair value levels for financial instruments that are not recorded at fair value but for which fair value is required to be disclosed. The guidance is effective for us in first quarter 2012 with prospective application. Early adoption is not permitted. We are evaluating the effect these accounting changes may have on our consolidated financial statements.

ASU 2011-03 amends the criteria companies use to determine if repurchase and similar agreements should be accounted for as sales or financings. Specifically, the Update removes the criterion for transferors to have the ability to meet contractual obligations through collateral maintenance provisions, even if transferees fail to return transferred assets pursuant to the agreements. This guidance is effective for us in first quarter 2012 with prospective application to new transactions and existing transactions

modified on or after January 1, 2012. Early adoption is not permitted. We do not expect these accounting changes to have a material effect on our consolidated financial statements.

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. These accounting changes will impact our TDR disclosures but are not expected to have a material effect on our financial results.

Regulatory and Other 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 require us to 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 full 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 made some of the operational changes that will result from the expanded servicing responsibilities outlined in the consent orders. We are an industry leader in loan modifications for homeowners. As of June 30, 2011, approximately 695,000 Wells Fargo mortgage customers were in active trial or had completed loan modifications since the beginning of 2009.

On July 20, 2011, the FRB issued a consent cease and desist order regarding home mortgage lending conducted by Wells Fargo Financial prior to the reorganization of its lending operations into Wells Fargo Bank, N.A. The order addressed allegations that some Wells Fargo Financial employees had steered potential prime borrowers into more costly nonprime loans and had falsified income information in mortgage applications so that borrowers qualified for loans when they would not have qualified based on their actual incomes. In addition to assessing an $85 million civil money penalty against the Company, the order requires the Company to compensate borrowers affected by these practices.

This quarter we reached a preliminary settlement of $125 million to address securities law claims by buyers of private label mortgage-backed securities. This settlement should resolve pending securities law claims for most purchasers of our private label mortgage-backed securities. The settlement has been considered in our reserve for litigation claims and should not affect our future income if approved.

In 2009, the FRB announced regulatory changes to debit card and ATM overdraft practices, which have reduced our service charges on deposit accounts. The Durbin Amendment contained in the Dodd-Frank Act authorized the FRB to issue regulations governing debit card interchange fees, and in June 2011, the FRB issued final rules limiting debit card interchange fees. As a result of the new FRB rules, which will become effective on October 1, 2011, we currently expect that beginning in fourth quarter 2011 our quarterly income will be reduced by approximately $250 million (after tax), before the impact of any offsetting actions.

For more information, see Note 11 (Legal Actions) to Financial Statements in this Report.

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,” “target,” “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) our targeted noninterest expense for fourth quarter 2012 as part of our expense management initiatives; (iii) 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; (iv) future capital levels and our estimate regarding our Tier 1 common equity ratio under proposed Basel III capital standards as of June 30, 2011; (v) the merger integration of the Company and Wachovia, including, merger costs, revenue synergies and store conversions; (vi) our current estimate of our 2011 effective tax rate; (vii) our mortgage repurchase exposure and exposure relating to our mortgage foreclosure practices; (viii) the expected outcome and impact of legal, regulatory and legislative developments, including the 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, high unemployment rates, and uncertainty regarding U. S. debt and budget matters;

•		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, as well as the extent of our ability to offset the loss of revenue and income from financial services reform and other legislation and regulation;

•		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 servicing and other costs or obligations, including loan modification requirements, or delays or moratoriums on foreclosures;

•		our ability to realize our noninterest expense target as part of our expense management initiatives when and in the amount targeted, including as a result of business and economic cyclicality, seasonality, changes in our business composition and operating environment, growth in our businesses and/or acquisitions, and unexpected expenses relating to, among other things, litigation and regulatory matters;

•		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;

•		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 economic conditions on the demand for our products and services;

•		the effect of a 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 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 “Regulation and Supervision” section of our 2010 Form 10-K for more information about legislative and regulatory risks. In addition, the following risk factors amend and restate in their entirety the risk factors set forth in the “Risk Factors” section on pages 92 through 101 of our 2010 Form 10-K.

RISKS RELATING TO ECONOMIC AND MARKET CONDITIONS AND REGULATORY ACTIVITY

As one of the largest lenders in the U.S. and a provider of financial products and services to consumers and businesses across the U.S. and internationally, our financial results have been, and may continue to be, materially affected by general economic conditions, particularly unemployment levels and home prices in the U.S., and a deterioration in economic conditions or in the financial markets may materially adversely affect our lending and other businesses and our financial results and condition. We generate revenue from the interest and fees we charge on the loans and other products and services we sell, and a substantial amount of our revenue and earnings comes from the net interest income and fee income that we earn from our consumer and commercial lending and banking businesses, including our mortgage banking business where we currently are the largest mortgage originator in the U.S. These businesses have been, and may continue to be, materially affected by the state of the U.S. economy, particularly unemployment levels and home prices. Although the U.S. economy has continued to gradually improve from the severely depressed levels of 2008 and early 2009, economic growth has been slow and uneven and the housing market remains weak. In addition, financial uncertainty stemming from the sovereign debt crisis in Europe and U. S. debt and budget matters, including the raising of the debt limit, deficit reduction, and the possible downgrade of U. S. debt ratings, as well as other recent events and concerns such as the political unrest in the Middle East, the impact to the global supply chain resulting from the devastating earthquake and tsunami in Japan, the increased volatility of commodity prices and the increase in the price of oil, and the uncertainty surrounding financial regulatory reform and its effect on the revenues of financial services companies such as the Company, have impacted and may continue to impact the continuing global economic recovery. A prolonged period of slow growth in the U.S. economy or any deterioration in general economic conditions and/or the financial markets resulting from the above matters or any other events or factors that may disrupt or dampen the global economic recovery, could materially adversely affect our financial results and condition.

The high unemployment rate in the U.S., together with elevated levels of distressed property sales and the significant decline in home prices across the U.S., including in many of our large banking markets such as California and Florida, may be causing consumers to delay home purchases and has resulted in elevated credit costs and nonperforming asset levels, which have adversely affected our credit performance and our financial results and condition. If unemployment levels do not improve or continue to rise or if home prices continue to fall we would expect to incur higher than normal charge-offs and provision expense from increases in our allowance for credit losses. These conditions may adversely affect not only consumer loan performance but also commercial and CRE loans, especially for those business borrowers that rely on the health of industries or properties that may experience deteriorating economic conditions. The ability of these borrowers to repay their loans may be hurt, causing us, as one of the largest commercial lenders and the largest CRE lender in the U.S., to incur significantly higher credit losses. In addition, current economic conditions have made it more challenging for us to increase our consumer and commercial loan portfolios by making loans to creditworthy borrowers at attractive yields. Although we have significant capacity to add loans to our balance sheet, loan demand has been soft resulting in our retaining a much higher amount of lower yielding liquid assets on our balance sheet. If economic conditions do not continue to improve or if the economy worsens and unemployment rises, which would likely result in a decrease in consumer and business confidence and spending, the demand for our credit products, including our mortgages, may fall, reducing our interest and fee income and our earnings.

A deterioration in business and economic conditions, which may erode consumer and investor confidence levels, and/or increased volatility of financial markets, also could adversely affect financial results for our fee-based businesses, including our investment advisory, mutual fund, securities brokerage, wealth management, and investment banking businesses. As a result of the Wachovia merger, a greater percentage of our revenue depends on our fee income from these businesses. We earn fee income from managing assets for others and providing brokerage and other investment advisory and wealth management services. Because investment management fees are often based on the value of assets under management, a fall in the market prices of those assets could reduce our fee income. Changes in stock market prices could affect the trading activity of investors, reducing commissions and other fees we earn from our brokerage business. Poor economic conditions and volatile or unstable financial markets also can negatively affect our debt and equity underwriting and advisory businesses, as well as our trading and venture capital businesses. Our acquisition of

Risk Factors (continued)

Wachovia also expanded our international businesses, particularly our global financial institution and correspondent banking services, and any deterioration in global financial markets and economies may adversely affect the revenues and earnings of these businesses.

For more information, refer to the “Risk Management — Asset/Liability Management” and “ — Credit Risk Management” sections in our 2010 Form 10-K and in this Report.

Effective liquidity management, which ensures that we can meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and other unpredictable circumstances of industry or financial market stress, is essential for the operation of our business, and our financial results and condition could be materially adversely affected if we do not effectively manage our liquidity. Our liquidity is essential for the operation of our business. We primarily rely on bank deposits to be a low cost and stable source of funding for the loans we make and the operation of our business. Core customer deposits, which include noninterest-bearing deposits, interest-bearing checking, savings certificates, certain market rate and other savings, and certain foreign deposits, have historically provided us with a sizeable source of relatively stable and low-cost funds (average core deposits funded 65% of our average total assets in second quarter 2011). In addition to customer deposits, our sources of liquidity include investments in our securities portfolio, our ability to sell or securitize loans in secondary markets and to pledge loans to access secured borrowing facilities through the Federal Home Loan Bank and the FRB, and our ability to raise funds in domestic and international money and capital markets.

Our liquidity and our ability to fund and run our business could be materially adversely affected by a variety of conditions and factors, including financial and credit market disruption and volatility or a lack of market or customer confidence in financial markets in general similar to what occurred during the financial crisis in 2008 and early 2009, which may result in a loss of customer deposits or outflows of cash or collateral and/or our inability to access capital markets on favorable terms. Other conditions and factors that could materially adversely affect our liquidity and funding include a lack of market or customer confidence in the Company or negative news about the Company or the financial services industry generally which also may result in a loss of deposits and/or negatively affect our ability to access the capital markets; the loss of customer deposits to alternative investments; our inability to sell or securitize loans or other assets, and reductions in one or more of our credit ratings, which could adversely affect our ability to borrow funds and raise the costs of our borrowings substantially and could cause creditors and business counterparties to raise collateral requirements or take other actions that could adversely affect our ability to raise capital. Many of the above conditions and factors may be caused by events over which we have little or no control such as what occurred during the financial crisis. While market conditions have stabilized and, in many cases, improved, there can be no assurance that significant disruption and volatility in the financial markets will not occur in the future. For example, recent concerns regarding the potential failure to raise the U.S. debt limit and continuing concerns about a potential downgrade of U.S. debt ratings have caused uncertainty in financial markets. Although the U.S. debt limit was increased, a failure to raise the U.S. debt limit and/or a downgrade of U.S. debt ratings in the future could, in addition to causing economic and financial market disruptions, materially adversely affect the market value of the U.S. government securities that we hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable terms, as well as have other material adverse effects on the operation of our business and our financial results and condition. Other material adverse effects could include a reduction in our credit ratings resulting from a further decrease in the probability of government support for large financial institutions such as the Company assumed by the ratings agencies in their current credit ratings as described below in our risk factor relating to the impact of the Dodd-Frank Act.

If we are unable to continue to fund our assets through customer bank deposits or access capital markets on favorable terms or if we suffer an increase in our borrowing costs or otherwise fail to manage our liquidity effectively, our liquidity, operating margins, financial results and condition may be materially adversely affected. As we did during the financial crisis, we may also need to raise additional capital through the issuance of common stock, which could dilute the ownership of existing stockholders, or reduce or even eliminate our common stock dividend to preserve capital or in order to raise additional capital.

As a bank holding company, Wells Fargo & Company, the parent holding company, also relies on dividends from its subsidiaries for revenue, and federal and state law limit the amount of dividends that our subsidiaries may pay to the Parent. Limitations in the payments of dividends that Wells Fargo & Company receives from its subsidiaries could also reduce our liquidity position.

For more information, refer to the “Risk Management — Asset/Liability Management” section in our 2010 Form 10-K and in this Report.

Enacted legislation and regulation, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), as well as future legislation and/or regulation, could require us to change certain of our business practices, reduce our revenue, impose additional costs on us or otherwise adversely affect our business operations and/or competitive position. We are subject to significant regulation under state and federal laws in the U.S., as well as the applicable laws of the various jurisdictions outside of the U.S. where we conduct business. Economic, financial, market and political conditions during the past few years have led to significant new legislation and regulation in the United States and in other jurisdictions outside of the United States where we conduct business. These laws and regulations may affect the manner in which we do business and the products and services that we provide, affect or restrict our ability to compete in our current businesses or our ability to enter into or acquire new businesses, reduce or limit our revenue in businesses or impose additional fees, assessments or taxes on us, intensify the regulatory supervision of us and the financial services industry, and adversely affect our business operations or have other negative consequences.

For example, in 2009 several legislative and regulatory initiatives were adopted that will have an impact on our businesses and financial results, including FRB amendments to Regulation E, which, among other things, affect the way we may charge overdraft fees, and the enactment of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the Card Act), which, among other things, affects our ability to change interest rates and assess certain fees on card accounts. In third quarter 2009, we also implemented policy changes to help customers limit overdraft and returned item fees. The impact on our revenue of the Regulation E amendments, as well as our policy changes, and the Card Act reduced our 2010 and first half 2011 fee revenue and the continuing impact on our future revenue could vary materially due to a variety of factors, including changes in customer behavior, economic conditions and other potential offsetting factors.

On July 21, 2010, the Dodd-Frank Act became law. The Dodd-Frank Act, among other things, (i) establishes a new Financial Stability Oversight Council to monitor systemic risk posed by financial firms and imposes additional and enhanced FRB regulations, including capital and liquidity requirements, on certain large, interconnected bank holding companies and systemically significant nonbanking firms intended to promote financial stability; (ii) creates a liquidation framework for the resolution of covered financial companies, the costs of which would be paid through assessments on surviving covered financial companies; (iii) makes significant changes to the structure of bank and bank holding company regulation and activities in a variety of areas, including prohibiting proprietary

trading and private fund investment activities, subject to certain exceptions; (iv) creates a new framework for the regulation of over-the-counter derivatives and new regulations for the securitization market and strengthens the regulatory oversight of securities and capital markets by the SEC; (v) establishes the Bureau of Consumer Financial Protection within the FRB, which will have sweeping powers to administer and enforce a new federal regulatory framework of consumer financial regulation; (vi) may limit the existing pre-emption of state laws with respect to the application of such laws to national banks, makes federal pre-emption no longer applicable to operating subsidiaries of national banks, and gives state authorities, under certain circumstances, the ability to enforce state laws and federal consumer regulations against national banks; (vii) provides for increased regulation of residential mortgage activities; (viii) revises the FDIC’s assessment base for deposit insurance by changing from an assessment base defined by deposit liabilities to a risk-based system based on total assets; (ix) authorizes the FRB under the Durbin Amendment to issue regulations establishing, among other things, standards for assessing whether debit card interchange fees received by debit card issuers are reasonable and proportional to the costs incurred by issuers for electronic debit transactions; and (x) includes several corporate governance and executive compensation provisions and requirements, including mandating an advisory stockholder vote on executive compensation.

The Dodd-Frank Act and many of its provisions became generally effective in July 2010, and on July 21, 2011, the one-year anniversary of its enactment, many other provisions became effective. However, a number of these and other provisions of the Dodd Frank Act still require extensive rulemaking, guidance, and interpretation by regulatory authorities and have extended implementation periods and delayed effective dates. Accordingly, in many respects the ultimate impact of the Dodd-Frank Act and its effects on the U.S. financial system and the Company will not be known for an extended period of time. Nevertheless, the Dodd-Frank Act, including current and future rules implementing its provisions and the interpretation of those rules, could result in a loss of revenue, require us to change certain of our business practices, limit our ability to pursue certain business opportunities, increase our capital requirements and impose additional assessments and costs on us and otherwise adversely affect our business operations and have other negative consequences. For example, the FRB recently issued final rules regarding debit card interchange fees, which implement the Durbin Amendment and become effective on October 1, 2011. As a result of the new rules, we currently expect that starting in fourth quarter 2011 our quarterly income will be reduced by approximately $250 million (after tax) before the impact of any offsetting actions. Although we expect to recapture a portion of this lost income over time through volume and product changes, there can be no assurance that we will be successful in our efforts to mitigate the negative impact to our financial results from the Durbin Amendment. Other negative consequences relating to the Dodd-Frank Act could include a reduction in our credit ratings to the extent the legislation reduces the probability of future federal financial assistance or support currently assumed by the ratings agencies in their credit ratings. Recently, one ratings agency reiterated its view that the uplift incorporated into the ratings of the Company and other large systemically important financial institutions for government support may no longer be appropriate because of the Dodd-Frank Act and it placed certain of the Company’s debt

Risk Factors (continued)

ratings on review for possible downgrade. As noted above, a reduction in one or more of our credit ratings could adversely affect our ability to borrow funds and raise the costs of our borrowings substantially and could cause creditors and business counterparties to raise collateral requirements or take other actions, which could adversely affect our ability to raise capital.

In February 2011, the Obama Administration delivered a report to Congress regarding proposals to reform the housing finance market in the United States. The report, among other things, outlined various potential proposals to wind down the GSEs and reduce or eliminate over time the role of the GSEs in guaranteeing mortgages and providing funding for mortgage loans, as well as proposals to implement reforms relating to borrowers, lenders, and investors in the mortgage market, including reducing the maximum size of a loan that the GSEs can guarantee, phasing in a minimum down payment requirement for borrowers, improving underwriting standards, and increasing accountability and transparency in the securitization process. The extent and timing of any regulatory reform regarding the GSEs and the home mortgage market, as well as any effect on the Company’s business and financial results, are uncertain.

Any other future legislation and/or regulation, if adopted, also could have a material adverse effect on our business operations, income, and/or competitive position and may have other negative consequences.

For more information, refer to the “Regulation and Supervision” section in our 2010 Form 10-K.

Bank regulations, including proposed Basel capital standards and FRB guidelines and rules, may require higher capital and liquidity levels, limiting our ability to pay common stock dividends, repurchase our common stock, invest in our business or provide loans to our customers. Federal banking regulators continually monitor the capital position of banks and bank holding companies. In July 2009, the Basel Committee on Bank Supervision published a set of international guidelines for determining regulatory capital known as Basel III. These guidelines, which were finalized in December 2010, followed earlier guidelines by the Basel Committee and are designed to address many of the weaknesses identified in the banking sector as contributing to the financial crisis of 2008 - 2009 by, among other things, increasing minimum capital requirements, increasing the quality of capital, increasing the risk coverage of the capital framework, and increasing standards for the supervisory review process and public disclosure. When fully phased in, the Basel III proposals require bank holding companies to maintain a minimum ratio of Tier 1 common equity to risk-weighted assets of at least 7.0%. The Basel Committee also proposed certain liquidity coverage and funding ratios. In June 2011, the Basel Committee proposed additional Tier 1 common equity surcharge requirements for

global systemically important banks ranging from 1.0% to 3.5% depending on the bank’s systemic importance to be determined based on certain factors. These new surcharge capital requirements, which would be phased in beginning in January 2016 and become fully effective on January 1, 2019, would be in addition to the Basel III 7.0% Tier 1 common equity requirement proposed in December 2010. Regulatory authorities have not yet determined the global systemically important banks that would be subject to the surcharge and the amount of the surcharge for those banks. The Basel proposals are subject to final rulemaking, including FRB rules implementing the internationally agreed Basel III standards for U.S. financial institutions, and the ultimate impact of the proposals on our capital and liquidity will depend on such rulemaking and regulatory interpretations of the rules as we, along with our regulatory authorities, apply the final rules during the implementation process.

In 2010, the FRB issued guidelines for evaluating proposals by large bank holding companies, including the Company, to undertake capital actions in 2011, such as increasing dividend payments or repurchasing or redeeming stock. Pursuant to those FRB guidelines, the Company submitted a proposed Capital Plan Review to the FRB, which was approved by the FRB in March 2011. Consistent with these guidelines and the FRB’s existing supervisory guidance regarding internal capital assessment, planning and adequacy, the FRB recently proposed rules that would require large bank holding companies such as the Company to submit annual capital plans to the FRB and to provide prior notice to the FRB before making a capital distribution under certain circumstances, including if the FRB objected to a capital plan or if certain minimum capital requirements were not maintained. There can be no assurance that the FRB would respond favorably to the Company’s future capital plan reviews. The FRB also is expected to issue proposed rules under the Dodd-Frank Act that will impose enhanced prudential standards on large bank holding companies such as the Company, including enhanced capital and liquidity requirements, which may be similar to or more restrictive than those proposed by the Basel Committee.

The Basel standards and FRB regulatory capital and liquidity requirements may limit or otherwise restrict how we utilize our capital, including common stock dividends and stock repurchases, and may require us to increase our capital and/or liquidity. Any requirement that we increase our regulatory capital, regulatory capital ratios or liquidity could require us to liquidate assets or otherwise change our business and/or investment plans, which may negatively affect our financial results. Although not currently anticipated, the proposed Basel capital rules and/or our regulators may require us to raise additional capital in the future. Issuing additional common stock may dilute the ownership of existing stockholders.

For more information, refer to the “Capital Management” section in our 2010 Form 10-K and in this Report.

Bankruptcy laws may be changed to allow mortgage “cram-downs,” or court-ordered modifications to our mortgage loans including the reduction of principal balances. Under current bankruptcy laws, courts cannot force a modification of mortgage and home equity loans secured by primary residences. In response to the financial crisis, legislation has been proposed to allow mortgage loan “cram-downs,” which would empower courts to modify the terms of mortgage and home equity loans including a reduction in the principal amount to reflect lower underlying property values. This could result in

writing down the balance of our mortgage and home equity loans to reflect their lower loan values. There is also risk that home equity loans in a second lien position (i.e., behind a mortgage) could experience significantly higher losses to the extent they become unsecured as a result of a cram-down. The availability of principal reductions or other modifications to mortgage loan terms could make bankruptcy a more attractive option for troubled borrowers, leading to increased bankruptcy filings and accelerated defaults.

RISKS RELATING TO THE WACHOVIA MERGER

Our financial results and condition could be adversely affected if we fail to realize all of the expected benefits of the Wachovia merger or it takes longer than expected to realize those benefits. The merger with Wachovia requires the integration of the businesses of Wachovia and Wells Fargo. The integration process may result in the disruption of ongoing businesses and the loss of customers and their business and deposits. It may also divert management attention and resources from other operations and limit the Company’s ability to pursue other acquisitions. There is no assurance that we will realize all of the financial benefits of the merger when and in the amounts expected. As a result of our integration efforts and the conversion of many of our retail banking stores, including the conversion of our stores in our western and northeastern states, 83% of our banking customers are now on a single deposit system. There can be no assurance that conversion of the remaining banking stores, including our stores in Maryland, North Carolina, South Carolina, Virginia, and Washington, D.C., will not result in the loss of customers and deposits or other disruptions relating to the conversion.

We may incur losses on loans, securities and other acquired assets of Wachovia that are materially greater than reflected in our fair value adjustments. We accounted for the Wachovia merger under the purchase method of accounting, recording the acquired assets and liabilities of Wachovia at fair value. All PCI loans acquired in the merger were recorded at fair value based on the present value of their expected cash flows. We estimated cash flows using internal credit, interest rate and prepayment risk models using assumptions about matters that are inherently uncertain. We may not realize the estimated cash flows or fair value of these loans. In addition, although the difference between the pre-merger carrying value of the credit-impaired loans and their expected cash flows — the “nonaccretable difference” — is available to absorb future charge-offs, we may be required to increase our allowance for credit losses and related provision expense because of subsequent additional credit deterioration in these loans.

For more information, refer to the “Critical Accounting Policies — Purchased Credit-Impaired (PCI) Loans)” and “Risk Management — Credit Risk Management” sections in our 2010 Form 10-K and the “Risk Management — Credit Risk Management” section in this Report.

ADDITIONAL RISKS RELATING TO OUR BUSINESS

As one of the largest lenders in the U.S., increased credit risk, whether resulting from deteriorating economic conditions or underestimating the credit losses inherent in our loan portfolio, could require us to increase our provision for credit losses and allowance for credit losses and could have a material adverse effect on our results of operations and financial condition. When we loan money or commit to loan money we incur credit risk, or the risk of losses if our borrowers do not repay their loans. As one of the largest lenders in the U.S., the credit performance of our loan portfolios significantly affects our financial results and condition. As noted above, if the current economic environment were to deteriorate, more of our customers may have difficulty in repaying their loans or other obligations which could result in a higher level of credit losses and provision for credit losses. We reserve for credit losses by establishing an allowance through a charge to earnings. The amount of this allowance is based on our assessment of credit losses inherent in our loan portfolio (including unfunded credit commitments). The process for determining the amount of the allowance is critical to our financial results and condition. It requires difficult, subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of our borrowers to repay their loans.

We might underestimate the credit losses inherent in our loan portfolio and have credit losses in excess of the amount reserved. We might increase the allowance because of changing economic conditions, including falling home prices and higher unemployment, or other factors such as changes in borrower behavior. As an example, borrowers may “strategically default,” or discontinue making payments on their real estate-secured loans if the value of the real estate is less than what they owe, even if they are still financially able to make the payments.

While we believe that our allowance for credit losses was adequate at June 30, 2011, there is no assurance that it will be sufficient to cover future credit losses, especially if housing and employment conditions worsen. In the event of significant deterioration in economic conditions, we may be required to build reserves in future periods, which would reduce our earnings.

For more information, refer to the “Risk Management — Credit Risk Management” and “Critical Accounting Policies — Allowance for Credit Losses” sections in our 2010 Form 10-K and the “Risk Management — Credit Risk Management” section in this Report.

Risk Factors (continued)

We may have more credit risk and higher credit losses to the extent our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral. Our credit risk and credit losses can increase if our loans are concentrated to borrowers engaged in the same or similar activities or to borrowers who as a group may be uniquely or disproportionately affected by economic or market conditions. We experienced the effect of concentration risk in 2009 and 2010 when we incurred greater than expected losses in our Home Equity loan portfolio due to a housing slowdown and greater than expected deterioration in residential real estate values in many markets, including the Central Valley California market and several Southern California metropolitan statistical areas. As California is our largest banking state in terms of loans and deposits, continued deterioration in real estate values and underlying economic conditions in those markets or elsewhere in California could result in materially higher credit losses. As a result of the Wachovia merger, we have increased our exposure to California, as well as to Arizona and Florida, two states that have also suffered significant declines in home values, as well as significant declines in economic activity. A deterioration in economic conditions, housing conditions and real estate values in these states and generally across the country could result in materially higher credit losses, including for our Home Equity portfolio.

The Wachovia merger also increased our commercial real estate exposure, particularly in California and Florida, and we are currently the largest CRE lender in the U.S. A deterioration in economic conditions that negatively affects the business performance of our CRE borrowers, including increases in interest rates and/or declines in commercial property values, could result in materially higher credit losses and have a material adverse effect on our financial results and condition.

For more information, refer to the “Risk Management — Credit Risk Management” section and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in our 2010 Form 10-K and “Risk Management — Credit Risk Management” section and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Loss of customer deposits and market illiquidity could increase our funding costs. We rely heavily on bank deposits to be a low cost and stable source of funding for the loans we make. We compete with banks and other financial services companies for deposits. If our competitors raise the rates they pay on deposits our funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely on more expensive sources of funding. Higher funding costs reduce our net interest margin and net interest income. As discussed above, the continued integration of Wells Fargo and Wachovia may result in the loss of customer deposits. In addition, our bank customers could take their money out of the bank and put it in alternative investments, causing us to lose a lower cost source of funding. Checking and savings account balances and other forms of customer deposits may decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return tradeoff.

When customers move money out of bank deposits and into other investments, we may lose a relatively low cost source of funds, increasing our funding costs and reducing our net interest income.

We sell most of the mortgage loans we originate in order to reduce our credit risk and provide funding for additional loans. We rely on GSEs to purchase loans that meet their conforming loan requirements and on other capital markets investors to purchase loans that do not meet those requirements — referred to as “nonconforming” loans. Since 2007, investor demand for nonconforming loans has fallen sharply, increasing credit spreads and reducing the liquidity for those loans. In response to the reduced liquidity in the capital markets, we may retain more nonconforming loans. When we retain a loan not only do we keep the credit risk of the loan but we also do not receive any sale proceeds that could be used to generate new loans. Continued lack of liquidity could limit our ability to fund — and thus originate — new mortgage loans, reducing the fees we earn from originating and servicing loans. In addition, we cannot assure that GSEs will not materially limit their purchases of conforming loans due to capital constraints or change their criteria for conforming loans (e.g., maximum loan amount or borrower eligibility). As previously noted, the Obama Administration recently outlined proposals to reform the housing finance market in the United States, including the role of the GSEs in the housing finance market. The extent and timing of any such regulatory reform regarding the housing finance market and the GSEs, as well as any effect on the Company’s business and financial results, are uncertain.

Changes in interest rates could reduce our net interest income and earnings. Our net interest income is the interest we earn on loans, debt securities and other assets we hold less the interest we pay on our deposits, long-term and short-term debt, and other liabilities. Net interest income is a measure of both our net interest margin — the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding — and the amount of earning assets we hold. Changes in either our net interest margin or the amount of earning assets we hold could affect our net interest income and our earnings. Changes in interest rates can affect our net interest margin. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. When interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the yield catches up.

The amount and type of earning assets we hold can affect our yield and net interest margin. We hold earning assets in the form of loans and investment securities, among other assets. As noted above, if current economic conditions persist, we may continue to see lower demand for loans by creditworthy customers, reducing our yield. In addition, we may invest in lower yielding

investment securities for a variety of reasons, including in anticipation that interest rates are likely to increase.

Changes in the slope of the “yield curve” — or the spread between short-term and long-term interest rates — could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, our net interest margin could decrease as our cost of funds increases relative to the yield we can earn on our assets.

The interest we earn on our loans may be tied to U.S.-denominated interest rates such as the federal funds rate while the interest we pay on our debt may be based on international rates such as LIBOR. If the federal funds rate were to fall without a corresponding decrease in LIBOR, we might earn less on our loans without any offsetting decrease in our funding costs. This could lower our net interest margin and our net interest income.

We assess our interest rate risk by estimating the effect on our earnings under various scenarios that differ based on assumptions about the direction, magnitude and speed of interest rate changes and the slope of the yield curve. We hedge some of that interest rate risk with interest rate derivatives. We also rely on the “natural hedge” that our mortgage loan originations and servicing rights can provide.

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

For more information, refer to the “Risk Management — Asset/Liability Management — Interest Rate Risk” section in our 2010 Form 10-K and in this Report.

Changes in interest rates could also reduce the value of our MSRs and MHFS, reducing our earnings. As the second largest residential mortgage servicer in the U.S., we have a sizeable portfolio of MSRs. An MSR is the right to service a mortgage loan — collect principal, interest and escrow amounts — for a fee. We acquire MSRs when we keep the servicing rights after we sell or securitize the loans we have originated or when we purchase the servicing rights to mortgage loans originated by other lenders. We initially measure all and carry substantially all our residential MSRs using the fair value measurement method. Fair value is the present value of estimated future net servicing income, calculated based on a number of variables, including assumptions about the likelihood of prepayment by borrowers.

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

value reduces earnings in the period in which the decrease occurs.

We measure at fair value prime MHFS for which an active secondary market and readily available market prices exist. We also measure at fair value certain other interests we hold related to residential loan sales and securitizations. Similar to other interest-bearing securities, the value of these MHFS and other interests may be negatively affected by changes in interest rates. For example, if market interest rates increase relative to the yield on these MHFS and other interests, their fair value may fall. We may not hedge this risk, and even if we do hedge the risk with derivatives and other instruments we may still incur significant losses from changes in the value of these MHFS and other interests or from changes in the value of the hedging instruments.

For more information, refer to the “Risk Management — Asset/Liability Management — Mortgage Banking Interest Rate and Market Risk” and “Critical Accounting Policies” sections in our 2010 Form 10-K and the “Risk Management — Asset/Liability Management” section in this Report.

Our mortgage banking revenue can be volatile from quarter to quarter. We are the largest mortgage originator and second largest residential mortgage servicer in the U.S., and we earn revenue from fees we receive for originating mortgage loans and for servicing mortgage loans. When rates rise, the demand for mortgage loans usually tends to fall, reducing the revenue we receive from loan originations. Under the same conditions, revenue from our MSRs can increase through increases in fair value. When rates fall, mortgage originations usually tend to increase and the value of our MSRs usually tends to decline, also with some offsetting revenue effect. Even though they can act as a “natural hedge,” the hedge is not perfect, either in amount or timing. For example, the negative effect on revenue from a decrease in the fair value of residential MSRs is generally immediate, but any offsetting revenue benefit from more originations and the MSRs relating to the new loans would generally accrue over time. It is also possible that, because of economic conditions and/or a deteriorating housing market similar to current market conditions, even if interest rates were to fall, mortgage originations may also fall or any increase in mortgage originations may not be enough to offset the decrease in the MSRs value caused by the lower rates.

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

For more information, refer to the “Risk Management — Asset/Liability Management — Mortgage Banking Interest Rate

Risk Factors (continued)

and Market Risk” section in our 2010 Form 10-K and in this Report.

We may be required to repurchase mortgage loans or reimburse investors and others as a result of breaches in contractual representations and warranties. We sell residential mortgage loans to various parties, including GSEs, SPEs that issue private label MBS, and other financial institutions that purchase mortgage loans for investment or private label securitization. We may also pool FHA-insured and VA-guaranteed mortgage loans which back securities guaranteed by GNMA. The agreements under which we sell mortgage loans and the insurance or guaranty agreements with the FHA and VA contain various representations and warranties regarding the origination and characteristics of the mortgage loans, including ownership of the loan, compliance with loan criteria set forth in the applicable agreement, validity of the lien securing the loan, absence of delinquent taxes or liens against the property securing the loan, and compliance with applicable origination laws. We may be required to repurchase mortgage loans, indemnify the securitization trust, investor or insurer, or reimburse the securitization trust, investor or insurer for credit losses incurred on loans 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. Contracts for mortgage loan sales to the GSEs include various types of specific remedies and penalties that could be applied to inadequate responses to repurchase requests. Similarly, the agreements under which we sell mortgage loans require us to deliver various documents to the securitization trust or investor, and we may be obligated to repurchase any mortgage loan as to which the required documents are not delivered or are defective. We may negotiate global settlements in order to resolve a pipeline of demands in lieu of repurchasing the loans. If economic conditions and the housing market do not recover or future investor repurchase demand and our success at appealing repurchase requests differ from past experience, we could continue to have increased repurchase obligations and increased loss severity on repurchases, requiring material additions to the repurchase reserve.

For more information, refer to the “Risk Management — Liability for Mortgage Loan Repurchase Losses” section in our 2010 Form 10-K and in this Report.

We may be terminated as a servicer or master servicer, be required to repurchase a mortgage loan or reimburse investors for credit losses on a mortgage loan, or incur costs, liabilities, fines and other sanctions if we fail to satisfy our servicing obligations, including our obligations with respect to mortgage loan foreclosure actions. We act as servicer and/or master servicer for mortgage loans included in securitizations and for unsecuritized mortgage loans owned by investors. As a servicer or master servicer for those loans we have certain contractual obligations to the securitization trusts, investors or other third parties, including, in our capacity as a servicer, foreclosing on defaulted mortgage loans or, to the extent consistent with the

applicable securitization or other investor agreement, considering alternatives to foreclosure such as loan modifications or short sales and, in our capacity as a master servicer, overseeing the servicing of mortgage loans by the servicer. 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 of time following notice, which can generally be given by the securitization trustee or a specified percentage of security holders, causing us to lose servicing income. In addition, we may be required to indemnify the securitization trustee against losses from any failure by us, as a servicer or master servicer, to perform our servicing obligations or any act or omission on our part that involves wilful misfeasance, bad faith or gross negligence. For certain investors and/or certain transactions, we may be contractually obligated to repurchase a mortgage loan or reimburse the investor for credit losses incurred on the loan as a remedy for servicing errors with respect to the loan. If we have increased repurchase obligations because of claims that we did not satisfy our obligations as a servicer or master servicer, or increased loss severity on such repurchases, we may have to materially increase our repurchase reserve.

We may incur costs if we are required to, or if we elect to re-execute or re-file documents or take other action in our capacity as a servicer in connection with pending or completed foreclosures. We may incur litigation costs if the validity of a foreclosure action is challenged by a borrower. If a court were to overturn a foreclosure because of errors or deficiencies in the foreclosure process, we may have liability to the borrower and/or to any title insurer of the property sold in foreclosure if the required process was not followed. These costs and liabilities may not be legally or otherwise reimbursable to us, particularly to the extent they relate to securitized mortgage loans. In addition, if certain documents required for a foreclosure action are missing or defective, we could be obligated to cure the defect or repurchase the loan. We may incur liability to securitization investors relating to delays or deficiencies in our processing of mortgage assignments or other documents necessary to comply with state law governing foreclosures. The fair value of our MSRs may be negatively affected to the extent our servicing costs increase because of higher foreclosure costs. We may be subject to fines and other sanctions, including a foreclosure moratorium or suspension or a requirement to forgive or modify the loan obligations of certain of our borrowers, imposed by Federal or state regulators as a result of actual or perceived deficiencies in our foreclosure practices or in the foreclosure practices of other mortgage loan servicers. Any of these actions may harm our reputation or negatively affect our residential mortgage origination or servicing business. Recently, we entered into consent orders with the OCC and the FRB following a joint interagency horizontal examination of foreclosure processing at large mortgage servicers, including the Company. These orders incorporate remedial requirements for identified deficiencies and require the Company to, among other things, take certain actions with respect to our mortgage servicing and foreclosure operations, including submitting various action plans to ensure that our mortgage servicing and foreclosure operations comply

with legal requirements, regulatory guidance and the consent orders. As noted above, any increase in our servicing costs from changes in our foreclosure and other servicing practices, including resulting from the consent orders, negatively affects the fair value of our MSRs. The consent orders did not provide for civil money penalties but both government entities reserved the ability to seek such penalties. Other government agencies, including state attorneys general and the U.S. Department of Justice, continue to investigate various mortgage related practices of the Company, and these investigations could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions and result in significant legal costs in responding to governmental investigations and additional litigation.

For more information, refer to the “Earnings Performance — Noninterest Income,” “Risk Management — Liability for Mortgage Loan Repurchase Losses” and “— Risks Relating to Servicing Activities,” and “Critical Accounting Policies — Valuation of Residential Mortgage Servicing Rights” sections and Note 14 (Guarantees and Legal Actions) to Financial Statements in our 2010 Form 10-K and “Risk Management — Liability for Mortgage Loan Repurchase Losses” and “— Risks Relating to Servicing Activities” sections in this Report and Note 11 (Legal Actions) to Financial Statements in this Report .

We could recognize OTTI on securities held in our available-for-sale portfolio if economic and market conditions do not improve. Our securities available-for-sale portfolio had gross unrealized losses of $1.9 billion at June 30, 2011. We analyze securities held in our available-for-sale portfolio for OTTI on a quarterly basis. The process for determining whether impairment is other than temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving contractual principal and interest payments on the security. Because of changing economic and market conditions affecting issuers and the performance of the underlying collateral, we may be required to recognize OTTI in future periods, thus reducing earnings.

For more information, refer to the “Balance Sheet Analysis — Securities Available for Sale” section and Note 5 (Securities Available for Sale) to Financial Statements in our 2010 Form 10-K and the “Balance Sheet Analysis — Securities Available for Sale” section in this Report.

We rely on our systems and certain counterparties, and certain failures could materially adversely affect our operations. Our businesses are dependent on our ability to process, record and monitor a large number of complex transactions. If any of our financial, accounting, or other data processing systems fail or have other significant shortcomings, we could be materially adversely affected. Third parties with which we do business could also be sources of operational risk to us, including relating to breakdowns or failures of such parties’ own systems. Any of these occurrences could diminish our ability

to operate one or more of our businesses, or result in potential liability to clients, reputational damage and regulatory intervention, any of which could materially adversely affect us.

If personal, confidential or proprietary information of customers or clients in our possession were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage and financial loss. Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.

We may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, which may include, for example, computer viruses or electrical or telecommunications outages, natural disasters, disease pandemics or other damage to property or physical assets, or events arising from local or larger scale politics, including terrorist acts. Such disruptions may give rise to losses in service to customers and loss or liability to us.

Our framework for managing risks may not be effective in mitigating risk and loss to us. Our risk management framework seeks to mitigate risk and loss to us. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal and compliance risk, and reputational risk, among others. However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. For example, the recent financial and credit crisis and resulting regulatory reform highlighted both the importance and some of the limitations of managing unanticipated risks. If our risk management framework proves ineffective, we could suffer unexpected losses and could be materially adversely affected.

Financial difficulties or credit downgrades of mortgage and bond insurers may negatively affect our servicing and investment portfolios. Our servicing portfolio includes certain mortgage loans that carry some level of insurance from one or more mortgage insurance companies. To the extent that any of these companies experience financial difficulties or credit downgrades, we may be required, as servicer of the insured loan on behalf of the investor, to obtain replacement coverage with another provider, possibly at a higher cost than the coverage we would replace. We may be responsible for some or all of the incremental cost of the new coverage for certain loans depending on the terms of our servicing agreement with the investor and other circumstances. Similarly, some of the mortgage loans we hold for investment or for sale carry mortgage insurance. If a mortgage insurer is unable to meet its credit obligations with respect to an insured loan, we might incur higher credit losses if replacement coverage is not obtained. We also have investments in municipal bonds that are guaranteed against loss by bond insurers. The value of these bonds and the payment of principal

Risk Factors (continued)

and interest on them may be negatively affected by financial difficulties or credit downgrades experienced by the bond insurers.

For more information, refer to the “Earnings Performance — Balance Sheet Analysis — Securities Available for Sale” and “Risk Management — Credit Risk Management” sections in our 2010 Form 10-K and in this Report.

Our “cross-selling” efforts to increase the number of products our customers buy from us and offer them all of the financial products that fulfill their needs is a key part of our growth strategy, and our failure to execute this strategy effectively could have a material adverse effect on our revenue growth and financial results. Selling more products to our customers — “cross-selling” — is very important to our business model and key to our ability to grow revenue and earnings especially during periods of slow economic growth as being experienced in the current economic environment. Many of our competitors also focus on cross-selling, especially in retail banking and mortgage lending. This can limit our ability to sell more products to our customers or influence us to sell our products at lower prices, reducing our net interest income and revenue from our fee-based products. It could also affect our ability to keep existing customers. New technologies could require us to spend more to modify or adapt our products to attract and retain customers. Our cross-sell strategy also is dependent on earning more business from our Wachovia customers, which may be negatively affected by our merger integration activities, as well as some of the above factors. Increasing our cross-sell ratio — or the average number of products sold to existing customers — may become more challenging and we might not attain our goal of selling an average of eight products to each customer.

We may elect to provide capital support to our mutual funds relating to investments in structured credit products. The money market mutual funds we advise are allowed to hold investments in structured investment vehicles (SIVs) in accordance with approved investment parameters for the respective funds and, therefore, we may have indirect exposure to CDOs. Although we generally are not responsible for investment losses incurred by our mutual funds, we may from time to time elect to provide support to a fund even though we are not contractually obligated to do so. For example, in February 2008, to maintain an investment rating of AAA for certain money market mutual funds, we elected to enter into a capital support agreement for up to $130 million related to one SIV held by those funds. If we provide capital support to a mutual fund we advise, and the fund’s investment losses require the capital to be utilized, we may incur losses, thus reducing earnings.

For more information, refer to Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in our 2010 Form 10-K and to Note 7 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.

Our venture capital business can also be volatile from quarter to quarter. Certain of our venture capital businesses are carried under the cost or equity method, and others (e.g., principal investments) are carried at fair value with unrealized gains and losses reflected in earnings. Our venture capital investments tend to be in technology and other volatile industries so the value of our public and private equity portfolios may fluctuate widely. Earnings from our venture capital investments may be volatile and hard to predict and may have a significant effect on our earnings from period to period. When, and if, we recognize gains may depend on a number of factors, including general economic conditions, the prospects of the companies in which we invest, when these companies go public, the size of our position relative to the public float, and whether we are subject to any resale restrictions.

Our venture capital investments could result in significant losses, either OTTI losses for those investments carried under the cost or equity method or mark-to-market losses for principal investments. Our assessment for OTTI is based on a number of factors, including the then current market value of each investment compared with its carrying value. If we determine there is OTTI for an investment, we write-down the carrying value of the investment, resulting in a charge to earnings. The amount of this charge could be significant. Further, our principal investing portfolio could incur significant mark-to-market losses especially if these investments have been written up because of higher market prices.

As noted above, regulations associated with the Dodd-Frank Act are expected to include prohibitions or limitations on proprietary trading and private fund investment activities. These restrictions, known as the “Volcker Rule,” are subject to final rulemaking and interpretation, and the ultimate impact of the Volcker Rule on our venture capital business is uncertain.

For more information, refer to the “Risk Management — Asset/Liability Management — Market Risk —Trading Activities” and “— Equity Markets” sections in our 2010 Form 10-K and in this Report.

We rely on dividends from our subsidiaries for revenue, and federal and state law can limit those dividends. Wells Fargo & Company, the parent holding company, is a separate and distinct legal entity from its subsidiaries. It receives a significant portion of its revenue from dividends from its subsidiaries. We generally use these dividends, among other things, to pay dividends on our common and preferred stock and interest and principal on our debt. Federal and state laws limit the amount of dividends that our bank and some of our nonbank subsidiaries may pay to us. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.

For more information, refer to the “Regulation and Supervision — Dividend Restrictions” and “—Holding Company Structure” sections in our 2010 Form 10-K and to Note 3 (Cash, Loan and Dividend Restrictions) and Note 25 (Regulatory and Agency Capital Requirements) to Financial Statements in our 2010 Form 10-K.

Changes in accounting policies or accounting standards, and changes in how accounting standards are interpreted or applied, could materially affect how we report our financial results and condition. Our accounting policies are fundamental to determining and understanding our financial results and condition. Some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Several of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. For a description of these policies, refer to the “Critical Accounting Policies” section in our 2010 Form 10-K and in this Report.

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

Our financial statements are based in part on assumptions and estimates which, if wrong, could cause unexpected losses in the future. Pursuant to U.S. GAAP, we are required to use certain assumptions and estimates in preparing our financial statements, including in determining credit loss reserves, reserves related to litigation and the fair value of certain assets and liabilities, among other items. If assumptions or estimates underlying our financial statements are incorrect, we may experience material losses.

Certain of our financial instruments, including trading assets and liabilities, available-for-sale securities, certain loans, MSRs, private equity investments, structured notes and certain repurchase and resale agreements, among other items, require a determination of their fair value in order to prepare our financial statements. Where quoted market prices are not available, we may make fair value determinations based on internally developed models or other means which ultimately rely to some degree on management judgment. Some of these and other assets and liabilities may have no direct observable price levels, making their valuation particularly subjective, being based on significant estimation and judgment. In addition, sudden illiquidity in markets or declines in prices of certain loans and securities may make it more difficult to value certain balance sheet items, which may lead to the possibility that such

valuations will be subject to further change or adjustment and could lead to declines in our earnings.

Acquisitions could reduce our stock price upon announcement and reduce our earnings if we overpay or have difficulty integrating them. We regularly explore opportunities to acquire companies in the financial services industry. We cannot predict the frequency, size or timing of our acquisitions, and we typically do not comment publicly on a possible acquisition until we have signed a definitive agreement. When we do announce an acquisition, our stock price may fall depending on the size of the acquisition, the purchase price and the potential dilution to existing stockholders. It is also possible that an acquisition could dilute earnings per share.

We generally must receive federal regulatory approvals before we can acquire a bank or bank holding company. In deciding whether to approve a proposed acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, financial condition, and future prospects including current and projected capital ratios and levels, the competence, experience, and integrity of management and record of compliance with laws and regulations, the convenience and needs of the communities to be served, including our record of compliance under the Community Reinvestment Act, and our effectiveness in combating money laundering. Also, we cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. We might be required to sell banks, branches and/or business units as a condition to receiving regulatory approval.

Difficulty in integrating an acquired company may cause us not to realize expected revenue increases, cost savings, increases in geographic or product presence, and other projected benefits from the acquisition. The integration could result in higher than expected deposit attrition (run-off), loss of key employees, disruption of our business or the business of the acquired company, or otherwise harm our ability to retain customers and employees or achieve the anticipated benefits of the acquisition. Time and resources spent on integration may also impair our ability to grow our existing businesses. Also, the negative effect of any divestitures required by regulatory authorities in acquisitions or business combinations may be greater than expected. Federal and state regulations can restrict our business, and non-compliance with regulations could result in penalties, litigation and damage to our reputation. As described above, our parent company, our subsidiary banks and many of our nonbank subsidiaries such as those related to our retail brokerage and mutual fund businesses are heavily regulated at the federal and/or state levels. This regulation is to protect depositors, federal deposit insurance funds, consumers, investors and the banking system as a whole, not necessarily our stockholders. Federal and state regulations can significantly restrict our businesses, and we could be fined or otherwise penalized if we are found to be out of compliance.

The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) limits the types of non-audit services our outside auditors may provide to us in order to preserve their independence from us. If our auditors were found not to be “independent” of us under SEC

Risk Factors (continued)

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

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

From time to time Congress considers and/or adopts legislation, such as the Dodd-Frank Act, that could significantly change our regulatory environment and increase our cost of doing business, limit the activities we may pursue or affect the competitive balance among banks, savings associations, credit unions, and other financial services companies.

For more information, refer to the “Regulation and Supervision” section in our 2010 Form 10-K.

We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations. We maintain systems and procedures designed to ensure that we comply with applicable laws and regulations. However, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there was in place at the time systems and procedures designed to ensure compliance. For example, we are subject to regulations issued by the Office of Foreign Assets Control (OFAC) that prohibit financial institutions from participating in the transfer of property belonging to the governments of certain foreign countries and designated nationals of those countries. OFAC may impose penalties for inadvertent or unintentional violations even if reasonable processes are in place to prevent the violations. There may be other negative consequences resulting from a finding of noncompliance, including restrictions on certain activities. Such a finding may also damage our reputation (see below) and could restrict the ability of institutional investment managers to invest in our securities.

Negative publicity could damage our reputation and business. Reputation risk, or the risk to our business, earnings and capital from negative public opinion, is inherent in our business and increased substantially because of the financial crisis and the increase in our size and profile in the financial services industry following our acquisition of Wachovia. The reputation of the financial services industry in general has been damaged as a result of the financial crisis and other matters affecting the financial services industry, including mortgage foreclosure issues, and negative public opinion about the financial services industry generally or Wells Fargo specifically

could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences. Negative public opinion could result from our actual or alleged conduct in any number of activities, including mortgage lending practices, servicing and foreclosure activities, corporate governance, regulatory compliance, mergers and acquisitions, and disclosure, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct. Because we conduct most of our businesses under the “Wells Fargo” brand, negative public opinion about one business could affect our other businesses and also could negatively affect our “cross-sell” strategy.

Federal Reserve Board policies can significantly affect business and economic conditions and our financial results and condition. The FRB regulates the supply of money and credit in the United States. Its policies determine in large part our cost of funds for lending and investing and the return we earn on those loans and investments, both of which affect our net interest margin. They also can materially affect the value of financial instruments we hold, such as debt securities and MSRs. Its policies also can affect our borrowers, potentially increasing the risk that they may fail to repay their loans. Changes in FRB policies are beyond our control and can be hard to predict.

Risks Relating to Legal Proceedings. Wells Fargo and some of its subsidiaries are involved in judicial, regulatory and arbitration proceedings concerning matters arising from our business activities. Although we believe we have a meritorious defense in all material significant litigation pending against us, there can be no assurance as to the ultimate outcome. We establish reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. We may still incur legal costs for a matter even if we have not established a reserve. In addition, the actual cost of resolving a legal claim may be substantially higher than any amounts reserved for that matter. The ultimate resolution of a pending legal proceeding, depending on the remedy sought and granted, could materially adversely affect our results of operations and financial condition.

For more information, refer to Note 14 (Guarantees and Legal Actions) to Financial Statements in our 2010 Form 10-K and to Note 11 (Legal Actions) in this Report.

Risks Affecting Our Stock Price Our stock price can fluctuate widely in response to a variety of factors, in addition to those described above, including:

•		general business and economic conditions;

•		recommendations by securities analysts;

•		new technology used, or services offered, by our competitors;

•		operating and stock price performance of other companies that investors deem comparable to us;

•		news reports relating to trends, concerns and other issues in the financial services industry;

•		changes in government regulations;

•		natural disasters; and

•		geopolitical conditions such as acts or threats of terrorism or military conflicts.

Any factor described in this Report or in any of our other SEC filings could by itself, or together with other factors, adversely affect our financial results and condition. Refer to our quarterly reports on Form 10-Q filed with the SEC in 2011 for material changes to the discussion of risk factors. There are factors not discussed above or elsewhere in this Report 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 June 30, 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 June 30, 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 second 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 June 30,					Six months ended June 30,

(in millions, except per share amounts)	2011			2010		2011			2010


Interest income
Trading assets	$	347			266		697			533
Securities available for sale		2,166			2,385		4,330			4,800
Mortgages held for sale		362			405		799			792
Loans held for sale		17			30		29			64
Loans		9,361			10,277		18,748			20,315
Other interest income		131			109		253			193


Total interest income		12,384			13,472		24,856			26,697


Interest expense
Deposits		594			714		1,209			1,449
Short-term borrowings		20			21		46			39
Long-term debt		1,009			1,233		2,113			2,509
Other interest expense		83			55		159			104


Total interest expense		1,706			2,023		3,527			4,101


Net interest income		10,678			11,449		21,329			22,596
Provision for credit losses		1,838			3,989		4,048			9,319


Net interest income after provision for credit losses		8,840			7,460		17,281			13,277


Noninterest income
Service charges on deposit accounts		1,074			1,417		2,086			2,749
Trust and investment fees		2,944			2,743		5,860			5,412
Card fees		1,003			911		1,960			1,776
Other fees		1,023			982		2,012			1,923
Mortgage banking		1,619			2,011		3,635			4,481
Insurance		568			544		1,071			1,165
Net gains from trading activities		414			109		1,026			646
Net gains (losses) on debt securities available for sale (1)		(128	)		30		(294	)		58
Net gains from equity investments (2)		724			288		1,077			331
Operating leases		103			329		180			514
Other		364			581		773			1,191


Total noninterest income		9,708			9,945		19,386			20,246


Noninterest expense
Salaries		3,584			3,564		7,038			6,878
Commission and incentive compensation		2,171			2,225		4,518			4,217
Employee benefits		1,164			1,063		2,556			2,385
Equipment		528			588		1,160			1,266
Net occupancy		749			742		1,501			1,538
Core deposit and other intangibles		464			553		947			1,102
FDIC and other deposit assessments		315			295		620			596
Other		3,500			3,716		6,868			6,881


Total noninterest expense		12,475			12,746		25,208			24,863


Income before income tax expense		6,073			4,659		11,459			8,660
Income tax expense		2,001			1,514		3,573			2,915


Net income before noncontrolling interests		4,072			3,145		7,886			5,745
Less: Net income from noncontrolling interests		124			83		179			136


Wells Fargo net income	$	3,948			3,062		7,707			5,609


Less: Preferred stock dividends and other		220			184		409			359


Wells Fargo net income applicable to common stock	$	3,728			2,878		7,298			5,250


Per share information
Earnings per common share	$	0.70			0.55		1.38			1.01
Diluted earnings per common share		0.70			0.55		1.37			1.00
Dividends declared per common share		0.12			0.05		0.24			0.10
Average common shares outstanding		5,286.5			5,219.7		5,282.7			5,205.1
Diluted average common shares outstanding		5,331.7			5,260.8		5,329.9			5,243.0


(1)		Includes other-than-temporary impairment (OTTI) losses of $189 million and $106 million recognized in earnings for second quarter 2011 and 2010, respectively. Total OTTI losses (gains) were $129 million and $49 million, net of $(60) million and $(57) million recognized as non-credit related OTTI in other comprehensive income for second quarter 2011 and 2010, respectively. Includes other-than-temporary impairment (OTTI) losses of $269 million and $198 million recognized in earnings for the first half of 2011 and 2010, respectively. Total OTTI losses (gains) were $53 million and $203 million, net of $(216) million and $5 million recognized as non-credit related OTTI in other comprehensive income for the first half of 2011 and 2010, respectively.

(2)		Includes OTTI losses of $16 million and $62 million for second quarter 2011 and 2010, respectively, and $57 million and $167 million for the first half of 2011 and 2010, respectively.

The accompanying notes are an integral part of these statements.

Wells Fargo & Company and Subsidiaries

Consolidated Balance Sheet (Unaudited)


	June 30,			Dec. 31,

(in millions, except shares)	2011			2010


Assets
Cash and due from banks	$	24,059			16,044
Federal funds sold, securities purchased under resale agreements and other short-term investments		88,406			80,637
Trading assets		54,770			51,414
Securities available for sale		186,298			172,654
Mortgages held for sale (includes $25,175 and $47,531 carried at fair value)		31,254			51,763
Loans held for sale (includes $1,102 and $873 carried at fair value)		1,512			1,290

Loans (includes $0 and $309 carried at fair value)		751,921			757,267
Allowance for loan losses		(20,893	)		(23,022	)


Net loans		731,028			734,245


Mortgage servicing rights:
Measured at fair value		14,778			14,467
Amortized		1,422			1,419
Premises and equipment, net		9,613			9,644
Goodwill		24,776			24,770
Other assets		91,818			99,781


Total assets (1)	$	1,259,734			1,258,128


Liabilities
Noninterest-bearing deposits	$	202,143			191,256
Interest-bearing deposits		651,492			656,686


Total deposits		853,635			847,942
Short-term borrowings		53,881			55,401
Accrued expenses and other liabilities		71,430			69,913
Long-term debt (includes $0 and $306 carried at fair value)		142,872			156,983


Total liabilities (2)		1,121,818			1,130,239


Equity
Wells Fargo stockholders’ equity:
Preferred stock		11,730			8,689
Common stock — $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,325,393,921 shares and 5,272,414,622 shares		8,876			8,787
Additional paid-in capital		55,226			53,426
Retained earnings		57,942			51,918
Cumulative other comprehensive income		5,422			4,738
Treasury stock — 47,222,127 shares and 10,131,394 shares		(1,546	)		(487	)
Unearned ESOP shares		(1,249	)		(663	)


Total Wells Fargo stockholders’ equity		136,401			126,408
Noncontrolling interests		1,515			1,481


Total equity		137,916			127,889


Total liabilities and equity	$	1,259,734			1,258,128


(1)		Our consolidated assets at June 30, 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, $172 million and $200 million; Trading assets, $95 million and $143 million; Securities available for sale, $2.3 billion and $2.2 billion; Mortgages held for sale, $408 million and $634 million; Loans held for sale, $135 million and $0; Net loans, $13.6 billion and $16.7 billion; Other assets, $1.6 billion and $2.1 billion, and Total assets, $18.3 billion and $21.9 billion, respectively.

(2)		Our consolidated liabilities at June 30, 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, $26 million and $7 million; Accrued expenses and other liabilities, $121 million and $98 million; Long-term debt, $6.2 billion and $8.3 billion; and Total liabilities, $6.3 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 $134 million of net gains included in net income